Alpha Natural Resources

Alpha Natural Resources, Inc.

Type	Public
Traded as	NYSE: ANR S&P 500 Component
Industry	Mining & Manufacturing Construction
Founded	2002
Headquarters	Bristol, VA, USA
Key people	Michael J. Quillan Chair Kevin S. Crutchfield CEO Kurt D. Kost President
Products	Coking coal
Revenue	$3,917.156 mil (2010)57%[1] 89% coal,8.5% freight
Net income	$95.551 mil (2010)64.7%[1]
Total assets	US$5.17928 bil (Dec'10)
Employees	14,000 (6,400 before Massey merger)
Divisions	Foundation Coal (since 2009) Massey Energy (June 2011)
Website	www.alphanr.com

Alpha Natural Resources is a large American producer of metallurgical and thermal coal. It also provides services relating to equipment repairs, road construction and logistics (terminals). It doesn't produce all of the coal it sells, some is purchased and resold. Alpha operates in Virginia, West Virginia, Kentucky, Wyoming, Utah, Illinois, Tennessee, and Pennsylvania. Clients include electricity producers and steel manufacturers (metallurgical coal is used industrially while thermal is the form of coal used to generate power). The 2009 takeover of Foundation Coal also gave it the Cumberland Mine Railroad to transport coal in Pennsylvania.

On January 31, 2011 Alpha Natural Resources acquired coal producer Massey Energy for US$7.1 billion (to be completed mid year) creating the second biggest coal miner by market capitalization.^[2] The merged company (54% owned by Alpha Natural Resources) will be the leading producer of metallurgical coal in the US and also have the second largest reserves of coal (5.1 billion tons).^[3] Merging operations with Massey is estimated to reduce combined operating costs by $150 million.^[3] 7,000 of the 14,000 employees are in West Virginia.^[4] In 2010 demand for thermal coal rose while metallurgical coal demand was flat (made up only 14% of coal sales down from 17% in 2009).^[5]

Alpha Natural Resources settled Massey's Upper Big Branch Mine disaster liabilities with the U.S. Attorney for $209 million on December 6, 2011. The settlement included $41.5 million to the survivors and families of the deceased. The Mine Safety and Health Administration additionally assessed a $10.8 million fine for 369 citations and orders, the largest fine for a mine accident in U.S. history.^[6][7][8]

History

The company as it exists today is the result of two mergers, one in July 2009 (Foundation Coal and Alpha Natural Resources, Inc.) and another January 31, 2011 (US$7.1 billion acquisition of Massey Energy). The takeover of Foundation Coal was a reverse takeover in that Foundation Coal was the company left standing and it was immediately renamed Alpha Natural Resources. Foundation Coal added 7.5 million tons of annual coal shipments to its Eastern Coal operations and expanded the company's presence in Wyoming. Although acquisitions helped Alpha expand rapidly since its founding in 2002, it burdened it with lots of debt ($185.6 million in 2004, $754.15 Dec. 31, 2010).^[9][10] Massey Energy became a takeover target after suffering large income losses and negative publicity following an explosion at West Virginia's Upper Big Branch mine that killed 29 employees (direct costs related to the incident amounted to $128.9 million).^[2] Federal regulators and the Mine Safety and Health Administration blamed the explosion on Massey's poor practices however the company contested the findings citing a methane leak.^[11]

The takeover of Massey Energy was completed in June 2011 after shareholders of both companies voted for the merger (99% of Massey shareholders voted for the deal (77% of them voted) while 98% of Alpha's shareholders supported it (83% of them voted). Alpha secured $3.3 billion in financing for the takeover from Citigroup and JPMorgan.^[4] The combined entity will be the world's number three producer of metallurgical coal behind BHP Billiton and Teck Resources.^[12]

Alpha Natural Resources, Inc

Alpha was first established in 2002 by management (original CEO Michael Quillen played a major role) and First Reserve Stockholders (though it officially incorporated in November 2004).^[9][13] Around the same time it made its first major acquisition, The Brink's Company's Virginian coal business for $62.9 million (Virginia is currently a significant source of primary production). Immediately after that it took over Coastal Coal Company (Jan 2003) followed by American Metals and Coal International's coal business (March) and Mears Enterprises, Inc (November).

In December 2004 it filed for an IPO in an attempt to raise US$250 million to repay debt (strong coal prices also affected the timing of it). At the time coal was selling for about a quarter the price of natural gas ($1.5 versus $5.0 per million BTU) however since then (mid 2010) the ratio has become much smaller (coal has tripled in price to $4.63/mil BTU while gas is still at $5.189).^[9][14] (natural gas is used as an alternative to thermal coal in electricity production).

Operations

Only about 40% of coal is produced directly by the company, 60% comes from subsidiaries. Nearly half of the mines are underground operations. In 2008 the biggest source of coal production, the Powder River Basin (53% = 49.2mt) was home to only 32% of coal reserves (behind U.S. Northern Appalachia (35% = 800mt) and Central Appalachia (32%, thermal coal).^[15] After the merger with Massey the company will control 150 coal mines and 40 preparation plants which is up significantly from the 65 mines under its control at the end of 2007.^[4] For 2011 Massey expects to ship 10 to 14 million tons of metallurgical coal, about the same as Alpha (in 2010 was 11.88 million tons or 14% of total production).^[16] In its last annual report (2009) Massey Energy reported coal sales of 38 million tons (ranking sixth in the USA), that compares to 84.8 million tons sold by Alpha Natural Resources in 2010.^[17][5] In the fourth quarter of 2010 Massey Energy had a coal shipment shortfall of 1.4 million tons half of which was due to rail problems the other half a result of misproduction.^[16]

Mines

Before the merger with Massey Energy Alpha Natural Resources had over 60 active mines in 4 US states. After the merger the number of mines will reach 110-150.^[18][4] Notable ones include Belle Ayr Mine and Eagle Butte Mine (both in Wyoming). In coal river east, Kingston Mining, located in Kingston West Virginia is also i vary notable mines. With some of the worlds most sought after met coal.

• Black Bear Surface Mines (previously operated but more recently is one of the company's two land restoration projects, the project was featured on the discovery channel).^[19]

Competition

Cliffs Natural Resources (coal producer of comparable size) and Patriot Coal Corporation (also mines in Appalachia and West Virginia).

See Also

• Pittston Coal strike - Pittson Coal, which used to be the seventh largest US coal producer (1987) contracted in size substantially since a strike in 1990 by employees. In 2002 Alpha Natural Resources purchased what remained of its coal business.

References

1. ^ ^{a b} "Alpha Natural Resources 2010 Year End Results". 2011-02-09. http://online.barrons.com/article/PR-CO-20110209-905593.html. 
2. ^ ^{a b} "Alpha agrees to buy Massey Energy for about $7.1 billion". Reuters. 2011-01-31. http://www.reuters.com/article/2011/01/30/us-alpha-massey-idUSTRE70S0PC20110130. 
3. ^ ^{a b} "Alpha + Massey". 2011-01-31. http://files.shareholder.com/downloads/ALNR/1175105176x0x437764/ed10bfe3-c992-467f-b84d-e9693bee0a3e/ANRInvestor_Deck_1-31-11_FINAL_SLIDES_ONLY_.pdf. 
4. ^ ^{a b c d} "It's official: Massey is now Alpha". 2011-06-08. http://www.dailymail.com/ap/ApTopStories/201106080716?page=1&build=cache. 
5. ^ ^{a b} "Alpha Natural Resources 2010 10-K Form". 2011-02-25. http://files.shareholder.com/downloads/ALNR/1284951720x0x455454/8f226ec4-a22b-4649-bfe2-ab6e97869d63/ALNR_10-K.pdf. 
6. ^ Maher, Kris (December 06, 2011). "Feds Blame Owner of West Virginia Mine". Wall Street Journal. http://online.wsj.com/article/SB10001424052970204770404577082341518182150.html. Retrieved December 06, 2011. 
7. ^ "Alpha Natural Resources Inc. and Department of Justice Reach $209 Million Agreement Related to Upper Big Branch Mine Explosion" (Press release). US Dept. of Justice. December 06, 2011. http://www.justice.gov/opa/pr/2011/December/11-ag-1577.html. Retrieved December 06, 2011. 
8. ^ "US Labor Department's MSHA cites corporate culture as root cause of Upper Big Branch Mine disaster: Massey issued 369 citations and orders with $10.8 million in civil penalties" (Press release). Mine Safety and Health Administration. December 06, 2011. http://www.msha.gov/MEDIA/PRESS/2011/NR111206.asp. Retrieved December 06, 2011. 
9. ^ ^{a b c} "Southwest Virginia coal producer files for IPO". 2011-02-21. http://www.roanoke.com/business/wb/xp-15881. 
10. ^ "ANR financials". http://www.google.com/finance?q=NYSE:ANR&fstype=ii. Retrieved 2011-02-21. 
11. ^ Broder, John M. (2011-01-28). "Massey Energy Rejects Federal Blame in Mine Blast". The New York Times. http://www.nytimes.com/2011/01/29/us/29mine.html. 
12. ^ "Alpha Natural Agrees to Buy Massey Energy for $7.1 Billion in Cash, Stock". 2011-01-29. http://www.bloomberg.com/news/2011-01-29/alpha-natural-agrees-to-buy-massey-energy-for-8-5-billion-in-cash-stock.html. 
13. ^ "AMCI Capital". http://www.amcic.net/global_team.html. Retrieved 2011-02-21. 
14. ^ "Gas Rally Boosts Coal’s Allure for Power Plants: Energy Markets". 2010-06-15. http://www.businessweek.com/news/2010-06-15/gas-rally-boosts-coal-s-allure-for-power-plants-energy-markets.html. 
15. ^ "Alpha Natural Resources products and services". http://www.alphanr.com/poweringthefuture/productsservices/Pages/default.aspx. Retrieved 2011-02-21. 
16. ^ ^{a b} "Massey Energy 2010 4th Quarter Earnings Call Transcript". 2011-02-01. http://seekingalpha.com/article/250372-massey-energy-s-ceo-discusses-q4-2010-results-earnings-call-transcript. 
17. ^ "Massey Energy 2010 Corporate Social Responsibility Report". 2010. http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDA4NDM0fENoaWxkSUQ9NDE4MDcyfFR5cGU9MQ==&t=1. 
18. ^ "Alpha Natural Resources and Massey Energy Agree to $8.5 billion combination". 2011-01-29. http://docs.google.com/viewer?a=v&q=cache:t3wUVB1kPFQJ:www.alphanr.com/Documents/Massey%2520Press%2520Release.pdf+site:alphanr.com+alpha+natural+resources+%2Bmines&hl=en&gl=ca&pid=bl&srcid=ADGEESijxWrVC7PhAc9yxX073AqguRRAPmvmuKMJ16FPCPfqk6yKOKnekxJ2bk1X2kQYqkxDjP5DmKKAPESBwu1_rTzIns-2Gbl5xEjS-75d3QRy86_1JF2wNV9lY77_D-jaCupH-lsx&sig=AHIEtbSdkD_tr8LERRhdE_1wBzUQJtTw_g. 
19. ^ "Parker on the Green Room - Discovery Channel". 2011-01-15. http://www.parker-nni.com/green-room.html.