March 22, 2013 / 5:29 PM / in 5 years

Walter Energy to idle Canadian coal mine; shares rise

* Company to idle British Columbia metallurgical coal mine

* North River thermal coal mine in Alabama to close early

* Announces $350 million senior note offering

March 22 (Reuters) - Walter Energy Inc, facing an activist investor that wants to replace half its board, said on Friday it would idle a high-cost metallurgical coal mine in Western Canada within the next few weeks, sending its shares nearly 4 percent higher.

The coal miner, which also has operations in the United States and Britain, said in a regulatory filing that it would also close a thermal coal mine in Alabama nine months earlier than planned, and announced a $350 million debt offering.

Raymond James analyst Jim Rollyson said shutting down the Willow Creek mine in British Columbia is the right move.

“The market’s been tough for coal, and that’s one mine where they’ve been hemorrhaging cash, and they just closed up the wound,” he said.

Rollyson said the decision may help Walter Energy in its proxy fight with British hedge fund Audley Capital Advisors LLP ahead of its April 25 annual meeting.

Audley announced five board candidates in February, arguing that poor management is behind Walter’s weak performance. The fund holds less than 1 percent of Walter shares, according to disclosures from February. Last week, Walter said it was looking at further production cuts and would explore selling non-core assets.

Most of the company’s production is metallurgical coal, used to make steel, but it also sells thermal coal, most often used to generate electricity. Like all U.S. coal producers, it is facing a difficult market - regulatory changes and low natural gas prices have hurt domestic demand for thermal coal, and prices for metallurgical coal are also quite soft.

Rollyson said the senior note offering, which will require a fourth round of amendments to a 2011 credit agreement, was not a surprise.

“You’ve got to survive, to make it to the pricing improvement that - someday - will come,” he said.


Willow Creek’s production is split between hard coking coal and pulverized coal injection, which some steelmakers use in place of more expensive coking coal. It produced 868,000 tonnes of coal in 2012, according to regulatory filings, while the company as a whole produced 14.6 million tonnes.

The mine is relatively expensive to operate. In February, Walter said its 2013 cash cost of sales target for Willow Creek was $150 a tonne, while its targets for the nearby Brule and Wolverine mines were $130 and $120, respectively.

The company said it would take a one-time cash charge of about $7.5 million to idle the mine, and that full-year metallurgical coal production in 2013 should be in line with production in 2012. It did not comment on the number of jobs to be lost in the mine closures.

It said the charge associated with shutting its North River mine in Alabama nine months early would not be material.

North River acquired Willow Creek in the spring of 2011 for a small cash payment and the assumption of some liabilities and said it expected a three-year mine life.

Walter’s shares rose 3.9 percent to $29.55 on the New York Stock Exchange. (Reporting by Allison Martell; Editing by Frank McGurty; and Peter Galloway)

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