Editorial: Crystal ball gazing

Trent Ernst, Editor


As expected, Walter Energy has asked for reconsideration in their dispute with the Steelworkers. You can find out more about that here.

The company has spent the last few months doing what they can to try and push their debt-load a little on down the road.

Twice in as many months they have taken the option of pushing their bond payments out for thirty days, and you know they’re going to keep arguing this case all the way up the ladder. Not necessarily because they believe that they’re right, but because each day that they can force the inevitable pay-out to the union into the future is one more day that the price of coal has to come back up.

Most experts predicted a 12 to 15 month slide in the price of coal. Well, we’re coming up on 15 months since the coal prices dipped to a point that Walter had to shutter its mines in Northern BC.

According to the documents, Walter is planning on re-opening Wolverine before the end of 24 months to run the mine for anywhere from six to 12 months.

If the price of coal doesn’t come back up sufficiently in that time, the company will most likely idle the mine again.

All this is an attempt to avoid having to pay out the $11.6 million it would owe its workers in severances.

And while there is a chance they might just let 24 months come and go and take the hit, there is a good chance that they’ll do what they can to defer that payment, too.

So, they start the mine back up after, say, 23 months, telling everybody they’re going to mine 4A, and it will take six to 12 months. What happens?

Well, many, if not most of the employees that were working for Walter have been actively looking for jobs.

Many of them have found work, and in the next eight months, there’s a good chance that many more of them will also find jobs. So when the call comes, there’ll be a lot of people who may choose to ignore it.

Let’s just pick a number out of thin air, and say half those people choose to stick with the job they have, rather than return to the Wolverine Mine. What happens?

Well, instead of being laid off, they will be deemed as having quit. Which means that Walter will have no responsibility to pay them severance. Hey, presto, the mine has just saved itself about $5.8 million dollars.

And when 4A is mined? Well, the best case scenario is that the price of coal will have crawled back up to someplace where Walter can make money at it. Depending on who you talk to, the point where mining at Wolverine becomes viable is anywhere from $130/tonne to $200/tonne.

Currently, the price is US$109.50. While the price of coal has been known to jump dramatically in a quarter (in 2008, it went from $98.90 to $129.00 between Q1 and Q2, and in 2010, the price went from $118.36 in Q1 to $143.70 in Q2, hoping for such a dramatic price adjustment this year would probably be wishful thinking.

If they were to operate the mine for 12 months, they would have a full four quarters for the price to recover. It is not unreasonable to expect the price could improve the $30 or $40 needed to make mining viable.

But the worst case scenario? If the price of coal doesn’t improve over the next 20 months? Then there’s a good chance they’ll shutter the mine again. And, if the current union agreement remains in place, that means they reset the clock back to 24 months before they have to consider providing severance for those workers. That puts us into 2019 before the company has to think about paying out.

The thing is, the company is just working with the tools they’ve been provided. When the union negotiated a 24 month call-back, I’m pretty sure they didn’t expect the worst, thinking they were doing something good for the employees.

The trouble is, they handed the company a stick. Should it be any surprise that Walter is using it to the company’s advantage?