Coal

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Alpha Resources In The Hot Seat

Ruthie Ackerman, 05.05.08, 6:00 PM ET

With coal supplies tightening around the world U.S. exports have been strong. And sizzling prices have only helped push the coal sector to new highs.

On Monday Alpha Natural Resources led the sector to an all-time high after reporting robust first-quarter earnings and announcing it secured commitments for 2008 that take advantage of the recent surge in coal prices.

“Coal has joined the energy commodity boom and tight supplies are having a meaningful impact on prices, for both prompt deliveries and forward commitments,” said Chairman Michael Quillen.

Alpha Natural Resources (nyse: ANR - news - people )’ shares soared 11.5%, or $5.81, to $56.34 at the close.

Quillen said that after the close of the first quarter, the company secured commitments for 2008 delivery on three-quarters of a million tons of planned metallurgical production, at price levels consistent with recently announced settlements with Japanese steel makers.

“Those prices ranged from $295 to $305 per metric tonne at the port, which correlates to a realized price for Alpha of approximately $240-250 per short ton at the mine,” Quillen said.

The company said it has over 10 million tons of metallurgical coal unpriced for next year, allowing it to take advantage of skyrocketing prices. “We're convinced that supply and demand conditions in both the domestic and international steel markets will underpin a strong price environment going forward,” said Kevin Crutchfield, Alpha's president.

Meanwhile, soaring natural gas prices and the weak U.S. dollar are spurring thermal coal demand both domestically and internationally and high steel prices are forcing steel mills to search for reliable supplies of metallurgical coal, which is used in steel production.

The company contracted almost all of its remaining uncommitted but planned 2008 thermal coal production, which is approximately 340,000 tons at an average price of $87 per ton. Commitments were reached on approximately five million tons of planned thermal production for 2009, at an average price of $79 per ton.

Natixis Bleichroeder analyst Jeremy Sussman said that the $79 price tag on thermal coal, which is used in utilities, is the highest contracted price he’s seen. Sussman said this is good news for James River Coal (nasdaq: JRCC - news - people ) because it has the highest number of unsigned contracts.

James River’s shares shot up 7.9%, or $1.91, to $26.00 at the close.

James River is expected to report its first-quarter results on Tuesday.

For the first quarter Alpha’s net income more than tripled to $25.5 million, or 39 cents a share, from $8.3 million, or 13 cents, a year earlier, well above analysts’ forecast of 17 cents per share.

Revenue rose by about 20.0% to $516.9 million. Analysts expected earnings, before special items, of 16 cents a share, on revenue of $495.1 million.

For the second quarter, the company expects a charge of $14.5 million on buy back of senior notes.

The company also revised its 2008 production targets to a range of 24.5 million to 25.5 million tons, an increase of 500,000 tons due to better efficiency and new mine projects.

Alpha also boosted its average coal price prediction for the full year to between $70 and $71 per ton from $62 to $63 previously.

The coal sector was on a roll on Monday. Massey Energy (nyse: MEE - news - people ) jumped 7.4%, or $3.90, to $56.71, while Arch Coal (nyse: ACI - news - people ) gained 4.5%, or $2.67, to $61.92. Consol Energy (nyse: CNX - news - people ) increased 4.9%, or $4.14, to $88.43 and Peabody Energy (nyse: BTU - news - people ) moved up 2.1%, or $1.31, to $63.71.