Walter Energy loses money in Q2 2013; met coal output rises

Walter Energy (NYSE: WLT) (TSX: WLT) reported a net loss of $34.5m in the second quarter 2013, compared to net income of $31.9m in the second quarter of 2012.

“Our mines continue to perform well, as our focus on cost reduction and improving productivity continued in the second quarter, further improving our cost competitiveness,” said Walt Scheller, Chief Executive Officer, in an Aug. 1 earnings statement. “In a difficult met coal pricing environment, we continue to pursue measures to reduce operating costs, SG&A expenses and capital spending.”

Second quarter 2013 consolidated revenues totaled $441.5m, a decrease from $677.6m in the second quarter of 2012, primarily due to lower met coal prices and lower coal sales volume. Partially offsetting the declines in volume and pricing, consolidated financial results for the second quarter reflect the favorable impact of lower costs, including improved met coal cost performance and continued reductions in selling, general and administrative (SG&A) expenses.

Second quarter of 2013 met coal sales volume, including both hard coking coal (HCC) and low-vol PCI, was 2.4 million metric tons (MMTs), representing a decrease of 0.4 MMTs from second quarter 2012.

HCC sales volume was 2.0 MMTs in the second quarter of 2013, a decrease of 13.8% compared to the second quarter of 2012. Low-vol PCI sales volume declined 15.8% in the second quarter of 2013 compared to the prior-year comparable quarter. Second quarter 2013 shipments were impacted by vessel delays at the Port of Ridley in British Columbia, with over 200,000 metric tons (MTs) of June shipments moved to the third quarter at carryover pricing. Met coal sales tonnage was approximately 89% of total coal sales volume in the second quarter of 2013 compared to 76% for the same period last year.

Met coal sales price per ton averaged $150.41 in the second quarter 2013, down from second quarter 2012 pricing of $193.31 per MT, due to weak global met coal market conditions. The average selling price for low-vol PCI was $135.55 per MT as compared to $163.51 per MT in the year-ago quarter.

Met coal production was up in the second quarter of this year

Met coal production was 2.9 MMTs in the second quarter of 2013, comprised of 2.5 MMTs of HCC and 0.4 MMTs of low-vol PCI. Met coal production increased 9.2% compared to 2.7 MMTs produced in the second quarter of 2012. The strong performance in the current quarter was driven by a production increase of 0.4 MMTs, a 26% improvement, at the premium HCC mines in Alabama as compared to the second quarter in the prior year.

Met coal cash cost of production averaged $78.47 per MT in the second quarter of 2013, down 23.3% compared to the prior-year comparable quarter. Cash cost of production per MT in the company’s Alabama low- and mid-vol mines decreased by $5.84 per MT, or 8.2%, in the second quarter of 2013 as compared to the second quarter last year, primarily due to improved productivity.

Cash cost of production per MT in the Canadian operations decreased by $50.39 per MT, or 32.9%, as compared to the second quarter of 2012. Strong productivity increases at Brule led to significantly improved cost performance, with cash cost of production totaling $79.82 per MT, compared to $101.68 per MT in the first quarter of 2013. Results for the Wolverine mine were negatively impacted by property development costs along with costs and downtime from unanticipated repairs.

Results for the second quarter 2013 included a restructuring and asset impairment pre-tax net benefit of $9.1m associated with the amendment of a sales contract eliminating commitments to deliver coal, thus allowing for the accelerated closure of the company’s North River deep mine in Alabama, partially offset by an asset impairment charge related to the closure. Walter also recorded a pre-tax restructuring charge of $3.3m related to the previously announced curtailment of operations in April at Willow Creek in Canada.

Strong met coal production performance in the company’s Alabama underground mines has continued in the third quarter; however, volumes for the third quarter are expected to be lower than the second quarter due to a planned longwall move, the company noted. Production in the company’s Canadian operation is also expected to be lower in the third quarter, as the Wolverine mine has moved into a less favorable phase of its mining cycle. The company said it remains on track to achieve its full-year met coal production target of approximately 11 million metric tons.

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.