TORONTO (miningweekly.com) – The third-largest US coal producer Alpha Natural Resources on Wednesday reported better than expected second-quarter earnings, sending its NYSE-listed shares up by more than 8% despite its net loss being significantly wider when compared with the same period last year.

US coal miners have been dealing with persistent weakness in local and overseas coal demand and depressed price levels, along with stricter government regulations that were causing electric utilities to close coal-fired power plants and forego new construction.

For the period ended June 30, Alpha reported a net loss of $513-million, or $2.32 a share, which included a $309-million noncash goodwill impairment charge, compared with a net loss of $186-million, or $0.84 a share, a year earlier.

Excluding special items, the adjusted net loss was $123-million, or $0.56 a share, compared with an adjusted net loss of $121-million, or $0.55 a share. Analysts had, on average, expected an adjusted net loss of $0.74 a share on revenue of $1.03-billion.

Revenues in the quarter totalled $1.1-billion, down 15% year-on-year when compared with $1.3-billion in the second quarter last year, which was mainly attributable to lower average price realisations and lower shipments of metallurgical and Powder River Basin (PRB) steam coal.

The cost of eastern coal sales averaged $60.65/t compared with $76.41 in the second quarter last year. The cost of coal sales a ton for Alpha Coal West's PRB mines was $12.06/t during the second quarter compared with $10.08/t a year earlier. The main reason for the PRB cost increase was reduced shipment volumes, which were mainly attributable to poor rail service at both mines.

During the period, Alpha recorded metallurgical coal shipments of 4.5-million tons, down from the 5.6-million tons achieved in the second quarter of 2013. Alpha shipped 7.9-million tons of PRB coal during the quarter compared with 8.8-million tons in the year-ago period. Eastern steam coal shipments were 7.5-million tons compared with 7.2-million tons in the previous comparable period.

The average price realised on metallurgical coal shipments in the second quarter was $86.31/t down from $100.95/t a year earlier. Prices for PRB shipments fell to $11.81/t from $12.37/t in the second quarter last year, while eastern steam coal shipments fetched $58.53/t compared with $62.54/t in the year-earlier period.

"Coal markets remained extremely challenging in the second quarter, with the metallurgical coal benchmark at $120/t, API2 pricing below the break-even point for most US producers, domestic thermal pricing stagnating amid softer natural gas prices, increased imports (primarily from Colombia) and increased volumes of lower-quality metallurgical coal crossing over into the thermal markets," Alpha chairperson and CEO Kevin Crutchfield said.

During this period of difficult market conditions and a “very” challenging domestic regulatory environment, Alpha explained that it had continued to focus its efforts on what the company could control, as demonstrated by continued cost-reduction efforts in the east and other proactive corporate actions.

In dealing with continued weak coal markets and blaming increasingly strict government regulations, Alpha last week announced that eight of its affiliates had given about 1 100 employees, working at 11 West Virginia surface mines, notice that they would be laid off in three months. Alpha joined a slew of other coal miners, such as Consol Energy, Walter Energy and Patriot Coal, that had, in recent months, either given notice to idle mines, or had shuttered operations, as they battled low coal prices.

Alpha said despite having been optimistic about a potential bottom in metallurgical coal prices and having expected the potential for improvements in the second half of the year and into 2015, prices remained sluggish and Alpha did not expect any imminent catalyst to support more favourable pricing conditions in the near term.

In addition to metallurgical coal weakness, thermal pricing improvement had not materialised as previously suggested.

Alpha on Wednesday also revealed that owing to the combination of weak market conditions and uncertain geology, the decision had been made to cease operations at the Emerald longwall mine, in south-west Pennsylvania, in the second half of 2015. Alpha said while the closure would reduce the company's Pittsburgh seam longwall volumes after 2015, the company would pursue initiatives at the Cumberland mine to increase volumes and broaden market exposure, which was expected to make up some of the margin loss from the higher-cost Emerald longwall mine.

Alpha lowered PRB shipment guidance to between 34-million tons and 37-million tons mainly owing to poor rail performance in the west. Out of the PRB, it now expected to ship between 75-million tons and 85-million tons, including 15-million tons to 18-million tons of eastern metallurgical coal, 26-million tons to 30-million tons of eastern steam coal and 34-million tons to 37-million tons of western steam coal.

Alpha’s stock on Wednesday gained 8.19% at $3.70 a share, having lost more than half of its value since the start of the year.