Alpha Natural Resources Faces Labor Bottlenecks with Retiring Miners

Alpha Natural Resources (NYSE:ANR) is facing a situation at its mines, wherein almost a quarter of its workforce may retire within years of each other in the coming years. Coal miners have long and stable careers and with the hiring being slowed down after the 80s’, a major portion of its miners will retire and could create a potential labor bottle-neck at the mines. ^[1] Alpha Natural Resources engages in the production, purchase and sale/resale of Industrial and Metallurgical coal. The company also earns revenues by providing freight and handling services to its coal customers. Alpha Natural Resources competes with other coal producers like Peabody Energy (NYSE:BTU), Arch Coal (NYSE:ACI) and CONSOL Energy (NYSE:CNX).

We have updated our the Trefis model for Alpha Natural Resources taking into account the merger with Massey Energy. We have a $33 price estimate for Alpha Natural’s stock, which is roughly 25% above the current market price.

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Before any of the new recruits hit the mines, they spend more than a year in training. The expertise required to strike a balance between mining and safety takes time to develop with the new miners working along-with mature, expert miners as a part of their learning process. Mining industry does not witness a lot of attrition and the miners with their continued learning process have long careers. therefore, once the manpower requirements at a mine are fulfilled, the hiring of new recruits is limited.

Over the years, coal mining has become a less lucrative option for the youth chosing their career paths, primarily due to the health hazards associated with it. Therefore the company has to provide additional incentives and higher wages to lure fresh graduates. Alpha natural resources, as a part of their hiring drive, called “Next Generation Program”, hired around 300 miners in 2004 to prepare for the mass retirement.

Additionally, going forward the company will also face significant expenses towards retirement benefits and compensation than in the past, which will essentially have a negative impact on the company’s bottom-line.

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1. Alpha Natural Prepares For Retiring Miners, WYCB [↩]