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Canadian Coal Mining’s Effect on Westmoreland’s Earnings in 2Q16

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Segmental adjusted EBITDA

Westmoreland Coal’s (WLB) 2Q16 operating performance was dragged down by the company’s Canadian Coal mining segment. The adjusted EBITDA (earnings before interest, tax, depreciation, and amortization), of the Canadian Coal mining segment came in at $13.4 million, as compared to $32.9 million in 2Q15 and $23.4 million in 1Q16. This figure represents a nearly 59% drop on a YoY (year-over-year) basis.

The decrease in adjusted EBITDA was marginally offset by an increase in the adjusted EBITDA of the company’s remaining operating segments. The US Coal Mining segment reported an adjusted EBITDA of $19.8 million, as compared to $14.2 million in 2Q15.

The WLMP segment’s adjusted EBITDA came in at $16.3 million, as compared to $15.2 million in 2Q15. But the company’s Power segment reported a significant increase in adjusted EBITDA—from $0.6 million in 2Q15 to $0.6 million in 2Q16.

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Overall adjusted EBITDA

Westmoreland Coal’s overall adjusted EBITDA came in at $43.6 million in 2Q16, as compared to $55.3 million in 2Q15 and $62.9 million in 1Q16. WLB also missed the analyst EBITDA estimate of about $62.0 million for 2Q16 by a wide margin.

Why the decrease?

According to company filings, the decrease in adjusted EBITDA of WLB’s Canadian Coal mining segment was primarily due to an $8.7-million lower loan and lease receivable repayment in 2016. Also, wet weather conditions in Canada, the weak Canadian Dollar, and a decrease in coal shipments resulted in lower adjusted EBITDA for Westmoreland Coal in 2Q16. Remember, the lower adjusted EBITDA implies lower income from the company’s ongoing operations.

For a strong operational performance, a rise in coal (KOL) shipments will be key for WLB and peers Alliance Resource Partner (ARLP), Cloud Peak Energy (CLD), Peabody Energy (BTUUQ), Arch Coal (ACIIQ), and Alpha Natural Resources (ANRZQ).

Now let’s look at WLB’s adjusted net income in 2Q16.

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