MORGANTOWN, WEST VIRGINIA – Coal producer Alpha Natural Resources said Tuesday it was cutting production by 16 million tons and eliminating 1,200 jobs companywide, laying off 400 workers immediately by closing mines in Virginia, West Virginia and Pennsylvania.
The mine shutdowns start Tuesday, while the rest of the layoffs will be completed by the end of the first quarter after Alpha fulfills current sales obligations, Chief Executive Officer Kevin Crutchfield said. In all, the layoffs amount to nearly a tenth of Alpha’s 13,000-person workforce.
Alpha said it was closing four mines in West Virginia, three in Virginia and one in Pennsylvania. They are a mix of deep and surface mines, and all are non-union operations.
Alpha didn’t immediately name the mines because it wanted to inform all the workers first.
Company spokesman Ted Pile said most of the displaced workers may eventually be rehired, either assigned to new jobs in other locations or replacing outside contractors. Only 150 workers in West Virginia and three in Pennsylvania will not have any other employment opportunities with the company, he said.
Though some miners will stay on to seal the operations, most will either be reassigned or laid off immediately.
Support positions will also be cut proportionally as Alpha reduces its operating regions from four to two, Crutchfield said, and two executives will retire Nov. 1.
It wasn’t immediately what other states would be affected by the layoffs.
Crutchfield said the shutdowns and layoffs are a necessary part of ensuring Alpha survives in what has become a difficult U.S. market, where coal companies face a dual challenge: Power plants are shifting to cheap, abundant natural gas, while companies like his face “a regulatory environment that’s aggressively aimed at constraining the use of coal.”
“We think the actions we’re taking are aimed at getting ahead of this on a proactive basis and getting set up for 2013 going forward,” he said.
Bristol, Va.-based Alpha will cut production 16 million tons by early 2013 and reduce overhead by $150 million as it shifts away from thermal coal used in domestic power generation to concentrate on metallurgical coal used in steelmaking overseas.
Globally, “there remains a structural undersupply” of metallurgical coal, Crutchfield said, and Alpha expects to see demand grow by more than 100 million tons by the end of the decade.
Alpha’s $7.1 billion acquisition of Massey Energy helped create “one of the most valuable met coal franchises in the world,” Crutchfield said, effectively doubling its production potential. Alpha now has the world’s third-largest supply of coal.
Alpha has 25 million to 30 million tons of export capacity through the East Coast and the Gulf of Mexico, giving it the ability to scale up exports quickly, he said. The global sales and marketing initiatives will be led by Brian Sullivan, the current president of Alpha Australia LLC. He’s transferring to the U.S. to fill the vacant post of chief commercial officer.
About 40 percent of Alpha’s production cuts will come from high-cost eastern mines “that are unlikely to be competitive for the foreseeable future,” Crutchfield said, while about half will occur in the Powder River Basin, the largest coal-producing region in the U.S. The basin is located in northeast Wyoming.
Alpha’s Wyoming operations, Alpha Coal West, consist of the Eagle Butte and Belle Ayre surface coal mines. Together, the mines have about 650 employees and produce about 50 million tons of coal a year, according to the Wyoming Mining Association. The number of layoffs that might occur there was unclear.
“We’re still trying to figure out, with the reduction in production, what our operations will look like,” said Mike Lepchitz, spokesman for the Belle Ayre Mine.
Crutchfield said “the elimination of jobs on this scale is something I take very seriously.”
“Unfortunately,” he said, “we think we have to do it to set the company on the right foot going forward.”
In the long run, the new strategy will create a leaner, more agile company that can readily adapt to changing market circumstances, he said.
Alpha will try to find openings for some of the laid off workers in other locations or in contractor positions, but that will take time.
Some politicians were quick to pounce on the announcement as further evidence that President Barack Obama’s administration is waging a “war on coal” through new air-pollution standards, but many U.S. power companies have long planned to close or convert some of their aging, inefficient coal-fired plants.
Crutchfield acknowledged that natural gas is currently a less expensive option for those utilities but predicted that will change. Eventually, the price of gas will rise, he said, and in the long term, so will Americans’ power bills.
“I absolutely, unequivocally believe that,” he said, citing coal prices that have been historically “relatively flat” and natural gas prices that have been “very volatile.”
Although Alpha stock had dropped more than 5 percent by midday, at least one analyst commended the new corporate strategy. Sterne Agee’s Michael Dudas said believes the market is underestimating Alpha’s value.