Coal producer Walter Energy doesn’t lose as much money in Q3 2013

Walter Energy (NYSE: WLT) (TSX: WLT), which produces metallurgical coal in Alabama, West Virginia and western Canada, reported a net loss of $100.7m in the third quarter of 2013, compared with a net loss of $1.1bn in the third quarter of 2012.

“We are pleased with the progress we made in the third quarter in reducing costs, improving productivity and increasing met coal sales,” said CEO Walt Scheller in an Oct. 30 earnings statement. “We also continued to take proactive steps to strengthen our balance sheet and enhance our financial flexibility through a debt offering and related reduction of near-term debt maturities. Demand for our products has remained firm, and we have recently seen an improvement in met coal pricing. We look forward to improved financial performance in the fourth quarter and in 2014.”

The net loss in the third quarter of 2013 included a gain from the early extinguishment of debt and foreign exchange gains. The third quarter of 2012 loss included non-cash goodwill impairment charges of $1.1bn primarily related to the 2011 acquisition of Canada-based Western Coal and a pre-tax charge of $40m associated with the abandonment of a natural gas exploration project. Third quarter 2012 adjusted net income excluding these charges was $29.8m.

Third quarter 2013 consolidated revenues totaled $455.8m, a decrease from $612m in the third quarter of 2012, primarily due to lower met coal prices in 2013. Higher met coal sales volume in the third quarter of 2013 as compared to 2012 partially offset the decline in met coal sales pricing.

Third quarter 2013 met coal sales volume, including both hard coking coal (HCC) and low-vol pulverized coal injection product (PCI), was 2.8 million tonnes, representing an increase of 0.2 million tonnes compared with the third quarter of 2012. HCC sales volume was 2.3 million tonnes in the third quarter of 2013, an increase of 5.3% compared with the third quarter of 2012. Low-vol PCI sales volume totaled 0.5 million tonnes, an increase of 19.3% in the third quarter of 2013 compared with the prior-year comparable quarter. Met coal sales volume was approximately 84% of total coal sales volume in the third quarter of 2013 compared with 74% in the prior year period.

The selling price for HCC averaged $133.72/tonne, down from the third quarter of 2012 average pricing of $196.66/tonne. Low-vol PCI pricing averaged $121.76/tonne in the third quarter of 2013 compared with $160.37/tonne in the prior year comparable quarter.

Met coal cash cost of sales for the third quarter 2013 averaged $117.95/tonne, down 10.8% compared with the third quarter of 2012.

Met coal production was 2.8 million tonnes in the third quarter of 2013, comprised of 2.3 million tonnes of HCC and 0.5 million tonnes of low-vol PCI. Met coal production in the 2013 third quarter decreased 16.6% compared with third quarter of 2012 production of 3.3 million tonnes, largely driven by planned reductions in low-vol PCI production at the company’s Brule and Willow Creek mines, making up its Brazion operations in western Canada, as well as other curtailments. Production at the Wolverine mine in western Canada was lower due to a period of unfavorable mining conditions. These declines were partially offset by strong low- and mid-vol production at the company’s Alabama mines.

Met coal cash cost of production averaged $77.56/tonne in the third quarter of 2013, down $12.05/tonne or 13.4%, compared with the prior-year comparable quarter. This reduction came primarily from the company’s Alabama low- and mid-vol mines, which decreased by $18.19/tonne, or 21.9%, in the third quarter of 2013 as compared with the third quarter of the prior year.

Met coal production is expected to increase in the fourth quarter of 2013 as compared to the third quarter, as the Wolverine mine is moving into a more favorable phase in its mining cycle. The company remains on track to achieve its full-year met coal production target of approximately 11 million tonnes and an overall 15% reduction in year-over-year met coal production costs on a per ton basis.

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.