“We’re taking decisive actions that set the table for Alpha to compete successfully as a leader in the global coal markets for years to come,” said Kevin Crutchfield, chairman and CEO, Alpha Natural Resources. “We’re taking a long-term view of the thermal coal market, and we believe there are solid opportunities…to produce and sell thermal coal profitably into a smaller domestic market and to customers in new markets overseas.
“At the same time we have a big opportunity to advance Alpha’s position as a premier supplier of metallurgical coal,” Crutchfield said. “Forecasts point to more than 100 million tons of increased seaborne metallurgical coal demand by the end of this decade…We intend to participate meaningfully in the market upside with costs that are globally competitive.”
Alpha’s thermal rationalization efforts focus on operations that have a cost, customer or transportation advantage. Operations that have competitive cost positions and more stable customer demand—such as supplying baseload power plants and generating units that will survive a stricter regulatory regime—will supply the majority of the company’s U.S. thermal coal output. The company plans to further develop its global marketing platform for its high-quality thermal coals.
A combination of idling mines and equipment, production curtailments and reserve depletion will take place through early 2013, reducing coal production by 16 million tpy. Approximately 40% of the reduction (6.4 million tons) will come from higher-cost thermal coal operations in the East that are unlikely to be competitive for the foreseeable future. And, approximately half of the reduction (8 million tons) will come from production curtailments in the Powder River Basin to match currently committed sales volumes. The balance (1.6 million tons) will be reduced production of lesser quality metallurgical coal.
New steel mills being planned or under construction in developing areas of Asia, South America and elsewhere provide compelling long-term growth opportunities for Alpha. At the same time, there are persistent structural limitations globally on sources of high-quality metallurgical coal. As the third-largest supplier of met coal globally, Alpha is well positioned to capitalize on this market with 25-30 million tons of export capacity through the East Coast and Gulf of Mexico. The company could quickly scaled up with excess export capacity and 1.5 billion tons of met coal reserves, and a number of significant organic growth projects in various stages of development
To align with its smaller production footprint, Alpha’s four existing operating regions will be consolidated into two. The realignment will allow these units to reduce operational overhead while enhancing effectiveness. Alpha intends to “move aggressively to appropriately size overhead” related to the Massey Energy acquisition. Alpha is establishing an Operational Performance Group (OPG) to provide centralized technical support services to both new operating regions. Overhead cost savings from the streamlining of field and corporate support functions are now targeted to be approximately $150 million, which includes the $50 million to $60 million of cost reductions Alpha announced during June.
