Walter Energy's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Walter Energy (WLT)

Q4 2011 Earnings Call

February 21, 2012 11:00 am ET

Executives

Paul Blalock - Head of Investor Relations

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Walter J. Scheller - Chief Executive Officer, Member of The Board of Directors, President of Jim Walter Resources and Chief Operating Officer of Jim Walter Resources

Robert P. Kerley - Chief Accounting Officer, Vice President and Controller

Daniel Paul Cartwright - President of Canadian Operations

Richard Allen Donnelly - President of Jim Walter Resources

Charles C. Stewart - President of Walter Coke Inc, President of Walter Minerals Inc, Chief Operating officer of Walter Coke, Inc. and Chief Operating Officer of Walter Minerals Inc.

Michael T. Madden - Senior Vice President of Sales & Marketing

Analysts

Shneur Z. Gershuni - UBS Investment Bank, Research Division

Andre Benjamin - Goldman Sachs Group Inc., Research Division

Lucas Pipes - Brean Murray, Carret & Co., LLC, Research Division

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

James M. Rollyson - Raymond James & Associates, Inc., Research Division

Brian Yu - Citigroup Inc, Research Division

Michael S. Dudas - Sterne Agee & Leach Inc., Research Division

J. Christopher Haberlin - Davenport & Company, LLC, Research Division

Mark A. Levin - BB&T Capital Markets, Research Division

Caleb M.J. Dorfman - Simmons & Company International, Research Division

Mitesh Thakkar - FBR Capital Markets & Co., Research Division

David E. Beard - Iberia Capital Partners, Research Division

Paul Forward - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Welcome to Walter Energy's Fourth Quarter and Year End 2011 Earnings Call. [Operator Instructions] I would now like to turn the meeting over to Mr. Paul Blalock, Vice President of Investor Relations. Sir, please begin.

Paul Blalock

Thank you, Mary Anne. Good morning, all, and thanks for joining us today. This call is being webcast live over the Internet and a recording will be made available and archived on our website for up to 30 days. On this call, we may refer to forward-looking statements made in today's press release and make those and other forward-looking statements on the call. For more information regarding the risks associated with forward-looking statements, please refer to the company's SEC filings. Joining me on the call today are Walter Energy's CEO, Walt Scheller; Chief Accounting Officer, Robert Kerley; and other members of the management team will be present for Q&A. I'd now like to hand the call over to Walt.

Walter J. Scheller

Thanks, Paul. Good morning, everyone, and thank you for joining us. As we always do, I would like to start today with safety. In 2011, Walter Energy reduced its total reportable injury rate by 15% as compared with 2010 on a pro-forma basis. This reduction is the result of our commitment to improve employee health and safety and the implementation efforts of a dedicated workforce. Our aggressive commitment to safety continues into 2012 with our goal to further reduce accidents and citations by another 20%. I'm also pleased to mention that Walter recently received a reclamation award from the West Virginia Coal Association for work at 2 surface mines at Gauley Eagle and we are proud of this accomplishment. It is important to stay mindful of our culture to always operate safely and responsibly.

Turning now to our results. 2011 was a transformational year for Walter Energy. After completing a major met coal acquisition of Western on April 1, we posted record results, achieved greater global diversity and significantly broadened our portfolio of mining assets. I am very pleased with the progress we're making. The team we have in place and the plans we are executing on to significantly grow our met coal production. I've asked the senior team to join me today to help answer your questions. Rich Donnelly, Chuck Stewart and Dan Cartwright are now operationally running the company, and I'm very satisfied with their leadership. They will join the previous call participants of Paul, myself, Robert Kerley, and of course, Mike Madden.

Now onto the results. Revenue of $2.6 billion increased $1 billion or 62% as compared with 2010 revenue of $1.6 billion, and set a new record. EBITDA of $822 million, increased $129 million or 19% as compared with 2010's EBITDA of $693 million, and set a new record. Met coal sales of 8.7 million metric tons in 2011 was also a record and that figure excludes Western's pre-acquisition first quarter sales of approximately 1 million metric tons. I'm excited about the growth prospects in Canada and believe that under Dan, we will achieve our production goals and profitably mature these operations. I'm sure Dan will be glad to speak to the status of operations in Canada and in particular, the startup nature of the Willow Creek project.

In the fourth quarter 2011, met coal sales were 2.4 million metric tons, an increase from third quarter sales of 2.2 million metric tons. Sales of hard coking coal reached 1.9 million metric tons in the fourth quarter, up 18% from 1.6 million metric tons of hard coking coal sales in the third quarter of 2011, and we are anticipating sales in 2012 to continue to show further improvement. The average net selling price for hard coking coal was $244 in the fourth quarter 2011, and average cost -- cash cost per ton were $132 per ton, making cash margins for hard coking coal $112 per ton in the fourth quarter. Sales of PCI were 523,000 metric tons in the fourth quarter, with an average net selling price of $212 and net cash cost -- I'm sorry, cash cost per ton of $165, making cash margins for PCI $47 per ton in the fourth quarter. Revenues for the fourth quarter 2011 grew 75% to $700 million, a $299 million increase over fourth quarter 2010 revenues of $401 million. Fourth quarter EBITDA was $207 million, an increase of $36 million or 21% of our fourth quarter 2010 EBITDA of $171 million. For 2012, we are targeting a met coal production range of 11.5 million to 13 million metric tons. Slightly more than 1/3 of the growth is anticipated to come from Mine No. 7. Slightly less than 1/3 of the growth is anticipated to come from our other U.S. operations in Alabama and West Virginia, including the Maple mine and the last 1/3 of the growth is anticipated to come from Canadian operations. I will stop here for Robert to further discuss the financial results and then provide some additional comments before we take your questions. Robert?

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