Alpha Natural Resources: An in-depth analysis (Part 5 of 9)
The largest export terminal
As one of the largest coal producers in the world, Alpha (ANR) has an extensive coal export facility that allows it to cater to global coal needs. The company’s export facility is able to ship out more coal than any other coal producer in the U.S. To date, it’s able to ship coal in the range of 25 to 30 million tons annually through these ports. Its shipping ports are located both in the East Coast and Gulf Coast where it controls a significant portion of various companies. Its acquisition of Massey Energy gave it access to Pier IX terminal in Virginia. Plus, Alpha owns 41% of Dominion Terminal Associates in Virginia and is also the largest shipper in the Norfolk Southern’s Lamberts Point Terminal.
Alpha’s industry leading export facility is crucial to its survival and growth for both its metallurgical and thermal coal segments, as they account for a significant portion of the company’s revenue. In all, Alpha’s export facility allows the company to serve 29 countries globally as of fiscal year 2013 and will continue to grow should the demand for U.S. coal rise. The company will primarily face competition from producers in Australia, Canada, and other international coal producers. There is also an inherent foreign exchange risk when exporting coal. In general, the company has little control over such factors and can only prepare itself better through long-term supply agreements and other management strategies that might help mitigate weaker coal market conditions.
Benefits of the port
Alpha’s control and interest in various ports allows it to earn some extra revenue through third party use of the excess capacity when unused. If we use the assumption that the U.S. is poised to be more of a coal exporter due to cheaper natural gas prices, rising international demand for U.S. coal, and Obama’s efforts to curb the less environmentally friendly coal consumption, Alpha’s extensive capacity at the port can be seen as a long-term positive sign for the company.
Whereas, for the short-term outlook, as Arch Coal (ACI) and Peabody (BTU) both have a joint venture in the Dominion Terminal Associates port, it does not necessarily give Alpha a competitive advantage over these two companies. Another major player Consol Energy (CNX) also owns its own port. It would give Alpha a competitive advantage over smaller competitors who do not have ports in their asset base.
Like every coal company (KOL), Alpha’s export coal is sold at the port in which the customer is responsible for further shipping costs. Investors should also keep in mind that even though a larger share of Alpha’s coal shipments are coming from the export market, rising from 15% of total coal sales volume in 2011 to 22% in 2013, export sales revenue as a percent of total revenue has been falling, likely reflecting loose supply and demand balance in the international coal, as global economic activity has slowed quite considerably over the last few years and new supply has entered the market.
Browse this series on Market Realist:
- Part 1 - A must-know investor’s guide to Alpha Natural Resources
- Part 2 - Alpha Natural Resources’ dominant presence in the US mining basins
- Part 3 - Alpha Natural Resources: Revenue generation and other advantages
- Commodity Markets
- Alpha Natural Resources