Alpha Natural Resources' Solid Results Just the Beginning of a Coal Boom

As I keep saying, metallurgical coal is about where fertilizer was 15 months ago - we have a long wave of earnings estimates upwards coming in the year + ahead, with the biggest pushes up in earnings coming in about a year. Alpha Natural Resources (ANR) is up about 7% premarket as I check off a fabulous earnings report.... just getting started in a long and winding road up over the next year, I believe.

I wrote a piece on fertilizer in October 2007 about just how wrong these analysts (who are supposed to be industry experts and just follow one sector) were... when a no name like me could see the coming earnings explosion [Oct 23: Analysts Still Doubting the Fertilizer Stocks] - since then estimates for many of these companies have gone up 2-3x in the out years. Replace the word fertilizer with metallurgical coal and check back in 15 months; once again analysts are so... so... so... wrong. And this creates opportunities for us, before CNBC jumps on the bandwagon next Valentine's Day proclaiming the bubble that is coal.

Remember, I switched to this name about a month ago due to it's unhedged metallurgical production [Apr 8: Changing Coal Allocation - Peabody Energy Out - Alpha Natural Resources In] but just about every coal company does have metallurgical coal exposure, it's just a matter of degree (and thermal coal ain't too shabby either). While the rest of the world obsesses with the fate of Yahoo (YHOO) [note: what were they thinking?] the rest of the world (once again) moves on.

• Alpha Natural Resources, Inc. (NYSE: ANR - News), a leading supplier of high-quality Appalachian coal, reported a 17 percent improvement in revenues from coal sales in the first quarter of 2008 over the first quarter of 2007 as the company achieved the highest quarterly price realization in its history due to rising metallurgical coal exports and price levels.
• For the three months ended March 31, 2008, Alpha recorded coal sales revenues of $445.7 million compared with $380.2 million in the same period of 2007. Net income for the most recent quarter was $25.5 million ($0.39 per diluted share), compared with net income of $8.3 million ($0.13 per diluted share) in the first quarter of 2007. (Analysts expected $0.17)
• Global supplies of hard coking coals for making steel have tightened considerably due to production and logistics issues in Eastern Europe and Australia. With world steel output climbing an estimated 5 percent in the first two months of the year, prices for metallurgical coal have risen quickly as has international demand. Alpha, the largest exporter of metallurgical coal out of the U.S., experienced a surge of 430,000 tons in its first-quarter exports, year-over-year, which boosted metallurgical coal sales to 42 percent of the company's total sales volumes for the quarter.
• "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 Michael Quillen, Chairman and CEO.
• 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 steelmakers. "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.
• "In addition to improving our price deck for the current year, we've now established a firm benchmark on price discussions for our 2009 metallurgical sales, where we still had considerable planned production -- more than 10 million tons -- left to commit and price as of mid-April," added Kevin Crutchfield, Alpha's president. "We're convinced that supply and demand conditions in both the domestic and international steel markets will underpin a strong price environment going forward."

When you read these numbers, again keep in mind they are selling met coal at $85 this quarter... we are talking $200s (potentially breaching $300) into 2009.Outlook

• Coal supply continues to tighten around the world. While traditional coal exporting nations such as Australia, Poland, Indonesia and South Africa have been subject to supply disruptions or voluntary cutbacks, U.S. exports of both thermal and metallurgical coal have shown sustained strength, up 30 percent on a combined basis in the first two months of 2008 after last year's 19 percent gain.
• Rising natural gas prices and the U.S. dollar's weakness are adding fuel to thermal coal demand both domestically and overseas, while high steel prices have mills searching the world for reliable supplies of metallurgical coal. U.S. steel mills, in particular, finished 2007 with coking coal inventories 34 percent lower than in 2006, at a time when production is needed to restock service center inventories and take advantage of record high steel prices.
• On the thermal side, the company contracted substantially all of its remaining uncommitted but planned 2008 production (approximately 340,000 tons) at an average realization of approximately $87 per ton. Commitments were reached on approximately five million tons of planned thermal production for 2009, at an average realization of approximately $79 per ton.
• Altogether, as of mid-April, Alpha had more than 37 million tons of planned coal production uncommitted and unpriced for 2009 and 2010, including more than 21 million tons of metallurgical coal and 16 million tons of thermal coal. In total, 57 percent of 2009 planned production was uncommitted and unpriced as of April 15, while 87 percent of planned 2010 production was uncommitted and unpriced.

If you want to see a company who is confidant in their long run, and desperate to retain workers in the coming boom, read about the retention packages that came out late last week. (and these guys deserve everything they get, talk about one of the most dangerous, hardest jobs on Earth)

• Alpha Natural Resources, Inc. (NYSE: ANR - News), the nation's leading supplier of metallurgical coal, introduced an unprecedented, multi-year package of rewards and incentives Thursday to the company's more than 3,600 employees.
• The package was presented at Alpha's 58 mining sites in four states. Employees were given ownership in the company in the form of a grant of 25 shares of company stock. Employees were also informed they no longer have to contribute to health, dental and vision insurance premiums. Additional incentives include semi-annual bonuses for operating personnel based on continued service to the company, and rewards for mine rescuers and trainers, including cash payments for participating on the all-volunteer teams and vacation money to use in their time off with families.
• Alpha also unveiled an energy relief/fuel assistance program to help employees cope with higher commuting expenses due to high gas prices.
• Costing more than $13 million in the first year alone, the package is worth more than $3 per hour to the average employee.

This is what you can do when you see years of boom ahead; sort of sounds like General Motors (GM) circa 1950s.[Dec 6: Coal Stocks Quietly in a Bull Market]

Disclosure: Long Alpha Natural Resources in fund and personal account

Comments

[GraqntHudlow]

ALLIED SCIENCE, INCORPORATED
P.O. Box 2629, 4161 Mary Lou Street, Pahrump, Nevada 89041
alliedscience.org Telephone: [phone] E-mail: [e-mail]


Form Project Summary

Project Name:
Allied Science, Incorporated Coal Fired Powerplant Stack Project
Operate commercial factories that convert the smoke and pollution from the stack of a coal fired powerplant to gasoline and diesel in a sealed system.

General Introduction:
Grant Hudlow FOUNDER,CEO
One person can make a difference, has been the driving philosophy for the life of Grant Hudlow. It was this mind set that led to the birth of Allied Science, Incorporated in 1989. Now, nearly two decades later, with a financial commitments base exceeding $7.5 billion, Allied Science, Incorporated carries it’s message of wholesome, values- oriented products across the United States, Canada, and Europe.
“When we reach people, if we can sell a product, great, but we are first and foremost about spreading our message, “ says Mr. Hudlow. “We want people to know that there is an alternative to the sex, violence and profanity that is in so many homes today.”
Mr. Hudlow attended California Institute of Technology and the University of Nevada at Reno
Before spending 13 months on the Korean DMZ, then an industrial turn around expert with Proctor & Gamble, Stewart Warner, Fuller Paint and Fairchild Semiconductor.
Mr. Hudlow left big business to create Allied Science, Incorporated after realizing the need for uplifting, wholesome discussions that carry a positive messages. “I knew this was something I had to do,” Mr. Hudlow says. Creating Allied Science, Incorporated was more of an important work decision than a business one.”
Mr. Hudlow has since named the chemistry to make this new industry possible, lead the design engineering, sold $7,500,000,000 in orders for factories and sold $7,000,000 in orders for the products from the factories around the world. Armed with the belief of his convictions, he has grown Allied Science, Incorporated from a dream to a major international corporation with more than 200 alliances.
Mr. Hudlow enjoys assisting young people in their entrepreneurial aspirations as well as working with and training school teachers and other professionals. His professional accomplishments and community service have been recognized by local churches and local civic organizations.
Mr. Hudlow has two children and one grandchild.
A little know fact about Mr. Hudlow is his love numbers and statistics. Retired CEO, S.B. Devlin says, “No one sees through a problem faster than Grant. He’s a true statistical genius.”

Terry Ellis, Sr.
has valuable engineering and construction contacts. He has hands on management and business experience with Fluor Daniels, Brown & Root and others

Dr. Chuck Baroch,PhD Chemical Engineering, is a retired CEO with Babcock and Wilcox.

Dr. Davis Clements, PhD, is a Chemical engineering Professor at the University of Nebraska in Lincoln, Nebraska.

Gary Smith is a highly regarded Chemical and Petrochemical Engineer with quality contacts and broad work experience. His experience ranges from blending his own gasoline for resale to employment with major chemical companies such as Dow, Dupont and Union Carbide. Mr. Smith has a BS and MS in Chemical Engineering from the Georgia Institute of Technology. Mr. Smith assists with the engineering and construction of the total project and with the management of the complex.

Lawrence G. Erskine, President Bionomics International,Inc., enjoys a solid management and marketing reputation in the USA, China, Japan, Singapore, New Zealand and Australia. Mr. Erskine owns and operates a Hazelnut business in the state of Oregon and ships finished (value added) Hazelnut products around the world. He imports and exports equipment. Mr. Erskine spent 10 years in management with General Foods Corp. He attended the University of Oregon, obtained a BA in marketing from Northeastern University and attended an accelerated MBA (equivalent) course from Harvard University, via General Foods Corp.

Al Avolicino coupled his education in art with his management and leadership skills to become marketing and advertising manager for some of the largest companies in the U.S. Mr. Avolicino will devote his time to establishing contracts with waste generators and creating the necessary educational campaigns. He will hire and train the marketing and sales people. Mr. Avolicino has enjoyed management positions with such companies as General Foods Corp., Servatron,Inc. and Farmer Brothers,Inc.

Frank Lopez CPA, Lopez and Company,Inc. will be handling the tax and accounting responsibilities for the projects. (Background an resumé available on request)
The Allied Sciences, Incorporated team’s strategic alliances include work with the following:
Elko City Council, Phenol brokers all around the world, Economic developers all around the world, BISNIS, USDOC, USDA, US EX-IM Bank, University of Nebraska, Lincoln, UNLV, UNR

3. Funding Request:
$100,000,000 to build, debug and operate a factory that makes $490,000 a day by converting the smoke and pollution from the stack of a coal fired powerplant to 40,000 barrels a day of gasoline and diesel that sells for $.55 a gallon wholesale

Term:
First tranche: $100,000,000 (to get environmental permits $7,000,000 engineering fee: to buy the equipment $32,500,000; to build the plant $25,000,000 labor and $15,000,000 contractors fee; to debug $8,200,000; operating cost to profitability $12,300,000.

Community Impact:
Allied Science will bring 400 new jobs initially; A $20,000,000 annual payroll; A chemical engineering lab to the local community college; Computers to local children; And money for local infrastructure as needed. In a nutshell, Allied Science, Inc. serves the community by contributing a significant portion ( which has been factored into the base product cost and does not affect returns) of the revenues generated from the factory going to support local charities, help fund community City and State Public Services, as well as supporting biotech and medical research organizations.

Environmental:
With the allied Science,Inc. facilities, there is NO burning, therefore NO smoke stacks. NO smoke stack means No air pollution. The residuals are distilled water, which is evaporated, and results in an ash which is stored and conditioned for one year after and is used as a non-toxic powder to strengthen roads, make 19,000 lbs. concrete, and for strengthening wallboard.

Specific Performance:
From date of initial funding, Two months to get environmental permits ; Three months to buy the equipment ; Six months to build the plant; Two months to debug ; Three months to profitability.

Exit Strategy:
At end of fourteen months after funding, Allied Science, Incorporated will contractually begin to return 150% of the amount funded for each project. Allied Science, Inc. expects to complete this process within two years of receiving funding.

Supporting Documents:
15 pages of supporting documents are available on request as an attachment as needed.

10. Letter of Introduction from Bank available at later date.

[torci]

tricky, although it all sounds very promising, i am a bid worried on 3 things.

1. coal prices, i am not that optimistic and can't share your mind that coal prices will rise with energy prices. coal is a quite dirty energy and the pollution in china is huge because of that. i know it is not heating coal what they produce but still.

2 high energy price. since the need diesel, i am a bid affraid that exsactly diesel wil have a boom in the states since a lot of people will change to diesel simply because cars need less diesel

3 labour costs are exploding, will have pressure on the margins

the stock looks quite exepensive but they made some good deals, agree

[Jeff Mitchem]

I am an employee of Alpha's through Brooks Run Mining Co. I assure you that the coal we produce will not stop and we will do all that we can to meet the growing global demand. The quality of this company is unrivaled and I and my friends who work with me are proud to be a part of such strong and caring company.

[User 189583]

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