UPDATE 2-Walter Energy to idle Canadian coal mines, cut 700 jobs

Tue Apr 15, 2014 1:38pm EDT

* To idle Wolverine, Willow Creek and Brule mines

* To record severance charge of $7 mln in Q2

* Shares rise as much as 5.7 pct (Adds comments from analysts, updates shares)

April 15 (Reuters) - Coal miner Walter Energy Inc said it would idle its Canadian mines and temporarily lay off about 700 employees, in the latest sign of stress in the industry.

The company said it would immediately stop production at its Wolverine and Willow Creek mines in British Columbia, while its Brule mine in the same province would likely shut down by July.

Walter's shares, which rose as much as 5.7 percent in morning trading, were down 1.6 percent at $7.67 in early afternoon trading on the New York Stock Exchange.

Coal companies are struggling with weak prices and a sharp drop in demand for both thermal coal, used in power generation, and metallurgical coal, used to make steel.

James River Coal Co filed for Chapter 11 bankruptcy protection last week.

With so-called "met" coal prices at $120 per ton for the hard coking variety, Walter's Canadian operations were losing about $27 million in annualized earnings before interest, taxes, depreciation and amortization (EBITDA), Brean Capital analyst Lucas Pipes wrote in a note.

The decision to idle the mines also highlighted Walter's increasing dependence on its U.S. operations, he said.

The company's cost of sales in Canada was $132.55 per ton in the fourth quarter, compared with $93.63 in the United States, Walter said in February.

Morgan Stanley analyst Evan Kurtz said in a note that the idling of the mines would be positive for Walter's liquidity.

Walter, which said it would continue to operate preparation plants to complete the processing of stockpiled coal, said it expected to record a severance charge of about $7 million in the second quarter.

The company said last year that it could cut production at underperforming mines and explore the sale of non-core assets.

Walter cut its capital expenditure by about 60 percent to $154 million in 2013 and said in February that it expects to spend less than $150 million in 2014.

(Reporting by Anannya Pramanick and Kanika Sikka in Bangalore; Editing by Joyjeet Das and Prateek Chatterjee)

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