Analyzing Alpha Natural Resources’ 2Q15 Cost Performance
Alpha Natural Resources Could Follow Walter Energy into Bankruptcy
Expectation
US coal producers seem to have run out of cost-cutting options in the painful wait for coal prices to recover. Alpha Natural Resources (ANRZ) cut jobs in Appalachia in 1Q15 to save costs. The company also idled a mining complex in Kentucky towards the end of 2Q15 and issued notices to employees in its West Virginia mines this month. The overall impact of the idling and headcount reduction may not be material enough to make markets raise an eyebrow. We’ll look at the company’s 1Q15 cost performance in this part of the series.
Cost of sales per ton
Alpha Natural Resources (ANRZ) reported an adjusted average cost of sales per ton of $37.11 in 1Q15, down from $41.25 in 1Q14. But the cost per ton was higher than 4Q14’s $35.73. The drop in costs over 1Q14 was primarily due to a higher share of low-cost PRB (Powder River Basin) coal in the company’s revenue mix. PRB coal’s share of total volumes went up from 44% in 1Q14 to 51% in 1Q15.
ANRZ and its peers (KOL), including Arch Coal (ACI), Cloud Peak Energy (CLD), Consol Energy (CNX), and Peabody Energy (BTU), are attempting to cut costs amid a difficult industry environment.
Net income
Alpha Natural Resources posted positive net income in 1Q15, supported largely by a $364 million gain on the extinguishment of debt. The company reported net income of $68.2 million, or 31 cents a share, in 1Q15 compared to a loss of $55.7 million, or 25 cents a share, in 1Q14.
Cash flows
The company burned $59.8 million of operating cash in 1Q15 compared to $54 million in 1Q14. It spent $29.6 million on capital expenditure during the quarter, down from $39.7 million in 1Q14.
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