Alabama- based coal company Walter Energy Inc. said in a required filing this week that it has “substantial doubt” about its ability to “continue as a going concern” and may be forced to file for bankruptcy protection.
The beleaguered company, which has been a leading producer and exporter of metallurgical coal for the global steel industry, made the statement Tuesday in a “10-Q” report filed with the U.S. Securities and Exchange Commission.
Says the report for the three months ended March 31: “Over the course of the last three years, our results of operations, including our operating revenues and operating cash flows, have been negatively impacted by weak coal market conditions, depressed metallurgical coal prices, reduced steel production and global steel demand. Our cash flows from operations were insufficient to fund our capital expenditure needs for 2014 and 2013 and we expect this trend to continue in 2015.”
Continues the report : “If market conditions do not improve, we expect our liquidity to continue to be adversely affected. On April 15, the company elected to exercise the 30-day grace period under the terms of the indentures governing its 9.50% Senior Secured Notes due 2019 and its 8.50% Senior
Notes due 2021 to extend the timeline for making the cash interest payments due on April 15. The aggregate amount of the interest payments is approximately $62.4 million. During the 30-day grace period, the company is working with its debt holders to establish a capital structure that will position the company to weather a highly competitive and challenging market.
“The Company has 30 days to cure the default by making the required interest payments that were due on April 15. Alternatively, the company may restructure the debt with its creditors. If the company is unable to restructure the debt, the company may consider filing voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code.”
Walter Energy’s stock price by 9.38 percent Tuesday to $0.46 cents per share, down from a 52-week high of $7.21.
In an “overview and outlook” filed with the report, Walter Energy says its financial problems are the result of a global metallurgical coal market that “remains challenged and has shown no meaningful improvement over the last several quarters due to continued excess supply, decelerating growth of steel demand in China and the weak Australian dollar. The metallurgical coal benchmark price for the second quarter of 2015 settled at $109.50 per metric ton, which is a significant decrease from the first quarter 2015 benchmark price of $117.00 per metric ton.”
The company’s filing also cites an independent report by Wood Mackenzie’s Global Metallurgical Coal Short-term Outlook that says “metallurgical coal prices are expected to remain depressed during 2015, with a modest recovery expected in early 2016, primarily due to the weakness in the Australian dollar and low oil prices leading to lower supply costs for producers in Australia over the next two years.”
“We believe that these lower supply costs will continue to lead to lower prices,” Walter Energy says in the 10-Q filing. “Additionally, the demand for steel in China has remained relatively flat during the first quarter of 2015 in comparison with the prior year period and new environmental limits on emissions in China are expected to hinder any significant growth in demand during the current year.
“While the outlook in China remains negative, there are positive signs in India with steel imports increasing by approximately 5.0 million tons in 2014 and projected to increase 2.0 million tons in 2015 as a result of steel project development. Although demand for our products has been consistent, we believe a significant portion of global metallurgical coal production remains uneconomic, and we expect additional idling of mines if current market conditions do not improve.”
A 10-Q is a report on the state of a publicly traded business and must be filed with the SEC every 3 months.
Walter Energy operates metallurgical, thermal and anthracite coal mines in Alabama, West Virginia, Canada and the U.K.