Must-know: ANR’s thermal coal business in 3Q14

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Thermal—or steam—coal

Alpha Natural Resources (ANR) produces thermal coal from its mines in the Appalachian Basin and Powder River Basin (or PRB). The company had around three billion tons of thermal coal reserves. 2.2 billion tons are located in the Appalachian. The remainder is in the PRB. Other major coal producers (KOL) in the PRB include Cloud Peak Energy (CLD), Westmoreland (WLB), and Peabody Energy (BTU).

part 2 thermal

Steam coal shipments

The company shipped 16.5 million tons of thermal coal in 3Q14—compared to 16.8 million tons in 3Q13. This was a 1.8% drop.

The company sold 9.3 million tons of PRB steam coal during the quarter—compared to 10.1 million tons in 3Q13. It was a 7.9% drop. The drop was mainly a result of rail underperformance in PRB. We’ll discuss this in the next part of the series.

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In contrast, eastern steam coal shipments—produced in the northern and central Appalachian—increased 7.4% to 7.2 million tons in 3Q14 from 6.7 million tons in 3Q13. Utilities prepared themselves for the upcoming winter by increasing coal stock, especially in the east where gas prices increased substantially last winter.

Revenue per ton decreases

PRB coal’s revenue per ton dropped to $11.81 in 3Q14—from $12.58 in 3Q13. However, it didn’t change from 2Q14. The eastern steam coal was sold at an average of $58.16 per ton—compared to $63.21 in 3Q13 and $58.53 in 2Q14. Appalachian coal’s price remained under pressure due to falling demand and competition from the Illinois Basin (or ILB).

Revenues decrease

Due to lower shipments and lower price per ton, the overall revenues from the reporting segments—Eastern steam and PRB—dropped. PRB’s revenues dropped 13.6% to $109.6 million in 3Q14. However, PRB revenues were up compared to $93.4 million in 2Q14. The company sold more coal in the third quarter.

The Eastern steam coal revenues dropped marginally to $417.8 million in 3Q14—from $425.1 million in 3Q13. This was mainly due to lower revenue per ton.

What challenges are ANR’s steam coal business facing? We’ll discuss this in the next part of the series.

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