Coal producer Alpha Natural Resources Inc. (ANR) decided to realign its operations taking into consideration the changing global scenario for the demand of coal. This strategic move aims to lower operating cost and strengthen the company’s position in the global metallurgical coal market. The decision taken by the company validates the announcement made by it at the beginning of the year.
The streamlining of operation will lower annual coal production by 16 million tons. 40% of the reduction will come from its high-cost mines in the east, 50% reduction will come from the Powder River Basin and the balance 10% from the decline in quality metallurgical coal production. The company decided to curtail production to match currently committed sales volumes and avoid a piling up of coal inventory.
This decision will allow the company to lower its operating cost by $150 million, with savings coming from low cost of sales and decline in selling, general and administrative expenses. The streamlining process will also inhere a reduction in its workforce by 1,200 employees, with some employees inducted in other departments of the company.
Earlier, in the second quarter, the company had decided to lower coal production from its northern and southern Kentucky business units. Given the softness in coal demand and an expected reduction in capital purchases and leasing of selected items, the company narrowed its 2012 capital expenditure guidance to a range of $450 million to $600 million, from the prior range of $450 million to $650 million.
We believe the gradual recovery in natural gas prices will allow the company to sell coal profitably in the smaller domestic market. Besides, its robust metallurgical coal export capacity of 25–30 million tons will help it to cater to demand from overseas.
Alpha Natural Resources, Inc. retains a Zacks #3 Rank (Hold rating). The company competes with the likes of Arch Coal Inc. (ACI) and CONSOL Energy Inc. (CNX).
Based in Abingdon, Virginia, Alpha Natural Resources Inc. along with its subsidiaries engages in the production and selling of steam and metallurgical coal in the United States. The company was founded in 2002 and has 13,100 full time employees.
ARCH COAL INC (ACI): Free Stock Analysis Report
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