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Walter Energy Management Discusses Q2 2012 Results - Earnings Call Transcript

Switching to Canada, met production increased to 1.19 million metric tons from 994,000 last year. Hard coking coal cash cost decreased very slightly in the second quarter to $144 per ton versus $145 per ton in the first quarter. However, PCI cost were impacted by the higher mining waste removal at Brule due to the mining cycle and cash cost for PCI increased to $218 per metric ton from $208 in the first quarter. At the Willow Creek project, you may recall that our first quarter production was limited due to the wash plant outage and cash cost were $449 per metric ton on 120,000 tons. I'm pleased to report that in the second quarter, Willow Creek's production increased to 154,000 tons and cash cost declined to $259 per metric ton.

We also expect further increases in Willow Creek productivity to continue to reduce cost. More importantly, Willow Creek started mining hard coking coal and we now have an inventory approximately 65,000 tons that are low-vol Mine No. 7 type quality, which makes this coal one of the best in the world. I should also mention that we have recently contracted to sell some of the low-vol coal from Willow Creek at benchmark pricing. The biggest issue in Canada, however, is a contractor-operated cost structure of the Brule Mine. So we have accelerated our plans to move Brule to an owner-operated mine. We believe the combination of making Brule on owner-operated mine plus increasing productivity will over time significantly decrease cost. I would caution that while we've made the decision to move to an owner-operated mine, we have a great deal of work to accomplish over the coming months, including the retention of people who are critical to our success.

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