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Investment Overview for Alpha Natural Resources (NYSE:ANR)
Alpha Natural Resources is America's third largest coal producer, with a production capacity of nearly 100 million tons of steam and metallurgical coal. The company provides products such as thermal coal for power generating utilities, custom blend industrial coal for industrial customers, and metallurgical coal for use in the production of steel.
Merger with Massey Energy
On June 1, 2011 Massey Energy and Alpha Natural Resources merged. Alpha's assets and Massey's assets are complementary in nature and provide geographical diversification. After the merger, Alpha owns 150 coal mines and 40 preparation plants and over 5 billion tons of coal reserves. Synergies or cost savings for Alpha are estimated to be around $150 million, which will be realized by the end of the second operating year.
Metallurgical Coal and Utility & Industrial Coal contribute most of the company's value
For 2013, we estimate that revenue per ton for Utility and industrial coal will be about $38 compared to $138 for revenue per ton for Eastern metallurgical coal. However, we estimate that about 87 million tons of utility and industrial coal will be sold in 2013 compared to about 20 tons of Eastern metallurgical coal. Both division's margins have been hit by market conditions, and as such they each contribute about 40% of the company's value.
Freight, Handling & Other much less valuable
Margins for the Freight, Handling & Other division are low, as the revenues and costs for freight & handling mostly balance each other out (the company is primarily just reimbursed for shipping expenses).
Increasing focus on clean coal technologies
As a result of growing focus on climate change a substantial amount of global investments are being made in clean coal technologies that mitigate the environmental effects of conventional coal. Clean coal technologies are generally segmented into three areas of focus: the reduction or elimination of pollutant emissions such as particulates, sulfur and nitrogen oxides; the improvement of conversion technologies to increase efficiency; and the reduction of atmospheric carbon dioxide emissions with the development of carbon capture and storage.
The deployment of clean coal technologies will continue to expand internationally as coal-fired power generation increases to meet escalating electricity demand worldwide.
The U.S. Environmental Protection Agency in its March 2012 announcement imposed carbon emission restrictions on new power plants. The emissions restrictions are nearly half of what existing coal-fired plants produce. In view of this, more gas-fired plants are likely to be set up, leading to a decline in future domestic thermal coal demand.
China's impact on global coal prices
China currently consumes half of the global production of coal, and its demand for coal is likely to continue to increase in the near future. This will be due to increasing industrial activity, which drives demand for both met coal (used in steel production) and thermal coal (electricity).
Natural gas eating into coal demand
Natural gas prices have been extremely low of late, and as a result coal demand has declined as utility companies moved to gas-fired power plants. Natural gas is also considered a cleaner fuel because of its lower emissions.
Gulf Coast could provide additional port space
Export facilities are bring developed along the Gulf of Mexico and Alpha Natural has entered into long term agreements with terminal developers to ship coal using those facilities. The Gulf Coast opens up additional export shipping capacity, which will help drive volumes as well as reduce dependence on domestic consumption.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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