Alpha closes mines, cuts 9% of workforce

Alpha Natural Resources (ANR-N), the number-two coal miner in the U.S., may have its credit ratings lowered by Standard & Poor’s after curbing production and shutting eight coal mines, to stay profitable as demand drops.

Alpha aims to reduce annual production by 16 million tons and eliminate 1,200 jobs company-wide by early 2013. It started by letting go 400 employees at eight mines in Virginia, West Virginia and Pennsylvania on Sept. 19.

The miner says the rest of the cuts will be made throughout the year until early next year.

While the planned layoffs will shrink its staff of 13,000 by 9%, the coal miner says it will look to rehire some of the dismissed workers for other positions within the firm, without providing specifics.

In a Sept. 19 statement, S&P placed the Bristol, Va.-based firm’s ratings — including its “BB-” corporate credit rating on Credit Watch — with negative implications, meaning it could possibly lower the ratings after it completes its ongoing review, expected out shortly.

“Alpha is planning 2013 tonnage production around the low 80-million range, down from our previous expectation of 90 million tons,” the credit agency notes.

Standard & Poor’s, which previously projected Alpha’s 2013 earnings before interest, taxes, depreciation and amortization (EBITDA) to fall between US$750 million and US$850 million, now forecasts EBITDA “will be materially lower” because of the production cuts and dropping prices.

Commenting on the planned scale-back, Alpha says 40% will occur at its high-cost thermal coal mines in the Eastern U.S. “that are unlikely to be competitive” in the near-term, while half of the reductions will take place in the Powder River basin in northeastern Wyoming.

The miner will also corporately combine its four existing operating regions into two, so that it can shrink its operational overhead.

With the slimmer production profile and regional consolidation, the miner would save US$150 million in overhead costs, which includes the US$50 million to US$60 million estimated in early June, after it shut coal four mines in Kentucky, pared production and axed 150 jobs.

Alpha says the new mine closures and labour cuts will create a smaller but more agile firm that could more readily adapt to changes in the global coal market.

While several factors contribute to the current depressed market, of note is the growing use of cheap, clean natural gas for power generation instead of thermal coal, and slowing economic growth in China.

But recently announced or planned coal mine closures worldwide, and the economic stimulus packages that will be handed out by central banks in the U.S., Europe and China to fuel growth, should mitigate coal prices and demand.

Forecasts show the demand for seaborne metallurgical coal, which is used to make steel, will grow more than 100 million tons by the end of 2020, Alpha chairman and CEO Kevin Crutchfield says.

To make sure the firm seizes export opportunities when they happen, Alpha aims to boost its international presence in the market as new steel mills are envisioned, or under construction, in developing areas of Asia, South America and elsewhere.

For thermal coal, the U.S-based miner says it will sell to a smaller domestic market and to customers in new markets overseas.

On the management side of the business, the current president of Alpha Australia, Brian Sullivan, will step into the company’s chief commercial officer role in the U.S., overseeing global sales and marketing activities.

Come November, Alpha’s executives Randy McMillion and Eddie Neely will retire.

Since announcing the mine closures, Alpha lost over 15% in the ensuing days to close Sept. 24 at US$6.85 in New York.