Alpha Natural Resources Offers First Look At 2011 Cost Guidance

Alpha Natural Resources

introduced 2011 cash cost guidance for both PRB and Eastern operations at levels significantly higher than we had anticipated. East costs are being driven by difficult geology at the company's longwall and other operations, increasing levels of expensive purchased coal, increased regulatory scrutiny, and a larger portion of metallurgical vs thermal tonnage. Guidance is $58-63/ton for next year, above our previous expectations of $55.40 and $55.50 for 2010 and 2011, respectively. PRB costs were guided at $9.25-9.75/ton versus Dahlman's $8.75 and $8.80 forecast for 2010 and 2011 due to higher royalties on higher sales prices and the expensing of capitalized costs at the Eagle Butte operation. Dahlman Rose has updated its earnings estimates to reflect higher cost expectations in 2011 and 2012. Despite the challenging quarter, Alpha continues to offer investors upside potential due to its large open met position as well as its low-cost longwall thermal production in Northern Appalachia. Dahlman is reiterating its Buy rating and adjusting the price target to $52 from $58. ANR is trading higher at $45.06