Walter Energy idles Canadian mines as expensive acquisition comes back to haunt – by Peter Koven (National Post – April 16, 2014)

The National Post is Canada’s second largest national paper.

TORONTO – A Canadian acquisition from three years ago continues to create headaches for U.S. coal miner Walter Energy Inc.

When Walter paid $3.3-billion in cash and stock for Vancouver-based Western Coal Corp., the company thought it was creating a dominant North American coal producer for years to come. The metallurgical coal market was red-hot, and Western provided Walter with one of the best production growth profiles in the industry.

Unfortunately for Walter, the deal has backfired in almost every conceivable way. Coal prices plummeted; the company ran into balance sheet problems; it ended up in a proxy fight with a former Western shareholder; and on Tuesday, Walter announced it will idle all the Canadian operations it bought in the Western transaction.

Walter has been eyeing a closure of its Canadian mines for months. But the tipping point came after a quarterly coal sales contract got settled around US$120 a tonne. The cash costs at Walter’s Canadian and U.K. operations were above US$132 in the quarter ending Dec. 31, meaning Walter would be bleeding cash if it kept these mines running.

“Our CEO said that we’re just as well served to leave the coal in the ground and wait for a time when the market conditions are better,” Walter spokesman Tom Hoffman said.

All of the affected mines are in British Columbia. Walter will idle its Wolverine mine immediately, and expects to shutter its Brule mine by July. A third operation, called Willow Creek, got curtailed last year.

Combined, these operations produced 3.6 million tonnes of coal in 2013. Walter will lay off more than 695 workers as a result of the closure decision.

“The announcement is not unexpected as the assets are not competitive in the current metallurgical coal environment, given the cost structure and the product quality,” RBC Capital Markets analyst Fraser Phillips said in a note.

The closures underscore just how much the steelmaking coal market has changed over the past three years.

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