Walter Energy Inc
Must-know: Why coal ranks differ from each other
Coal used for electricity purposes is often called steam or thermal coal. Coal used to make steel is called metallurgical (or met) or coking coal. Cloud Peak Energy (CLD) only produces thermal coal. Walter Energy (WLT) calls itself a pure-play met coal producer. Other producers like Arch Coal (ACI) and Alpha Natural Resources (ANR) produce met and thermal coal.
Why stagnant electricity demand is bad for coal companies
In 2013, electricity generation growth was mainly due to increased demand towards the end of the year. Electricity demand increased because of the severe winter.
Why economy and politics drove Walter Energy up in November
In this year’s midterms, Republicans took control of Congress. Republicans oppose the U.S. Environmental Protection Agency’s (or EPA) new regulations requiring coal-fired power plants to reduce carbon emissions.
Must-know: Moody’s Peabody Energy rating explained
As noted earlier, stocks of companies with a higher share of revenues from met coal have lost more since the beginning of the year. Peabody Energy’s performance confirms this assertion.
Challenges facing Peabody Energy’s Australian business
China announced an import ban on high-sulfur, high-ash coal, effective 2015. Since Australian thermal coal contains high levels of sulfur, the ban is expected to hit Australian thermal coal exporters, Peabody Energy included.
Why ANR’s met coal and logistics businesses face challenges
China’s economy grew 7.3% in the third quarter—that’s the slowest pace in five years. A slowdown in China’s growth means less demand for steel. This leads to less demand for met coal.
Is it too late for Walter Energy to start idling mines?
Walter Energy (WLT) made the decision to idle its Canadian operations too late—it was hoping for revival in the metallurgical coal demand and prices—the company’s Canadian and UK operations failed to breakeven even in 2Q13 when the cash costs exceeded the net selling price by over $20 a ton.
Walter Energy’s 3Q14 EBITDA drops despite cost saving measures
While Walter Energy (WLT) has been able to reduce costs, the cost savings have not been able to compensate for the drop in revenues.
Which commodity producers will win the waiting game?
Driving through an oversupply situation in commodity markets is a waiting game. The commodity producers that can wait until the others fall out will win in the long run.
Must-know: An overview of the US coal industry
With just under a billion tons produced in 2013, the U.S. ranks second in coal production. China is the largest producer with 3.7 billion tons. However, the U.S. holds much higher coal reserves at 237 billion tons—over a quarter of the world’s coal reserves. China has coal reserves at 114 billion tons. At the current consumption rate, the U.S. reserves can last for over 200 years.
Why Cloud Peak Energy is well positioned to survive the downturn
Unlike its peers (KOL) like Walter Energy (WLT), Alpha Natural Resources (ANR), and Arch Coal (ACI), Cloud Peark doesn’t have any exposure to metallurgical coal.
Why survival is for the fittest of US coal producers
Met coal producers are the worst hit in the current energy environment. Based on our analysis so far, we can conclude that the higher the revenue share of met coal, the steeper the stock prices fell in 2014.
Understanding Arch Coal’s acquisition of International Coal Group
International Coal Group Acquisition
Like Alpha Natural Resources, Arch Coal couldn’t resist the urge for inorganic growth when coal prices rose.
Why should you track thermal coal industry indicators?
Currently, the coal industry is going through heightened volatility. As a result, it makes even more sense for us to cover the short-term indicators.
Rio’s Energy segment: Weaker prices offset cost reductions
Rio Tinto’s (RIO) Energy segment reported an underlying loss of $210 million—compared to underlying earnings of $33 million in 2013.
Must-know: Will Walter Energy survive the downturn?
The cash burn has forced the company to refinance the term loan with high cost notes—the move has simply extended the lifeline at the cost of higher interest expenses going forward—the company now has no major repayment obligation until 2018.
China—global iron ore and met coal industry’s lifeline
China accounts for almost half of the world’s raw steel production. In 2013, China produced 779 million tons of steel. This was a 7.5% increase over 724 million tons in 2012.
Why outlook is bleak for US coal producers
In this series, we’ll analyze major coal producers’ debt and liquidity positions, cash burn, probability of default and credit ratings in an attempt to find out which company will be next.
Must-know: State of the US metallurgical coal industry
Metallurgical coal exports have grown especially since 2007, when supply constraints in the Pacific market resulted in fast-growing Asian countries, notably China, importing metallurgical coal from the U.S. U.S. exports to China grew from just 12 thousand short tons in 2007 to 10.6 million short tons in 2012.
Why met coal prices are under pressure
Most of the metallurgical coal produced in the U.S. is exported. In fact, metallurgical coal dominates overall U.S. coal exports. In 1Q14, the U.S. exported 28 million short tons of coal.
Why China is important for companies like Walter Energy and Vale
China (FXI), by far, consumes the most commodities—like coal, iron ore, and cement—in the world. With an installed capacity of over 1,260 gigawatts (or GW), China ranks first in terms of installed electricity generation capacity.
The importance of indicators for coal industry investors
Currently, the coal industry is experiencing heightened volatility. As a result, it makes even more sense for us to cover the short-term indicators.
Alpha Natural Resources: The biggest American met coal producer
The price of met coal is generally higher than steam coal. So, while met coal accounted for just 22.5% of tonnage, it produced 36.1% of revenues.
What lies ahead for Walter Energy?
While Walter Energy has tried to optimize its controllable factors, the macro environment looks bleak.
Must-know 3Q14 balance sheet details for Peabody Energy
The accounts payable are up by $195 million to $1.66 billion, while inventories are down by $57 million to $491 million. This boosts cash flows as the net investment in working capital falls, and cash is freed up.
Peabody Energy’s 3Q14 cost-saving measures
Peabody Energy Corporation (BTU) reported a 2.5% increase in U.S. operating-cost per ton, up to $15.40 in 3Q 2014 compared to $15.03 in 3Q 2013. The increase was primarily on account of fixed costs being divided among fewer tons.
Peabody Energy Able to Withstand Short-Term Pricing Pressures
Peabody Energy has better product mix, lower-cost mines, and most importantly, higher liquidity than others in the sector.
Why Arch Coal’s debt profile hinges on liquidity
If yields are more than the coupon offered, notes trade on discount. This is because the market expectations,or yield, are higher than the interest rate, or coupon, offered by the company.
Overview: Arch Coal’s important role in the US met coal industry
In Q1 2014, the U.S. exported 28 million short tons of coal. Of this, 17 million shorts tons (or 60%) was metallurgical coal.
Weak metallurgical coal prices weighed on Walter Energy in 1Q14
Price is usually the key driver of commodity companies. Over the last three years, Walter Energy’s (WLT) poor performance was largely driven by weakness in metallurgical coal prices.
Vale SA coal mining operations
Vale SA (VALE) produces metallurgical and thermal coal through its subsidiaries. Vale Mozambique, operates the Moatize mines. And Vale Australia operates coal assets in Australia through wholly owned companies and unincorporated joint ventures.
Why met coal had record production at 3 mines
BHP is the world’s largest supplier of seaborne metallurgical coal. Its main customers are in China, India, Japan, and Europe. Its contracts are based on annual or longer-term volumes.
Must-know: The power sector in India
With a population of over 1.25 billion, India is the second biggest market in the world. India’s power sector is also attractive to the U.S. American coal producers like Walter Energy (WLT), Arch Coal (ACI), Cloud Peak Energy (CLD), and Peabody Energy (BTU) are interested in India.
Why was high yield bond activity little changed last week?
Last week, issuance in the high yield bond market was moderate, at $5.40 billion. This was 400 million less than the previous week’s issuance of $5.80 billion.
Alpha Natural Resources: Debt and Liquidity Profile
As of March 31, 2015, Alpha Natural Resources had total liquidity of $1.9 billion, including $821 million in available credit lines.
Is Walter Energy’s Negative 1Q15 EBITDA a Signal of the End?
Walter Energy (WLT) reported adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) losses of $9.5 million against gains of $39.7 million in 1Q14.
Met Coal Prices and Supply Glut Hamper Walter Energy in 1Q15
Due to a continued glut in the met coal market amid the slowdown in China, met coal prices are still under pressure. Walter Energy’s operations received $106.40 per ton in 1Q15, down from $127.40 in 1Q14.
Lower Diesel Costs Help Cloud Peak Reduce Cost per Ton in 1Q15
Cloud Peak Energy’s (CLD) cost per ton dropped significantly to $10.02 in 1Q15 compared to $10.63 in 1Q14.
Alpha Natural Resources Sees 1Q15 Debt Fall on Notes Repurchase
Highly leveraged players such as Alpha Natural Resources (ANR) have limited ability to issue new debt if they run out of resources.
Alpha Natural Resources Sees Margins Slashed in 1Q15
Alpha Natural Resources burned $59.8 million of operating cash in 1Q15 compared to $54 million in 1Q14. Eastern coal burned cash even at the operating level.
Walter Energy Drops 17% on Possibility of Bankruptcy
Walter Energy was the biggest casualty of the day in the coal sector, with a whopping 17% drop in share price to 38 cents.
Alpha Natural Resources in 1Q15: Have Cost Savings Stalled?
Alpha Natural Resources reported an average adjusted cost of sales per ton of $37.11 in 1Q15, down from $41.25 in 1Q14. Meanwhile, the cost per ton was higher than 4Q14’s $35.73.
Arch Coal: Liquidity Continues to Fall in 1Q15
Arch Coal has no major maturing obligations until 2018, when $1.9 billion of debt matures, followed by $1.7 billion in 2019, $500 million in 2020, and $1.1 billion in 2021.
Appalachian Segment Drives Arch Coal’s 1Q15 Cost Savings
The company showed remarkable cost performance at the Appalachian segment, and the cash costs in this segment were lowest in the last four years.
What Does the Future Hold for US Metallurgical Coal Producers?
Walter Energy (WLT) is clearly the weakest link among US metallurgical coal producers in terms of operations as well as finances.
Coal Stocks Gain—for a Change
Most coal stocks gained last week, except for Alpha Natural Resources (ANR), which lost 9%. Peabody Energy (BTU) gained 12%.
The US Metallurgical Coal Industry’s Unprecedented Consolidation
Metallurgical coal (or met coal) is used to make coke for iron and steel as well as foundries. Most metallurgical coal produced in the US is exported.
Arch Coal and Alpha Natural Resources reduced to penny stocks
Last week, Alpha Natural Resources (ANR) and Arch Coal (ACI) were reduced to penny stock status. Alpha ended the week at $0.95 and Arch Coal at $0.88.
Cash flow positive, profitability down for Arch Coal in 9M2014
Overall adjusted EBITDA for Arch Coal (ACI) came in at $279.6 million for 9M2014, down from $337.5 million for 9M2013.
SunCoke Energy’s presence in the steelmaking process
Coke is used in the iron making process, which in turn is used in the steelmaking process. SunCoke Energy produced 4.2 million tons of coke in 2013.
How does coke fit into the steelmaking process?
Iron ore, steel scrap, and met coal are the main raw materials for steelmaking. SunCoke converts met coal to coke by driving out its impurities.
A quick look at SunCoke Energy’s US operations
SunCoke Energy (SXC) is the largest independent manufacturer of coke, which is used in steelmaking. It runs five coke making plants in the United States.
SunCoke Energy fares better than its peers
It was a tough year in 2014 for American companies under the VanEck Vectors Coal ETF (KOL). SunCoke Energy (SXC) managed to limit the fall to 21%.
Greed led to a fall in met coal prices
In 2011, floods in Australia led to a rally in met coal prices. The benchmark was as high as $330 per ton. China’s growth momentum was expected to continue for years to come.
Falling commodity prices and the prisoner’s dilemma
There’s mistrust in the global commodity markets. From crude oil to met coal and iron ore, producers haven’t cut production. They’re waiting for others to do it first.
How did Walter Energy lose 89% of its value in less than a year?
Walter Energy (WLT) has been the worst performing stock of 2014. The company lost a whopping 89% since the beginning of 2014 and closed at $1.78 on December 4, down from $16.63 at the start of the year.
Walter Energy: A metallurgical coal producer
Of the 2.9 million tons of coal the company sold in 2Q14, 2.7 million tons, or 92%, was metallurgical coal.
The outcome of Peabody Energy’s McArthur Coal acquisition
Peabody Energy in 2010 Peabody Energy (BTU) owned 3.7 billion tons of coal reserves at the end of 2010, all of them in the US. The company had another 5.4 billion tons in reserves taken on lease. Of them, 1.1 billion tons were in Australia. The company sold 245.9 million tons of coal (of which 9.8 million tons […]
Walter Energy “transformed” itself by acquiring Western Coal Corp.
Until 2010, the Walter Energy’s operations were concentrated in the US. The company sold 8.6 million tons of met coal in 2010 for $163 per ton on average.
Understanding consolidation in the US coal industry
Major coal industry players are still paying the price of untimely consolidation in 2010–2011, when floods in Australia left a supply-side gap.
A risky bet: Is Arch Coal out of danger yet?
Arch Coal has over 70% more debt on its books than revenues expected in 2014. That’s a lot when you consider that most coal producers aren’t making money.
A quick overview of Cloud Peak Energy
Cloud Peak Energy owns and operates three surface mines in the Powder River Basin, two in Wyoming, and one in Montana.
What Moody’s thinks about Walter Energy’s credit rating
While all coal stocks have lost ground since the beginning of 2014, Walter Energy is by far the worst performer, with a 91% drop in stock price to $1.52 now.
Overview of Walter Energy: The pure-play met coal producer
Walter Energy has mining operations in the U.S., Canada, and the UK. Canadian operations include three surface mines while UK operations include a surface and an underground mine.
Must-know: An overview of Appalachian coal
The Appalachian coal region is the oldest coal producing region in the U.S.—geologically and commercially. The Appalachian’s coal seams are ~300 million years old. They’re the oldest coal seams in the U.S. Appalachian coal fueled most of the Industrial Revolution after the Civil War in the 19th Century.
Wall Street’s reaction to Walter Energy’s 2Q14 earnings
Walter Energy’s performance for the quarter disappointed Wall Street on all counts including earnings per share (or EPS) and sales—Wall Street analysts had estimated loss per share to be $1.715—the company reported loss per share of $2.33—35% off the expectation.
Must-know: Walter Energy extended lifeline by refinancing debt
Walter Energy issued $200 million 9.5% add-on senior secured notes and $350 million in senior secured payment-in-kind notes to replace $407 million outstanding term loan carrying interest of London Interbank Offer Rate (or LIBOR)+550bps in March, 2014.
Why lower cash costs didn’t help Walter Energy make money
U.S. operations accounted for two million tons and 196 thousand tons of metallurgical coal and thermal coal sales, respectively—Canadian and UK operations sold 669 tons of metallurgical coal and 26 thousand tons of thermal coal during the period.
Must-know: An overview of Walter Energy
Walter Energy has mining operations in the U.S., Canada, and the UK—in 2Q14, the U.S. operations fetched the company $299 million, or 79%, of $378 million in revenues—the remaining $79 million was predominantly derived from the UK and Canadian operations.
Everything you need to know about Peabody Energy
Self-described as the world’s largest private-sector coal company, Peabody Energy (BTU) runs coal operations in the United States and Australia that serve customers in 25 countries.
Must-know: The US coal mining areas and coal specifications
Coal mining in the U.S. can be segregated into three main areas: Appalachia, Interior, and West.
Why underground mines cost higher compared to surface coal mines
Underground mining is more expensive because it’s more capital intensive. Coal companies have to drill more, and use more expensive and complicated machines.