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How Alpha Natural Resources Came to the Brink of Bankruptcy


Jul. 28 2015, Updated 8:07 a.m. ET

Met coal prices crash

Benchmark met coal prices have fallen from $330 per ton in 1Q11 to just $93 per ton in the current quarter. But the seeds of Alpha Natural Resources’ (ANRZ) troubles were sown much earlier.

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Massey Energy acquisition

In June 2011, Alpha Natural Resources (ANRZ) completed its $7.1 billion acquisition of Massey Energy. Massey Energy was a large Appalachian coal producer with reserves of around 2.4 billion tons. The acquisition helped ANRZ be the second-biggest US coal producer (KOL), behind Peabody Energy (BTU) and ahead of Arch Coal (ACI) and Cloud Peak Energy (CLD).

The acquisition helped ANRZ consolidate its position as the largest US met coal producer. It helped the company increase its revenues by 81% to $7.1 billion in 2011. The deal was mostly financed by Alpha Natural Resources’ shares, and the cash outlay was just $1 billion. However, ANRZ also took responsibility for Massey Energy’s debt, resulting in ANRZ’s debt increasing to $3 billion (net debt of $2.4 billion) as of December 31, 2011.


The 2011 floods in Queensland, Australia, caused a global shortage of metallurgical coal. Benchmark met coal prices scaled $330 per ton in April 2011. China’s GDP grew at 9.7% in 1Q11. China is the biggest consumer of met coal in the world and it accounts for half of the world’s total steel production.

Hoping for the rally in coal prices and for China’s GDP to continue to climb, Alpha Natural Resources (ANRZ) and its peers—including Walter Energy (WLTR), Arch Coal (ACI), and Peabody Energy (BTU)—splurged on overpriced acquisitions. Only a handful of large coal (KOL) companies, including Cloud Peak Energy (CLD) and Alliance Resource Partners (ARLP), refrained from acquiring coal assets.

When other coal producers were busy acquiring coal assets, Consol Energy (CNX) pushed into natural gas production, which helped the company diversify its commodity risk and get into natural gas production. The bet has fared far better and shows long-term potential. Natural gas recently surpassed coal’s market share in electricity generation.


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