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Alpha Natural Resources Reports 2007 Third Quarter Results

    ABINGDON, Va., Oct. 31 /PRNewswire-FirstCall/ --

    - Sales volumes surpass both prior-quarter levels and last year's third

    - Quarterly shipments of 3.2 million tons of metallurgical coal set new
      record, spur 4% increase in coal sales revenues over third quarter 2006

    - Net income decreases from last year, improves sequentially from the
      second quarter

    - Margins in third quarter increase 6% from prior quarter, leading to
      $11.4 million increase in EBITDA

    - Management remains optimistic about coal fundamentals, keeps 5 million
      tons of planned 2008 metallurgical production uncommitted and unpriced

    Financial & Operating Highlights
    (in millions, except per-share and per-ton amounts)

                                             Q3 2007     Q2 2007     Q3 2006
    Coal sales revenues                      $438.6      $386.1      $420.2
    Income from operations                    $20.8       $15.3       $29.8
    Net income                                 $8.9        $4.7       $14.5
    Earnings per diluted share                $0.14       $0.07       $0.23
    EBITDA                                    $65.1       $53.7       $66.3
    Tons of coal produced and processed         6.1         6.2         6.2
    Tons of coal sold                           7.6         6.8         7.4
    Coal margin per ton                      $10.13       $9.55      $10.73

    A reconciliation of EBITDA to net income, the most directly comparable
    U.S. GAAP measure, is included in the notes accompanying the financial

Alpha Natural Resources, Inc. (NYSE:ANR), a leading supplier of high-quality Appalachian coal, said that record shipments of metallurgical-grade coking coal in the quarter just ended enabled the company to post stronger earnings than in each of the two prior reporting periods.

Demand for coking coal has strengthened globally at the same time supply has been constrained by transportation problems in Australia and Eastern Europe and production outages at key U.S. producers, progressively driving up demand and prices in the spot market. The declining U.S. dollar and differences in ocean freight rates also have made U.S. coking coal more competitive in Alpha's traditional seaborne markets.

Metallurgical coal is used to produce coke for the steel-making process. Alpha is the nation's largest supplier and exporter of metallurgical coal.

"We turned in solid results in the third quarter, primarily because we have the flexibility to respond to market opportunities through a mix of Alpha-produced coals, open market purchases, contractor operations, and our washing and blending complexes," said Michael Quillen, Alpha's chairman and CEO. "As requests for metallurgical coal mounted, we managed to ramp up metallurgical sales to 42 percent of overall sales, which matched our highest level for any one quarter. I give tremendous credit to our sales, logistics and mix optimization groups and our miners for what they accomplished."

Quillen noted that, since Alpha's second quarter report in early August, the company secured more than 350,000 tons of additional metallurgical coal business for the second half of this year, bringing unanticipated spot market opportunities to about 750,000 tons since the end of the first quarter. The company believes it will finish 2007 with close to 11 million tons of metallurgical coal sales, which would be a new yearly high.

"Our sales group is closely dialed into what's transpiring in the coking coal markets around the world, and the signals have gotten more bullish for 2008 as this year has progressed," said Kevin Crutchfield, Alpha's president. "As we indicated last quarter, our approach has been to lock in a measured amount of production to take advantage of the current strength in coking coal prices, while maximizing the margin potential of our unsold coal that's in greatest demand."

Alpha still has a substantial portion of its planned metallurgical coal production uncommitted and unpriced as it actively negotiates next year's metallurgical sales contracts. As of Oct. 22, 2007, the company had over five million tons (53 percent) of planned captive metallurgical coal production left to be committed and priced for 2008. Planned production does not include any third-party coal purchased by Alpha's coal sales subsidiary for blending and resale next year.

Financial Performance -- Third Quarter

For the third quarter of 2007, Alpha's revenues were $507.1 million and net income was $8.9 million, or $0.14 per diluted share. Results for the quarter include a pre-tax charge of $2.1 million (approximately $0.02 per diluted share) for development work at an underground mine that was abandoned due to regulatory hurdles.

For the comparable quarter last year, revenues were $475.1 million and net income was $14.5 million, or $0.23 per diluted share.

Coal sales revenues totaled $438.6 million in the most recent quarter, compared with $420.2 million in the third quarter of 2006, as coal sales volumes were 2 percent higher than the third quarter of 2006. Other revenues totaled $10.1 million for the quarter just ended, compared with $9.1 million in last year's third quarter.

Earnings before interest, income taxes, depreciation, depletion and amortization (EBITDA) totaled $65.1 million in the third quarter, compared with $66.3 million in the third quarter of 2006. The definition of EBITDA and a reconciliation to net income, the most directly comparable U.S. GAAP measure, is provided in a table included with the accompanying financial schedules.

Selling, general and administrative (SG&A) expenses for the quarter just ended were $14.5 million, or $1.91 per ton sold. This compares with $16.8 million in the same period last year, which included an IPO-related stock compensation charge of $3.2 million. Depreciation, depletion and amortization (DD&A) totaled $43.9 million in the most recent quarter, compared with $36.4 million in the same period last year, mainly due to the write-off of the abandoned underground mine project, depreciation from the Mingo Logan-Ben Creek mining complex acquired on June 30, 2007, and an increase in depletion due to a change in estimated recoverable coal reserves at one of our mines.

Production and Sales -- Third Quarter

Total coal sales volumes for the most recent quarter were 7.6 million tons, compared with 7.4 million tons in the third quarter of last year and 6.8 million tons in the second quarter of 2007. Metallurgical coal sales for the quarter passed the three million ton level for the first time, accounting for 42 percent of the company's total sales volumes for the period. Thermal coal sales volumes were 13 percent lower than year-ago levels, reflecting voluntary production cuts of lower-margin mines.

The company's average realized price per ton for the most recent quarter was $57.79, up from $56.53 in the same period a year ago and from $56.45 in the second quarter this year. Metallurgical coal realizations for the quarter trailed last year by 4 percent, as contracts for fiscal year 2006 business generally carried higher pricing than those signed for this year, while metallurgical pricing was flat sequentially. Thermal coal realizations were flat year-over-year and up 1 percent sequentially.

Average cost of coal sales per ton for the quarter just ended was $47.66, compared with $45.80 for the same period a year ago and $46.90 in the second quarter of 2007. Produced and processed unit costs were up only 1 percent sequentially, in spite of the significant increase in metallurgical coal production, which generally carries a higher cost due to lower yields and higher preparation costs.

To fulfill the growing demand for spot shipments, the company purchased 32 percent more coal from third-parties than it did in the second quarter of this year, at a price-per-ton that was $2.87 higher, which contributed to the sequential increase in overall unit costs.

Alpha's coal margin per ton, although down 6 percent from last year, increased sequentially by 6 percent to $10.13.

                          Production and Sales Data
                    (in thousands, except per-ton amounts)

                      Q3       Q2     %     Q3      %    9 Mos.  9 Mos.   %
                     2007     2007  Change 2006   Change 2007    2006   Change
     processed       6,115   6,179  (1%)   6,172   (1%) 18,438  18,860   (2%)
    Purchased        1,147     870  32%      969   18%   2,731   3,047  (10%)
      Total          7,262   7,049   3%    7,141    2%  21,169  21,907   (3%)

    Tons sold
    Steam            4,411   4,326   2%    5,097  (13%) 12,997  14,344   (9%)
    Metallurgical    3,178   2,515  26%    2,336   36%   8,060   7,672    5%
      Total          7,589   6,841  11%    7,433    2%  21,057  22,016   (4%)

    Coal sales
    Steam           $48.24  $47.76   1%   $48.35    0%  $48.03  $49.14   (2%)
    Metallurgical   $71.05  $71.39   0%   $74.36   (4%) $71.64  $75.24   (5%)
      Total         $57.79  $56.45   2%   $56.53    2%  $57.07  $58.23   (2%)

    Cost of coal
    Alpha mines     $46.52  $46.05   1%   $43.19    8%  $46.02  $42.19    9%
     mines(2)       $51.52  $51.29   0%   $51.83   (1%) $51.03  $52.79   (3%)
      Total produced
       processed    $47.40  $46.98   1%   $44.46    7%  $46.88  $43.82    7%
    Purchased       $49.18  $46.31   6%   $54.54  (10%) $48.59  $59.92  (19%)
      Total         $47.66  $46.90   2%   $45.80    4%  $47.10  $46.19    2%

    Coal margin
     per ton(3)     $10.13   $9.55   6%   $10.73   (6%)  $9.97  $12.05  (17%)

    (1) Excludes freight and handling costs, cost of other revenues, DD&A and
    (2) Includes coal purchased from third parties & processed at our plants
        prior to resale
    (3) Coal sales revenue/ton less cost of coal sales/ton

Year-to-Date Results

For the first nine months of 2007, total revenues were $1.37 billion, including coal sales revenues of $1.20 billion. For the first nine months last year, total revenues were $1.45 billion, while coal sales revenues totaled $1.28 billion.

Net income for the first nine months of this year was $22.0 million, or $0.34 per diluted share, compared with net income of $64.9 million, or $1.01 per diluted share, for the comparable period last year. EBITDA for the first nine months of this year was $174.9 million compared with $223.5 million in the first nine months of 2006.

Liquidity and Capital Resources

Cash provided by operations for the most recent quarter was $60.9 million, compared with $47.9 million in the third quarter of 2006, and was $163.3 million through the first nine months of 2007, compared with $148.3 million for the first nine months of 2006.

Capital expenditures for the third quarter of 2007 totaled $29.8 million and $101.5 million for the first nine months of this year, not including acquisitions. Alpha expects that, excluding acquisitions, capital expenditures for the full year 2007 will total approximately $135 million compared with $132 million last year, including $26 million of capital invested this year in the construction and start-up of the Gallatin lime plant. Including acquisitions, 2007 capital expenditures should be approximately $179 million, compared with $163 million last year.

Total debt outstanding at September 30, 2007 was $430.7 million, compared with $428.4 million at the end of the third quarter of 2006. The company had available liquidity of $198.5 million at the end of the third quarter of 2007, including cash of $16.3 million and $182.8 million available under the company's credit facility.

    Recent Developments

    -- Trends in Alpha's safety performance remain positive. Through the first
       nine months of this year, the rate for days lost at all operations due
       to accidents, a key safety measure, improved by 3 percent compared with
       the first nine months of 2006, and was 21 percent better than the
       industry benchmark for comparable coal mining operations.
    -- The Gallatin lime joint venture continues to track towards a planned
       start up before year-end. Kiln no. 1, which expected to produce
       approximately 260,000 tons of lime products in 2008, is now in place
       and has been certified by the mechanical contractor. Electrical and
       refractory work is ongoing and installation of the remaining material
       handling infrastructure has begun.
    -- Alpha has been recognized on several fronts for safety and
       environmental excellence. In August, Alpha subsidiaries won awards for
       outstanding safety performance from the West Virginia Holmes Safety
       Association. The nonprofit association recognized the Kingwood
       underground mine, Premium Energy #3 surface mine, and Erbacon and
       Litwar coal preparation plants for their excellent safety records. In
       September, Alpha's Paramont subsidiary won the top national mine
       reclamation award from the National Association of State Land
       Reclamationists for the second consecutive year. The award-winning
       Black Bear #4 site had previously won three awards for reclamation
       excellence and its sister site, Black Bear #1, has garnered five

Market Outlook

Challenging market conditions faced by coal producers at the outset of this year continue to give way to more positive fundamentals. Statistics from various published sources indicate that, by September, there had been a favorable swing of about 40 million tons in the supply-demand balance from last year. The swing has occurred through a combination of reduced domestic coal production, higher net electrical generation and coal consumption by electric utilities, and a surge in exports of metallurgical and thermal coal.

Alpha continues to gradually layer in contractual commitments. As of Oct. 22, 2007, 76 percent of the company's total planned production for 2008 was committed and priced. This compares with roughly 80 percent at this point in time a year ago.

While the company continued in the third quarter to reduce its unsold book of thermal coal for 2008, it has maintained a substantial portion of its planned 2008 coking coal production -- about 5 million tons -- uncommitted and unpriced.

In the fourth quarter of this year, Alpha expects a more normal proportion of metallurgical coal sales to thermal sales than it experienced in the third quarter, as remaining thermal sales commitments in the U.S. are fulfilled for the balance of the year. Therefore, the company expects a slightly lower average unit realization than it posted during the third quarter.

The company continues to expect that it will finish 2007 within the previous range of financial targets given in its second quarter earnings press release dated August 7, 2007.

Conference Call Webcast

Alpha will hold a conference call to discuss third quarter results on Wednesday, October 31, 2007 at 11:00 a.m. ET. The call will be accessible through the Internet at Alpha's web site, A replay will be available through November 14 on the company's web site, or can be accessed by phone by dialing 800-642-1687 (toll-free) or 706-645-9291 and entering pass code 21021709.

About Alpha Natural Resources

Alpha Natural Resources is a leading supplier of high-quality Appalachian coal to electric utilities, steel producers and heavy industry. Approximately 91 percent of the company's reserve base is high Btu coal and 82 percent is low sulfur, qualities that are in high demand among electric utilities which use steam coal. Alpha is also the nation's largest supplier and exporter of metallurgical coal, a key ingredient in steel manufacturing. Alpha and its subsidiaries currently operate mining complexes in four states, consisting of 58 mines feeding 11 coal preparation and blending plants. The company and its subsidiaries employ more than 3,500 people.


Forward Looking Statements

This news release includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on Alpha's expectations and beliefs concerning future events and involve risks and uncertainties that may cause actual results to differ materially from current expectations. These factors are difficult to predict accurately and may be beyond Alpha's control. 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; future economic or capital market conditions; weather conditions or catastrophic weather-related damage; our production capabilities; the consummation of financing, acquisition or disposition transactions and the effect thereof on our business; our ability to successfully integrate the operations we have acquired with our existing operations and implement our business plans for these new operations, as well as our ability to successfully integrate operations we may acquire in the future and implement our related business plans; our plans and objectives for future operations and expansion or consolidation; our relationships with, and other conditions affecting, our customers; timing of changes in customer coal inventories; changes in, renewal of and acquiring new long-term coal supply arrangements; inherent risks of coal mining beyond our control; environmental laws, including those directly affecting our coal mining production, and those affecting our customers' coal usage; competition in coal markets; railroad, barge, truck and other transportation performance and costs; the geological characteristics of Central and Northern Appalachian coal reserves; availability of mining and processing equipment and parts; our assumptions concerning economically recoverable coal reserve estimates; availability of skilled employees and other employee workforce factors; regulatory and court decisions; future legislation and changes in regulations, governmental policies or taxes; unfavorable government interventions in, or nationalization of, foreign investments; changes in postretirement benefit obligations; our liquidity, results of operations and financial condition; decline in coal prices; forward sales and purchase contracts not accounted for as a hedge; indemnification of certain obligations not being met; continued funding of the road construction business; and disruption in coal supplies. These and other risks and uncertainties are discussed in greater detail in Alpha's Annual Report on Form 10-K and other documents filed with the Securities and Exchange Commission. Forward-looking statements 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 Alpha to predict these events or how they may affect the company. Alpha 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.


Reconciliation of EBITDA

EBITDA is a non-GAAP financial measure 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. Management presents EBITDA as a supplemental measure of the company's performance and debt-service capacity that may be useful to securities analysts, investors and others. EBITDA is not, however, a measure of financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating income or cash flow as determined in accordance with U.S. GAAP. Moreover, EBITDA is not calculated identically by all companies. A reconciliation of EBITDA to net income, the most directly comparable U.S. GAAP measure, is provided in an accompanying table.

                           FINANCIAL TABLES FOLLOW

                Consolidated Statements of Income (Unaudited)
              (In thousands, except share and per share amounts)

                                  Three months ended    Nine months ended
                                     September 30,         September 30,
                                   2007        2006      2007        2006
      Coal sales revenues       $438,618    $420,179  $1,201,678  $1,282,033
      Freight and handling
       revenues                   58,384      45,805     143,183     143,132
      Other revenues              10,137       9,134      23,915      28,604
          Total revenues         507,139     475,118   1,368,776   1,453,769

    Costs and expenses:
      Cost of coal sales
       (exclusive of items
       shown separately below)   361,704     340,440     991,766   1,016,831
      Freight and handling
       costs                      58,384      45,805     143,183     143,132
      Cost of other revenues       7,860       5,774      18,256      19,170
      Depreciation, depletion
       and amortization           43,926      36,422     117,570     104,263
      Selling, general and
       administrative expenses
       (exclusive of depreciation
       and amortization shown
       separately above)          14,466      16,837      41,687      51,489

          Total costs and
           expenses              486,340     445,278   1,312,462   1,334,885

          Income from operations  20,799      29,840      56,314     118,884

    Other income (expense):
      Interest expense           (10,101)    (10,735)    (30,124)    (31,798)
      Interest income                265         156       1,359         514
      Miscellaneous income, net      281          27         835         323
        Total other income
         (expense), net           (9,555)    (10,552)    (27,930)    (30,961)
        Income before income
         taxes and minority
         interest                 11,244      19,288      28,384      87,923
    Income tax expense             2,363       4,744       6,494      23,040
    Minority interest                (68)          -        (155)          -
        Net income                $8,949     $14,544     $22,045     $64,883

    Net income per basic and
     diluted share                 $0.14       $0.23       $0.34       $1.01

      Weighted average
       shares-basic           64,602,414  64,191,811  64,590,052  64,003,215
      Weighted average
       shares-diluted         64,995,525  64,214,732  64,835,039  64,108,766

                   Consolidated Balance Sheets (Unaudited)
              (In thousands, except share and per share amounts)

                                                   September 30,  December 31,
                                                       2007           2006
    Current assets:
      Cash and cash equivalents                       $16,267        $33,256
      Trade accounts receivable, net                  194,599        171,195
      Notes and other receivables                       5,959          6,466
      Inventories                                      76,718         76,844
      Prepaid expenses and other current assets        29,843         50,893
        Total current assets                          323,386        338,654
    Property, plant, and equipment, net               665,034        637,136
    Goodwill                                           20,547         20,547
    Other intangibles, net                              9,882         11,720
    Deferred income taxes                              95,555         94,897
    Other assets                                       57,147         42,839
        Total assets                               $1,171,551     $1,145,793

        Liabilities and Stockholders' Equity
    Current liabilities:
      Current portion of long-term debt                $3,154         $3,254
      Note payable                                          -         20,941
      Bank overdraft                                      582         23,814
      Trade accounts payable                           91,368         75,986
      Deferred income taxes                             6,012          7,601
      Accrued expenses and other current
       liabilities                                     89,810         90,594
        Total current liabilities                     190,926        222,190
    Long-term debt, net of current portion            427,574        421,456
    Workers' compensation benefits                      9,553          7,169
    Postretirement medical benefits                    55,654         50,712
    Asset retirement obligation                        84,058         69,495
    Deferred gains on sale of property interests        3,215          3,885
    Other liabilities                                  27,024         26,837
        Total liabilities                             798,004        801,744
    Minority Interest                                   1,255              -

    Stockholders' equity:
      Preferred stock - par value $0.01,
       10,000,000 shares authorized, none issued            -              -
      Common stock - par value $0.01, 100,000,000
       shares authorized, 65,537,896 and
       64,964,287 shares issued and outstanding
       at September 30, 2007 and
       December 31, 2006, respectively                    655            650
      Additional paid-in capital                      221,327        215,020
      Accumulated other comprehensive loss            (19,133)       (19,019)
      Retained earnings                               169,443        147,398
        Total stockholders' equity                    372,292        344,049
        Total liabilities and stockholders'
         equity                                    $1,171,551     $1,145,793

              Consolidated Statements of Cash Flows (Unaudited)
                                (In thousands)

                                                          Nine months ended
                                                        2007           2006
    Operating activities:
      Net income                                       $22,045       $64,883
      Adjustments to reconcile net income to net
       cash provided by operating activities:
        Depreciation, depletion and amortization       117,570       104,263
        Amortization of debt issuance costs              1,725         1,712
        Accretion of asset retirement obligation         4,960         3,472
        Stock-based compensation                         6,747        15,815
        Amortization of deferred gains on sales
         of property interests                            (707)         (745)
        Gain on sale of fixed assets, net               (2,200)         (621)
        Minority interest                                 (155)            -
        Change in fair value of derivative
         instruments                                    (2,253)       (2,277)
        Deferred income taxes                           (2,211)        7,189
        Other                                              902           628
        Changes in operating assets and liabilities     16,829       (46,002)
          Net cash provided by operating activities    163,252       148,317

    Investing activities:
      Capital expenditures                           $(101,491)    $(110,538)
      Proceeds from disposition of property,
       plant, and equipment                              3,734         1,060
      Investment in and advances to investee              (403)         (228)
      Purchase of acquired companies                   (43,908)      (28,273)
      Collections on note receivable from coal
       supplier                                              -         3,000
      Other                                               (612)         (501)
          Net cash used in investing activities       (142,680)     (135,480)

    Financing activities:
      Repayments of notes payable                      (20,941)      (55,477)
      Proceeds from issuance of long-term debt          21,400       287,000
      Repayments on long-term debt                     (15,382)     (289,585)
      Increase (decrease) in bank overdraft            (23,232)       18,574
      Distributions to prior members of ANR
       Holdings, LLC subsequent to Internal
       Restructuring                                         -        (2,400)
      Proceeds from exercise of stock options              594           953
          Net cash used in financing activities        (37,561)      (40,935)
          Net decrease in cash and cash equivalents    (16,989)      (28,098)
    Cash and cash equivalents at beginning of period    33,256        39,622
    Cash and cash equivalents at end of period         $16,267       $11,524

    The following table reconciles EBITDA to net income, the most directly
    comparable GAAP measure:

                        Quarter ended     Quarter ended     Nine Months Ended
                          June 30,        September 30,      September 30,
                       2007     2006     2007      2006     2007      2006
                       (In thousands)     (In thousands)      (In thousands)

    Net income       $ 4,747  $23,128   $8,949   $14,544   $22,045   $64,883
    Interest expense  10,030   10,786   10,101    10,735    30,124    31,798
    Interest income     (457)    (171)    (265)     (156)   (1,359)     (514)
    Income tax
     expense           1,502    8,676    2,363     4,744     6,494    23,040
     depletion and
     amortization     37,855   34,207   43,926    36,422   117,570   104,263
      EBITDA         $53,677  $76,626  $65,074   $66,289  $174,874  $223,470

Source: Alpha Natural Resources, Inc.

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