Alpha Natural Resources Inc. announced the recommencement of longwall operations at its Cumberland underground mine in Greene County, Pa. The mine owned by the company’s business wing, Cumberland Coal Resources LP, was temporarily shut down since Jul 15, 2013.
Alpha Natural Resources worked at a brisk pace to mitigate the adverse geological conditions and managed to bring the mine back into operations. With the resumption of operations, the company is now focused on increasing production levels while simultaneously keeping a tab on the geological status as well as mine safety.
The almost one month of production lag will hit the company’s shipment in the third quarters and will also lead to cost pressure. The Cumberland mine is one of the highest contributors to Alpha Natural Resources’ margins. The shutdown could not have come at a worst time especially with a challenged U.S. coal market.
However, the company has been braving the headwinds with its cost saving measures, production cutbacks and capital restraints. We believe these steps will prove to be critical for Alpha Natural Resources to fight against the U.S. coal downturn in the near term.
Furthermore, the company must brace itself to face the tough market dynamics with natural gas prices declining with rising inventory. The World Bank’s latest announcement of reducing coal project funding in developing nations might result in thermal coal oversupply, which would affect prices.
Despite these limitations, the coal market is expected to rebound in the long term with signs of growth projected after 2016. In addition, the nearly 3% rise in steel demand in 2013 and 2014 will help spur the company’s metallurgical coal operations. At the moment, Alpha Natural Resources has a Zacks Rank #3 (Hold).
Other coal operators, however, looking good in the market are Zacks Ranked #1 (Strong Buy) Alliance Holdings GP, L.P. (AHGP - Snapshot Report), Alliance Resource Partners L.P. (ARLP - Snapshot Report) and Oxford Resource Partners, L.P. .