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Walter Energy, Inc. Message Board

  • daolag daolag Nov 5, 2013 10:22 AM Flag

    RIDICULOUS OPTIMISM: MUST READ

    Posted at Mostley Fool
    There are a lot of obstacles in front of the company, and the stock trades at 88% below the historic high that was reached back in 2011. Let's take a look to see if the company sells for cheap.

    Another loss
    Walter Energy posted a $100.7 million loss in the third quarter. The company has been struggling to be profitable since met coal prices started to plunge. Despite its desperate attempts to cut costs to achieve profitability, this target is still far away.

    The report showed that a 16% improvement in met coal sales volume was offset by a 12% decline in the average net selling price. As a result, quarterly revenue rose only 3.2%. This improvement is not enough to make a significant difference.

    The massive $2.7 billion debt continues to weigh on Walter Energy's performance. This quarter it led to a $63.5 million interest expense. Going forward, the quarterly interest expense would be $54 million. This is a hefty burden for a coal miner that struggles to make ends meet.

    Oversupply remains a problem
    Met coal market continues to be oversupplied. Walter Energy states that it expects global steel demand to rise 3.1% this year and 3.3% next year, but I think this will not be enough to improve the price situation for met coal. More supply is coming in than will be used. BHP Billiton (NYSE: BHP ) has grown its met coal production by 14% in just one year, and has more projects on the way.

    BHP Billiton plans to start production at its Caval Ridge mine in 2014. The mine will initially produce 5.5 million tons of met coal per year. It looks like the company is not afraid to put more coal into the market, and it is not alone.

    Sentiment: Sell

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