Western Canadian Coal posts $13-million loss for 2007

Vancouver – A year ago Western Canadian Coal (WTN-T, WTN-L) was starting up its new Wolverine coal mine in northeastern B.C., dreaming of becoming a low-cost metallurgical coal producer in a hot market.

After close of the last day of trading of June, however, Western posted a loss of $13 million for 2007 (fiscal year ending March 31, 2007). It is a significant reversal from the $7.5 million profit the company posted in 2006. Fourth quarter losses mirrored the overall shift, increasing to $3.3 million this year from $1.9 million last.

The company said the increased fiscal loss in 2007 is primarily due to the operating and debt-servicing costs associated with the start-up of the Wolverine mine. In particular, start-up progressed more slowly than expected due to shortages of skilled operators and tradesmen and severe weather that disrupted rail shipments to port.

Labour shortages are a problem across the mining industry, but open pit mines like Wolverine are being hit hardest because the labour required for a surface mine is very similar to that needed in the Alberta oilsands.

Western also pointed to severe weather to explain the $13-million loss: strong spring run-off flooded rail lines, delaying shipments to ports. Other shipments arrived late because Canadian National Railway imposed speed restriction in northeastern B.C. because of the heavy rains this spring.

Moreover, general administrative and selling costs for the quarter and year increased, by $669,000 and $1.3 million respectively, due to increased sales and marketing costs and an increase in salaries, benefits, and other remuneration as the company grew its staffing levels.

Western holds two producing coal mines: the Wolverine mine, which opened to full production in October 2006, and the Brule mine, which produced its first ultralow-volatile pulverized coal injection (ULV-PCI) coal in January 2007. The Brule mine essentially replaced the exhausted Dillon mine, which produced roughly 1.3 million tonnes of coal until shutting down at the end of 2006. Western also holds a 50% interest in a joint venture with NEMI Northern Energy and Mining (NNE.A-T) to explore and develop the Belcourt and Saxon properties in east-central B.C., as well as an advanced-stage exploration project in southeastern B.C. called the Lillyburt property.

Western views 2007 as a transition year, with the Brule mine replacing production at Dillon and with Wolverine reaching commercial production. There were also changes in the companys management: Gary Livingstone stepped down as president and CEO in early June after three years at the helm. Livingstone stayed on as a special advisor, and the company appointed John Hogg as president and CEO.

Western remains optimistic for a better 2008. Of the 2.4 million tonnes of expected production from Wolverine mine in fiscal 2008, 2.2 million tonnes will be hard coking coal sold between US$85 and US$90 per tonne. Sales agreements covering over 90% of the hard coking coal have already been secured. The Brule mine is expected to produce 1.1 million tonnes of ULV-PCI coal, and Western has firm sales commitments for all projected ULV-PCI production at prices in the high-$60 to mid-$70 (US currency) range.

The company released news of the loss the day after announcing a $45-million private placement, consisting of 19.2 million units at $2.35 apiece. Each unit included one common share and one-quarter of a share purchase warrant with each full warrant exercisable at $3.25 until mid-2012. Western says $19.6 million of the financing will be used to repay the Wolverine project debt facility, while the rest will go towards general corporate purposes.