- Walter Energy’s share price has fallen approximately 79% since its peak in April 2011 vs. only a 38% fall in the MSCI World Metals and Mining Index in the same period;
- Walter Energy’s Price/NPV ratio has fallen from a peak of over 1.6x during the first quarter of 2011 to the current 0.6x, vs. the 3-year average of 0.97x;
- Walter Energy’s net debt/stockholders’ equity ratio is 228% while its peers’ net debt/stockholders’ equity ratios range from 47% to 144%;
- SG&A costs are significantly higher than Walter Energy’s U.S. peer group – in fact, Walter Energy’s SG&A expense is from 4x to 9x the SG&A cost per ton of coal sold of those peer companies;
- The Company has missed consensus earnings expectations for seven out of the last nine quarters; and
- In our view, the Company’s recently announced issuance of $450 million of new high yield debt with a coupon of 8.500% per annum reflects another case of questionable financial judgment by the current Board, locking in expensive long-term debt and allowing the balance sheet to deteriorate further.
- Julian Treger is a Managing Partner of Audley Capital Advisors, whose related funds and investment funds are long-term financial investors in publicly listed companies, with several investments being held for more than 5 years and very few sold within 12 months of the initial investment. Despite Walter Energy’s assertions, Mr. Treger played a very important role with respect to Western Coal, a company in which Audley funds were invested for several years.As Western Coal faced insolvency, Mr. Treger was instrumental in helping to identify and appoint a new Chief Executive Officer and independent non-executive directors, and implement a new growth plan – all of which led to Western Coal’s ultimate sale to Walter Energy in 2010. Needless to say, we believe that the sale of Western Coal was in the best interest of all stockholders as it created more than $2.5 billion of stockholder value over the course of the investment period. The alternative scenario was allowing poor corporate governance and a lack of skill and experience to deteriorate the value of that company – a scenario not so different than what we believe is currently transpiring at Walter Energy.Mr. Treger also has a longstanding knowledge of Walter Energy and Audley Capital has been an investor in the Company for multiple years. He has engaged with Walter Energy on numerous occasions putting forth what were believed to be value-enhancing ideas, only to be stonewalled on his attempts. Having lost faith in the direction of the Company, Audley Capital sold its stock in varying increments, including a block of its stock in July 2011, when highly-regarded CEO Keith Calder left the Company citing “differences of opinion concerning management philosophy” after having only held the position for 3 months, and the Company decided not to pursue a sale of the business at a time when the share price was well-above $100. In retrospect, the sale of Walter Energy’s stock at that time was the right decision for Audley Capital investors.
- Robert Stan brings over 30 years of experience in the western Canadian coal business. He also has direct knowledge of the geographic area of Walter Energy’s Canadian mining activities. Mr. Stan has held senior management positions with several Canadian mining companies, including Fording Coal Limited, Westar Mining Ltd, Teck Corporation and Smoky River Coal Limited (SRCL).Similarly, he was appointed a director of Grande Cache Coal Corporation in July 2000, President in February 2001 and Chief Executive Officer in September 2002. During his tenure, he implemented a value-enhancing strategy and oversaw a number of strategic initiatives that ultimately led to the sale of the company for C$1 billion in 2012 to Winsway Coking Coal and Japanese trading house Marubeni Corporation.Mr. Stan served two terms as Chairman of the Coal Association of Canada until June 2012, and was recently reappointed for a further 3 year term as the Canadian representative on the IEA Clean Coal Center’s Coal Industry Advisory Board. Walter Energy’s recent letter tries to undercut Mr. Stan’s robust credentials by dredging up a pending allegation of insider trading. Both Audley Capital and Mr. Stan believe that the allegation is completely without merit and will ultimately be withdrawn.
- Lawrence M. Clark, Jr. serves as President and Chief Executive Officer of JW Resources, Inc., a private operator of thermal coal assets in Central Appalachia (a position in the coal industry which Walter Energy conveniently omits in its criticism), and as Managing Member of BalanTrove Management, LLC, a corporate advisory business catering to small and middle market resource and energy companies. Mr. Clark brings strong industry and financial expertise that we believe will be very beneficial to Walter Energy’s Board, including having actively participated in numerous financial restructurings. At Harbinger Capital Partners, he played an instrumental role in overseeing dozens of investments that generated hundreds of millions of dollars of profit for investors.
- Mark Lochtenberg currently serves as Executive Chairman and was one of the founding Executive Directors of Cockatoo Coal Limited, an Australian metallurgical coal producer that operates in different geographic regions than Walter Energy. He previously served as co-head of Glencore International AG’s worldwide coal division, and spent 13 years at Glencore’s commodity trading concern, overseeing a range of trading activities including the purchase and aggregation of the coal project portfolio that would later become Xstrata Coal. We believe that Mr. Lochtenberg would bring an immensely valuable in-depth understanding of the sectors in which Walter Energy operates. Despite his strong credentials, the Company’s recent letter questions an obscure legal proceeding between Cockatoo and a minority stockholder in that company, Baralaba Coal Pty Ltd. In fact, the two parties settled their legal proceedings in October 2010 when the Supreme Court of New South Wales dismissed the proceedings. Walter Energy blatantly ignores Mr. Lochtenberg’s strong credentials to instead highlight opaque particulars in what we believe is an attempt to confuse stockholders.
- Eddie Scholtz brings over 40 years of experience in the mining industry, primarily in South America and Africa. He previously served in various managerial capacities at BHP Billiton, including overseeing one of the largest coal businesses in the world. Throughout his tenure at BHPBilliton SA, he helped increased profitability, reduce costs and bolster the Company’s safety record. During his time as President and Chief Operating Officer, he oversaw operations producing 80 million tons per annum.Mr. Scholtz was also one of two COO’s at CIC Energy Corp., a junior miner listed on the TSX with assets in Botswana. He was charged with exploration and mine planning and oversaw the recording of a 2.7 billion ton resource of which 90% was in the measured category in terms of the TSX rules. In addition, if Walter Energy had reviewed and described the record properly, Mr. Scholtz had merely assisted Talon Metals for a period of eight months, while still in the employ of CIC Energy, with the consent of all board members of CIC.We believe that the Company again attempts to mislead stockholders regarding Mr. Scholtz’s strong reputation by calling attention to obscure and incorrect items regarding his accomplished track record.
We believe that Walter Energy simply has an indefensible track record. The time for change is now. We are presenting all stockholders with an alternative – to support new director nominees who have a proven track record of operational and financial success.Vote “FOR” Audley Capital’s Director Nominees to Help Unlock Long-Term Value We believe that these new directors and implementation of our previously detailed initiatives should contribute to enhanced investor confidence and prospects for the Company. We have outlined a comprehensive plan that should create long-term value for ALL stockholders. We ask stockholders to please sign, date and mail the GOLD proxy card today to elect Audley Capital’s director nominees who will work to execute a clear strategic plan to drive long-term growth and value creation. We appreciate all the positive feedback we have received from our fellow stockholders and thank you for your support. If you have any questions or need assistance voting your shares, please call our proxy solicitor Okapi Partners LLC at (877) 208-8903.
|Audley Capital Advisors LLP|