Alpha Natural Resources Inc. announced that it will eliminate 1,200 jobs, nearly 10 percent of its workforce, and shut eight mines across West Virginia, Virginia and Pennsylvania as it tries to weather the worst coal industry downturn in decades.
Alpha Natural Resources said it will now focus on expanding metallurgical coal operations, with the expectation that those markets will rebound. It will also invest in lower-cost thermal-coal operations more likely to find customers, either overseas or at power plants that are closer to mining operations and rely on thermal coal for base-load electricity generation.
“What we’re dealing with are both structural changes as well as cyclicality in the business,” said Alpha chief executive Kevin Crutchfield in an interview with The Wall Street Journal.
The weak demand hitting both the metallurgical and thermal sides of Alpha’s business have accelerated plans discussed shortly after its $7.1 billion acquisition of Massey Energy in June 2011. The deal, which roughly doubled its size, made Alpha the world’s third-largest producer of metallurgical coal, behind the BHP Billiton-Mitsubishi Alliance and Teck Resources Ltd.
Alpha said it will reduce coal output by 14.5 Mt (16 million st) by early 2013. The production cut represents 15 percent of its 2011 coal output and will include mostly thermal-coal operations in Appalachia and in Wyoming’s Powder River Basin. About 10 percent of the cuts will come from lower-quality metallurgical-coal operations.
The cuts follow other closures and layoffs at the company’s mines earlier this year and reflect the recent dramatic shift in coal markets as utilities have favored cheaper natural gas over coal and overseas demand for metallurgical coal used by steelmakers has fallen off sharply.
Every major U.S. coal producer has announced production cutbacks this year to try to help bring supply more in line with demand. Patriot Coal Corp., filed for bankruptcy protection in July, after announcing mine closures and layoffs focused in West Virginia and Kentucky and losing a metallurgical-coal contract this spring. Analysts predict that U.S. demand for coal will fall by 10 percent this year, or roughly 91 Mt (100 million st).
Regulatory pressure from the Obama administration has also been blamed by many in the industry.
This summer, OhioAmerican Energy, Inc., announced it would close its coal mining operations in Brilliant, Ohio. The company’s press release cited “regulatory actions by President Barack Obama and his appointees” as the “entire reason” for the mine’s closure.
Alpha said the restructuring will result in $150 million in overhead cost savings.
At the same time, Alpha, which has 1.3 Gt (1.5 billion st) of metallurgical-coal reserves and the ability to export up to 27 Mt/a (30 million stpy), said it expects demand for metallurgical coal to grow from new steel mills planned or under construction in Asia, South America and elsewhere.