Coal news and updates

High spend at loss-making coal miners spooks investors

Higher-than-expected spending levels at U.S. coal miners Walter Energy Inc and Alpha Natural Resources Inc, struggling to stem their losses, worried investors enough to dump their stock.

Walter Energy's shares fell as much as 13 percent to $2.04 in early trading, Alpha Natural's stock slid as much as 6 percent to $2.01.

The duo have posted losses for the last two years and analysts, who expect them to stay in the red for at least the next two, expressed concerns over their spending.

Walter Energy's cash burn rate in the third quarter and Alpha Natural's plans for higher capital spending in 2015 worried analysts, who say that costs will have to fall more steeply for them to be able to boost margins and cash flows.

"We are concerned that despite the positive Q3 performance (at Walter Energy), normalized cash-burn remains at high levels at current market pricing," Brean Capital analyst Lucas Pipes wrote in a note.

To be sure, cost cuts helped both Walter Energy and Alpha Natural post smaller-than-expected quarterly losses as they, like other miners, idled mines, cut jobs and lowered capital spending to combat slumping coal prices.

Weak demand from Europe and Asia, especially China, has weighed on metallurgical coal prices, while prices for power-generating thermal coal have been depressed as utilities switch to abundantly available natural gas.

NEGATIVE SURPRISE

Walter Energy said available liquidity rose 10.6 percent to $623.9 million from the end of June to the end of September. Morgan Stanley said the company's annualized cash burn rate was about $365 million, which equates to nearly 60 percent of liquidity.

While Walter Energy, like its peers Peabody Energy Corp and Arch Coal Inc, cut its 2014 capex, Alpha Natural plans to spend more next year.

It forecast capex would rise to $275-$350 million in 2015 from the $225-$275 million it expects to spend this year.

Pipes called the capex forecast a "negative surprise."

Alpha Natural's adjusted cost of coal sales per ton fell almost 11 percent in the third quarter ended Sept. 30, while Walter Energy's fell 18.7 percent.

"In the challenging pricing environment for met coal, we remain focused on lowering production costs, reducing SG&A and improving productivity," said Walt Scheller, chief executive Walter Energy, which mainly mines metallurgical coal.

Idling its mines and job cuts were among the measures that helped the company's adjusted loss of $1.58 per share beat the analysts' average estimate of $1.63, according to Thomson Reuters I/B/E/S.

Alpha Natural, which mines both metallurgical and thermal coal, posted a loss of 53 cents per share, smaller than the 70 cents analysts on average had been expecting.

Lower shipments and prices pushed Walter Energy's revenue down 28 percent and Alpha Natural's down 8 percent.

Source: Reuters