Westmoreland Coal to Cease ROVA Operations to Cut Costs

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Westmoreland Coal CompanyWLB amended its power supply agreement with Dominion Resources' D subsidiary, Dominion Virginia Power in a bid to generate savings starting Mar 1, 2017.

Per the amendment, Westmoreland will no longer operate the Roanoke Valley Power Facility ("ROVA"). Instead, the company will provide the contracted level of energy to Dominion Virginia Power through power purchase contracts.

Amendment to Trim Costs

Westmoreland anticipates releasing restricted cash of nearly half of $22 million in place as of Sep 30, 2016, which serves as collateral for the existing ROVA power contracts.

The company expects to generate cash savings of $13 million through Mar 2019, with the majority of cash savings likely to be recorded in 2019.

Current Industry Scenario

Environmental regulations like the Clean Power Plan have been hurting demand for coal from U.S. utilities for quite some time now. However, coal is not only more cost efficient than all other sources of energy, but its reserves at the current pace of production and consumption will last longer than all other fossil fuel resources.

Moreover, President-elect Donald Trump had disclosed intentions of reviving the coal industry during his campaign. As a result, post election, share prices of coal stocks were seen rallying.

On the flip side, if Trump fails to deliver on his promises or changes his stance, this industry could be dealt a major blow. Since a huge number of U.S. utilities have shut down coal-fired plants to lower pollution, reviving these plants could not only be a major challenge, but also entail heavy expenses.

Price Movement

Over the last one year, Westmoreland has outperformed the Zacks categorized Coal industry. The company's shares surged 213.4%, compared with the industry's return of 114.8%.

The company is trying to curb costs and boost free cash flow through strategic initiatives. Westmoreland Coal has been able to successfully hedge 100% of the 2017 Coal Valley Mine production at prices that will lead to breakeven cash flow. This compares favorably with the projected cash drag of $10 million in 2016.

Zacks Rank & Key Picks

Westmoreland currently has a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the same space are Alliance Holdings GP, L.P. AHGP and Alliance Resource Partners, L.P. ARLP .

Alliance Holdings sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here. Its earnings surpassed the Zacks Consensus Estimate by 10.9% in the last reported quarter. For 2016, estimates improved 9.6% to $2.85 in the last 60 days.

Alliance Resource Partners, a Zacks Rank #2 (Buy) stock, surpassed the Zacks Consensus Estimate by 13.8% in the last reported quarter. Its 2016 estimates improved 19.2% to $2.98 in the last 60 days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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