Walter: Falling market and stock preceded closures

Mike Carter, Chetwynd Echo

 

CHETWYND – Walter Energy announced on Tuesday April 15, that it would begin the process of “idling” its Canadian operations this month, including the Wolverine and Brazion coal mines outside of Chetwynd and Tumbler Ridge.

This includes the Wolverine mine located 15 km outside of Tumbler Ridge, the Willow Creek Mine, which is about 45 km west of Chetwynd, and the Brule mine, which is about 45 km south of Chetwynd.

Investors have been continually growing weary of Walter Energy stock as the price of metallurgical coal continued to decline.

A weak met coal market forced the Willow Creek mine to curtail its operations in March 2013. The cuts came because the cost of producing a tonne of coal at the mine had come too close to the selling price per tonne, meaning it was no longer profitable.

Once employing up to 300 people, Willow Creek now gives work to about 80, with 40 in the pit and 40 in the wash plant, preparing coal produced at the nearby Brule mine.

More bad news came in January, when Moody’s Investors Service downgraded Walter Energy deeper into “junk” territory.

The writing for Brule and Wolverine appeared to be on the wall, and with this week’s announcement, confirmed what many have been expecting for months.

Walter Energy expects to incur severance charges of approximately $7 million in the second quarter of 2014 in connection with the idling of the mines.

Employees at the Wolverine mine won’t be seeing severance packages for another two years, as this is considered a temporary layoff and not a termination of employment.

However, this means that current employees will be the first to be called back when or if the mine comes back on stream, with no change in seniority.

Brazion, which includes the operations of Brule and Willow Creek near Chetwynd, will continue to operate the Brule mine, but expects to idle the mine by July 2014.

Walter Energy says it will continue to operate its preparation plants at these mines to complete processing of coal that already has been mined and is in inventory.

As of December 31, 2013, Walter Energy had about 1.1 million metric tonnes of coal in inventory in Canada.

“These layoffs are particularly unfortunate because our employees have worked very hard to keep these mines competitive in the face of daunting market conditions,” Walter J. Scheller III, Chief Executive Officer said. “Equally important, they’ve worked safely.”

Scheller noted that the Brule mine completed 2013 without a reportable safety incident.

The company still views the coal reserves as valuable assets, and for the time being, are not planning on selling or ceasing ownership all together.

Walter Energy’s careful description of the process as “idling” the mine properties, is meant to reflect the company’s goal to wait out the current market conditions until they can get the best value out of the reserves,

A limited number of employees will remain at each site to operate the preparation plants and, once coal processing is complete, to perform ongoing equipment maintenance and provide ongoing security for the sites during the idle period.

For 2013, coal production from Wolverine, which produces mid-volatile hard coking coal, was 1.6 million metric tonnes, while the Brazion mines produced about 1.9 million metric tonnes of low-volatile PCI and 0.1 million metric tonnes of hard coking coal.