November 2, 2012 / 11:44 AM / 5 years ago

UPDATE 2-Alpha Natural's output cuts start paying off, shares rise

* Says suspended operations at 12 mines this year

* Suspensions to reduce overhead costs by $150 mln

* Avg cost of coal sales per ton falls 14 pct in 3rd quarter

* Says thermal coal market in US has rebounded

* Shares up 9 pct; stock among top percentage gainers on NYSE

By Thyagaraju Adinarayan

Nov 2 (Reuters) - Alpha Natural Resources Inc, the third-largest coal producer in the United States, reported a smaller-than-expected loss as production cuts helped blunt the effect of weak prices, sending its shares up 9 percent.

The company, which supplies thermal coal for power generation and metallurgical coal for making steel, suspended operations at more than 12 mines this year.

These suspensions, which began in September and will continue through early 2013, are expected to reduce annual recurring overhead costs by $150 million, the company said.

"The company is doing the right things in the face of an ugly market that doesn't look set to turnaround anytime soon," analysts at Tudor Pickering Holt Energy said in a note.

Cutting high-cost production and reducing capital expenditure will help the company, they added.

Miners have been forced to cut production, especially in the high-cost Appalachian region, because of weak coal prices.

Major U.S. coal producers have slashed output to bring supply in line with demand. Patriot Coal Corp, which has been affected the most by the drop in prices, sought court protection from its creditors in July.

Alpha said it cut production at a time when it is uneconomic to produce thermal coal at most U.S. mines.

Metallurgical coal prices have also fallen as the market is oversupplied, Chief Executive Kevin Crutchfield said in a statement on Friday.

Cutting production at high-cost regions has paid off for Alpha, which operates mines in Virginia, West Virginia, Kentucky, Pennsylvania and Wyoming. The average cost of coal sales per ton in the third quarter fell 14 percent from the second quarter.

Shares of Alpha Natural, which have fallen 57 percent so far this year, were trading up 9 percent at $9.65 in early Friday trade, making it one of the top percentage gainers on the New York Stock Exchange.

WORST IS OVER

Alpha, which maintained its coal shipments outlook for the current year, said the thermal coal market in the United States has rebounded from its low point in the spring of 2012.

Closest rivals Peabody Energy Corp and Arch Coal Inc surprised the market with better-than-expected results, as cost cutting measures paid off and there were signs of a pick-up in demand.

U.S. coal players were hurt by a dip in natural gas prices as power producers chose the cheaper fuel for electricity generation.

U.S. natural gas prices plunged from a peak of about $5 per million British thermal units in 2011 to a decade-low of $1.90 earlier this year.

However, the recent spike in prices to $3.70 may re-ignite power producers' interest in coal.

Alpha Natural reported a net loss of $46 million, or 21 cents per share, for the third quarter. Revenue fell 30 percent to $1.63 billion.

Analysts on average expected a loss of 45 cents per share on revenue of $1.68 billion, according to Thomson Reuters I/B/E/S.

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