Alpha Natural Resources Inc said second-quarter profit dropped more than 75 percent because of lower demand from power producers and steelmakers.

The results fell short of Wall Street expectations, and shares of Alpha, which is in the process of acquiring rival Foundation Coal Holdings, fell 4 percent to $32.77 in premarket trading Monday.

Although it reported signs that coal demand is rising, especially from steelmakers, Alpha said it was closely managing production levels and its projected 2009 sales of 22 million tons could be reduced by two to three million tons.

Second-quarter net income was $15.4 million, or 22 cents per share, down from $67.1 million, or 94 cents per share, a year earlier, the Abingdon, Virginia-based company said.

Revenue dropped to $386.2 million from $701.8 million, said Alpha, which produces steam, or thermal coal for power generation, and metallurgical, or coking coal for steel-making.

Analysts on average were expecting earnings of 39 cents on revenue of $446.25 million, according to Reuters Estimates.

Foundation Coal on Monday reported a second-quarter profit after a loss a year earlier. Net income was $30.7 million, or 67 cents per share, compared with a net loss of $4.4 million, or 10 cents per share, in the 2008 quarter.

The persistence of weak demand conditions greatly reduced metallurgical and thermal coal shipments in the second quarter, Alpha Chairman and Chief Executive Officer Michael Quillen said in a statement.

While global business conditions certainly aren't anywhere near where they were at this time last year, we have seen encouraging early signs of a turnaround in the steel markets and renewed interest from coal buyers, which had been mostly absent to this point, he said.

Alpha's proposed $1.5 billion acquisition of Foundation Coal is to be voted on by shareholders on Friday. Alpha made no comment about it on Monday except to say that if shareholders vote in favor of the deal, it is expected to close shortly after the Friday meetings.

Last week, two proxy advisory firms, Glass Lewis and RiskMetrics, backed the deal, which Alpha expects to boost earnings and cash flow in 2010.

The deal has come under fire from Alpha's largest shareholder, Duquesne Capital Management, which says it will vote against it.

The arbitrage spread for the deal -- a measure of the difference between a company's share price and the price a buyer is offering -- tightened to 2.3 percent on Friday after the proxy advisers reaffirmed their backing.

The spread had been above 5 percent earlier in the week, which indicated some skepticism on the part of investors on whether the deal would close.

(Reporting by Steve James; additional reporting by Michael Erman; editing by Gerald E. McCormick and John Wallace)

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