Western Canadian Coal plummets on Q2 loss

Vancouver — Western Canadian Coal’s (WTN-T, WTN-L) 2008 second quarter was not a pretty one, with the northeastern B.C. coal producer posting a whopping net loss of $43.9 million or 38 per share.

Included in the red ink is a $14.7-million writedown of a future income tax asset, a writedown of $2.8 million in inventory (due to the rising Canadian dollar) and $2.8 million for a terminated sales contract. The company also booked a $1.5-million impairment for some asset-backed commercial paper investments it holds and $1 million for an abandoned transaction expense.

The aftermath of the financial report saw shares of the coal company decimated — closing down 70%, or $1.18, at 50 apiece on trading volume of almost 14.7 million shares.

In a release, Western Canadian also ominously acknowledged, “At current coal prices and Canadian-U.S. dollar exchange rates, the company does not expect to have sufficient funds in the near term to meet its financial obligations as they come due.”

The company will soon need to head to the market for dollars.

“I would like to say that the search for new capital is without a doubt a top priority in the near term for the company,” confirmed Western Canadian Coal president and CEO John Hogg.

Representatives from the company’s major shareholder, Cambrian Mining (cgiif-o, cbm-l), which holds about 41.7% of Western Canadian have been brought on as advisers for the financing process.

Coal sales of 856,000 tonnes for the second quarter — from Western Canadian’s Wolverine (Perry Creek) and Brule mines — generated revenue of $67.9 million with an average realized price of $79.27 per tonne. Unfortunately, cash costs to produce and transport the coal came in at an average of $85.36 per tonne over the quarter, leading to an operational loss of $13.5 million.

“Aside from the accounting adjustments recorded and the impact the strengthening Canadian dollar has had on our results, the disappointment was in our mine performance,” Hogg said. “Equipment shortages and maintenance issues all hampered production and therefore increased costs.”

Hogg says the company knows what the issues are and has a plan to fix them — recently replacing some senior management, expanding its equipment fleet and working with the contract miner to improve maintenance practices.

The coal producer also continues to face challenges in moving its product to port in Prince Rupert, B.C.

“We’ve had our railcar supply issues with CN, our rail provider,” said Hogg, explaining that the company received 80 out of 92 trains it needed to transport coal during the period. “As you can expect, we are working quite closely with CN to improve this situation.”

Hogg remains bullish on the outlook for coal and confirmed the company is finalizing negotiations on long-term contracts.

“With spot market prices for hard coking coal and PCI much higher than current contract prices, we are quite optimistic for possibly record coal prices in the upcoming coal year,” Hogg said.