Alpha Natural Resources, one of the largest coal miners in North America, is set to report Q1 earnings results tomorrow before the open with a conf. call to follow at 11:00amET.
First quarter earnings expectations are set at a loss of ($0.56) with revenues of $1.33 bln. When ANR last released earnings results, the co reported a Q4 loss of $0.19 per share, excluding non-recurring items, $0.33 better than the Capital IQ Consensus Estimate of ($0.52); revenues fell 24.7% year/year to $1.56 bln vs the $1.56 bln consensus.
ANR has two reportable segments:
1) Eastern Coal Operations (consists of the mines in Northern and Central Appalachia, the co's coal brokerage activities and its road construction business)
2) Western Coal Operations (consists of two Powder River Basin mines in Wyoming)
ANR markets a wide array of thermal coal products to electric utilities and industry across North America, and is the largest U.S. supplier of metallurgical coal for the world's steel industry. Thermal coal (aka steam coal), which is primarily purchased by large utilities and industrial customers as fuel for electricity generation, accounted for ~ 81.4% of the co's 2012 coal sales volume. Metallurgical coal, which is used primarily to make coke, a key component in the steel making process, accounted for ~ 18.6% of the co's 2012 coal sales volume.
Weakness in coal prices have been a recent concern in the industry and as a result, some companies have cut production to try and help boost prices industry-wide. Costs have been an issue for some of these coal names as well.
With the natural gas/thermal coal switching going on over recent months, thermal coal exports all of a sudden become more important to coal producers.
Since electric companies have been switching to using more natural gas in the U.S. over thermal coal (A key catalyst that has helped hurt shares of coal stocks in recent months), it's important to note the geographic breakdown of some key countries and their thermal coal use for electricity production (Note: The coal-to-nat gas switching is a topic that I have discussed many times now, so it's not a new theme. However, it should be a sustainable one).
The U.S. creates about 34% of its electricity by using thermal coal, about 32% using natural gas, 18% using nuclear... the rest is using renewables and other.
In 2008, 48% of the electricity produced in the U.S. was done so by using thermal coal. In March 2012, this number fell to 34%, which was the lowest level since the EIA (branch of the Dept. of Energy) began keeping records 40 years ago.
So clearly, the trend in using thermal coal to produce electricity in the U.S. has been on a serious downtrend.
However, the 34% breakdown for the U.S. is at the low end though when compared to a list of countries that primarily use coal to generate electricity.
In South Africa, 93% of the electricity generated was done so using thermal coal, in Poland its 90%, China 79%, Australia 76%, Kazakhstan 70%, India 69%, Israel 63%, Czech Republic 56%, Morocco 55%, Greece 55% and Germany 44%. So just because the U.S. is reducing thermal coal usage doesn't mean there aren't other markets to sell to. This is one area Alpha Natural Resources benefits from.
Fortunately for ANR, the company has more export terminal capacity than any other U.S. produces (25-30 mln tons). ANR exports to Europe, Asia, Africa/Middle East, Canada Mexico and South America.
Below is a YTD breakdown of these shipments from the end of February:
Europe (8.8 mln tons)
Asia (5.2 mln tons)
Africa/Middle East (3.8 mln tons)
Canada Mexico (2.0 mln tons)
South America (1.5 mln tons)
In 2012, ANR's exports shipments were 21.3 mln tons (15.4 mlns tons are met coal and 5.9 mln tons are thermal coal) Total U.S. YTD export shipments are 66.7 mln tons. For ANR, that shows about 24.3% market share for export shipments. ANR total shipments in total in 2012 were 109 mln tons. Therefore, the co exports ~20% of its total coal volumes.
In terms of revenue, ANR derived 42% of its total 2012 revenue from coal sales made to customers outside of the U.S. (44% in 2011), primarily in Canada, India, the Netherlands, South Korea and Turkey.
Globally, ANR ranks number three in metallurgical coal by shipment volume. On the metallurgical coal side (met coal), ANR is a leading U.S. supplier and exporter of met coal.