As power plants use less coal, Alpha Natural cuts jobs

Reuters News

9/18/2012 7:46:18 AM - Reuters News

By Ernest Scheyder

(Reuters) - Coal miner Alpha Natural Resources Inc is cutting 1,200 jobs, roughly 9 percent of its workforce, as increased use of natural gas for power generation dents demand.

The company, which is shifting its focus to more lucrative steel-making coal, is temporarily closing eight mines in Virginia, West Virginia and Pennsylvania.

The mine closures and production curtailments will reduce annual coal output by about 16 million tons, the company said. It produced 1.1 billion tons in the United States in 2011.

"We believe there are solid opportunities for diversified suppliers like Alpha to produce and sell thermal coal profitably into a smaller domestic market and to customers in new markets overseas," Chief Executive Officer Kevin Crutchfield said in a statement.

Thermal coal is used to generate electricity, and metallurgical coal is used to make steel.

As shale-derived natural gas has become cheaper in the past few years, many U.S. power companies are opting to use it, rather than thermal coal, to generate electricity.

So far in 2012, U.S. demand for electricity has slipped, and coal and natural gas now have nearly equal shares of the power generation market. Coal has historically had the larger market share.

Alpha said its U.S. thermal coal business was shrinking and that it would focus on supplying coal to fewer plants, which can survive a "stricter regulatory regime."

"Overall, this is a positive for Alpha Natural and for the industry," said CRT Capital Group analyst Kuni Chen, who expects the U.S. thermal coal market to bottom in 2013 before recovering in 2014.

Alpha shares have jumped 26 percent in the past month on broader macroeconomic factors, especially China's decision to boost stimulus spending, Chen said.

Alpha will offer some of the affected employees jobs elsewhere in the company.

In June, Alpha said it would stop production at four mines in Kentucky, reduce thermal coal production and slash 150 jobs.

Shares of Abingdon, Virginia-based Alpha were up 0.4 percent at $8.11 in premarket trading.

(Reporting by Ernest Scheyder in New York and Swetha Gopinath in Bangalore; Editing by Sriraj Kalluvila and Lisa Von Ahn)