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Tough coal market means big loss for Alpha Natural


February 16. 2013 2:24PM
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(AP) Coal producer Alpha Natural Resources Inc. said Wednesday it lost $2.2 billion in the second quarter as the industry struggled to compete with cheap natural gas and demand waned in some key markets.


Alpha recorded about $2.5 billion in pretax charges for restructuring and the declining value of some assets. But even without those charges, its loss was larger than Wall Street expected.


Revenue rose 15 percent to $1.85 billion but that also came in below expectations.


The coal industry has been battered this year by a combination of factors: Many U.S. utilities are favoring cheap natural gas to generate electricity instead of coal. Mild weather further reduced demand. And recession in many European countries combined with a slowdown in once red-hot Asian growth stifled exports. Alpha mines thermal coal used for power generation and metallurgical coal, used to produce steel.


"These are extremely challenging times in the U.S. coal industry, with softness in both the thermal and now the metallurgical coal markets and the pace at which the fundamentals changed," the company's CEO Kevin Crutchfield said in a statement.


Alpha was able to export more metallurgical coal in the quarter, but at significantly reduced prices. Steel production in China has slowed, and Alpha noted that European production fell about 4 percent in the first half of the year. Meanwhile, thermal coal piled up at utilities as they chose to use natural gas to generate electricity. Natural gas prices hit 10-year lows in April, a month when government data show natural-gas fired power generation equaled coal-powered generation for the first time on record.


Even though a recent increase in natural gas prices and rising demand for electricity during a summer heat wave have boosted demand for coal, Alpha said "conditions remain challenging."


Crutchfield said Alpha has taken "decisive actions to ensure that our business is both well-suited to today's demand environment and efficient enough to provide us with the flexibility to ramp-up our world-class asset base once market conditions improve."


Those steps include idling plants that are either too expensive to run or produce coal that is considered lower grade and in less demand, laying off employees and renegotiating the terms of its debt.


The Bristol, Va., company's second-quarter loss worked out to $10.14 per share. A year ago, it lost $50 million, or 32 cents per share.


Excluding expenses related to the 2010 Upper Big Branch mine disaster and other costs, Alpha Natural Resources it lost $72 million or 33 cents per share in the April-June quarter.


Analysts expected a smaller loss of 27 cents per share on higher revenue of $1.93 billion, according to FactSet.


Shares, which are near an all-time low, fell 15 cents, or 2.2 percent, before the opening bell to $6.77.


Associated Press


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