TORONTO (miningweekly.com) – US coal-miner Alpha Natural Resources reported substantially lower revenue and profit for the second quarter of 2009, compared with a year ago, but the company is seeing "encouraging" signs that coal buyers are beginning to return to the market, CEO Michael Quillen said on Monday.

"While global business conditions certainly aren't anywhere near where they were at this time last year, we have seen encouraging early signs of a turnaround in the steel markets and renewed interest from coal buyers, which had been mostly absent to this point," he said in a statement.

Still, conditions remained difficult in the second quarter as demand from both steelmakers and power utilities remained weak.

For the three months ended June 30, Alpha reported coal revenue of $333,9-million and net income of $15,4-million, compared with $604,7-million of coal revenue and earnings of $67,1-million, a year earlier.

On a per share basis, earnings fell to $0,22 a share, compared with $0,94 in the second quarter of 2008.

“As we predicted earlier this year, the persistence of weak demand conditions greatly reduced metallurgical and thermal coal shipments in the second quarter,” Quillen commented.

Daniel Scott, an analyst at New York-based Dahlman Rose & Company, had forecast earnings of $0,30 a share for the second quarter, which was itself lower than the analyst consensus of around $0,38 a share.

Overall, it was a "disappointing" quarter for Alpha, Scott wrote in a note on Monday.

"The fairly wide earnings miss, combined with the reduced metallurgical guidance, outweigh a generally more stable steam coal picture from the company, in our opinion."

Alpha, which agreed in May to buy rival Foundation Coal, said its coal margin per ton dropped 33% in the second quarter, after higher-margin metallurgical shipments slid and the firm received lower prices for the steelmaking ingredient.

As a result, lower metallurgical coal margins offset better margins achieved for the company's steam coal.

Alpha's overall average realised price per ton for the quarter was $77,58, down 6% from last year and 5% from the first quarter.

US coal producers, including the two largest – Peabody Energy and Arch Coal – and Alpha itself have reduced production levels and sales forecasts for this year, after sales volumes fell sharply because of weak demand for both steel and electricity.

HIGH NOTE

However, the second quarter ended “on a high note”, Alpha said on Monday, with June shipments up 600 000 t compared with May levels.

“Positive signals from the steel, coke and coking coal markets coloured the back end of the second quarter and have extended into the current quarter,” the firm reported.

The company expects that margins for high-quality metallurgical coal will be better in 2010 than current levels, and is therefore considering withholding tonnage originally projected for production this year “to await more stability in market demand and pricing”, Alpha said.

For the current calendar year, the firm had sold or committed for sale 5,2-million tons of metallurgical coal by June 16, at an average realised price of approximately $101/t, compared with around $114/t on average in March.

The lower committed price was calculated after the group recategorised about one-million tons of higher-priced metallurgical coal into the 'uncommitted' category, “in cases where the company is in litigation, arbitration or dispute with parties to the contract”.

On the other hand, however, the firm has either delivered or committed about 1,5-million tons of new spot business for this year, at prevailing seaborne market prices.

As of mid-June, Alpha had less than half a million tons of metallurgical coal committed and priced for 2010, with approximately 9,5-million tons open for contract.

“There have been increasing expressions of interest from buyers recently, but the timing of settlements remains unpredictable,” the firm commented.

The company said that it could come in about two or three million tons short of its previous sales guidance for 2009 of 22-million tons if it continues at current operating schedules.

However, if market demand improves in the second half of 2009 – especially for metallurgical coal – Alpha could increase shifts and work weeks, which would enable it to match its prior sales guidance.

FOUNDATION VOTE

Shareholders are scheduled to vote on Friday on the company's proposed $1,5-billion acquisition of Foundation Coal and, if the deal is approved, it should close shortly thereafter, Alpha said on Monday.

Last week, Alpha's biggest shareholder, Duquesne Capital Management, said it would oppose the transaction, but two proxy advisory firms, Glass Lewis and RiskMetrics, both gave the deal their stamp of approval.

Under the terms of a definitive merger agreement, Foundation shareholders will receive 1,084 shares of the new company for each Foundation share held, while Alpha shares will automatically become shares of the combined company.

The combined company, which will be 59% owned by current Alpha shareholders and 41% by Foundation, will operate 59 coal mines and 14 preparation plants, and will own more than 2,3-billion tons of coal reserves.

The new company will retain the Alpha name and will be headquartered in Abingdon, Virginia.

Shares in Alpha Natural slid 5,76% on Monday, to $32,22 apiece by 15:45 in New York.

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