Nov. 3 (Bloomberg) -- Alpha Natural Resources Inc., the third-largest U.S. coal producer, reported a third-quarter loss of $19.5 million on costs related to the acquisition of Foundation Coal Holdings Inc.

The loss was 19 cents a share compared with net income of $67.4 million, or 97 cents, a year earlier, Abingdon, Virginia- based Alpha said today in a statement. The company was expected to earn 37 cents, based on the average of 6 analyst estimates compiled by Bloomberg. Revenue rose 5.9 percent to $729.2 million from $688.4 million.

Alpha completed the acquisition of Foundation Coal Holdings Inc. in July in an all-stock transaction valued at $2 billion, giving Alpha access to low-cost Wyoming surface mines and helping it supplant Consol Energy Inc. as the third-biggest coal producer.

“They did have a little sloppiness with the merger-related stuff,” said James Rollyson, an analyst at Raymond James Financial Inc. in Houston. “When you get a big merger like this, that sometimes happens. This clears the way for no charges going forward.”

Alpha rose $2.16, or 6.3 percent, to $36.45 in New York Stock Exchange composite trading. The stock has more than doubled this year.

Absent the merger-related expenses Alpha said it had income from continuing operations of $49.4 million, or 47 cents, on the increased capacity from acquiring Foundation.

Slashing Output

Chief Executive Officer Kevin Crutchfield slashed output as Alpha coped with weak demand from steel mills and power plants during the worst economic slowdown since the 1930s. U.S. steel production dropped 38 percent in the quarter from a year earlier, industry data show.

The company expects to ship between 84 million and 88 million tons of coal this year. Crutchfield said Sept. 10 that the company expected to ship between 83 million and 87.5 million tons. Alpha and Foundation combined shipped about 99.2 million tons last year.

Crutchfield said on a conference call today that Alpha has the ability to be a “100- million-ton company,” and “right now we don’t think it makes sense to be one.”

The company expects to sell between 80 million and 90 million tons next year. Metallurgical coal will account for 10 million to 12 million tons of that, up from a forecast of 9 million to 11 million.

Chinese Demand

Demand from China, logistical constraints in Australia and an improving global economy is driving consumption for metallurgical coal, the company said. That coal is used to manufacture steel.

“In the last few months interest in metallurgical coal appears to have picked up markedly, discussions with metallurgical coal customers have increased and order flow is beginning to result,” Crutchfield said.

He said the company is seeing increased metallurgical demand from the eastern and western regions of Europe.

“Everybody knows the China story and the India story,” Crutchfield said. “We’ve seen significant” interest from the European markets.

With Foundation, Alpha gained entry to the largest and least expensive U.S. reserves in Wyoming’s Powder River Basin. Prices in the region averaged $10.39 per ton during the quarter. The company’s Eastern steam coal, used to generate electricity, averaged $64.43, up 24 percent from a year ago. Metallurgical coal prices plunged 27 percent to $96.92 per ton.

Steel Production

Steel production in the third quarter averaged 1.29 million tons a week, down from 2.09 million a year earlier, according to the American Iron and Steel Institute.

Last week, Arch Coal Inc., the second-biggest U.S. coal producer, reported third-quarter profit that declined less than analysts expected, as it benefited from its trading and brokerage operation. Arch expects to sell 121 million to 125 million tons of coal this year.

Third-quarter profit for Peabody Energy Corp., the largest U.S. coal producer, declined less than analysts estimated as the company realized higher prices for its coal. Peabody and Arch are both based in St. Louis.

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net

Last Updated: November 3, 2009 16:18 EST