BRISTOL, Va., May 3, 2012 /PRNewswire/ -- Alpha Natural Resources, Inc. (NYSE: ANR), a leading U.S. coal producer, reported a first quarter net loss of $29.1 million or $0.13 per diluted share compared to net income of $49.8 million or $0.41 per diluted share last year.  Excluding amortization of acquired intangibles, changes in fair value and settlement of derivative instruments, merger-related expenses, UBB expenses, severance charges arising from the production adjustments announced February 3, a weather-related property damage loss, and related tax impacts of these items, the first quarter 2012 adjusted net loss was $58.2 million or $0.27 per diluted share, compared to net income of $78.9 million or $0.65 per diluted share last year.

Earnings before interest, taxes, depreciation, depletion and amortization, or EBITDA, for the first quarter 2012 was $222.1 million, compared to $193.0 million in the year ago period.  Excluding the change in fair value and settlement of derivative instruments, merger-related expenses, UBB expenses, severance charges arising from the production adjustments announced February 3, and a weather-related property damage loss, first quarter 2012 adjusted EBITDA was $210.5 million.  

"During the first quarter, Alpha's workforce continued to deliver on our shared commitment to Running Right," said Kevin Crutchfield, Alpha's chief executive officer.  "We recently announced that eight operations received MSHA's 2011 Sentinel of Safety certificates, and two operations received Mountaineer Guardian Safety awards.  In addition, Alpha's incident rate improved 21 percent in the first quarter of 2012, compared to the last seven months of 2011 since the closing of the Massey acquisition.  We salute the successful efforts of our workforce, but the loss of a member of the Alpha family at the Kingston No. 2 mine reminds us that Alpha's safety goal is zero incidents.  To that end, we remain dedicated to Running Right and continuous improvement in our safety performance."

"Alpha responded swiftly to challenging market conditions, reducing planned 2012 production volumes by approximately 4 million tons based on actions announced in early February.  Since then unusually mild winter weather and decade-low natural gas prices have significantly reduced domestic steam coal consumption and driven utility inventories to near record levels.  In response coal producers continue to announce plans to reduce production.  Alpha plans to introduce additional production adjustments in the near future.  Accordingly, we are reducing the midpoint of our 2012 shipment guidance by an additional 7 million tons of steam coal.  The market for metallurgical coal has also softened somewhat, particularly for lower-quality metallurgical coals, due to increased global supply and a geographically mixed demand picture.  In response, we are reducing the midpoint of our shipment guidance for metallurgical coal by 0.5 million tons.  In this environment, Alpha will remain focused on selectively pruning our portfolio, controlling costs, and maximizing free cash flow generation."

"In approximately one month, we will reach the first anniversary of Alpha's acquisition of Massey Energy Company. With three full quarters as a combined entity now behind us, the integration is progressing well, and we are on track to achieve our targeted synergies.  Here is just a short list of our achievements thus far:

• Our workforce is fully integrated;
• Running Right has been embraced, and employee engagement is outstanding;
• We have succeeded in having the last legacy Massey mine removed from MSHA's Potential Pattern of Violation (PPOV) list;
• Employee turnover is now in the single digits throughout the company, a level that is expected to be sustainable;
• We ended the first quarter of 2012 with an annual synergy run-rate of greater than $150 million; and
• We continue to target annual recurring synergies of $220 million to $260 million by mid-year 2013.

Following the Massey transaction, Alpha is now among the top three leading global suppliers of metallurgical coal and controls more export terminal capacity than any other U.S. producer.  As market conditions improve, Alpha is well-positioned to capitalize on strengthening global demand for metallurgical coal."

Financial Performance

• Total revenues in the first quarter were $1.93 billion compared to $1.13 billion in the same period of 2011, and coal revenues were $1.64 billion, up 66 percent compared to $0.99 billion in the first quarter of 2011.  Coal revenues were higher than the year-ago period primarily due to the inclusion of legacy Massey operations which contributed estimated coal revenues of $680 million during the first quarter.  Freight and handling revenues and other revenues were $209 million and $86 million, respectively, during the first quarter compared to $116 million and $28 million, respectively, in the year-ago period.   

  During the first quarter of 2012, Alpha shipped 11.8 million tons of Powder River Basin (PRB) coal, 11.5 million tons of Eastern steam coal and 4.9 million tons of Eastern metallurgical coal, compared with 12.5 million tons of PRB coal, 4.9 million tons of Eastern steam coal and 3.6 million tons of Eastern metallurgical coal in the first quarter of 2011.  Average per ton realizations for PRB shipments rose to $12.95 compared to $11.96 in the fourth quarter of 2011 and $11.91 in the first quarter of 2011.  The average per ton realization for Eastern steam coal shipments in the first quarter of 2012 was $67.48 compared to $66.93 in the prior quarter and $66.89 in the first quarter last year, and the average per ton realization for metallurgical coal was $145.51 in the first quarter compared to $156.48 in the prior quarter and $141.76 in the first quarter of 2011.

• Total costs and expenses during the first quarter of 2012 were $1.96 billion compared to $1.05 billion in the first quarter of 2011.  Cost of coal sales was $1.42 billion compared to $0.73 billion in the year-ago period. The year-over-year increase was primarily attributable to increased shipment volumes due to the inclusion of legacy Massey operations during the first quarter 2012.

• Adjusted cost of coal sales in the East averaged $76.00 per ton in the first quarter of 2012 compared to $78.50 in the fourth quarter of 2011 and $71.30 in the first quarter last year.  The quarter-over-quarter improvement reflected a greater influence on the weighted average adjusted cost of coal sales in the East from the Pennsylvania longwall mines and reduced purchased coal volumes, partly offset by the lower of cost or market ("LCM") adjustments discussed below and the impact of fixed costs being spread across fewer tons as production has been adjusted to match demand.  The year-over-year increase in adjusted cost of coal sales per ton is primarily due to a higher proportion of Central Appalachia operations in the weighted average.  The cost of coal sales per ton for Alpha Coal West's PRB mines increased to $10.96 during the first quarter of 2012 compared with $9.66 in the first quarter of 2011 due to reduced production volumes and higher per ton variable costs resulting from higher average per ton realizations.  At Alpha's Central Appalachia operations, increasing average costs combined with declining thermal coal prices resulted in the carrying value of certain coal inventories being reduced to the lower of cost or market.  LCM adjustments are estimated to have increased first quarter 2012 cost of coal sales by approximately $34.7 million, which is equivalent to $2.12 per ton for eastern shipments.  LCM adjustments in previous quarters were much less significant.

• Selling, general and administrative expense in the first quarter 2012 was $65.1 million compared to $67.3 million in the first quarter of 2011.  First quarter 2012 selling, general and administrative expense includes $5.5 million of merger-related expenses, while the first quarter 2011 reflects the impact of $22.1 million of merger-related expenses primarily related to M&A advisory, bridge financing and consulting fees attributable to the then-pending Massey transaction.  Depreciation, depletion and amortization (DD&A) expense during the first quarter of 2012 was $285.9 million, and amortization of acquired intangibles was a pre-tax benefit of $35.3 million, compared with DD&A expense and amortization of intangibles expense of $88.6 million and $26.0 million, respectively, in the first quarter of 2011.

• Alpha recorded a net loss of $29.1 million or $0.13 per diluted share during the first quarter of 2012 compared to net income of $49.8 million or $0.41 per diluted share during the first quarter of 2011.  The first quarter 2012 net loss included a $35.6 million pre-tax benefit from the change in fair value and settlement of derivative instruments, a $35.3 million pre-tax benefit from amortization of acquired intangibles, net, $14.3 million of pre-tax UBB expenses, $4.1 million of pre-tax severance charges arising from production adjustments announced February 3, $3.4 million of pre-tax merger-related expenses, and a $2.3 million pre-tax loss from weather-related property damage.  Excluding these items and related tax impacts, the first quarter adjusted net loss was $58.2 million or $0.27 per diluted share compared to adjusted net income of $78.9 million or $0.65 per diluted share in the first quarter of 2011.

• EBITDA was $222.1 million in the first quarter 2012 compared to $193.0 million in the prior-year period.  Excluding changes in fair value and settlement of derivative instruments, merger-related expenses, UBB expenses, severance charges arising from production adjustments announced February 3 and losses from weather-related property damage, adjusted EBITDA was $210.5 million in the first quarter of 2012 compared to $214.9 million in the first quarter of 2011. 

Liquidity and Capital Resources
Cash provided by operations for the quarter ended March 31, 2012 was $166.6 million compared to $168.4 million for the first quarter of 2011.

Capital expenditures for the first quarter 2012 were $125.8 million, versus $57.1 million in the comparable period last year. 

At the end of the first quarter, Alpha had available liquidity of approximately $1.8 billion, consisting of an aggregate $0.7 billion of cash, cash equivalents and marketable securities, plus $1.1 billion available under the company's secured credit facilities.  Total long-term debt, including the current portion of long-term debt at March 31, 2012, remained approximately $3.0 billion, consistent with December 31, 2011.  

Market Overview
Following a year of record-high metallurgical coal pricing in 2011, the market for metallurgical coal experienced a period of relative weakness in the opening months of 2012.  Recent data suggests that pricing has stabilized for premium, benchmark quality coals in Asia due to Chinese steel production that rose four percent in March to an annualized rate of approximately 725 million metric tons and labor and weather-related supply disruptions in Australia.  However, European steel production is pacing below 2011 levels, and demand and pricing in the Atlantic basin remain challenged relative to the markets in Asia, particularly for lower quality and blended products that comprise the bulk of U.S. export products.  While the export market for U.S. metallurgical coal has been under pressure recently, the market appears unlikely to deteriorate further and may strengthen in coming quarters, depending upon a host of variables, including expected continued growth in Asian steel production, any further supply disruptions in Australia, expected gradual economic recovery in Europe, and potential additional cutbacks in U.S. production of lower quality coking coals.

Demand for domestic thermal coal has significantly declined in recent months due to the inter-related effects of mild winter weather and extremely low natural gas prices which have reduced coal burn by domestic utilities.  Utility inventories are approaching record levels and have grown rapidly to greater than 200 million tons nationwide.  Based on today's natural gas prices, coal-to-gas switching has expanded from the East, where it has been a fairly common phenomenon, into areas served by PRB coals.  Requests for shipment deferrals have become commonplace in all regions, and spot pricing is below production costs for much of Central Appalachia and certain PRB operations.  In light of burgeoning inventories, some thermal coal shipments have been re-sold either to other utilities or to traders with some of the coal ultimately moving into the seaborne market.  Producers are also striving to maximize exports in order to place thermal coal production, and seaborne thermal coal exports from the U.S. have increased significantly in the first quarter of 2012.  U.S. coal producers have responded to this challenging market environment by adjusting production volumes and idling high cost mines.  Announced cutbacks to date are in the range of approximately 50 million tons annually and additional reductions appear necessary to balance supply and demand.  Alpha remains focused on creating a sustainable thermal coal portfolio and continues to evaluate how best to match thermal coal production with expected demand.

Markets for both metallurgical and thermal coal are under pressure, but the challenges facing the metallurgical market appear to be cyclical and could reverse quickly.  The challenges facing the domestic steam coal market, on the other hand, appear to be both cyclical and structural and are likely to linger well into 2013.  Alpha continues to pursue its three-pronged strategy: supporting and augmenting our metallurgical coal franchise; creating a sustainable steam coal portfolio; and taking appropriate actions to address operations that are unable to contribute to a sustainable portfolio.  

Outlook
Alpha is updating its 2012 shipment guidance ranges.  The Company now expects to ship between 20.0 million tons and 24.0 million tons of Eastern metallurgical coal, compared to the previous range of 20.0 million tons to 25.0 million tons.  Eastern steam coal shipments in 2012 are now expected to range from 38.0 million tons to 44.0 million tons, compared to the previous range of 42.0 million tons to 48.0 million tons.  Western steam coal shipments out of the Powder River Basin in 2012 are anticipated to be in the range of 42.0 million tons to 48.0 million tons, compared to the previous range of 45.0 million tons to 51.0 million tons.  As of April 20, 2012, 78 percent of the midpoint of anticipated metallurgical coal shipments were committed and priced at an average per ton realization of $146.31; 99 percent of the midpoint of anticipated Eastern steam coal shipments were committed and priced at an average per ton realization of $66.78; and 100 percent of the midpoint of anticipated PRB shipments were committed and priced at an average per ton realization of $12.83.  Alpha's expected range for the cost of coal sales per ton in 2012 is $75 to $79 in the East, compared to the prior guidance range of $72 to $77.  The increase in Eastern cost of coal sales per ton is due to the reduction in expected shipment volumes and a mix shift with proportionally more metallurgical and less thermal coal shipments.  The expected range for the cost of coal sales per ton in West is unchanged at $10.50 to $11.50.  Selling, general and administrative expenses are anticipated to range from $210 million to $230 million for 2012, compared to prior guidance of $220 million to $240 million.  DD&A expense is expected to range between $1.1 billion and $1.2 billion, compared to the prior guidance of $1.05 billion to $1.15 billion.  Interest expense guidance remains unchanged at $175 million to $185 million.  Anticipated capital expenditures for 2012 have been reduced by $100 million to a range of $450 million to $650 million, compared to the prior guidance of $550 million to $750 million.

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