Westmoreland Coal (NasdaqGM: WLB) on April 25 reported that its net loss applicable to common shareholders for the first quarter of 2014 increased to $19.3m compared with a loss of $2.7m for the year-ago quarter.
The loss for Q1 2014 includes approximately $18.1m of additional interest, currency losses, and transaction fees related to the pending Sherritt coal mine acquisition in western Canada. The company said it expects to close on the Sherritt coal assets within a week.
Q1 2014 revenues grew 11.6% to $180.2m compared with $161.4m in Q1 2013. Q1 2014 Adjusted EBITDA increased 12.5% to $28.9m compared with $25.7m in Q1 2013.
“The first quarter’s results were in line with our expectations,” said Keith Alessi, Westmoreland’s CEO. “The 2014 first quarter reflects the newly restructured ROVA power agreement and does not include any benefit of the Indian Coal Tax Credit. The tax credit expired on December 31, 2013 and has not yet been renewed, although it has been included in pending legislation.”
ROVA (also known as Roanoke Valley), is a two-unit coal-fired power plant in North Carolina.
“Our quarterly results are often materially impacted by the timing of customer maintenance outages,” Alessi added. “The first quarter of 2014 benefited in comparison to the prior year from the fact that there were two outages during the 2013 quarter. The second quarter of 2014 is expected to have two scheduled outages versus none in 2013. The 2014 pattern is consistent with our historical experience, with 2014 second quarter results expected to be lower than 2013 and quarters three and four to be higher, leaving us within our previously announced U.S. business guidance range.”
Sherritt’s operations in western Canada, largely tied to adjacent or nearby customer power plants, are heavily skewed to cold weather months, with as much as 75% of EBITDA historically falling in the first and fourth quarters, Alessi noted. Westmoreland expects these assets to generate between $52m and $62m in adjusted EBITDA from close until December 31, 2014. Given historical trends, planned customer outages, and internal projections, it is likely that 29%, 22% and 49% of the projected 2014 adjusted EBITDA will occur in quarters two, three and four, respectively. Westmoreland further expects capital expenditures from close through Dec. 31, 2014 will be between $25m and $30m.
“We are excited to welcome Sherritt’s employees, customers and joint venture partners into the Westmoreland team and look forward to introducing our business model to the Canadian business,” Alessi concluded. Sherritt is Canada’s largest producer of steam coal.
Robert King, Westmoreland’s President of U.S. Operations added, “During the first quarter, favorable weather and low hydro generation continued to generate high demand for power. Our customers ran their plants at high levels and Westmoreland’s mines and power plant operated very well. However, sales and shipments from our Absaloka Mine were negatively impacted throughout the quarter by railroad disruptions. Railroad service has improved in April and shipments from Absaloka have increased to normal levels.”
Absaloka is a strip mine in Montana, which has the Sherburne County power plant in Minnesota as a major customer.
Westmoreland said 6.8 million tons (equivalent) of coal in the first quarter, against 6.1 million tons of sales in the year-ago quarter. Westmoreland’s first quarter 2014 coal segment revenues and tons sold increased due to new customer sales and fewer customer outages affecting the Absaloka and Beulah mines. Operating income was negatively impacted by rail service issues from Absaloka.