Western Canadian Coal embarks on strategic review

After enduring a net loss of $43.9 million in the second quarter of 2008, Western Canadian Coal (WTN-T, WTN-L) is launching a strategic review.

The review will consider “strategic alternatives,” which the company says “may include but are not limited to strategic alliances and refinancing opportunities, mergers, acquisitions, or a sale of all or part of the business.”

The coal producer also says it will whittle down costs to the mid-$70s per tonne range from current levels in the mid-$80s.

Since Western Canadian released its second quarter results on November 14, there has been other good news. The company has completed the final $10 million of an oversubscribed $40 million private placement of convertible debentures with a group of investors.

The debentures will bear interest at 8.5% per year, payable semi-annually beginning May 31, 2008, and will mature November 30, 2010. In addition, they are convertible into shares at any time prior to their maturity at a conversion price of $0.75 per share.

Proceeds from the private placement will be go to working capital requirements at the Wolverine coal mine, as well as for general corporate purposes and to cut the principal and interest due under Western Canadian’s existing bank debt. Bank debt will be reduced from $35 million to $27.5 million.

Overall, Western Canadian is optimistic about its future, quoting from recent business analyst reports that indicate U.S. dollar coal prices are expected to increase next year to record levels.

According to a UBS report in November, for instance, the bank believes contracts for coking coal in 2008 will come in at about US$145 per tonne, up from its previous estimate of US$130 per tonne. The bank predicts a price of US$135 per tonne in 2009 and US$130 per tonne in 2010.

Western Canadian also cites its potential to grow annual production from 3.4 million tonnes to over 7 million tonnes by about 2010, through the development of the Wolverine properties and the Brule and Falls Mountain projects.

Western Canadian produces high-quality metallurgical coal from two mines in northeastern British Columbia.

The company also has interests in coal properties in northern and southern British Columbia and a 50% interest in the Belcourt Saxon partnership, which was formed to explore and develop the Belcourt and Saxon group of properties in northern B.C.

The news sent shares of Western Canadian on the Toronto Stock Exchange up 8 apiece, or 6.67%, to close at $1.28.

That was welcome news to the coal producer, which saw its shares tank to 50 in the aftermath of its November earnings report.