Alpha Natural Resources: An in-depth analysis

Alpha Natural Resources: An in-depth analysis (Part 1 of 9)

A must-know investor’s guide to Alpha Natural Resources

Introduction to Alpha Natural Resources

Alpha Natural Resources, Inc. (ANR) is America’s second largest publicly traded coal producer, based on 2013 consolidated revenues of over $5.0 billion through sales of coal worldwide. As of 31 December 2013, Alpha controls over 4.3 billion tons of coal reserves, of which 1.4 billion tons are of metallurgical quality, the rest being thermal coal. With such a large reserve, Alpha is currently the largest producer of metallurgical coal in the U.S. and has an extensive base of customers domestically and internationally. In 2013, it sold coal to over 170 different customers globally in over 29 countries worldwide. Thermal coal is mainly used for power generation, and metallurgical coal is a key ingredient in the steel making process. An overview of coal types and their uses can be found here.

Alpha mainly competes with other major players in the global coal industry (KOL), like Arch Coal (ACI), Peabody Energy (BTU), and Consol Energy (CNX).

Adjusted EPS vs Analyst EstimatesEnlarge Graph

Brief history

Alpha Natural Resources first went public in December 2004 and has expanded tremendously over the years through mergers and acquisitions to become the third largest metallurgical coal producer in the world today. In 2009, Alpha entered into a reverse takeover with Foundation Coal in which Foundation Coal was left standing but renamed to Alpha Natural Resources. The merger added 7.5 million tons in annual coal shipments to its Eastern coal business segment and expanded its presence in the Western business segment.

In 2011, Alpha made another significant acquisition of Massey Energy that propelled it into the spotlight of being the third largest metallurgical coal producer in the world. However, this acquisition did come with its downsides, as Massey was facing substantial losses and bad publicity due to an explosion at its Upper Big Branch Mine that killed many miners.

Despite vastly expanding the company’s coal reserves through these two acquisitions, Alpha has been burdened with debt and losses from these acquisitions, which will be discussed later on in the series.

The Realist Discussions

  • Chrystian

    This is a great analysis. It would be great to hear about the implications of current environmental trends for companies such as Alpha, Peabody, etc. Prospectively, I see increase challenges on the long-term (10-20 years) for the use of coal into electricity generation as the clean energy theme is being supported by current environmental effects (droughts, horrible weather, etc.). However, on the Met coal side of things, I am yet to grasp its respective risks associated with the environment. How will an intensified trend toward a cleaner environment affect the use of Met coal in steel production?. This intrigues me as I know that the steel isn’t going anywhere, but wonder if steel’s raw materials such a met coal would be replaced in the future for something else more environmentally friendly (if any). If this is the case, I don’t see how coal related companies would exist at all in 10-20 years from now. Any comments?