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Warrior Met Coal nearly triples net income in Q4'17 despite 3 longwall moves

Fresh off a strong fourth-quarter performance despite three longwall moves, Warrior Met Coal Inc. is poised to carry its success into 2018.

"The highly successful completion of these longwall moves in the fourth quarter has strengthened our operational base as we launch into 2018 and strive for production levels near our nameplate capacity," CEO and Director Walter Scheller said on a Feb. 14 earnings call.

Less than two years after its purchase of the core assets of Walter Energy Inc., Warrior reported a net income of $97.2 million in the fourth quarter of 2017, nearly triple the $34.0 million reported in the same quarter a year earlier.

"The company's fourth-quarter results were even better than expected, exceeding our full-year guidance in our key sales and production metrics," Scheller said.

The Alabama metallurgical coal producer has benefited from the Australian coal industry's recent woes.

"In the case of Australian suppliers, we saw lower shipments due to high vessel queues from terminal outages, terminal maintenance and bad weather delaying rail shipments to the ports. These bottlenecks caused major delays of exports out of Australia and impacted global met coal pricing," Scheller said, adding that Australian producers are putting pressure on rail networks to make up for losses following Cyclone Debbie in 2016.

He said metallurgical coal demand in China remains strong despite import restrictions.

"There's an industry view that imports of met coal into China will continue to grow because of the new Chinese coastal steel plants which have large blast furnaces. Moreover, there's a trend to higher sulfur contents with respect to domestic coking coal, and so there's a demand for low sulfur and ash coking coals," Scheller said, adding that China's crackdown on illegal induction furnace capacity, which had resulted in low-quality steel production, also contributed to supply tightness.

Looking forward, Warrior predicts coal sales and production of 6.6 million to 7.2 million tons in 2018 and capital expenditures of $100 million to $120 million. Metallurgical coal pricing and two planned longwall operations moves in the second half of 2018 might affect guidance.

Shipment guidance for 2018 is lower than analysts Mark Levin and Nathan Martin at Seaport Global Securities LLC expected. Levin and Martin maintained their neutral rating of the coal producer and lowered their full-year EBITDA estimate from $395 million to $385 million for 2018.

"We expect [Warrior] to continue to trade as a proxy for met coal prices, which we anticipate will come down in the second half of the year as more supply hits the market and as Queensland rainy season concerns dissipate," they said in a Feb. 15 company update.

Scheller said metallurgical coal prices would have to be sustained for a longer period for Warrior to move forward on its Blue Creek Energy project. He called it a "great project when the time's right," but said he does not think Warrior will be pushing too hard for it in the immediate future.

For now, Warrior's goal is to improve production at its current operations in an effort to reach 8 million tons per year.

Like other coal producers, Scheller said Warrior will see huge benefits from tax reform in the coming years, including about $39 million in refundable alternative minimum tax credits in 2019 through 2022.

The coal producer's board of directors declared a regular quarterly cash dividend of 5 cents per share.