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Walter Energy: A metallurgical coal producer

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Overview of Walter Energy

Walter Energy, Inc. (WLT) markets itself as a “pure-play metallurgical coal producer for the global steel industry.” Of the 2.9 million tons of coal the company sold in 2Q14, 2.7 million tons, or 92%, was metallurgical coal. This is in contrast to Cloud Peak Energy (CLD), which derives all its revenues from selling thermal coal. Other major producers in the VanEck Vectors-Coal exchange-traded fund (or ETF) (KOL), such as Arch Coal (ACI) and Alpha Natural Resources (ANR), derive their revenues by selling a mix of both types of coal.

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U.S. operations

Walter Energy’s U.S. operations include underground and surface mines, coke plant and natural gas operations in Alabama, and underground and surface mining operations in West Virginia. The company runs three underground mines in Alabama. The mines are called No. 4, No. 7 East, and No. 7 West. Walter Energy estimates its Alabama operations to have ~176 million tons of reserves as of December 31, 2013.

The company acquired four mines in two mining properties, Gauley Eagle and Maple, in West Virginia in 2011 through the acquisition of Western Coal in 2011. These mines produce both metallurgical and thermal coal. The mines had 45.6 million tons of reserves as of December 31, 2013.

Canadian and UK operations

Walter Energy operates three surface metallurgical coal mines: Wolverine, Brule, and Willow Creek. They are located in Northeast British Columbia, Canada. The mines were estimated to have 137.6 million tons of recoverable reserves as of December 31, 2013.

Due to a current weakness in the metallurgical coal market, Walter Energy idled its Canadian operations in 2Q14. The company’s UK operations include an underground mine and a surface mine in South Wales with recoverable reserves of 15.5 million tons. The company did not produce anything from UK mines during 3Q14.

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