Walter Energy to cut back low-margin Maple Coal mine in W.Va.

Alabama-based Walter Energy (NYSE:WLT) (TSX:WLT) said March 26 that it will reduce production at lower-margin Maple Coal underground mine in southern West Virginia as it repositions its 2012 production to respond to a recent downturn in metallurgical coal markets.

Walter acquired several operations in southern West Virginia, including Maple Coal, and other coal operations in western Canada and the United Kingdom in its 2011 buy of Western Coal. Those new operations were added to Walter’s traditional base of mostly met coal mines in Alabama.

“Compared with the fourth quarter of 2011, we expect strong production growth, but revenue and profitability will be disappointing due to flat sales volume and weaker coal prices experienced across the industry in the first quarter of 2012,” said Walter Energy CEO Walt Scheller. “We remain confident that production will be within the guidance provided for 2012, and we continue to take steps to optimize production at our highest-margin mines to help offset weakening global metallurgical coal prices.”

Walter expects met coal production in the range of 2.8 million to 2.9 million tonnes for the first quarter of 2012, up 16% to 21% from 2.4 million tonnes in the fourth quarter of 2011. Walter said it continues to expect 2012 full-year met coal production between 11.5 million tonnes and 13 million tonnes, with around 75% of annual production being high-margin hard coking coal (HCC) and 25% pulverized coal injection (PCI).

To support margins, beginning in the second quarter 2012, Walter said it will decrease production from its lower-margin Maple underground coal mine in West Virginia by about 35% due to market conditions for Maple’s production. The reduction will be offset in part by increased output of higher-margin HCC from Alabama and western Canada.

The Maple mine produces about 60,000 tonnes of high-vol met coal each month and has about 230 employees, most of whom will remain with Walter at Maple and other locations. The production decrease will effectively idle the Maple mine for about 10 days per month. Walter said it will continue to monitor market demand for high-vol products and may further adjust production to reflect market conditions.

First quarter 2012 met coal sales volume will likely remain unchanged from the fourth quarter last year at 2.4 million tonnes. Walter Energy expects about 240,000 tonnes of first quarter 2012 production to be shipped to customers early in the second quarter due to shipload scheduling and customer preference.

Reflecting current trends in global coal markets, Walter Energy’s met coal prices for the first quarter of 2012 will likely average about $220 per tonne for HCC and $180 per tonne for low-vol PCI. That is a decline of about 10% for HCC and 15% for low-vol PCI coal from the fourth quarter of last year, inclusive of the impact of carryover tons from past quarters.

Maple Coal adds new mines to porfolio

Walter’s Maple Coal unit applied Feb. 24 at the West Virginia Department of Environmental Protection for a mine permit on the 100-acre Mt McGuire strip mine, to be located near Powellton in Fayette County. The DEP database shows the application covers a haulroad and an area mine working the Coalburg and Stockton coal seams and associated seam splits. This is the only pending mine permit application for Maple Coal at the DEP.

Getting a new surface mine permit for Maple Coal is a big deal, since DEP records show it has several surface mine permits in its name, the newest of which was issued in 1996. It normally takes at least a year for the DEP to issue a surface mine permit from the point of application.

The DEP did in April 2011 issue a mine permit to Maple Coal for the Maple Eagle East room-and-pillar mine, to work the Eagle seam at a site also near Powellton in Fayette County. The latest DEP inspection report for this site, dated Feb. 17, shows the site as “active, no coal removed.”

There are three mines listed with the U.S. Mine Safety and Health Administration under Maple Coal, all in Fayette County. There is the Maple Eagle No. 1 deep mine, which produced 607,954 tons in 2011 and 493,261 tons in 2010. There is the Maple Eagle East deep mine, listed by MSHA as a new operation with no production as of the end of 2011. And there is the Huffman No. 1/Sycamore strip mine, which produced 581,562 tons in 2011 and 365,417 tons in 2010.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.