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Alpha Natural Resources Sees Margins Slashed in 1Q15

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May. 11 2015, Updated 4:05 a.m. ET

Margins per ton

With prices falling and costs holding steady—as we saw in Parts 1 and 2 of this series—margins per ton dropped substantially in 1Q15. On average, Alpha Natural Resources (ANR) lost 42 cents per ton of coal sold, including PRB (Powder River Basin) and Eastern. In comparison, ANR made $6.59 per ton in 4Q14 and $3.21 in 1Q14. After adjusting for merger-related expenses, the company gained 12 cents a ton in 1Q15. The adjusted margin per ton was $5.48 in 4Q14 and $3.23 in 1Q14. And while PRB coal made over a dollar per ton sold, Eastern coal burned cash even at the operating level.

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Adjusted earnings

The company reported adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) losses of $33.6 million in 1Q15 compared to profit of $289.1 million in 1Q14 and $102.6 million in 4Q14. This is the first EBITDA-level loss since ANR’s Massey Energy acquisition in June 2011.

For more about how expensive acquisitions can affect coal producers (KOL) such as Arch Coal (ACI), ANR, Peabody Energy (BTU), and Walter Energy (WLT), read Should you expect big US coal mergers and acquisitions soon?

Net losses

In spite of EBITDA-level losses, the company posted positive net income in 1Q15, supported largely by a $364 million gain on the extinguishment of debt. The company reported net income of $68.2 million, or 31 cents a share, in 1Q15, compared to a loss of $55.7 million, or 25 cents a share, in 1Q14.

Cash flows

The company burned $59.8 million of operating cash in 1Q15 compared to $54 million in 1Q14. The company spent $29.6 million on capital expenditure during the quarter, down from $39.7 million in 1Q14.

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