Walter Energy 3Q14 Earnings Call notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Bringing down cash cost of sales

“our mines in Alabama to continue to perform well. We’re on track to produce around 9.5 million tons of meth coal or the full year. We’ve also lowered our estimate for combined full year production cost per ton at mines 4 and 7 to around $96 a ton. We expect full year met coal sales to total around 10 million tons as we are making good progress selling down the Canadian inventory.’

Selling inventory generating cash

“We ended the third quarter with roughly 1.7 million tons in meth coal inventory, which included about 600,000 tons at mines 4 and 7 and about 1.1 million tons in Canada. Remaining PCI inventory in Canada totaled just under 800,000 tons. We expect to sell the remaining inventory in Canada over the next six months, which should translate to net cash generation of about 75 million.”

Bringing down SG&A and Capex

“We expect to hit our run rate of 70 million per SG&A expenses by year end, which will be down roughly 30 million from last year. In addition, as Bill stated, we’ve reduced our targeted capital expenditures for the year by another 10 million to approximately 110 million.”

Steel production in China up 2.5% this year, but imports down 20% from last year

“Steel production growth in China is up almost 2.5% through September but the growth is at a slower rate than last year. Along with this, met coal imports are down about 20% from last year. However, even with this decline, China is on track to import more than 60 million tons of met coal this year.”

There has been more interest in buying assets recently

” I think over the last few months there has been more activity in both incoming calls, et cetera. We’d like to take a cautious approach. We’re still committed to the target but we don’t want to talk specifically about timing at this point but there has been more activity and more interest.”

We can keep capex here for a long time

“We’re still making sure we take care of mines 4 and 7 and that we’re feeding them the capital necessary to keep those mines exactly where they need to be. So, from the standpoint of keeping our operations with good equipment and properly maintained and ventilated, we could do that for the long term. We are not starving those mines of capital.”

There are 20 years of reserves at these mines even though that doesn’t make it into the SEC filings

“When we look at the SEC documents and the requirements for tons being netted [ph] in the reserves, there are a lot of tons surrounding these operations that will likely be added into the reserve basis for both operations.

And I believe that what we’ve said previously is that it’s an excess of 20 years of reserves for both of those operations. And we still believe that even though from those tons are not currently in the – comply with SEC standard.”

Focused on smaller asset sales to reduce interest expense where possible

“None of them are I would call as homeruns, but again, our strategy is to continue to lower interest expense and frankly lower the cost with singles and doubles.”

At some point tons demanded and tons taken off have to cross, and I don’t think that’s too much longer away

“And if you also, even looking at this year, if you look at project next year another 2% growth in steel production, 2% is 32 million tons of additional steel production and call it, just to make it easy, that’s 20 million more tons of coal demanded. At some point, the impact of the tons coming out and the demand for more tons have to cross. And I don’t think that’s going to take a long time to get there at this point”

Volumes are holding up with currency higher, but the pricing is the issue

“Yes, volumes are holding up. It’s just we’re contented with – the price is the issue, to be honest with you.’

It’s starting to get a little harder to get our quality coal

“we’re starting to – maybe a little bit starting to show up our main brand type products where customers thought they could pick up a phone and just automatically get the – there’s a little bit of – I don’t want to call it tightness but it’s starting to show up out there.”