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How Low Demand Affected Westmoreland’s 1Q17 Cash Flows

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Dec. 4 2020, Updated 10:53 a.m. ET

Westmoreland Coal’s cash flows

In 1Q17, Westmoreland Coal Company (WLB) spent $7.2 million on capital expenditure, which resulted in free cash flow of $42.6 million. For 2017, the company has a free cash flow guidance of $115 million–$140 million.

Even with low demand due to the weather, WLB reported positive free cash flow. Its early repayment of loan and lease receivables related to the Genesee mine helped it to retain free cash flow of $42.6 million.

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Westmoreland Coal’s cash and debt

In 1Q17, Westmoreland Coal’s cash and cash equivalents stood at $75.4 million, a ~26% rise compared to 4Q16. This 26% rise was the result of the following:

  • free cash flow generation of $42.6 million
  • $22.4 million worth of debt reduction through capital lease payments
  • a $3.6 million reserve acquisition
  • other non-operating cash uses worth $1.2 million

WLB’s long-term debt fell from $1.02 billion in 4Q16 to $1.01 billion in 1Q17. Its debt included $350 million in senior notes due to mature on January 1, 2017, and interest of ~8.8% payable semiannually.

Of WLB’s debt, $323 million is made up of term loans with an interest rate of 7.5%, $308 million is made up of its WMLP (Westmoreland Resource Partners) term loan with an interest rate 9.7%, and $85 million is made up of its San Juan loan with a cash interest rate of 8.3%.

Westmoreland Coal has a debt-to-adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) ratio of 4.4x, the highest among other major coal companies (KOL) Cloud Peak Energy (CLD), Peabody Energy (BTU), and Alliance Resource Partners (ARLP), which have debt-to-adjusted EBITDA ratios of 3.5x, 1.2x, and 0.8x, respectively.

Overall, WLB’s balance sheet is currently loaded with a significant amount of debt. It has sufficient cash to meet its daily operational requirements, so its priority is to reduce its leverage and bring about financial flexibility.

Coal investors can stay up-to-date on the company’s earnings highlights by visiting Market Realist’s Coal page.

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