Alpha: The Leader of the U.S. Met Coal Pack

The hard part about being a pack leader is remaining one.

For now, at least, Alpha Natural Resources (NYSE: ANR  ) is the recognized silverback among U.S. producers and exporters of metallurgical coal. Teck Resources (NYSE: TCK  ) wears that crown for Canada, and after spinning off Patriot Coal (NYSE: PCX  ) a few years back, Peabody Energy's (NYSE: BTU  ) surging met coal production is focused squarely upon Australia and elsewhere.

Because met coal is such a lucrative product now that China and India have carried global demand to unprecedented levels, Alpha can hardly rest on its laurels.

Alpha grew earnings per share by 33% (to $0.32) for the second quarter, and revenue surged 167% to $894 million thanks to a $430 million contribution from a major strategic acquisition. Last year's acquisition of Foundation Coal Holdings propelled the company's second-quarter met coal shipments 122% higher than the prior year mark, but I do not consider the company's present met coal production volume of 3.3 million tonnes in the quarter an untouchable mark for the pack of hungry competitors beneath Alpha.

With some Appalachian producers struggling to navigate a revamped regulatory environment, I consider Cliffs Natural Resources (NYSE: CLF  ) and Walter Energy (NYSE: WLT  ) two potential contenders for met coal market share growth. Don't forget, Cliffs almost swallowed Alpha itself before the financial crisis hit.

On the other hand, Alpha has swiftly doubled available liquidity from $743 million to $1.5 billion in the year since that landmark Foundation acquisition. That's enough capital to swallow an attractive producer like International Coal Group (NYSE: ICO  ) ... without chewing. International Coal anticipates 2010 volume of at least 2.7 million tonnes of met coal as part of about 16.7 million tonnes of total production, and would make a fine feather in any miner's cap.

The strong scent of global demand
Despite recent, relative softness in met coal pricing and imports into China, Alpha's unyielding confidence in the long-term strength of this structural shift in global coal markets is clearly shown by the company's decision to leave 83% of its projected Eastern met coal shipments for 2011 unpriced through the second quarter.

For any Fools who remain unsure whether there truly is a meaningful structural shift under way in these global coal markets, Alpha's apt description of the dynamics of thermal coal exports may finally provide the welcome corroboration:

This rapid Asian demand growth for seaborne thermal coal is straining the export capacity of Indonesia and Australia which together account for approximately 50 percent of the world's seaborne thermal supply. To keep up with growing Asian demand, South African and Columbian coals that traditionally served the European market are increasingly moving into the Asian market, which should create an opportunity for U.S. exports into the Atlantic basin in the near future.

Incredibly, Alpha reports that China's electricity consumption rose by 21% during the first half of 2010. As previously reported, China's steel demand is expected to grow about 8% in 2010. With demand growth of that nature afoot, investors are strongly urged to keep one foot running with the coal pack.

The coal tag in the Motley Fool CAPS community lists 30 coal companies. Find out what other investors are saying about the stocks you're watching, or share your Foolish thoughts with us. CAPS is free and fun!

Fool contributor Christopher Barker is the Nat King of Coal and the wild boar of iron ore. He can be found blogging actively and acting Foolishly in the Motley Fool CAPS community under the user name TMFSinchiruna. He tweets. He owns shares of Peabody Energy. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a stainless disclosure policy.


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