Walter Energy Inc., a producer of steelmaking coal in the U.S. and Canada, anticipates taking as much as a $1.1 billion goodwill impairment charge in the third quarter because of “recent weakness” in global demand.
“Preliminary indications are that all or substantially all of the company’s $1.1 billion of goodwill could be impaired and a corresponding non-cash charge recognized,” Birmingham, Alabama-based Walter said today in a statement. The company is scheduled to release earnings Nov. 5 and was expected to report $34.8 million in net income for the quarter, according to the average of nine analysts’ estimates compiled by Bloomberg.
Slowing output from steelmakers and increased Australian production have caused prices for metallurgical coal, used to make steel, to tumble. Prices have dropped 39 percent in the past 12 months to $160 a ton as of Oct. 19, according to the most recent weekly data from Knoxville, Tennessee-based Energy Publishing Inc.
Walter paid C$5.32 billion ($5.33 billion) in 2011 to acquire Vancouver-based Western Coal Corp., adding reserves of metallurgical coal. As slow economic growth damped coal demand, the shares have declined 41 percent this year, a steeper fall than the 23 percent drop for the 35-member Stowe Global Coal Index.
“Given the drop in met coal and slower global growth expectations, the fair value for the Western Coal assets has fallen below the value paid by Walter to acquire the company in 2011,” Kuni Chen, a Stamford, Connecticut-based analyst for CRT Capital Group LLC, said in an e-mail.
Walter fell 0.9 percent to $35.90 at the close in New York.