Whitesburg KY

Analyst expects met coal business will continue current slide through ’14

Business is improving in the domestic thermal coal markets, but the metallurgical side of the business is still hurting, reports the financial services firm Motley Fool.

“That’s likely to keep Alpha Natural Resources’ results in the red in 2014,” writes Motley Fool analyst Reuben Brewer.

“Alpha Natural Resources is a diversified coal miner, selling both met coal and thermal. It’s also got a global sales footprint, though it mines domestically. So Alpha can provide a good bird’s eye view of the coal industry. The company lost $0.50 a share in the first quarter, but it’s seeing some positives mixed in with the negatives,” Brewer’s May 18 analysis says.

Here is more of what Brewer had to say about Alpha Natural Resources, which mines met coal in Letcher and surrounding counties:

“On the positive side, Alpha CEO Kevin Crutchfield noted that, ‘The Powder River Basin is currently showing strength in light of very tight utility inventories and strong burn over the last three months. And we believe there is strong potential for this to continue.’ In addition, ‘Utility inventories in Northern Appalachia are also at multi-year lows,’ and ‘Contracting in Central Appalachia is beginning to look more promising too …’”

“This is good for Alpha because about half of its business is thermal coal,” adds Brewer. “Around 40% of revenues are from the Eastern region, so the Powder River Basin (10% of revenues) uptick won’t be enough to meaningfully help Alpha’s results. Central and Northern Appalachia need to rebound, too. But, with nearly half of the top line coming from met coal, don’t expect Alpha to turn a profit until this segment of the coal market turns higher.”

“That said, it isn’t looking good on the metallurgical coal front. Alpha CEO Crutchfield puts the cards on the table: ‘we expect the oversupply in met to continue for most of 2014, but we do see the potential for a better supply demand balance and improved met pricing taking hold in 2015.’ So, 2014 will likely be another year of red ink for Alpha.’”

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