Walter Energy posts fairly good Q2 results in lousy coal market

Despite recent market turbulence, Walter Energy (NYSE and TSX: WLT) continues to forecast full-year 2012 metallurgical coal production of between 11.5 million and 13 million tonnes, of which 75%-80% will be hard coking coal and the remainder will be low-vol pulverized coal injection (PCI) product.

Walter, which produces U.S. coal in Alabama and southern West Virginia, and foreign coal in western Canada and the United Kingdom, reported its second quarter earnings on Aug. 1. The company in the quarter had operating income of $68m, EBITDA of $145m and met coal production of 2.91 million tonnes. Net income for the quarter was $32m or $0.51 per diluted share.

“Our metallurgical coal products continued to provide solid results,” said Walt Scheller, Walter Energy CEO. “Metallurgical coal production of 2.91 million metric tons was in-line with our expectations and was achieved while further improving our safety record. Our overall costs were flat when compared with the first quarter, as improvements in the cost performance of hard coking coal production were mitigated by higher costs in producing low-vol PCI. We remain cautious for the outlook of the global economy and are focusing on cost reductions, restraining discretionary capital spending and stringently managing cash flow.”

Second quarter 2012 met coal sales volume, including both hard coking coal (HCC) and low-vol PCI, was a record 2.84 million tonnes, an increase of 20% over first quarter sales volume of 2.37 million tonnes. HCC sales volume was 2.29 million tonnes, an increase of 23% compared with 1.86 million tonnes in the first quarter 2012. PCI sales volume was 0.55 million tonnes, up from 0.51 million tonnes in the prior quarter.

The average second quarter 2012 selling price of low-vol and mid-vol HCC was $201 per tonne, 11% lower than the first quarter. The average second quarter selling price for low-vol PCI was $164 per tonne, a decrease of 13% from the first quarter.

The consolidated cash cost for HCC was $115 per tonne in the second quarter, as compared with $116 per tonne in the first quarter 2012. In the U.S. operations, the cash cost of HCC decreased to $107 per tonne compared with $110 per tonne the prior quarter. In the Canadian and U.K. operations, the cash cost of HCC was $144 per tonne in the second quarter of 2012, down from $145 per tonne in the first quarter 2012.

The cash cost for low-vol PCI was $218 per tonne in the second quarter compared with $208 per tonne in the first quarter as a result of higher mining waste removal volumes at the Brule PCI mine in western Canada. The cash cost at the Willow Creek mine in western Canada decreased to $259 per tonne in the second quarter from $449 in the first quarter, and Willow Creek production increased from 120,000 tonnes in the first quarter to 154,000 tonnes in the second quarter.

The company’s capital expenditures for the second quarter were $125m and $246m for the first six months of 2012. The company has reduced its planned 2012 capital spending to about $400m from the initial plan of nearly $500m.

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.