Westmoreland Coal (NasdaqGM:WLB) on Nov. 6 released an open letter to its shareholders in response to a letter from dissident shareholder Venor Capital Management LP dated Oct. 30.
Westmoreland’s Independent Directors, together with the executive management team, met to consider the Oct. 30 letter on Nov. 4.
“First, we appreciate your support and acknowledgement of the efficacy of our business model,” said the letter to Venor. “Your assessment cuts through the ‘fog’ of the many issues surrounding and affecting coal company valuations including socially-inspired disinvestment, a herd trading mentality, and the so-called ‘war on coal.’
“While we are concerned with our stock price, we do not agree with the implication that our current share price is mainly attributable to a lack of effective communication with our shareholders. We feel there is always room for improvement and are firmly committed to effective shareholder communication and creation of shareholder value.
“To this end, prior to receipt of the Venor letter, we had already instituted a national search for an Investor Relations executive. We are well down the path on this process and are being deliberate in our hiring as the successful candidate must be experienced and fit the Westmoreland culture and team. In addition, Westmoreland’s management looks forward to conducting an analyst day in New York, similar to the analyst day we held this summer. However, the timing of such an event must reflect the realities of closing the San Juan acquisition as well as our disclosure limitations pending the release of annual results. We commit to such an annual event at which time management will cover the several analyses and topics Venor and other investors request. Management also presents at many industry conferences and actively interacts with investors during quarterly earnings calls. Finally, as you will see in the 10-Q filed today, we added additional disclosure intended to highlight one-time cash flow events.”
The reference to San Juan is to a coal mine in New Mexico that the company is in the process of buying from international miner BHP Billiton, with that mine the captive supplier to the adjacent San Juan power plant.
“While the board is open to the idea of a stock/debt repurchase program, we continue to remain cautious at this time,” said the Westmoreland letter. “We are presently involved in financing the San Juan acquisition, contingent upon regulatory approval. Given today’s market environment, we consider it prudent to reduce debt while preserving adequate liquidity. We believe a conservative approach is both wise and understandable at this time.
“Over the past several years, we have aggressively acted upon the acquisition opportunities that were compatible with our business model. We see fewer of these opportunities in the near term. Thus, we enter a period of ‘harvesting,’ a period where we will increase standardization, deleverage the business, allocate capital back to both debt and equity holders and pursue greater operating efficiency to drive down mining costs to maintain our customers’ competitiveness.
“Finally, we are always willing to consider candidates for the board. The board, as a part of its ongoing governance process, consistently looks at its composition and the required skills that should be reflected in our board members. Any shareholder may put forward a candidate for the board for consideration as part of our ongoing governance process, and such candidates will be considered against our existing requirements for board membership. We act deliberately in both increasing the size of the board and in inviting specific candidates to join the board, in line with our proper governance process that is already established.
“We are privileged to have many shareholders, like Venor, who share our passion for our business. We are committed to open dialogue and strategies aimed at the creation of shareholder value.”
Westmoreland Coal is the oldest independent coal company in the United States. Westmoreland’s coal operations include sub-bituminous and lignite surface coal mining in the Western United States and Canada, an underground bituminous coal mine in Ohio, a char production facility, and a 50% interest in an activated carbon plant. Westmoreland also owns the general partner of and a majority interest in Westmoreland Resource Partners LP, formerly Oxford Resource Partners LP, a publicly-traded coal master limited partnership. Its power operations include ownership of the two-unit Roanoke Valley (ROVA) coal-fired power plant in North Carolina.