More Asset Sales Ahead for This Coal Miner

Coal miners cannot count on meaningful short-term improvements in the coal market. It is clear that cost-cutting alone will not bring coal stocks love from investors. The next logical step is to optimize their asset portfolios. Alpha Natural Resources (NYSE: ANR  )  recently announced that it is selling its 50% interest in the Alpha Shale Resources Joint Venture with Rice Energy for $200 million of Rice common stock and $100 million in cash.

In addition to that, Alpha Natural plans to sell $250 million of convertible senior notes due 2020. Do these measures change the big picture for the miner, which has lost 30% of capitalization this year?

Preserving cash
So far, Alpha Natural has succeeded in preserving cash on its balance sheet. The company had $668 million at the end of the third quarter. The sale of its share in the joint venture will bring $300 million more. Alpha Natural will have to wait for Rice Energy's IPO, and then wait for the end of a half-year lock-up period, when the miner will not be able to sell the shares.

Alpha Natural stated that it expected to use the proceeds of the notes offering for the repayment of debt. It's safe to assume that the company will deal with the $408 million of notes that are due 2015. However, this repayment will not change the big picture for the company, as Alpha's debt stood at $3.35 billion at the end of the third quarter.

The ill-timed acquisition of Massey Energy back in 2011 is responsible for this indebtedness. Alpha Natural made the same mistake as Walter Energy (NYSE: WLT  ) , which purchased Western Coal in 2011 too. Since then, coal prices were in a continuous downtrend.

Walter Energy's shareholders continue to pay the price for this precipitate expansion, as the miner's shares are down almost 60% this year. Walter Energy operated with a negative cash flow so far this year, and this has to be changed if the company doesn't want its stock to plummet even more.

More sales ahead?
Alpha Natural committed approximately 7,500 acres and $30 million in cash to Alpha Shale. The company states that it is still evaluating the possibilities to create value from the rest of its Marcellus shale position of approximately 10,000 acres. I think that this position will be eventually sold.

Alpha Natural still carries a lot of debt and does not have the money to expand. Selling non-core and underperforming assets is a logical move. This is what coal miners are forced to do. For example, Peabody Energy (NYSE: BTU  ) has recently announced that it will close the Wilkie Creek Mine in Australia after the completion of the mine's strategic review. Peabody managed to stay cash-flow positive this year. However, the $6 billion of debt continues to put pressure on Peabody.

Bottom line
In my opinion, recent moves do not change the big picture for Alpha Natural. The upside for the stock is limited. The pressure from low coal prices continues. The debt remains at a significant level. Alpha Natural is diversified between thermal and met coal, but in current environment it brings little benefit.

Alpha Natural's financial position is solid, but the company needs an improvement in coal prices to make a real turnaround. Until then, Alpha Natural will struggle to show growth.

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