Walter Energy Inc. (WLT) announced that it will curb production activities at its Willow Creek Coal Mine situated in Northeast British Columbia on account of the weak metallurgical coal price in the U.S. energy market.
The purpose behind the production curtailment was to ensure that optimal economic returns are generated from mining the high-quality metallurgical coal reserves from the site.
The mine produces metallurgical coal with a production mix of one third hard coking coal and two thirds low-volatile PCI coal and has a life-span of 20 years.
This is the fifth consecutive mine to witness operational restriction as part of the company’s operational management of low-return assets. In addition to Willow Creek the company has earlier idled operations at the Aberpergwm mine in South Wales as well as the Gauley Eagle underground and surface mines in West Virginia. The Maple underground mine in West Virginia also experienced production cuts.
A few weeks ago, Walter Energy announced the closure of its North River underground mine in Alabama. The cutback in Willow Creek operation is expected to be effective from April this year. It will continue to work on a limited scale to support the company’s Brule mine.
Walter Energy however stated it would restore normal production levels at the Willow Creek mine once the pricing environment becomes stable.
The mine recorded 19.0 million metric tons of recoverable coal reserves as of Dec 31, 2012. The company estimates to register a $7.5 million one-time cash charge related to severance costs associated with the reduced output at the mine in its forthcoming earnings release.
Walter Energy further anticipates 2013 metallurgical coal production to be even with 2012 levels. We believe rising coal usage in India and China will boost exports thereby contributing to a favorable near-term top line.
However, the string of production cutbacks or plant idling and the sluggish thermal coal market might act as headwinds to the company’s operation. Walter Energy at present carries a Zacks Rank #3 (Hold).
Other stocks performing better and worth a look include Zacks Ranked #2 (Buy) Atmos Energy Corporation, (ATO), Vectren Corporation (VVC), and CMS Energy Corp. (CMS).
Based in Birmingham, Ala., Walter Energy produces and exports metallurgical coal for the steel industry. It also produces thermal and industrial coal, anthracite, metallurgical coke, coal bed methane gas and other related products.
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