-- Acquisition of Nicewonder coal group expected to increase annual
production by approximately 20 percent in 2006 and be accretive to
earnings
-- $500 million of committed credit facilities to partially fund
acquisition and refinance Alpha's existing revolver
-- Third-quarter shortfall in metallurgical coal revenue anticipated due
to export shipping delays, principally due to weather in Gulf of Mexico
ABINGDON, Va., Sept. 26 /PRNewswire-FirstCall/ -- Alpha Natural Resources,
Inc. (NYSE: ANR), a leading Appalachian coal producer, has through its
subsidiaries signed definitive purchase agreements to acquire coal reserves
and operations affiliated with the privately held Nicewonder coal group in
southern West Virginia and southwestern Virginia. The aggregate purchase price
is $316.2 million.
The acquired properties are expected to add about 4.3 million tons to
Alpha's coal output in 2006, representing an increase of approximately 20
percent over Alpha's expected coal production this year. The acquisition is
expected to be accretive to earnings and to significantly boost Alpha's
operating results and free cash flow generation going forward.
The purchase agreements call for Alpha subsidiaries to issue Nicewonder
affiliates $60.0 million of Alpha common stock and pay $256.2 million in cash
and seller notes. Alpha plans to finance the cash portion of the purchase
through $500 million of new senior secured credit facilities. Closing is
anticipated by late October, subject to the satisfaction of conditions
outlined in the purchase agreements including the securing of financing and
necessary regulatory approvals.
Alpha also announced that results for the fiscal third quarter will be
negatively impacted by a shortfall in metallurgical coal exports and lower
than expected output from contractor-operated mines.
Nicewonder Acquisition
The Nicewonder coal group that Alpha is acquiring primarily consists of
eight entities:
-- Premium Energy, Inc., which operates a surface mine in Mingo and Logan
counties, West Virginia, producing high Btu, low sulfur coal;
-- White Flame Energy, Inc. and Mate Creek Energy of W. Va., Inc. These
assets include a large surface mine in Mingo County, West Virginia,
producing low sulfur compliance coal, and a rail load-out facility on
the Norfolk Southern line;
-- Twin Star Mining, Inc., Buchanan Energy Company, LLC, and Virginia
Energy Company. These operations include a surface mine in Buchanan
County, Virginia. Buchanan Energy has access to untapped coal reserves
on 28,000 acres of land;
-- Nicewonder Contracting, Inc. (NCI), which operates a road construction
business in cooperation with the West Virginia Department of
Transportation that permits NCI to recover the coal removed in the
construction process;
-- Powers Shop, LLC, a mining equipment repair business similar to Alpha's
own Maxxim Rebuild Co., LLC.
"Our relationship with Don Nicewonder and his management team goes back
many years, and we jointly reached the conclusion that combining our adjacent
operations in Central Appalachia would create value for both parties," said
Mike Quillen, president and CEO of Alpha Natural Resources. "The Nicewonder
coal group is highly regarded in this industry for having well managed
businesses with low production costs, minimal legacy liabilities, high quality
coal reserves and excellent relationships with its work force and customer
base. These are precisely the kind of asset qualities we've been seeking for
Alpha's future growth, and I expect this acquisition to make a meaningful
contribution to our earnings and cash flow going forward."
"There is no company other than Alpha that I believe fits better with our
operations and our employees," said Don Nicewonder. "They know coal mining,
they respect and take care of their people, and they have exceptional
marketing reach around the world. I believe this transaction will ensure a
bright future for this business that I have spent the better part of 30 years
building, and I'm taking a significant equity stake in Alpha so that our
interests are aligned with one another."
Update on Third Quarter 2005
Alpha is taking this opportunity to provide an update on third quarter
operating results, which the company believes will be negatively affected by
several factors. These factors have led Alpha to update its guidance for 2005.
The company maintains its guidance for sales volumes of 25-26 million tons and
coal revenue of $1.3-1.4 billion for the year, and now forecasts 2005 EBITDA
to be $153-163 million, or $200-210 million after adjusting for the stock-
based compensation charge related to the company's initial public offering in
February. This updated guidance does not include any anticipated contribution
from the Nicewonder coal group.
Alpha does not expect to reduce inventories of coal to the extent planned
for in the third quarter. By the end of August, Alpha had moved about 330,000
tons of higher-revenue metallurgical coal to New Orleans to meet firm 2005
sales commitments for 750,000 tons. Due to damage from Hurricane Katrina, the
export facility is not expected to be operating and capable of loading
freighters until at least mid-October. Therefore Alpha does not anticipate
meeting its third quarter shipment target out of the Gulf, which represents
about $35 million of missed export revenue.
Sales volumes from Alpha's contractor operations are running approximately
28 percent behind plan in the third quarter, chiefly because of the
unavailability of labor in certain contractor-operated mines. As a result of
the shortfall, Alpha has been forced to purchase coal at a higher cost than
planned so that the company can meet commitments to its customers.
"This is very disappointing news to report, and I take full responsibility
for the shortfall," said Mike Quillen. "This is the coal business and these
sorts of challenges constantly occur. Our job as management is to react
swiftly to these types of events, adjust and come up with solutions. While we
have been affected by certain outsides forces beyond our control, we simply
have not reacted quickly enough, and this is usually Alpha's strength.
Needless to say, these issues are commanding management's undivided attention,
and we are developing actions to remediate them. We'll have more to say when
we announce our third-quarter results."
Conference Call
Alpha Natural Resources will hold a conference call on Monday, Sept. 26 at
10:00a.m. ET to discuss the Nicewonder acquisition and third-quarter update.
The call will be accessible though the Internet at Alpha's web site,
http://www.alphanr.com and will be archived on the site as well. A replay of
the call will be available through Oct. 10, 2005 by dialing toll-free 800-642-
1687 or 706-645-9291 and entering pass code 9837922.
About Alpha Natural Resources
Alpha Natural Resources is a leading producer of high-quality Appalachian
coal. Approximately 94 percent of the company's reserve base is high Btu coal
and 89 percent is low sulfur, qualities that are in high demand among electric
utilities which use steam coal. Alpha is also one of the nation's largest
producers and exporters of metallurgical coal, a key ingredient in steel
manufacturing. Alpha and its subsidiaries currently operate mining complexes
in four states, consisting of more than 60 mines feeding 11 coal preparation
and blending plants. The company and its subsidiaries employ approximately
2,800 people.
Reconciliation of Non-GAAP Measures
This news release includes certain non-GAAP financial measures as defined
by SEC regulations. EBITDA and EBITDA, as adjusted, are measures used by
management to gauge operating performance. Alpha defines EBITDA as net income
or loss plus interest expense, income taxes, and depreciation, depletion and
amortization, less interest income. EBITDA, as adjusted, includes EBITDA plus
minority interest. Management presents EBITDA and EBITDA, as adjusted, as
supplemental measures of the company's performance and debt-service capacity
that may be useful to securities analysts, investors and others. These EBITDA
measures are not, however, a measure of financial performance under GAAP and
should not be considered as an alternative to net income, operating income or
cash flow as determined in accordance with GAAP. Moreover, EBITDA is not
calculated identically by all companies. A reconciliation of these measures to
the most directly comparable GAAP measures is found on the company's web site
at http://www.alphanr.com .
ANRG
Forward-Looking Statements
Certain statements in this news release are forward-looking statements as
defined in the Private Securities Litigation Reform Act of 1995. Alpha Natural
Resources, Inc. ("Alpha" or "the company") uses the words "anticipate,"
"believe," "could," "should," "estimate," "expect," "intend," "may,"
"predict," "project," "target" and similar terms and phrases, including
references to assumptions, to identify forward-looking statements. These
forward-looking statements are based on Alpha's expectations and beliefs
concerning future events affecting the company and involve certain risks and
uncertainties that may cause actual results to differ materially from
expectations as of the date of this release. These factors are difficult to
accurately predict and may be beyond the control of the company. The following
factors are among those that may cause actual results to differ materially
from our forward-looking statements: market demand for coal, electricity and
steel; our ability to bring the Nicewonder acquisition to a successful and
timely closing; our ability to maintain an adequate labor force and other
employee workforce factors; weather conditions or catastrophic weather-related
damage; the company's production capabilities; the company's relationships
with, and other conditions affecting its customers; the timing of reductions
or increases in customer coal inventories; long-term coal supply arrangements;
environmental laws, including those directly affecting Alpha's coal mining and
production, and those affecting its customers' coal usage; railroad, vessel
and other transportation performance and costs; Alpha's assumptions concerning
economically recoverable coal reserve estimates; regulatory and court
decisions; future legislation and changes in regulations or governmental
policies; uncertainties of pending litigation; changes in postretirement
benefit and pension obligations; and Alpha's liquidity, results of operations
and financial condition. These and other additional risk factors and
uncertainties are discussed in greater detail in the company's Annual Report
on Form 10-K and other documents filed with the Securities and Exchange
Commission. Forward-looking statements made by the company in this news
release or elsewhere speak only as of the date made. New uncertainties and
risks come up from time to time, and it is impossible for the company to
predict these events or how they may affect the company. The company has no
duty to, and does not intend to, update or revise the forward-looking
statements in this news release after the date it is issued. In light of
these risks and uncertainties, investors should keep in mind that the results,
events or developments disclosed in any forward-looking statement made in this
news release may not occur.
SOURCE Alpha Natural Resources, Inc.
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Related links:
http://www.alphanr.com
CONTACT:
Ted Pile of Alpha Natural Resources, Inc.,
+1-276-623-2920
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