As Alpha Natural Resources (NYSE: ANR) prepares to head off to the big dance with former rival Massey Energy (NYSE: MEE), we have a welcome chance to take some snapshots before this miner completes the rite of passage and changes before our very eyes.
All things considered, I think this picture came out well. Alpha's fourth quarter was not exactly stellar, with per-share earnings coming in 40% below the prior year's result. The miner experienced some of the same cost pressures and shipment disruptions that Patriot Coal (NYSE: PCX) and virtually every Appalachian operator cited in their respective reports. Alpha observed a 6.7% reduction in its per-ton margin despite stronger volumes and realized sales prices, with merger-related expenses and severe winter weather among culprits.
For the full year 2010, Alpha's remarkable 70% improvement to met coal revenues drove home a 46% boost to income from continuing operations, to $97 million. Full-year adjusted EBIDTA struck a company record, surging 47% to $796 million. On a stand-alone basis, the company sees 2011 production volumes for steam coal remaining essentially flat from 2010 levels, while met coal shipments are poised to surge between 9% and 22% during 2011. 68% of that improving volume has been contracted at an average price of $142.23 per ton, for a healthy 25% improvement (thus far) over 2010 realized prices.
Impressively, when we stir the merger pot to consider the combined company on a pro forma basis, we find Alpha conducting the heavy lifting for combined met coal production of 24 million to 26 million tons in 2011. At the midpoint of estimated production guidance, Alpha's operations would contribute 55% of pro forma met coal production. In subsequent years, I expect Massey's assets -- which account for some 76% of pro forma met coal reserves -- to yield the lion's share of long-term production expansion.
As Alpha and Massey drive off into the sunset, there is one glaring pattern from the industry's fourth-quarter reports that I must again bring to your Foolish attention. Widespread weather-related disruptions to Appalachian railroad coal shipments are easy to understand, given the recent weather pattern, but this Fool considers the sheer number of the region's miners referencing suboptimal railroad service a clear sign that there's more to this story than we know. Massey, Alpha, and Arch Coal (NYSE: ACI) characterized fourth-quarter railroad service in Appalachia as "inconsistent," "subpar," and "poor," respectively. I have it on good authority that these issues relate to one single eastern carrier, and that the shortcomings are operational in nature rather than structural. In short, lack of capacity doesn't seem to be the problem.
Because my review of railroad industry earnings had led me to wonder whether Norfolk Southern (NYSE: NSC) might be experiencing some coal-related issues, my inquiries at the moment are focused upon Norfolk Southern rather than Eastern rival CSX (NYSE: CSX). I will continue to dig for additional insight on the matter, and will report my findings accordingly. Bookmark this link to follow all my Foolish coverage of coal miners and railroads alike.
- Add Alpha Natural Resources to My Watchlist.
- Add Norfolk Southern to My Watchlist.
