* 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
By Allison Martell
Feb 20 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
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.
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