February 20, 2014 / 2:15 PM / in 4 years

UPDATE 2-Walter Energy sees improved metallurgical coal demand in 2014

* Fourth-quarter adjusted loss $0.55/share vs est $0.84/share

* Sees Q1 met coal sales higher than Q4, 2014 sales higher than 2013

* Sees FY 2014 capex below $150 mln vs $153.9 mln in 2013

* Q4 revenue falls 1 pct to $472 mln

* Shares rise as much as 6 pct

By Kanika Sikka

Feb 20 (Reuters) - Coal miner Walter Energy Inc reported a smaller-than-expected fourth-quarter loss due to cost cuts, and forecast a slight improvement in demand for metallurgical, or steel-making, coal in 2014, sending its shares up 6 percent.

The company’s outlook is in contrast to that of other U.S. miners such as Arch Coal and Alpha Natural Resources who expect an improvement in demand for electricity-generating thermal coal rather than metallurgical coal.

“Along with a projected steel demand growth (in 2014), demand for metallurgical coal is expected to grow by close to 30 million tons,” Walter Energy’s Chief Executive Walter Scheller said on a conference call.

Weak prices for both types of coal due to low demand and excess supply for the past year or so have forced Walter Energy and other miners to rein in spending to cope with the weak prices.

Walter Energy cut its capital expenditure by 60.6 percent to $153.9 million in 2013 and expects to spend less than $150 million in 2014, Chief Financial Officer Bill Harvey said.

“The company’s good job streamlining its operations to work through the current downturn should be well received by investors,” analysts at Simmons & Co said in a note to clients.

However not all analysts shared the company’s enthusiasm for a recovery in demand for metallurgical coal.

“We believe that in absence of a price recovery and greater clarity on asset sales and the capital structure, the name remains the most exposed to current weakness in the met coal market,” Brean Capital analyst Lucas Pipes said.

Walter Energy acknowledged that the weak market would delay its restructuring efforts, from which its expects generate about $250 million through asset sales.

The company now expects most of the sales to take place in the second half of 2014, compared to its earlier target of an April finish.


Still, Walter Energy said it expects metallurgical coal sales in the first quarter to exceed that in the fourth quarter, and full-year sales to modestly exceed that in 2013.

The company expects to produce about 11 million to 12 million tons of metallurgical coal in 2014, compared with the 11.6 million metric tons it produced in 2013.

The company, with operations in North America and the United Kingdom, said it would produce lesser thermal coal in 2014 than it did in 2013.

The company cut production costs by 20.6 percent in the fourth quarter ended Dec. 31, helping alleviate a 10 percent drop in the price of metallurgical coal.

Walter Energy’s sales of metallurgical rose 16 percent to 2.9 million metric tons, accounting for about 85 percent of total coal sales volume in the quarter. The company also produces thermal coal.

However total revenue slipped about 1 percent to $472 million, reflecting low coal prices.

Excluding one-time items, Walter posted a loss of 55 cents per share in quarter, compared with the average analyst estimate of 84 cents, according to Thomson Reuters I/B/E/S.

Taking into account a tax-related charge of $140.2 million, the company’s net loss increased to $174.3 million, or $2.79 per share, from $71 million or $1.13 per share, a year earlier.

Walter’s shares rose 2.3 percent to $11.31 in afternoon trading on Thursday on the New York Stock Exchange. The shares, which have fallen about 71 percent in the past year, touched a high of $11.77 earlier in the day.

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