Audley Capital Advisors LLP (“Audley Capital”) announced today that a related
Audley investment fund recently notified Walter Energy, Inc. WLT that it will nominate five candidates
for election to the Company's board of directors at its upcoming 2013 Annual
Meeting of Shareholders.
Audley Capital believes that Walter Energy has high quality metallurgical coal
assets in established mining jurisdictions with scope for significant growth,
with a market position that should enable it to generate substantial free cash
flow going forward. However, following the acquisition of Western Coal Corp.
in November 2010, Walter Energy has consistently failed to deliver shareholder
value as a result of questionable financial decisions and poor management. As
a result, Audley Capital believes that shareholders have lost confidence in
the ability of the existing Board of Directors to deliver profitable growth
going forward. For example, Walter Energy's share price has fallen 73% since
its peak in April 2011, underperforming major mining indices including the
MSCI World Metals and Mining Index, which has declined only 33% in the same
period.^1
Audley Capital points to a few areas it believes to be of immediate concern:
* Consistently missed quarterly earnings guidance over the last two years.
Walter has missed consensus earnings expectations for six out of the last
eight quarters. In particular the failure to deliver production growth and
cost reductions in Canada has disappointed expectations.
* A serious lack of consistent leadership. There have been four CEOs over
the last five years.
* A stale and out-of-depth board. Only three of the ten board members have
significant mining experience, five non-executive directors have
interlocking directorships, six of ten directors are over the recommended
retirement age of 65 (in some cases over the age of 70).
* Questionable financial decisions. Walter Energy currently has $2.3 billion
of debt, largely accumulated during the acquisition of Western Coal during
2010. Audley Capital believes that the acquisition could easily have been
funded by issuing more equity above a price of $100 per share at the time
of the transaction and at a time of record coal prices. Instead,
shareholders are left with a net debt to book value of equity ratio of
200% for a mining company with a high level of operational and commodity
price risk.
* Insufficient cost controls. Audley Capital believes that a thorough and
disciplined review of SG&A costs is needed. Based on Audley Capital's
analysis, SG&A costs at the Company are higher than Walter Energy's U.S.
peer group and savings of at least $10 million per quarter ($40 million
per year) should be feasible. Such cost reductions could equate to $200
million of incremental value at a 5.0x multiple, the ultimate goal being a
reduction of SG&A costs of $40 million per annum.
Audley Capital has identified a number of initiatives to seek to improve the
governance, financial performance and asset value of Walter Energy over the
next 12 months, which will be communicated to shareholders in the coming
weeks.
Audley's director nominees include individuals with extensive experience in
the metallurgical coal industry on an international basis and possess the
skills required to manage multi-jurisdictional coal operations and their
financing. Audley is not seeking to replace a majority of the Board, but does
believe significant change to the composition of the Board is warranted given
the qualifications of its nominees and the long-term underperformance of
Walter Energy. Audley will seek the support of fellow Walter Energy
shareholders to replace the following current directors: Mr. Howard Clark, Mr.
Jerry Kolb, Mr. Joseph Leonard, Mr. Bernard Rethore and Mr. Mike Tokarz.
Julian Treger, Managing Partner of Audley Capital, said, “There is substantial
value in Walter Energy that is not reflected in the current share price. We
believe Walter Energy has high quality metallurgical coal assets with
potential for significant growth. Unfortunately, what we see as poor financial
and strategic judgement by the current board has weighed heavily on the
Company and prevented it from creating value for its shareholders.”
Added Treger, “Our director nominees will bring experience, accountability and
a fresh perspective to the Walter Energy board. Once elected, we believe they
can substantially and dramatically improve the Company's ability to operate in
the current environment and help put in place initiatives that will enable the
Company to achieve its value creating potential over the long-term for the
benefit of all shareholders.”
Audley's slate of directors includes highly qualified mining industry experts,
with considerable operating experience. The nominees are:
Mr. Eddie Scholtz (59)
Mr. Eddie Scholtz has over 40 years of experience in the mining industry,
primarily in South America and Africa. During his career he spent 37 years
with BHP Billiton, where he held a variety of positions, including Managing
Director of Ingwe Collieries, BHP Billiton's wholly-owned South African coal
business, now known as BHP Billiton Energy Coal South Africa. In this role Mr.
Scholtz oversaw one of the largest coal businesses in the world. More recently
Mr. Scholtz was also Managing Director for BHP Billiton's bauxite and alumina
operations in Suriname in South America and was formerly Chief Operating
Officer for TSX-listed CIC Energy Corp, which was acquired by Jindal Steel and
Power Limited in 2012, and was formerly President and CEO of TSX-listed Talon
Metals Corp.
Mr. Scholtz has undertaken management development studies at London Business
School, University of South Africa (UNISA), and University of Cape Town's
Graduate Business School.
Mr. Mark Lochtenberg (52)
Formerly the co-head of Glencore International AG's worldwide coal division,
Mr. Mark Lochtenberg spent 13 years at Glencore's commodity trading concern,
overseeing a range of trading activities including the purchase and
aggregation of the coal project portfolio that would later become Xstrata
Coal. Previously, Mr. Lochtenberg had established a coal “swaps” market for
Bain Refco (Deutsche Bank) after having served as coal marketing manager for
Peko Wallsend Limited. He is also a director of Australian Transport and
Energy Corridor Limited (“ATEC”) and an alternate director of Surat Basin Rail
Pty Ltd. Mr. Lochtenberg is currently the Executive Chairman and a founding
executive director of ASX-listed Cockatoo Coal Limited.
Mr. Lochtenberg graduated with a Bachelor of Law (Hons) degree from Liverpool
University, U.K.
Mr. Robert Stan (59)
Mr. Robert Stan has been involved in the Canadian coal industry since 1979,
during which time he has developed an extensive knowledge of the international
coal industry and markets. He has held senior management positions with
several Canadian mining companies, including Fording Coal Limited, Westar
Mining Ltd, Teck Corporation and Smoky River Coal Limited (SRCL). Mr. Stan was
appointed a director of Grande Cache Coal Corporation in July 2000, President
in February 2001 and Chief Executive Officer in September 2002. Grande Cache
Coal was sold for C$1 billion in 2011 to Hong Kong-listed Winsway Coking Coal
and Japanese trading house Marubeni Corporation. Prior to February 2001, Mr.
Stan was Vice-President of Westpine Inc., a privately held mining investment
company, and prior to March 2000 was Vice-President, Marketing and Business
Development of SRCL.
Mr. Stan received a Bachelor of Commerce from the University of Saskatchewan.
Mr. Lawrence Clark, Jr. (41)
Mr. Larry Clark recently became President and Chief Executive Officer of JW
Resources, Inc., a private operator of thermal coal assets in Central
Appalachia, and serves as Managing Member of BalanTrove Management, LLC, a
corporate advisory business catering to small and middle market resource and
energy companies. Prior to founding BalanTrove in early 2011, Mr. Clark was a
Managing Director and Director of Investments of Harbinger Capital Partners
LLC from 2002 to 2011 where he was responsible for investments in metals,
mining, industrials, and retail companies, among other sectors. Prior to
joining Harbinger, from 2001 to 2002, Mr. Clark was a Distressed Debt and
Special Situations Research Analyst at Satellite Asset Management, L.P., where
he covered financially stressed and distressed industrial, cyclical, and
energy companies. He has actively participated in numerous financial
restructurings in official and unofficial capacities.
Mr. Clark received an MBA from New York University's Stern School of Business
in 1998, and a B.S.B.A. in Finance from Villanova University in 1993.
Mr. Julian Treger (50)
Mr. Julian Treger is one of the most experienced activists in the mining
space. Most notably Mr. Treger was the driving force behind the rescue of
Western Coal from near bankruptcy in 2007, the restructuring of its management
and board, the implementation of its growth plan and its ultimate sale to
Walter Energy. He called on Western Coal's management to engage with potential
acquirors to consider a sale of the business in 2010 when the stock was
trading in the range of C$4.00 to C$5.00 per share. The company was eventually
sold to Walter Energy in 2010 for C$11.50 per share. Mr. Treger also helped
uncover significant value at UK Coal, a UK-listed coal miner, in 2006. He has
subsequently been active in a number of coal investments in Australia, Canada
and South Africa. Through related entities, Mr. Treger also acts as an advisor
to the Audley family of funds, which are shareholders in Walter Energy. Prior
to starting Audley, he co-founded the Active Value Funds which pioneered
activism in Europe.
Mr. Treger received an AB (Hons) from Harvard College in 1984 and a MBA from
Harvard Business School in 1988.
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