Transcript of
Westmoreland Coal (WLB)
Investor Conference Call
August 4, 2011
Keith Alessi,
President & CEO
Doug Kathol, EVP
Kevin Paprzycki, CFO
Operator
Good morning ladies
and gentlemen and welcome to the Westmoreland Coal Investor teleconference. At
this time, all telephone participants are in a listen only mode. A brief
question and answer session will follow the formal presentation. If anyone
should require operator assistance during the conference, please press *0 on
your telephone keypad. As a reminder, this conference is being recorded. It
is now my pleasure to introduce your host, Mr. Keith Alessi, President and
Chief Executive Officer. Thank you, sir. You may begin.
Keith Alessi – Westmoreland
Coal Company – President & CEO
Good morning and
welcome to the Q2 call. Most of you have had a chance to review the press
release that went out this morning along with our earnings and I would like to
give you some color on those results and then of course open it up for
questions. With me this morning I have got Doug Kathol our EVP and Kevin
Paprzycki our CFO as well as Jen Grafton, our General Counsel if you have any
questions you would like to direct to them. As noted in the press release and
as previewed when we chatted about our first quarter results, the story of the
quarter really turned out to be the high growth season in the North West. We
saw record snow pack in the Cascades. I saw last week that the last ski resort
in the Sierras just closed last week. The latest in the season that that has
ever occurred and that had the effect of essentially taking the largest
facility that we service, the Colstrip plant, offline for the entire quarter.
When we chatted at the end of the first quarter, we were hopeful that they
would get back up and running, certainly by the beginning of June or so but it
turned out that outage extended almost until here in August. The impact of
that was about 1.5 million tons. Those are tons we don’t get to make back up
because it’s kind of like hotel rooms. If you rent them, you rent them, if you
don’t, you don’t. We also saw disruption late in the quarter at WRI due to the
rail service interruptions in North Dakota that were a result of the record
flooding that occurred around the Minot area and along the rail routes. Those
tons really get shifted out of Q2 into Q3 but rail service has been restored
and we are seeing good tonnage coming out of the WRI operation.
That said, it was a
pretty good quarter. We had told you last quarter we expected to see our
streak of uninterrupted, better over year over year quarters broken this
quarter. We missed last year by $2 million. In light of the events that
occurred, we were pretty satisfied. The good results we did put up were a
function of very good control of controllable expenses, a strong quarter by our
power plant and a control of our heritage costs also. So we were pretty
satisfied in light of the conditions that we met. Looking forward to the third
and fourth quarters, I think there are really two major themes, the first of
which is, we had chatted earlier this year about the fact that the company is
working diligently on acquiring additional coal reserves around our
facilities. That work continues. I expect that the work will culminate in
some announcements here over the back half of the year as we successfully wrap
up some of these negotiations, but we are dealing with large enterprises and
regulatory agencies and what not and it takes a while. We are also working
with our investment bankers, looking at acquisitions of companies that look
similar to the kinds of mines that we run, mine mouth operations, and we will
continue if those kinds of opportunities present themselves to look at those
kinds of situations.
As many of you know,
because you own other coal stocks, it has not been a particularly strong market
for coal stocks. If you track our stock price, we have been tracking very
closely with the rest of the industry. I see this morning that most of them
have opened up down around 5%. We tend to trade in sympathy with them. ANR,
BTU, ACI, they have all been down 25, 30 to 40% from their highs of earlier
this year. We tend to track with that. We are satisfied with these results.
We are thrilled with our safety record. Our Beulah facility was recognized
once again for its outstanding safety record. During the quarter also we
received recognition down in Texas for our reclamation efforts, so we continue
to be good stewards of the environment. We continue to work safe and that will
continue to be a priority and emphasis of the organization going forward. With
those brief comments, I would like to open it up and talk about what you folks
would like to chat about. So operator, why don’t you go ahead and take questions.
Operator
Thank you. At this
time, we will be conducting a question and answer session. If you would like
to ask a question, please press *1 on your telephone keypad. A confirmation
tone will indicate your line is in the question queue. You may press *2 if you
would like to remove your question from the queue. For participants using
speaker equipment, it may be necessary to pick up your handset before pressing
the * keys. Once again, that is *1 to register your questions at this time. One
moment please while we poll for questions. Thank you. Our first question is
coming from Brian Taddeo of Gleacher & Company. Please proceed with your
question.
<Q>: Hey, good
morning.
Keith Alessi –
Westmoreland Coal Company – President & CEO
Good morning.
<Q>: Just a
quick one with regard to the new EPA regulations, for the Casper rulings
including Texas. Just curious if you can comment what your conversations have
been with NRG at the Jewett Mine for lignite going forward. Have they given
any indication that they are going to be lowering the amount of lignite they
are going to be burning given the new rules?
Keith Alessi –
Westmoreland Coal Company – President & CEO
Doug that’s one
probably you should handle and the short story is no, we don’t think it is
going to affect Texas lignite because of the chemistry of that coal but Doug
why don’t you go and give it a little more detail.
Doug Kathol –
Westmoreland Coal Company – Executive Vice President
Yeah, the Texas
plants have already got themselves set up anticipating some of this. In Texas
they burn a blend of lignite and Powder River basin coal. In North Dakota, it
may be more problematic because of the chemistry of the coal. We are not sure
what the ultimate outcome is but we know that it will be more difficult in
North Dakota to meet new EPA rules.
<Q>: In which
plants specifically, I guess in North Dakota are going to be the biggest issue?
Doug Kathol –
Westmoreland Coal Company – Executive Vice President
Yeah, most likely it
will be the Coyote plant among the others up there and it relates to the
chemistry of the coal and particularly the sodium content. So we are not sure
long term whether lignite supply will be the answer for some of these North
Dakota plants.
<Q>: Got you,
okay. And can you talk about were there any distributions from WML up to the
parent in the quarter? And if you could also give a breakout on the coal side
actually how much of the EBITDA was WML versus WRI?
Keith Alessi –
Westmoreland Coal Company – President & CEO
Sure. I’m going to
have Kevin give you that level of detail but from a corporate treasury
standpoint, it is really a function of what is available for distribution
versus what we choose to distribute. So Kevin?
Kevin Paprzycki – Westmoreland Coal
Company – CFO
Hi Brian. Because of
the hydro impact at WECo, that reduced WML’s EBITDA, that combined with their
capital and their initial debt payments, we did not have a distribution from
WML in Q2.
<Q>: Okay. Do
you have, by chance, the breakout between WML and WRI of the EBITDA for the coal
segment?
Kevin Paprzycki – Westmoreland Coal
Company – CFO
I do. The WML EBITDA
for the quarter was just under $12 million and for WRI was a little over $2
million.
<Q>: Got you. Okay,
thank you very much.
Kevin Paprzycki – Westmoreland Coal
Company – CFO
Yep.
Keith Alessi –
Westmoreland Coal Company – President & CEO
You know Brian, one
of the ways to look at this and the way we are looking at it internally when we
started this year, if you’ll recall last year we had record EBITDA and
operating income and the thought moving into 2011 was that we were going to
benefit from the discontinuance of the Minnesota Power Contract at Colstrip
which was a contract that was under water and we had lost between $6 and $8
million a year on. I think the net effect of the hydro season means that this
year is going to be flat versus last year where we had initially hoped that we
would pick up all the benefits of the negative contract that went our way. So
as we sit here today we are probably projecting a pretty flat performance
versus a year ago which was record performance.
<Q>: Okay,
thank you.
Operator
Thank you. Our next
question is coming from Bob Clutterbuck of the Clutterbuck funds.
Keith Alessi – Westmoreland
Coal Company – President & CEO
Morning Bob.
Operator
Please proceed with
your question.
<Q>: Hi
Keith. How are you?
Keith Alessi –
Westmoreland Coal Company – President & CEO
Great.
<Q>: Keith,
last quarter you said at that time that you thought you would probably have
within the next quarter some discussion on reserves. Could you give any
guidance on that?
Keith Alessi –
Westmoreland Coal Company – President & CEO
Yeah. We have made
progress on a number of funds. I am not at liberty to disclose exactly how
much and with who. It has taken longer than we had hoped. In one situation I
think we had a total of a dozen signatures which within the other organization
it needed to be gathered in order to get it done and I think we are down to the
last couple. So you know I expect here, yeah I have been saying it for a
quarter, but hopefully this quarter we will have something to talk about, if
not this quarter certainly by the end of the year. But we have adequate
reserves to service the accounts that we have got for the foreseeable future.
These would be extensions of ten and more years on the ends of the period of
time that we are already reserved through.
<Q>: All right,
and that is all I have for now.
Keith Alessi –
Westmoreland Coal Company – President & CEO
Okay, thanks Bob.
Operator
Thank you. Our next
question is coming from Paul Stewart of Calypso Management. Please proceed
with your question.
<Q>: Hi guys,
good morning.
Keith Alessi –
Westmoreland Coal Company – President & CEO
Morning.
<Q>: Good
morning. I was wondering given the rolling nature of your coal contracts, if
you had any notable customer discussions in the past quarter at any of the
mines.
Keith Alessi –
Westmoreland Coal Company – President & CEO
Yeah, we are
currently in conversations with the Coyote facility up at the Beulah power plant
in North Dakota, that’s Dakota Westmoreland. They put out for a competitive
bid situation for North Dakota lignite earlier this year. There is another
party involved in that conversation. Those conversations I think have been
more difficult than we had originally anticipated. The other party, this is a
contract that currently expires in 2016 so we are out five years. The other
party at the table is a large organization that we know well who is notorious
for underbidding these kinds of situations and then subsequently getting
themselves in trouble with the client organizations and often getting dismissed
but this is a situation where if we were not to prevail, being able to say I
told you so five years after the fact wouldn’t be a wonderful place to be. If
in fact that conversation did not work out to our benefit, the short term
impact really on us is probably increased cash flows as we would substantially
change the mining plan because clearly if we didn’t renew that contract then
the future of that mine would be at risk. The mine is currently operated on
the assumption that that contract would be extended. If that did not work out
we would take appropriate measures and mine responsibly for a different
scenario. If that didn’t work out, it is not the end of the world. Those
assets are extraordinarily valuable. We would probably redeploy them up at
WRI. We would also look at moving those tons perhaps somewhere else. So,
that’s the only significant conversation we have had. All our other contracts
are buttoned up and long term.
<Q>: Okay,
great. Thanks, that is all I had for now.
Operator
Once again ladies and
gentlemen, if you do have a question, please press *1 on your telephone keypad
at this time. One moment please while we poll for additional questions. Once
again ladies and gentlemen, please press *1 if you do have a question at this
time. Our next question is coming from Wayne Heilman of Springs Gazette.
<Q>: Keith, Wayne
Heilman. Just one question about the move, is that still on track for October?
Do you have a date yet?
Keith Alessi –
Westmoreland Coal Company – President & CEO
Yeah, good morning
Wayne. As we announced earlier, the intent is to move the company offices to
the Denver area here in November. They have started construction on the space
that we have leased up in the, just south of the Denver metro area. I am glad
you asked the question because we did announce that there in the quarter and I
didn’t comment on it in my earlier comments. As we noted at the time we
announced that move, there are 90 some public companies in the state of
Colorado. Only a handful of them are not in the Denver area, we were one of
them. Twenty four of those companies are power and/or energy companies and we
have always found ourselves, when we are looking for talent, having to go into
the Denver market. Our accountants, our lawyers, our banks, everybody is up in
Denver. So it is actually an economical move for us to move there. It is a
mid November move at this point.
<Q>: Thank you
very much.
Keith Alessi –
Westmoreland Coal Company – President & CEO
If there are no other
questions, I would encourage you if you have one-on-one conversations, to give
Kevin a call. Now that the heat of summer is upon us, we are obviously seeing
a much stronger revenue quarter here in Q3 and we are optimistic when we are
talking to you and 12 weeks from now we’ll be able to talk about those
results.
Operator
Gentlemen, we are showing no further
questions at this time. Do you have any additional closing comments?
Keith Alessi –
Westmoreland Coal Company – President & CEO
No, that would be it.
Operator
Ladies and gentlemen,
thank you for your participation. This does conclude today’s teleconference.
You may disconnect your lines at this time and have a wonderful day.
