The coal market is on a downtrend, and many companies in this market are going through bad times. Alpha Natural Resources (ANR, Financial) is one such company which is the victim of this declining coal market. The stock is presently trading at a 52-week low. But despite the challenging coal market, management claims to have performed proactively in the recently reported quarter. The situation is grave and Alpha should find a way out of it soon to prevent losing market share further. In fact the management is also serious about this situation and is focusing on various aspects to improve its profitability.
Alpha is trying to hold steady
Alpha knows the benefits of a good balance sheet therefore it is focusing carefully on managing its liquidity and maintaining a good balance sheet. With a good balance sheet, Alpha expects to attract investors which will improve its market share and improve its position in the market. It is also establishing a new $200 million account receivable securitization facility which will further give shape to its liquidity position in future.
Alpha is further counting on the Marcellus gas joint venture in association with EDF trading resources which is having 50% ownership in the venture. EDF’s expertise in the gas production is well known and its gas marketing expertise is expected to benefit Alpha largely in the coming days. Alpha is also receiving good traction in the drilling segment as well. It has recently received two drilling permits from Pennsylvania DEP. Further, Alpha is thinking this market to gain steam in coming years which might help it to establish its foot print in the drilling segment as well.
Looking ahead
Moving ahead, Alpha is also concentrating on letting off its non-core assets to improve its profitability. It has recently signed a deal with Rosebud mining company and with it, it is divesting its AMFIRE assets in Pennsylvania. Alpha signed this deal for $86 million which also include $75 million cash transaction. This deal was beneficial from two perspective, with this deal Rosebud gained synergies and transportation advantages while Alpha received a fair value for its non-core assets.
However, Alpha Natural is defensive about the thermal coal market as the recent price trends indicates challenging thermal coal market in future. The growth of this segment will be further challenged by harsh weather and challenging economic barriers. Further, the softer natural gas prices, increased imports of thermal coal and declining usage of thermal coal have further contributed to weak pricing and demand.
Conclusion
To sustain this challenging environment, Alpha Natural is focusing majorly on rationalizing its product base, reducing cost to improve profit margins which will indeed improve its efficiency. The main focus of the company is to strengthen its long term prospects and it is expecting the pricing to come back on track soon.
