Walter Energy records another big loss in Q3 2014

Metallurgical coal producer Walter Energy (NYSE: WLT) on Oct. 30 reported a net loss of $98.9m in the third quarter of 2014 compared with a net loss of $100.7m in the third quarter of 2013.

“In the challenging pricing environment for met coal, we remain focused on lowering production costs, reducing SG&A and improving productivity,” said Walt Scheller, Chief Executive Officer. “We have also idled assets that aren’t generating cash, and we’re reducing inventory across the Company. We expect our operating and financial results to reflect these actions going forward, making us more competitive and positioning us well for a recovery in met coal pricing.”

Third quarter 2014 consolidated revenues totaled $329.5m, compared with $455.8m in the third quarter of 2013, reflecting a decrease in average met coal selling prices of $22.57 per metric ton (MT) and a decline in met coal sales of 0.5 million metric tons (MMTs). Third quarter results also reflected a reduction in met coal cash cost of sales of $22.04 per ton and a 24% reduction in selling, general and administrative (SG&A) expenses.

As previously disclosed, Walter Energy idled its remaining Canadian mining operations in the second quarter of 2014. Costs incurred in the third quarter related to the idled mining operations totaled $9.4m, representing idle mine costs of $8.2m and transportation take-or-pay charges of $1.2m, all of which are recorded in cost of sales. The company expects the idle mine costs to trend down going forward.

Third quarter 2014 met coal sales volumes, including both hard coking coal (HCC) and low-volatility (low-vol) pulverized coal injection product (PCI), was 2.3 MMTs compared with 2.8 MMTs in the prior-year comparable quarter. The decline in met coal sales volumes was due to lower sales volumes from the Canadian mining operations.

HCC sales volumes totaled 2.0 MMTs compared with 2.3 MMTs in 2013. The average selling price for HCC was $110.42 per MT, down from $133.72 per MT in the third quarter of 2013.

Low-vol PCI sales volume totaled 0.3 MMTs, down 0.2 MMTs from the prior-year comparable quarter. The selling price for low-vol PCI averaged $102.85 per MT compared with $121.76 per MT in 2013.

Met coal cash cost of sales for the third quarter of 2014 averaged $95.91 per MT, down $22.04, or 18.7%, compared with the third quarter of 2013, driven primarily by continued improvement in mining costs.

Met coal production was 2.0 MMTs in the quarter, compared with 2.8 MMTs in the prior-year period, with the decrease primarily resulting from the idling of the Canadian mining operations in the current year. Met coal production in Canada for the prior-year quarter totaled 0.7 MMTs.

Met coal cash cost of production averaged $66.90 per MT, down from $77.56 per MT in the prior-year comparable quarter.

Available liquidity was $623.9m at the end of the third quarter, consisting of cash and cash equivalents of $614.6m plus $9.3m in availability under the company’s $76.9m revolving credit facilities, net of outstanding letters of credit of $67.6m. On July 14, the company issued $320m in principal amount of 9.5% senior secured notes. As a result, cash and cash equivalents increased and overall liquidity improved. The company has no significant debt maturities until 2018.

Outlook

The company expects full-year 2014 met coal production of approximately 9.5 MMTs, within the range previously provided. Cash cost of sales per ton for the company’s Alabama underground mines is expected to average approximately $96 per MT for the full year, down from the company’s previous target of approximately $100 per MT.

Full-year 2014 met coal sales volumes are expected to total approximately 10.0 MMTs, within the previously provided range.

Walter Energy is a leading, publicly traded “pure-play” metallurgical coal producer for the global steel industry with strategic access to steel producers in Europe, Asia and South America. It also produces thermal coal, anthracite, metallurgical coke and coal bed methane gas. Walter Energy employs approximately 2,700 employees, with operations in the United States, Canada and United Kingdom.

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.