Alpha Natural Resources (ANR, Financial) launched its key program, "Running Right," and expects to lower its job entries much further during 2015, improve its environmental performance and enhance its operations. Also, the management targets recording no fatalities and approximately 50% lowering of the mining-linked injuries in 5 years.
Trying to improve
During 2014, Alpha lowered its remaining 2015 convertible debt by about 20% from $194 million to $154 million, concluded a senior secured second lien notes worth $500 million, traded nearly 3.5 million shares of Rice Energy for about $91 million in cash and was left with over $6 million Rice Energy shares, worth about $127 million by December conclusion.
Alpha restructured and expanded its senior secured credit facility and recognized an innovative $200 million accounts receivable securitization service and received more than $200 million in cash from the sales of business interests and key asset disposals that include the earlier declared sale of its Amfire operations and the cash proceeds received from the combined business with Rice Energy.
The targeted efforts of Alpha to optimize its operations and reduce the operating costs significantly are believed to drive notable top-line growth for the company and improve investor returns.
Some positives
Still, Alpha is forecast to hugely benefit from the overall reduction in oil prices with Alpha being a major user of diesel with yearly consumption of nearly 45 million gallons, out of which nearly 55% or 25 million gallons is witnessing suitable market growth environment.
Alpha is rather hedged from the significant affects of the decline in the oil prices, given the company’s major input is diesel. Therefore, Alpha is expected to reduce the overall costs and, thus, improve the annualized savings.
Alpha has entered into a key joint venture with EDF, which has made significant progress in signing innovative leases and is extremely well positioned to achieve a significant 25,000 acre objective. Further, several other rigs are expected to have become operational and should enhance the flexibility of the joint venture in preparing several phases of growth and enable to conclude six wells by the year conclusion.
The key joint venture with EDF is believed to add several other major rigs in the already robust active rig portfolio of the company. Also, the expanding demand for steel across the globe seems to be robust and attracts greater energy investments.
The significant expansion in demand for U.S. gas exports is estimated to considerably boost the price benchmark for Henry Hub gas, currently priced at approximately $2.64 per mmBtu. Hence, if the key prices recover to approximately $5 per mmBtu levels, as viewed last year, and holds constant at these levels for significant amount of time, it might significantly benefit the growth prospects of Alpha Natural Resources.
Alpha currently carries a Zacks Rank #2 (Buy), which is believed to be an indication of outperformance and highlights the robust earnings profile of the company.
The major demand expansion for the U.S. gas exports is believed to enhance the price marked for Henry Hub gas and thus, benefit Alpha with improved top line growth and better investor returns.
Conclusion
Overall, the investors are advised to avoid investments into the Alpha Natural Resources, Inc. looking at the declining growth and revenue prospects as indicated by the PEG ratio of -0.06. The profit margin of -20.42% depicts no profit but loss. Moreover, Alpha is hugely debt-burdened with a significant total debt of $3.90 billion against smaller total cash of $1.16 billion only, restricting the company to plan for future growth investments.
