Production, reduced costs can't save Walter's 2Q

AFTER warning last week that it would be hard hit by the ongoing roughness of the coal market, Alabama-based producer Walter Energy confirmed it had sunk into the red in the second quarter despite increased met volumes.
Production, reduced costs can't save Walter's 2Q Production, reduced costs can't save Walter's 2Q Production, reduced costs can't save Walter's 2Q Production, reduced costs can't save Walter's 2Q Production, reduced costs can't save Walter's 2Q

An Alabama overland conveyor structure linking Walter Energy's operations. Courtesy Walter Energy.

Donna Schmidt

For the period ended June 30, the producer reported a net loss of $34.5 million, versus a net income of $31.9 million in the same quarter of 2012.

Its second quarter consolidated revenues totaled $441.5 million, down year-on-year from $677.6 million, mostly on lower met coal prices and lower coal sales volume.

While hit with pricing and volumes, lower costs and the improved performance of its met product partially offset what could have much larger decline.

Walter also had the favorable benefits of ongoing reductions in selling, general and administrative expenses.

On the sales side, the second quarter had its way on both the HCC and PCI sides of the coin.

Second quarter met coal sales volumes, including both hard coking coal and low-volatility PCI, totaled 2.4 million metric tons, down 400,000 metric tonnes from the same period of last year.

HCC sales volumes were 2Mt in the second period, a 13.8% drop year-on-year, while low-vol PCI sales volumes fell 15.8% during the same time.

Second quarter shipments were also impacted by vessel delays at the Port of Ridley, officials said.

More than 200,000 metric tonnes of loads in June have been carried over to the third quarter at carryover pricing.

Met coal sales tonnage was up notably, making up about 89% of total coal sales volumes in the June quarter, compared to 76% for the same period last year. Prices per ton were an average $150.41, down from $193.31 in the same 2013 quarter on continued weak global met coal market conditions.

The average selling price for low-vol PCI was $135.55/t, also down versus $163.51/t in the comparable quarter.

“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,” chief executive officer Walt Scheller said.

“In a difficult met coal pricing environment, we continue to pursue measures to reduce operating costs, SG&A expenses and capital spending.”

Some of Walter’s cost cutting efforts were evident in its capex budget, which was $46 million for the second quarter, down 63% from the second quarter of 2012.

Capital expenditures for the first six months of this year were $80 million, just one-third of its $246 million capex spend in the first six months of 2012.

Looking ahead, Walter said the third quarter should be much the same as the second just ended.

“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,” officials said, adding that its Canadian operations were also expected to be lower in the third quarter due to its Wolverine mine moving to a less favorable phase of the mining cycle.

The company remains on track to achieve its full-year met coal production target of about 11 million metric tons, it said, and would continue to work on reductions to its SG&A and capex – to the tune of $10 million, with an annual targeted run rate of $80 million on SG&A and capex of $150 million whole-year 2013.