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Western Coal Announces Fiscal Q3-2011 Results

February 10, 2011

VANCOUVER, Feb. 10 /PRNewswire-FirstCall/ – Western Coal Corp.  (TSX: WTN, WTN.WT and
AIM: WTN) (the “Company” or “Western”) announces today that its net
income for the fiscal third quarter ended December 31, 2010 was $20.4
million, or $0.07 per share, basic. Revenue for the period was $170.5
million.

“We continue to make great strides to achieve our fiscal 2011 production
plan of 6.1 million tonnes by producing over 1.5 million tonnes in the
third quarter. This keeps us on target to achieve our 3-year strategy
of producing 10 million tonnes by fiscal 2013,” said Keith Calder,
President and Chief Executive Officer. “We also remain on track to
close the merger of Western Coal and Walter Energy on April 1, 2011
which will deliver immediate and long-term value for our shareholders.”

Proposed merger with Walter Energy, Inc.

On December 2, 2010, Western and Walter Energy, Inc. (“Walter Energy”)
entered into an arrangement agreement (the “Agreement”) for Walter
Energy to acquire all of the outstanding common shares of Western for
$11.50 per share in cash or 0.114 of a Walter Energy share, or for a
combination thereof, all subject to pro-ration. It is anticipated that
the proposed transaction will create the world’s leading, publicly
traded, “pure-play” metallurgical coal producer. Assuming the
conditions noted below are met and the merger is completed as proposed,
this will be the final quarterly disclosure for Western as a reporting
company.

Completion of the proposed merger is conditional on approval by Western
shareholders and by the Supreme Court of British Columbia and
satisfaction of other customary conditions, including regulatory and
stock exchange approvals. Subject to the satisfaction or waiver of all
conditions precedent, it is currently anticipated that the merger will
be completed on or about April 1, 2011. A special meeting of the
Western shareholders to consider the proposed merger will be held on
March 8, 2010 at 9:00 a.m. (Eastern Time) in Toronto. Further
information on the proposed merger can be found in the management
information circular which is available on SEDAR (www.sedar.com) and the company’s website (www.westerncoal.com/walter energy news/).

Summary of Western’s results for the third quarter of fiscal 2011

Western continued to deliver on its production growth strategy in the
third quarter of fiscal 2011. Revenue increased as a result of higher
coal shipments, which more than offset lower realized coal prices
compared with a year earlier. Western anticipates a further increase in
sales volume and, based on recently completed price negotiations,
significantly higher coal prices for the fourth quarter of fiscal 2011
compared with a year earlier.

Net income declined in the third quarter of fiscal 2011 from a year
earlier, in part due to the Canadian dollar strengthening against the
U.S. dollar and weather-related operational delays at Ridley Terminals
in Prince Rupert, BC that shifted into the fourth quarter of fiscal
2011 a significant volume of Canadian coal shipments that would
otherwise have been sold in the third quarter. 

Other factors contributing to the net income decline were transitory or
unusual in nature, including costs of the proposed Walter Energy
transaction, a one-time adjustment to port fees at Ridley Terminals,
special pricing circumstances that contributed to the exceptional
year-earlier results and Canadian production costs in the third quarter
of fiscal 2011 that were higher than anticipated. With the completion
of negotiations and related due diligence for the proposed Walter
Energy transaction, management is refocusing on reducing production
costs in the fourth quarter of fiscal 2011 and beyond.

Q3 fiscal 2011 highlights, compared with Q3 fiscal 2010

  • Revenues of $170.5 million, up 44% from $118.7 million
  • Net income of $20.4 million, or $0.07 per share, down from $24.0
    million, or $0.10 per share
  • Transaction costs for the proposed merger of $8 million versus nil
  • Cash cost of sales per tonne:
    • Consolidated -  $92, up 8% from $85
    • Canada – $109 (includes $3 impact of port fee adjustment), up 14% from
      $96
    • U.S. – $70, down 4% from $73
  • Coal production of 1.5 million tonnes, up 68% from 0.9 million tonnes
  • Consolidated average realized coal price of $140 per tonne, down 5% from
    $148 per tonne
  • Capital expenditures of $74.1 million, up from $13.8 million

Year-to-date fiscal 2011 highlights, compared with year-to-date fiscal
2010

  • Revenues of $594.4 million, up 97% from $302.0 million
  • Net income of $81.4 million, or $0.30 per share, up from $29.6 million,
    or $0.13 per share
  • Transaction costs for the proposed merger of $8 million versus nil
  • Cash cost of sales per tonne:
    • Consolidated – $92, down 2% from $94
    • Canada – $105 (includes $1 impact of port fee adjustment), up 2% from
      $103
    • U.S. – $70, down 10% from $75
  • Coal production of 4.3 million tonnes, up 104% from 2.1 million tonnes
  • Consolidated average realized coal price of $156 per tonne, up 11% from
    $141 per tonne
  • Capital expenditures of $162.3 million, up from $17.2 million

Other highlights and significant items in Q3 fiscal 2011:

  • Western is on track to realize its stated production target of 6.1
    million tonnes for fiscal 2011, which would be an increase of 91% from
    fiscal 2010
  • During the third quarter, Western negotiated price increases for the
    fourth quarter of fiscal 2011 compared with the prior year, including
    the following (per tonne):
    • Canadian hard coking US$221 to US$225, up 75% to 79% from US$126
    • Canadian LV-PCI US$180 to US$191, up 100% to 112% from US$90
  • Settlements for delivery of U.S. coking coal in calendar 2011 were
    reached in the range of US$148 to US$150 per ton FOB barge, an increase
    of approximately 50% over the previous year
  • Western substantially completed the Falling Creek Connector Road between
    the Brule and Willow Creek mines. The road should deliver significant
    coal hauling cost efficiencies for the Brule mine beginning in the
    fourth quarter of fiscal 2011
  • The Willow Creek mine commenced commercial production on January 1, 2011
    as scheduled. Western anticipates receiving requisite permits in the
    first half of fiscal 2012 to facilitate expansion of Willow Creek
    production capacity up to 1.7 million tonnes per annum from its
    currently permitted capacity of 0.9 million tonnes per annum
  • Western has secured a revised and extended agreement with Ridley
    Terminals Inc. for the provision of terminal services. This agreement
    is anticipated to provide sufficient throughput capacity to enable
    achievement of growth targets for our Canadian operations 

Overview

Western’s business is the exploration, development and production of
coal. Approximately 83% of our coal is metallurgical, which in the long
term is in short supply to meet global demand from steelmakers. The
remainder of our coal is thermal, used for electric power generation.
We have a global customer base and supply ten of the largest steel
mills in the world with our high quality metallurgical coal.

Western has three mines in British Columbia, Canada; four mines in West
Virginia, USA; and one mine in Wales, U.K. The Company is also actively
engaged in coal exploration and seeks to acquire new coal assets. The
table below shows the geographic distribution of our coal production
for the most recent and comparative reporting periods.

                   
Country

    Three months ended

December 31, 2010

  Three months ended

December 31, 2009

  Nine months ended

December 31, 2010

  Nine months ended

December 31, 2009

Canada     67%   59%   67%   68%
U.S.     30%   36%   30%   29%
U.K.     3%   5%   3%   3%
Total     100%   100%   100%   100%

Guidance

Production

Western’s three-year organic growth strategy is to increase production
by 212% to 10 million tonnes for fiscal 2013 from 3.2 million tonnes
produced in fiscal 2010.

The production target for the current fiscal year is 6.1 million tonnes,
up 91% from 3.2 million tonnes in the prior year. The table below shows
our expected production for fiscal 2011 by country, compared with
actual production for fiscal 2010 (in millions of tonnes):

                         
Country       Fiscal 2011       Fiscal 2010       Change
Canada       4.1       2.1       95%
U.S.       1.8       1.0       80%
U.K.       0.2       0.1       100%
Total       6.1       3.2       91%

The production targets for the fourth quarter of fiscal 2011 by country
compared with the actual production for the comparable fiscal 2010
period are as follows (in millions of tonnes):

                         

Country

      Q4 Fiscal 2011

Forecast

      Q4 Fiscal 2010

Actual

     

Change

Canada       1.2       0.7       71%
U.S.       0.5       0.4       25%
U.K.       0.1       -       -
Total       1.8       1.1       64%

The Company expects to achieve the targeted Q4 fiscal 2011 increase in
production primarily through the increase in capacity resulting from
the deployment of new trucks and shovels and through further
productivity improvement initiatives, including the expected
commissioning of the Falling Creek Connector Road between the Brule and
Willow Creek mines at the end of February 2011. 

Cash Costs of Production

Western’s cash cost of production target range established at the
beginning of fiscal 2011 for its Canadian operations in fiscal 2011 was
$94 to $99 per tonne (FOB), down from $102 per tonne in fiscal 2010.
The U.S. operations cash cost of production target range for fiscal
2011 was US$68 to US$72 per tonne, compared with US$72 per tonne in the
prior year. The Company has not yet set cash cost targets for its U.K.
operations as the mine is in an expansion phase.

Due in part to factors that are not expected to be long-lasting, Western
now expects Canadian cash cost of production for fiscal 2011 in the
range of $101 to $105 per tonne, which is higher than the initial
target for the year. Western still expects to achieve its cash cost
target for its U.S. operations.

The targeted fiscal 2011 cash cost of production reductions for both the
Canadian and U.S. operations were based on improving productivity
primarily through the introduction of larger equipment, more efficient
trucks and shovels, and other initiatives. The equipment additions to
the fleet are mostly company-owned and are part of a strategy of
phasing out reliance on contractor fleets. As discussed in more detail
below under Canadian Operations, short-term adverse factors have offset
some of the benefits of these fleet improvements in Canada during
fiscal 2011. Western continues to expect that the fleet efficiency
improvements will deliver significant long-term benefits.

Beyond fleet improvements, starting in the fourth quarter of fiscal 2011
Western expects its Canadian operations to begin to benefit from the
completion of the new 60-kilometre Falling Creek Connector Road from
the Brule mine to the Willow Creek processing facility. The Falling
Creek Connector Road is an alternative to the 100-kilometre part public
highway currently used and allows for the use of more efficient
110-tonne haul-trucks compared to the current 40-tonne trucks. In
addition to reducing haulage costs by an expected 25%, the new road
will allow the Brule mine to achieve its growth production targets.

Western began test hauls along the full length of the Falling Creek
Connector Road in February 2011 and anticipates production hauling to
commence around the end of February 2011. However, this timing
represents a two-month delay from the previously disclosed plan to
commence hauling. The delay is attributable mainly to unexpected
geotechnical challenges. To overcome these challenges and ensure the
stability of the roadbed for safe operations, Western’s contractor
performed more excavation and filling than originally anticipated.

Market Outlook

Substantially all of Western’s fiscal 2011 coal production from Canada
is committed under term contracts to large and reputable international
steel producers. The price for our Canadian coal is predominantly
established on a quarterly basis, although some contracts are priced on
a longer term and others on an annual basis. Prices for U.S. production
generally are established annually and prices for U.K. production are
reviewed on three and six monthly bases.

For the fourth quarter of fiscal 2011, we finalized our Canadian hard
coking coal (HCC) products in the range of US$221 – US$225 per tonne
and for low volatile pulverized coal injection (LV-PCI) products in the
range US$180 – US$191 per tonne, in line with and in some cases better
than reported market settlements. Prices are Free On Board and Trimmed
(FOBT).

Relative to the third quarter of fiscal 2011, the current fourth quarter
settlements represent an increase of approximately 8% for HCC and an
increase of over 20% for LV-PCI. Relative to the fourth quarter of
fiscal 2010, settlements for the fourth quarter of fiscal 2011
represent an increase of approximately 75% to 79% for HCC and 100% to
112% for LV-PCI.

The increases gained for our Canadian metallurgical coal prices reflect
a tightening of coal supply arising from heavy rainfall that impacted
Queensland’s mines and transportation infrastructure, triggering a
number of force majeure declarations. Subsequent to the price negotiations, further supply
disruptions were reported in Russia, Canada and the U.S. These events
have dramatically altered market sentiment and suggest potentially
higher prices for our Canadian metallurgical coal products into fiscal
2012.

Settlements for delivery of our U.S. coking coal in calendar 2011 were
reached in the range of US$148 to US$150 per ton FOB barge, an increase
of approximately 50% over the previous year. The outlook for the U.S.
domestic coking coal sector remains firm and market development
continues for additional sales of U.S. coking coal in calendar 2011.

In October 2010, the World Steel Association (WSA) forecasted a 13%
growth in apparent steel use in 2010, and a further growth of 5% in
2011 to reach a new record level. WSA’s forecast for 2011 describes a
steady and stable recovery in production that bodes well for both LV
PCI and HCC markets. Key elements of the outlook include strong growth
in steel usage in China and India.

In January 2011, the WSA issued its review of global crude steel
production in 2010 showing a year-on-year increase of 15% to a new
global record of 1,414 million tonnes. All major steel producing
regions showed double digit growth, however, the EU, Japan and North
America were coming off a low base in 2009. Asia produced over 60% of
the World’s crude steel in 2010 and strong year-on-year growth was
recorded in Western’s key markets, with Japan producing 110 million
tonnes (up 25%) and Korea producing 59 million tonnes (up 20%). 

In the longer term, the market fundamentals – strong demand and shortage
of supply for high quality metallurgical coal – are expected to
prevail, which should provide continued opportunity for Western as it
expands production to increasingly diversify its international markets,
particularly into the growing sectors of China, India and South
America.

Results of Operations

                                           
In thousands of Canadian dollars unless otherwise noted

  Three months

ended

December 31,

2010

    Three months

ended

December 31,

2009

    Change

%

    Nine months

ended

December 31,

2010

    Nine months

ended

December 31,

2009

    Change

%

                                           
Financial Highlights:                                          
  Revenues   $ 170,530     $ 118,662     44     $ 594,417       $ 301,997     97
  Cost of goods sold     126,747       80,912     57       393,893       234,227     68
  Income from mining operations     43,783       37,750     16       200,524       67,770     196
  Operating margin     26%       32%             34%       22%       
                                             
  Other expenses     18,034       6,908     161       64,965       24,767     162
  Net income     20,376       24,030     (15)       81,387       29,604     175
  Earnings per share, basic   $ 0.07     $ 0.10           $ 0.30     $ 0.13      
  Weighted average shares outstanding (thousands)     276,685       250,749             268,131       232,628      
                                           
Production (tonnes):                                          
  Canadian operations                                          
    Hard coking     560,000       354,000     58       1,620,000       1,040,000     56
    Low-vol PCI     458,000       179,000     156       1,288,000       399,000     223
  U.S. operations                                          
    Metallurgical     177,000       109,000     62       558,000       201,000     178
    Thermal     281,000       220,000     28       749,000       404,000     85
  U.K. operations                                          
    Anthracite     48,000       44,000     9       110,000       73,000     51
  Total production (a)     1,524,000       906,000     68       4,325,000       2,117,000     104
                                           
Sales (tonnes):                                          
  Canadian operations                                          
    Hard coking     486,000       301,000     61       1,449,000       973,000     49
    Low-vol PCI     239,000       146,000     64       911,000       527,000     73
  U.S. operations                                          
    Metallurgical     169,000       103,000     64       527,000       190,000     177
    Thermal     269,000       210,000     28       803,000       375,000     114
  U.K. operations                                          
    Anthracite     52,000       42,000     24       118,000       73,000     62
  Total sales (b)     1,215,000       802,000     51       3,808,000       2,138,000     78
(a)     Includes pre-commercial production at Willow Creek mine.
(b)     Excludes pre-commercial production at Willow Creek mine.

The results of operations are reported in the following segments:

Canadian Operations

                         
In thousands of Canadian dollars unless otherwise noted

    Three months

ended

December 31,

2010

    Three months

ended

December 31,

2009

    Nine months

ended

December 31,

2010

    Nine months

ended

December 31,

2009

                                 
Financial Highlights:                                
  Revenues     $ 132,155     $ 83,781     $ 471,031     $ 235,064
  Cost of goods sold       89,438       49,946       279,130       176,337
  Income from mining operations       $ 42,717     $ 33,835     $ 191,901     $ 58,727
                                 
Production (tonnes):                                
  Hard coking       560,000       354,000       1,620,000       1,040,000
  Low-vol PCI       458,000       179,000       1,288,000       399,000
  Total production (a)       1,018,000       533,000       2,908,000       1,439,000
                                 
Sales (tonnes):                                
  Hard coking       486,000       301,000       1,449,000       973,000
  Low-vol PCI       239,000       146,000       911,000       527,000
  Total sales (b)       725,000       447,000       2,360,000       1,500,000
                                 
Per sales tonne:                                
  Coal price realized     $ 182     $ 187     $ 200     $ 157
  Coal price realized (US$)     $ 180     $ 177     $ 195     $ 141
  Cost of goods sold                                
    Cost of product sold     $ 72     $ 67     $ 70     $ 74
    Transportation and other       37       29       35       29
    Depletion, amortization and accretion       14       16       13       15
  Total cost of goods sold     $ 123     $ 112     $ 118     $ 118
(a)     Includes pre-commercial production at Willow Creek mine.
(b)     Excludes pre-commercial production at Willow Creek mine.

Comparing the Three Months Ended December 31, 2010 to the Three Months
Ended December 31, 2009

Revenues increased by 58% reflecting a 62% increase in shipments to
customers and a slight increase in realized prices, partly offset by
the adverse effect of a weakening of the U.S. dollar against the
Canadian dollar. The average U.S. dollar relative to the Canadian
dollar exchange rate for the third quarter of fiscal 2011 was $1.01,
versus $1.06 in the comparable quarter of fiscal 2010.

Realized prices for the comparable fiscal 2010 quarter were above
prevailing benchmark prices for the quarter because of 175,000
carry-over tonnes of both HCC and LV-PCI sold at fiscal 2009 prices
averaging approximately US$276 per tonne.

Total production increased by 91% primarily due to operational
efficiencies derived from the Company’s capital investment program to
increase operational capacity to 4.1 million tonnes per year, up 58%
from the 2.6 million tonnes per year before the program commenced.
Additionally, pre-commercial production during the commissioning phase
from the Willow Creek mine contributed approximately 199,000 tonnes to
the increase over the comparable period of the prior year.

Cost of product sold, which primarily represents mining and plant costs,
increased 7% to $72 per tonne mainly due to commodity price increases.
Transportation and other costs, which include truck hauling, rail and
port fees, increased 28% to $37 per tonne due primarily to haulage
costs to a third-party load-out facility on a temporary basis until the
Falling Creek Connector Road is commissioned and higher port fees. 
Port fees for the third quarter of fiscal 2011 included a one-time fee
adjustment related to coal shipments in the first six months of fiscal
2011. Overall, cash cost of goods sold increased 14% to $109 per tonne.

Comparing the Nine Months Ended December 31, 2010 to the Nine Months
Ended December 31, 2009

Revenues increased by 100%, reflecting a 57% increase in shipments to
customers and a 38% increase in realized prices, partially offset by
the effect of a weaker U.S. dollar. The increase in shipments reflects
the continuing recovery in demand for the Company’s coal products due
to the improvement in the global economy. Realized prices benefitted
from strong market fundamentals as discussed above. The average U.S.
dollar relative to the Canadian dollar exchange rate for the nine month
period ended December 31, 2010 was $1.03, versus $1.11 in the
comparable period of fiscal 2010.

Total production increased by 102% for the reasons discussed above.
Pre-commercial production during the commissioning phase from the
Willow Creek mine contributed approximately 390,000 tonnes to the
increase over the comparable period of the prior year.

The 5% improvement in cost of product sold is primarily due to improved
productivity at the Wolverine mine. Transportation and other costs
increased 21% to $35 per tonne primarily for the same reasons discussed
above for the quarter period, with the higher port fees reflecting a
fee adjustment related to coal shipments during the nine month period.

U.S. Operations

In thousands of Canadian dollars unless otherwise

noted

      Three months

ended

December 31,

2010

      Three months

ended

December 31,

2009

      Nine months

ended

December 31,

2010

      Nine months

ended

December 31,

2009

                                 
Financial Highlights:                                
  Revenues     $ 35,792     $ 29,821     $ 111,899     $ 57,159
  Cost of goods sold       33,948       25,933       103,024       48,366
  Income from mining operations     $ 1,844     $ 3,888     $ 8,875     $ 8,793
                                 
Production (tonnes):                                
  Metallurgical       177,000       109,000       558,000       201,000
  Thermal       281,000       220,000       749,000       404,000
  Total production       458,000       329,000       1,307,000       605,000

                                 
Sales (tonnes):                                
  Metallurgical       169,000       103,000       527,000       190,000
  Thermal       269,000       210,000       803,000       375,000
  Total sales       438,000       313,000       1,330,000       565,000

                                 
Per sales tonne:                                
  Coal price realized     $ 82     $ 95     $ 84     $ 101
  Coal price realized (US$)     $ 81     $ 88     $ 82     $ 94
  Cost of goods sold                                
    Operating expenses     $ 70     $ 73     $ 70     $ 75
    Depletion, amortization and accretion       8       10       7       11
  Total cost of goods sold     $ 78     $ 83     $ 77     $ 86

On July 13, 2009, Western acquired its U.S. operations, which consist of
an underground mine and an open pit mine on each of the Maple and
Gauley Eagle properties in West Virginia. The U.S. operations are
included in the Company’s results from July 14, 2009.

Revenues for the three month period ended December 31, 2010 increased by
20% from the comparable fiscal 2010 period, reflecting a 40% increase
in shipments to customers, partly offset by an 8% decrease in realized
coal prices and the effect of a weaker U.S. dollar. The higher
shipments reflect increased demand for both metallurgical and thermal
coal in the United States due to general economic improvement
year-over-year. Revenues for the nine month period ended December 31,
2010 increased by 96% from the comparable fiscal 2010 period,
reflecting a 135% increase in shipments to customers, partially offset
by a 13% decrease in realized prices. The higher shipments were
primarily due to the aforementioned increase in demand and the
inclusion of results for three quarters in fiscal 2011. The decrease in
realized prices for both periods was primarily due to the sale of
certain lower quality coal at reduced spot prices resulting from mining
lower quality seams at the Gauley Eagle surface mine.

Total production increased by 39% and 116% in the three and nine month
periods ended December 31, 2010, respectively, due mainly to
operational efficiencies and the favourable impact of the Company’s
program to increase equipment capacity. In addition, the nine month
period ended December 31, 2010 included results for three quarters.

Cost of goods sold per tonne for the three and nine month periods ended
December 31, 2010 were lower than the corresponding fiscal 2010 periods
as a result of improved production rates and operating efficiencies.

U.K. Operations

In thousands of Canadian dollars unless otherwise

noted

    Three months

ended

December 31,

2010

    Three months

ended

December 31,

2009

    Nine months

ended

December 31,

2010

    Nine months

ended

December 31,

2009

                                 
Financial Highlights:                                
  Revenues     $ 2,583     $ 4,076     $ 11,487     $ 7,120
  Cost of goods sold       3,361       3,142       11,739       5,923
  Income (loss) from mining operations     $ (778)     $ 934     $ (252)     $ 1,197
                                 
Production (tonnes)       48,000       44,000       110,000       73,000
                                   
Sales (tonnes)                                
        52,000       42,000       118,000       73,000

Per sales tonne:                                
  Coal price realized     $ 50     $ 97     $ 97     $ 98
  Coal price realized (GBP)     GBP 31     GBP 55     GBP 61     GBP 55
  Cost of goods sold     $ 65     $ 75     $ 99     $ 81

On July 13, 2009, the Company acquired a controlling interest in its
U.K. operations, of which the primary operation is the Aberpergwm
underground mine. On August 9, 2010, the Company acquired the remaining
45.3% interest in Energybuild that it did not previously own. The U.K.
operations are included in the Company’s results from July 14, 2009.

Revenues for the three month period ended December 31, 2010 decreased
37% compared to the corresponding fiscal 2010 period, primarily due to
lower realized prices, partly offset by a 24% increase is shipments to
customers. The lower realized price principally reflects the transition
of the underground mine into an expansion project during the quarter,
which contributed to a lower average quality of coal being produced.
Revenues for the nine month period ended December 31, 2010 increased by
61% compared to the corresponding fiscal 2010 period, primarily the
result of a 62% increase in shipments to customers. This increase in
shipments is partly due to the nine month period ended December 31,
2009 only including results of the U.K. operations from July 14, 2009.

Cost of goods sold for the three months ended December 31, 2010 declined
13% per tonne from the comparable fiscal 2010 period primarily as a
result of higher production. For the nine month period ended December
31, 2010, cost of goods sold increased 22% per tonne primarily due to
increased costs from the underground mine. The underground mine is
still in the expansion phase and its production costs are expected to
fluctuate depending on tonnes produced during each phase of
development. The current reported unit costs are not reflective of the
expected long-term costs of the operation.

Other expenses

Other expenses for the three and nine months ended December 31, 2010
include the following:

In thousands of Canadian dollars unless otherwise

noted

      Three months

ended

December 31,

2010

      Three months

ended

December 31,

2009

      Nine months

ended

December 31,

2010

      Nine months

ended

December 31,

2009

                                 
  General and administration     $ 20,891     $ 9,134     $ 46,677     $ 21,022
  Sales and marketing       3,308       3,403       12,660       7,653
  Coal exploration       471       1,369       3,905       3,729
  Interest, accretion and financing fees       798       2,713       4,268       8,958
  Loss (gain) on forward exchange contracts       (5,093)       (1,551)       1,302       (22,821)
  Other expense (income)       (2,341)       (8,160)       (3,847)       6,226
  Total other expenses     $ 18,034     $ 6,908     $ 64,965     $ 24,767

General and Administration

For the three month period ended December 31, 2010, general and
administration expenses increased $11.8 million, or 129%, over the
corresponding fiscal 2010 period. The increase is partly due to the
growth of the Company’s operations and workforce which resulted in
higher employment costs, including stock based compensation and
recruiting expenses. Recruiting expenses increased due to the
strengthening of the senior management team and the continued building
of competence in the Company’s core mining and engineering functional
areas. The increase also reflects approximately $8.0 million of
non-recurring legal, professional and consulting expenses in respect of
the proposed acquisition of Western by Walter Energy.

For the nine month period ended December 31, 2010, general and
administration expenses increased $25.7 million, or 122%, over the
corresponding fiscal 2010 period. The increase reflects the same
factors noted above for the quarter period, as well as expenses of the
Cambrian group which was acquired in July 2009 and fees in respect of
the previously intended migration to the main market of the London
Stock Exchange.

Sales and Marketing

For the three and nine month periods ended December 31, 2010, sales and
marketing expenses decreased $0.1 million, or 3%, and increased $5.0
million, or 65%, respectively, over the corresponding fiscal 2010
periods. The decrease for the quarter period is primarily attributable
to a higher proportion of sales to customers of the Canadian operations
for which certain sales commissions are not incurred and a lower
average realized price. The increase for the nine month period is
attributable to higher sales volumes and average realized prices, in
addition to the comparable fiscal 2010 period only including expenses
of the Cambrian group since July 2009.

Coal Exploration

Coal exploration includes property development expenditures, field
programs, consultants, coal licenses and leases, engineering,
environmental matters and other project administration. Exploration
costs are charged to income in the quarter in which they are incurred,
except where these costs relate to specific properties for which
economically recoverable reserves have been established, in which case
they are capitalized. Also included are the carrying costs of the
Willow Creek mine prior to its reopening on June 4, 2010.

Coal exploration for the three month period ended December 31, 2010
decreased $0.9 million, or 66%, from the corresponding fiscal 2010
period. For the nine month period ended December 31, 2010, these costs
increased $0.2 million, or 5%, from the corresponding fiscal 2010
period. The increase in the nine month period reflects increased
exploration activities.

Interest, Accretion and Financing Fees

For the three month and nine month periods ended December 31, 2010,
interest, accretion and financing fees decreased $1.9 million, or 71%,
and $4.7 million, or 52%, respectively, from the comparable fiscal 2010
period. These decreases are due to the conversion into equity of the
Company’s convertible debentures in May 2010 and the repayment of
certain long-term debt, resulting in lower debt levels, partially
offset by interest on additional capital lease obligations for mining
equipment.

Loss (Gain) on Forward Exchange Contracts

The Company has operations in Canada, the U.S. and U.K., and therefore
foreign exchange risk exposures arise from transactions denominated in
foreign currencies. Western’s currency risk primarily relates to its
Canadian operations, for which sales are denominated in U.S. dollars
while the majority of costs are denominated in Canadian dollars. The
Company may also become exposed to currency fluctuations on any
equipment purchases or related financing facilities denominated in U.S.
dollars. To mitigate its currency risk, the Company from time to time
enters into forward currency exchange contracts to fix the rate at
which certain future anticipated inflows of U.S. dollars are exchanged
for Canadian dollars. 

During the three month period ended December 31, 2010, the value of the
Canadian dollar relative to the U.S. dollar fluctuated within a range
of 0.99 to 1.04. The average exchange rate for this period was 1.01. 

At December 31, 2010, Western had US$97 million of forward currency
exchange contracts outstanding with various maturity dates through
March 31, 2011, with a weighted average C$/US$ exchange rate of 1.0273.
The Company has entered into forward exchange contracts to offset
certain of these contracts outstanding totaling US$60 million. A $1.2
million net unrealized gain on these contracts is reflected in the
balance sheet as at December 31, 2010. For the three month period ended
December 31, 2010, the Company recognized a gain of $5.1 million on
forward exchange contracts, which is attributable to the U.S. dollar
weakening against a combination of realized and unrealized contract
rates. For the nine month period ended December 31, 2010, the Company
recognized a loss of $1.3 million.

Other Expense (Income)

In thousands of Canadian dollars unless otherwise

noted

      Three months

ended

December 31,

2010

      Three months

ended

December 31,

2009

      Nine months

ended

December 31,

2010

      Nine months

ended

December 31,

2009

                                 
  Net foreign exchange loss (gain)     $ 4,149     $ (2,556)     $ 3,884     $ 19,530
  Loss (gain) on fair value adjustment of held-for- trading investments
and derivatives
      (2,917)       26       (4,495)       (48)
  Gain on fair value adjustment of investment in Mandalay       (1,860)       -       (1,860)       -
  Gain on recovery of note receivable       (691)       -       (691)       -
  Interest expense (income)       (740)       1,804       (822)       (1,709)
  Gain on redemption of convertible debentures       -       -       -       (4,155)
  Gain on disposal of subsidiary       -       (6,996)       -       (6,996)
  Other income       (282)       (438)       137       (396)
      $ (2,341)     $ (8,160)     $ (3,847)     $ 6,226

Net foreign exchange gains and losses principally reflect the impact of
changes in the U.S. dollar relative to the Canadian dollar on a quarter
by quarter basis on U.S. dollar denominated working capital. The net
foreign exchange loss in the three month period ended December 31, 2010
primarily reflects the impact of the weakening of the U.S. dollar
relative to the Canadian dollar.

Income Tax Recovery (Expense)

Income tax expense for the three and nine month periods ended December
31, 2010 was $6.5 million, or 25%, and $47.1 million, or 35%,
respectively, of pre-tax income. The Company’s tax rate for each
reporting period depends largely on the nature of its income and the
jurisdictions in which it is earned.  In general, mining income is
subject to additional taxes while interest, overhead costs and capital
items are subject to lower rates of tax.

Equity Earnings (Loss)

Equity earnings (loss) were $1.1 million and $(7.6) million for the
three and nine month periods ended December 31, 2010, respectively,
which reflect the Company’s share of the net earnings of its equity
investees. The equity loss for the nine month period is primarily due
to an asset impairment charge recorded by one of the underlying
investees. During the three month period ended December 31, 2010, one
of Western’s equity investees, Mandalay Resources Ltd. was reclassified
to an available-for-sale investment, due to a loss of significant
influence. At December 31, 2010, the Company’s sole equity investee was
Xtract Energy Plc. The Company is not obligated to finance its equity
investee.

Liquidity and Capital Resources

The Company’s strong financial position and liquidity continued through
the three month period ended December 31, 2010, primarily as a result
of generating positive cash flows from operating activities. At
December 31, 2010, the Company’s cash and cash equivalents balance was
$79.3 million and working capital was $104.4 million.

For the nine month period ended December 31, 2010, the Company generated
positive cash flow from sales of $244.0 million on revenues of $594.4
million, up significantly from $97.0 million on revenues of $302.0
million in the comparable fiscal 2010 period. Cash flows generated from
future shipments will depend on volumes, settlement prices, exchange
rates, the level of operating and transportation costs and other
factors noted throughout this MD&A, including the items identified
under “Risks and Uncertainties” in the Company’s MD&A for the fiscal year ended March 31, 2010.

Positive cash flow from sales is a non-GAAP measure and is reconciled in
the table below:

In thousands of Canadian

dollars unless otherwise

noted

      Three months

ended

December 31,

2010

      Three months

ended

December 31,

2009

      Nine months

ended

December 31,

2010

      Nine months

ended

December 31,

2009

Revenues     $ 170,530     $ 118,662     $ 594,417     $ 301,997
Operating expenses       112,002       69,813       350,414       205,029
Positive cash flow from sales     $ 58,528     $ 48,849     $ 244,003     $ 96,968

Cash flow from operating activities, before settlement of asset
retirement obligations and net changes in non-cash working capital
items, was $161.0 million for the nine month period ended December 31,
2010, up from $59.9 million for the corresponding fiscal 2010 period.
The significant increase is primarily the result of higher sales
volumes and realized prices. Changes in non-cash working capital items
for the nine month period ended December 31, 2010 resulted in a use of
cash of $53.4 million compared with a source of cash of $17.3 million
for the corresponding fiscal 2010 period. This increase in non-cash
working capital primarily reflects the impact of higher revenues on
accounts receivable and equipment deposits.

Cash expenditures on mineral property, plant and equipment were $162.3
million in the nine month period ended December 31, 2010, up
substantially from $17.2 million in the corresponding fiscal 2010
period. This increase is primarily due to the introduction of larger
and more efficient trucks and shovels to expand production at existing
operations and for infrastructure to expand the Company’s mines. These
activities include restarting the Willow Creek mine and expanding the
Brule mine at the Canadian operations as well as expanding the Maple
underground mine at the U.S. operations. The equipment additions to the
fleet are part of a strategy of phasing out reliance on contractor
fleets. Total capital expenditures in the nine month period ended
December 31, 2010, including equipment accruals and equipment financed
by capital leases, were $255.0 million.

To support the Company’s capital expenditure program and growth plan
over the current year and future periods, the Company has secured
US$120 million in capital leasing facilities, of which approximately
US$58 million remained unused as at December 31, 2010, and a syndicated
two-year revolving term credit facility in the amount of US$125
million. These facilities together with the Company’s existing cash
balance and future cash flow from operating activities are expected to
be sufficient to fund its growth plans for the remainder of fiscal
2011.

As at December 31, 2010, the Company had commitments to purchase
equipment for its Canadian operations totaling $18.5 million, with
delivery of this equipment anticipated to occur in the fourth quarter
of fiscal 2011.

During the nine month period ended December 31, 2010, the Company made
repayments on capital lease obligations of $16.8 million and repayments
of $4.8 million on long-term debt, and received proceeds of $24.1
million from the exercise of stock options and warrants.

On May 31, 2010, the Company completed its 7.5% convertible unsecured
subordinated debenture redemption program.  Other than debentures
totaling $0.2 million, which were redeemed for cash, all of the
debentures were converted into common shares.

On August 9, 2010, the Company acquired all the issued ordinary share
capital of Energybuild Group Plc not already held by the Company. The
Company accounted for this acquisition as an equity transaction. The
purchase price of $38.0 million was financed by the issuance of
8,551,578 common shares of the Company valued at $35.8 million, the
issuance of 1,457,750 stock options and warrants valued at $0.7 million
and included transaction costs of $1.5 million.

On August 19, 2009, the Company raised $55.9 million, net of issuance
costs, through the issuance of 22,100,000 common shares at a purchase
price of $2.70 per share. The net proceeds were used by the Company
primarily to fund development of the Willow Creek mine and further
development of the Brule, Maple Coal and Gauley Eagle mines as well as
construction of the Falling Creek Connector Road. 

MD&A and Financial Statements

This news release is prepared as at February 10, 2011 and should be read
in conjunction with the Managements’ Discussion and Analysis and
Financial Statements for the fiscal third quarter ended December 31,
2010 which have been posted on Western’s website at www.westerncoal.com and on SEDAR at www.sedar.com under the Company’s profile. This news release does not constitute a
MD&A as contemplated by relevant securities rules.

Webcast/Conference Call

Western’s senior management will host a conference call and webcast on
Friday February 11, 2011 at 8:00 am (Vancouver) to discuss financial
and operating results for fiscal Q3 2011. Presentation slides will
accompany the webcast and conference call and will be available at www.westerncoal.com/investors/financial_information.

To participate on the conference call, dial 1.888.231.8191 or
647.427.7450. A replay of the conference call will be available at
1.800.642.1687, passcode 42527095.

To listen to the live audio webcast, visit the Company’s website at www.westerncoal.com/investors/financial_information.

About Western Coal
Western Coal is a producer of high quality metallurgical coal from three
mines in northeast British Columbia (Canada), high quality
metallurgical coal and compliant thermal coal from four mines located
in West Virginia (USA), and high quality anthracite and metallurgical
coal in South Wales (UK). The Company is headquartered in Vancouver,
BC, Canada, and trades on the AIM and TSX stock exchanges under the
symbol “WTN”. More information can be found at
www.westerncoal.com

Forward-Looking Information
This release may contain forward-looking statements that may involve
risks and uncertainties.  Such statements relate to the Company’s
expectations, intentions, plans and beliefs.  As a result, actual
future events or results could differ materially from those suggested
by the forward-looking statements.  Readers are referred to the
documents filed by the Company on SEDAR.  Such risk factors include,
but are not limited to changes in commodity prices; strengths of
various economies; the effects of competition and pricing pressures;
the oversupply of, or lack of demand for, the Company’s products;
currency and interest rate fluctuations; various events which could
disrupt the Company’s construction schedule or operations; the
Company’s ability to obtain additional funding on favourable terms, if
at all; and the Company’s ability to anticipate and manage the
foregoing factors and risks.  Additionally, statements related to the
quantity or magnitude of coal deposits are deemed to be forward-looking
statements.  The reliability of such information is affected by, among
other things, uncertainties involving geology of coal deposits;
uncertainties of estimates of their size or composition; uncertainties
of projections related to costs of production; the possibilities in
delays in mining activities; changes in plans with respect to
exploration, development projects or capital expenditures; and various
other risks including those related to health, safety and environmental
matters.

SOURCE Western Coal Corp.


Source: newswire



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