The coal sector continues to be hammered with declining prices and lower margins, causing some large miners to continuously report losses. In the case of Alpha Natural Resources (NYSE:ANR), the metallurgical-focused miner is facing lower pricing for the prime coal used to produce steel. Its most recent earnings report showed that the company generated a very shocking profit, however.

At first glance, Alpha Natural suggested that the company produced first quarter 2014 revenue of $1.1 billion and adjusted EBITDA of $289 million. Considering the weaker metallurgical coal markets and that the company only made an adjusted EBITDA of $71.4 million in the prior quarter, these numbers seemed off. After quickly reviewing the details, the gains were based on an asset transaction that was clearly too good to be true

The improvements in thermal coal and weakness in metallurgical coal dovetail with the numbers from Peabody Energy (NYSE:BTU) and again back up the reason for sticking with the best operator in the current climate.

Rice Energy transaction
Alpha Natural reported a pre-tax gain of $250 million from the Rice Energy (NYSE:RICE) transaction -- one has to wonder why it was included in adjusted EBITDA. Again, the main reason for the adjusted figures are to exclude one-time charges or non-cash charges that aren't representative of ongoing operations.

For those that don't recall, Alpha Natural made a deal back in December to sell its 50% interest of the Alpha Shale Resources Joint Venture to Rice Energy for a nice profit. The company received $100 million in cash and $200 million in Rice Energy stock based on the IPO price.

For those not familiar with Rice Energy, the company is a fast growing exploration and production firm in the Marcellus shale. The company is posting over 100% production growth and has seen the stock soar from an opening price of around $21 back in January to around $29 now. The IPO priced at $21 so Alpha Natural has seen a tidy profit on the remaining stock portion.

Coal margins
This quarterly results from Alpha Natural are a classic example of how investors must decipher what numbers are relevant to stock gains and long-term success. In the case of coal miners, a really crucial number is the coal margin per ton. Investors can track the average sales price per ton, but factoring in difference in costs is even more crucial. Every mining basin and region has different costs, and for Alpha Natural the costs per ton declined during the first quarter. Unfortunately, the coal margin plunged to only $3.21 per ton, or nearly half of the sub-standard $6.12 per ton from the same period last year.

In comparison, Peabody Energy generated an average domestic coal margin of $5.30 per ton, down from $6.18 per ton last year. While the numbers can't be directly compared due to the different regions and coal mix, the rate of change is decidedly more positive at Peabody. While the large international coal miner had lucrative Australian margins crushed to nearly zero, the company owns Midwestern coal that still generates solid margins of $12.72 per ton.

Bottom line
Alpha Natural Resources remains a high-risk stock with the coal markets scraping along the bottom. The headlines numbers should be ignored and investors should focus on the declining margins. The Rice Energy transaction provides the company with a solid gain and a cash influx to help survive the current weakness in the coal markets. It doesn't solve the long-term operational and pricing issues, however.

Peabody Energy remains a great way to invest in a turn in the coal markets with Alpha Natural Resources being a long-shot play.

Mark Holder and Stone Fox Capital clients own shares of Alpha Natural Resources. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.