Showing this ongoing slump in the steam coal market still has legs, Alpha Natural Resources (NYSE: ANR) said June 8 that it plans to curtail coal mining operations in its northern and southern Kentucky business units.
Alpha’s Kentucky affiliates will discontinue mining at four mines and idle two coal prep plants in Pike and Martin counties. Production will be scaled back at several other mines, and four contractor-operating mines will close. In total, the production cuts will reduce Alpha’s shipments of thermal coal by an additional 2 million tons this year and 4 million tons in 2013.
These actions, together with expected reductions resulting from production optimization and schedule changes at various operations through the rest of 2012, were fully anticipated in Alpha’s guidance provided in its first quarter 2012 earnings release of May 3, and Alpha’s 2012 shipment guidance remains unchanged.
“This year, utilities in the U.S. are expected to burn the least amount of steam coal than at any time in the last 20 years, and the pressure’s been very intense on coal sourced from eastern Kentucky, particularly operations rendered uncompetitive due to fuel switching, relatively high rail rates and competition from Illinois Basin coal,” said Kevin Crutchfield, Alpha Chairman and CEO. “Layoffs are an unfortunate last resort, and it’s tough for miners that want to work but are unable to because of factors beyond their control and the company’s control.”
Crutchfield added, “The U.S. coal industry is confronting a ‘new normal,’ and we want to be sure we have the appropriate operating model, talent and agility to not just survive but emerge a winner. That means ensuring our thermal coal assets are sustainable through the business cycle, particularly in the onerous regulatory environment we’re confronting. It also means preserving and enhancing our valued metallurgical coal franchise, and maintaining the sound financial base we currently have as we maneuver through this tough environment.”
Of the 436 employees affected by these reductions, 286 will be offered positions at other operations in Kentucky, southern West Virginia and Virginia, while about 150 jobs will be lost. Employees who are displaced will remain on the payroll and will receive their normal wages and benefits for a 60-day period.
Alpha said it is also undertaking a comprehensive study of its organizational model to ensure it maintains efficient business processes and economizes on overhead costs. By the end of this year, satellite offices will be closed in Richmond, Va., Denver, Colo., Latrobe, Pa. and Linthicum Heights, Md., and support functions will be consolidated, leading to staff reductions at other locations as well. These and other SG&A expense reductions are expected to save the company approximately $50m to $60m a year.
Linthicum Heights, in the Baltimore area, was the headquarters location for Foundation Coal Holdings, which Alpha took over several years ago. Massey Energy, which Alpha took over in June 2011, was headquartered in Richmond. Alpha is headquartered in Bristol, Va., nearer the coalfields.
In its most recent quarterly earnings announcement, Alpha reduced its production guidance for 2012 in the face of declining thermal coal demand, mostly due to the mild winter and a wave of electric utilities switching from coal to cheap natural gas to generate power. Future sales forecasts also are being affected by a series of regulatory actions by the U.S. Environmental Protection Agency, which has resulted in utilities announcing plans to shut a number of power plants that have traditionally used Central Appalachia coal, Alpha noted.
With $7.1bn in total revenue in 2012, Alpha ranks as America’s second-largest coal producer by revenue and third-largest by production. Alpha is also the nation’s largest supplier of metallurgical coal used in the steel-making process and is a major supplier of thermal coal to power generators and manufacturing industries.