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Sunday, October 25, 2020

Walter Energy, Inc. (OTCMKTS:WLTGQ) Catches a Bid Off Steel Numbers

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Walter Energy, Inc. (OTCMKTS:WLTGQ) is another tough-luck case in the coal space, but one that has grabbed hold of the attention of traders during the stock’s recent bounce. As we have been covering exhaustively of late, some of the biggest trades have been among the cast aside Chapter 11 cases in the commodities space. This recently has included some huge moves in the thermal coal space. For example, BTUUQ was up over 500% last week alone. WLTGQ is in a very different game, but may get a sympathy trade bid, especially as last week also featured a major breakout in the steel stocks on earnings and guidance, which directly bears on the metallurgical coal space, and players like WLTGQ.

We’ve witnessed 200% added to share values of the listing over the past week of action, a bounce that has taken root amid largely bearish action over the larger time frame. This is emblematic of the stock. WLTGQ is a stock who’s past is littered with sudden rips. Furthermore, the listing has witnessed a pop in interest, as transaction volume levels have recently pushed a bit over 580% above the average volume levels in play in this stock over the longer term.

Walter Energy, Inc. (OTCMKTS:WLTGQ) trumpets itself as a company that produces and exports metallurgical coal for the steel industry.

It operates through two segments, U.S. Operations, and Canadian and U.K. Operations. The company also extracts, processes, markets, and/or possesses mineral reserves of thermal coal and anthracite coal, as well as produces metallurgical coke and coal bed methane gas.

As of December 31, 2014, it had approximately 392.7 million metric tons of recoverable reserves. Walter Energy, Inc. sells its metallurgical coal in Europe, Asia, and South America; and thermal coal primarily to large utilities and industrial customers located principally in Alabama, West Virginia, and the United Kingdom.

The company was formerly known as Walter Industries, Inc. and changed its name to Walter Energy, Inc. in April 2009. Walter Energy, Inc. was founded in 1946 and is headquartered in Birmingham, Alabama.

On July 15, 2015, Walter Energy, Inc., along with its affiliates, filed a voluntary petition for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the Northern District of Alabama. As of July 15, 2015, Walter Energy, Inc. is in reorganization.

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As noted, last week saw a major jump in the metals space. Metallurgical coal is primarily sold to steel mills and used in the integrated steel mill process. When making steel, two of the key raw ingredients are iron ore and coke. Coke is used to convert the iron ore into molten iron. WLTGQ is a major player in that space.

Last week, we saw earnings from some major steel producers, including NUE and STLD, and we still have X, AKS, and CLF to come. But so far, the market clearly wasn’t prepared for the sales and production levels being indicated by the first two.

As several industry sources reported, we saw an undershooting of expectations in steel imports from China, which helped increase steel prices in Q3, which in turn, lifted sales at Nucor (NUE) and Steel Dynamics (STLD). Still, uneven demand in their U.S. markets as the economy plods ahead led to a mixed reaction on Wall Street, where shares opened lower in a volatile trading session.

The steel group was among the market’s leading industry groups in late spring and early summer, but is now building a base after a run-up fueled by an Obama administration crackdown on Chinese imports. In May, the Commerce Department boosted tariffs on Chinese cold-rolled steel to 522%.

That news powered the entire space higher, and we think, also sent a shockwave into shorts in the met coal producers in Chapter 11, like WLTGQ. As those formerly betting against the common equity at BTUUQ certainly now know, it’s better to give up quickly in this type of environment.

At this time, carrying a capital value in the market of $7.9M, WLTGQ is in the funhouse mirror world of Chapter 11 operations. The company’s common equity is probably worthless, but may trade on a roller coaster for the time being, particular as major steel producers give further indications about how they might see values rising in the intermediate term. For continuing coverage on shares of $WLTGQ stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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