Alpha's Kentucky affiliates will discontinue mining at four mines and idle two coal preparation plants in Pike and Martin counties. Production will be scaled back at several other mines, and four contract mines will close. In aggregate the production cuts will reduce Alpha's shipments of thermal coal by an additional two million tons this year and four million tons in 2013. These actions, together with expected reductions resulting from production optimization and schedule changes at various operations through the course of 2012, were fully anticipated in Alpha's guidance provided in our first quarter 2012 earnings release issued on May 3, 2012, and Alpha's 2012 shipment guidance remains unchanged.
The affected mines include three underground mines -- the Rockhouse Energy #1 mine, at Sidney, and the Voyager #7 and White Cabin #9 mines, near Inez -- and one surface mine -- the White Oak South mine, near Inez. The four contract mines that will be closing are located in Letcher and Harlan counties. The Martin County Coal Plant, near Inez, and Long Fork Plant, near Belfry, will also be closing.
Management and human resources personnel are meeting with employees today at the affected sites in Kentucky. Of the 436 employees affected by these reductions, 286 employees will be offered positions at other operations in Kentucky, southern West Virginia and Virginia, while about 150 jobs will be lost. Employees who are displaced will remain on the payroll and will receive their normal wages and benefits for a 60-day period.
Alpha is also undertaking a comprehensive study of its existing organizational model to ensure the company maintains efficient business processes and economizes on overhead costs. By the end of this year, satellite offices will be closed in Richmond, Va., Denver, Co., Latrobe, Pa. and Linthicum Heights, Md. and support functions will be consolidated, leading to staff reductions at other locations as well. These and other SG&A expense reductions are expected to save the company approximately $50 million to $60 million a year.
In its most recent quarterly earnings announcement, Alpha reduced its production guidance for 2012 in the face of declining thermal coal demand, mostly due to the mild winter and a wave of electric utilities switching from thermal coal to cheap natural gas to generate their power. Future sales forecasts also are being affected by a series of regulatory actions by the U.S. Environmental Protection Agency, which has resulted in utilities announcing plans to shut down a number of generating stations that have traditionally used Central Appalachia coal.
"This year, utilities in the U.S. are expected to burn the least amount of steam coal than at any time in the last 20 years, and the pressure's been very intense on coal sourced from eastern Kentucky, particularly operations rendered uncompetitive due to fuel switching, relatively high rail rates and competition from Illinois Basin coal," said Kevin Crutchfield, Alpha's chairman and CEO. "Layoffs are an unfortunate last resort, and it's tough for miners that want to work but are unable to because of factors beyond their control and the company's control."
Crutchfield added, "The U.S. coal industry is confronting a 'new normal,' and we want to be sure we have the appropriate operating model, talent and agility to not just survive but emerge a winner. That means ensuring our thermal coal assets are sustainable through the business cycle, particularly in the onerous regulatory environment we're confronting. It also means preserving and enhancing our valued metallurgical coal franchise, and maintaining the sound financial base we currently have as we maneuver through this tough environment."
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