Alpha Natural Resources Inc ANR
Q2 2012 Earnings Call Transcript

Operator: Brian Gamble, Simmons & Co. International.

Brian Gamble - Simmons & Co. International: Wanted to start on the met side. The tonnage signed during the quarter obviously at a lower pricing you guys probably would have liked, can you walk us through what was in that 105 and what you are seeing, you mentioned the discount to the benchmark kind of walk us through product-by-product or market-by-market is to exactly, what you are seeing today and what you expect for the remainder of 2012?

Paul H. Vining - President: This is Paul Vining. Let me approach it this way, we've got upward to sales in to two buckets. The one bucket I'll say maybe was 50% of the tonnage give or take. I'd say it’s a lower quality tonnage. It's some lower quality high-vol B, even C, PCI (indiscernible) same type met coals. The second bucket I'd say is our stronger met coals. Repricing of contracts that are typically going overseas, and some of our higher quality higher reflect type coals. If you look at 105 and you put it on a metric ton in the vessel type basis you are going to come up with a price of around $155 to $160 a metric ton. The way to look at that on average, the better coals yield is somewhere in that $180 to $190 range. Lower quality coals were anywhere from about $110 to $130. Another way to look at it on a net ton mine basis we had on the lower end sales for the lower quality met in the 70s and 80s for the higher quality coals more in the 130 to 150 range. So higher quality, strong high vols type A, low vol, mid vol, the lower qualities for either higher ash, higher sulfur, lower reflectance, part of the product even in this 3,000 to 5,000 DDPM semi-soft type coking coal (sent into) Asia.

Brian Gamble - Simmons & Co. International: And Paul, have those prices changed recently and what are your expectations for the back-half given that it seems like the 225 benchmark has degraded over the last 5 or 6 weeks.

Paul H. Vining - President: The way we kind of look at it is we’ve taken a beating, that’s we meaning the US producers over the last six months and the prices have tracked accordingly. I mean it's come through on a lot of the calls and the stats. I think the Australians are starting to see and feel some of that pain, particularly with BHP settling their labor and they are kind of leading the way with some aggressive pricing it appears at least in the press for September, and I think – I mean we’re compressed in the US on the lower-end qualities. There is not a lot of squeeze left in the pig and there’s a huge discount or spread or delta already between us and Australia. So you see more of the pressure on the Australians in terms of things coming down pretty significantly here perhaps in the next several months. The impact on us will hopefully be somewhat minimal because we’ve already got a pretty big discount relative to that benchmark on the other products.

Kevin S. Crutchfield - CEO: And in fact Brian what’s interesting to watch over time is when you think about the global cumulative cost curve and how that’s changed over time, what’s happened is the US and the Western Canadians were always out (indiscernible) into that thing cost wise ahead of the Australians principally. They have been doing a pretty good job of catching up in terms of cost. They are up pretty significantly in Queensland. We continue to see capital expenditure blow outs for what it takes to install new capacity in the $300, $400, $500, $600 per annual ton of production range that got huge labor issues as we’ve seen strained in terms of supply which has driven wages to extraordinary levels and it would be interesting to see whether that pace of cost escalation continues and what it does to their effective dominance of global markets and I think BHP in Angola in particularly have been pretty open and honest about this sort of cost increases that they have incurred over the last several years, they are quite significant, so I think the instructive part of this is how long can muted metallurgic cost stay in place. First thing what will happen is it starts putting a lot of pressure in squeezing out the lesser qualities. The first thing you will see that begin to threaten global industry with sustained levels of pricing, it would be interesting to watch what kind of both supply response you get and price response you get over time.