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Coal companies report big profits

Mine operator Alpha Natural Resources this week became the latest coal company with ties to Letcher County to report second-quarter profits that met or exceeded expectations.

Abingdon, Va.-based Alpha, which operates Enterprise Mining in Letcher County, said Tuesday it earned $74.3 million, or $1.04 per share, in the quarter — a figure that nearly doubled Wall Street’s expectations on rising coal prices.

Also reporting strong secondquarter profits were St. Louis-based Arch Coal Inc., which operates Cumberland River Coal Company in Letcher County, and West Virginiabased International Coal Group, which is planning to open a mine in Thornton.

Alpha earned $4.7 million, or 7 cents per share, in second-quarter 2007.

The latest quarter included charges totaling 42 cents per share, and an income tax benefit of 16 cents per share.

Revenue increased to $732.2 million from $435.3 million.

Analysts surveyed by Thomson Financial expected 53 cents per share on revenue of $571.4 billion. Analysts typically exclude one-time items from estimates.

Alpha, which recently accepted an $8 billion buyout offer from iron Pennsylvania. The company’s stock rose $7.74 per share Tuesday to $96.65.

Arch Coal Inc. said its secondquarter profit tripled on soaring global prices and tighter coal supplies, also easily beating Wall Street expectations.

One of the nation’s biggest coal producers, Arch raised its earnings forecast for 2008, citing what Arch’s top executive called “our confidence in coal market fundamentals and in the company’s future growth prospects.”

Arch shares jumped about 10 percent, or $5.09, to $56.03 when the earnings were announced last week. The stock inched up to $56.08 by the end of trading on Tuesday.

Arch reported net income of $113 million, or 78 cents per share in the latest April-through-June period. That compared with $37.6 million, or 26 cents per share, during the same period last year, in which Arch’s profit dove 46 percent after it reined in production amid a softer market.

Revenue rose to $785.1 million, from $598.7 million in last year’s second quarter, propelled by higher sales prices in every one of its operating regions.

Analysts surveyed by Thomson Financial expected earnings per share of 64 cents and revenue of $737.1 million.

Arch said it now expects profits of $2.50 to $2.85 per share. Just three months ago, the company predicted it would earn $2.40 to $2.80 per share, up from its previous prediction of $2 to $2.50 per share.

“We expect 2008 to be a record year for Arch,” Steven Leer, Arch’s chairman and chief executive officer, told investors during a conference call last week. “Our tighter and stronger guidance is indicative of our confidence in the coal market fundamentals and in our ability to capitalize on these strong market trends.”

The company sold 34.4 million tons of coal during the quarter, compared with 33.3 million tons during the same period last year. Each ton Arch sold fetched on average $21.04, up from $16.42 a year ago and $18.49 over this year’s first three months. The company’s operating margin per ton averaged $4.21, more than double the $1.75 average a year ago.

Sales of coal from Arch’s Central Appalachia operations averaged $69.54, compared with $48.36 during last year’s second quarter. The company’s operating margin increased roughly six-fold, to $20.16 from $3.51.

Arch said sales of its coal mined from Wyoming’s Powder River Basin were off by 1 million tons from this year’s first three months, given heavy rains in Wyoming and June flooding that swamped much of the Midwest, disrupting railroad shipping and barge traffic on the Mississippi River.

Including Cumberland River Coal, Arch operates 11 mining complexes in Wyoming, Utah, Colorado, West Virginia, Kentucky and Virginia.

Before retreating in recent weeks, coal prices had been on a tear. Seaborne coal used to produce the steam that drives turbines in northern Europe surpassed $200 per metric ton in June, when prices of Central Appalachian steam coal crossed the $100-per-ton threshold, Arch said.

Over the first half of this year, Arch said it earned $194.1 million, or $1.34 per share, on revenues of $1.48 billion, compared with $66.3 million, or 46 cents per share, on $1.17 billion in revenues during the same period last year.

Arch’s latest numbers offered more evidence of the coal sector’s strength.

Soaring prices and a big gain on a swap of coal reserves also pushed International Coal Group back to profitability in the second quarter.

ICG, based in Scott Depot, W.Va., said it earned $12.6 million, or 7 cents per share, in the three months that ended June 30. ICG lost $10.2 million, or 7 cents per share, in the same period of 2007.

The second quarter 2008 results include a $22.9 million pretax gain on an exchange of eastern Kentucky coal reserves that was completed in June. The swap increased total reserves by approximately 1 million tons, ICG said.

Analysts polled by Thomson Financial had expected ICG to earn 3 cents per share on average.

ICG reaped big benefits from coal prices that have more than doubled over the past year. While coal sales increased about 9.3 percent in the quarter, revenue jumped 34 percent to $277.9 million, compared with $208.1 million in second-quarter 2007.

ICG reached agreements to sell 5.1 million tons at an average of $105 a ton during the quarter, Chief Executive Ben Hatfield said in a statement. Most of those contracts were for steam coal used by electric generating plants.

The company also increased guidance on sales and prices for this year and 2009, as well as offering its first guidance on prices for 2010.

ICG now expects prices to average $51.18 a ton on sales of 19.7 million tons in 2008, up from a first-quarter prediction of $48.50.

ICG says it has committed to sell 17.9 million tons, or 80 percent of projected shipments, at an average price of $58.55, up from $52.10 in the first quarter. About 39 percent of projected 2010 shipments have been committed and priced at an average of $56.31 per ton, ICG said.

Returning to profitability was a bit of good news for ICG, which has struggled with mounting losses despite rising coal prices.

“Both our operating and financial performance improved significantly in the second quarter,” Hatfield said. “June results were the best in our company’s brief history.”

ICG controls approximately 1 billion tons of coal reserves in Illinois, Kentucky, West Virginia, Maryland and Virginia. Its stock closed down 66 cents, or 7.04 percent, at $8.71 on July 23, but rebounded to $10.11 at the end of trading on Tuesday.

St. Louis-based Peabody Energy Corp. also reported secondquarter profits that more than doubled to $233.4 million, or 86 cents per share, handily beating Wall Street’s expectations. Peabody said its revenue rose 43 percent to $1.53 billion.

Combined with high ocean shipping rates and the weak dollar, strong demand for coal has helped fuel a resurgence in U.S. coal exports. The global thirst for coal has been robust in countries such as China and India.

Peabody said that China has idled more than 60 coal plants because coal inventories have shrunk to less than three days supply. China also has trimmed its coal exports by more than 8 percent this year and announced plans to lower or eliminate its coal import tariffs, Peabody said.

Leer told analysts that Arch expects the global coal-supply deficit to reach nearly 35 million metric tons this year, “and we expect a growing deficit over the next five years.”

“Given tight supply conditions and strong demand for coal globally, we have reached price levels that are unprecedented” and, in Arch’s eyes, “sustainable over the next several years,” said John Eaves, Arch’s president and chief operating officer.

Combined from Associated Press and Mountain Eagle reports.

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