**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**Form 10-Q**


**(Mark
      One)**


þ
            
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**


**For
      the quarterly period ended March 31, 2007**


**OR**


o
            
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**


**For
      the transition period from
           to
     Commission File No. 1-32423**


**ALPHA
      NATURAL RESOURCES, INC.**


*(Exact
      name of registrant as specified in its charter)*


**Delaware**
            
            **02-0733940***(State
                or other jurisdiction of*
            
            *(I.R.S.
                Employer**incorporation
                or organization)*
            
            *Identification
                Number)***One
                Alpha Place, P.O. Box 2345, Abingdon, Virginia**
            
            **24212***(Address
                of principal executive offices)*
            
            *(Zip
                Code)*





**Registrant’s
      telephone number, including area code:**


**(276) 619-4410**





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90 days. þ Yes o No





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.


þ Large
      accelerated filer o Accelerated filer   ̈ Non-accelerated filer





Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act). o Yes þ No





Number
      of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of
      April 13, 2007 - 65,539,744















Table
          of Content










**TABLE
      OF CONTENTS**


**Page****PART
                I**ITEM
                1. FINANCIAL STATEMENTSCondensed
                Consolidated Balance Sheets
                (Unaudited)
            
            
            2Condensed
                Consolidated Statements of Income
                (Unaudited)
            
            
            3Condensed
                Consolidated Statements of Cash Flows
                (Unaudited)
            
            
            4Notes
                to Condensed Consolidated Financial Statements
                (Unaudited)
            
            
            6ITEM
                2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                ANDRESULTS OF OPERATIONS
            
            
            15ITEM
                3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK
            
            
            24ITEM
                4. CONTROLS AND PROCEDURES
            
            
            26**PART
                II**ITEM
                1. LEGAL PROCEEDINGS
            
            
            26ITEM
                1A. RISK FACTORS
            
            
            26ITEM
                6. EXHIBITS
            
            
            26EX-31.A:
                CERTIFICATIONEX-31.B:
                CERTIFICATIONEX-32.A:
                CERTIFICATIONEX-32.B:
                CERTIFICATION











-1-
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**Item 1.
      Financial Statements**


**ALPHA
      NATURALRESOURCES, INC. AND SUBSIDIARIES**


**Condensed
      Consolidated Balance Sheets (Unaudited)**


**(In
      thousands, except share and per share amounts)**


March
                  31,
              
              December
                  31,2007
              
              2006**Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              30,896
              
              $
              33,256Trade
                  accounts receivable, net
              
              
              156,738
              
              
              171,195Notes
                  and other receivables
              
              
              6,694
              
              
              6,466Inventories
              
              
              84,780
              
              
              76,844Prepaid
                  expenses and other current assets
              
              
              40,002
              
              
              50,893Total
                  current assets
              
              
              319,110
              
              
              338,654Property,
                  plant, and equipment, net
              
              
              640,598
              
              
              637,136Goodwill
              
              
              20,547
              
              
              20,547Other
                  intangibles, net
              
              
              11,228
              
              
              11,720Deferred
                  income taxes
              
              
              94,847
              
              
              94,897Other
                  assets
              
              
              44,806
              
              
              42,839Total
                  assets
              
              $
              1,131,136
              
              $
              1,145,793**Liabilities
                  and Stockholders’ Equity**Current
                  liabilities:Current
                  portion of long-term debt
              
              $
              3,274
              
              $
              3,254Note
                  payable
              
              
              14,069
              
              
              20,941Bank
                  overdraft
              
              
              21,110
              
              
              23,814Trade
                  accounts payable
              
              
              69,808
              
              
              75,986Deferred
                  income taxes
              
              
              7,151
              
              
              7,601Accrued
                  expenses and other current liabilities
              
              
              82,227
              
              
              90,594Total
                  current liabilities
              
              
              197,639
              
              
              222,190Long-term
                  debt, net of current portion
              
              
              420,586
              
              
              421,456Workers’
                  compensation benefits
              
              
              8,003
              
              
              7,169Postretirement
                  medical benefits
              
              
              52,346
              
              
              50,712Asset
                  retirement obligation
              
              
              70,345
              
              
              69,495Deferred
                  gains on sale of property interests
              
              
              3,657
              
              
              3,885Other
                  liabilities
              
              
              23,600
              
              
              26,887Total
                  liabilities
              
              
              776,176
              
              
              801,794Minority
                  interest
              
              
              363
              
              
              (50
              )Commitments
                  and contingenciesStockholders’
                  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, 65,531,641
                  and
                  64,964,287 shares issued and outstanding at March 31, 2007 and
                  December
                  31, 2006, respectively
              
              
              655
              
              
              650Additional
                  paid-in capital
              
              
              217,209
              
              
              215,020Accumulated
                  other comprehensive loss
              
              
              (19,014
              )
              
              (19,019
              )Retained
                  earnings
              
              
              155,747
              
              
              147,398Total
                  stockholders’ equity
              
              
              354,597
              
              
              344,049Total
                  liabilities and stockholders’ equity
              
              $
              1,131,136
              
              $
              1,145,793




See
      accompanying notes to condensed consolidated financial statements.








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**ALPHA
      NATURALRESOURCES, INC. AND SUBSIDIARIES**


**Condensed
      Consolidated Statements of Income (Unaudited)**


**(In
      thousands, except share and per share amounts)**


Three
                  months ended March 31,2007
              
              2006Revenues:Coal
                  sales revenues
              
              $
              376,930
              
              $
              424,331Freight
                  and handling revenues
              
              
              43,211
              
              
              46,392Other
                  revenues
              
              
              7,230
              
              
              11,417Total
                  revenues
              
              
              427,371
              
              
              482,140Costs
                  and expenses:Cost
                  of coal sales (exclusive of items shown separately below)
              
              
              309,255
              
              
              330,885Freight
                  and handling costs
              
              
              43,211
              
              
              46,392Cost
                  of other revenues
              
              
              5,628
              
              
              7,951Depreciation,
                  depletion and amortization
              
              
              35,789
              
              
              33,634Selling,
                  general and administrative expenses (exclusive of depreciation
                  and
                  amortization shown separately above)
              
              
              13,239
              
              
              16,639Total
                  costs and expenses
              
              
              407,122
              
              
              435,501Income
                  from operations
              
              
              20,249
              
              
              46,639Other
                  income (expense):Interest
                  expense
              
              
              (9,993
              )
              
              (10,277
              )Interest
                  income
              
              
              637
              
              
              188Miscellaneous
                  income, net
              
              
              42
              
              
              282Total
                  other income (expense), net
              
              
              (9,314
              )
              
              (9,807
              )Income
                  before income taxes and minority interest
              
              
              10,935
              
              
              36,832Income
                  tax expense
              
              
              2,629
              
              
              9,620Minority
                  interest
              
              
              (43
              )
              
              —Net
                  Income
              
              $
              8,349
              
              $
              27,212Net
                  income per shareBasic
                  and diluted:
              
              $
              0.13
              
              $
              0.43


See
      accompanying notes to condensed consolidated financial statements.











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**ALPHA
      NATURALRESOURCES, INC. AND SUBSIDIARIES**


**Condensed
      Consolidated Statements of Cash Flows (Unaudited)**


**(In
      thousands)**


**Three
                  months ended****March
                  31,****2007**
              
              **2006**Operating
                  activities:Net
                  income
              
              $
              8,349
              
              $
              27,212Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation,
                  depletion and amortization
              
              
              35,789
              
              
              33,634Amortization
                  of debt issuance costs
              
              
              570
              
              
              566Accretion
                  of asset retirement obligation
              
              
              1,556
              
              
              1,077Stock-based
                  compensation
              
              
              2,650
              
              
              3,833Change
                  in fair value of derivative instruments
              
              
              (449
              )
              
              —Amortization
                  of deferred gains on sales of property interests
              
              
              (228
              )
              
              (239
              )Gain
                  on sale of fixed assets, net
              
              
              (282
              )
              
              (153
              )Minority
                  interest
              
              
              (43
              )
              
              —Deferred
                  income taxes
              
              
              (402
              )
              
              1,975Other
              
              
              86
              
              
              384Changes
                  in operating assets and liabilities:Trade
                  accounts receivable
              
              
              14,457
              
              
              (16,333
              )Notes
                  and other receivables
              
              
              (875
              )
              
              4,679Inventories
              
              
              (7,936
              )
              
              2,068Prepaid
                  expenses and other current assets
              
              
              8,678
              
              
              (4,688
              )Other
                  assets
              
              
              (2,552
              )
              
              (980
              )Trade
                  accounts payable
              
              
              (1,334
              )
              
              (16,693
              )Accrued
                  expenses and other current liabilities
              
              
              (5,107
              )
              
              (6,790
              )Workers’
                  compensation benefits
              
              
              846
              
              
              326Postretirement
                  medical benefits
              
              
              2,249
              
              
              2,231Asset
                  retirement obligation
              
              
              (1,321
              )
              
              325Other
                  liabilities
              
              
              (2,091
              )
              
              994Net
                  cash provided by operating activities
              
              
              52,610
              
              
              33,428











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**ALPHA
      NATURAL RESOURCES, INC. AND SUBSIDIARIES**


**Condensed
      Consolidated Statements of Cash Flows (Unaudited) -
      (Continued)**


**(In
      thousands)**


**Three
                  months ended****March
                  31,****2007**
              
              **2006**Investing
                  activities:Capital
                  expenditures
              
              $
              (44,577
              )
              $
              (51,439
              )Proceeds
                  from disposition of property, plant, and equipment
              
              
              508
              
              
              182Investment
                  in affiliate
              
              
              (71
              )
              
              (15
              )Collections
                  on note receivable from coal supplier
              
              
              —
              
              
              1,432Other
              
              
              (404
              )
              
              —Net
                  cash used in investing activities
              
              
              (44,544
              )
              
              (49,840
              )Financing
                  activities:Repayments
                  of notes payable
              
              
              (6,872
              )
              
              (45,457
              )Proceeds
                  from issuance of long-term debt
              
              
              —
              
              
              95,000Repayments
                  on long-term debt
              
              
              (850
              )
              
              (73,125
              )Increase
                  (decrease) in bank overdraft
              
              
              (2,704
              )
              
              12,313Distributions
                  to prior members of ANR Holdings, LLC subsequent to Internal
                  Restructuring
              
              
              —
              
              
              (1,200
              )Proceeds
                  from exercise of stock options
              
              
              —
              
              
              410Net
                  cash used in financing activities
              
              
              (10,426
              )
              
              (12,059
              )Net
                  decrease in cash and cash equivalents
              
              
              (2,360
              )
              
              (28,471
              )Cash
                  and cash equivalents at beginning of period
              
              
              33,256
              
              
              39,622Cash
                  and cash equivalents at end of period
              
              $
              30,896
              
              $
              11,151




See
      accompanying notes to condensed consolidated financial statements.











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**ALPHA
      NATURAL RESOURCES, INC. AND
      SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**


**March 31,
      2007**


**(In
      thousands, except percentages and share data)**





**(1)**
            **Business
                and Basis of Presentation**





***Organization
      and Business***





Alpha
      Natural Resources, Inc. and its operating subsidiaries are engaged in the
      business of extracting, processing and marketing coal from deep and surface
      mines, located in the Central and Northern Appalachian regions of the United
      States, for sale to utility and steel companies in the United States and in
      international markets.





***Basis
      of Presentation***





The
      accompanying interim condensed consolidated financial statements have been
      prepared in accordance with U.S generally accepted accounting principles for
      interim financial reporting. Accounting measurements at interim dates inherently
      rely on estimates more than at year-end; however, in the opinion of management,
      all adjustments (consisting of normal recurring accruals) considered necessary
      for a fair presentation have been included. Results of operations for the three
      months ended March 31, 2007 are not necessarily indicative of the results
      to be expected for the year ending December 31, 2007. Certain prior period
      amounts have been reclassified to conform to the current period presentation.
      These financial statements should be read in conjunction with the audited
      financial statements and related notes as of and for the year ended
      December 31, 2006 included in the Company’s Annual Report on Form 10-K
      filed with the Securities and Exchange Commission.





**(2)**
            **Earnings
                Per Share**





Basic
      earnings per share are computed by dividing net income by the weighted average
      number of shares of common stock outstanding during the periods. Diluted
      earnings per share are computed using the treasury method by dividing net income
      by the weighted average number of shares of common stock and dilutive common
      stock equivalents outstanding during the periods. Common stock equivalents
      include the number of shares issuable upon exercise of outstanding options
      less
      the number of shares that could have been purchased with the proceeds from
      the
      exercise of the options based on the average price of common stock during the
      period. Restricted shares which have not vested at the end of the reporting
      period are excluded from the calculation of basic earning per share. The number
      of stock options which were not included in the calculation of diluted earnings
      per share because to do so would have been antidilutive in the three months
      ended March 31, 2007 and 2006 was 1,092,546 and 1,169,237, respectively. The
      number of restricted shares which were not included in the calculation of
      diluted earnings per share because to do so would have been antidilutive in
      the
      three months ended March 31, 2007 and 2006 was 716,495 and 916,240,
      respectively.





The
      computations of basic and diluted net income per share are set forth
      below:







**Three
                  months ended March 31,****2007**
              
              **2006**Numerator:Net
                  income
              
              $
              8,349
              
              $
              27,212Denominator:Weighted
                  average shares — basic
              
              
              64,579,163
              
              
              63,800,952Dilutive
                  effect of share based payment arrangements
              
              
              214,439
              
              
              145,206Weighted
                  average shares — diluted
              
              
              64,793,602
              
              
              63,946,158Net
                  income per basic and diluted share:
              
              $
              0.13
              
              $
              0.43








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**(3)**
            **Inventories**





Inventories
      consisted of the following:


**March
                  31,**
              
              **December
                  31,****2007**
              
              **2006**Raw
                  coal
              
              $
              6,018
              
              $
              8,868Saleable
                  coal
              
              
              63,138
              
              
              53,428Equipment
                  for resale
              
              
              2,526
              
              
              1,774Materials
                  and supplies
              
              
              13,098
              
              
              12,774Total
                  inventories
              
              $
              84,780
              
              $
              76,844








**(4)**
            **Long-Term
                Debt**





Long-term
      debt consisted of the following:




**March
                    31,**
                
                **December
                    31,****2007**
                
                **2006**Term
                    loan
                
                $
                246,875
                
                $
                247,50010%
                    Senior notes due 2012
                
                
                175,000
                
                
                175,000Capital
                    lease obligation
                
                
                1,285
                
                
                1,510Other
                
                
                700
                
                
                700Total
                    long-term debt
                
                
                423,860
                
                
                424,710Less
                    current portion
                
                
                3,274
                
                
                3,254Long-term
                    debt, net of current portion
                
                $
                420,586
                
                $
                421,456




All
        of
        the Company borrowings under its credit facility are at a variable rate,
        so the
        Company is exposed to the effect of rising interest rates. As of March 31,
        2007,
        the Company has a $246,875 term loan outstanding with a variable interest
        rate
        based upon the 3-month London Interbank Offered Rate (“LIBOR”) (5.35% at March
        31, 2007) plus the applicable margin (1.75%, at March 31, 2007). To reduce
        the
        Company's exposure to rising interest rates, effective May 22, 2006, the
        Company
        entered into a pay-fixed, receive variable interest rate swap on the notional
        amount of $233,125 for a period of approximately six and one-half years.
        In
        effect, this swap converted the variable interest rates based on the LIBOR
        to a
        fixed interest rate of 5.59% plus the applicable margin defined in the debt
        agreement for a portion of our term loan. The Company accounts for the interest
        rate swap as a cash flow hedge and changes in fair value of the swap are
        recorded to other comprehensive income (loss). The critical terms of the
        swap
        and the underlying debt instrument that it hedges coincide, resulting in
        no
        hedge ineffectiveness being recognized in the income statement during the
        quarter ended March 31, 2007. Settlements paid on the swap agreement for
        the
        three months ended March 31, 2007 were $133. The fair value of the swap at
        March
        31, 2007 is an obligation of $7,842 ($5,902 net of tax) and is reflected
        in
        other liabilities in the consolidated balance sheet. As interest expense
        is
        accrued on the debt obligation, amounts in accumulated other comprehensive
        loss
        related to the derivative hedging instrument are reclassified into earnings
        to
        obtain a net cost on the debt obligation of 5.59% plus the applicable
        margin.




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**(5)**
            **Asset
                Retirement Obligation**





At
      March 31, 2007 and December 31, 2006, the Company recorded asset
      retirement obligation accruals for mine reclamation and closure costs totaling
      $77,929 and $77,292, respectively. The portion of the costs expected to be
      incurred within a year in the amounts of $7,584 and $7,797 at March 31,
      2007 and December 31, 2006, respectively, are included in accrued expenses
      and other current liabilities. These regulatory obligations are secured by
      surety bonds in the amount of $138,869 at March 31, 2007 and $138,013 at
      December 31, 2006. Changes in the reclamation obligation were as
      follows:





Total
                  asset retirement obligation at December 31, 2006
              
              $
              77,292Accretion
                  for the three months ended March 31, 2007
              
              
              1,557Sites
                  added during the three months ended March 31, 2007
              
              
              402Expenditures
                  for the three months ended March 31, 2007
              
              
              (1,322
              )Total
                  asset retirement obligation at March 31, 2007
              
              $
              77,929





**(6)**
            **Stock-Based
                Compensation Awards**





Stock
      option activity for the three months ended March 31, 2007 is summarized in
      the following table:





**Number
                  of Shares**
              
              **Weighted-Average
                  Exercise Price**
              
              **Weighted-Average
                  Remaining Contract Live(Years)**Outstanding
                  at December 31, 2006
              
              
              1,137,398
              
              $
              16.64Forfeited/Cancelled
              
              
              (44,852
              )
              $
              16.36Outstanding
                  at March 31, 2007
              
              
              1,092,546
              
              $
              16.65
              
              
              7.78Exercisable
                  at March 31, 2007
              
              
              392,360
              
              $
              16.59
              
              
              7.78





The
      aggregate intrinsic value of options outstanding at March 31, 2007 was $1,114
      and the aggregate intrinsic value of exercisable options was $377. Cash received
      from the exercise of stock options during the quarters ended March 31, 2007
      and
      2006 was $0 and $410, respectively. As of March 31, 2007, $4,558 of unrecognized
      compensation cost related to stock options is expected to be recognized as
      expense over a weighted-average period of 2.76 years.





*Restricted
      Stock Awards*





Non-vested
      share award activity for the quarter ended March 31, 2007 is summarized in
      the
      following table:





**Number
                  of Shares**
              
              **Weighted
                  Average Grant Date Fair Value**Non-vested
                  shares outstanding at December 31, 2006
              
              
              471,341
              
              $
              21.34Granted
              
              
              584,710
              
              
              12.58Vested
              
              
              (107,761
              )
              
              21.13Forfeited
              
              
              (17,356
              )
              
              16.36Non-vested
                  shares outstanding at March 31, 2007
              
              
              930,934
              
              
              15.95







The
      fair
      value of non-vested share awards is estimated based on the average of the high
      and low market price on the date of grant, and, for purposes of expense
      recognition, the total number of awards expected to vest is adjusted for
      estimated forfeitures. As of March 31, 2007, there was $13,030 of unamortized
      compensation cost related to non-vested shares which is expected to be
      recognized as expense over a weighted-average period of
      2.32 years.




-8-
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*Performance
      Units*





*2007
      Award*




The
        Company granted 372,136 performance share awards in 2007, of which 362,434
        remain outstanding as of March 31, 2007. Recipients of these awards can receive
        shares of the Company’s common stock at the end of a performance period which
        ends on December 31, 2009, based on the Company’s actual performance against
        pre-established operating income goals, strategic goals, and total shareholder
        return goals. In order to receive the shares, the recipient must also be
        employed by the Company on the vesting date. The performance share awards
        represent the number of common shares to be awarded based on the achievement
        of
        targeted performance and may range from 0 percent to 150 percent of the targeted
        amount. The grant date fair value of the awards related to operating income
        targets is based on the closing price of the Company’s common stock on the grant
        date of the award and is being amortized over the performance period. The
        awards
        related to strategic goals do not meet the criteria for grant date pursuant
        to
        SFAS No. 123R and the Company has assessed the likelihood of achieving the
        performance goal as not probable at March 31, 2007. The fair value of the
        awards
        related to total shareholder return targets is based upon a Monte Carlo
        simulation and is being amortized over the performance period. The Company
        reassesses at each reporting date whether achievement of each of the performance
        conditions is probable, as well as estimated forfeitures, and adjusts the
        accruals of compensation expense as appropriate. At March 31, 2007, the Company
        has assessed the operating income and total shareholder return targets as
        probable of achievement. As of March 31, 2007, there was $4,006 of unamortized
        compensation cost related to the 2007 performance share awards which is expected
        to be recognized over the period ending December 31, 2009.


Stock-based
        compensation expense measured in accordance with SFAS 123R totaled $2,650
        ($1,994 on a net-of-tax basis, or $0.03 per basic and diluted share) and
        $3,833
        ($3,665 on a net-of-tax basis, or $0.06 per basic and diluted share) for
        the
        three months ended March 31, 2007 and 2006, respectively.
 
 Approximately
        70% of stock-based compensation expense is reported as selling, general and
        administrative expenses and approximately 30% is reported as a component
        of cost
        of sales and both are included in the Corporate and Eliminations category
        for
        segment reporting purposes (Note 10). At March 31, 2007, approximately $206
        of
        stock-based compensation costs was capitalized as a component of inventories.
        Under SFAS 123R, the Company is required to report the benefits of income
        tax
        deductions that exceed recognized compensation as cash flow from financing
        activities. Such excess tax benefits were insignificant for the quarters
        ended
        March 31, 2007 and 2006.




**(7)
      Derivative Financial Instruments**





Derivative
      financial instruments are accounted for in accordance with SFAS No.
      133, *Accounting for Derivative Instruments and Hedging Activities* .
      SFAS
      No. 133 requires all derivative financial instruments to be reported on the
      balance sheet at fair value. Changes in fair value are recognized either in
      earnings or equity, depending on whether the transaction qualifies for hedge
      accounting, and if so, the nature of the underlying exposure being hedged and
      how effective the derivatives are at offsetting price movements in the
      underlying exposure.





The
      Company accounts for certain forward purchase and forward sale contracts that
      do
      not qualify under the “normal purchase and normal sale” exception of SFAS No.
      133 as derivatives and records these contracts as assets or liabilities at
      fair
      value. These contracts do not currently qualify for hedge accounting.
      Accordingly, changes in fair value for forward sales and forward purchase
      contracts have been recorded in revenue and cost of sales, respectively. At
      March 31, 2007, the Company had unrealized gains (losses) on open sales and
      open
      purchase contracts of $2,899 and ($2,922), respectively. These amounts are
      recorded in prepaid expenses and other current assets and accrued expenses
      and
      other current liabilities, respectively.





The
      Company has utilized interest rate swap agreements to modify the interest
      characteristics of a portion of the Company's outstanding debt. The swap
      agreements essentially convert variable-rate debt to fixed-rate debt and have
      been designated as cash flow hedges.





The
      Company is also exposed to the risk of fluctuations in cash flows related to
      its
      purchase of diesel fuel. The Company has entered into a forward physical
      purchase contract and two financial diesel fuel swap agreements to reduce the
      volatility in the price of diesel fuel for its operations. The diesel fuel
      swap
      agreements are not designated as a hedge for accounting purposes, and therefore
      the changes in the fair value for these contracts have been recorded in cost
      of
      sales. The unrealized gain or loss is recorded in other current assets or other
      current liabilities depending upon the market value of the swap
      agreement.





Approximately
      13,000 gallons or 47 percent of the Company's anticipated 2007 fuel usage has
      been fixed with the physical purchase and swap agreements with approximately
      8,500 gallons remaining for the year.  At March 31, 2007, the Company had
      unrealized gains on open purchased contracts of $621. This amount was recorded
      in other current assets in the consolidated balance sheet at March 31,
      2007.







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**(8)
      Postretirement Benefits Other Than Pensions**





The
      following table details the components of the net periodic benefit cost for
      postretirement benefits other than pensions:


**March
                  31,****2007**
              
              **2006**Service
                  cost
              
              $
              960
              
              $
              1,053Interest
                  cost
              
              
              706
              
              
              685Amortization
                  of net actuarial loss
              
              
              47
              
              
              67Amortization
                  of prior service cost
              
              
              568
              
              
              558Net
                  periodic benefit cost
              
              $
              2,281
              
              $
              2,363





Employer
        contributions for postretirement medical benefits paid for the three months
        ended March 31, 2007 and 2006 were $32 and $17, respectively. Employee
        contributions are not expected to be made and the plan is unfunded.





Two
      of the Company’s subsidiaries are required to make contributions to the 1993
      UMWA Benefit Plan of fifty cents per signatory hour worked. The contributions
      that the Company made to this plan for the quarters ended March 31, 2007
      and 2006 were $6 and $7, respectively.





**(9) Related
      Party Transactions**





The
      Company had the following receivable balances from affiliated parties as of
      December 31, 2006:


**December
                  31,****2006**AMCI
              
              $
              5,097Robindale
                  Energy & Subsidiary
              
              
              11Total
              
              $
              5,108






As
      of
      March 31, 2007, AMCI is no longer a related party. During 2006, AMCI sold a
      significant number of shares to reduce its holdings to below five percent and
      its designee on the Company’s Board of Directors resigned effective January 3,
      2007. Also, Robindale Energy is no longer a related party since its 50% owner
      is
      no longer the Company’s Executive Vice President. As of December 31, 2006,
      $5,097 of receivables from AMCI are included in trade accounts receivable,
      net.
      The majority of the AMCI receivables as of December 31, 2006 relate to coal
      sales transactions in the normal course of business.





**(10) Segment
      Information**




The
      Company extracts, processes and markets steam and metallurgical coal from
      surface and deep mines for sale to electric utilities, steel and coke producers,
      and industrial customers. The Company operates only in the United States with
      mines in the Central Appalachian and Northern Appalachian regions. The Company
      has one reportable segment: Coal Operations, which as of March 31, 2007,
      consisted of 38 underground mines and 31 surface mines located in Central
      Appalachia and Northern Appalachia. Coal Operations also includes the Company's
      coal sales function, which markets the Company's Appalachian coal to domestic
      and international customers. The All Other category includes the Company's
      equipment sales and repair operations, as well as other ancillary business
      activities, including terminal services, coal and environmental analysis
      services, and leasing of mineral rights. In addition, the All Other category
      includes the operations of the Company's road construction businesses and the
      lime processing business recently acquired and being developed by the Company.
      The Corporate and Eliminations category includes general corporate overhead
      and
      the elimination of intercompany transactions. The revenue elimination amount
      represents inter-segment revenues. The Company evaluates the performance of
      its
      segment based on EBITDA, as adjusted which the Company defines as net income
      plus interest expense, income tax expense (benefit), depreciation, depletion
      and
      amortization, less interest income plus minority interest.








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   Operating
        segment results for the three months ended March 31, 2007 and segment
        assets as of March 31, 2007 were as follows:


**Corporate****Coal**
                
                **All**
                
                **and****Operations**
                
                **Other**
                
                **Eliminations**
                
                **Consolidated**Revenues
                
                $
                421,864
                
                $
                14,856
                
                $
                (9,349
                )
                $
                427,371Depreciation,
                    depletion, and amortization
                
                
                34,344
                
                
                1,198
                
                
                247
                
                
                35,789EBITDA
                
                
                67,263
                
                
                2,096
                
                
                (13,236
                )
                
                56,123Capital
                    expenditures
                
                
                43,597
                
                
                568
                
                
                412
                
                
                44,577Total
                    assets
                
                
                1,180,013
                
                
                107,578
                
                
                (156,455
                )
                
                1,131,136


Operating
      segment results for the three months ended March 31, 2006 and segment
      assets as of March 31, 2006 were as follows:





**Corporate****Coal**
              
              **All**
              
              **and****Operations**
              
              **Other**
              
              **Eliminations**
              
              **Consolidated**Revenues
              
              $
              472,369
              
              $
              19,486
              
              $
              (9,715
              )
              $
              482,140Depreciation,
                  depletion, and amortization
              
              
              31,060
              
              
              1,979
              
              
              595
              
              
              33,634EBITDA
              
              
              94,713
              
              
              2,685
              
              
              (16,843
              )
              
              80,555Capital
                  expenditures
              
              
              44,442
              
              
              5,965
              
              
              1,032
              
              
              51,439Total
                  assets
              
              
              990,254
              
              
              87,373
              
              
              (61,506
              )
              
              1,016,121








Reconciliation
      of total segment EBITDA to net income:


**Three
                  Months Ended**
                **March
                  31,****2007**
              
              **2006**Total
                  segment EBITDA
              
              $
              56,123
              
              $
              80,555Interest
                  expense
              
              
              (9,993
              )
              
              (10,277
              )Interest
                  income
              
              
              637
              
              
              188Income
                  tax expense
              
              
              (2,629
              )
              
              (9,620
              )Depreciation,
                  depletion and amortization
              
              
              (35,789
              )
              
              (33,634
              )Net
                  income
              
              $
              8,349
              
              $
              27,212







The
      Company markets produced, processed and purchased coal to customers in the
      United States and in international markets. Export revenues totaled $146,482,
      approximately 34% of total revenues, for the three months ended March 31,
      2007 and $186,534, approximately 39% of total revenues, for the three months
      ended March 31, 2006.





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**(11) Contingencies**





***(a)***
            ***Guarantees
                and Financial Instruments with Off-Balance Sheet
                Risk***





In
      the normal course of business, the Company is a party to certain guarantees
      and
      financial instruments with off-balance sheet risk, such as bank letters of
      credit and performance or surety bonds. No liabilities related to these
      arrangements are reflected in the Company’s condensed consolidated balance
      sheets. Management does not expect any material losses to result from these
      guarantees or off-balance sheet financial instruments. The amount of bank
      letters of credit outstanding as of March 31, 2007 was $81,094. The amount
      of surety bonds currently outstanding related to the Company’s reclamation
      obligations is presented in Note 5 to the condensed consolidated financial
      statements. The Company has provided guarantees for equipment financing obtained
      by certain of its contract mining operators totaling approximately $1,449.
      The
      estimated fair value of these guarantees is not significant.





***(b)***
            ***Litigation***





The
      Company is involved in various legal proceedings from time to time in the normal
      course of business. In management’s opinion, the Company is not currently
      involved in any legal proceeding which individually or in the aggregate could
      have a material effect on the financial condition, results of operations and/or
      cash flows of the Company.





**(12) Income
      Taxes**






Income
      tax expense of $2,629 was recorded for the three months ended March 31, 2007
      on
      income before income taxes and minority interest of $10,935, which equates
      to an
      effective tax rate of 24.0%. This rate is lower than the federal statutory
      rate
      of 35% due primarily to the tax benefits associated with percentage depletion,
      partially offset by state income taxes, change in the valuation allowance,
      and
      stock-based compensation charges which are not deductible for tax purposes.
      Income tax expense of $9,620 was recorded for the three months ended March
      31,
      2006 on income before income taxes and minority interest of $36,832, which
      equates to an effective rate of 26.1%. This rate is lower than the federal
      statutory rate of 35% due primarily to the tax benefits associated with
      percentage depletion and the extraterritorial income exclusion, partially offset
      by state income taxes and the portion of the stock-based compensation charge
      associated with the issuance of common stock to management in connection with
      the Internal Restructuring and initial public offering which is not deductible
      for tax purposes.




A
      reconciliation of the statutory federal income tax expense at 35% to income
      before income taxes and minority interest and the actual income tax expense
      is
      as follows:





**Three
                  Months Ended****March
                  31,**2007
              
              2006Federal
                  statutory income tax expense
              
              $
              3,842
              
              $
              12,891Increases
                  (reductions) in taxes due to:Percentage
                  depletion allowance
              
              
              (2,125
              )
              
              (4,864
              )Extraterritorial
                  income exclusion
              
              
              —
              
              
              (413
              )Deduction
                  for domestic production activities
              
              
              (34
              )
              
              (165
              )State
                  taxes, net of federal tax impact
              
              
              194
              
              
              965Non-deductible
                  stock-based compensation
              
              
              184
              
              
              1,030Change
                  in valuation allowance
              
              
              491
              
              
              3Other,
                  net
              
              
              77
              
              
              173Actual
                  income tax expense
              
              $
              2,629
              
              $
              9,620





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The
      Company has concluded that it is more likely than not that deferred tax assets,
      net of valuation allowances, currently recorded will be realized. The amount
      of
      the valuation allowance takes into consideration the Alternative Minimum Tax
      system as required by SFAS No. 109. The Company monitors the valuation allowance
      each quarter and makes adjustments to the allowance as appropriate.




The
      Company adopted the provisions ofFinancial
      Standards Accounting Board Interpretation No. 48*Accounting
      for Uncertainty in Income Taxes*(“FIN
      48”) an interpretation of FASB Statement No. 109 (“SFAS 109”)on
      January 1, 2007. As a result of the adoption of FIN 48, the Company recognized
      no adjustment in the unrecognized income tax benefits that existed at December
      31, 2006. On January 1, 2007, the Company had approximately $1,754 of
      unrecognized tax benefits accrued and of this amount, $1,437 would affect the
      effective tax rate if recognized. The Company does not anticipate that total
      unrecognized benefits recorded as of January 1, 2007 will significantly change
      during 2007.


The
        Company’s policy is to classify interest and penalties related to uncertain tax
        positions as part of our income tax expense. As of January 1, 2007, the Company
        had not recorded any accrued interest expense since no additional cash taxes
        are
        projected to be due as a result of the uncertain tax positions.
 
 Tax
        years
        2005 and 2006 remain open to federal and state examination. The Internal
        Revenue
        Service initiated a corporate income tax audit during first quarter 2007
        for the
        Company’s 2005 tax year. The audit is still in the initial stages. No
        adjustments have been proposed to date, and the Company expects the examination
        to last through the first quarter of 2008.




**(13) Comprehensive
      Income**




Total
      comprehensive income is as follows for the three monts ended March 31,
      2007:




Net
                Income
            
            $
            8,349Increase
                in fair value of cash flow hedge, net of tax effect of $153 for the
                three
                months ended March 31, 2007
            
            
            772Decrease
                in SFAS 158 adjustment related to postretirement medical and black
                lung
                obligations, net of tax effect of $(156) for the three months ended
                March
                31, 2007
            
            
            (471
            )Total
                comprehensive income
            
            $
            8,650




The
      following table summarizes the components of accumulated other comprehensive
      loss at March 31, 2007:




Fair
                value of cash flow hedge, net of tax effect of $1,940
            
            $
            5,903SFAS
                158 adjustment related to black lung obligations, net of tax effect
                of
                $124
            
            
            377SFAS
                158 adjustment related to postretirement medical obligations, net
                of tax
                effect of $4,185
            
            
            12,734Total
                accumulated other comprehensive loss
            
            $
            19,014








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**(14) New
      Accounting Pronouncements**




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measures” (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value and enhances disclosures about fair value measures required under other
      accounting pronouncements, but does not change existing guidance as to whether
      or not an instrument is carried at fair value. SFAS No. 157 is effective for
      fiscal years beginning after November 15, 2007. The Company is currently
      reviewing the provisions of SFAS 157 to determine the impact on the Company's
      financial statements.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (SFAS 159”). SFAS 159 permits
      entities to choose to measure many financial instruments and certain other
      items
      at fair value. The objective is to expand the use of fair value measurements
      in
      accounting for financial instruments. SFAS No. 159 is effective for fiscal
      years
      beginning after November 15, 2007. The Company is currently reviewing the
      provisions of SFAS 159 to determine the impact on the Company’s financial
      statements.




In
      September 2006, the FASB issued Financial Accounting Standards Board Staff
      Position No. AUG AIR-1, “Accounting for Planned Major Maintenance Activities”
(FSP AUG AIR-1), which amended certain provisions in the American Institute
      of
      Certified Public Accountants (AICPA) Industry Audit Guide, Audits of Airlines
      (Airline Guide), and Accounting Principles Board Opinion No. 28: Interim
      Financial Reporting. The Board rescinded the accrue-in-advance method of
      accounting for planned major maintenance activities as it results in the
      recognition of liabilities that do not meet the definition of a liability in
      FASB Concepts Statement No. 6, Elements of Financial Statements, because it
      causes the recognition of a liability in a period prior to the occurrence of
      the
      transaction or event obligating the entity. The guidance in FSP AUG AIR-1 shall
      be applied to the first fiscal year beginning after December 15, 2006. The
      Company does not use the accrue-in-advance method and as a result, this
      guidance does not impact the Company’s financial statements.




On
      January 1, 2007, the Company adopted the provisions of FIN 48, which clarifies
      the accounting for uncertainty in income tax positions. This interpretation
      requires the Company to recognize in the consolidated financial statements
      only
      those tax positions determined to be more likely than not of being sustained
      upon examination, based on the technical merits of the positions. The adoption
      of FIN 48 did not result in an adjustment to the Company’s financial
      statements.








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**Item 2.
      Management’s Discussion and Analysis of Financial
      Condition and Results of Operations**




You
      should read the following discussion and analysis in conjunction with our
      financial statements and related notes included elsewhere in this report and
      the
      Company’s Annual Report on Form 10-K for the year ended December 31,
      2006.





**Cautionary
      Note Regarding Forward Looking Statements**




This
      report includes statements of our expectations, intentions, plans and beliefs
      that constitute “forward-looking statements” within the meaning of
      Section 27A of the Securities Act of 1933 and Section 21E of the
      Securities Exchange Act of 1934 and are intended to come within the safe harbor
      protection provided by those sections. These statements, which involve risks
      and
      uncertainties, relate to analyses and other information that are based on
      forecasts of future results and estimates of amounts not yet determinable and
      may also relate to our future prospects, developments and business strategies.
      We have used the words “anticipate,” “believe,” “could,” “estimate,” “expect,”
“intend,” “may,” “plan,” “predict,” “project,” “should” and similar terms and
      phrases, including references to assumptions, in this report to identify
      forward-looking statements. These forward-looking statements are made based
      on
      expectations and beliefs concerning future events affecting us and are subject
      to uncertainties and factors relating to our operations and business
      environment, all of which are difficult to predict and many of which are beyond
      our control, that could cause our actual results to differ materially from
      those
      matters expressed in or implied by these forward-looking
      statements.





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, as well as our ability to successfully integrate
                  operations we may acquire in the
                  future;
  **·**
              our
                  plans and objectives for future operations and expansion or
                  consolidation;
  **·**
              our
                  relationships with, and other conditions affecting, our
                  customers;
  **·**
              the
                  progress of project construction plans and marketing agreements
                  relating
                  to Gallatin Materials, LLC.;
  **·**
              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 and 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;
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  **·**
              availability
                  of skilled employees and other employee workforce
                  factors;
  **·**
              regulatory
                  and court decisions;
 
 **·**
              future
                  legislation and changes in regulations, governmental policies or
                  taxes;
  **·**
              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;
  **·**
              disruption
                  in coal supplies; and




**·**
              other
                  factors, including the other factors discussed in “Overview - Coal Pricing
                  Trends and Uncertainties” and “Outlook” below, and the factors discussed
                  in Part I, Item 1A “Risk Factors” section of our annual report on Form
                  10-K for the year ended December 31,
                  2006.




When
      considering these forward-looking statements, you should keep in mind the
      cautionary statements in this report and the documents incorporated by
      reference. We do not undertake any responsibility to release publicly any
      revisions to these forward-looking statements to take into account events or
      circumstances that occur after the date of this report. Additionally, we do
      not
      undertake any responsibility to update you on the occurrence of any
      unanticipated events which may cause actual results to differ from those
      expressed or implied by the forward-looking statements contained in this
      report.




**Overview**




We
      produce, process and sell steam and metallurgical coal from eight regional
      business units, which, as of March 31, 2007, are supported by 38 active
      underground mines, 31 active surface mines and 10 preparation plants located
      throughout Virginia, West Virginia, Kentucky and Pennsylvania. We also sell
      coal
      produced by others, the majority of which we process and/or blend with coal
      produced from our mines prior to resale, providing us with a higher overall
      margin for the blended product than if we had sold the coals separately. For
      the
      three months ended March 31, 2007, sales of steam coal were
      4.2 million tons and accounted for approximately 64% of our coal sales
      volume. Sales of metallurgical coal, which generally sells at a premium over
      steam coal, were 2.4 million tons and accounted for approximately 36% of
      our first quarter 2007 coal sales volume. Our sales of steam coal were made
      primarily to large utilities and industrial customers in the Eastern region
      of
      the United States, and our sales of metallurgical coal were made primarily
      to
      steel companies in the Northeastern and Midwestern regions of the United States
      and in several countries in Europe, Asia and South America. Approximately 24%
      of
      our coal sales volume in the first three months of 2007 was derived from sales
      made outside the United States, primarily in Egypt, Turkey, Belgium and
      India.




We
        also
        own 94% of Gallatin Materials, LLC (“Gallatin”), a lime manufacturing venture
        near Cincinnati, Ohio. Construction of the first of two lime plants has begun
        and is on schedule. Fabrication and site work has been ongoing since January
        and
        major component assembly is expected to commence this month. The first of
        two
        planned kilns is targeted to start producing late this year, with about
        three-fourths of planned production already sold through 2012. We had paid
        approximately $6.3 million through March 31, 2007 with an additional $3.5
        million paid early in the second quarter to bring to date a total amount
        of $9.8
        million out of our total commitment of $14.1 million for the project’s first
        phase. In addition, we are providing a $2.6 million letter of credit to cover
        cost overruns related to the project's first phase.  Approximately $2.9
        million has been spent on capital expenditures by Gallatin in the first quarter
        of 2007.





In
      addition, we generate other revenues from road construction, equipment and
      parts
      sales, equipment repair income, rentals, royalties, commissions, coal handling,
      terminal and processing fees, and coal and environmental analysis fees.  We
      also record revenue for freight and handling charges incurred in delivering
      coal
      to our customers, which we treat as being reimbursed by our customers. However,
      these freight and handling revenues are offset by equivalent freight and
      handling costs and do not contribute to our profitability.




Our
      business is seasonal, with operating results varying from quarter to quarter.
      Primarily due to the freezing of the lakes that we use to transport coal to
      some
      of our customers, we generally experience lower sales and hence build coal
      inventory during the winter months.





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Our
      primary expenses are wages and benefits, supply costs, repair and maintenance
      expenditures, cost of purchased coal, royalties, freight and handling costs,
      and
      taxes incurred in selling our coal. Historically, our cost of coal sales per
      ton
      is lower for sales of our produced and processed coal than for sales of
      purchased coal that we do not process prior to resale.





We
      have
      one reportable segment, Coal Operations, which includes all of our revenues
      and
      costs from coal production and sales, freight and handling, rentals, commissions
      and coal handling and processing operations and coal recovery incidental to
      our
      road construction operations. These revenues and costs included in our Coal
      Operations segment are reported by us in our coal sales revenues and cost of
      coal sales, except for the revenues and costs from rentals, commissions, and
      coal handling, processing operations and road construction, which we report
      in
      our other revenues and cost of other revenues, respectively.




***Coal
      Pricing Trends and Uncertainties and Outlook.***




The
      moderation in steam coal pricing that began in the second half of 2006 continued
      into early 2007, but that market now appears to be improving. An
      8%
      reduction through late April in Appalachia coal supply, a statistic given by
      the
      Federal Energy Information Administration, is driving Eastern supply and demand
      into a better balance.
      In addition, strong export demand is drawing steam coal out of the U.S. and
      it
      is expected that China will become a net importer of coal for the first time
      this year. Another item that could impact future coal pricing is the development
      of coal-to-gas and coal-to-liquids technologies that is gaining bipartisan
      support in Washington, D.C. with the possibility that legislative incentives
      or
      guaranteed take-price agreements may result that accelerate these projects.
      We
      have been and will continue to be cautious in committing forward steam
      production into 2008 and 2009 that do not provide adequate returns to us.




In
      the
      first quarter, we concluded contract negotiations for almost all of our
      remaining export met coal (about 4.0 million tons) at our expected pricing.
      In
      addition, strength in the global steel markets, coupled with high ocean freight
      rates and logistical problems encountered by Australian and Canadian exporters,
      has created opportunities for unplanned met coal sales in the first quarter
      and
      we believe for the remainder of this year. We intend to meet this increased
      demand by using our flexible mine portfolio and blending capabilities to shift
      our production from steam to met markets. We expect that our met coal volumes
      will be near 35 percent of our overall 2007 sales volume.




As
      of
      April 20, 2007, we had approximately 98 percent of our 2007 planned production
      committed and priced at an average price of about $56 per ton. Also as of that
      date we had committed and priced 43 percent of our planned 2008 production
      with
      an additional 6 percent committed but unpriced. Of our uncommitted 2008
      production, approximately 49 percent and 51 percent is met or steam coal,
      respectively. While our outlook for coal pricing remains positive, future coal
      prices are subject to factors beyond our control.




Some
      of
      the productivity issues we experienced in the latter portion of 2006 continued
      into 2007 and impacted our costs. The fatalities at our Cucumber mine, continued
      geological problems at a few of our deep and surface mines, the closing of
      a few
      of our higher productivity deep mines and the lack of experienced labor
      contributed to our productivity issues in the quarter just ended. We expect
      productivity to improve over the remainder of this year from the levels we
      achieved in the first quarter of this year as turnover stabilizes and our
      workforce gains experience.




Other factors
      that may impact our future cost of coal production are:




·
            The
                Miner Act and various other state legislation continues to place
                upward
                cost pressure on mine operators as they attempt to comply with the
                new
                statutes.


·
            The
                recent ratification of the Bituminous Coal Operators and Associates
                new
                contract will increase the cost structures of mine operators who
                have
                United Mine Workers of America representation which could impact
                the cost
                structures of non-represented
                workforces.


·
            A
                recent court decision, initially impacting surface mining operations
                in
                the Huntington District of the U.S. Corps of Engineers, threatens
                to
                further slow the issuance of mining permits and constrain production.
                This
                decision could spread to other districts, even ones where we operate.






For
      additional information regarding some of the risks and uncertainties that affect
      our business, see Item 2 and Item 1A “Risk Factors” in our Annual Report on Form
      10-K.




-17-
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**Reconciliation
      of Non-GAAP Measures**




The
      following unaudited table reconciles EBITDA to net income, the mostly
      directly comparable GAAP measure.


**Quarter
                  ended****March
                  31,****2007**
              
              **2006**(In
                  thousands)Net
                  income
              
              $
              8,349
              
              $
              27,212Interest
                  expense
              
              
              9,993
              
              
              10,277Interest
                  income
              
              
              (637
              )
              
              (188
              )Income
                  tax expense
              
              
              2,629
              
              
              9,620Depreciation,
                  depletion and amortization
              
              
              35,789
              
              
              33,634EBITDA
                  (1)
              
              $
              56,123
              
              $
              80,555






(1)
        EBITDA is defined as net income plus interest expense, income tax expense,
        depreciation, depletion and amortization, less interest income. EBITDA is
        a
        non-GAAP measure used by management to measure operating performance, and
        management also believes it is a useful indicator of our ability to meet
        debt
        service and capital expenditure requirements. Because EBITDA is not calculated
        identically by all companies, our calculation may not be comparable to similarly
        titled measures of other companies. Adjusted EBITDA, as it is used and defined
        in our debt covenants, is described and reconciled to net income in “-- Analysis
        of Material Debt Covenants” below.




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**Results
      of Operations**





***Three
      months Ended March 31, 2007 Compared to the Three months Ended
      March 31, 2006***




*Summary*




For
      the
      quarter ended March 31, 2007, we recorded total revenues of $427.4 million
      compared to $482.1 million for the quarter ended March 31, 2006, a decrease
      of
      $54.8 million. Net income decreased from $27.2 million (or $0.43 per diluted
      share) in the first quarter of 2006 to $8.3 million (or $0.13 per diluted share)
      for the first quarter of 2007. EBITDA as reconciled to our net income in
      the table under “Reconciliation of Non-GAAP Measures”above, was $56.1 million
      and $80.6 million in the first quarter of 2007 and 2006, respectively. The
      2006
      results included charges for the non-cash portion of our stock-based
      compensation related to our initial public offering (IPO) in the amount of
      $3.2
      million.




We
      sold
      6.6 million tons of coal during the first quarter of 2007, 0.5 million less
      than during the comparable period in 2006. Coal margin, which we define as
      coal
      sales revenues less cost of coal sales, divided by coal sales revenues,
      decreased from 22.0% in the first quarter of 2006 to 18.0% in the comparable
      period of 2007. Coal margin per ton was $10.21 in the first quarter of 2007,
      a
      22.2% decrease from the first quarter of 2006. Coal margin per ton is calculated
      as coal sales revenues per ton less cost of coal sales per ton.




On
      January 1, 2007, the Company adopted the provisions of FIN 48, which clarifies
      the accounting for uncertainty in income tax positions. This interpretation
      requires the Company to recognize in the consolidated financial statements
      only
      those tax positions determined to be more likely than not of being sustained
      upon examination, based on the technical merits of the positions. The adoption
      of FIN 48 did not result in an adjustment to the Company’s financial
      statements.





*Revenues*





**Three
                  months ended**
              
              **Increase****March
                  31,**
              
              **(Decrease)****2007**
              
              **2006**
              
              **$
                  or Tons**
              
              **%****(in
                  thousands, except per ton data)**Coal
                  sales revenues
              
              $
              376,930
              
              $
              424,331
              
              $
              (47,401
              )
              
              (11
              %)Freight
                  and handling revenues
              
              
              43,211
              
              
              46,392
              
              
              (3,181
              )
              
              (7
              %)Other
                  revenues
              
              
              7,230
              
              
              11,417
              
              
              (4,187
              )
              
              (37
              %)Total
                  revenues
              
              $
              427,371
              
              $
              482,140
              
              $
              (54,769
              )
              
              (11
              %)Tons
                  Sold:Steam
              
              
              4,260
              
              
              4,355
              
              
              (95
              )
              
              (2
              %)Metallurgical
              
              
              2,368
              
              
              2,768
              
              
              (400
              )
              
              (14
              %)Total
              
              
              6,628
              
              
              7,123
              
              
              (495
              )
              
              (7
              %)Coal
                  sales revenue per ton:Steam
              
              $
              48.07
              
              $
              49.00
              
              $
              (0.93
              )
              
              (2
              %)Metallurgical
              
              
              72.70
              
              
              76.22
              
              
              (3.52
              )
              
              (5
              %)Total
              
              $
              56.87
              
              $
              59.58
              
              $
              (2.71
              )
              
              (5
              %)





*Coal
      sales revenues.* Coal
      sales revenues decreased by 11% ($47.4 million) for the quarter ended
      March 31, 2007 over the comparable period of 2006, driven by a 7% decrease
      in coal sales volume and a 5% decrease in sales realization from $59.58 per
      ton
      in the first quarter of 2006 to $56.87 per ton in the first quarter of 2007.
      The
      7% decrease in coal sales volume was primarily due to a 0.4 million ton decrease
      in metallurgical coal (met coal) shipments from the record high level achieved
      in the first quarter of 2006. The first quarter of 2006 benefited from a
      carryover of higher priced met coal shipments from 2005 and the first quarter
      of
      2007 returned to more normal levels. The mark-to-market adjustment for certain
      forward sales contracts decreased revenues from the sale of steam coal by $3.2
      million, or $0.76 per ton in the first quarter of 2007. Our met coal realization
      per ton decreased by 5% from $76.22 per ton to $72.70 per ton, and steam coal
      realization per ton decreased by 2% from $49.00 to $48.07. Met coal sales
      accounted for 36% of our coal sales volume in the first quarter of 2007 compared
      with 39% in the first quarter of 2006. Total tons sold for the first quarter
      of
      2007 were 6.6 million including 2.4 million tons of met coal and
      4.2 million tons of steam coal. Sales volumes for the first quarter of 2006
      were 7.1 million tons of which 2.8 million were met coal and
      4.3 million were steam coal.







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*Freight
      and Handling Revenues.* Freight
      and handling revenues decreased to $43.2 million for the three months ended
      March 31, 2007, a decrease of $3.2 million compared with the three
      months ended March 31, 2006 mainly due to a decrease of 0.4 million
      tons of export met coal shipments which generally have higher freight rates.
      These revenues are offset by equivalent costs and do not contribute to our
      profitability.





*Other
      Revenues.* Other
      revenues decreased by $4.2 million mainly due to a decrease of
      $3.4 million in revenue from our road construction business and by a
      decrease in revenues from our Maxxim Rebuild operation of $1.0 million partially
      offset by an increase in terminal fee revenue, rent and royalty, and commission
      income of $0.2 million. Approximately $3.0 million of the decrease in road
      construction revenue was due to the completion of a portion of the King Coal
      Highway in West Virginia in September of 2006. Maxxim Rebuild has reduced its
      third-party selling activity which contributed to its reduced
      revenues.





*Costs
      and Expenses*


**Three
                  months ended**
              
              **Increase****March
                  31,**
              
              **(Decrease)****2007**
              
              **2006**
              
              $
              
              %**(in
                  thousands, except per ton data)**Cost
                  of coal sales (exclusive of items shown separately below)
              
              $
              309,255
              
              $
              330,885
              
              $
              (21,630
              )
              
              (7
              %)Freight
                  and handling costs
              
              
              43,211
              
              
              46,392
              
              
              (3,181
              )
              
              (7
              %)Cost
                  of other revenues
              
              
              5,628
              
              
              7,951
              
              
              (2,323
              )
              
              (29
              %)Depreciation,
                  depletion and amortization
              
              
              35,789
              
              
              33,634
              
              
              2,155
              
              
              6
              %Selling,
                  general and administrative expenses
              
              
              13,239
              
              
              16,639
              
              
              (3,400
              )
              
              (20
              %)Total
                  costs and expenses
              
              $
              407,122
              
              $
              435,501
              
              $
              (28,379
              )
              
              (7
              %)Cost
                  of coal sales per ton:Company
                  mines
              
              $
              45.46
              
              $
              40.51
              
              $
              4.95
              
              
              12
              %Contract
                  mines (including purchased and processed)
              
              
              50.16
              
              
              53.24
              
              
              (3.08
              )
              
              (6
              %)Total
                  produced and processed
              
              
              46.22
              
              
              42.50
              
              
              3.72
              
              
              9
              %Purchased
                  and sold without processing
              
              
              50.30
              
              
              66.28
              
              
              (15.98
              )
              
              (24
              %)Cost
                  of coal sales per ton
              
              $
              46.66
              
              $
              46.46
              
              $
              0.20
              
              
              1
              %




*Cost
      of Coal Sales.* Our
      cost
      of coal sales decreased by $21.6 million, or increased $0.20 per ton, from
      $330.9 million and $46.46 per ton in the first quarter of 2006 to
      $309.3 million and $46.66 per ton in the first quarter of 2007. The
      adjustment to mark-to-market certain forward purchase contracts decreased cost
      of coal sales by $3.0 million or $0.46 per ton, in the first quarter of 2007.
      Our cost of coal sales per ton for our produced and processed coal was $46.22
      per ton in the first three months of 2007 as compared with $42.50 per ton in
      the
      comparable period in 2006. This $3.72 per ton increase is attributable mainly
      to
      increased costs for labor and benefits, diesel fuel and other mine supplies,
      and
      cost of contract mining services partially offset by a decrease in cost of
      coal
      purchased and processed. The cost of sales per ton for our purchased coal was
      $50.30 in the first quarter of 2007, and $66.28 per ton for the corresponding
      period of 2006. This $15.98 per ton decrease in costs is mainly due to a change
      in the mix of coal qualities we purchased for resale. We sold more met quality
      coal that we had previously purchased from third parties, in the first quarter
      of 2006 than in the first quarter of 2007. Approximately 61% of our purchased
      coal sold during the first quarter 2007 was blended with our produced and
      processed coal prior to resale.




*Freight
      and Handling Costs.* Freight
      and handling costs decreased to $43.2 million for the three months ended
      March 31, 2007, a decrease of $3.2 million compared with the three months
      ended March 31, 2006 due to a decrease of 0.4 million tons of export
      shipments which generally have higher freight rates. These costs were offset
      by
      an equivalent amount of freight and handling revenue.





*Cost
      of Other Revenues* .
      Our
      cost of other revenues decreased by $2.3 million in the first quarter of
      2007 when compared with the first quarter of 2006 due to a decrease of
      $2.0 million of costs from our road construction business and by a decrease
      in cost from our Maxxim Rebuild operation of $1.2 million partially offset
      by an
      increase in costs associated with our Gallatin lime venture of $0.7 million
      and
      terminal costs of $0.2 million. Approximately $1.7 million of the decrease
      in
      road construction cost was due to the completion of a portion of the King Coal
      Highway in West Virginia in September of 2006. Maxxim Rebuild has reduced its
      third-party activity and the corresponding costs. The increase in cost from
      our
      Gallatin lime venture is primarily due to compensation charges related to the
      vesting of restricted membership interest and bonus accruals. The margin from
      other revenues decreased by $2.0 million in the first quarter of 2007 when
      compared with the first quarter of 2006 mainly due to the reduced road
      construction and Maxxim Rebuild operations and the additional cost associated
      with the Gallatin lime venture.








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*Depreciation,
      Depletion and Amortization.* Depreciation, depletion, and amortization increased $2.2 million, or 6%, to
      $35.8 million for the three months ended March 31, 2007 as compared
      with the same period of 2006, due mainly to the Progress acquisition in the
      second quarter of 2006 and additional capital expenditures. Depreciation,
      depletion and amortization per ton increased from $4.72 per ton for the three
      months ended March 31, 2006 to $5.40 per ton in the same period of 2007.





*Selling,
      General and Administrative Expenses* .
These
      expenses decreased by $3.4 million to $13.2 million in the first quarter
      2007 from $16.6 million in the first quarter of 2006. This decrease is
      mainly due to stock-based compensation charges which decreased by
      $3.2 million recorded in the first quarter of 2006 for restricted stock
      issued to management in connection with our Internal Restructuring prior to
      our
      IPO. These charges ended at December 31, 2006. Excluding our stock-based
      compensation charges related to our IPO, selling, general and administrative
      expenses decreased by $0.2 million. As a percentage of revenues, these
      expenses were 3.1% and 2.8% for the first quarter of 2007 and 2006,
      respectively, excluding stock-based compensation charges related to our
      IPO.





*Interest
      Expense.* Interest
      expense decreased by $0.3 million to $10.0 million during the first
      quarter of 2007 compared with the same period in 2006. The decrease is
      attributable to lower debt levels maintained by us in the first quarter of
      2007.





*Interest
      Income.* Interest
      income increased by $0.4 million in the three months ended March 31,
      2007 from the three months ended March 31, 2006, mainly due to additional
      interest earned on invested cash.





*Income
      Tax Expense.* Our
      provision for income taxes decreased by $7.0 million from $9.6 million in the
      first quarter of 2006 to $2.6 million in the first quarter of 2007. The
      effective tax rate of 24.0% for the first quarter of 2007 was lower than the
      26.1% effective tax rate for the first quarter of 2006 primarily due to
      differences in excess percentage depletion deductions and the decrease in
      non-deductible stock-based compensation.





**Liquidity
      and Capital Resources**





Our
      primary liquidity and capital resource requirements are to finance the cost
      of
      our coal production and purchases, to make capital expenditures, pay income
      taxes, and to service our debt and reclamation obligations. Our primary sources
      of liquidity are cash flow from sales of our produced and purchased coal, other
      income and borrowings under our senior credit facility.


At
        March 31, 2007, we had available liquidity of $203.7 million, including
        cash of $30.9 million and $193.9 million available under our credit facility
        less checks issued in excess of bank balance (bank overdraft) of $21.1 million.
        Our total indebtedness was $437.9 million at March 31, 2007 a decrease of
        $7.7
        million from the year ended December 31, 2006.





Our
      cash capital spending for the three months ended March 31, 2007 was
      $44.6 million, and we currently project cash capital spending for the full
      year of 2007 of between $125 and $150 million. These expenditures have been
      and are forecasted to be used to develop new mines, replace or add equipment
      and
      to construct the first of two lime kilns for the Gallatin lime venture. We
      believe that cash generated from our operations and borrowings under our credit
      facility will be sufficient to meet our working capital requirements,
      anticipated capital expenditures and debt service requirements for at least
      the
      next twelve months.





***Cash
      Flows***




Net
      cash
      provided by operating activities during the three months ended March 31, 2007
      was $52.6 million, an increase of $19.2 million from the $33.4 million
      of net cash provided by operations during the three months ended March 31,
      2006.
      This increase is due to a decrease in cash required for working capital in
      the
      amount of $39.9 million. The first quarter 2006 included higher receivables
      generated from increased export sales and payment of coal purchased late in
      the
      fourth quarter of 2005 from third parties in anticipation of increased met
      coal
      sales. This increase in net cash provided by operating activities was partially
      offset by a decrease in net income of $18.9 million and a decrease in non-cash
      charges of $1.8 million.








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Net
      cash
      used in investing activities was $44.5 million during the three months
      ended March 31, 2007, $5.3 million less than in the comparable period in
      2006. This decrease was primarily attributable to a decrease in capital
      expenditures of $6.9 million from the first quarter 2006 level to
      $44.6 million.





Net
      cash
      used in financing activities during the quarter ended March 31, 2007 was
      $10.4 million compared with net cash used by financing activities of $12.1
      million in the quarter ended March 31, 2006. During the quarter just ended,
      we reduced debt by $7.7 million and reduced our bank overdraft by $2.7
      million. During the first quarter of 2006, we reduced debt by $23.6 million,
      increased our bank overdraft by $12.3 million and used $0.8 million of cash
      for
      other financing activities.





***Credit
      Facility and Long-term Debt***





As
      of March 31, 2007, our total long-term indebtedness, including capital
      lease obligations, consisted of the following (in thousands):


Term
                  loan
              
              $
              246,87510%
                  Senior notes due 2012
              
              
              175,000Capital
                  lease obligation
              
              
              1,285Other
              
              
              700Total
                  long-term debt
              
              
              423,860Less
                  current portion
              
              
              (3,274
              )Long-term
                  debt, net of current portion
              
              $
              420,586




Our
      credit facility and the indenture governing the senior notes each impose certain
      restrictions on our subsidiaries, including restrictions on our subsidiaries’
ability to: incur debt; grant liens; enter into agreements with negative pledge
      clauses; provide guarantees in respect of obligations of any other person;
      pay
      dividends and make other distributions; make loans, investments, advances and
      acquisitions; sell assets; make redemptions and repurchases of capital stock;
      make capital expenditures; prepay, redeem or repurchase debt; liquidate or
      dissolve; engage in mergers or consolidations; engage in affiliate transactions;
      change businesses; change our fiscal year; amend certain debt and other material
      agreements; issue and sell capital stock of subsidiaries; engage in sale and
      leaseback transactions; and restrict distributions from subsidiaries. In
      addition, the credit facility provides that we must meet or exceed certain
      interest coverage ratios and must not exceed certain leverage
      ratios.





Borrowings
      under our credit facility will be subject to mandatory prepayment (1) with
      100% of the net cash proceeds received from asset sales or other dispositions
      of
      property by Alpha NR Holding, Inc. and its subsidiaries (“Holding”) (including
      insurance and other condemnation proceedings), subject to certain exceptions
      and
      reinvestment provisions and (2) with 100% of the net cash proceeds received
      by Holding from the issuance of debt securities or other incurrence of debt,
      excluding certain indebtedness.





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***Analysis
      of Material Debt Covenants***





We
      were in compliance with all covenants under our credit facility and the
      indenture governing our senior notes as of March 31, 2007.




The
      financial covenants in our credit facility require, among other things,
      that:





**•**
            
            Holding
                must maintain a leverage ratio, defined as the ratio of consolidated
                adjusted debt (consolidated debt less unrestricted cash and cash
                equivalents) to Adjusted EBITDA (as defined in the credit agreement),
                of
                not more than 3.75 at March 31, June 30, September 30 and
                December 31, 2007, and 3.50 at March 31, 2008 and each quarter end
                thereafter, with Adjusted EBITDA being computed using the most recent
                four
                quarters; and**•**
            
            Holding
                must maintain an interest coverage ratio, defined as the ratio of
                Adjusted
                EBITDA to cash interest expense, of 2.50 or greater on the last day
                of any
                fiscal quarter.





Based
      upon Adjusted EBITDA (as defined in our credit agreement), Holding’s leverage
      ratio and interest coverage ratio (as such ratios are defined in the credit
      agreement) at March 31, 2007 were 1.54 and 6.97, respectively. Adjusted
      EBITDA is used in our credit facility to determine compliance with many of
      the
      covenants under the facility. A breach of the covenants in the credit facility
      that are tied to ratios based on Adjusted EBITDA could result in a default
      under
      the credit facility and the lenders could elect to declare all amounts borrowed
      due and payable. Any acceleration under our credit facility would also result
      in
      a default under our indenture.




Adjusted
      EBITDA is defined in our credit facility as EBITDA, further adjusted to exclude
      non-recurring items, non-cash items and other adjustments permitted in
      calculating covenant compliance under our credit facility, as shown in the
      table
      below. We believe that the inclusion of supplementary adjustments to EBITDA
      applied in presenting Adjusted EBITDA is appropriate to provide additional
      information to investors to demonstrate compliance with our financial
      covenants.





**Three
                  Months**
                **Ended
                  June 30,**
                **2006**
              
              **Three
                  Months**
                **Ended
                  September 30,**
                **2006**
              
              **Three
                  Months**
                **Ended
                  December 31,**
                **2006**
              
              **Three
                  Months**
                **Ended
                  March 31,**
                **2007**
              
              **Twelve Months**
                **Ended
                  March 31,**
                **2007****(In
                  thousands)**Net
                  Income
              
              $
              23,128
              
              $
              14,544
              
              $
              63,284
              
              $
              8,349
              
              $
              109,305Interest
                  expense, net
              
              
              10,615
              
              
              10,579
              
              
              9,652
              
              
              9,356
              
              
              40,202Income
                  tax expense (benefit)
              
              
              8,676
              
              
              4,744
              
              
              (53,559
              )
              
              2,629
              
              
              (37,510
              )Depreciation,
                  depletion, and amortization
              
              
              34,207
              
              
              36,422
              
              
              36,588
              
              
              35,789
              
              
              143,006EBITDA
              
              
              76,626
              
              
              66,289
              
              
              55,965
              
              
              56,123
              
              
              255,003Fair
                  value of forward purchase and sales contract
              
              
              (4,336
              )
              
              2,060
              
              
              2,126
              
              
              (449
              )
              
              (599
              )Other
                  allowable adjustments
              
              
              531
              
              
              (26
              )
              
              (1,144
              )
              
              (71
              )
              
              (710
              )Accretion
                  expense
              
              
              1,169
              
              
              1,226
              
              
              1,402
              
              
              1,556
              
              
              5,353Amortization
                  of deferred gains
              
              
              (249
              )
              
              (257
              )
              
              (97
              )
              
              (228
              )
              
              (831
              )Stock-based
                  compensation charges
              
              
              6,112
              
              
              5,814
              
              
              4,623
              
              
              2,634
              
              
              19,183Adjusted
                  EBITDA
              
              $
              79,853
              
              $
              75,106
              
              $
              62,875
              
              $
              59,565
              
              $
              277,399Leverage
                  ratio(1)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1.54Interest
                  coverage ratio(2)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6.97




(1)
              Leverage
                  ratio is defined in our credit facility as total debt divided by
                  Adjusted
                  EBITDA.





(2)
            Interest
                coverage ratio is defined in our credit facility as Adjusted EBITDA
                divided by cash interest expense.








-23-
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***Other***





As
      a
      regular part of our business, we review opportunities for, and engage in
      discussions and negotiations concerning, the acquisition of coal mining assets
      and interests in coal mining companies, and acquisitions of, or combinations
      with, coal mining companies. When we believe that these opportunities are
      consistent with our growth plans and our acquisition criteria, we will make
      bids
      or proposals and/or enter into letters of intent and other similar agreements.
      These bids or proposals, which may be binding or nonbinding, are customarily
      subject to a variety of conditions and usually permit us to terminate the
      discussions and any related agreement if, among other things, we are not
      satisfied with the results of our due diligence investigation. Any acquisition
      opportunities we pursue could materially affect our liquidity and capital
      resources and may require us to incur indebtedness, seek equity capital or
      both.
      There can be no assurance that additional financing will be available on terms
      acceptable to us, or at all.





**Critical
      Accounting Estimates and Assumptions**





The
      preparation of financial statements in conformity with US GAAP requires
      management to make estimates and assumptions that affect reported amounts.
      These
      estimates and assumptions are based on information available as of the date
      of
      the financial statements. Accounting measurements at interim dates inherently
      involve greater reliance on estimates than at year-end. The results of
      operations for the quarter ended March 31, 2007 are not necessarily
      indicative of results that can be expected for the full year. Please refer
      to
      the section entitled “Critical Accounting Estimates and Assumptions” of
“Management’s Discussion and Analysis of Financial Condition and Results of
      Operations” in our annual report on Form 10-K for the year ended
      December 31, 2006 for a discussion of our critical accounting estimates and
      assumptions.





**New
      Accounting Pronouncements**




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measures” (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value and enhances disclosures about fair value measures required under other
      accounting pronouncements, but does not change existing guidance as to whether
      or not an instrument is carried at fair value. SFAS No. 157 is effective for
      fiscal years beginning after November 15, 2007. The Company is currently
      reviewing the provisions of SFAS 157 to determine the impact on the Company's
      financial statements.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (SFAS 159”). SFAS 159 permits
      entities to choose to measure many financial instruments and certain other
      items
      at fair value. The objective is to expand the use of fair value measurements
      in
      accounting for financial instruments. SFAS No. 159 is effective for fiscal
      years
      beginning after November 15, 2007. The Company is currently reviewing the
      provisions of SFAS 159 to determine the impact on the Company’s financial
      statements.




In
        September 2006, the FASB issued Financial Accounting Standards Board Staff
        Position No. AUG AIR-1, “Accounting for Planned Major Maintenance Activities”
(FSP AUG AIR-1), which amended certain provisions in the American Institute
        of
        Certified Public Accountants (AICPA) Industry Audit Guide, Audits of Airlines
        (Airline Guide), and Accounting Principles Board Opinion No. 28: Interim
        Financial Reporting. The Board rescinded the accrue-in-advance method of
        accounting for planned major maintenance activities as it results in the
        recognition of liabilities that do not meet the definition of a liability
        in
        FASB Concepts Statement No. 6, Elements of Financial Statements, because it
        causes the recognition of a liability in a period prior to the occurrence
        of the
        transaction or event obligating the entity. The guidance in FSP AUG AIR-1
        shall
        be applied to the first fiscal year beginning after December 15, 2006. The
        Company does not use the accrue-in-advance method and as a result, this
        guidance does not impact the Company’s financial
        statements.








**Item 3.
      Quantitative and Qualitative Disclosures About Market
      Risk**





In
      addition to risks inherent in operations, we are exposed to market risks. The
      following discussion provides additional detail regarding our exposure to the
      risks of changing coal and diesel fuel prices and interest rates.





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***Commodity
      Price Risk***





We
      are exposed to market price risk in the normal course of selling coal. As of
      April 20, 2007, approximately 2% and 51% of our estimated 2007 and 2008
      planned production, respectively, was uncommitted. We
      have
      been and will continue to be cautious in committing forward steam production
      into 2008 and 2009 that do not provide adequate returns to us.





We
      use
      significant quantities of diesel fuel in our operations and are also exposed
      to
      risk in the market price for diesel fuel. We have entered into a forward
      physical purchase contract and two financial diesel fuel swap agreements to
      reduce the volatility in the price of diesel fuel for our operations. The diesel
      fuel swap agreements are not designated as hedges for accounting purposes and
      therefore the changes in the fair value for these derivative instrument
      contracts are required to be recorded in cost of sales. As of March 31,
      2007, approximately 8.5 million gallons or 37% of the Company's remaining
      anticipated 2007 fuel usage has been fixed with the physical purchase and swap
      agreements.





We
      purchase coal in the over-the-counter market (OTC) and directly from third
      parties to supplement and blend with our produced and processed coal in order
      to
      provide coal of the quality and quantity to meet certain of our customer's
      requirements. We also sell in the OTC market to fix the price of uncommitted
      future production from our mines. Certain of these purchase and sales contracts
      meet the definition of a derivative instrument. Any derivative instruments
      that
      we hold are held for purposes other than trading. Our risk management policy
      prohibits the use of derivatives for speculative purpose. The use of purchase
      and sales contracts which are considered derivative instruments could materially
      affect our results of operations as a result of the requirement to mark them
      to
      market at the end of each reporting period. However, we believe that use of
      these instruments will not have a material adverse effect on our financial
      position or results of operations because these transactions account for only
      a
      small portion of our business.




These
      transactions give rise to commodity price risk, which represents the potential
      loss that can be caused by an adverse change in the price of coal. Outstanding
      purchase and sales contracts at March 31, 2007 that are considered derivative
      instruments are summarized as follows:


**Purchase
                  Contracts**
              
              Purchase
                  Price Range
              
              Tons
                  Outstanding
              
              Delivery
                  Period
              
              Mark-To-Market
                  Adjustment(In Millions)$
              40.00-$45.00
              
              
              90,000
              
              
              04/01/07-12/31/07
              
              $
              (0.0
              )$
              46.00-$50.00
              
              
              451,968
              
              
              04/01/07-12/31/07
              
              $
              (2.9
              )541,968
              
              
              
              
              $
              (2.9
              )
 
 **Sales
                  Contracts**
              
              Selling
                  Price Range
              
              Tons
                  Outstanding
              
              Delivery
                  Period
              
              Mark-To-Market
                  Adjustment(In
                  Millions)$
              45.00-$50.00
              
              
              180,350
              
              
              04/01/07-12/31/07
              
              $
              2.0$
              51.00-60.00
              
              
              180,000
              
              
              04/01/07-12/31/07
              
              $
              0.9360,350
              
              
              
              
              $
              2.9




***Interest
      Rate Risk***





All
      of
      our borrowings under our credit facility are at a variable rate, exposing us
      to
      the effect of rising interest rates in the United States. As of March 31, 2007,
      we have a $246.9 million term loan outstanding with a variable interest rate
      based upon the 3-month London Interbank Offered Rate (“LIBOR”) (5.35% at March
      31, 2007) plus an applicable margin (1.75% at March 31, 2007).  To reduce
      our exposure to rising interest rates, effective May 22, 2006 we entered into
      a
      pay-fixed, receive variable interest rate swap on the notional amount of $233.1
      million for a period of approximately six and one-half years. In effect, this
      swap converted the variable interest rates based on the LIBOR to a fixed
      interest rate of 5.59% plus the applicable margin defined in the debt agreement
      (1.75%, at March 31, 2007) for a portion of our term loan.  A one
      percentage point increase in interest rates would result in an annualized
      increase in interest expense of approximately $0.1 million based on our variable
      rate borrowing as of March 31, 2007 in excess of the notional amount of the
      interest rate swap of $ 233.1 million at March 31, 2007. We account for the
      interest rate swap as a cash flow hedge and accordingly changes in fair value
      of
      the swap are recorded to other comprehensive income (loss).  The fair value
      of the swap at the quarter ended March 31, 2007 was a liability of $7.8 million
      ($5.9 million net of tax).







-25-
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**Item 4.
      Controls and Procedures**




Under
      the
      supervision and with the participation of our management, including our Chief
      Executive Officer and our Chief Financial Officer, we evaluated the
      effectiveness of our disclosure controls and procedures, as such term is defined
      under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
      as
      amended, as of the end of the period covered by this report. Based upon that
      evaluation, our Chief Executive Officer and Chief Financial Officer concluded
      that our disclosure controls and procedures were effective, as of the end of
      the
      period covered by this report, in ensuring that material information relating
      to
      Alpha Natural Resources, Inc., required to be disclosed in reports that it
      files
      or submits under the Securities Exchange Act of 1934, is recorded, processed,
      summarized and reported within the requisite time periods and is accumulated
      and
      communicated to our management, including our Chief Executive Officer and our
      Chief Financial Officer, as appropriate to allow timely decisions regarding
      disclosure.





Additionally,
      during the most recent fiscal quarter, there have been no changes to our
      internal control over financial reporting that materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.





**PART
      II**


**Item
      1. Legal Proceedings**





General.
      We are a party to a number of legal proceedings incident to our normal business
      activities. While we cannot predict the outcome of these proceedings, we do
      not
      believe that any liability arising from these matters individually or in
      aggregate should have a material impact upon our consolidated cash flows,
      results of operations or financial condition.




**Item 1A.
      Risk Factors**





In
      addition to the other information set forth in this report, you should carefully
      consider the factors discussed in Part I, Item 1A “Risk Factors” in
      our Annual Report on Form 10-K for the year ended December 31, 2006,
      together with the cautionary statement under the caption “Cautionary Note
      Regarding Forward Looking Statements” in “Management’s Discussion and Analysis
      of Financial Condition and Results of Operations” of this report. These
      described risks are not the only risks facing our company. Additional risks
      and
      uncertainties not currently known to us or that we currently deem to be
      immaterial also may materially adversely affect our business, financial
      condition and/or operating results.





**Item 6.
      Exhibits**





See
      the
      Exhibit Index following the signature page of this quarterly
      report.










-26-
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          of Content








**SIGNATURE**


Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.


**ALPHA
                NATURAL RESOURCES, INC.**By:
                /s/ David C. StuebeName:
                David C. StuebeTitle:
                Vice President and Chief Financial OfficerDate:
                May 10, 2007








Table
          of Content







**10-Q
      EXHIBIT INDEX**


**Exhibit
                No**
            
            **Description
                of Exhibit**3.1
            
            Restated
                Certificate of Incorporation of Alpha Natural Resources, Inc.
                (Incorporated by reference to Exhibit 3.1 to the Annual Report on
                Form
                10-K of Alpha Natural Resources, Inc. (File No. 1-32423) filed on
                March
                30, 2005)3.2
            
            Amended
                  and Restated Bylaws of Alpha Natural Resources, Inc.(Incorporated
                  by reference to Exhibit 3.2 to the Annual Report on Form 10-K of
                  Alpha
                  Natural Resources, Inc. (File No. 1-32423) filed on March 1,
                  2007)31(a)*
            
            Certification
                Pursuant to Rule 13a-14(a) under the
                Securities Exchange Act of 1934, as adopted pursuant to § 302 of the
                Sarbanes-Oxley Act of 200231(b)*
            
            Certification
                Pursuant to Rule 13a-14(a) under the
                Securities Exchange Act of 1934, as adopted pursuant to § 302 of the
                Sarbanes-Oxley Act of 200232(a)*
            
            Certification
                Pursuant to 18 U.S.C. § 1350, As Adopted
                Pursuant to § 906 of the Sarbanes-Oxley Act of 200232(b)*
            
            Certification
                Pursuant to 18 U.S.C. § 1350, As Adopted
                Pursuant to § 906 of the Sarbanes-Oxley Act of
                2002




*
            
            Filed
                herewith.