10:37am

Wed August 8, 2012
Energy

Alpha Natural Resources Reports Loss

Alpha Natural Resources--a coal company with mines in eastern Kentucky, as well as throughout Appalachia--reported its second quarter earnings yesterday and the news wasn't good. The company had a net loss of $2.2 billion in the second quarter of 2012. That compares to a $50 million loss for the same period last year.

From the company's announcement:

Kevin Crutchfield, Alpha's Chairman and CEO, said, "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. 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. We have continued to optimize our Central Appalachia operations by adjusting our footprint, idling high cost thermal coal and lower-quality metallurgical coal production while focusing on our higher-margin metallurgical products. Additionally, we have reduced our overhead expenses. Unfortunately, this occurred at a time of heightened and sustained unemployment rates and a very tepid economic recovery in the United States. We sincerely regret the impact our production curtailments have had on good employees and their families, but the market environment with which we are faced left us no other options. We will continue to evaluate market conditions and will make further adjustments if market conditions warrant.

The release goes on to blame most of the problems on the weak market for thermal coal--the coal that's burned for heat in power plants. The company mentions the low prices of natural gas, an unseasonably warm winter and an abundance of coal in utility stockpiles, and then goes on to discuss environmental regulations.

Exacerbating the situation is a regulatory environment designed to constrain the mining and use of coal for electricity generation and promote the use of natural gas and heavily-subsidized renewable sources, raising the prospect of higher electricity prices in the future. Court decisions suggest that environmental regulation has gone too far, demonstrated by the recent decision to reject the EPA's overreaching efforts to direct the process of mine permitting that rightfully belongs to the states, and the decision to overturn the EPA's veto of the Spruce No. 1 permit.

The company says it expects to see the market for thermal coal gradually improve.

Alpha Natural Resources announced plans to close four coal mines in eastern Kentucky earlier this summer, but the company still has a presence in the state, thanks in part to former Massey Energy mines. Alpha bought Massey last year. The company also has mines in Virginia, West Virginia, Pennsylvania and Wyoming.