Westmoreland Coal posts big loss in 2011 due to adjustments

Colorado-based Westmoreland Coal (NasdaqGM:WLB), which supplies coal mostly to nearby power plants, said March 1 that it had a net loss applicable to common shareholders of $34.5m for 2011 compared to a 2010 net loss of $1.9m.

The 2011 net loss includes $17m in charges related to the refinancing of debt, and a $3.2m fair value adjustment expense on the conversion of convertible debt, associated with $150m of senior secured notes issued by the company during the first quarter. The 2011 net loss also includes $4.4m of black lung and workers’ compensation expenses. The majority of the remaining difference was due to the impact on its customer power plants of the hydroelectric power season and approximately $1.1m in costs related to relocating the company headquarters to the Denver area.

During the fourth quarter of 2011, Westmoreland announced it had signed an agreement to purchase Chevron Mining’s Kemmerer coal mine in Wyoming. The acquisition of Kemmerer and the related financing transaction were closed in January.

“2011 presented numerous unexpected adversities for our customers that negatively impacted our operations,” said Keith Alessi, Westmoreland President and CEO. “The year started off with unprecedented snow pack in the Cascades which led to one of the longest hydroelectric generation seasons on record. This was followed by flooding across the Northern tier, which delayed and disrupted rail movements. Finally, in November, one of our customers experienced a fire at one of their units, which forced it to shut down, pending repairs.”

Alessi added: “The first $2.0 million in losses, which will impact us primarily in the first quarter of 2012, is covered by our captive insurance company, and we expect remaining losses to be covered by our business interruption insurance. I am proud of the fact that we not only reacted quickly and prudently to these issues, but we were able to post very respectable results as measured by EBITDA. Our EBITDA for the year was only down 10.4% in the face of these significant adverse events, from 2010, which was a record year. This is strong testimony to the strength of our cost plus business model and the tenacity of the management team in managing costs.”

Westmoreland was able to make significant progress on a number of strategic fronts during 2011. It improved liquidity with a February senior secured note offering. This set the stage for it to acquire additional coal reserves at the Westmoreland Resources operation in Montana and allowed it to make the deal for the Kemmerer mine.

The company’s revenues in 2011 decreased to $501.7m compared with $506.1m in 2010. Westmoreland’s adjusted EBITDA decreased to $73.1m in 2011 from $81.6m in 2010. These decreases were primarily driven by record hydroelectric power conditions that displaced customers’ coal-generated power, flooding conditions that disrupted rail service, and to a lesser degree, the fire at a key customer’s plant.

Westmoreland sold 21.8 million tons of coal in 2011, down from 25.2 million tons in 2010. Its operating income per ton in 2011 was $1.26, down from $1.31 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.