Walter Energy Inc.
) provided preliminary operational updates for the second quarter
of 2013. Walter Energy's second quarter metallurgical (met) coal
production increased 7% sequentially to 2.9 million metric tons
A 0.4 MMTs increase in low and mid volatile (vol) coal
production at the Alabama mines propelled the company's overall
production level. However, met coal sales took a hit, declining
11.1% sequentially to 2.4 MMTs, mainly due to late arrival of
The successful cost reduction efforts proved to be a silver
lining for Walter Energy in the second quarter. The 14% decrease
in production cost per metric ton (MT) at its Alabama mines
shrank met coal cash cost of production per MT by 10%
sequentially. Although production levels were down in the
Canadian operations, plummeting met cash costs of production led
to the cost deceleration.
Moreover, excluding the lower of cost or market ("LCM") charge
to ending inventory, met coal cash cost of sales per MT improved
marginally from the last quarter. Coal producers like Walter
Energy are currently reacting defensively to the downturn in
international coal prices. They are lowering production
activities at selected mines and concentrating more on
The company's financial results were affected by the ongoing
sluggishness in the global met coal market. This prompted Walter
Energy to amend its credit facility in order to boost its
In addition, Walter also reduced its regular quarterly
dividend to 1 cent per share from 1.25 cents. The revised
dividend will be paid on Sep 6, 2013, to shareholders of record
at the close of the business on Aug 6, 2013.
We expect the combination of met coal supply glut in Asia and
demand slackness in China compounded by fragile demand from
Europe to weaken global met coal prices. This will hurt Walter
Energy's exports. In addition, China's efforts to indigenously
produce met coal would threaten the company's met coal
At the moment, Walter Energy holds a Zacks Rank #4 (Sell).
Coal operators like
Arch Coal Inc.
) are also finding the going tough in this macro backdrop.
However, stocks that are particularly looking good in the
space are Zacks Ranked #2 (Buy)
Alliance Resource Partners L.P.
SunCoke Energy Partners L.P.
ARCH COAL INC (ACI): Free Stock Analysis
ALLIANCE RES (ARLP): Free Stock Analysis
SUNCOKE ENERGY (SXCP): Free Stock Analysis
WALTER ENERGY (WLT): Free Stock Analysis
To read this article on Zacks.com click here.