On May 11, 2009, Alpha Natural Resources, Inc. ("Old Alpha") and Foundation Coal Holdings, Inc. ("Foundation") executed an agreement and plan of merger (the "Merger Agreement") pursuant to which Alpha was to be merged (the "Merger") with and into Foundation, with Foundation continuing as the surviving corporation of the Merger under the name Alpha Natural Resources, Inc. ("New Alpha"). On July 31, 2009, the Merger was completed.

Unless we have indicated otherwise, or the context otherwise requires, references in this report to "Foundation," "the Company," "we," "us" and "our" or similar terms are to Foundation Coal Holdings, Inc. and its consolidated subsidiaries prior to the Merger with Old Alpha.

You should read the following discussion and analysis in conjunction with our financial statements and related notes included elsewhere in this report, our Annual Report on Form 10-K for the year ended December 31, 2008.

Special Note Regarding Forward-Looking Statements

This Form 10-Q contains forward-looking statements that are not statements of historical fact and may involve a number of risks and uncertainties. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements 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" and similar terms and phrases, including references to assumptions, in this Form 10-Q 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 ability to produce coal at existing and planned future operations;

• the consummation of financing, acquisition or disposition transactions and the effect thereof on our business;

• our plans and objectives for future operations and expansion or consolidation;

• our relationships with, and other conditions affecting, our customers;

• timing of reductions or increases in customer coal inventories;

• long-term coal supply arrangements;

• risks in coal mining;

• environmental laws, including those directly affecting our coal mining and production, and those affecting our customers' coal usage;

• competition;

• railroad, barge, trucking and other transportation performance and costs;

• our assumptions concerning economically recoverable coal reserve estimates;

• employee workforce;

• regulatory and court decisions;

• future legislation and changes in regulations or governmental policies or changes in interpretations thereof;

• changes in postretirement benefit and pension obligations;

• our liquidity, results of operations and financial condition;

• disruptions in delivery or changes in pricing from third party vendors of goods and services which are necessary for our operations, such as fuel, steel products, explosives and tires;

• other factors, including the other factors discussed in Part I, Item 1A, "Risk Factors," of this report and of our annual report on Form 10-K for the year ended December 31, 2008.

You should keep in mind that any forward-looking statement made by us in this Form 10-Q or elsewhere speaks only as of the date on which we make it. New risks and uncertainties come up from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this Form 10-Q after the date of this Form 10-Q, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that circumstances described in any forward-looking statement made in this Form 10-Q or elsewhere might not occur.

Merger Between the Company and Alpha Natural Resources, Inc.

On July 31, 2009, Alpha Natural Resources, Inc. ("Old Alpha") merged (the "Merger") with and into Foundation Coal Holdings, Inc. ("Foundation"), with Foundation continuing as the surviving corporation under the name Alpha Natural Resources, Inc. We refer to the surviving corporation as "New Alpha."

As of the effective time of the Merger (the "Effective Time"), each issued and outstanding share of common stock, par value $0.01, of Foundation, and other outstanding equity-based awards other than any shares owned by Old Alpha, were converted into the right to receive 1.0840 shares of common stock, par value $0.01, of New Alpha, and each issued and outstanding share of common stock, par value $0.01, of Old Alpha, other than any shares owned by Foundation, automatically became one share of common stock of New Alpha. Immediately after the Effective Time, Old Alpha's stockholders owned approximately 59% of New Alpha common stock and Foundation's stockholders owned approximately 41% of New Alpha common stock.

The Merger will be accounted for as a business combination under Statement of Financial Accounting Standards ("SFAS") No. 141(R), Business Combinations ("SFAS No. 141(R)"). For financial accounting purposes, the Merger is treated as a "reverse acquisition" and Old Alpha is treated as the accounting acquirer. Accordingly, Old Alpha's financial statements will become the financial statements of New Alpha and New Alpha's future periodic filings will reflect Old Alpha's historical financial condition and results of operations shown for comparative purposes. The results of operations contained in this ITEM 2 are the results of operations for Foundation prior to the merger with Old Alpha.

Also at the Effective Time, the Board of Directors of New Alpha was comprised of ten members, six of which were members of Old Alpha's board and four were members of the Foundation board. The headquarters of New Alpha is in Abingdon, Virginia.

Overview

Based on annual production volumes, we are the fourth largest coal producer in the United States, currently operating nine individual coal mines. Our mining operations are located in southwest Pennsylvania, southern West Virginia and the southern Powder River Basin region of Wyoming. Four of our operations are surface mines, two of our operations are underground mines using highly efficient longwall mining technology and the remaining three operations are "room-and-pillar" underground mines that utilize continuous miners. In addition to mining coal, we also purchase coal from other producers for resale or for the purpose of blending it with our own production.

For the three months ended June 30, 2009, we sold 16.4 million tons of coal, including 16.2 million tons that were produced and processed at our operations. For the comparable period in 2008, we sold 17.0 million tons of coal, including 16.5 million tons that were produced and processed at our operations. For the six months ended June 30, 2009, we sold 33.6 million tons of coal, including 33.0 million tons that were produced and processed at our operations. For the comparable period in 2008, we sold 35.4 million tons of coal, including 34.5 million tons that were produced and processed at our operations. As of December 31, 2008, we had approximately 1.7 billion tons of proven and probable coal reserves.

We are primarily a supplier of steam coal to U.S. utilities for use in generating electricity. We also sell steam coal to industrial plants. Steam coal sales accounted for approximately 99% and 98% of our coal sales volume for the three month periods ended June 30, 2009 and 2008, respectively, representing approximately 95% and 91% of our coal sales revenue for the three months ended June 30, 2009 and 2008, respectively. For the six months ended June 30, 2009 and 2008, steam coal sales accounted for approximately 99% and 98% of our coal sales volume, respectively, representing approximately 95% and 91% or our coal sales revenue in the six month periods ended June 30, 2009 and 2008, respectively. We sell metallurgical coal to steel producers where it is used to make coke for steel production. Metallurgical coal accounted for approximately 1% and 2% of our coal sales volume for the three month periods ended June 30, 2009 and 2008, respectively, representing approximately 5% and 9% of our coal sales revenue for the three month periods ended June 30, 2009 and 2008, respectively. Metallurgical coal accounted for approximately 1% and 2% of our coal sales volume for the six month periods ended June 30, 2009 and 2008, respectively, representing approximately 5% and 9% of our coal sales revenue in the six month periods ended June 30, 2009 and 2008, respectively.

While the majority of our revenues are derived from the sale of coal, we also realize revenues from coal production royalties, override royalty payments from a coal supply agreement now fulfilled by another producer, fees to transload coal through our Rivereagle facility on the Big Sandy river and revenues from the sale of coalbed methane, natural gas and Dry Systems Technologies equipment and filters.

Results of Operations

Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008

Coal sales realization per ton sold represents revenue realized on each ton of coal sold. It is calculated by dividing coal sales revenues by tons sold.

Revenues



                                               Three Months Ended
                                                    June 30,                     Increase (Decrease)
                                            2009               2008              Amount          Percent
                                                 (Unaudited, in thousands, except per ton data)
Coal sales                              $     398,999      $     404,780      $     (5,781)          (1)%
Other revenue                                   5,661              7,157            (1,496)         (21)%

Total revenues                          $     404,660      $     411,937      $     (7,277)          (2)%

Tons sold                                      16,440             16,993              (553)          (3)%
Coal sales realization per ton sold     $       24.27      $       23.82      $        0.45           2 %

Coal sales revenues for the three months ended June 30, 2009 decreased by $5.8 million, or 1% compared to coal sales revenues for the three months ended June 30, 2008. Coal sales realization per ton increased 2% period-over-period, while tons sold decreased by 3% period-over-period. Consolidated coal sales realization per ton for the three months ended June 30, 2009 reflected increased prices per ton sold in three of our operating segments, consisting of a 19% increase in Central Appalachia, a 18% increase in Northern Appalachia and a 7% increase in the Powder River Basin.

Coal sales revenues in Central Appalachia for the three months ended June 30, 2009 decreased $37.7 million, or 30% compared to coal sales revenues for the three months ended June 30, 2008, primarily as a result of lower coal sales volumes, partially offset by higher coal sales realization per ton. Coal sales realization per ton increased 19% period-over-period as a result of increased pricing per ton sold. Coal sales volumes decreased 0.8 million tons, or 42%, and production decreased 0.6 million tons, or 35%, in the three months ended June 30, 2009 compared to the prior year period.

Coal sales revenues in Northern Appalachia for the three months ended June 30, 2009 increased by $20.9 million, or 13% compared to coal sales revenues for the three months ended June 30, 2008, primarily due to higher coal sales realization per ton, partially offset by lower coal sales volumes. Coal sales volumes in Northern Appalachia decreased by 0.1 million tons, or 4% period-over-period, while coal sales realization per ton increased 18% period-over-period due to increased pricing per ton sold. Coal sales volumes at the Emerald mine decreased 0.3 million tons, or 19% compared to the prior year period, and production increased 0.5 million tons, or 40% compared to the prior year period. Coal sales volumes at the Cumberland mine increased 0.2 million tons, or 8% compared to the prior year period, and production increased 0.2 million tons, or 11% compared to the prior year.

Coal sales revenues in the Powder River Basin for the three months ended June 30, 2009 increased $12.5 million, or 11%, compared to coal sales revenues for the three months ended June 30, 2008, as a result of higher coal sales volumes and higher coal sales realization per ton. Coal sales realization per ton increased 7% period-over-period as a result of increased pricing per ton sold. Coal sales volumes increased 0.4 million tons, or 4%, in the three months ended June 30, 2009 compared to the prior year period. Production and shipments increased 7% and 1% period-over-period at the Eagle Butte and Belle Ayr mines, respectively.

Coal sales revenues from our coal trading group decreased $1.6 million in the three months ended June 30, 2009 compared to the three months ended June 30, 2008 as a result of lower coal sales volumes that resulted in physical delivery.

Other revenues for the three months ended June 30, 2009 decreased by $1.5 million (21%) compared to the three months ended June 30, 2008. The decrease was due to: (a) decreased coalbed methane revenues ($1.8 million); (b) decreased royalty revenue ($0.1 million); and (c) decreased revenues from the sale of equipment by Dry Systems Technologies ($0.1 million); partially offset by
(d) higher other miscellaneous revenues ($0.5 million).

Costs and Expenses



                                             Three Months Ended
                                                  June 30,                      Increase (Decrease)
                                          2009               2008               Amount          Percent
                                                          (Unaudited, in thousands)
Cost of coal sales (excludes
depreciation, depletion and
amortization)                         $     279,452      $     330,226      $     (50,774)         (15)%
Selling, general and
administrative expenses
(excludes depreciation, depletion
and amortization)                            21,249             17,423               3,826          22 %
Accretion on asset retirement
obligations                                   2,949              2,899                  50           2 %
Depreciation, depletion and
amortization                                 52,114             51,505                 609           1 %
Amortization of coal supply
agreements                                      172              1,197             (1,025)         (86)%

Total costs and expenses              $     355,936      $     403,250      $     (47,314)         (12)%

Cost of coal sales. Cost of coal sales decreased $50.8 million for the three months ended June 30, 2009 compared to the three months ended June 30, 2008, primarily due to: (a) decreased inventory charges to expense related to an overall lower ratio of tons sold vs. tons produced in the three months ended June 30, 2009 compared to the prior year period ($29.6 million); (b) decreased purchased coal costs as a result of lower tons purchased for physical delivery ($17.5 million); (c) decreased other miscellaneous expenses ($9.9 million);
(d) decreased transportation and loading expenses ($4.5 million); partially offset by (e) increased labor and benefit costs ($7.6 million); and (f) higher repair, maintenance and operating supply costs, including diesel fuel ($3.1 million). Cost of coal sales per ton was $17.00 for the three months ended June 30, 2009 compared to $19.43 per ton for the three months ended June 30, 2008.

Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended June 30, 2009 increased $3.8 million compared to the three months ended June 30, 2008. Period-over-period increases were due to: (a) merger-related expenses ($4.8 million); partially offset by (b) lower employee compensation and benefit related expenses due primarily to lower stock-based compensation ($0.7 million); and (c) lower miscellaneous other expenses ($0.3 million).

Accretion on asset retirement obligations. Accretion on asset retirement obligations is a result of accounting for asset retirement obligations under SFAS No. 143, Accounting for Asset Retirement Obligations. Accretion represents the increase in the asset retirement liability to reflect the change in the liability for the passage of time because the initial liability is recorded at present value. Higher accretion expense in 2009 was due to increased asset retirement obligation estimates for the comparable periods.

Depreciation, depletion and amortization. Depreciation, depletion and amortization includes depreciation of plant and equipment, cost depletion of amounts assigned to owned and leased mineral rights and amortization of mine development costs, internal use software and leasehold improvements. Depreciation, depletion and amortization expense increased $0.6 million for the three months ended June 30, 2009 compared to the three months ended June 30, 2008, primarily due to higher depreciation and amortization partially offset by lower cost depletion. Cost depletion decreased by $0.5 million due to decreased production in Central Appalachia period-over-period. Depreciation and amortization increased by $1.1 million in the three months ended June 30, 2009 compared to the prior year period mainly due to depreciation and amortization associated with capital additions to plant, equipment and mine development costs during the twelve months ended June 30, 2009.

Coal supply agreement amortization. Application of purchase accounting in 2004 resulted in the recognition of a significant liability for below market priced coal supply agreements as well as a significant asset for above market priced coal supply agreements, both in relation to market prices at the date of acquisition of mining assets by the Company in 2004. Coal supply agreement amortization expense decreased $1.0 million for the three months ended June 30, 2009 compared to the three months ended June 30, 2008, primarily due to a decrease in amortization of the asset for above market coal supply agreements of $1.5 million that was partially offset by a decrease in the credit to amortization expense from below market liability contracts of $0.5 million. As shipments on coal supply agreements valued in purchase accounting are completed, the period-over-period impact of the amortization on both the asset and liability balances will continue to diminish until approximately 2010 when shipments associated with these coal supply agreements are estimated to be complete.

Segment Analysis

Utilizing data published by Argus Media, the following graph sets forth representative steam coal prices in various U.S. markets. The prices are not necessarily representative of the coal prices actually obtained by the Company. Changes in coal prices have an impact over time on the Company's average sales realization per ton and, ultimately, its consolidated financial results.

[[Image Removed: LOGO]]

The price of coal is influenced by many factors that vary by region. Such factors include, but are not limited to: (1) coal quality, which includes energy (heat content), sulfur, ash, volatile matter and moisture content;
(2) transportation costs; (3) regional supply and demand; (4) available competitive fuel sources such as natural gas, nuclear or hydro; and
(5) production costs, which vary by mine type, available technology and equipment utilization, productivity, geological conditions, and mine operating expenses.

The energy content or heat value of coal is a significant factor influencing coal prices as higher energy coal is more desirable to consumers and typically commands a higher price in the market. The heat value of coal is commonly measured in British thermal units or the amount of heat needed to raise the temperature of one pound of water by one degree Fahrenheit. Coal from the Eastern and Midwest regions of the United States tends to have a higher heat value than coal found in the Western United States.

Prices for our Powder River Basin coal, with its lower energy content, lower production cost and often greater distance to travel to the consumer, typically sells at a lower price than Northern and Central Appalachian coal that has a higher energy content and is often located closer to the end user. Illinois Basin coal generally has lower energy content and higher sulfur than Northern and Central Appalachian coal, but it has higher energy content than Powder River Basin coal.

                                             Three Months Ended
                                                  June 30,                      Increase (Decrease)
                                          2009               2008               Tons/$          Percent
                                           (Unaudited, in thousands, except coal sales realization
                                                   per ton and cost of coal sales per ton)
Powder River Basin
Tons sold                                    11,993             11,575                 418           4 %
Coal sales realization per ton        $       10.74      $       10.05      $         0.69           7 %
Total revenues                        $     129,630      $     117,184      $       12,446          11 %
Cost of coal sales per ton(1)         $        9.07      $        8.18      $         0.89          11 %
Income from operations                $       5,255      $       6,365      $      (1,110)         (17)%

Northern Appalachia
Tons sold                                     3,311              3,450               (139)          (4)%
Coal sales realization per ton        $       53.51      $       45.30      $         8.21          18 %
Total revenues                        $     179,682      $     157,571      $       22,111          14 %
Cost of coal sales per ton(1)         $       27.65      $       35.26      $       (7.61)         (22)%
Income from operations                $      59,896      $      12,770      $       47,126         369 %

Central Appalachia
Tons sold                                     1,080              1,849               (769)         (42)%
Coal sales realization per ton        $       80.22      $       67.24      $        12.98          19 %
Total revenues                        $      83,333      $     125,420      $     (42,087)         (34)%
Cost of coal sales per ton(1)         $       60.75      $       54.37      $         6.38          12 %
Income from operations                $       3,620      $       7,460      $      (3,840)         (51)%

(1) Excludes selling, general and administrative expenses; depreciation, depletion and amortization and accretion expense.

Powder River Basin-Income from operations decreased $1.1 million period-over-period due to increased operating costs of $13.5 million, partially offset by increased revenues of $12.4 million. As explained in the revenue section above, the increased revenues resulted from a 7% increase in coal sales realization per ton and a 4% increase in coal sales volumes. Coal sales volumes in the Powder River Basin increased 0.4 million tons period-over-period. Production and shipments increased 7% and 1% period-over-period at the Eagle Butte and Belle Ayr mines, respectively.

Operating costs increased $13.5 million for the three months ended June 30, 2009 compared to the three months ended June 30, 2008, reflecting higher period-over-period cost of sales of $14.1 million and an increase in other miscellaneous expenses of $0.1 million, partially offset by a decrease in depreciation, depletion and amortization costs of $0.7 million.

The $14.1 million increase in cost of sales referred to above resulted from an increase in cash production costs ($17.3 million) partially offset by decreased other expenses ($3.2 million). The $17.3 million period-over-period increase in cash production costs were primarily in the following areas: (a) higher supply and service costs primarily consisting of operating supply costs, repair and maintenance expenses, rent, explosives, diesel fuel and outside services ($9.9 million); (b) increased royalty costs due to mining a higher amount of coal that is subject to federal royalties and higher coal sales revenues ($2.0 million);
(c) higher labor and employee

benefits ($2.7 million); (d) increased tax-related expenses ($2.6 million); and
(e) $0.1 million increase in miscellaneous expenses. Cost of coal sales per ton increased 11% period-over-period.

Lower total depreciation, depletion and amortization costs of $0.7 million related primarily to a period-over-period $0.9 million decrease in expense associated with the amortization of coal supply agreements as shipments on a number of coal supply agreements valued in purchase accounting were completed, partially offset by increased depletion expense of $0.1 million primarily related to higher production period-over-period at the Eagle Butte mine and increased depreciation expense of $0.1 million.

Northern Appalachia-Income from operations increased by $47.1 million period-over-period due to increased revenues of $22.1 million and decreased operating costs of $25.0 million. As explained in the revenue section above, the increase in revenues resulted from an 18% period-over-period increase in coal sales realization per ton, partially offset by lower coal sales volumes. Coal sales volumes at the Cumberland mine increased 0.2 million tons, or 8% compared to the prior year period and production increased 0.2 million tons, or 11% compared to the prior year period. Coal sales volumes at the Emerald mine decreased 0.3 million tons, or 19% compared to the prior year period and production increased 0.5 million tons, or 40% compared to the prior year period.

Operating costs decreased $25.0 million for the three months ended June 30, 2009 compared to the three months ended June 30, 2008, reflecting lower period-over-period cost of sales of $30.1 million, partially offset by increases . . .