SELL

Sean Skinner

Company Overview
Alpha Natural Resources, Inc., together with its subsidiaries, engages in producing, processing, and selling steam and metallurgical coal in the United States. Types of Coal: Steam (Thermal): Primarily purchased by large utilities and industrial customers as fuel for electricity generation Met (Coking): Used primarily to make coke, a key component in the steel making process
Metallurgical 50% Eastern steam 40% Western steam 10%

Revenue by Product

Coal Revenue Breakdown

Description Revenues Coal revenues Other revenues Total revenues Coal revenues Eastern steam Western steam Metallurgical Total revenue from coal Tons sold Eastern steam (tons) Western steam (tons) Metallurgical (tons) Total tons sold Coal sales realization per ton Eastern steam (realization per ton) Western steam (realization per ton) Metallurgical (realization per ton) Average (realization per ton) Cost of coal sales per ton Eastern coal operations Western coal operations Average 2008 $2,140,367 $48,533 $2,188,900 2009 $2,210,629 $95,004 $2,305,633 2010 $3,497,847 $86,750 $3,584,597 2011 $6,189,434 $257,514 $6,446,948

$804,188 $0 $1,336,179 $2,140,367

15,525 0 11,372 26,897 $51.80 $0.00 $117.50 $79.58 $60.53 $0.00 $60.53

$1,196,121 $217,187 $797,321 $2,210,629

18,318 20,752 8,130 47,200 $65.30 $10.47 $98.08 $46.84 $54.50 $8.30 $34.19

$1,609,832 $536,064 $1,351,951 $3,497,847

24,001 48,977 11,871 84,849 $67.07 $10.95 $113.89 $41.22 $59.47 $8.56 $30.08

$2,488,729 $596,724 $3,103,981 $6,189,434

37,192 49,949 19,177 106,318 $66.92 $11.95 $161.85 $58.22 $75.22 $9.99 $44.57

Coals Primary Advantage is Low Cost

Consumptions by Sector (US only)

Export Market

Guidance

($1.20) $1.68 diluted EPS before merger related expense

Peers

Ticker ANR BTU PCX

Company Alpha Natural Resources, Inc. Peabody Energy Corp. Patriot Coal Corporation

Market Cap 2398.85 6474.71 305.54

P/E

Forward P/E PEG

P/S 0.3

P/B 0.32 1.13 0.57

P/Free Cash Flow

105.72 8.9

Float Short 9.06% 2.70% 26.02%

Short Ratio 1.46 0.95 3.19

Volatility (Month) 6.20% 4.53% 8.10%

6.31

6.6

0.42

0.78 0.13

WLT

Walter Energy, Inc.

3077.01

10.03

7.21

0.88

1.1

1.41

36.32

6.56%

1.46

4.86%

Max Price = $1.68 * 6.905 (Peer Average F P/E) = $11.60

Nat Gas

CAPP Coal 12 month strip

Met Coal

Conclusion: Sell
Future Demand Uncertain Roughly 3/8 of met coal produced is sold in Europe China is slowing, met coal prices are decreasing US expected to be flat from coal perspective for the next 5-20 years. Coal no longer lowest cost energy source, still dirtiest. Risks to Thesis Significant rebound in Nat Gas. Euro does not atomize Stronger than expected growth in India/China Interruptions in Australian coal supply Selling Considerations Possible dead cat bounce Market is oversold, may correct temporarily Bottom Line: ANR is a high risk name with limited upside given current market conditions. Coal may become attractive in the intermediate term. Market decline may yield more favorable entry point in the future.