This Coal Company Is Up 92 Percent In A Tough Market

This Coal Company is Up 92 Percent in a Tough MarketLow coal prices have put many coal producers underwater, but one company is managing to go against the tide and has even managed to clock big returns this year.

Westmoreland Coal Company (NASDAQ: WLB) is up 92 percent year-to-date, and had more good news to report on Wednesday — it just extended a long-term supply agreement for thermal coal from its Kemmerer mine in Wyoming. The mine, which is operated by Westmoreland's subsidiary, Westmoreland Kemmerer, will supply coal to FMC's (NYSE:FMC) Westvaco and Granger operations. Earlier contracts were set to finish in 2016 and 2021, but both contracts have now been extended to 2026.

The company's CEO, Keith E. Alessi, commented on the importance of the deal, stating, "Westmoreland views FMC as a key partner at our Kemmerer Mine. We are excited to have extended our relationship with FMC until 2026. The contract extension provides Westmoreland an additional long-term cornerstone industrial customer at our Kemmerer Mine and we anticipate a continuing positive partnership."

Low price woes

Certainly, a "long term conerstone industrial customer" is important for coal producers in today's markets. Thermal coal prices have dropped dramatically in recent years, mostly due to oversupply from Australia and Indonesia. As Reuters reported on Tuesday, thermal coal prices for one-month delivery from Australia's Newcastle terminal hit $62 at the end of October — a five-year low.

Although some have said that the market could see a slow turnaround as early as 2015, Pierre Lorinet, CFO of major energy trading company Trafigura, is not optimistic that prices will move higher anytime soon. The executive told Reuters, "[w]e haven't seen out of the two main exporters, Indonesia and Australia, any significant supply side cuts but eventually that will start coming and I think Indonesia is the first market where we're going to see some reduction in exports."

Strategic decisions

Of course, some of Westmoreland's ability to weather the current market could have to do with its size — the company currently has a $7.44-billion market cap, and a $37 share price. In terms of operations, it has 13 mines across the US and Western Canada, and believes it's now the sixth-largest coal producer in North America.

Still, being big isn't everything, and it certainly seems that ingenuity on the part of the company's management has largely contributed to its success. Westmoreland has managed to ink two other long-term supply agreements this year, and as Dan Chu has pointed out, Alessi was able to make a strategic decision to acquire Sherrit International's (TSX:S) coal properties despite the poor state of the market on Christmas Eve of 2013.

Chu, who is managing director of mergers and acquisitions at Deutsche Bank (NYSE:DB) in New York, praised Alessi's creativity and persistence, and suggested that in terms of the market, it's worth taking a look at those going against the grain. Coal investors will no doubt want to keep an eye on Alessi and Westmoreland to see what the company gets up to next.

At close of day on Wednesday, Westmoreland was up a modest 2.91 percent, trading at $37.12.


Securities Disclosure: I, Teresa Matich, hold no investment interest in any companies mentioned.

Related reading:

Going Against the Fear Curve: Dan Chu on the Coal Market

The Thermal Coal Market in 2014: Slow and Steady Recovery

This Coal Company is Up 92 Percent in a Tough Market from Coal Investing News