UPDATE 2-Walter Energy reports loss on lower coal prices

Wed Feb 20, 2013 6:42pm EST

* Weak market has battered U.S. coal miners

* Company is facing proxy challenge from hedge fund

* Miner reports a $71.0 million loss vs a year-earlier profit

By Allison Martell

Feb 20 (Reuters) - Walter Energy Inc, squaring off with a hedge fund that wants to replace half its board, reported a wider-than-expected quarterly loss on Wednesday as a drop in metallurgical coal prices held back the miner's revenue, sending its shares lower.

The results followed word on Tuesday that hedge fund Audley Capital Advisors LLP plans to nominate five candidates to Walter Energy's 10-member board. The fund criticized Walter Energy for missing forecasts and said its directors have very little mining experience.

Raymond James analyst Jim Rollyson said Wednesday's results did nothing to hurt Audley's case, but he also said the fund seems to have only a small stake in Walter Energy.

"It's a little unusual to have an activist that is barely an owner, but you can't really disagree with some of their logic," he said, noting that the company has had a number of chief executives, and has struggled to hit its forecasts.

In a statement on Tuesday, Walter Energy said it is "committed to creating value for all shareholders."

Audley owns less than 1 percent of Walter Energy, according to disclosures included with its release on Tuesday. But it is no stranger to the miner - it was a major shareholder in Western Coal, acquired by Walter in 2011.

Most of Walter Energy's production is metallurgical coal, used to make steel. It also sells some thermal coal, most often used to generate electricity. It has operations in western Canada, the United States and Britain.

The company's stock, which closed down 8.0 percent on Wednesday as commodity prices tumbled, fell a further 5.9 percent to $34.60 in aftermarket trading in New York.

WEAK MARKET

In recent quarters, metallurgical coal miners' sales volumes and prices have been under pressure, hurt in part by weak demand from China, the world's largest producer and consumer of steel.

Low thermal coal prices also battered U.S. coal miners, and a number of Walter Energy's competitors have curbed output to weather the tough market.

Last week, Alpha Natural Resources Inc's shares soared after aggressive cost-cutting helped it pull off a narrower-than-expected operating loss.

While Walter Energy's fourth quarter metallurgical coal production was lower than in the third quarter, it was still 6 percent higher than the fourth quarter of 2011.

"Walter's been, kind of, seemingly just biding its time, waiting for the market to improve, which hasn't happened yet," said Rollyson. "They either need to dial back production ... or the market needs to improve."

The company said it expects 2013 metallurgical coal production to be in line with 2012.

"Although there are clear signs of improving trends in global demand and pricing for met coal, our current outlook for 2013 remains cautious and we are focused on driving further efficiency in our business," said Chief Executive Walter Scheller in a statement.

EARNINGS, REVENUE MISS

The company said metallurgical coal prices averaged $149 per tonne, 22 percent lower than in the third quarter, and 39 percent lower than the fourth quarter of 2011.

Its net loss for the quarter to Dec. 31 came in at $71.0 million, or $1.13 a share, compared with a profit of $80.3 million, or $1.29, a year earlier.

Excluding impairment and restructuring charges, the adjusted loss was $66.4 million. That is equivalent to a loss of $1.06 a share, according to Thomson Reuters data.

The Birmingham, Alabama-based company said revenue dropped to $478.8 million, from $703.0 million.

Analysts, on average, had been expecting a loss of 89 cents a share on revenue of $511.3 million, according to Thomson Reuters I/B/E/S.