Alpha Natural Resources: An in-depth analysis (Part 3 of 9)
Revenue generation and differentiation
Similar to competitors in the coal industry (KOL), Alpha (ANR) is engaged in the production, purchase, and sale, or resale of thermal and metallurgical coal to various customers globally. As mentioned earlier, it supplies coal to over 170 different customers worldwide spanning over 29 countries. The thermal coal that the company sells mainly supports electrical utility companies and manufacturing industries. Customers in the steel-making industry use its metallurgical coal, also known as coking coal, which is a crucial ingredient in the steel production process.
Alpha is different from their closer competitors like Arch Coal (ACI), Peabody Energy (BTU), and Consol Energy (CNX) because of its strong presence as the nation’s leading supplier and exporter of metallurgical coal across the world. Over the past few years, Alpha has recognized the growing need for metallurgical coal and has slowly shifted its strategy to focus more on metallurgical coal sales. But such a move to capitalize on metallurgical coal demand, particularly from countries such as China, could have backfired. Sales volume of metallurgical coal accounted for just 18% of total coal shipments in 2011 and grew to 23% in 2013. But metallurgical coal’s share of total revenue fell from 54% to 50% over the same period, suggesting the price drop in metallurgical coal was more significant than in thermal coal.
While metallurgical coal has certain become a larger part of Alpha’s sales, thermal coal still remains an important part of the company’s business. In 2013, despite thermal coal accounting for 77% of Alpha’s coal sales volume, it represented 50% of the company’s revenue, mainly attributable to the lower thermal coal sales price from its lower rank, abundance of supply, and mining costs.
As of January 31, 2014, Alpha has locked in 56% of its metallurgical coal at an average price per ton of $94.66, 76% of its eastern steam coal at an average price per ton of $58.88, and 98% of its western thermal coal at an average price of $12.12 per ton.
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 4 - Alpha Natural Resources: Locating the company’s customers
- Commodity Markets
- Alpha Natural Resources