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Looking Closer at Westmoreland’s Leverage and Liquidity Positions

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Interest expenses

Westmoreland Coal’s (WLB) interest expenses have been continuously on the rise since 1Q15. For 2Q16, WLB’s interest expenses came in at $29.2 million, as compared to $22.7 million in 2Q15 and $27.9 million in 1Q16. The increase in interest expenses was mainly due to an increase in company’s debt level on account of its new acquisitions.

According to company filings, the book value of Westmoreland Coal’s (WLB) debt was about $1.13 billion as of June 30, 2016. Almost one-third of this debt is due for payment in 2018, and the majority of the debt is due after 2019. It’s also significant to note that Westmoreland Coal has an asset retirement obligation (estimated costs to reclaim surface land and support facilities at its mines and power plants) of about $450 million going forward.

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Off-balance-sheet risk

Off-balance-sheet risks include self-bonds and surety bonds. Recent bankruptcies in the coal mining industry heightened regulatory pressures on reclamation bonding and self-bonding in particular.

According to the latest company’s filings, Westmoreland Coal posted about $384 million in surety bonds. These bonds are supported by cash collateral of about $103 million. Any deterioration in the financial health of the company could require it to post additional collateral against these bonds. But remember, collateral comes with a cost and can have a negative impact on a company’s liquidity position.

Liquidity position

As of June 30, 2016, Westmoreland Coal had $35.9 million in cash and cash equivalents on its books. It also has $43.3 million available under the company’s corporate revolving credit facility.

With its long-dated bond maturities, manageable interest expenses, and expected positive future cash flows, Westmoreland Coal clearly stands out among pure-play coal (KOL) miners like Peabody Energy (BTU), Alpha Natural Resources (ANRZQ), and Arch Coal (ACIIQ). Alliance Resource Partners (ARLP), Cloud Peak Energy (CLD), and CONSOL Energy (CNX) are other coal mining companies that have manageable debt.

In the next and final part of this series, we’ll look at Westmoreland Coal’s 2016 guidance and company outlook.

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