8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES

EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):  June 17, 2011 (April 1, 2011)

Walter Energy, Inc.

(Exact name of registrant as specified in its charter)

Delaware	001-13711	13-3429953
(State or other jurisdiction of Incorporation or organization)	Commission File No.	(I.R.S. Employer Identification No.)

4211 W. Boy Scout Boulevard

Tampa, Florida 33607

(813) 871-4811

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive

offices)

N/A

(Former Name or Former Address, if Changed from Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Amendment

On April 6, 2011, Walter Energy, Inc. filed a Current Report on Form 8-K with the Securities and Exchange Commission, Accession No. 0001104659-11-018906, (the “Form 8-K”) stating that it had completed the acquisition of all of the outstanding common shares of Western Coal Corp. and that the financial statements and pro forma financial information required under Item 9.01 of the Form 8-K would be filed as soon as practicable, and in any event not later than 71 days after the date on which the Form 8-K was required to be filed pursuant to Item 2.01. This Form 8-K/A is being filed to include the financial information required under Item 9.01, and does not update, modify or amend any other disclosure set forth in the previously filed Form 8-K.

Item 9.01               Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired.

The following information is filed as exhibits hereto and incorporated by reference herein:

Audited consolidated financial statements of Western Coal Corp. (in Canadian dollars):

·As of and for the years ended March 31, 2010 and 2009 including an audited note reconciling the differences between Canadian generally accepted accounting principles (“Canadian GAAP”) and the accounting principles generally accepted in the United States of America (“US GAAP”), are attached hereto as Exhibit 99.1.

·As of and for the years ended March 31, 2008 and 2007 (without a note reconciling Canadian GAAP to US GAAP) are attached hereto as Exhibit 99.2.

Unaudited interim consolidated financial statements of Western Coal Corp. (in Canadian dollars) as of and for the three month and nine month periods ended December 31, 2010 and 2009 including an unaudited note reconciling Canadian GAAP to US GAAP (in Canadian dollars) are attached hereto as Exhibit 99.3.

(b) Pro Forma Financial Information.

Unaudited pro forma condensed combined financial information required by this Item as of and for the year ended December 31, 2010 including an unaudited note reconciling Canadian GAAP to U.S. GAAP in U.S. dollars, is attached hereto as Exhibit 99.4.

(d)	Exhibits
Exhibit
No.	Description
23.1	Consent of PricewaterhouseCoopers LLP, Chartered Accountants.
99.1	Western Coal Corp. Consolidated Financial Statements for the years ended March 31, 2010 and 2009.
99.2	Western Canadian Coal Corp. Consolidated Financial Statements for the years ended March 31, 2008 and 2007.
99.3	Western Coal Corp. Consolidated Financial Statements as of and for the three and nine months ended December 31, 2010 (Unaudited).
99.4	Walter Energy, Inc. Unaudited pro forma condensed combined financial statements as of and for the twelve months ended December 31, 2010.

2

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		WALTER ENERGY, INC.
Date: June 17, 2011	By:	/s/ Catherine C. Bona
		Catherine C. Bona, Vice President
		interim General Counsel and
		Secretary

3

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS

We hereby consent to the incorporation by reference in Registration Statements of Walter Energy, Inc., on Form S-3 ( No. 333-165578) and on Form S-8 ( No. 333-77283, No. 333-83154, No. 333-106512, 333-114738 and No. 333-173336) of our report on the financial statements of Western Coal Corp. as of and for the years ended March 31, 2010 and 2009 dated June 9, 2010 (except for note 34, which was at January 31, 2011) and as of and for the years ended March 31, 2008 and 2007 dated June 17, 2008, which appear in the Current Report on Form 8-K/A of Walter Energy, Inc., dated June 17, 2011.

/s/ PricewaterhouseCoopers LLP

Chartered Accountants

Vancouver, British Colombia

June 17, 2011

EX-99.1

Exhibit 99.1

Western Coal Corp.

Consolidated Financial Statements

For the years ended

March 31, 2010 and March 31, 2009

Management’s Responsibility for Financial Reporting

The accompanying consolidated financial statements and related financial information are the responsibility of management and have been prepared in accordance with generally accepted accounting principles (GAAP) in Canada. These consolidated financial statements necessarily include amounts that reflect management’s judgment and best estimates. Financial information contained elsewhere in this Annual Review is consistent with the consolidated financial statements.

The Company maintains systems of internal accounting controls, policies and procedures to provide reasonable assurance as to the reliability of the financial records and safeguarding of its assets.

The Board of Directors, on the recommendation of the Audit Committee, approve the consolidated financial statements. The Audit Committee consists of three members, all of whom are independent. The Audit Committee reviews the consolidated financial statements with management and the independent auditors prior to submission to the Board of Directors for approval. The Audit Committee reviews interim consolidated financial statements with management and the independent auditors prior to their release to the public. The Audit Committee also has the duty to review critical accounting policies and significant estimates and judgments underlying the consolidated financial statements prepared by management, to recommend to the Board of Directors the independent auditors to be proposed to the shareholders for appointment, and to approve the fees of the independent auditors.

The independent auditors, PricewaterhouseCoopers LLP, have conducted an examination of the consolidated financial statements in accordance with Canadian generally accepted auditing standards. The report of the independent auditors is included in this Annual Report. The independent auditors have full and free access to the Audit Committee of the Company.

“Keith Calder”	“Braam Jonker”
Keith Calder	Braam Jonker
President and Chief Executive Officer	Chief Financial Officer

Auditors’ Report

To the Directors of Western Coal Corp.

We have audited the consolidated balance sheets of Western Coal Corp. as at March 31, 2010 and 2009 and the consolidated statements of operations, comprehensive income, cash flows and shareholders’ equity for each of the years in the two year period ended March 31, 2010.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards and United States generally accepted auditing standards.  Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at March 31, 2010 and 2009 and the results of its operations and its cash flows for each of the years then ended in accordance with Canadian generally accepted accounting principles.

Signed “PricewaterhouseCoopers LLP”

Chartered Accountants

Vancouver, BC

June 9, 2010 (except for note 34, which is at January 31, 2011)

Western Coal Corp.

Consolidated Balance Sheets

As at March 31

(Expressed in thousands of Canadian dollars)

	2010		2009
ASSETS
Current assets
Cash and cash equivalents	$	136,059	$	74,853
Restricted cash (Note 7)	5,337		—
Amounts receivable (Note 8)	64,597		40,080
Income tax receivable	5,034		—
Loans to related party (Note 9)	—		40,634
Inventory (Note 10)	46,212		62,376
Future income tax asset (Note 27)	7,910		—
	265,149		217,943
Deposits (Note 11)	28,708		19,079
Mineral property, plant and equipment (Note 12)	514,323		419,321
Investments and other assets (Note 13)	48,449		5,994
	$	856,629	$	662,337
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	65,320	$	29,539
Income tax payable	14,834		17,994
Derivative financial liabilities (Note 28)	9,567		—
Long-term debt (Note 14)	5,786		—
Capital lease obligations (Note 15)	16,847		18,642
Convertible debentures (Note 16)	40,573		4,953
Royalty and other liabilities (Note 17)	2,125		167
Asset retirement obligations (Note 18)	1,060		1,009
	156,112		72,304
Long-term debt (Note 14)	7,750		—
Capital lease obligations (Note 15)	17,491		29,154
Convertible debentures (Note 16)	—		61,729
Royalty and other liabilities (Note 17)	9,546		3,159
Asset retirement obligations (Note 18)	28,401		12,498
Future income tax liability (Note 27)	32,415		18,085
	251,715		196,929
Non-controlling interests (Note 19)	23,568		—
Shareholders’ equity	581,346		465,408
	$	856,629	$	662,337

Commitments and contingencies (Note 30), Subsequent events (Note 33)

The accompanying notes are an integral part of these consolidated financial statements.

Approved on Behalf of the Board of Directors:

“Keith Calder”	“John R. Brodie”
Keith Calder, Director	John R. Brodie, FCA, Director

1

Western Coal Corp.

Consolidated Statements of Operations

For the years ended March 31

(Expressed in thousands of Canadian dollars, except per share data)

	2010			2009
Revenues	$	438,568		$	586,093
Cost of goods sold
Operating expenses	316,620			270,217
Depletion, amortization and accretion	43,857			27,994
	360,477			298,211
Income from mining operations	78,091			287,882
Other expenses (income)
General and administration (Note 23)	35,135			19,707
Sales and marketing	7,469			7,919
Coal exploration and other mine costs (Note 24)	4,805			6,432
Interest, accretion and financing fees	14,109			22,649
Other income (Note 25)	(26,450		)	(19,015		)
	35,068			37,692
Net income before undernoted items	43,023			250,190
Income tax (expense) recovery (Note 27)
Current income tax recovery (expense)	2,960			(17,573		)
Future income tax (expense)	(4,842		)	(18,085		)
	(1,882		)	(35,658		)
Non-controlling interests (Note 19)	(100		)	—
Equity loss (Note 13 (c))	(237		)	—
Net income	$	40,804		$	214,532
Income per share
Basic	$	0.17		$	1.17
Diluted	$	0.17		$	1.14
Weighted average common shares outstanding
Basic	237,296,707			182,918,408
Diluted	239,522,674			187,944,002

The accompanying notes are an integral part of these consolidated financial statements.

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Western Coal Corp.

Consolidated Statements of Comprehensive Income

For the years ended March 31

(Expressed in thousands of Canadian dollars, except per share data)

	2010			2009
Net income	$	40,804		$	214,532
Other comprehensive income (loss) in the year
Change in fair value of available-for-sale securities	3,748			—
Currency translation adjustment	(14,869		)	—
	(11,121		)	—
Comprehensive income	$	29,683		$	214,532

The accompanying notes are an integral part of these consolidated financial statements.

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Western Coal Corp.

Consolidated Statements of Cash Flows

For the years ended March 31

(Expressed in thousands of Canadian dollars)

(Unaudited)

	2010			2009
Cash flows from (used in):
Operating Activities
Net income for the year	$	40,804		$	214,532
Items not involving cash and cash equivalents:
Depletion, amortization and accretion	44,515			28,562
Stock-based compensation	6,267			940
Interest, accretion and financing fees	4,645			6,308
Loss (gain) on revaluation of royalty liability	4,893			(7,981		)
Gain on disposal of subsidiary	(6,519		)	—
Gain on fair value adjustment of investment	—			(1,255		)
Gain on extinguishment of convertible debenture	(4,155		)	—
Other (income) expenses	(1,829		)	44
Net unrealized foreign exchange gain	(4,573		)	(1,124		)
Non-controlling interests	100			—
Equity loss	237			—
Future income tax expense	4,842			18,085
	89,227			258,111
Settlement of asset retirement obligations	(730		)	—
Changes in non-cash working capital items (Note 26)	(5,573		)	(57,583		)
	82,924			200,528
Financing Activities
Repayments on demand bank loan	—			(3,500		)
Repayments on capital lease obligations	(18,219		)	(14,447		)
Repayments from loan from related party	—			(5,000		)
Proceeds from long-term debt	2,956			—
Repayments on long-term debt	(5,276		)	(27,918		)
Repayments of convertible loan notes	(31,380		)	—
Proceeds from issuance of shares by subsidiary	9,168			—
Proceeds from issue of shares, net of issue costs	55,857			—
Proceeds from exercise of stock options	1,829			4,125
Proceeds from exercise of warrants	2,183			6,580
	17,118			(40,160		)
Investing Activities
Cash acquired in business acquisition	4,337			—
Issuance of loan to related parties, net of drawdown fee	(4,431		)	(40,003		)
Acquisition of mineral property, plant and equipment	(27,459		)	(52,148		)
Deposits	(2,769		)	(6,890		)
Transaction costs	(4,935		)	(3,058		)
Investment in associate	(1,240		)	—
	(36,497		)	(102,099		)
Effect of exchange rate change on cash and cash equivalents in US dollars	(2,339		)	2,447
Increase in cash and cash equivalents during the year	61,206			60,716
Cash and cash equivalents, beginning of year	74,853			14,137
Cash and cash equivalents, end of year	$	136,059		$	74,853

Supplementary cash flow information (Note 26). The accompanying notes are an integral part of these consolidated financial statements.

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Western Coal Corp.

Consolidated Statements of Shareholders’ Equity

For the years ended March 31

(Expressed in thousands of Canadian dollars)

	2010			2009
Share capital (Note 20)	$	449,367		$	362,767
Equity portion of convertible debentures	3,874			6,560
Contributed surplus (Note 22)	19,031			15,467
Retained earnings (deficit) and other accumulated comprehensive loss
Retained earnings (deficit), beginning of year	80,614			(133,918		)
Loss on repurchase of convertible debentures (Note 4 (a))	(1,223		)	—
Net income for the year	40,804			214,532
Retained earnings, end of year	120,195			80,614
Accumulated other comprehensive loss	(11,121		)	—
	109,074			80,614
	$	581,346		$	465,408

The accompanying notes are an integral part of these consolidated financial statements.

5

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

1.Nature of operations

Western Coal Corp. (the “Company”), formerly Western Canadian Coal Corp., was incorporated in the Province of British Columbia for the purpose of acquiring, exploring and developing coal mining properties for the international metallurgical and thermal coal markets.  The Company operates coal mines and develops new coal resources in Canada, the United States of America and the United Kingdom.

2.Summary of significant accounting policies

(a)Basis of presentation

These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles.

Certain comparative figures have been reclassified to conform to the presentation adopted for the current year. All dollar amounts are presented in Canadian dollars unless otherwise specified.

(b)Principles of consolidation

These consolidated financial statements include the accounts of the Company and all of its subsidiaries. The Company’s significant operating subsidiaries include, Wolverine Coal Ltd. (“Wolverine Coal”), 0541237 B.C. Ltd. (“0541237”), Willow Creek Coal Partnership (the “Partnership”), Cambrian Mining Limited (“Cambrian”), Cambrian Investment Holdings Limited (“CIH”), Coal International Limited (“CIL”), Atlantic Development Capital LLC (“ADC”) and a 55% ownership interest in Energybuild Group Plc (“Energybuild”).

In accordance with CICA Handbook Section 3055, “Interests in Joint Ventures”, these consolidated financial statements include the Company’s 50% proportionate share of the assets, liabilities, revenues and expenses of the Belcourt Saxon Coal Limited Partnership (the “Joint Venture”) and Belcourt Saxon Coal Ltd. (the “Joint Venture’s operator”). All exploration expenditures prior to January 28, 2009 incurred by the Joint Venture were charged to earnings. On January 28, 2009, the Company announced that a National Instrument 43-101 compliant technical report regarding the Belcourt coal property entitled “Technical Report Belcourt Project” had been completed.  Costs related to the development of the Belcourt coal property subsequent to this date have been capitalized.

On July 13, 2009, through the acquisition of Cambrian, the Company also indirectly obtained, through Energybuild, a 50% interest in Energy Recovery Investments located in Wales.

All intercompany transactions and balances have been eliminated.

6

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

2.Summary of significant accounting policies (continued)

(c)Use of estimates

The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions based on currently available information.  Such estimates and assumptions may affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the year.

Significant areas where management’s judgment is applied include asset and investment valuations, reserve determinations, production inventory quantities, plant and equipment lives, derivative asset and liability valuations, contingent liabilities, stock-based compensation, warrants, tax provisions and future tax balances, asset retirement obligations, convertible debentures and royalty and other liabilities.  Actual results could differ from the estimates and assumptions used.

Depreciation and depletion of capital assets are dependent upon estimates of useful lives of buildings and equipment, and estimates of salvage values and reserve estimates, which are determined with the exercise of judgment. The assessments of any impairment of mineral property, plant and equipment are dependent upon estimates of fair value that take into account factors such as reserves, economic and market conditions and the useful lives of assets. Asset retirement obligations are recognized in the period in which they arise and are stated as the fair value of estimated future costs. These estimates require extensive judgment about the nature, cost and timing of the work to be completed, and may change with future changes to costs, mining plans, environmental laws and regulations and remediation practices.

(d)Translation of foreign currencies

The functional currency of the parent entity is the Canadian dollar. For the Company’s self-sustaining foreign operations, the accounts are translated at the period end exchange rates and revenue and expenses are translated at the monthly average exchange rates. Differences arising from these foreign currency translations are recorded in other comprehensive income until they are realized by a reduction in the investment.

Transactions in foreign currencies in the Canadian subsidiaries are initially recorded in Canadian dollars at exchange rates in effect at the date of the transaction.  Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the year-end exchange rates.  The resultant gain and loss is included in the consolidated statement of operations as part of the other expenses (income).

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Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

2.Summary of significant accounting policies (continued)

(e)Financial instruments

Financial assets and liabilities on the balance sheet are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial instruments are initially recognized and subsequently measured based on their classification as held-for-trading, available-for-sale, held-to-maturity, loan and receivables and other financial liabilities.

The Company’s financial instruments include cash and cash equivalents, restricted cash, accounts receivable, deposits, investments included in investments and other assets, accounts payable and accrued liabilities, derivative financial liabilities, long-term debt, convertible debentures, and royalty and other liabilities.

The Company’s cash and restricted cash balances have been classified as held-for-trading and are recorded at fair value. Cash equivalents, which include banker’s acceptances and term deposits, have been classified as available-for-sale and are recorded at fair value on the balance sheet with changes in the fair value of these instruments reflected in other comprehensive income and included in shareholders’ equity on the balance sheet. Deposits have been classified as held-to-maturity and are recorded at amortized cost. Investments have been classified as held-for-trading and available-for-sale and are recorded at fair value on the balance sheet with changes in the fair value of these instruments reflected through net income and through comprehensive income or loss, respectively.

All derivatives are recorded on the balance sheet at fair value. Mark-to-market adjustments on these instruments are included in net income. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when the risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value with changes in fair value recognized in net income.

All other financial instruments including accounts receivable, accounts payable and accrued liabilities, long-term debt, convertible debentures, and royalty liability have been recorded at cost or amortized cost. Transaction costs incurred to acquire financial instruments are included in the underlying balance and the resulting difference between the fair value of the instrument and the adjusted balance is amortized using the effective interest rate method. Regular-way purchases and sales of financial assets are accounted for on the trade date.

(f)Cash and cash equivalents

Cash and cash equivalents include bank balances and temporary money market instruments with initial maturities of three months or less.

8

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

2.Summary of significant accounting policies (continued)

(g)Inventory

Coal inventory is valued at the lower of average production cost and net realizable value.  Production costs include contract mining costs, direct labour, operating materials and supplies, transportation costs, and an applicable portion of operating overhead, including depreciation and depletion.  Net realizable value is the expected difference between the average selling price for the finished product less the costs to get the product into saleable form and to the selling location.

Materials inventory consists of consumable parts and supplies which are valued at the lower of average cost and net realizable value. Net realizable value is actual cost less any provision for obsolescence.

(h)Mineral property, plant and equipment

Plant and equipment are recorded at cost; maintenance and repairs of a routine nature are expensed as incurred.  The cost of the plant less its salvage value is amortized on a straight-line basis over its useful life.  Equipment is depreciated on a declining balance basis or straight-line basis as appropriate.  Leasehold improvements are depreciated on a straight-line basis over the term of the lease.

Mine development costs include expenditures to acquire and develop identified mineral properties and reserves and net costs relating to production during the development phase. Depletion on producing properties is provided using a unit-of-production method based upon the adjusted proven and probable mineral reserve position of the mine at the beginning of the year. Development costs incurred to expand the capacity of operating mines, to develop new ore bodies or to develop mine areas substantially in advance of current production are capitalized and charged to operations on a unit-of-production method based upon proven and probable mineral reserves.

Exploration costs are charged to earnings in the year 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. Upon commencement of commercial production, these capitalized costs are charged to operations on a unit of production method based upon the proven and probable mineral reserves to which they relate.  If the coal properties are abandoned or otherwise impaired, the related capitalized costs are charged to operations in the year in which the property becomes impaired or abandoned.

Mineral property, plant and equipment include interest and financing costs relating to the construction of plant and equipment and operating costs net of revenues prior to the commencement of commercial production of new mines. Interest and financing costs are capitalized only for those projects for which funds have been borrowed. Interest expense capitalized in fiscal 2010 was nil (2009 - $1,175,000).

9

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

2.Summary of significant accounting policies (continued)

(i)Deferred stripping costs

Stripping costs are accounted for as variable production costs which are included in the costs of inventory produced, unless the stripping activity has been shown to be a betterment of the mineral property, in which case, the stripping costs are capitalized. Betterment occurs when stripping activity increases future output of the mine by providing access to additional sources of reserves. Capitalized stripping costs are amortized on a unit of production basis over the proven and probable reserves to which they relate.

(j)Long-lived assets

The Company reviews and evaluates the recoverability of mineral property, plant and equipment when events and circumstances suggest impairment. Where information is available and conditions suggest impairment, estimated future net cash flows are calculated using estimated future prices, proven and probable reserves, resources and operating and capital costs on an undiscounted basis. An impairment charge is recorded if the undiscounted future net cash flows are less than the carrying amount. Reductions in the carrying value, with a corresponding charge to operations, are recorded to the extent that the estimated future net cash flows on a discounted basis are less than the property interest carrying value.

(k)Investments

Investments classified as available-for-sale are reported at fair market value (or marked to market) based on quoted market prices with unrealized gains or losses excluded from earnings and reported as other comprehensive income or loss. Equity investments classified as available-for-sale that do not have a quoted market price in an active market are measured at cost. Investments in companies over which the Company can exercise significant influence are accounted for using the equity method. The Company periodically reviews the carrying value of its investments. When a decline in the value of an investment is considered to be other-than-temporary, the investment is written down to net realizable value with a charge to operations.

(l)Asset retirement obligations

The Company recognizes asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair value can be determined.  The liability is measured at fair value and is adjusted to its present value in subsequent periods as accretion expense is recorded.  The fair value of the estimated asset retirement costs is capitalized as part of the carrying amount of the long-lived asset when incurred and amortized to earnings over the life of the related asset. The asset retirement obligation is reviewed each reporting period and revised for changes in estimated future costs and regulatory requirements.

10

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

2.Summary of significant accounting policies (continued)

(m)Non-controlling interests

A non-controlling interest exists in a less than wholly-owned subsidiary of the Company through the principles of consolidation and represents the third party interest’s share of the carrying values of the subsidiary. The subsidiary’s earnings or losses are included in their entirety in the Company’s net operations and are then adjusted to reflect the portion attributable to the non-controlling interests.

(n)Revenue recognition

Revenues from coal shipments are recognized at contracted or market prices when the risks and rewards of ownership pass to the customer and when collection is reasonably assured provided that persuasive evidence of a contract or other arrangement exists.

(o)Stock-based compensation

The Company has one stock—based compensation plan which was approved and adopted following its listing on the TSX.  The fair value method of accounting is used for valuing stock option grants. Compensation cost, attributable to stock options granted to employees or directors is measured at fair value at the grant date and expensed over the vesting period with a corresponding increase to contributed surplus.  Upon the exercise of the stock options, consideration paid together with the amount previously recognized in contributed surplus is recorded as an increase to share capital.

(p)Mineral exploration tax credits

The Company recognizes the benefits related to mineral exploration tax credits to which it is entitled in the period in which recoverability can be established and quantified.

(q)Future income taxes

Income taxes are recorded using the liability method of tax allocation. Future income tax assets and liabilities are determined based on temporary differences between the tax and accounting bases and are measured using the current, or substantively enacted, tax rates and laws expected to apply when these differences reverse.  A valuation allowance is recorded against any future income tax asset if it is more likely than not that the asset will not be realized.

11

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

2.Summary of significant accounting policies (continued)

(r)Income per share

Basic income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the year.  The Company applies the treasury stock method in calculating diluted earnings per share.  Diluted earnings per share excludes all dilutive potential common shares if their effect is anti-dilutive.

3.Adoption of new accounting standards and developments

(a)Goodwill and intangible assets

Effective April 1, 2009, the Company adopted CICA Handbook section 3064 “Goodwill and Intangible Assets.” This section provides guidance on the recognition, measurement, presentation and disclosure of goodwill and intangible assets. At the same time as the adoption of this standard, EIC-27, “Revenues and Expenditures in the Pre-operating Period,” has been withdrawn. The adoption of this standard did not have a material impact on the Company.

(b)Financial instruments - disclosures

Effective June 2009, the CICA amended Handbook section 3862 “Financial Instruments — Disclosures” requires enhance disclosures about the relative reliability of the data that a company uses to measure the fair values of its financial instruments and to enhance liquidity risk disclosure requirements. These disclosures have been included in Note 28.

(c)Business Combinations

In January 2009, the CICA issued Section 1582, “Business Combinations” which replaces former guidance on business combinations. This section is effective for fiscal years beginning on or after January 1, 2011, with early adoption permitted. This section will be applicable to the Company from April 1, 2011. This standard harmonizes the business combinations standard under Canadian GAAP with International Financial Reporting Standards. The new section revises guidance on the determination of the carrying amount of the assets acquired and liabilities assumed, goodwill and accounting for non-controlling interests at the time of a business combination. The Company is in the process of assessing the impact of applying this section on its financial statements.

12

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

3.Adoption of new accounting standards and developments (continued)

(d)Consolidated Financial Statements

In conjunction with the release of the new business combination standard, the CICA issued Section 1601 “Consolidated Financial Statements” and Section 1602 “Non-Controlling Interests,” which replace Section 1600 “Consolidated Financial Statements.” These standards are effective January 1, 2011, with early adoption permitted, and are applicable to the Company April 1, 2011. These sections revise standards for the preparation of consolidated financial statements and the accounting for non-controlling interests in consolidated financial statements subsequent to a business combination. The Company is in the process of assessing the impact of applying these sections on its financial statements.

4.Acquisitions

(a)Cambrian Mining Ltd.

On July 13, 2009, the Company acquired 100% of the issued common shares of Cambrian, the Company’s major shareholder at the time of the acquisition. Cambrian owned the Maple Coal and Gauley Eagle coal mines in West Virginia, which produce metallurgical and thermal coal; a 50.6% interest in Energybuild Group Plc, which produces anthracite and thermal coals in South Wales (UK); a 45% interest in Xtract Energy Plc; a 20% interest in NEMI Northern Energy & Mining and 100% interest in AGD Mining Pty Ltd., a gold and antimony operation in Australia. Xtract is accounted for under the equity method, while the Company’s investment in NEMI is accounted for as an available-for-sale investment. Cambrian’s results of operations are included in the Company’s consolidated financial statements from July 14, 2009.

13

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

4.Acquisitions (continued)

The Company has accounted for the acquisition of Cambrian as a business combination using the purchase method. The purchase consideration was as follows:

Issuance of 88,625,764 common shares	$	118,759
Issuance of 4,960,905 stock options and warrants in exchange for Cambrian option and warrant obligations	652
Secured loan facility and promissory note provided by the Company to Cambrian	40,205
Transaction costs	8,151
	$	167,767
Less: 72,122,826 own common shares acquired	(96,645		)
Net purchase price	$	71,122

Each common share was valued at $1.34, being the average market price of the Company’s common shares over the two day period before and after the terms of the acquisition were agreed to and announced. As part of the acquisition, the Company acquired 72,122,826 of its own common shares. Accordingly, 16,502,938 net common shares were issued.

The Company issued 4,346,616 stock options and warrants valued at $652,000 in exchange for Cambrian stock options and warrants. The terms and conditions of these stock options and warrants remain the same as the Cambrian stock options and warrants, except for the number of options issued and the respective exercise price, which were adjusted according to the exchange ratio. The following assumptions were used for the Black-Scholes option pricing model to determine the fair value of the stock options and warrants:

Risk-free interest rate:	1.33% to 3.13%
Expected volatility:	102% to 149%
Expected life:	0.03 years to 8.38 years
Dividend rate:	Nil

The fair values of the secured loan facility and promissory note provided by the Company to Cambrian were determined as their principal portion plus accrued interest on the date of acquisition.

14

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

4.Acquisitions (continued)

The Company’s allocation of the total purchase consideration to the estimated fair value of the acquired assets and liabilities assumed of Cambrian is as follows:

Cash and cash equivalents	$	4,337
Restricted cash	615
Amounts receivable	12,391
Inventory	7,380
Deposits	8,785
Mineral property, plant and equipment	134,318
Investments in associates	9,931
Other long term assets investments	4,216
Warrants of the Company	502
Convertible debentures of the Company (a)	27,840
Total assets acquired	210,315
Accounts payable and accrued liabilities	(32,735		)
Income tax payable	(14,580		)
Convertible loan notes	(31,380		)
Current portion of long-term debt and capital leases	(8,551		)
Long term debt	(12,538		)
Other long-term liabilities	(2,900		)
Asset retirement obligations	(17,715		)
Future income tax liability	(715		)
Non-controlling interest	(18,079		)
Total liabilities assumed	(139,193		)
Net assets acquired	$	71,122

(a)On July 13, 2009, as part of the acquisition of Cambrian, the Company acquired convertible debentures with a face value of $29,000,000 which had a debt component book value of $28,091,000 and an equity component book value of $2,681,000. The fair value on the date of acquisition was $27,840,000. As a result, the Company recognized a gain on settlement of the debt component of $4,155,000 and a loss on settlement of the equity component of $1,223,000.

(b)Energybuild Group Plc

On December 18, 2009, the Company participated in Energybuild Group Plc’s (“Energybuild”) equity issue and acquired 58,246,667 common shares at 15 pence or $0.25 each. The cash value of this participation was $15,036,000 and increased the Company’s ownership interest in Energybuild to 54.7% from 50.6%. The purchase discrepancy in the amount of $407,000 was allocated to mineral property, plant and equipment.

15

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

5.Disposition

AGD Mining Pty Ltd.

On November 30, 2009, the Company completed the sale (the “disposal”) of its wholly-owned subsidiary AGD Mining Pty Ltd. (“AGD”) to Mandalay Resources Corporation (“Mandalay”).

Prior to completion of the disposal, the Company provided a bridge loan of $2,500,000 to AGD to assist in AGD’s planned capital development. Immediately prior to the completion of the disposal, the bridge loan was converted into new ordinary shares in AGD issued to the Company.

In consideration for all of the issued and outstanding ordinary shares of AGD and the historical intercompany loans, the Company received 44,000,000 common shares of Mandalay, 20,000,000 warrants to acquire Mandalay common shares at an exercise price of $0.31 per share which expire November 30, 2014, 20,000,000 warrants to acquire Mandalay common shares at an exercise price of $0.465 per share which expire November 30, 2014 and a promissory note in the principal amount of $1,500,000. The promissory note bears interest at 7% per annum and will accrue interest until December 1, 2010. Under certain circumstances, this promissory note may be converted to an interest free loan which will mature no later than December 1, 2013.

The common shares of Mandalay were valued at their closing price on November 30, 2009. The 40,000,000 warrants were valued using the Black-Scholes model with a volatility of 161% and are presented as derivative financial assets under the Investments and Other Assets header on the Company’s balance sheet. These derivative financial assets have been designated as held-for-trading and are recorded at fair value at the end of each financial reporting period with changes in fair value flowing through the net income. The promissory note was valued using discounted cash flows and a discount rate of 20%.

Concurrent with the disposal of AGD, Mandalay completed a private placement financing. The Company has granted a group of these investors, some of whom are related parties (Note 29 (d)) to the Company, options expiring November 30, 2010 to purchase up to 15,999,977 common shares the Company owns in Mandalay at a price of $0.31 per share. In addition, the Company has granted an option expiring September 25, 2011 to a company controlled by the Chief Executive Officer of Mandalay, to purchase up to 24,687,960 of the common shares the Company owns in Mandalay at a price of $0.25 per share.

The two tranches of purchase options granted by the Company were valued using the Black-Scholes model with a volatility of 161% and are presented as derivative financial liabilities on the Company’s balance sheet. These derivative financial liabilities have been designated as held-for-trading and are recorded at fair value at the end of each financial reporting period with changes in fair value flowing through net income.

A gain of $6,519,000 was realized on the disposal.

16

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

6.Interest in joint venture

The Company owns a 50% interest in the Belcourt Saxon Coal Limited Partnership (the “Partnership”) formed for the exploration and development of the Belcourt and Saxon properties in northeast BC. On July 13, 2009, through the acquisition of Cambrian, the Company also indirectly obtained, through Energybuild Group Plc, a 50% interest in Energy Recovery Investments located in Wales.

The Company’s proportionate share of its interest in and results from the joint ventures as at and for the years ended March 31, 2010 and 2009 are as follows:

	2010			2009
Cash and cash equivalents	$	258		$	95
Amounts receivable	648			9
Inventory	380			—
Deposits	91			61
Mineral property, plant and equipment	1,671			182
Current liabilities	(1,071		)	(177		)
	$	1,977		$	170

	2010			2009
Revenues	$	2,684		$	—
Expenses	2,121			753
Net income (loss)	$	563		$	(753	)
Cash Flows
Operating activities	215			(641		)
Financing activities	246			825
Investing activities	(318		)	(167		)
Increase in cash and cash equivalents during the year	$	143		$	17
Cash acquired through acquisition	20			—
Cash and cash equivalents, beginning of year	95			78
Cash and cash equivalents, end of year	$	258		$	95

Under royalty agreements applicable to certain properties within the Partnership, it is obligated to make royalty payments to various third parties based on the selling price upon delivery of all coal sales relating to those properties, ranging from 0.75% to 1.00%.  In addition, the Partnership participants are entitled to a royalty equal to US $0.50 per tonne of coal produced from that venturer’s contributed property.

17

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

7.Restricted cash

	2010		2009
Funds held-in-trust (a)	$	4,795	$	—
Other	542		—
	$	5,337	$	—

(a)Pursuant to an agreement (Note 30 (a)), the Company has paid an amount plus interest into a trust account pending a decision on the appeal filed by the Company.

8.Amounts receivable

	2010		2009
Trade accounts receivable	$	43,147	$	34,690
Unrealized gain on foreign currency contracts	8,979		—
Prepaid expenses and other deposits	7,610		810
Other receivables	3,167		640
Goods and services tax and other sales tax receivable	1,694		3,940
	$	64,597	$	40,080

9.Loans to related party

	2010			2009
Balance, beginning of year	$	40,634		$	—
Loan advanced	1,218			40,767
Fee received	—			(764		)
Net advance	41,852			40,003
Interest accrual	1,269			1,025
Foreign exchange adjustment	(2,916		)	(394		)
Cambrian acquisition (Note 4 (a))	(40,205		)	—
Balance, end of year	$	—		$	40,634

18

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

10.Inventory

	2010		2009
Production inventory	$	35,547	$	53,206
Parts inventory	10,665		9,170
	$	46,212	$	62,376

For the years ended March 31, 2010 and 2009, the Company did not record any net realizable value adjustments nor were any previously recorded net realizable value provisions reversed.

11.Deposits

	2010		2009
Restricted reclamation deposits (a)	$	25,573	$	15,833
Other restricted deposits (b)	3,135		3,246
	$	28,708	$	19,079

(a)In connection with the mine permits for its Wolverine and Burnt River properties, the Company has provided the BC government with reclamation security deposits of $14,583,000 (2009 - $13,540,000). In connection with the mine permits for its Willow Creek property, the Company has provided the BC government with reclamation security deposits of $2,139,000 (2009 - $2,090,000). Reclamation security deposits of $204,000 (2009 - $203,000) have been provided in relation to the Company’s other Canadian properties. Reclamation bonds of $7,476,000 and $1,171,000 have been provided in relation to the Company’s properties in West Virginia and Wales, respectively.

In connection with the Company’s mine permit for its Wolverine property, the Company is required to provide additional reclamation security deposits of $1,200,000 by December 31, 2010 and $500,000 by December 31, 2012.

These amounts may be adjusted for inflation, if the cumulative inflation rate from January 1, 2006 and from January 1, 2008 exceeds 10% for the Wolverine and Burnt River properties, respectively.

19

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

11.Deposits (continued)

In connection with the Company’s mine permit for its Willow Creek property, the Company is required to provide additional reclamation security deposits. The original mine permit was amended on February 19, 2009 and requires the Company to provide additional reclamation security deposits of $250,000, $1,000,000, $1,250,000 and $1,000,000 30 days, 12 months, 21 months and 33 months after the resumption of pit operations, respectively.  At March 31, 2010, pit operations had not resumed. All other terms and conditions remain the same. These amounts may be adjusted for inflation, if the cumulative inflation rate from January 1, 2010 exceeds 10%.

(b)Other restricted deposits include security deposits required by vendors.

12.Mineral property, plant and equipment

2010	Cost		Accumulated Amortization		Net
Mineral property and mine development	$	359,301	$	62,312	$	296,989
Plant, buildings and mine facilities	139,224		23,510		115,714
Equipment	155,879		54,259		101,620
	$	654,404	$	140,081	$	514,323

2009	Cost		Accumulated Amortization		Net
Mineral property and mine development	$	274,447	$	39,952	$	234,495
Plant, buildings and mine facilities	110,535		12,258		98,277
Equipment	118,001		31,452		86,549
	$	502,983	$	83,662	$	419,321

The net carrying value of mineral property, plant and equipment that is not being amortized at March 31, 2010 is $80,782,000 (2009 – $78,619,000) and relates to its Willow Creek mine which is currently on care and maintenance.

Equipment includes assets under capital leases totaling $34,338,000 (2009 - $47,796,000).

20

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

13.Investments and other assets

	2010		2009
Held-for-trading investments:
Asset-backed commercial paper (a)	$	3,051	$	2,937
Marketable securities	302		—
Available-for-sale investments:
Marketable securities	7,713		—
Investments accounted for under the equity method:
Mandalay Resources Corporation (48% interest) (b)	17,111		—
Xtract Energy Plc (39.8% interest)	8,571		—
Derivative financial assets (Note 28)	10,925		—
Note receivable	776		—
Deferred transaction costs	—		3,057
	$	48,449	$	5,994

(a)The Company’s restructured Canadian third party non-bank asset-backed commercial paper has a total maturity value of $4,978,000 and a fair value of $3,051,000. There is a limited secondary market for these restructured notes as at March 31, 2010; therefore, the Company has determined the fair value of the restructured notes using the discounted future cash flow method. There is no certainty regarding the development of a secondary market for these notes and therefore the fair value reported may change materially in subsequent periods.

(b)On November 30, 2009, in consideration for all of the issued and outstanding common shares of AGD and the historical intercompany loans, the Company received 44,000,000 common shares of Mandalay (Note 5). On February 11, 2010, the Company acquired an additional 4,000,000 common shares of Mandalay by exercising warrants with a $0.31 exercise price.

(c)Equity earnings (loss) is as follows:

	2010			2009
Investments accounted for under the equity method:
Mandalay Resources Corporation (b)	(420		)	—
Xtract Energy Plc	183			—
	$	(237	)	$	—

The equity loss of Mandalay reflects their results to from the acquisition date of November 30, 2009 to December 31, 2009, while the equity income of Xtract reflects the actual results from the from the date of acquisition of July 13, 2009 to March 31, 2010.

21

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

13.Investments and other assets (continued)

(d)The quoted closing market values of the Company’s investment in Mandalay and Xtract at March 31, 2010 were $17,280,000 and $13,538,000, respectively.

14.Long-term debt

	2010			2009
Bank and lender financing (US $9,862) (a)	$	10,018		$	—
Bank debt (US $1,733) (b)	1,760			—
Credit facility (US$ 934) (c)	949			—
Equipment loan (US$ 740) (d)	752			—
Other (£37)	57
	13,536
Less: current portion	(5,786		)	—
	$	7,750		$	—

(a)The bank and lender financing is secured by the related mine machinery and equipment and certain other property. The loans are payable in monthly payments through 2016. Interest on these loans range from 3.64% to 9.00%.

(b)As part of a construction agreement, a third party entered into a debt agreement with a bank, which is guaranteed by a subsidiary of the Company. The loan is payable in 36 monthly principal payments and interest is 4.47%.

(c)The credit facility is secured by the Maple Coal preparation plant and other unencumbered miscellaneous equipment in West Virginia. The loan is payable in monthly installments based on different loan rate factors applied to three payment terms, totaling 36 months. Interest on this facility is 17.28%.

(d)The equipment loan is secured by certain equipment identified in the loan agreement as well as some previously unencumbered surface mining equipment in West Virginia. The loan is payable in varying monthly installments based upon the amount borrowed to date at interest rates ranging from 9.21% to 9.57%.

Future principal payments by year and in aggregate are as follows:

For the years ending March 31,	2011	$	5,786
	2012	4,061
	2013	2,525
	2014	1,036
	Thereafter	128
		$	13,536

22

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

14.Long-term debt (continued)

On July 30, 2008, the Company entered into a new credit facility, which was subsequently amended. The Company’s credit facility consists of a revolving term credit facility in the amount of the lesser of US $30,000,000 and the established borrowing base which is based on a percentage of trade accounts receivable and coal inventory. The revolving term credit facility has a maturity date of July 30, 2010. As part of this credit facility, the Company and the bank entered into a general security agreement over the Company’s assets.

As at March 31, 2010, the full amount under these facilities were available.

15.Capital lease obligations

The Company has certain equipment under capital lease expiring in 2013 and at interest rates between 0% to 9%.  Capital lease obligations for the years ended March 31, 2010 and 2009 are as follows:

	2010			2009
Balance, beginning of year	$	47,796		$	53,521
Assumption of obligations on acquisition (Note 4 (a))	3,610			—
Fair value of capital leases recorded during the year	1,627			9,272
Change in fair value of embedded derivatives	36			(550		)
Payments made during the year	(21,053		)	(17,943		)
Interest portion of payments	2,834			3,496
Foreign currency translation adjustment	(512		)	—
Balance, end of year	34,338			47,796
Less: Current portion	(16,847		)	(18,642		)
Long-term portion of capital lease obligations	$	17,491		$	29,154

Future minimum lease payments under capital leases by year and in aggregate are as follows:

For the years ending March 31,	2011	$	18,576
	2012	12,809
	2013	6,238
Total minimum lease payments		37,623
Amounts representing interest		(3,285		)
Present value of minimum lease payments		34,338
Less: current portion		(16,847		)
		$	17,491

23

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

16.Convertible debentures

Summary	2010			2009
$125 million issuance, maturity March 24, 2011	$	40,573		$	66,656
US$40 million issuance, maturity November 30, 2010	—			26
Balance, end of year	40,573			66,682
Less: Current portion	(40,573		)	(4,953		)
Long-term portion of convertible debentures	$	—		$	61,729

$125 million issuance, Maturity March 24, 2011	2010			2009
Balance, beginning of year	$	66,656		$	114,248
Accretion of liability component of debentures	1,978			1,786
Interest payable	69			104
Cambrian acquisition (Note 4 (a))	(28,091		)	—
Conversion of convertible debentures	(39		)	(49,482		)
Balance, end of year	40,573			66,656
Less: Current portion	(40,573		)	(4,950		)
Long-term portion of convertible debenture	$	—		$	61,706

On March 24, 2006, the Company issued 125,000 subordinated convertible debentures in denominations of $1,000 in the aggregate principal amount of $125,000,000. The convertible debentures bear interest at a rate of 7.5% per annum payable semi-annually on September 24 and March 24 in each year commencing September 24, 2006 and maturing on March 24, 2011.  Holders may convert their convertible debentures into common shares at any time prior to their maturity at a conversion price of $4.00 per common share (the “Conversion Price”), being a conversion rate of 250 common shares per $1,000 principal amount of Convertible debentures.

Upon specified change of control events, holders of convertible debentures will have the option to require the Company to purchase all or any portion of the convertible debentures at a price equal to 105% of the principal amount of the convertible debentures to be purchased, plus accrued and unpaid interest.  The Company may, at its option and subject to certain conditions, elect to satisfy its obligation to repay the principal amount of the convertible debentures, plus accrued and unpaid interest, upon redemption or maturity, by issuing freely-tradeable common shares.  The number of common shares a holder will receive in respect of each convertible debenture will be determined by dividing the principal amount of the convertible debentures plus accrued and unpaid interest thereon by 95% of the current market price of the common shares on the date fixed for redemption or the maturity date, as the case may be.

24

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

16.Convertible debentures (continued)

The convertible debentures are unsecured and are subordinated to the other liabilities of the Company.  However, the trust indenture under which the convertible debentures are issued provides that the Company will not incur indebtedness secured by the Wolverine assets, other than capital leases, which when added to the convertible debentures, exceeds $215,000,000.

The convertible debentures are being accounted for in accordance with their substance and are presented in these consolidated financial statements in their component parts, measured at their respective fair values at the time of issue.  The liability component has been calculated as the present value of the stream of interest and principal payments discounted at a rate approximating the interest rate for a similar liability without a conversion feature.  The difference between the debt component of $112,930,000 and the face value of the convertible debentures, net of issue costs of $512,000, in the amount of $11,558,000 is classified as equity.  Issuance costs related to the debt component of the convertible debentures are netted against the liability component and charged to earnings using the effective interest rate method. The debt component of the convertible debentures is accreted over the term to maturity, by charges to earnings for the year.

During the year ended March 31, 2010, $40,000 (2009 - $54,062,000) of principal of the $125,000,000 issuance of convertible debentures were converted into 10,000 common shares (2009 - 13,515,500 common shares) of the Company. $39,000 (2009 - $49,482,000) of the convertible debenture liability was transferred to equity upon conversion. Also, as a result of the acquisition of Cambrian (Note 4 (a)), $29,000,000 of convertible debentures were cancelled. The outstanding face value of the convertible debenture at March 31, 2010 was $41,898,000 (2009 - $70,938,000).

Commencing March 24, 2009, the Company may redeem all or a portion of the convertible debentures at a redemption price equal to the principal amount plus accrued and unpaid interest thereon, provided that the weighted average trading price of the Company’s common shares on the TSX for the 30 consecutive trading days ending on the fifth trading day preceding the day prior to which the redemption notice is given, is at least 125% of the Conversion Price. On April 28, 2010, the Company provided notice to the debenture holders and on May 31, 2010, the convertible debentures were extinguished (Note 33 (a)).

US$40 million issuance, Maturity November 30, 2010	2010			2009
Balance, beginning of year	$	26		$	38,104
Accretion of liability component of debentures	—			542
Foreign exchange adjustment	—			(585		)
Conversion of convertible debentures	(26		)	(38,035		)
Balance, end of year	—			26
Less: Current portion	—			(3		)
Long-term portion of convertible debenture	$	—		$	23

25

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

17.Royalty and other liabilities

	2010			2009
Balance, beginning of year	$	3,325		$	9,639
Cambrian acquisition	573			—
Accretion of liability	3,080			1,767
Royalty payments	(200		)	(100		)
Revaluation loss (gain)	4,893			(7,981		)
Balance, end of year	11,671			3,325
Less: Current portion	(2,125		)	(167		)
Long-term portion of royalty and other liabilities	$	9,546		$	3,158

As part of the acquisition of Falls Mountain Coal Inc. in fiscal 2009, the Company assumed the Willow Creek Loadout Royalty, which it recorded at fair value. This financial instrument was designated as “Other Liabilities” and is recorded at amortized cost.

At each reporting period, the Company reassesses the value of this liability. At March 31, 2010, the Company has reassessed the expected cash flows based on the updated life-of-mine model for the Willow Creek mine and revised the probability factor from 50% to 75% based on the current economic climate. As a result of this reassessment, the Company recorded a loss of $4,893,000 at March 31, 2010 representing the change in expected cash flows and accretion.

26

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

18.Asset retirement obligations

The Company’s asset retirement obligations relate to the restoration and closure of its mine properties.  The asset retirement obligations have been recorded as liabilities at fair value, assuming credit adjusted risk-free discount rates ranging from 4.2% to 9.6% and an inflation factor of 2.5%.  The amounts of the liabilities are subject to re-measurement during each reporting period.

The total undiscounted amounts of the estimated obligations are approximately $73,418,903 and are expected to be incurred over a 25 year period.

Asset retirement obligations as at and for the years ended March 31, 2010 and 2009 are as follows:

	2010			2009
Balance, beginning of year	$	13,507		$	14,706
Assumption of obligations on acquisition (Note 4 (a))	17,715			—
Disposal of obligation upon sale of subsidiary	(844		)	—
Settlement of obligations during the year	(730		)	(423		)
Fair value of obligation recorded during the year	1,270			750
Change arising from revisions to timing of estimated cash flows	(1,379		)	(2,297		)
Accretion of liability component of obligation	2,027			771
Foreign currency translation adjustment	(2,105		)	—
Balance, end of year	29,461			13,507
Less: Current portion	(1,060		)	(1,009		)
Long-term portion of asset retirement obligation	$	28,401		$	12,498

The asset retirement obligations are supported by reclamation deposits totaling $25,573,000 (Note 11).

19.Non-controlling interests

Energybuild Group Plc (45.3% interest)	2010			2009
Balance, beginning of year	$	—		$	—
Acquisition of Cambrian (Note 4 (a))	18,079			—
Participation of minority equity interest	9,547			—
Non-controlling interest share of net income	100			—
Foreign currency translation adjustment	(4,158		)	—
Balance, end of year	$	23,568		$	—

27

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

20.Share capital

Authorized: Unlimited number of common shares without par value

Issued:

	Number of Shares		Consideration
Balance, March 31, 2008	116,334,906		225,904
Shares issued for acquisition of FMC	23,274,986		28,621
Transferred to share capital upon conversion of $125 million convertible debentures	13,515,500		54,480
Transferred to share capital upon conversion of US$40 million convertible debentures	53,039,620		40,564
For cash received from the exercise of stock options	1,526,268		4,125
Transferred to share capital upon exercise of stock options	—		2,332
For cash received from the exercise of warrants	2,024,655		6,580
Transferred to share capital upon exercise of warrants	—		161
Balance, March 31, 2009	209,715,935		$	362,767
Shares issued for acquisition of Cambrian (Note 4 (a))	88,625,764		118,759
Company shares acquired through acquisition of Cambrian (Note 4 (a))	(72,122,826	)	(96,645		)
For cash received from the issuance of share offering	22,100,000		55,857
Transferred to share capital upon conversion of US$40 million convertible debentures	27,034		26
Transferred to share capital upon conversion of $125 million convertible debentures	10,000		39
For cash received from the exercise of stock options	1,437,000		3,697
Transferred to share capital upon exercise of stock options	—		1,756
For cash received from the exercise of warrants	2,910,000		2,183
Transferred to share capital upon exercise of warrants	—		928
Balance, March 31, 2010	252,702,907		$	449,367

28

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

20.Share capital (continued)

Stock options

A summary of the Company’s stock options outstanding and the changes for the years ended March 31, 2010 and 2009 is as follows:

	Number of Shares Issuable pursuant to Stock Options		Weighted Average Exercise price per Share
Balance at March 31, 2008	7,928,068		$	3.00
Granted	100,000		1.21
Forfeited	(363,400	)	3.25
Expired	(60,000	)	0.80
Exercised	(1,526,268	)	2.70
Balance at March 31, 2009	6,078,400		$	3.12
Granted	6,603,000		2.43
Assumed at acquisition (a)	4,398,405		3.49
Forfeited	(1,599,750	)	3.30
Expired	(2,250,002	)	3.25
Exercised	(1,437,000	)	2.57
Balance at March 31, 2010	11,793,053		$	2.87

The Company has one outstanding stock option plan. Pursuant to the terms of the 2005 Plan, the maximum number of common shares issuable will be a number equal to 10% of the issued and outstanding common shares of the Company on a non-diluted basis at any time.  The exercise price of the options granted under the 2005 Plan is determined by the board of directors of the Company provided that such exercise price is not less than the market price on the date of grant of such options or such other minimum price as may be required by the TSX.  Options granted pursuant to the 2005 Plan will have a term of up to five years and will vest as determined by the board of directors of the Company.  As at March 31, 2010, 11,135,400 options (2009 — 5,858,400 options) are issued pursuant to the 2005 Plan.  Of these, 6,096,200 options (2009 — 4,281,066 options) have vested with the remaining options vesting 20% on each of the four anniversary dates following the date of grant.

(a) – For those Cambrian stock options outstanding at the time of the acquisition of Cambrian, the Cambrian option holders are entitled to receive the Company’s shares upon exercise of such options on the basis of 0.75 Company shares for every 1 Cambrian share, which the option holder is entitled to under the terms of the option. At March 31, 2010, 657,653 of such stock options are outstanding with approximate exercise prices ranging from $1.87 to $5.34 based on the closing foreign exchange rate on March 31, 2010.  Of these, 278,687 options have vested.

29

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

20.Share capital (continued)

Stock options (continued)

Options to acquire common shares have been granted and are outstanding at March 31, 2010 as follows:

Number of Stock Options Outstanding	Number of Stock Options Exercisable	Option Exercise Price		Expiry Date
437,000	437,000	$	5.40	July 28, 2010
60,000	60,000	6.10		July 28, 2010
180,000	180,000	6.20		July 28, 2010
82,750	82,750	3.29		July 31, 2010
360,000	315,000	2.26		September 7, 2011
190,000	190,000	1.95		November 28, 2011
481,000	353,000	2.02		March 5, 2012
378,750	82,500	5.34		July 31, 2012
500,000	500,000	2.25		November 30, 2012
490,000	382,000	2.53		February 20, 2013
2,447,200	2,047,200	3.37		March 28, 2013
50,000	20,000	1.80		October 30, 2013
50,000	20,000	0.62		March 19, 2014
2,130,200	1,242,000	1.95		June 24, 2014
3,000,000	—	2.68		November 13, 2014
150,000	70,000	2.64		November 18, 2014
190,000	190,000	2.35		December 4, 2014
120,000	30,000	3.75		January 4, 2015
300,000	60,000	3.71		February 12, 2015
196,153	113,437	1.87		November 30, 2017
11,793,053	6,374,887	$	2.87

30

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

20.Share capital (continued)

Warrants

The Company’s warrants outstanding at March 31, 2010 and 2009 and the changes for the years then ended are as follows:

	Number of Shares Issuable pursuant to Warrants		Weighted Average Exercise price per Share
Balance at March 31, 2008	9,560,000		$	2.14
Issued	4,000,000		4.82
Expired	(4,000,000	)	4.82
Exercised	(2,024,655	)	3.25
Balance at March 31, 2009	7,535,345		$	1.84
Issued	—		—
Assumed (a)	562,500		3.27
Expired	(562,500	)	3.27
Acquired (Note 4 (a))	(612,500	)	3.25
Exercised	(2,910,000	)	0.75
Balance at March 31, 2010	4,012,845		$	2.42

(a)For those Cambrian warrants outstanding at the time of the acquisition of Cambrian, the Cambrian warrant holders are entitled to receive the Company’s shares upon exercise of such options on the basis of 0.75 Company shares for every 1 Cambrian share, which the warrant holder is entitled to under the terms of the warrant. At March 31, 2010, all such warrants had expired.

1,330,000 warrants with an exercise price of $0.75 expire November 30, 2010, while 2,682,845 warrants with an exercise price of $3.25 expire on June 28, 2012.

31

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

21.Stock-based compensation

During the year ended March 31, 2010, the Company granted 6,603,000 (2009 — 100,000) stock options to employees.  During the year ended March 31, 2010, an amount of $6,267,000 (2009 - $940,000) was charged to operations in recognition of stock-based compensation expense, based on the vesting schedule for the options granted.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with weighted average assumptions and resulting values for grants as follows:

	2010		2009
Assumptions:
Risk-free interest rate (%)	1.19		2.20
Expected life (years)	2.1		2.7
Expected volatility (%)	148		125
Expected dividend	Nil		Nil
Results:
Weighted average fair value of options granted (per option)	$	1.64	$	0.83

22.Contributed surplus

The following table summarizes the movements in contributed surplus for the years ended March 31, 2010 and 2009:

	2010			2009
Balance, beginning of year	$	15,467		$	12,838
Fair value of stock based compensation recorded during the year	6,267			940
Fair value of stock options assumed during the year (Note 4 (a))	652			—
Transferred to share capital upon exercise of stock options	(1,756		)	(2,332		)
Transferred to share capital upon exercise of warrants	(928		)	(161		)
Fair value of warrants issued during the year	—			4,182
Other	(671		)	—
Balance, end of year	$	19,031		$	15,467

32

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

23.General and administration

	2010		2009
Salaries, benefits and other remuneration	$	18,202	$	9,581
Stock-based compensation (Note 21)	6,267		940
Legal and audit	2,735		1,810
Office and miscellaneous	2,170		985
Travel and related expenses	1,628		936
Consulting	1,224		3,121
Rent and telecommunications	893		610
Amortization	658		567
Corporate communications	603		300
Insurance	532		601
Exchange listings and other regulatory fees	223		256
	$	35,135	$	19,707

24.Coal exploration and other mine costs

	2010		2009
Demobilization costs at the Willow Creek mine	$	2,205	$	3,174
Care and maintenance costs	2,151		1,265
Belcourt and Saxon coal exploration	107		730
Other coal exploration	342		726
Willow Creek coal exploration	—		537
	$	4,805	$	6,432

25.Other income

	2010			2009
Royalty liability revaluation loss (gain) (Note 17)	$	4,893		$	(7,981	)
Unrealized (gain) loss on forward exchange contracts	(8,979		)	1,501
Gain on disposal of subsidiary (Note 5)	(6,519		)	—
Net foreign exchange gains	(6,655		)	(11,061		)
Gain on redemption of convertible debentures (Note 4 (a))	(4,155		)	—
Interest income	(3,122		)	(2,269		)
Gain on fair value adjustment of investments	(1,291		)	(1,393		)
Other (income) expenses	(622		)	2,188
	$	(26,450	)	$	(19,015	)

33

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

26.Supplementary cash flow information

At March 31, 2010, the cash and cash equivalents balance consists of cash balances held at financial institutions.

	2010			2009
Other information:
Interest paid	$	6,832		$	13,245
Taxes paid	19,814			—
Non-cash investing and financing transactions:
Capital lease obligation recognized for assets under capital lease	$	1,627		$	9,272
Proceeds from disposal of AGD	17,294			—
Net common shares issued for acquisition of Cambrian	22,114			—
Change in working capital for exercise of stock options	(1,868		)	—
Acquisition of Falls Mountain Coal Inc.	—			2,358

Changes in non-cash working capital items consisted of the following:

	2010			2009
Restricted cash	$	(4,795	)	$	4,608
Amounts receivable	(2,134		)	(28,459		)
Income tax receivable	(5,034		)	—
Loan to related party	(1,269		)	(908		)
Inventory	21,787			(37,044		)
Accounts payable and accrued liabilities	3,514			(13,371		)
Income tax payable	(17,711		)	17,591
Accrued interest on convertible debenture	69			—
	$	(5,573	)	$	(57,583	)

34

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

27.Income taxes

The reconciliation of income taxes computed at Canadian statutory tax rates to the Company’s income tax expense for the years ended March 31, 2010 and 2009 is as follows:

	2010			2009
Combined basic federal and provincial rates	29.63		%	30.63		%
Expense at applicable rates	$	12,746		$	76,621
Difference in tax rates in foreign jurisdictions	(261		)	—
Changes in expected tax rates	(5,265		)	—
Permanent differences	(5,749		)	618
Provincial mineral taxes	(1,627		)	8,568
Future provincial mineral tax	(3,716		)	—
Adjustments to valuation allowance	5,754			(50,149		)
Income tax expense	$	1,882		$	35,658

	2010			2009
Future income tax assets:
Net operating loss carryforwards	$	29,275		$	14,070
Financing fees not yet deducted	1,858			1,844
Mineral tax	3,716			—
Reserves	6,196			666
	41,045			16,580
Valuation allowance	(19,991		)	—
Net future tax asset	$	21,054		$	16,580
Future income tax liability:
Mineral property, plant and equipment	$	(45,512	)	$	(34,665	)
Reserves	(47		)	—
	(45,559		)	—
Net future income tax liability	$	(24,505	)	$	(18,085	)

For balance sheet purposes, the net overall future income tax liability of $24,505,000 is split between a current future income tax benefit of $7,910,000 offset by a long term future income tax liability of $32,415,000.

35

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

27.Income taxes (continued)

As at March 31, 2010, the Company had non-capital losses, which if unused expire as follows:

Year of Expiry	Canada		US		UK		Total
2011	$	3	$	—	$	—	$	3
2015	80		—		—		80
2020 and thereafter	15,403		39,980		—		55,383
Losses that do not expire	—		—		42,180		42,180
	$	15,486	$	39,980	$	42,180	$	97,646

28.Financial instruments

The fair value of financial instruments is based on quoted market prices when available. In the absence of an available trading market, fair value is determined using estimates and is calculated using market factors with similar characteristics and risk profiles. These amounts represent point in time estimates and may not reflect fair value in the future. These calculations are subjective in nature, involve uncertainties and are a matter of judgment. The following summarizes the methods and assumptions used in estimating the fair value of the Company’s financial instruments:

·The carrying value of accounts receivable, term deposits and accounts payable and accrued liabilities are a reasonable estimate of fair value due to the relatively short periods to maturity and the commercial terms of these instruments.

·The fair value of marketable securities, including common stock, preferred stock and US Government Securities is based on quoted market data.

·The fair value of derivative financial assets and liabilities are based on the Black-Scholes model using current market data.

·The fair value of the asset-backed commercial paper is determined using the discounted future cash flow method with a discount rate of 7.1%. The Company has assumed that a portion of its restructured notes will not be recoverable due to the nature of their underlying assets (Note 13 (a)).

·The fair value of the convertible debentures is estimated to be $63,489,000 and is based on the closing market price of the convertible debentures at March 31, 2010.

·The fair value of royalty and other liabilities is $17,378,000 and is estimated using the Company’s current cost of borrowing of 7.2%. The cash flows and probability factor remained unchanged.

36

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

28.  Financial instruments (continued)

CICA Handbook Section 3862 requires disclosure of a three level hierarchy for fair value measurements based upon transparency of inputs to the valuation of a financial asset or liability as of the measurement date. The three levels of the fair value hierarchy are:

Level 1 — Quoted market price in active markets for identical assets or liabilities

Level 2 — Inputs other than quoted market prices that are observable for the asset or liability, either directly or indirectly

Level 3 — Inputs that are not based on observable market data.

	Level 1			Level 2		Level 3
Cash and cash equivalents	$	—		$	136,059	$	—
Foreign currency contracts	8,979			—		—
Deposits:
Term deposits	—			22,751		—
Common stock	853			—		—
Preferred stock	1,042			—		—
US Govt Securities	4,062			—		—
Asset-backed commercial paper	—			—		3,051
Marketable equity securities	8,011			—		—
Derivative financial asset	10,925			—		—
Derivative financial liability	(9,567		)	—		—
	$	24,305		$	158,810	$	3,051

The carrying values of the financial instruments approximate their fair values.

37

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

28.Financial instruments (continued)

Financial risk management

The Company is exposed to credit risk, liquidity risk and market risk associated with its financial instruments.

Credit risk

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, accounts receivables and investments. The Company deposits cash and cash equivalents and deposits with large international banks. The Company sells to large, well established customers. The Company also performs credit evaluations of its customers on an ongoing basis.  The Company believes that it does not have a significant credit risk in relation to its accounts receivable.

The maximum credit risk that the Company is exposed to in relation to the financial instruments subject to credit risk is the carrying value of these balances.

Liquidity risk

Liquidity risk is the risk that the Company will have difficulty meeting its obligations associated with its financial liabilities. To manage this risk, the Company maintains adequate cash and cash equivalent balances and monitors its cash flow forecasts. The Company’s estimated minimum contractual undiscounted cash flow requirements for financial liabilities at March 31, 2010 were:

	Less than 1 year	1-3 years	4-5 years	Total
	$	$	$	$
Accounts payable and accrued liabilities	65,320	—	—	65,320
Royalty liability	200	400	400	1,000
Long-term debt	5,787	6,585	1,164	13,536
Convertible debentures (a)	41,425	—	—	41,425
	112,732	6,985	1,564	121,281

(a)Subsequent to March 31, 2010, the convertible debentures were extinguished (Note 33 (a))

38

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

28.Financial instruments (continued)

Market risk

Foreign currency exchange rates

The Company has operations in Canada, the US and Wales, and therefore foreign exchange risk exposures arise from transactions denominated in foreign currencies. All sales revenues for the Canadian operations are denominated in US dollars, while costs are denominated in Canadian dollars. The Company may also become exposed to currency fluctuations on purchase of certain equipment or facilities for its new and existing mines which are denominated in US dollars.  These potential currency risks could have a significant impact on the cost of developing its mines and on the profitability of the Company. For the US operations, sales and costs are denominated in US dollars, while in the Wales operations, sales and costs are denominated in £.

To minimize the risk exposure of foreign currency fluctuations on sales revenues from its Canadian operations, the Company may enter into forward exchange contracts to fix the rate at which future anticipated flows of US dollars are exchanged into Canadian dollars. The Company has entered into a series of forward exchange contracts to fix the rate at which future anticipated cash flows of US dollars are exchanged into Canadian dollars. As at March 31, 2010, these contracts included forward sales of US dollars at an average rate of 1.0228, in the aggregate amount of US$241,000,000 from April 2010 to the end of March 2011. The unrealized gain recorded on these contracts at March 31, 2010 was $8,979,000.

The Company’s exposure to US dollars on financial instruments in its Canadian operations as at March 31, 2010 is as follows:

	USD
Cash and cash equivalents	$	5,892
Accounts receivable	29,055
Foreign currency contracts	(241,000		)
	$	(206,053	)

For each US$0.01 strengthening of the US dollar against the Canadian dollar, net income would decrease $2,061,000 and other comprehensive income would not change.

Interest rates

The Company’s interest rate risk mainly results from the interest rate impact on the cash and cash equivalents balance which receive interest based on market interest rates. All of the Company’s outstanding non-current financial instruments bear interest at fixed rates.

39

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

29.Related party transactions

(a)During the year ended March 31, 2010, the Company paid fees totaling $161,000 (2009 - $159,000) to companies related to the Company through directors and officers in common. At March 31, 2010, amounts receivable included $956,000 outstanding from officers of the Company relating to stock option exercises. These amounts receivable were received subsequent to March 31, 2010.

(b)During the year ended March 31, 2010, 841,883 warrants were exercised at a price of $0.75 by a Company related to a director.

(c)The Company entered into an agreement with Audley Capital Advisors LLP, of which one of the Company’s director is a partner, for them to provide strategic and financial advisory services for a period of eighteen months commencing June 1, 2009 which includes a monthly work fee and a success fee if a transaction results. This agreement was terminated by mutual consent effective March 2010.

(d)As disclosed in note 5, on November 30, 2009, the Company completed the sale of AGD to Mandalay. The Chairman of the Company at the time and another director, who have both subsequently retired, are the Chairman of Mandalay and a director of Mandalay, respectively.

Concurrent with the disposal of AGD, Mandalay completed a private placement financing. The Company has granted the participants in the Mandalay private placement options to purchase 15,999,977 of the common shares which the Company holds in Mandalay at an exercise price of $0.31 per share. Officers and directors of the Company or companies related to officers and directors received a total of 4,893,328 options.

(e)At March 31, 2010, included in the amounts receivable balance is $53,779 due from a related party.

The transactions described above have been recorded at their exchange amounts, which management believes to be representative of commercial terms.

40

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

30.Commitments and contingencies

(a)Royalty Sharing Agreement

On March 21, 2005, the Company filed a Petition in the Supreme Court of British Columbia (the “Court”) to have the Court set aside a Royalty Sharing Agreement (“RSA”) dated March 31, 2000, entered into between the Company and three individuals, two of whom were directors and officers of the Company at the time the Agreement was entered into. The Company’s petition was dismissed on February 20, 2006 and an appeal was filed. In October 2006 the Company abandoned its appeal but notified the respondents that the RSA was granted in consideration for advances made to the Company and that as such any royalty payments that represents interest in excess of 60% per annum as provided in Section 347 of the Criminal Code would not be paid. During 2007 the royalty holders filed petitions to obtain a ruling relating to whether the Company was obliged to make further payments. The petitions were heard in September 2008 and in March 2009 the Company reached a settlement with one of the claimants.

On April 1, 2009, the Court rendered a decision in the remaining claimants’ petition to the effect that royalties under the RSA was not a charge paid or payable for the advancing of credit and therefore does not constitute interest within the meaning of Section 347 of the Criminal Code. On April 30, 2009, the Company filed an appeal in respect of the April 1 decision based on an error in law by the Judge. On December 17, 2009 the matter was heard by the B.C. Court of Appeal and on February 11, 2010 the Court rendered its decision granting the Company’s appeal in part. The effect of the decision is to reduce the rate of royalty payable by approximately 40%. Neither the Company nor the claimants sought leave to appeal the decision to the Supreme Court of Canada and accordingly going forward any entitlement to royalty will be calculated at the rate of 0.375%. In respect of monies previously paid into a trust account pending the outcome of the appeal, the Company will receive a payment of $1.9 million plus interest representing the overpayment of royalty based on the pre-decision royalty rate.

41

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

30.Commitments and contingencies (continued)

(b)Atlantic Leaseco, LLC (“Atlantic”) and Maple Coal Company (“Maple”)

Atlantic and Maple, two subsidiaries of the Company, which have operations located in West Virginia were the subject of compliance orders issued against them on April 5, 2007 by the West Virginia Department of Environmental Protection (“WVDEP”). These orders, which are similar to compliance orders issued by the WVDEP to a number of coal mining companies in West Virginia, provided that the companies would have until April 5, 2010 to comply with certain water quality-based effluent limitations for selenium concentrations in discharges from mining operations. Subsequent to the issue of the orders, the selenium discharge limits against Atlantic, that were the subject of the compliance orders, were removed by permit modifications and Atlantic has no further obligations under that order.

With respect to Maple, due to the fact that there is no currently available practical technology for consistently meeting the effluent limits for selenium at the point of discharge that could be installed and effective by the time permit levels established by the Federal Environmental Protection Agency (“EPA”) became effective on April 6, 2010, the Company filed an appeal to the state Environmental Quality Board (“EQB”) requesting an injunction to stay the WVDEP denial of the Company’s application for modification of its permits. In addition the Company asked for a stay of the deadline for the compliance schedule to bring the effluent discharges into compliance with any final water quality based effluent limits for selenium. By a letter dated April 14, 2010, the Company received a “notice of intention to sue” from three environmental groups (the “Complainants”) notifying the Company of the Complainant’s intent to commence a “citizens suit” in federal court if the Company does not achieve compliance with permit levels within 60 days. Subsequently the Company has received information to the effect that the WVDEP may initiate enforcement actions in the County Circuit Court against Maple and several other coal companies in respect of any non-compliance with discharge permit levels. The Company understands that such an action by the State officials would effectively forestall any federal proceedings and maintain enforcement actions at the State level. In the interim the Company is vigorously contesting the claims of the WVDEP and the Complainants and pursuing appeals to obtain an extension of its selenium compliance schedule. At present the likelihood of an unfavourable outcome is neither remote nor probable and no opinion can be offered regarding the likelihood of enforcement actions or civil penalties that may be sought but they could be material.

42

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

30.Commitments and contingencies (continued)

(c)Potential Securities Class Action

In November 2009 the Company was named as a defendant in a statement of claim issued by a plaintiff who seeks leave of the Ontario Courts to proceed with a securities class action. The claim alleges that those persons who acquired or disposed of Company shares during the period between November 14, 2007 and December 10, 2007 should be entitled to recover $200 million for general damages and $20 million in punitive damages. Two current directors and one former director and officer were also named as defendants. The plaintiff alleges that the financial statements for the Second Quarter of fiscal 2008 and the accompanying news release issued on November 14, 2007 misrepresented the Company’s financial condition and that the Company failed to make full, plain and true disclosure of all material facts and changes. The action also claims that the named directors purchased shares during the proposed class period while in possession of material undisclosed information.

The plaintiff was to have delivered its materials in support of motions for leave to proceed with the actions and for certification on or before May 14, 2010. The plaintiff however, sought and obtained permission of the Court to deliver an amended claim before May 28, 2010.

On May 28, 2010, the plaintiff delivered a proposed Fresh As Amended Statement of Claim. That claim indicates the plaintiff intends to introduce new allegations that the Company, some of its current and former directors and other parties caused the Company to enter transactions between April 26, 2007 and July 13, 2009 that were oppressive. The Company intends to vigorously defend the action brought against it.

At this stage in the proceedings it is not possible to assess what if any exposure the Company has to the claims being made. The Company, however maintains that there is no merit to the claims and that the damages are without foundation and excessive and accordingly has made no provision for this claim in its financial statements.

(d)Share Buy Back Program

On December 17, 2009, the Company announced that its normal course issuer bid for up to 10,000,000 common shares, was accepted by the Toronto Stock Exchange (“TSX”). The Company’s normal course issuer bid commenced on December 21, 2009 and will terminate on December 20, 2010, unless terminated earlier by the Company. The Company will purchase the common shares at market price at the time of acquisition under the normal course issuer bid, which will be conducted through the facilities of the TSX and AIM. The maximum number of common shares that may be purchased on a daily basis, subject to any approved exemptions is 1,198,087. The actual number of common shares that may be purchased and the timing of any such purchases will be determined by the Company. Any common shares purchased under the normal course issuer bid will be cancelled.

The Company has not made any purchases of common shares under a normal course issuer bid in the previous twelve month period nor is it obliged to make any purchases going forward.

43

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

30.Commitments and contingencies (continued)

(e)Pay as You Earn (“PAYE”) Tax Investigation

In the normal course of business, the Company is subject to audit by taxation authorities. The Company is currently subject to an enquiry into PAYE withholding tax compliance in the United Kingdom relating to the period prior to June 2007. On January 12, 2010, a determination notice was issued for the payment of £8,300,000, in order to avoid the potential claim being affected by the UK statute of limitation regulations. £2,500,000 of the £8,300,000 was also registered at the court. The Company was advised that this is standard procedure in these circumstances and the court case has since been adjourned following an appeal to the tax authorities to allow for resolution of the ongoing enquiry and determination of the final liability.

The Company has made payments of £500,000 and has recorded an accrual of £900,000 in respect of this issue. The Company believes that although the final liability is uncertain, it is unlikely to differ materially from the amount paid and accrued.

(f)Sales and Marketing Agreement

The Company entered into a contract with Mitsui Matsushima Co. Ltd. (“Mitsui”) on May 18, 2001, pursuant to which the Company appointed Mitsui as its exclusive sales and marketing agent for the sale of the Company’s coal to customers in Japan and Taiwan. Mitsui has full authority to negotiate and, subject to consent by the Company, conclude sales of the coal on the best commercial terms Mitsui reasonably considers to be achievable in the circumstances. For its services, the Company will pay Mitsui a commission of 1% of the sales price at the loading port of all coal sold to customers in the territory. The agreement will remain in effect unless and until the Company terminates it due to Mitsui becoming insolvent or commencing liquidation proceedings or for failure of Mitsui to perform a material term of the agreement.

(g)Purchase Commitments

The Company entered into agreements to purchase equipment for its Perry Creek, Brule and Willow Creek mines in the amount of $104,843,000, which are expected to all be delivered by the end of December 2010. Further capital commitments were made in Wales for $1,541,000 for shuttle cars and breakers and $2,158,000 for two Quad bolters.

44

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

30.Commitments and contingencies (continued)

(h)Future Minimum Payments

At March 31, 2010, the Company is party to certain contracts relating to minimum coal royalties, leases and office rent as follows:

2011	$	4,723
2012	3,904
2013	2,888
2014	2,145
2015 and thereafter	4,595
	$	18,255

31.Capital risk management

The Company defines its capital as shareholders’ equity, consisting of share capital, equity portion of convertible debentures, contributed surplus and retained earnings. The Company’s objectives when managing its capital are:

·to ensure that the Company will be able to continue as a going concern;

·to ensure compliance with debt covenants; and

·to maximize the return to shareholders.

To assist in the management of the Company’s capital, the Company prepares an annual budget, which is approved by the Board of Directors. Actual results are reviewed against the budget monthly.

The Company’s credit facility contains the following covenants:

·a tangible net worth greater than or equal to the aggregate of 80% of tangible net worth as at March 31, 2008 plus 50% of positive net income for each quarter thereafter;

·an interest coverage ratio greater than or equal to 2.50:1.00 calculated as rolling earnings before interest, taxes, depletion and amortization (“EBITDA”) divided by the rolling interest expense; and

·a leverage ratio less than or equal to 3.00:1.00 calculated as total debt divided by rolling EBITDA.

Tangible net worth is defined as share capital, equity portion of convertible debentures, contributed surplus and retained earnings. Rolling EBITDA is defined as EBITDA for the most recent quarter plus the previous three quarters. Rolling interest expense is defined as gross interest expenses for the most recent quarter plus the previous three quarters.

As at March 31, 2010, the Company was in compliance with all of the above covenants.

45

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

32.Segmented information

The Company is engaged in the acquisition, exploration, development and mining of coal resources. The Company has four reportable segments: Coal — Canadian operations; Coal — US operations; Coal — United Kingdom operations; and Corporate and other. The Corporate and other segment includes all non-core activities.

	2010
	Canadian Operations			US Operations			UK Operations			Corporate and other			Total
Revenues	$	338,381		$	85,613		$	11,920		$	2,654		$	438,568
Income (loss) from mining operations	64,021			12,877			1,994			(801		)	78,091
Coal exploration and other mine costs	(4,805		)	—			—			—			(4,805		)
Interest, accretion and financing fees on liabilities	(11,194		)	(834		)	(122		)	(1,959		)	(14,109		)
Other (expenses) income	10,040			(8,296		)	(1,182		)	(16,716		)	(16,154		)
Earnings (loss) before taxes, non-controlling interests and equity losses	$	58,062		$	3,747		$	690		$	(19,476	)	$	43,023
Capital expenditures	$	7,075		$	8,798		$	11,447		$	139		$	27,459
Total assets	$	636,008		$	112,379		$	58,340		$	49,902		$	856,629

46

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated. Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

32.Segmented information (continued)

	2009
	Canadian Operations			US Operations		UK Operations		Corporate and other			Total
Revenues	$	586,093		$	—	$	—	$	—		$	586,093
Income from mining operations	287,882			—		—		—			287,882
Coal exploration and other mine costs	(6,432		)	—		—		—			(6,432		)
Interest, accretion and financing fees on liabilities	(22,649		)	—		—		—			(22,649		)
Other (expenses) income	11,097			—		—		(19,708		)	(8,611		)
Earnings (loss) before taxes, non-controlling interests and equity losses	$	269,898		$	—	$	—	$	(19,708	)	$	250,190
Capital expenditures	$	51,739		$	—	$	—	$	409		$	52,148
Total assets	$	660,922		$	—	$	—	$	1,415		$	662,337

The Company’s revenues for the years ended March 31, 2010 and 2009 are derived from coal sales to customers located in the following geographic areas:

	2010		2009
Asia	$	279,340	$	517,819
Europe	81,599		68,274
US	76,760		—
Canada	524		—
Australia	345		—
	$	438,568	$	586,093

For each of the years ended March 31, 2010 and 2009, there were four and three customers respectively, with each accounting for greater than 10% of revenues. The percentage of sales to these customers was 58% and 65% respectively for the years ended March 31, 2010 and 2009.

The geographic distribution of the Company’s mineral property, plant and equipment is as follows:

	2010		2009
Canada	$	395,829	$	419,321
United States	74,790		—
United Kingdom	43,704		—
	$	514,323	$	419,321

47

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

33.Subsequent Events

(a)On April 28, 2010, the Company provided holders of its $125,000,000 convertible debentures notice of its intention to redeem effective May 31, 2010, all of its issued and outstanding convertible debentures. For the period of April 1, 2010 to June 7, 2010, $41,585,000 of principal or 41,585 units of the $125,000,000 convertible debenture have been converted into 10,396,250 common shares of the Company. On May 31, 2010, the Company redeemed $313,000 of principal plus $5,000 of accrued interest (Note 16).

(b)For the period of April 1, 2010 to June 7, 2010, 1,000 warrants and 1,136,400 stock options have been exercised (Note 20).

(c)Subsequent to March 31, 2010, the Company entered into a series of forward exchange contracts to fix the rate at which future anticipated cash flows of US dollars are exchanged into Canadian dollars. Such contracts include forward sales of US dollars at an average rate of 1.0015, in the aggregate amount of US$120,000,000 from October 2010 to the end of March 2011.

(d)On June 9, 2010, the Company announced its proposal to acquire all of the issued ordinary share capital of Energybuild not already held by the Company.  Under the terms of the proposal, Energybuild shareholders will receive 0.0833 new Western shares for every 1 Energybuild share held. The Company anticipates issuing 8,555,000 new common shares or an additional 3.2% increase in its current issued and outstanding share capital.  The proposed transaction is expected to take effect in August 2010.

34.Differences between Canadian and United States generally accepted accounting principles

These consolidated financial statements have been prepared in accordance with Canadian GAAP.  The following adjustments would be required in order to present the consolidated financial statements in all material aspects in accordance with U.S. GAAP as at and for the years ended March 31, 2010 and 2009.

Under U.S. GAAP, the major balance sheet items would be adjusted as follows:

48

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

34.Differences between Canadian and United States generally accepted accounting principles (continued)

Consolidated Balance Sheet

	2010		U.S. GAAP			2010
As at March 31 (Expressed in thousands of Canadian dollars)	Canadian GAAP		Adjustments			U.S. GAAP
ASSETS
Current assets
Cash and cash equivalents (b)	$	136,059	$	(206	)	$	135,853
Restricted cash	5,337		—			5,337
Amounts receivable (b)	64,597		(29		)	64,568
Income tax receivable	5,034		—			5,034
Inventory (b)	46,212		(380		)	45,832
Future income tax asset	7,910		—			7,910
	265,149		(615		)	264,534
Deposits	28,708		—			28,708
Mineral property, plant and equipment (a) (b)	514,323		57,444			571,767
			(1,175		)
Investments and other assets (a) (b)	48,449		7,099			55,548
			5,720
	$	856,629	$	63,928		$	920,557
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities (b)	$	65,320	$	(353	)	$	64,967
Income tax payable	14,834		—			14,834
Derivative financial liabilities	9,567		—			9,567
Long-term debt	5,786		—			5,786
Capital lease obligations	16,847		—			16,847
Convertible debentures	40,573		—			40,573
Royalty and other liabilities	2,125		—			2,125
Asset retirement obligations	1,060		—			1,060
	156,112		(353		)	155,759
Long-term debt (b)	7,750		(58		)	7,692
Capital lease obligations	17,491		—			17,491
Royalty and other liabilities	9,546		—			9,546
Asset retirement obligations	28,401		—			28,401
Future income tax liability	32,415		—			32,415
	251,715		(411		)	251,304
Non-controlling interests (a)	23,568		(23,568		)	—
Shareholders’ equity (a)	581,346		87,907			669,253
	$	856,629	$	63,928		$	920,557

There were no U.S. GAAP adjustments for the consolidated balance sheet as at March 31, 2009.

49

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

34.Differences between Canadian and United States generally accepted accounting principles (continued)

The effect of material measurement differences between generally accepted accounting principles between Canadian GAAP and U.S. GAAP on the Company’s consolidated statement of comprehensive income is:

Consolidated Statement of Operations

For the year ended March 31 (Expressed in thousands	2010			U.S. GAAP			2010
of Canadian dollars, except share and per share amounts)	Canadian GAAP			Adjustments			U.S. GAAP
Revenues (b)	$	438,568		$	(2,060	)	$	436,508
Cost of goods sold
Operating expenses (b)	316,620			(987		)	315,633
Depletion, amortization and accretion (a) (b)	43,857			1,740			45,597
	360,477			753			361,230
Income (loss) from mining operations	78,091			(2,813		)	75,278
Other expenses (income)
General and administration (a) (b)	35,135			7,953			43,088
Sales and marketing	7,469			—			7,469
Coal exploration and other mine costs	4,805			—			4,805
Interest, accretion and financing fees (b)	14,109			(14		)	14,095
Other income (a)	(26,450		)	(68,312		)	(94,762		)
	35,068			(60,373		)	(25,305		)
Net income before the undernoted items	43,023			57,560			100,583
Income tax (expense) recovery
Current income tax recovery	2,960			—			2,960
Future income tax expense	(4,842		)	—			(4,842		)
	(1,882		)	—			(1,882		)
Non-controlling interests	(100		)	—			(100		)
Equity (loss) gain (b)	(237		)	684			447
Net income attributable to shareholders of the Company	$	40,804		$	58,244		$	99,048
Income per share
Basic	$	0.17					$	0.42
Diluted	$	0.17					$	0.41
Weighted average common shares outstanding
Basic	237,296,707						237,296,707
Diluted	239,522,674						239,522,674

50

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

34.Differences between Canadian and United States generally accepted accounting principles (continued)

Consolidated Statement of Comprehensive Income

For the year ended March 31 (Expressed in thousands	2010			U.S. GAAP			2010
of Canadian dollars, except share and per share amounts)	Canadian GAAP			Adjustments			U.S. GAAP
Net income	$	40,804		$	58,244		$	99,048
Other comprehensive income (loss) in the year
Change in fair value of available-for-sale securities	3,748			—			3,748
Currency translation adjustment (a)	(14,869		)	(9,469		)	(24,338		)
	(11,121		)	(9,469		)	(20,590		)
Comprehensive income	$	29,683		$	48,775		$	78,458

There were no significant adjustments within other comprehensive income between the shareholders of the company and the non-controlling interests under U.S. GAAP. There were no U.S. GAAP adjustments for the consolidated statement of operations and consolidated statement of comprehensive income for the year ended March 31, 2009.

Under U.S. GAAP, the consolidated statement of cash flows would be adjusted as follows:

Consolidated Statement of Cash Flows

For the year ended March 31
(Expressed in thousands of Canadian dollars)	2010
Cash flows provided by operating activities under Canadian GAAP	$	82,924
Adjustment for transaction costs (a)	(4,935		)
Cash flows provided by operating activities under U.S. GAAP	77,989
Cash flows provided by financing activities under Canadian and U.S. GAAP	17,118
Cash flows used in investing activities under Canadian GAAP	(36,497		)
Adjustment for transaction costs (a)	4,935
Adjustment for joint venture accounting (b)	(206		)
Cash flows used in investing activities under U.S. GAAP	(31,768		)
Effect of exchange rate change on cash and cash equivalents in U.S. dollars under U.S. GAAP	(2,339		)
Increase in cash and cash equivalents during the year under U.S. GAAP	61,000
Cash and cash equivalents, beginning of year under U.S. GAAP	74,853
Cash and cash equivalents, end of year under U.S. GAAP	$	135,853

51

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

34.Differences between Canadian and United States generally accepted accounting principles (continued)

There were no U.S. GAAP adjustments for the consolidated statement of cash flows for the year ended March 31, 2009.

(a)   Cambrian acquisition

Under U.S. GAAP, for business combinations that close in fiscal years that commence on or after December 15, 2008, acquisition related costs are excluded from the consideration transferred in a business combination (formerly referred to as purchase price) and are expensed as incurred. Before that date, such costs were included in the purchase price. Prior to April 1, 2010, the Company’s accounting policy under Canadian GAAP was to include acquisition related costs in the consideration transferred in business combinations.

Until April 1, 2010, under the Company’s accounting policy in accordance with Canadian GAAP, the measurement date for equity interests issued by the acquirer in a business combination is two days before and after the terms of an acquisition are agreed to and announced while the measurement date is the closing date under U.S. GAAP. Western Coal announced the acquisition of Cambrian Mining Plc on May 20, 2009 and closed the acquisition on July 13, 2009.

Prior to April 1, 2010, under the Company’s accounting policy in accordance with Canadian GAAP, any excess of the fair value of identifiable assets acquired and liabilities assumed over the fair value of purchase consideration is allocated to certain acquired non-current assets until their carrying amounts are reduced to zero, and any remaining amount, which is considered negative goodwill, is recognized as an extraordinary gain in the statement of income. Under U.S. GAAP, for business combinations that close in fiscal years that commence on or after December 15, 2008, any such excess is recorded as a gain from bargain purchase in the statement of income. Before that date, the U.S. GAAP treatment of such excess was similar to Canadian GAAP.

In addition, under Canadian GAAP, the non-controlling interests’ percentage of net assets acquired are recorded at the carrying values of the acquiree. Under U.S. GAAP, for business combinations that close in fiscal years that commence on or after December 15, 2008, the acquirer must measure non-controlling interests in the acquiree at fair value as of the closing date. Until April 1, 2010, the Company’s accounting policy under Canadian GAAP was to present non-controlling interests as a separate line item on the balance sheet between liabilities and shareholders’ equity.  Under U.S. GAAP, non-controlling interests are presented as a component of shareholders’ equity.

(b)   Joint Venture

Under Canadian GAAP, the Company accounts for its investment in Energy Recovery Investments Ltd. (the “Joint Venture”) using the proportionate consolidation method whereby the Company’s proportionate share of each line item of assets, liabilities, revenues and expenses is included in the corresponding financial statement line item. Under U.S. GAAP, the Company accounts for the Joint Venture using the equity method.

52

Western Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2010 and 2009

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

34.Differences between Canadian and United States generally accepted accounting principles (continued)

(c)   Impact of adoption of new U.S. GAAP accounting pronouncements

In December 2007, the FASB issued ASC 810 Non-controlling Interests in Consolidated Financial Statements, that amended ARB-51, Consolidated Financial Statements, to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The adoption of this statement, which became effective April 1, 2009, did not have a material effect on Company’s consolidated financial statements.

Also in December 2007, the FASB issued ASC 805, Business Combinations, a replacement of SFAS No. 141, Business Combinations. The objective of this statement is to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. This statement establishes principles and requirements for how the acquirer recognizes and measures the identifiable assets acquired and liabilities assumed, measures the goodwill acquired or gain from a bargain purchase, and determines what information to disclose. The adoption of this statement, which became effective April 1, 2009, had a material effect on the Company’s financial statements.

53

EX-99.2

Exhibit 99.2

Western Canadian Coal Corp.

Consolidated Financial Statements

For the Years Ended

March 31, 2008 and 2007

Management’s Responsibility for the Financial Statements

The accompanying consolidated financial statements and related financial information are the responsibility of management and have been prepared in accordance with generally accepted accounting principles (GAAP) in Canada. These consolidated financial statements necessarily include amounts that reflect management’s judgment and best estimates. Financial information contained elsewhere in this Annual Review is consistent with the consolidated financial statements.

The Board of Directors, on the recommendation of the Audit Committee, approve the consolidated financial statements. The Audit Committee consists of three members, all of whom are independent. The Audit Committee reviews the consolidated financial statements with management and the independent auditors prior to submission to the Board of Directors for approval. The Audit Committee reviews interim consolidated financial statements with management and the independent auditors prior to their release to the public. The Audit Committee also has the duty to review critical accounting policies and significant estimates and judgments underlying the consolidated financial statements prepared by management, to recommend to the Board of Directors the independent auditors to be proposed to the shareholders for appointment, and to approve the fees of the independent auditors.

The independent auditors, PricewaterhouseCoopers LLP, have conducted an examination of the consolidated financial statements in accordance with Canadian generally accepted auditing standards. The report of the independent auditors is included in this Annual Review. The independent auditors have full and free access to the Audit Committee of the Company.

“John Hogg”	“Jeff Redmond”
John Hogg	Jeff Redmond
President and Chief Executive Officer	Director, Finance

AUDITORS’ REPORT

To the Shareholders of Western Canadian Coal Corp.

We have audited the consolidated balance sheets of Western Canadian Coal Corp. (the “Company”) as at March 31, 2008 and 2007 and the consolidated statements of operation and comprehensive loss, deficit and cash flows for each of the years in the two year period ended March 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at March 31, 2008 and 2007 and the results of its operations and its cash flows for each of the years then ended in accordance with Canadian generally accepted accounting principles.

Chartered Accountants

Vancouver, BC

June 17, 2008

Western Canadian Coal Corp.

Consolidated Balance Sheets

As at March 31, 2008 and 2007

(Expressed in thousands of Canadian dollars)

	March 31, 2008			March 31, 2007
ASSETS
Current assets
Cash and cash equivalents	$	14,137		$	35,272
Restricted cash (Note 6)	4,608			10,000
Accounts receivable (Note 7)	11,418			15,222
Inventory (Note 8)	24,173			28,522
Prepaids and other deposits (Note 9)	216			4,581
	54,552			93,597
Investments (Note 10)	1,681			—
Deposits (Note 11)	12,189			9,946
Mineral property, plant and equipment (Note 12)	384,902			321,652
Future income tax asset (Note 26)	—			13,380
	$	453,324		$	438,575
LIABILITIES
Current liabilities
Demand bank loan (Note 13)	$	3,500		$	—
Accounts payable and accrued liabilities	41,142			25,523
Current income tax payable (Note 26)	403			538
Acquisition liability (Note 4)	26,137			—
Current portion of royalty liability (Note 4)	1,490			—
Current portion of asset retirement obligations (Note 15)	1,012			327
Current portion of capital lease obligations (Note 16)	13,348			9,898
Current portion of convertible debentures (Note 17)	11,941			8,730
Current portion of long-term debt (Note 18)	27,918			30,047
	126,891			75,063
Loan from related party (Note 14)	5,016			—
Asset retirement obligations (Note 15)	13,694			9,793
Capital lease obligations (Note 16)	40,173			35,649
Convertible debentures (Note 17)	140,411			102,557
Long-term debt (Note 18)	—			42,131
Royalty liability (Note 4)	8,149			—
	334,334			265,193
SHAREHOLDERS’ EQUITY
Share capital (Note 19)	225,904			182,629
Equity portion of convertible debentures (Notes 14 and 17)	14,166			11,558
Contributed surplus (Note 21)	12,838			6,256
Deficit	(133,918		)	(27,061		)
	118,990			173,382
	$	453,324		$	438,575

Commitments and contingencies (Note 28), Subsequent events (Note 31)

The accompanying notes are an integral part of these consolidated financial statements.

Approved on Behalf of the Board of Directors:

“John Byrne”	“John R. Brodie”
John Byrne, Director	John R. Brodie, FCA, Director

1

Western Canadian Coal Corp.

Consolidated Statements of Operations and Comprehensive Loss

For the years ended March 31, 2008 and 2007

(Expressed in thousands of Canadian dollars, except per share data)

	2008			2007
Revenues	$	252,489		$	134,121
Cost of goods sold
Cost of product sold	180,165			73,947
Transportation and other	81,840			39,991
Depletion, amortization and accretion	31,123			11,293
	293,128			125,231
(Loss) income from mining operations	(40,639		)	8,890
Other expenses (income)
General, administration and selling (Note 22)	22,512			13,839
Coal exploration (Note 23)	4,811			6,739
Interest, accretion and financing fees on long-term debt	27,262			10,525
Investment impairment (Note 10)	3,319			—
Terminated contract expense (Note 9)	2,590			—
Net break fee settlement	—			(233		)
Other income (Note 24)	(8,526		)	(2,871		)
	51,968			27,999
Net loss before tax	(92,607		)	(19,109		)
Income tax (expense) recovery (Note 26)
Current income tax (expense)	—			(450		)
Future income tax (expense) recovery	(13,380		)	6,574
	(13,380		)	6,124
Net loss for the year	(105,987		)	(12,985		)
Other comprehensive income	—			—
Net loss and comprehensive loss	(105,987		)	(12,985		)
Loss per share
Basic and diluted	$	(0.95	)	$	(0.14	)
Weighted average common shares outstanding
Basic and diluted	111,349,649			89,879,506

The accompanying notes are an integral part of these consolidated financial statements.

2

Western Canadian Coal Corp.

Consolidated Statements of Deficit

For the years ended March 31, 2008 and 2007

(Expressed in thousands of Canadian dollars)

	2008			2007
Deficit, beginning of year as previously reported	$	(27,061	)	$	(14,076	)
Adoption of financial instruments standards (Note 3)	(870		)	—
Deficit as restated	(27,931		)	(14,076		)
Net (loss) for the year	(105,987		)	(12,985		)
Deficit, end of year	$	(133,918	)	$	(27,061	)

The accompanying notes are an integral part of these consolidated financial statements.

3

Western Canadian Coal Corp.

Consolidated Statements of Cash Flows

For the years ended March 31, 2008 and 2007

(Expressed in thousands of Canadian dollars)

	2008			2007
Cash flows from (used in):
Operating Activities
Net (loss) for the year	$	(105,987	)	$	(12,985	)
Items not involving cash and cash equivalents:
Depletion, amortization and accretion	32,647			11,670
Stock-based compensation	4,957			1,914
Interest, accretion and financing fees on long-term debt	5,972			3,099
Inventory write-down	7,254			—
Investment impairment	3,319			—
Terminated contract expense	2,590			—
Unrealized foreign exchange loss (gain)	1,274			(2,363		)
Future income tax recovery	13,380			(6,574		)
	(34,594		)	(5,239		)
Changes in non-cash working capital items (Note 25)	20,816			(30,464		)
	(13,778		)	(35,703		)
Financing Activities
Demand bank loan	3,500			—
Financing costs	—			(822		)
Repayments on capital lease obligations	(11,407		)	(12,052		)
Proceeds from advance from related party, net of issue costs	4,988			—
Net proceeds from sales-leaseback of equipment	—			8,635
Proceeds from convertible debentures, net of issue costs	39,575			—
Proceeds from long term debt, net of issue costs	—			72,928
Repayments on long-term debt	(47,083		)	—
Proceeds from exercise of stock options	201			—
Proceeds from issue of shares, net of issue costs	42,780			22,714
	32,554			91,403
Investing Activities
Acquisition of mineral property, plant and equipment	(33,037		)	(88,355		)
Deposits	(1,874		)	(3,347		)
Investment (Note 10)	(5,000		)	—
	(39,911		)	(91,702		)
Decrease in cash and cash equivalents during the year	(21,135		)	(36,002		)
Cash and cash equivalents, beginning of year	35,272			71,274
Cash and cash equivalents, end of year	$	14,137		$	35,272

Supplementary cash flow information (Note 25)

The accompanying notes are an integral part of these consolidated financial statements.

4

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

1.Nature of operations

Western Canadian Coal Corp. (the “Company”) was incorporated in the Province of British Columbia for the purpose of acquiring, exploring and developing coal mining properties for the international metallurgical coal markets.  The Company operates coal mines and develops new coal resources in northeast BC, which take advantage of the infrastructure already established for the northeast BC coalfields, including rail, port, town and other facilities.

2.Summary of significant accounting policies

(a)Basis of presentation

These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles.

(b)Principles of consolidation

These consolidated financial statements include the accounts of the Company and its 100% owned subsidiaries, Western Coal Corp., Wolverine Coal Ltd. (“Wolverine Coal”) and 1243770 Alberta Ltd.  Wolverine Coal was incorporated on July 10, 2006 under the Business Corporation Act (British Columbia).

In accordance with CICA Handbook Section 3055, “Interests in Joint Ventures”, these consolidated financial statements include the Company’s 50% proportionate share of the assets, liabilities, revenues and expenses of the Belcourt Saxon Coal Limited Partnership (the “Joint Venture”) and Belcourt Saxon Coal Ltd. (the “Joint Venture’s operator”). All exploration expenditures incurred by the Joint Venture to date have been charged to earnings.

In accordance with CICA Accounting Guideline 15 “Consolidation of Variable Interest Entities,” these consolidated financial statements include the assets and liabilities of Falls Mountain Coal Inc. as at March 31, 2008 at which time the Company became the primary beneficiary of Falls Mountain Coal Inc. (Note 4).

All significant intercompany transactions and balances have been eliminated.

(c)Use of estimates

The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions based on currently available information.  Such estimates and assumptions may affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the year.

Significant areas where management’s judgment is applied include asset and investment valuations, reserve determinations, production inventory quantities, plant and equipment lives, contingent liabilities, stock-based compensation, warrants, tax provisions and future tax balances, asset retirement obligations, convertible debentures and other accrued liabilities.  Actual results could differ from the estimates and assumptions used.

5

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

2.Summary of significant accounting policies (continued)

(c)Use of estimates (continued)

Depreciation and depletion of capital assets are dependent upon estimates of useful lives of buildings and equipment, estimate of salvage values and reserve estimates, which are determined with the exercise of judgment. The assessments of any impairment of mineral property, plant and equipment are dependent upon estimates of fair value that take into account factors such as reserves, economic and market conditions and the useful lives of assets. Asset retirement obligations are recognized in the period in which they arise and are stated as the fair value of estimated future costs. These estimates require extensive judgment about the nature, cost and timing of the work to be completed, and may change with future changes to costs, mining plans, environmental laws and regulations and remediation practices.

(d)Financial instruments

Financial assets and liabilities on the balance sheet are recognized when the Company becomes a party to the contractual provisions of the instrument.

(e)Cash and cash equivalents

Cash and cash equivalents include bank balances and highly liquid temporary money market instruments with initial maturities of three months or less.

Cash equivalents are designated as available for sale and are recorded at fair value using quoted market prices.

(f)Inventory

Coal inventory is valued at the lower of average production cost and net realizable value.  Production costs include contract mining costs, direct labour, operating materials and supplies, transportation costs, an applicable portion of operating overhead, including depreciation and depletion.  Net realizable value is the expected difference between the average selling price for the finished product less the costs to get the product into saleable form and to the selling location.

Materials inventory consists of consumable parts and supplies which are valued at the lower of average cost and net realizable value. Net realizable value is actual cost less any provision for obsolescence.

6

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

2.Summary of significant accounting policies (continued)

(g)Mineral property, plant and equipment

Plant and equipment are recorded at cost; maintenance and repairs of a routine nature are expensed as incurred.  The cost of the plant less its salvage value is amortized on a straight-line basis over its useful life.  Equipment is depreciated on a declining balance basis or straight-line basis as appropriate.  Leasehold improvements are depreciated on a straight-line basis over the term of the lease.

Mine development costs include expenditures to acquire and develop identified mineral properties and reserves and net costs relating to production during the development phase. Depletion on producing properties is provided using a unit-of-production method based upon the adjusted proven and probable mineral reserve position of the mine at the beginning of the year. Development costs incurred to expand the capacity of operating mines, to develop new ore bodies or to develop mine areas substantially in advance of current production are capitalized and charged to operations on a unit-of-production method based upon proven and probable mineral reserves.

Exploration costs are charged to earnings in the period 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. Upon commencement of commercial production, these capitalized costs are charged to operations on a unit of production method based upon the proven and probable mineral reserves to which they relate.  If the coal properties are abandoned or otherwise impaired, the related capitalized costs are charged to operations in the period in which the property becomes impaired or abandoned.

Mineral property, plant and equipment include interest and financing costs relating to the construction of plant and equipment and operating costs net of revenues prior to the commencement of commercial production of new mines. Interest and financing costs are capitalized only for those projects for which funds have been borrowed. No interest was capitalized in fiscal 2008 (2007 - $7,823,000).

(h)Deferred stripping costs

Effective July 1, 2006, the company adopted CICA Emerging Issues Committee Abstract 160 (EIC-160) “Stripping Costs Incurred in the Production Phase of a Mining Operation” on a prospective basis. EIC-160 requires stripping costs to be accounted for as variable production costs to be included in the costs of inventory produced, unless the stripping activity can be shown to be a betterment of the mineral property, in which case, the stripping costs would be capitalized. Betterment occurs when stripping activity increases future output of the mine by providing access to additional sources of reserves. Capitalized stripping costs would be amortized on a unit of production basis over the proven and probable reserves to which they relate.

(i)Long-lived assets

The Company monitors the recoverability of long-lived assets, based on factors such as current coal prices, future asset utilization, business climate and future undiscounted cash flows expected to result from the use of the related assets.  The Company’s policy is to record an impairment loss in the period when it is determined that the carrying amount of the assets may not be recoverable.  The impairment loss is calculated as the amount by which the carrying amount of the assets less its related asset retirement obligation net of related future income taxes, exceeds the undiscounted estimate of future cash flows from the asset.

7

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

2.Summary of significant accounting policies (continued)

(j)Asset retirement obligations

The Company recognizes asset retirement obligations in the period in which they are incurred if a reasonable estimate of fair value can be determined.  The liability is measured at fair value and is adjusted to its present value in subsequent periods as accretion expense is recorded.  The fair value of the estimated asset retirement costs is capitalized as part of the carrying amount of the long-lived asset when incurred and amortized to earnings over the asset’s estimated useful life. The asset retirement obligation is reviewed each reporting period and revised for changes in estimated future costs and regulatory requirements.

(k)Revenue recognition

Revenues from coal shipments are recognized at contracted or market prices when the risks and rewards of ownership pass to the customer and when collection is reasonably assured provided that persuasive evidence of a contract or other arrangement exists.

(l)Foreign currency translation

These consolidated financial statements are presented in Canadian dollars.  Transactions in foreign currencies are initially recorded in Canadian dollars at exchange rates in effect at the date of the transaction.  Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the year-end exchange rates.  The resultant gain and loss is included in the consolidated statement of operations as part of the other expenses (income).

(m)Stock-based compensation plan

The Company has two stock—based compensation plans including one that was approved and adopted while the Company was a venture issuer and one that was approved and adopted following its listing on the TSX.  The fair value method of accounting is used for valuing stock option grants.  Compensation costs, attributable to stock options granted to employees, consultants or directors is measured at fair value at the grant date and expensed over the vesting period with a corresponding increase to contributed surplus.  Upon the exercise of the stock options, consideration paid together with the amount previously recognized in contributed surplus is recorded as an increase to share capital.

(n)Mineral exploration tax credits

The Company recognizes the benefits related to mineral exploration tax credits to which it is entitled in the period in which recoverability can be established and quantified.

(o)Future income taxes

Income taxes are recorded using the liability method of tax allocation.  Future income tax assets and liabilities are determined based on temporary differences between the tax and accounting bases and are measured using the current, or substantively enacted, tax rates and laws expected to apply when these differences reverse.  A valuation allowance is recorded against any future income tax asset if it is more likely than not that the asset will not be realized.

(p)Earnings (loss) per share

Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period.  The Company applies the treasury stock method in calculating diluted earnings per share.  Diluted earnings per share excludes all dilutive potential common shares if their effect is anti-dilutive.

8

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

3.Adoption of new accounting standards and developments

(a)Effective April 1, 2007, the Company adopted the revised CICA Section 1506 “Accounting Changes”, which requires that: (a) a voluntary change in accounting principles can be made if, and only if, the changes result in more reliable and relevant information, (b) changes in accounting policies are accompanied with disclosures of prior period amounts and justification for the change, and (c) for changes in estimates, the nature and amount of the change should be disclosed. The Company has not made any voluntary change in accounting principles since the adoption of the revised standard.

(b)Effective, April 1, 2007, the Company adopted the three new accounting standards and related amendments to other standards on financial instruments issued by the CICA. Prior periods have not been restated.

(i)Financial Instruments — Recognition and Measurement, Section 3855

This standard prescribes when a financial asset, financial liability, or non-financial derivative is to be recognized on the balance sheet and whether fair value or cost-based measures are used.  It also specifies how financial instrument gains and losses are to be presented. All financial instruments and derivatives are measured at fair value on initial recognition. Subsequent measurement depends on the classification of the instrument.

The Company’s cash and restricted cash balances have been classified as held-for-trading and are recorded at fair value. Cash equivalents and investments, which include banker’s acceptances, have been classified as available-for-sale and are recorded at fair value on the balance sheet with changes in the fair value of these instruments reflected in other comprehensive income and included in shareholders’ equity on the balance sheet. Deposits have been classified as held-to-maturity and are recorded at amortized cost.

9

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

3.Adoption of new accounting standards and developments (continued)

(i)Financial Instruments — Recognition and Measurement, Section 3855 (continued)

All derivatives are recorded on the balance sheet at fair value. Mark-to-market adjustments on these instruments are included in net income. In accordance with the standard’s transitional provisions, the Company recognizes as separate assets and liabilities only embedded derivatives acquired or substantially modified on or after April 1, 2003.

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when the risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value with changes in fair value recognized in profit or loss.

All other financial instruments including loan from related party, convertible debentures, long-term debt and royalty liability have been recorded at cost or amortized cost. Transaction costs incurred to acquire financial instruments are included in the underlying balance and the resulting difference between the fair value of the instrument and the adjusted balance is amortized using the effective interest rate method. Regular-way purchases and sales of financial assets are accounted for on the trade date.

(ii)Hedges, Section 3865

This standard is applicable when a company chooses to designate a hedging relationship for accounting purposes. It builds on the existing AcG-13 “Hedging Relationships” and Section 1650 “Foreign Currency Translation”, by specifying how hedge accounting is applied and what disclosures are necessary when it is applied. The recommendations of this section are optional and are only required if the entity is applying hedge accounting. The adoption of this standard has had no present impact as the Company has not employed hedge accounting which is consistent with prior years.

(iii)Comprehensive Income, Section 1530

This standard requires the presentation of a statement of comprehensive income and its components. Comprehensive income is the change in net assets during a period from transactions and other events and circumstances from non-owner sources. Other comprehensive income comprises all revenues, expenses, gains and losses that are included in comprehensive income but are not recognized in net earnings, such as those resulting from changes in the fair value of financial assets classified as available for sale.

10

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

3.Adoption of new accounting standards and developments (continued)

As at April 1, 2007, the effect on the Company’s balance sheet of adopting these standards is summarized as below. As prescribed by these standards, prior periods have not been restated.

	April 1, 2007
	Opening balance			Adjusted on adoption of Financial Instrument standards			Restated opening balances in 2007
ASSETS
Current assets	$	93,597		$	—		$	93,597
Deferred financing costs	6,754			(6,754		)(a)	—
Deposits and other assets	9,922			24		(a)	9,946
Mineral property, plant and equipment	321,652			—			321,652
Future income tax asset	13,380			—			13,380
	$	445,305		$	(6,730	)	$	438,575
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities	$	75,063		$	—		$	75,063
Asset retirement obligations	9,793			—			9,793
Capital lease obligations	35,649			439		(b)	36,088
Convertible debentures	106,465			(4,068		)(a)(c)	102,397
Long-term debt	44,953			(2,231		)(a)(c)	42,722
	271,923			(5,860		)	266,063
Shareholders’ equity
Share capital	182,629			—			182,629
Equity portion of convertible debentures	11,558			—			11,558
Contributed surplus	6,256			—			6,256
Deficit	(27,061		)	(870		)(b)(c)	(27,931		)
	173,382			(870		)	172,512
	$	445,305		$	(6,730	)	$	438,575

Notes:

(a)	Debt financing costs have been reclassified to their underlying balances of Convertible debentures and Long-term debt. Deferred transaction costs have been reclassified to Deposits and other assets.
(b)	Embedded derivatives have been measured at fair value.
(c)	Deferred financing costs have been adjusted to be recognized on the effective interest rate method.

(c)Recent Canadian accounting pronouncements

Inventories

CICA Handbook section 3031 “Inventories” will replace the existing section 3030 effective for years fiscal beginning January 1, 2008 and will be applicable to the Company commencing with its fiscal year beginning April 1, 2008. This section establishes standards for the measurement and disclosure of inventories. The Company is in the process of assessing the impact of applying this section on its financial statements.

11

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

3.Adoption of new accounting standards and developments (continued)

(c)Recent Canadian accounting pronouncements (continued)

Financial instruments and capital disclosures

CICA Handbook sections 1535 “Capital Disclosures” and 3862 “Financial Instruments — Disclosures” and 3683 “Financial Instruments — Presentation” are disclosure and presentation requirements that are effective for fiscal years beginning on or after October 1, 2007 and will be applicable to the Company commencing with its fiscal year beginning April 1, 2008. These sections require additional disclosures relating to financial instruments presentation and capital management strategies. The Company is in the process of assessing the impact of applying these sections on its financial statements.

Goodwill and intangible assets

CICA Handbook section “Goodwill and Other Intangible Assets” was replaced by Section 3064 “Goodwill and Intangible Assets” that is effective for fiscal years beginning beginning on or after October 1, 2008 and will be applicable to the Company commencing with its fiscal year beginning April 1, 2009. This standard provides guidance on the recognition, measurement, presentation and disclosure of goodwill and intangible assets. At the same time as the adoption of this standard, EIC-27, “Revenues and Expenditures in the Pre-operating Period,” will be withdrawn. The Company is in the process of assessing the impact of applying these sections on its financial statements.

International financial reporting standards (IFRS)

In 2006, the Canadian Accounting Standards Board (“AcSB”) published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008 the AcSB announced that 2011 is the changeover date for publicly-listed companies to use IFRS, replacing Canada’s own GAAP. The date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011 and will be applicable to the Company commencing with its fiscal year beginning April 1, 2011. The transition date of April 1, 2011 for the Company will require the restatement for comparative purposes of amounts reported by the Company for the year ended March 31, 2011. While the Company has begun assessing the adoption of IFRS for 2011, the financial reporting impact of the transition to IFRS cannot be reasonably estimated at this time.

12

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

4.Acquisition Falls Mountain Coal Inc.

On April 27, 2007, the Company entered into an agreement (the “Master Agreement”) with Cambrian Mining plc (“Cambrian”), the Company’s major shareholder, governing the respective rights of the Company and Cambrian with respect to the acquisition of Falls Mountain Coal Inc. (“FMC”) by Cambrian from Pine Valley Mining Corporation (“PVMC”) and the possible subsequent disposition by Cambrian to the Company.

In accordance with the terms of the Master Agreement, the Company also agreed to the terms of an interim management services agreement (“Management Agreement”) with Cambrian for which the Company is to provide Cambrian with the management services and the personnel necessary to operate and maintain the Willow Creek Coal Mine and related facilities.

On November 30, 2007, the Company and Cambrian conditionally agreed to the transfer of FMC from Cambrian to the Company, which was subsequently amended in February 2008. The Company will purchase FMC for consideration of $28,111,347, which will be satisfied by:

·the issue of 18,740,898 new common shares in the Company with a value of $14,055,674 at $0.75 per common share; and

·the deferred payment of $14,055,673 on or before September 30, 2008. If Cambrian provides to the Company on or before July 1, 2008 a written notice of election to receive the deferred payment in common shares, the Company shall pay the deferred payment by the issuance of 4,534,088 new common shares, such share entitlement to be issued at any time thereafter in multiples of not less than 500,000 common shares. If notice of Cambrian provides a notice of an election to receive the deferred payment in cash or if Cambrian does not provide notice on or before July 1, 2008 of an election to receive the deferred payment in cash or common shares, the Company shall pay the deferred payment on or before September 30, 2008 by wire transfer.

On March 31, 2008, the Company’s independent shareholders approved the acquisition of Falls Mountain Coal Inc. (“FMC”), which owns the Willow Creek mine, from its major shareholder Cambrian Mining Plc (“Cambrian”). As a result of this shareholder approval, the Company became the primary beneficiary of Falls Mountain Coal Inc. in accordance with CICA Accounting Guideline 15 “Consolidation of Variable Interest Entities.” The Company has consolidated the assets and liabilities of FMC at March 31, 2008 using the purchase method of accounting. The Company completed the acquisition subsequent to March 31, 2008 (Note 31).

The purchase consideration consists of the following:

Issuance of 18,740,898 common shares	$	13,306
Deferred payment	12,831
Transaction costs	125
Total purchase price	$	26,262

The value of the 18,740,898 common shares to be issued was determined based on the average market price of the Company’s common shares over the two day period before and after the terms were agreed to and announced.

The deferred payment of $14,056,000 is to be paid in cash or, at Cambrian’s election, by issuance of 4,534,088 common shares of the Company at a deemed price of $3.10 per share. The deferred payment has been discounted to $12,831,000 for six months at the discount rate of 20%.

13

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

4.Acquisition Falls Mountain Coal Inc. (continued)

The fair value of the Willow Creek Loadout Royalty (“Royalty”) that the Company will assume as partof the acquisition requires that payment of a minimum of $2,000,000 and up to $26,000,000 be paid to Pine Valley Mining Corporation on the basis of the tonnage of coal from the Willow Creek mine or Brule mine loaded for shipment through the FMC rail load-out facility. The Royalty was valued using the discounted future cash flow method based on the Company’s best estimate of future coal shipments over the next 10 years, a discount rate of 20% and a probability factor of 65% for production three years and on from March 31, 2008.

The preliminary allocation of the total purchase consideration to the assets acquired and liabilities assumed is based upon the estimated fair values at the time of acquisition. The allocation is subject to change in fiscal 2009 as the valuation process is completed.

The Company’s preliminary allocation of the total purchase consideration to the estimated fair value of the acquired assets and liabilities assumed of FMC is as follows:

Reclamation deposits	$	544
Mineral property, plant and equipment	38,069
Total assets acquired	38,613
Capital lease obligation	(91		)
Asset retirement obligation	(2,621		)
Royalty liability	(9,639		)
Total liabilities assumed	(12,351		)
Net asset acquired	$	26,262

5.Interest in joint venture

The Company owns a 50% interest in the Belcourt Saxon Coal Limited Partnership (the “Joint Venture”) formed for the exploration and development of the Belcourt and Saxon properties in northeast BC.

The Company’s proportionate share of its interest in and results from the Joint Venture as at and for the year ended March 31, 2008 and 2007 are as follows:

	2008			2007
Cash and cash equivalents	$	78		$	273
Other current	8			22
Deposits	50			50
Mineral property, plant and equipment	20			26
Current liabilities	(60		)	(111		)
	$	96		$	260

14

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

5.      Interest in joint venture (continued)

	2008			2007
General, administration and selling	$	103		$	251
Other income	—			(33		)
Coal exploration	1,129			2,741
Net loss	$	1,232		$	2,959
Cash Flows
Operating activities	(1,261		)	(3,051		)
Financing activities	1,068			950
Investing activities	(2		)	43
Increase in cash and cash equivalents during the period	$	(195	)	$	(2,058	)
Cash and cash equivalents, beginning of period	273			2,331
Cash and cash equivalents, end of period	$	78		$	273

Under royalty agreements applicable to certain properties within the Joint Venture, the Joint Venture is obligated to make royalty payments to various third parties based on the selling price upon delivery of all coal sales relating to those properties, ranging from 0.75% to 1.00%.  In addition, the Joint Venture participants are entitled to a royalty equal to US $0.50 per tonne of coal produced from that venturer’s contributed property.

6.Restricted cash

Restricted cash as presented consist of the following:

	2008		2007
Funds held in escrow for interest on convertible debentures (Note 17)	$	3,523	$	—
Interest escrow account (Note 18)	1,085		—
Contingent support account (Note 18)	—		10,000
	$	4,608	$	10,000

7.Accounts receivable

Accounts receivable as presented consist of the following:

	2008		2007
Trade accounts receivable	$	7,914	$	9,678
Goods and services tax receivable	3,121		3,025
Unrealized gain on foreign currency contracts	—		2,363
Other	383		156
	$	11,418	$	15,222

15

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

8.Inventory

Inventory as presented consists of the following:

	2008		2007
Production inventory	$	16,948	$	25,876
Parts inventory	7,225		2,646
	$	24,173	$	28,522

9.Prepaids and other deposits

	2008		2007
Prepaid expenses and deposits	$	216	$	1,388
Deposits supporting letters of credit	—		3,193
	$	216	$	4,581

In fiscal 2007, the Company bid on tendered contracts for the sale of hard-coking coal from the Perry Creek mine. The Company was awarded two contracts. As part of these contracts, the Company was required to post performance bonds through letters of credit for US$891,000 relating to the first contract and US$1,154,000 relating to the second contract. The letters of credit were supported by term deposits which were included on the balance sheet in the Prepaids and other deposits line.

Both of these contracts were contingent on the acceptance of a trial shipment of Perry Creek hard-coking coal. Notification of acceptance of the trial shipment for the first contract was made after the expiry of the first contract. The acceptance under the second contract was not made in time for the Company to arrange for shipment. The Company tried to restructure the contracts, but could not come to an agreement with the customer. As a result, the customer terminated the two contracts.

The customer called on the letters of credit for non-delivery of product and these amounts were paid as required by the letters of credit in October 2007. The Company has recorded a charge of $2,053,000 in its financial statements. The Company does not agree with the exercise of the letters of credit and is currently reviewing its options.

Previously deferred sales commissions relating to these contracts totaling $537,000 have also been expensed.

16

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

10.Investment

As at March 31, 2008, the Company held two Canadian third party non-bank asset-backed commercial papers (“ABCP”) with a total maturity value of $5,000,000. When the Company acquired these investments, they were rated R1 (High) by the Dominion Bond Rating Service (“DBRS”), the highest credit rating issued for commercial paper, and backed by R1 (High) rated assets and liquidity agreements. These investments reached their maturity dates during the quarter ended September 30, 2007, but did not settle on maturity due to the liquidity issues in the ABCP market. These investments were designated as available-for-sale and were included in the cash and cash equivalent balance. These investments have subsequently been reclassified to non-current assets.

On August 16, 2007 an announcement was made by a group representing the banks, asset providers and major investors that they had agreed in principle to a long-term proposal and interim agreement to convert the ABCPs into long-term floating rate notes maturing no earlier than the scheduled maturity of the underlying assets. On September 6, 2007, a restructuring committee was formed to propose a solution to the liquidity problem affecting the ABCP market.

On March 17, 2008, a court order was obtained through which the restructuring of the ABCP is expected to occur under the protection of the Companies’ Creditors Arrangement Act. The details of the restructuring proposal were issued in an Information Statement on March 20, 2008. A vote to approve the restructuring proposal occurred on April 25, 2008 and the proposal was approved.

The Information Statement contained the following details about the proposed restructuring:

·Three master assets vehicles (MAV) will be created. Participation in each of the MAV is dependent on the noteholder’s ability and willingness to self insure against margin calls.

·5 different series of notes will be issued with each MAV, which will be based on a report issued by J.P. Morgan, financial advisor to the Committee:

·Class A-1 Notes will be the senior notes, with the other series of Notes subordinated to them. These Notes are expected to receive AA ratings, have maturities ranging from 6 to 8 years and a coupon rate of Bankers Acceptance (“BA”) Rate less 0.5%.

·Class A-2 Notes will be senior to the Class B and C Notes and IA Tracking Notes. These Notes are expected to receive AA ratings, have a maturity of 8 years and a coupon rate of BA Rate less 0.5%.

·Class B Notes will be senior to the Class C Notes and IA Tracking Notes. These Notes will not be rated and are expected to have a maturity of 8 years and a coupon rate of BA Rate less 0.5%.

·Class C Notes will be senior to the IA Tracking Notes. These Notes will not be rated and are expected to have a maturity of 8 years and a coupon rate of 20%.

·IA Tracking Notes will not be rated. These Notes are expected to have a maturity of 8 years and a coupon rate equivalent to the net rate of return generated by the specific underlying assets.

17

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

10.Investment (continued)

Based on the Information Statement, the Company expects:

·$810,000 of its investments will be replaced with Class A-1 Notes

·$699,000 of its investments will be replaced with Class A-2 Notes

·$120,000 of its investments will be replaced with Class B Notes

·$52,000 of its investments will be replaced with Class C Notes.

The restructuring plan was approved for fairness by an Ontario judge on June 6, 2008.

The ABCP in which the Company has invested has not traded in an active market since mid-August 2007 and there are currently no market quotations available. The Company has assessed the fair value of these instruments based on the available information regarding current market conditions, the underlying assets of the Company’s existing trusts and indicative values contained in the report issued by J.P. Morgan. The change in fair value is considered to be other than temporary and as a result, an impairment charge of $3,319,000 has been recorded.

The valuation of these investments involves management’s judgment. Actual results could differ from the estimates and assumptions used.

11.Deposits

Deposits as presented consist of the following:

	2008		2007
Restricted reclamation deposits (Note (a))	$	9,980	$	7,430
Other restricted deposits (Note (b))	2,209		2,516
	$	12,189	$	9,946

(a)In connection with the mine permits for its Wolverine and Burnt River properties, the Company has provided the BC government with reclamation security deposits of $8,197,000 (2006 - $7,245,000). The Company is required to provide additional reclamation security deposits on the Burnt River property of $975,000 per year for the next two years commencing December 31, 2008. These amounts may be adjusted for inflation, if the cumulative inflation rate from January 1, 2006 for the Wolverine property and from January 1, 2008 for the Burnt River property exceeds 10%.

(b)   Other restricted deposits include security deposits required by vendors.

18

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

12.Mineral property, plant and equipment

2008	Cost		Accumulated Amortization		Net
Mine development	$	227,724	$	27,573	$	200,151
Plant, buildings and mine facilities	107,668		6,671		100,997
Equipment	103,283		19,529		83,754
	$	438,675	$	53,773	$	384,902

2007	Cost		Accumulated Amortization		Net
Mine development	$	193,437	$	12,632	$	180,805
Plant, buildings and mine facilities	71,908		2,696		69,212
Equipment	80,833		9,198		71,635
	$	346,178	$	24,526	$	321,652

Plant, equipment and mine facilities include assets under capital leases of $96,939,000 (2007 - $68,412,000). Depletion and amortization recorded during the year was $29,247,000 (2007 — $11,670,000).

13.Demand bank loan

On March 11, 2008, the Company obtained a demand non-revolving bridge loan in the amount of $3,500,000 in order to provide liquidity for working capital purposes pending any possible long term solution to the current liquidity issues affecting the Company’s ABCP (Note 10). The loan is secured by the Company’s ABCP.

The demand bank loan shall be repaid on demand, but must be repaid in full by February 28, 2009. In the event of redemption, liquidation or any other situation in which the proceeds from the ABCP are payable to or received by the Company, 100% of the proceeds shall be applied as repayment to the loan.

The interest rate is at the prime rate per annum. The loan also has a stamping fee of 0.5% per annum.

19

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

14.Loan from related party

On September 14, 2007, the Company received a loan from Cambrian for $5,000,000 with a principal payment date of July 15, 2011. The loan is convertible at the option of Cambrian at a conversion price of $0.75 per common share until the principal payment date. Interest is to accrue at 8.5% per year and is payable on the principal payment date.

The fee for making the loan was $100,000 payable on the principal repayment date and 520,000 warrants to purchase new common shares in the capital of the Company at an exercise price of $3.25 until September 30, 2008.

The loan was accounted for in accordance with its substance and its component parts have been measured at their respective fair values at the time of issue. The liability component had been calculated as the present value of the stream of interest and principal payments discounted at a rate approximating the interest rate for a similar liability without a conversion feature, which was estimated to be 12%. The difference between the debt component of $4,922,000 and the face value of the loan, in the amount of $78,000 is classified as equity.  Issuance costs related to the debt component of the loan were netted against the liability and are charged to earnings over the term to maturity. The debt component of the loan will be accreted over the term to maturity, by charges to earnings for the period.

15.Asset retirement obligations

The Company’s asset retirement obligations relate to the restoration and closure of its mine properties.  The asset retirement obligations have been recorded as liabilities at fair value, assuming a credit adjusted risk-free discount rates ranging from 4.20% to 7.66% and an inflation factor of 2.5%.  The amounts of the liabilities are subject to re-measurement during each reporting period.

The total undiscounted amounts of the estimated obligations are approximately $15,772,000 and are expected to be incurred over a ten year period.

Asset retirement obligations as at and for the years ended March 31, 2008 and 2007 are as follows:

	2008			2007
Balance, beginning of year	$	10,120		$	3,872
Settlement of obligations during the year	(101		)
Fair value of asset retirement obligation recorded during the year	4,078			5,762
Add: Accretion of liability component of asset retirement obligation	609			486
Balance, end of year	14,706			10,120
Less: current portion	(1,012		)	(327		)
Long-term portion of asset retirement obligation	$	13,694		$	9,793

20

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

16.Capital lease obligations

The Company has certain equipment under capital lease expiring in 2012 and at interest rates between 2.50% to 7.72%.  Capital lease obligations for the years ended March 31, 2008 and 2007 are as follows:

	2008			2007
Balance, beginning of year	$	45,547		$	22,562
Fair value of capital leases recorded during the year	19,459			35,037
Change in fair value of embedded derivatives	(78		)	—
Less: payments made during the year	(14,865		)	(14,375		)
Add: interest portion of payments	3,458			2,323
Balance, end of year	53,521			45,547
Less: current portion	(13,348		)	(9,898		)
Long-term portion of capital lease obligations	$	40,173		$	35,649

Future minimum lease payments under capital leases by year and in aggregate are as follows:

For the years ending March 31,	2009	$	16,732
	2010	16,930
	2011	13,978
	2012	8,952
	2013	4,659
Total minimum lease payments		61,251
Amounts representing interest		(7,730		)
Present value of minimum lease payments		53,521
Less: current portion		(13,348		)
		$	40,173

21

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

17.Convertible debentures

Summary	2008			2007
$125 million issuance, Maturity March 24, 2011	$	114,248		$	111,287
US$40 million issuance, Maturity November 30, 2010	38,104			—
Balance — end of period	152,352			111,287
Less: Current Portion	(11,941		)	(8,730		)
	$	140,411		$	102,557

$125 million issuance, Maturity March 24, 2011	2008			2007
Balance — beginning of period	$	111,127		$	109,270
Add: Accretion of liability component of debentures	3,121			2,017
Balance — end of period	114,248			111,287
Less: Current Portion	(8,705		)	(8,730		)
	$	105,543		$	102,557

On March 24, 2006, the Company issued 125,000 subordinated Convertible debentures in denominations of $1,000 in the aggregate principal amount of $125,000,000. The Convertible debentures bear interest at a rate of 7.5% per annum payable semi-annually on September 24 and March 24 in each year commencing September 24, 2006 and mature on March 24, 2011.  Holders may convert their Convertible debentures into common shares at any time prior to their maturity at a conversion price of $4.00 per common share, being a conversion rate of 250 common shares per $1,000 principal amount of Convertible debentures.

Commencing March 24, 2009, the Company may redeem all or a portion of the Convertible debentures at a redemption price equal to the principal amount plus accrued and unpaid interest thereon, provided that the weighted average trading price of the Company’s common shares on the TSX for the 30 consecutive trading days ending on the fifth trading day preceding the day prior to which the redemption notice is given, is at least 125% of the Conversion Price.

22

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

17.Convertible debentures (continued)

Upon specified change of control events, holders of Convertible debentures will have the option to require the Company to purchase all or any portion of the Convertible debentures at a price equal to 105% of the principal amount of the Convertible debentures to be purchased, plus accrued and unpaid interest.  The Company may, at its option and subject to certain conditions, elect to satisfy its obligation to repay the principal amount of the Convertible debentures, plus accrued and unpaid interest, upon redemption or maturity, by issuing freely-tradeable common shares.  The number of common shares a holder will receive in respect of each convertible debenture will be determined by dividing the principal amount of the Convertible debentures plus accrued and unpaid interest thereon by 95% of the current market price of the common shares on the date fixed for redemption or the maturity date, as the case may be.

The Convertible debentures are unsecured and are subordinated to the other liabilities of the Company.  However, the trust indenture under which the Convertible debentures are issued provides that the Company will not incur indebtedness secured by the Wolverine assets, other than capital leases, which when added to the Convertible debentures, exceeds $215,000,000.

The Convertible debentures are being accounted for in accordance with their substance and are presented in these consolidated financial statements in their component parts, measured at their respective fair values at the time of issue.  The liability component has been calculated as the present value of the stream of interest and principal payments discounted at a rate approximating the interest rate for a similar liability without a conversion feature.  The difference between the debt component of $112,930,000 and the face value of the Convertible debentures, net of issue costs of $512,000, in the amount of $11,558,000 is classified as equity.  Issuance costs related to the debt component of the Convertible debentures are net against the liability component and charged to earnings using the effective interest rate method. The debt component of the Convertible debentures is accreted over the term to maturity, by charges to earnings for the period.

US$40 million issuance, Maturity November 30, 2011	2008			2007
Balance — beginning of period	$	—		$	—
Face value of Convertible Debentures issued during the period	40,315			—
Less: Warrants	(1,352		)
Less: Shareholders’ equity component	(2,530		)	—
Less: Transaction costs	(666		)
Liability component of Subordinated Debentures	35,767			—
Add: Accretion of liability component of debentures	1,523			—
Add: Foreign exchange adjustment	1,000
Less: Conversion of convertible debentures	(186		)
Balance — end of period	38,104			—
Less: Current Portion	(3,236		)	—
	$	34,868		$	—

23

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

17.Convertible debentures (continued)

On November 30, 2007 the Company issued a private placement of 40,372 unsecured convertible debentures in denominations of US$1,000 in the aggregate principal amount of US$40,372,000. The convertible debentures bear interest at a rate of 8.5% per annum payable semi-annually on May 31 and November 30 in each year commencing May 31, 2008 and mature on November 30, 2010.  Holders may convert their convertible debentures into common shares at any time prior to their maturity at a conversion price of $0.75 per common share, being a conversion rate of 1,321 common shares per US$1,000 principal amount of convertible debentures.  The convertible debentures are not redeemable by the Company prior to maturity.

Upon specified change of control events, holders of convertible debentures will have the option to require the Company to purchase all or any portion of the convertible debentures at a price equal to 105% of the principal amount of the convertible debentures to be purchased, plus accrued and unpaid interest.

The convertible debentures are being accounted for in accordance with their substance and are presented in these consolidated financial statements in their component parts, measured at their respective fair values at the time of issue.  The fair value of the liability component has been calculated as the present value of the stream of interest and principal payments discounted at a rate approximating the interest rate for a similar liability without a conversion feature while the fair value of the equity component was determined as the difference between the fair value of the debt component and face value of the convertible debenture. The fair values of the liability, equity and warrant components have been pro-rated based on the consideration received. Issuance costs related to the debt component of the convertible debentures are netted against the liability portion and charged to earnings using the effective interest rate method.  The debt component of the convertible debentures is accreted over the term to maturity, by charges to earnings for the period.

In conjunction with the convertible debenture issuance, the Company has issued warrants to purchase up to 4,240,000 common shares at a price of $0.75 per share. These warrants can be exercised at any time prior to November 30, 2010. The fair value of the warrants was determined using the Black Scholes model with a volatility of 94%, risk-free interest rate of 3.84% and expected life of 2 years.

Restricted cash of $3,523,000 represents the interest required to be paid by the Company on the convertible debentures until November 30, 2008.

On January 31, 2008, 201.86 units or US$201,860 of convertible debentures were converted to 266,666 common shares.

24

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

18.Long-term debt

	2008			2007
Project debt facility	$	27,918		$	72,178
Less: current portion	(27,918		)	(30,047		)
	$	—		$	42,131

On August 18, 2006, the Company received a $75 million project loan facility, with a syndicate of banks, to be used for the completion of construction and start-up of the Perry Creek mine project. The original facility had a 6.5 year term with the final principal repayment due on December 31, 2012.  The Company had $30.0 million of scheduled long-term debt payments due in fiscal 2008, $11.8 million due in each of fiscal 2009 and fiscal 2010, $7.8 million due in fiscal 2011 and $9.1 million due in fiscal 2012. The remaining balance of $4.5 million was due thereafter.

In addition to the scheduled principal repayments, the facility provided for mandatory principal prepayments of 55% of excess cash flows until the facility is repaid in full. The loan could be repaid at anytime without penalty.

The prime loan interest rate was prime plus 1.50%.

All of the Perry Creek mine assets held by Wolverine Coal were pledged as security for the senior debt facility. Additionally, until the Perry Creek mine has achieved the Completion Test, the parent company, Western Canadian Coal Corp., has provided a guarantee of such amounts outstanding under the facility.

Throughout fiscal 2008, the Company made several amendments to the terms of its project loan facility in connection with various waiver letters. As a result of these amendments, the Company made additional principal payments of $17,083,000 in excess of those described above, penalty payments of $3,284,000 and incurred $950,000 in financing fees. The Company also set up a restricted cash account as an interest reserve account of $1,085,000 for the next 6 months of interest.

As at March 31, 2008, the Company was in violation of certain of its credit agreement covenants. The Company elected not to obtain a waiver for these covenant violations and instead repaid the long-term debt subsequent to March 31, 2008. As a result of this subsequent repayment, the Company has reclassified the entire debt to current liabilities and wrote off all related financing fees.

25

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

19.Share capital

Authorized: Unlimited number of common shares without par value

Issued:

	Number of Shares	Consideration
Balance, March 31, 2006	83,980,306	$	159,744
For cash received from a private placement of shares (Note (a))	8,777,066	17,115
For cash received from the exercise of warrants	3,519,600	5,279
For cash received from the exercise of stock options	450,768	320
Transferred to share capital upon exercise of stock options	—	171
Balance, March 31, 2007	96,727,740	182,629
For cash received from a private placement of shares (Note (b))	19,200,000	42,780
Transferred to share capital upon conversion of convertible debentures (Note 17)	266,666	199
For cash received from the exercise of stock options	140,500	201
Transferred to share capital upon exercise of stock options	—	95
Balance, March 31, 2008	116,334,906	$	225,904

(a)On December 15, 2006, the Company completed a non-brokered private placement with its major shareholder, Cambrian Mining plc, of 8,777,066 common shares at $1.95 per share for gross proceeds of $17,115,000. The net proceeds from the placement were used to fund the production start-up for the Company’s Brule mine property, to fund the Company’s share of the continuing exploration on the Belcourt Saxon properties, to fund additional regulatory permitting for certain of the Company’s other properties, and for general working capital.

(b)On June 28, 2007, the Company completed a brokered private placement of 19,200,000 units at $2.35 per unit for gross proceeds of $45,120,000. Each unit consists of one common share of the Company and one-quarter of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one additional common share until June 28, 2012 at an exercise price of $3.25. The net proceeds of the private placement were used to repay $19,582,500 of the Wolverine project debt facility and for general corporate purposes including working capital.

26

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

19.Share capital (continued)

Stock Options

A summary of the Company’s stock options outstanding and the changes for the years ended March 31, 2008 and 2007 is as follows:

	Directors and Officers		Employees and Other		Number of Options		Weighted Average Exercise Price Per Share
Balance at March 31, 2006	1,900,000		1,328,503		3,228,503		$	3.44
Cancelled	—		(76,667	)	(76 667	)
Exercised	(300,000	)	(150 768	)	(450,768	)
Granted	520,000		1,645,000		2,165,000
Balance at March 31, 2007	2,120,000		2,746,068		4,866,068		$	3.12
Cancelled	—		(757,500	)	(757,500	)
Exercised	(45,000	)	(95,500	)	(140,500	)
Granted	2,120,000		1,840,000		3,960,000
Balance at March 31, 2008	4,195,000		3,733,068		7,928,068		$	3.00

The Company has two stock option plans, one approved and adopted while the Company was a venture issuer (the “2004 Plan”) and one approved and adopted following the Company’s listing on the Toronto Stock Exchange (the “2005 Plan”).  As at March 31, 2008, 1,205,068 options (2007 - 1,361,068 options) remain issued pursuant to the 2004 Plan of which all have vested (2007 - all options vested).  No new options can be granted under the 2004 Plan and options granted under 2004 Plan prior to the adoption of the 2005 Plan will survive until exercise, lapse or termination in accordance with the provisions of the 2004 Plan.

Pursuant to the terms of the 2005 Plan, the maximum number of common shares issuable will be a number equal to 10% of the issued and outstanding common shares on a non-diluted basis at any time.  The exercise price of the options granted under the 2005 Plan is determined by the board of directors of the Company provided that such exercise price is not less than the market price on the date of grant of such options or such other minimum price as may be required by the TSX.  Options granted pursuant to the 2005 Plan will have a term of up to five years and will vest as determined by the board of directors of the Company.  As at March 31, 2008, 6,723,000 options (2007 - 3,505,000 options) are issued pursuant to the 2005 Plan.  Of these, 4,149,333 options (2007 - 1,599,664 options) have vested with the remaining options vesting 20% on each of the four anniversary dates following the date of grant.

The options currently outstanding are exercisable at prices ranging from $0.80 to $6.20 at various dates up to March 28, 2013.

27

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

19.Share capital (continued)

Stock Options (continued)

Options to acquire common shares have been granted and are outstanding at March 31, 2008 as follows:

Number of Stock Options Outstanding	Number of Stock Options Exercisable	Option Exercise Price	Expiry Date
105,000	105,000	0.80	February 15, 2009
40,000	40,000	1.20	May 16, 2009
250,000	250,000	1.38	May 16, 2009
250,000	250,000	1.59	May 16, 2009
190,068	190,068	1.50	August 29, 2009
130,000	130,000	2.50	October 5, 2009
140,000	140,000	3.30	November 12, 2009
50,000	50,000	4.92	December 6, 2009
50,000	50,000	6.10	March 15, 2010
645,000	387,000	5.40	July 28, 2010
190,000	190,000	6.10	July 28, 2010
180,000	180,000	6.20	July 28, 2010
685,000	460,000	2.26	September 7, 2011
190,000	190,000	1.95	November 28, 2011
873,000	333,000	2.02	March 5, 2012
500,000	500,000	2.25	November 30, 2012
610,000	154,000	2.53	February 20, 2013
2,850,000	1,755,333	3.37	March 28, 2013
7,928,068	5,354,401

Warrants

The Company’s warrants outstanding at March 31, 2008 and 2007 and the changes for the years then ended are as follows:

	Number of Shares Issuable pursuant to Warrants		Weighted Average Exercise price per Share
Balance at March 31, 2006	3,522,500		$	1.50
Exercised	(3,519,600	)	1.50
Expired	(2,900	)	1.50
Balance at March 31, 2007	—		—
Issued	9,560,000		2.14
Balance at March 31, 2008	9,560,000		$	2.14

28

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

20.Stock-based compensation

During the year ended March 31, 2008, the Company granted 3,960,000 (2007 — 2,165,000) stock options to employees, officers, consultants and directors.  During the year ended March 31, 2008, an amount of $4,957,000 (2007 - $1,914,000) was charged to operations in recognition of stock-based compensation expense, based on the vesting schedule for the options granted.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with weighted average assumptions and resulting values for grants as follows:

	2008		2007
Assumptions:
Risk-free interest rate (%)	3.43		4.01
Expected life (years)	3.2		3.3
Expected volatility (%)	98		63
Expected dividend	Nil		Nil
Results:
Weighted average fair value of options granted (per option)	$	1.88	$	0.83

21.Contributed surplus

The following table summarizes the movements in contributed surplus for the years ended March 31, 2008 and 2007:

	2008			2007
Balance — beginning of year	$	6,256		$	4,513
Fair value of stock based compensation recorded during the year	4,957			1,914
Transferred to share capital upon exercise of stock options	(95		)	(171		)
Fair value of warrants issued during the year	1,720			—
Balance — end of year	$	12,838		$	6,256

29

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

22.General, administration and selling

	2008		2007
Schedule of expenses:
Salaries, benefits and other remuneration	$	6,137	$	5,227
Stock-based compensation (Note 20)	4,957		1,914
Consulting	2,859		913
Sales and marketing	2,395		1,638
Legal and audit	1,400		767
Office and miscellaneous	1,285		574
Insurance	1,063		420
Travel and related expenses	756		931
Amortization	703		377
Rent and telecommunications	591		537
Exchange listings and other regulatory fees	235		397
Corporate communications	131		144
	$	22,512	$	13,839

23.Coal exploration

	2008		2007
Schedule of expenses:
Willow Creek	$	2,958	$	—
Belcourt and Saxon (Note 5)	1,129		2,741
Other	724		258
Wolverine - Herman	—		3,740
	$	4,811	$	6,739

24.Other income

	2008			2007
Foreign exchange gains	$	(6,799	)	$	(939	)
Interest income	(1,846		)	(1,852		)
Other	119			(80		)
	$	(8,526	)	$	(2,871	)

30

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

25.Supplementary cash flow information

	2008		2007
Other information:
Interest paid	$	15,854	$	14,682
Non-cash investing and financing transactions:
Capital lease obligation recognized for assets under capital lease	$	19,459	$	35,037
Acquisition of Falls Mountain Coal Inc.	$	35,776	$	—

As at March 31, 2008, the cash and cash equivalents balance consisted solely of cash balances held at financial institutions (2007 - $11,758,000).

Changes in non-cash working capital items consisted of the following:

	2008			2007
Restricted cash	$	5,392		$	(625	)
Accounts receivable	3,804			(6,846		)
Inventory	(4,806		)	(8,308		)
Prepaid expenses	1,775			(816		)
Accounts payable and accrued liabilities	14,786			(14,121		)
Current income tax payable	(135		)	252
	$	20,816		$	(30,464	)

26.Income taxes

Income tax expense differs from the amount that would be computed by applying the Federal and Provincial statutory income tax rates of 33.72% (2007 — 34.1%) to earnings before income taxes.  The reasons for the differences and the related tax effects are as follows:

	2008
Loss before taxes	$	(92,607	)
(Recovery) at applicable rates	$	(31,223	)
Change in future income tax asset net of valuation allowance	41,823
Expenses not deductible	2,780
Provincial mineral taxes	—
Income tax expense (recovery)	$	13,380

31

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

26.Income taxes (continued)

Per CICA Handbook Section 3465 “Income Taxes”, a future income tax asset can only be recognized as a result of it being “more likely than not” that sufficient future taxable income will be available to utilize such future income tax assets. The future income tax asset must be assessed on a regular basis. The “more likely than not” criteria is difficult to meet when there is unfavourable evidence such as cumulative losses in recent years and a history of tax losses.  The Company’s historical operating history must be used to assess the “more likely than not” criteria and therefore a valuation allowance has been recorded in the second quarter of fiscal 2008 to write off the previously recorded future income tax assets.

	2008			2007
Future tax assets:
Net operating loss carryforwards	$	24,556		$	6,480
Financing fees not yet deducted	3,176			2,301
Mineral property, property and equipment	16,695			5,223
Tax value of marketable securities in excess of book value	487			—
	44,914			14,004
Valuation allowance	(44,914		)	(624		)
Net future tax asset	$	—		$	13,380

For provincial mineral tax purposes, the Company is entitled to new mine and investment allowances which increase deductions available in excess of those incurred. The benefit from these allowances, estimated to be approximately $14,148,000, has not been included in the future income tax asset.

The company has non-capital losses carried forward available to reduce future taxable income of approximately $89,887,000 which if unused, expire as follows:

2009	169
2010	50
2011	3
2015	4,546
2026	289
2027	35,938
2028	48,892
	$	89,887

32

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

27.Related party transactions

(a)On December 15, 2006, a non-brokered private placement was completed with Cambrian as described in Note 19.

(b)On April 27, 2007, the Company entered into a Master Agreement and Management Agreement with Cambrian. On November 30, 2007, the parties conditionally agreed to transfer Falls Mountain Coal to the Company from Cambrian (Note 4).

(c)On June 28, 2007, Cambrian subscribed for 2,450,000 Units for aggregate gross proceeds of $5,757,500 of the private placement (Note 19).

(d)On September 14, 2007, Cambrian extended a loan of $5,000,000 to the Company. The terms of the loan were subsequently amended (Note 14).

(e)On November 30, 2007, Audley European Opportunities Master Fund (“Audley”), which is advised by Audley Capital Advisors LLP, of which one of the Company’s Directors is a partner, subscribed for 30,000 convertible debentures with a face value of US$30,000,000 (Note 17). In conjunction with the convertible debenture issuance, the Company has issued warrants to purchase up to 4,240,000 common shares at a price of $0.75 per share. These warrants can be exercised at any time prior to November 30, 2010.

The transactions described above have been recorded at their exchange amounts, which management believes to be representative of commercial terms.

28.Commitments and contingencies

(a)On March 21, 2005, the Company filed a Petition in the Supreme Court of British Columbia to have the Court set aside a Royalty Sharing Agreement (“RSA”), dated March 31, 2000, entered into between the Company and three individuals, two of whom are former directors and officers of the Company.  The Company’s then current Board of Directors had concluded that the transaction which resulted in the RSA was not in the best interests of the Company and had not received the appropriate approvals at the time.  The Petition was heard in the British Columbia Supreme Court during the week of February 20, 2006.  On February 24, 2006, the court gave oral reasons dismissing the petition.

On March 24, 2006, the Company filed a Notice of Appeal with the Court of Appeal for British Columbia and on October 11, 2006, the Company notified the respondents that the Company was abandoning its appeal but was not altering its position that the RSA was granted in consideration for advances made to the Company and that as such the three individuals were not entitled to receive any royalty payment that represents interest in excess of 60% per annum as provided in section 347 of the Criminal Code of Canada.

The Company has made royalty payments to the three individuals up to the maximum amount which would result in them receiving an effective annual rate of interest not greater than 60% on the advances they made to the Company that formed consideration for the royalty. To March 31, 2008, the Company made payments of $453,000 representing the maximum payments allowed under section 347 of the Criminal Code of Canada based on the respective advances that each of the three royalty holders made to the Company.  The Company has not recorded the additional amount which it believes would, to date, exceed the limit of permissible payments, which at March 31, 2008 is $2,235,000.

33

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

28.Commitments and contingencies (continued)

On January 19, 2007, one of the royalty holders, Mr. Fawcett, initiated a Petition against the Company in the Supreme Court of British Columbia to obtain certain rulings from the court relating to whether the Company is obliged to make further payments to him pursuant to the terms of the RSA.  On July 27, 2007, a second royalty holder, Mr. Gibson, initiated a Petition against the Company in the Supreme Court of British Columbia to obtain similar relief.  The third individual has indicated that he will consider himself to be bound by any Court ruling made in the Petition filed by Fawcett. The principal question at issue in the Petitions filed by the three claimants is the construction of the RSA and in particular a declaration that the royalty provided for does not constitute interest within the meaning of Section 347 of the Criminal Code.

On March 2, 2007, the Company filed an application in the Supreme Court seeking to convert the Petition brought by Mr. Fawcett to an action to be heard by a trial.  The Company’s application was dismissed by the Court on July 6, 2007, and the Company has filed a Notice of for Leave to Appeal that decision to the Court of Appeal. On November 7, 2007 the Court of Appeal granted leave to hear the Appeal of the July 6, 2007 decision. In March 2008 the Court of Appeal dismissed the appeal.

In May 2008, the Company brought an application seeking the right to cross-examine two of the claimants in respect of extrinsic evidence being relied upon in the claimants petitions. The judge hearing the matter was prepared to grant the motion but left the decision to be made by the Judge hearing the Petitions. The Judge obtained agreement from counsel for the claimants that if at the hearing of the petitions the extrinsic evidence is ruled as admissible then the Company will be free to seek leave to cross-examine the claimants. The hearing of the Petitions is expected to be in September 2008.

(b)On June 10, 2008, the Company was served with a Writ of Summons and Statement of Claim which had been filed by Endeavour Financial International Corporation (“Endeavour”), as Plaintiff, in the Supreme Court of British Columbia on June 6, 2008, against Western Canadian Coal Corp. (“Company”) and Cambrian Mining plc, (“Cambrian”) as defendants, alleging misconduct by the defendants in relation to two engagement letters entered into between the Company and the Plaintiff. The engagement letters related to the provision of services related to debt transactions in a letter dated June 27, 2007, the “Debt Transactions” and services related to merger and acquisition transactions in a letter dated August 7, 2007, the “M&A Transactions”. Endeavour has alleged that the Company and Cambrian engaged in misconduct under the terms of the Debt Transaction engagement and the M&A Transaction engagement that gave rise to a right by Endeavour to terminate the engagement letters.

Endeavour has claimed damages arising from the termination of the engagement letters amounting to success fees that it allegedly would have earned had the engagements not been terminated in the amount of $1.5 million in respect of two Debt Transactions plus an amount representing the Black-Scholes valuation of options which were to be issued under the terms of the Debt Transaction engagement plus any success fees that Endeavour would be entitled to under the Debt Transaction up to April 24, 2009 and up to October 24, 2008 in respect of the M&A Transaction.

The Company has retained counsel and will file an Appearance and Statement of Defense in accordance with the Court Rules. It is the Company’s position that it did not conduct itself in a manner that would have entitled Endeavour to terminate and accordingly Endeavour wrongfully terminated the engagement letters and is not entitled to any success fees. The liability of the Company, if any, associated with this claim is indeterminate at this point.

34

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

28.Commitments and contingencies (continued)

(c)The Company entered into a contract with Mitsui Matsushima Co. Ltd. (“Mitsui”) on May 18, 2001, pursuant to which the Company appointed Mitsui as its exclusive sales and marketing agent for the sale of the Company’s coal to customers in Japan and Taiwan.  Mitsui has full authority to negotiate and, subject to consent by the Company, conclude sales of the coal on the best commercial terms Mitsui reasonably considers to be achievable in the circumstances.  For its services, the Company will pay Mitsui a commission of 1% of the sales price at the loading port of all coal sold to customers in the territory.  The agreement will remain in effect unless and until the Company terminates it due to Mitsui becoming insolvent or commencing liquidation proceedings or for failure of Mitsui to perform a material term of the agreement.

(d)The Company is using an experienced mining contractor for its Wolverine mine operations and direct hires for the coal processing operations. The Perry Creek open-pit mine is operated and managed by the mining contractor and the Company provides overall management and engineering and operates the coal preparation plant. The mining contractor and the Company have entered into an agreement which provides for contract mining services for a four year term after which the Company will assume the mining operations. The agreement provides for the reimbursement of specified costs during the mining process and any suspension of operations and the payment of reasonable costs associated with the demobilization of the contractor’s equipment upon termination of the agreement.

(e)Other commitments are noted elsewhere in these consolidated financial statements (Notes 4, 5, 11, 13, 14, 15, 16, 17, 18, 29 and 31).

29.Financial instruments and concentration of risk

(a)Fair values

The carrying value of short-term financial assets and liabilities as presented in the consolidated balances sheets are reasonable estimates of fair values due to the relatively short periods to maturity and the commercial terms of these instruments. The carrying amount of non-current financial liabilities at March 31, 2008 is considered to be a reasonable estimate of fair value.

(b)Concentration of credit risk

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, restricted cash, accounts receivables and deposits.  The Company deposits cash and cash equivalents and restricted cash balances with high credit quality financial institutions.  Future coal production is expected to be committed to a small number of large steel mill customers on market pricing terms.  The Company performs credit evaluations of its customers on an ongoing basis.

(c)Interest rate risk

The Company’s bank loan for financing accounts receivables and its long term debt bear interest at fluctuating rates while its convertible debentures and loan from related party are at fixed rates of interest. The Company believes it is not exposed to significant interest rate risks. The carrying value of these balances approximate their fair values.

35

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

29.Financial instruments and concentration of risk (continued)

(d)Currency risk

All sales revenues for the Company are denominated in US dollars.  The Company may also become exposed to currency fluctuations on purchase of certain equipment or facilities for its new mines which are denominated in US dollars.  These potential currency risks could have a significant impact on the cost of constructing its mines and on the profitability of the Company.

To minimize the risk exposure of foreign currency fluctuations on sales revenues, the Company may enter into forward exchange contracts to fix the rate at which future anticipated flows of US dollars are exchanged into Canadian dollars. As at March 31, 2008, the Company had no foreign currency derivatives outstanding while at March 31, 2007, the Company had contracts for forward sales of US dollars at 1.1721, in the amounts of US $15,000,000 per month from April through December 2007.

30.Segmented information

All of the Company’s mining operations are conducted in Canada. However, the Company had no revenues from Canadian customers. The Company’s revenues for the periods ended March 31, 2008 and 2007 are derived from coal sales to customers located in the following geographic areas:

	2008		2007
Asia	$	173,474	$	126,657
Europe	79,015		7,464
	$	252,489	$	134,121

For each of the years ended March 31, 2008 and 2007, there were four and three customers respectively, with each accounting for greater than 10% of revenues. The percentage of sales to these customers was 66% and 69% respectively for the years ended March 31, 2008 and 2007.

31.Subsequent events

(a)On April 30, 2008, the Company obtained short-term bridge financing for US$30,000,000 from Audley. The bridge financing was used to repay the existing long-term debt and to accelerate the expansion plans of the Willow Creek mine.

The bridge financing, if not repaid earlier, will be repaid in two tranches with US$15,000,000 payable on July 29, 2008 and the balance payable on October 29, 2008. The bridge financing shall accrue interest at a rate of LIBOR plus 450 basis points for the first three months and thereafter until maturity accrue interest at a rate of LIBOR plus 650 basis points. The bridge financing includes a redemption fee of US$1,300,000 payable in two installments, i) $500,000 due July 31, 2009 and $800,000 on or before the maturity date. In the event that the financial covenants are not breached, the redemption fee will be reduced to US$1,000,000. If the bridge financing is repaid in full on or before July 30, 2008, the redemption fee will be reduced to US$900,000. In conjunction with the bridge, the Company has issued warrants to purchase up to 4,000,000 common shares at a price of $4.82 per share. These warrants can be exercised at any time prior to January 31, 2009.

The bridge financing is secured by a first priority security interest in all existing and future mineral deposits of the Company and all other personal property assets excluding equipment encumbered by capital leases, the Company’s interest in Belcourt Saxon Joint Venture (Note 5) and the ABCP pledged as collateral for the demand bank loan (Note 13).

36

Western Canadian Coal Corp.

Notes to Consolidated Financial Statements

As at March 31, 2008 and 2007

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

31.Subsequent events (continued)

(b)On April 30, 2008, the Company used the proceeds of the short-term financing referred to above to repay the outstanding balance of $27,917,500 of the long-term debt (Note 18).

(c)On May 6, 2008, the Company completed the acquisition of FMC (Note 4) and issued 18,740,898 common shares to Cambrian as part of the purchase consideration.

(d)For the period of April 1, 2008 to June 16, 2008, $37,095,000 of principle or 37,095 units of the $125,000,000 convertible debenture have been converted into 9,273,750 common shares of the Company, while $9,871,000 of principle or 9,871 units of the US$40,372,000 convertible debenture have been converted into 13,039,621 common shares of the Company (Note 17).

(e)For the period of April 1, 2008 to June 16, 2008, 794,200 warrants expiring June 28, 2012 (Note 19) have been exercised.

37

EX-99.3

Exhibit 99.3

Western Coal Corp.

Consolidated Financial Statements

For the three and nine months ended

December 31, 2010

(Unaudited)

Western Coal Corp.

Consolidated Balance Sheets

(Expressed in thousands of Canadian dollars)

(Unaudited)

	December 31, 2010		March 31, 2010
ASSETS
Current assets
Cash and cash equivalents	$	79,335	$	136,059
Restricted cash	531		5,337
Amounts receivable (Note 4)	142,556		64,597
Income taxes receivable	—		5,034
Inventories (Note 5)	74,749		46,212
Future income taxes	4,813		7,910
	301,984		265,149
Deposits	33,481		28,708
Mineral property, plant and equipment (Note 6)	722,261		514,323
Investments and other assets (Note 7)	51,245		48,449
Future income taxes	466		—
	$	1,109,437	$	856,629
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	131,499	$	65,320
Income taxes payable	22,683		14,834
Derivative financial liabilities	7,442		9,567
Long-term debt (Note 8)	4,089		5,786
Capital lease obligations (Note 9)	28,580		16,847
Convertible debentures (Note 10)	—		40,573
Royalty and other liabilities	2,241		2,125
Asset retirement obligations	1,094		1,060
	197,628		156,112
Long-term debt (Note 8)	4,532		7,750
Capital lease obligations (Note 9)	56,716		17,491
Royalty and other liabilities	11,072		9,546
Asset retirement obligations	28,926		28,401
Future income taxes	51,769		32,415
	350,643		251,715
Equity
Attributable to shareholders of the company	758,794		577,159
Attributable to non-controlling interests	—		27,755
	758,794		604,914
	$	1,109,437	$	856,629

Commitments and contingencies (Note 19), Subsequent events (Note 21)

The accompanying notes are an integral part of these consolidated financial statements.

Approved on behalf of the Board of Directors:

“Keith Calder”	“John R. Brodie”
Keith Calder, Director	John R. Brodie, FCA, Director

1

Western Coal Corp.

Consolidated Statements of Income

(Expressed in thousands of Canadian dollars, except per share data)

(Unaudited)

	Three months endedDecember 31,						Nine months endedDecember 31,
	2010			2009			2010			2009
Revenues	$	170,530		$	118,662		$	594,417		$	301,997
Cost of goods sold
Operating expenses	112,002			69,813			350,414			205,029
Depletion, amortization and accretion	14,745			11,099			43,479			29,198
	126,747			80,912			393,893			234,227
Income from mining operations	43,783			37,750			200,524			67,770
Other expenses (income)
General and administration (Note 13)	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 (Note 14)	(5,093		)	(1,551		)	1,302			(22,821		)
Other expense (income) (Note 15)	(2,341		)	(8,160		)	(3,847		)	6,226
	18,034			6,908			64,965			24,767
Income before undernoted items	25,749			30,842			135,559			43,003
Income tax recovery (expense)
Current income tax expense	(11,452		)	(2,245		)	(28,162		)	(4,064		)
Future income tax recovery (expense)	4,969			(5,498		)	(18,927		)	(10,291		)
	(6,483		)	(7,743		)	(47,089		)	(14,355		)
Equity earnings (losses)	1,110			1,042			(7,614		)	870
Net income	$	20,376		$	24,141		$	80,856		$	29,518
Attributable to:
Non-controlling interests	$	—		$	111		$	(531	)	$	(86	)
Shareholders of the company	$	20,376		$	24,030		$	81,387		$	29,604
Income per share
Basic	$	0.07		$	0.10		$	0.30		$	0.13
Diluted	$	0.07		$	0.09		$	0.30		$	0.13
Weighted average common shares outstanding
Basic	276,685,135			250,748,997			268,131,414			232,628,178
Diluted	284,225,032			253,810,593			273,878,356			234,470,329

The accompanying notes are an integral part of these consolidated financial statements.

2

Western Coal Corp.

Consolidated Statements of Comprehensive Income

(Expressed in thousands of Canadian dollars, except per share data)

(Unaudited)

	Three months ended December 31,						Nine months ended December 31,
	2010			2009			2010			2009
Net income	$	20,376		$	24,141		$	80,856		$	29,518
Other comprehensive income (loss) in the period
Change in fair value of available-for-sale securities	5,159			374			7,313			1,724
Currency translation adjustment	(4,284		)	(4,066		)	(3,006		)	(2,275		)
	875			(3,692		)	4,307			(551		)
Comprehensive income	$	21,251		$	20,449		$	85,163		$	28,967
Other comprehensive income (loss) attributable to:
Non-controlling interests	—			(220		)	1,430			(1,728		)
Shareholders of the company	875			(3,472		)	2,877			1,177
	$	875		$	(3,692	)	$	4,307		$	(551	)
Comprehensive income (loss) attributable to:
Non-controlling interests	—			(110		)	899			(1,814		)
Shareholders of the company	21,251			20,559			84,264			30,781
	$	21,251		$	20,449		$	85,163		$	28,967

The accompanying notes are an integral part of these consolidated financial statements.

3

Western Coal Corp.

Consolidated Statements of Cash Flows

(Expressed in thousands of Canadian dollars)

(Unaudited)

	Three months endedDecember 31,						Nine months endedDecember 31,
	2010			2009			2010			2009
Operating Activities
Net income	$	20,376		$	24,141		$	80,856		$	29,518
Items not involving cash:
Depletion, amortization and accretion	14,873			10,504			43,848			29,664
Future income tax expense (recovery)	(4,969		)	5,498			18,927			10,291
Equity loss (earnings)	(1,110		)	(1,042		)	7,614			(870		)
Stock-based compensation	1,775			2,458			6,240			4,923
Interest, accretion and financing fees	443			999			1,379			3,681
Gain on disposal of subsidiary	—			(6,996		)	—			(6,996		)
Gain on redemption of convertible debentures	—			—			—			(4,155		)
Net foreign exchange loss (gain) on forward exchange contracts	(3,462		)	6,127			7,771			(6,119		)
Other	(3,531		)	(122		)	(5,642		)	8
	24,395			41,567			160,993			59,945
Settlement of asset retirement obligations	(118		)	—			(621		)	—
Net change in non-cash working capital items (Note 16)	7,925			27,820			(53,419		)	17,287
Cash provided by operating activities	32,202			69,387			106,953			77,232
Investing Activities
Acquisition of mineral property, plant and equipment	(74,090		)	(13,794		)	(162,258		)	(17,211		)
Deposits	(3,168		)	(1,666		)	(4,920		)	(1,679		)
Transaction costs related to acquisitions	—			82			(1,535		)	(4,975		)
Proceeds from repayment of notes receivable	1,611			—			1,611			—
Cash inflow (outflow) from business acquisition	—			(526		)	—			4,427
Other	3,286			—			2,786			—
Cash used in investing activities	(72,361		)	(15,904		)	(164,316		)	(19,438		)
Financing Activities
Proceeds from exercise of stock options	12,075			—			19,650			549
Proceeds from exercise of warrants	1,996			256			4,448			1,824
Repayments of capital lease obligations	(7,800		)	(5,376		)	(16,840		)	(13,095		)
Repayments of long-term debt, net of proceeds	(1,485		)	(887		)	(4,782		)	(2,854		)
Transaction costs related to long-term debt	(1,421		)	—			(1,421		)	—
Repayments of convertible debentures	—			—			(202		)	(31,380		)
Proceeds from issuance of shares by subsidiary	—			9,607			—			9,607
Proceeds from issuance of common shares, net of costs	—			24			—			55,889
Cash provided by financing activities	3,365			3,624			853			20,540
Effect of exchange rate changes on cash and cash equivalents	(545		)	(1,559		)	(214		)	(3,041		)
Increase (decrease) in cash and cash equivalents during the period	(37,339		)	55,548			(56,724		)	75,293
Cash and cash equivalents, beginning of period	116,674			94,598			136,059			74,853
Cash and cash equivalents, end of period	$	79,335		$	150,146		$	79,335		$	150,146

Supplementary cash flow information (Note 16).

The accompanying notes are an integral part of these consolidated financial statements.

4

Western Coal Corp.

Consolidated Statements of Shareholders’ Equity

(Expressed in thousands of Canadian dollars)

(Unaudited)

	December 31, 2010			March 31, 2010
Share capital (Note 11)	$	561,008		$	449,367
Equity portion of convertible debentures	—			3,874
Contributed surplus	16,602			19,031
Accumulated comprehensive income (loss) attributable to the shareholders of the company
Retained earnings, beginning of period	120,195			80,614
Loss on redemption of convertible debentures	—			(1,223		)
Acquisition of non-controlling interests in Energybuild (Note 3)	(10,827		)	—
Net income	81,387			40,804
Retained earnings, end of period	190,755			120,195
Accumulated other comprehensive loss (Note 12)	(9,571		)	(15,308		)
	181,184			104,887
	$	758,794		$	577,159
Non-controlling interests	—			27,755
	$	758,794		$	604,914

The accompanying notes are an integral part of these consolidated financial statements.

5

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

1.Basis of presentation and consolidation

These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles using standards for interim financial statements and do not contain all of the information required for annual financial statements. These statements follow the same accounting policies and methods of application of the most recent annual audited financial statements, except as described in Note 2. Accordingly, they should be read in conjunction with the most recent annual audited consolidated financial statements of Western Coal Corp. (the “Company”).

Certain comparative figures have been reclassified to conform to the presentation adopted for the current period.

2.Adoption of new accounting standards

Business Combinations and Related Sections

In January 2009, the CICA issued Section 1582, “Business Combinations” which replaces former guidance on business combinations. This section is effective for fiscal years beginning on or after January 1, 2011, with early adoption permitted. This standard harmonizes the business combinations standard under Canadian GAAP with International Financial Reporting Standards. The new section revises guidance on the determination of the carrying amount of the assets acquired and liabilities assumed, goodwill and accounting for non-controlling interests at the time of a business combination.

The CICA concurrently issued Section 1601 “Consolidated Financial Statements” and Section 1602 “Non-Controlling Interests”, which replace former guidance on consolidated financial statements. These sections are effective for fiscal years beginning on or after January 1, 2011, with early adoption permitted. The Company has chosen to early adopt Sections 1582, 1601 and 1602 effective April 1, 2010. As a result, non-controlling interests have been presented within shareholders’ equity on the balance sheet. The non-controlling interests in income are no longer deducted in arriving at consolidated net income. Consolidated other comprehensive income and consolidated comprehensive income have been attributed to equity shareholders of the Company and non-controlling interests. There is no effect from adoption on previous business combinations.

6

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

3.Acquisition

Energybuild Group Plc

On August 9, 2010, the Company acquired all the issued ordinary share capital of Energybuild Group Plc (“Energybuild”) not already held by the Company. The Company accounted for this acquisition of Energybuild as an equity transaction. The purchase price was funded as follows:

Issuance of 8,551,578 common shares	$	35,831
Issuance of 1,457,750 stock options and warrants in exchange for Energybuild option and warrant obligations	685
Transaction costs	1,535
Purchase price	$	38,051

Each common share was valued at $4.19, being the closing market price of the Company’s common shares on the day the acquisition was closed.

The Company issued 1,457,750 stock options and warrants valued at $685,000 in exchange for Energybuild stock options and warrants. The terms and conditions of these stock options and warrants remain the same as the Energybuild stock options and warrants, except for the number of options and warrants issued and the respective exercise price, which were adjusted according to the exchange ratio. As a result of the acquisition, Energybuild notified holders of the stock options that the options will expire on February 5, 2011. The following assumptions were used for the Black-Scholes option pricing model to determine the fair value of the stock options and warrants:

Risk-free interest rate:	1.55%
Expected volatility:	69%
Expected life:	0.14 years to 0.49 years
Dividend rate:	Nil

The movement in equity attributable to non-controlling interests and retained earnings as a result of the acquisition is:

Non-controlling interests, March 31, 2010	$	27,755
Non-controlling interest share of net loss	(531		)
Non-controlling interests, date of acquisition	27,224
Purchase price	(38,051		)
Amount allocated to retained earnings	$	(10,827	)

7

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

4.Amounts receivable

	December 31, 2010		March 31, 2010
Trade accounts receivable	$	92,991	$	43,147
Prepaid expenses and other deposits	26,717		7,610
Harmonized sales tax and other sales taxes receivable	19,843		1,694
Other receivables	1,797		3,167
Unrealized gain on foreign currency contracts	1,208		8,979
	$	142,556	$	64,597

5.Inventories

	December 31, 2010		March 31, 2010
Production inventories	$	53,879	$	35,547
Parts inventories	20,870		10,665
	$	74,749	$	46,212

8

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

6.Mineral property, plant and equipment

December 31, 2010	Cost		Accumulated Amortization		Net
Mineral property and mine development	$	508,811	$	81,414	$	427,397
Plant, buildings and mine facilities	142,074		32,450		109,624
Equipment	255,350		70,110		185,240
	$	906,235	$	183,974	$	722,261

March 31, 2010	Cost		Accumulated Amortization		Net
Mineral property and mine development	$	359,301	$	62,312	$	296,989
Plant, buildings and mine facilities	139,224		23,510		115,714
Equipment	155,879		54,259		101,620
	$	654,404	$	140,081	$	514,323

Equipment includes assets under capital leases totaling $135,708,000 (March 31, 2010 - $76,024,000).

Capital expenditures in the amount of $55,694,000 (March 31, 2010 - $1,572,000) are included in accounts payable and accrued liabilities relating to equipment purchases.

9

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

7.Investments and other assets

	December 31, 2010		March 31, 2010
Held-for-trading investments:
Asset-backed commercial paper	$	3,211	$	3,051
Marketable securities	503		302
Available-for-sale investments:
Marketable securities (a)	30,274		7,713
Investments accounted for under the equity method (a)	2,699		25,682
Derivative financial assets	13,706		10,925
Note receivable	—		776
Loan to related party	438		—
Deferred transaction costs	414		—
	$	51,245	$	48,449

(a)   Prior to December 1, 2010, the Company’s investment in Mandalay Resources Corp. (“Mandalay”) was accounted for under CICA Handbook Section 3051 “Investments” using the equity-accounting method, with the investment recorded at cost, and adjusted for the Company’s proportionate share of earnings or losses and capital transactions.

During the nine months ended December 31, 2010, options to acquire the Company’s shares in Mandalay were exercised in addition to the completion of equity financings with third parties by Mandalay. This reduced the Company’s ownership interest in Mandalay from 48% to approximately 18%, on an undiluted basis. The Company no longer has the ability to exert significant influence over Mandalay and as such, the Company has since designated the investment in Mandalay as available-for-sale and no longer accounts for the investment using the equity-accounting method. As a consequence of this change, the difference between the carrying amount of the investment and its fair value resulted in a gain of $1,860,000, which is included in earnings under other expense (income).

As at December 31, 2010, the sole investment accounted for using the equity-accounting method is the Company’s investment in Xtract Energy Plc.

10

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

8.Long-term debt

On August 6, 2010, the Company entered into a syndicated credit facility. This facility consists of a revolving term credit facility in the amount of US$125,000,000 and has a maturity date of August 6, 2012. It is secured by the Company’s assets and bears interest at LIBOR, Canadian Prime Rate, Base Rate Canada or Federal Funds Effective Rate plus a margin. As at December 31, 2010, the full amount under this facility was available.

The long-term debt balances outstanding relate to the Company’s US operations.

11

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

9.Capital lease obligations

The Company has certain equipment under capital leases expiring at various times through 2015 bearing interest at various rates between 0% and 9%.  Capital lease obligations for the period are as follows:

	December 31, 2010			March 31, 2010
Balance, beginning of period	$	34,338		$	47,796
Assumption of obligations on acquisition	—			3,610
Fair value of capital leases recorded during the period	68,244			1,627
Change in fair value of embedded derivatives	291			36
Payments made during the period	(18,848		)	(21,053		)
Interest portion of payments	2,008			2,834
Foreign currency translation adjustment	(737		)	(512		)
Balance, end of period	85,296			34,338
Less: Current portion	(28,580		)	(16,847		)
Long-term portion of capital lease obligations	$	56,716		$	17,491

Future minimum lease payments under capital leases by year and in aggregate are as follows:

For the years ending December 31,	2011	$	31,038
	2012	25,960
	2013	17,278
	2014	15,543
	2015	5,578
Total minimum lease payments		95,397
Amounts representing interest		(10,101		)
Present value of minimum lease payments		85,296
Less: current portion		(28,580		)
		$	56,716

12

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

10.Convertible debentures

$125 million issuance, maturity March 24, 2011	December 31, 2010			March 31, 2010
Balance, beginning of period	$	40,573		$	66,656
Accretion of liability component of debentures	127			1,978
Interest payable	—			69
Cambrian acquisition	—			(28,091		)
Conversion of convertible debentures	(40,498		)	(39		)
Repayment of convertible debentures	(202		)	—
Balance, end of period	$	—		$	40,573
Less: Current portion	—			(40,573		)
Long-term portion of convertible debentures	$	—		$	—

On April 28, 2010, the Company provided holders of its $125,000,000 convertible debentures notice of its intention to redeem effective May 31, 2010, all of its issued and outstanding convertible debentures. During the period from April 1, 2010 to May 31, 2010, $41,696,000 of principal or 41,696 units of the $125,000,000 convertible debentures were converted into 10,424,000 common shares of the Company. On May 31, 2010, the Company redeemed $202,000 of principal plus $4,000 of accrued interest.

11.Share capital

Authorized: Unlimited number of common shares without par value.

Issued:

	Number of Shares	Consideration
Balance, March 31, 2010	252,702,907	$	449,367
Shares issued for acquisition of non-controlling interests in Energybuild (Note 3)	8,551,578	35,831
Transferred upon conversion of $125 million convertible debentures	10,424,000	44,353
Exercise of stock options	5,473,587	17,898
Transferred upon exercise of stock options	—	8,139
Exercise of warrants	2,222,600	4,448
Transferred upon exercise of warrants	—	972
Balance, December 31, 2010	279,374,672	$	561,008

13

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

11.Share Capital (continued)

Stock options

A summary of the Company’s stock options outstanding and the changes during the period are as follows:

	Number of Shares Issuable pursuant to Stock Options		Weighted Average Exercise price per Share
Balance at March 31, 2010	11,793,053		$	2.87
Granted	2,481,573		4.32
Assumed (a)	624,750		5.89
Expired	(240,000	)	6.18
Forfeited	(255,968	)	3.90
Exercised	(5,473,587	)	3.27
Balance at December 31, 2010	8,929,821		$	3.13
Vested and exercisable at end of period	2,457,173		$	2.99

(a)For those Energybuild options outstanding at the time of the acquisition of Energybuild, the Energybuild option holders are entitled to receive the Company’s shares upon exercise of such options on the basis of 0.0833 Company shares for every one Energybuild share, which the option holder is entitled to under the terms of the option. At December 31, 2010, all such options had been exercised.

14

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

11.Share Capital (continued)

Warrants

A summary of the Company’s warrants outstanding and the changes for the period are as follows:

	Number of Shares Issuable pursuant to Warrants		Weighted Average Exercise price per Share
Balance at March 31, 2010	4,012,845		$	2.42
Issued	—		—
Assumed (a)	833,000		3.93
Expired	—		—
Exercised	(2,222,600	)	2.01
Balance at December 31, 2010	2,623,245		$	3.25

(a)For those Energybuild warrants outstanding at the time of the acquisition of Energybuild, the Energybuild warrant holders are entitled to receive the Company’s shares upon exercise of such options on the basis of 0.0833 Company shares for every one Energybuild share, which the warrant holder is entitled to under the terms of the warrant. At December 31, 2010, all such warrants had been exercised.

2,623,245 warrants with an exercise price of $3.25 expire on June 28, 2012.

15

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

11.Share Capital (continued)

Deferred Share Units, Performance Share Units and Restricted Share Units

On September 9, 2010, the Company’s shareholders approved and adopted the Company’s Deferred Share Unit (“DSU”), Performance Share Unit (“PSU”) and Restricted Share Unit (“RSU”) plans.

Under the Company’s DSU plan, directors may receive DSUs which entitle the holder to a cash payment equal to the volume weighted average trading price of one common share over the five trading days immediately preceding the date of redemption. DSUs vest quarterly and may only be redeemed within six months from the date a holder ceases to be a director.

Under the Company’s PSU or RSU plans, employees may receive RSUs or PSUs which entitle the holder to a share payment equal to the number of units held on the fifth business day following the vesting date.

At December 31, 2010, there were 57,468 DSUs and nil PSUs and RSUs outstanding.

Non-vested DSU, PSU and RSU activity is as follows:

	DSUs, RSUs and PSUs		Weighted Average Grant Date Fair Value
Non-vested, beginning of period	—		$	—
Granted	66,948		4.22
Vested	(21,477	)	4.22
Forfeited	(9,480	)	4.22
Non-vested, end of period	35,991		$	4.22

16

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

12.Accumulated other comprehensive loss

	December 31, 2010			March 31, 2010
Accumulated other comprehensive loss, beginning of period	$	(11,121	)	$	—
Other comprehensive income (loss)	4,307			(11,121		)
Acquisition of non-controlling interests in Energybuild	(2,757		)	—
Accumulated other comprehensive loss, end of period	$	(9,571	)	$	(11,121	)

The components of accumulated other comprehensive loss are:

	December 31, 2010			March 31, 2010
Unrealized gain on available-for-sale securities	$	11,062		$	3,748
Currency translation adjustment	(20,633		)	(14,869		)
	$	(9,571	)	$	(11,121	)
Accumulated other comprehensive income (loss) attributable to:
Non-controlling interests	$	—		$	4,187
Shareholders of the company	(9,571		)	(15,308		)
	$	(9,571	)	$	(11,121	)

17

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

13.General and administration

	Three months endedDecember 31,				Nine months endedDecember 31,
	2010		2009		2010		2009
Salaries, benefits and other remuneration	$	4,772	$	3,531	$	13,031	$	9,025
Legal and audit	4,910		572		9,055		1,391
Consulting	5,362		592		6,683		951
Stock-based compensation	1,775		2,458		6,240		4,923
Recruiting	647		128		3,107		251
Office and miscellaneous	1,090		662		2,810		1,418
Travel and related expenses	1,089		408		2,549		926
Rent and telecommunications	610		236		1,289		589
Exchange listings and other regulatory fees	307		88		980		187
Amortization	128		190		369		489
Insurance	125		124		331		363
Corporate communications	76		145		233		509
	$	20,891	$	9,134	$	46,677	$	21,022

14.Loss (gain) on forward exchange contracts

	Three months endedDecember 31,						Nine months endedDecember 31,
	2010			2009			2010			2009
Unrealized loss (gain) on forward exchange contracts	$	(4,994	)	$	4,872		$	(539	)	$	(10,632	)
Realized loss (gain) on forward exchange contracts	(99		)	(6,423		)	1,841			(12,189		)
	$	(5,093	)	$	(1,551	)	1,302			$	(22,821	)

The unrealized gain on forward exchange contracts of $539,000 is comprised of a reversal of unrealized mark-to-market gains as at March 31, 2010 in the amount of $669,000 and an unrealized mark-to-market gain on outstanding forward exchange contracts as at December 31, 2010 in the amount of $1,208,000.

18

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

15.Other expense (income)

	Three months endedDecember 31,						Nine months endedDecember 31,
	2010			2009			2010			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 expense (income)	(282		)	(438		)	137			(396		)
	$	(2,341	)	$	(8,160	)	$	(3,847	)	$	6,226

19

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

16.Supplementary cash flow information

At December 31, 2010, cash and cash equivalents consists of cash balances held at financial institutions.

	Three months endedDecember 31,					Nine months endedDecember 31,
	2010		2009			2010		2009
Other information:
Interest paid	$	1,684	$	885		$	14,687	$	4,236
Taxes paid (recovered)	$	3,299	$	(244	)	$	15,844	$	20,409
Non-cash investing and financing transactions:
Capital lease obligation recognized for assets under capital lease	$	13,261	$	1,003		$	68,244	$	1,003
Change in working capital for purchase of mineral property, plant and equipment	$	21,927	$	—		$	35,652	$	—
Change in working capital for exercise of stock options	$	1,752	$	—		$	1,752	$	—
Proceeds from disposal of AGD	$	—	$	17,869		$	—	$	17,869
Net common shares issued for acquisition of Cambrian	$	—	$	—		$	—	$	22,114

20

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

16.  Supplementary cash flow information (continued)

Changes in non-cash working capital items consisted of the following:

	Three months endedDecember 31,						Nine months endedDecember 31,
	2010			2009			2010			2009
Restricted cash	$	—		$	(322	)	$	4,795		$	(4,443	)
Amounts receivable	(495		)	33,570			(67,415		)	36,490
Income taxes receivable	—			—			5,034			—
Inventories	(947		)	(9,521		)	(14,142		)	10,078
Accounts payable and accrued liabilities	600			1,449			10,463			(10,548		)
Income taxes payable	8,767			1,858			7,846			(15,076		)
Accrued interest on convertible debentures	—			786			—			786
	$	7,925		$	27,820		$	(53,419	)	$	17,287

17.Financial instruments

Financial risk management

Market risk

Foreign currency exchange rates

To minimize the risk exposure of foreign currency fluctuations on sales revenues from its Canadian operations, the Company may enter into forward exchange contracts to fix the rate at which future anticipated flows of US dollars are exchanged into Canadian dollars. As at December 31, 2010, these contracts included forward sales of US dollars at an average rate of 1.0273, in the aggregate amount of US$97,000,000 from January 2011 to the end of March 2011. The Company has entered into forward exchange contracts to offset certain of these contracts totaling US$60,000,000. The unrealized gain recorded on these contracts at December 31, 2010 was $1,208,000.

21

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

18.Related party transactions

(a)During the nine month period ended December 31, 2010, the Company paid fees totaling $72,289 (December 31, 2009 - $161,000) to companies related to the Company through common directors or officers of the Company.

(b)On July 9, 2010, the Company extended a loan to an officer of the Company in the amount of $500,000. This loan is forgivable in certain circumstances.

The transactions described above have been recorded at their exchange amounts, which management believes to be representative of commercial terms.

22

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

19.Commitments and contingencies

(a)Maple Coal Company (“Maple”)

Maple, a subsidiary of the Company with operations in West Virginia, was the subject of a compliance order issued against its water discharge permit on April 5, 2007, by the West Virginia Department of Environmental Protection (“WVDEP”). This order, which is similar to compliance orders issued by the WVDEP to a number of other West Virginia coal companies, provided that Maple would have until April 5, 2010 to comply with certain water quality-based effluent limitations for selenium concentrations in discharges from its mining operations.

Due to the fact that there was no currently available, feasible technology for meeting the selenium limits, Maple sought a permit modification to extend the selenium compliance date beyond April 5, 2010. That permit modification application was denied by the WVDEP based upon procedural objections raised by the federal Environmental Protection Agency (“EPA”). Maple filed an appeal with the State Environmental Quality Board (“EQB”) of the WVDEP denial (“the EQB case”), and as part of that appeal on March 31, 2010, the EQB issued a Stay Order, suspending the effective date of the selenium limits. In addition, on April 2, 2010, the Kanawha County (W.Va.) Circuit Court issued an Injunction Order preventing the selenium effluent limits in the Maple compliance order from taking effect until exhaustion of all appeals in the EQB case.

Following oral argument on January 20, 2011, the EQB orally ruled against Maple’s appeal, declaring that the WVDEP acted within its discretion in denying Maple’s request to extend the selenium compliance schedule beyond April 5, 2010. the Company believes that ruling is in error. Once a written order is received from the EQB, Maple plans to appeal that denial to State Circuit Court and seek a further Stay of the selenium limits, pending appeal.

In a related action, in June, 2010, the WVDEP instituted a civil enforcement action against Maple in Fayette County (W.Va.) Circuit Court, seeking to enforce effluent limits for non-selenium parameters found in the Maple permit, asserting violations of various in-stream water quality standards, and alleging a violation of the April 5, 2007 selenium compliance order. That civil action seeks civil penalties and to force Maple to implement costly treatment technology for selenium, pursuant to a new compliance schedule to be approved by the court. Maple has filed an Answer and is contesting the claims of the WVDEP in that matter, but anticipates entering into a comprehensive Consent Order with the WVDEP as a means of resolving that case and the EQB case mentioned above.

23

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

19.Commitments and contingencies (continued)

In a third related action, on January 4, 2011, three public interest groups filed a Clean Water Act citizens suit against Maple in the federal District Court for the Southern District of West Virginia. The Complaint disregards the EQB Stay Order and the Kanawha County Circuit Court Injunction Order, alleging that selenium effluent limits became effective in Maple’s permit on April 6, 2010.  On that basis, the plaintiffs assert that Maple’s discharges exceeded those limits on 36 occasions through the end of September, 2010, representing 380 days of violations and a total potential penalty of $14,250,000. As Maple’s discharges have continued to exceed those limits, the plaintiffs will likely seek additional civil penalties for periods after September, 2010 if this lawsuit is permitted to proceed. Maple plans to vigorously contest this matter, and will seek an early dismissal on the basis of several affirmative defenses (including the State’s diligent prosecution of the same alleged violations).

At present the likelihood of an unfavourable outcome as to the EQB case, the WVDEP civil enforcement action, and/or the federal court citizens suit is neither remote nor probable and no opinion can be offered regarding the likelihood of the WVDEP or the citizens suit plaintiffs succeeding in these actions. As such, the Company has not made a provision for these claims in its consolidated financial statements. Regardless of the manner of their disposition, civil penalties and other costs that may ultimately be incurred as a result of these proceedings could be material.

24

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

19.Commitments and contingencies (continued)

(b)Potential Securities Class Action

In November 2009, the Company was named as a defendant in a statement of claim issued by a plaintiff who seeks leave of the Ontario Courts to proceed with a securities class action. The claim alleges that those persons who acquired or disposed of Company shares between November 14, 2007 and December 10, 2007 should be entitled to recover $200 million for general damages and $20 million in punitive damages. Two current directors and one former director and officer were also named as defendants (the individual defendants). The plaintiff alleges that the Company’s consolidated financial statements for the second quarter of fiscal 2008 and the accompanying news release issued on November 14, 2007 misrepresented the Company’s financial condition and that the Company failed to make full, plain and true disclosure of all material facts and changes. The action also claims that the named individual defendants purchased shares during the proposed class period while in possession of material undisclosed information. No damages are sought in respect of these share purchases.

The Board of Directors established a Special Committee to oversee the Company’s defense of the action and to instruct the Company’s defense counsel on how to proceed. The Special Committee has two members. Neither of the Special Committee members are named as individual defendants and each of them joined the Company after the events that are the subject of the action occurred.

The plaintiff was to have delivered its materials in support of motions for leave to proceed with the securities class action and for certification of the action as a class proceeding on or before May 14, 2010. The plaintiff, however, sought and obtained permission of the Court to deliver an amended claim before May 28, 2010.

On May 28, 2010, the plaintiff delivered a proposed Fresh As Amended Statement of Claim. That claim indicated the plaintiff intended to introduce new allegations that the Company, some of its current and former directors (including the originally named individual defendants) and other parties caused the Company to enter transactions between April 26, 2007 and July 13, 2009 that were oppressive because they had a dilutive effect on the interests of shareholders. The defendants did not oppose the amendments but have reserved all rights to challenge the Amended Statement of Claim.

On July 16, 2010, the plaintiff delivered his materials supporting motions for leave to proceed with a securities class action for misrepresentation under the Ontario Securities Act and also for certification of the securities’ class action and of the oppression claims. After considering the plaintiff’s materials and investigating those allegations, the Company decided it should answer the plaintiff’s motion materials, oppose the motions and vigorously defend the securities and oppression claims.

25

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

19.  Commitments and contingencies (continued)

The Company and the other defendants intend to deliver their materials on or before February 28, 2011. Dates have not been set for the plaintiff to deliver reply materials or for any examinations or cross-examinations. The plaintiff’s motions, however, are scheduled to be heard October 3 to 7 and on October 13 and 14, 2011, if necessary.

The Company continues to maintain that there is no merit to any of the claims being made and that the damages are without foundation and excessive and, accordingly, has made no provision for this claim in its consolidated financial statements.

(c)Purchase Commitments

The Company entered into agreements to purchase equipment for its Perry Creek, Brule and Willow Creek mines, with payments in the amount of $18,549,000 remaining, which are expected to all be delivered by the end of March 2011.

20.Segmented information

The Company is engaged in the acquisition, exploration, development and mining of coal resources. The Company has four reportable segments: Canadian operations; US operations; UK operations; and Corporate and other. The Corporate and other segment includes all non-core activities.

				Three months ended December 31, 2010
	Canadian Operations			US Operations			UK Operations			Corporate and other			Total
Revenues	$	132,155		$	35,792		$	2,583		$	—		$	170,530
Income (loss) from mining operations	42,717			1,844			(778		)	—			43,783
Coal exploration	(471		)	—			—			—			(471		)
Interest, accretion and financing fees	(916		)	158			(35		)	(5		)	(798		)
Other (expenses) income	13			(4,238		)	(380		)	(12,160		)	(16,765		)
Earnings (loss) before taxes and equity earnings	$	41,343		$	(2,236	)	$	(1,193	)	$	(12,165	)	$	25,749
Capital expenditures	$	63,142		$	4,917		$	5,380		$	651		$	74,090

26

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

20.  Segmented information (continued)

				Three months ended December 31, 2009
	Canadian Operations			US Operations			UK Operations			Corporate and other			Total
Revenues	$	83,781		$	29,821		$	4,076		$	984		$	118,662
Income (loss) from mining operations	33,835			3,888			934			(907		)	37,750
Coal exploration	(1,369		)	—			—			—			(1,369		)
Interest, accretion and financing fees	(2,464		)	(250		)	(5		)	6			(2,713		)
Other (expenses) income	—			(2,181		)	75			(720		)	(2,826		)
Earnings (loss) before taxes and equity earnings	$	30,002		$	1,457		$	1,004		$	(1,621	)	$	30,842
Capital expenditures	$	4,307		$	1,193		$	8,456		$	(162	)	$	13,794

				Nine months ended and as at December 31, 2010
	Canadian Operations			US Operations			UK Operations			Corporate and other			Total
Revenues	$	471,031		$	111,899		$	11,487		$	—		$	594,417
Income(loss) from mining operations	191,901			8,875			(252		)	—			200,524
Coal exploration	(3,905		)	—			—			—			(3,905		)
Interest, accretion and financing fees	(4,323		)	(330		)	(121		)	506			(4,268		)
Other expenses	(8,514		)	(12,380		)	(1,260		)	(34,638		)	(56,792		)
Earnings (loss) before taxes and equity losses	$	175,159		$	(3,835	)	$	(1,633	)	$	(34,132	)	$	135,559
Capital expenditures	$	131,967		$	15,823		$	12,710		$	1,758		$	162,258
Mineral property, plant and equipment	$	585,459		$	79,454		$	54,761		$	2,587		$	722,261
Total assets	$	880,182		$	108,217		$	64,179		$	56,859		$	1,109,437

27

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

20. Segmented information (continued)

				Nine months ended and as at December 31, 2009
	Canadian Operations			US Operations			UK Operations			Corporate and other			Total
Revenues	$	235,064		$	57,159		$	7,120		$	2,654		$	301,997
Income (loss) from mining operations	58,727			8,793			1,197			(947		)	67,770
Coal exploration	(3,729		)	—			—			—			(3,729		)
Interest, accretion and financing fees	(7,773		)	(496		)	(128		)	(561		)	(8,958		)
Other expenses	—			(5,061		)	(424		)	(6,595		)	(12,080		)
Earnings (loss) before taxes and equity earnings	$	47,225		$	3,236		$	645		$	(8,103	)	$	43,003
Capital expenditures	$	5,612		$	2,707		$	8,821		$	71		$	17,211
Mineral property, plant and equipment	$	401,598		$	75,524		$	36,796		$	4,502		$	518,420
Total assets	$	629,654		$	103,433		$	59,026		$	43,998		$	836,111

The Company’s revenues for the three and nine month periods ended December 31, 2010 and 2009 are derived from coal sales to customers located in the following geographic areas:

	Three months endedDecember 31,				Nine months endedDecember 31,
	2010		2009		2010		2009
Asia	$	117,123	$	47,175	$	410,884	$	187,553
Europe	25,657		46,215		91,851		63,602
US	27,750		25,239		91,682		50,049
Other	—		33		—		793
	$	170,530	$	118,662	$	594,417	$	301,997

For each of the three and nine month periods ended December 31, 2010, there were four customers that accounted for more than 10% of total revenues. The percentage of sales to these four customers was 63% and 51% for the three and nine month periods ended December 31, 2010, respectively.

28

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

21.Subsequent Events

(a)Re-opening of the Willow Creek mine was completed on schedule with commercial production having commenced January 1, 2011.

(b)On December 2, 2010, the Company 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 the Company for C$11.50 per share in cash or 0.114 of a Walter Energy share, or for a combination thereof, all subject to pro-ration. This proposed acquisition remains subject to various closing conditions, including court approval, a favourable vote of at least two-thirds of the votes cast by the Company shareholders (including Walter Energy and funds advised by Audley Capital) and a simple majority of the votes cast by the Company’s minority shareholders (excluding Walter Energy and funds advised by Audley Capital), at a special meeting of the shareholders of the Company scheduled for March 8, 2011, and certain regulatory approvals. Approval by Walter Energy shareholders is not required to complete the transaction.

22.  Differences between Canadian and United States generally accepted accounting principles

The consolidated financial statements of Western Coal Corp. have been prepared in accordance with Canadian GAAP.  The following adjustments would be required in order to present the consolidated financial statements in all material aspects in accordance with U.S. GAAP.

29

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

Consolidated Balance Sheets

As at December 31

(Expressed in thousands of Canadian dollars)

(Unaudited)

	2010		U.S. GAAP			2010
	Canadian GAAP		Adjustments			U.S. GAAP
ASSETS
Current assets
Cash and cash equivalents (b)	$	79,335	$	(572	)	$	78,763
Restricted cash	531		—			531
Amounts receivable (b)	142,556		(212		)	142,344
Income tax receivable	—		—			—
Inventory (b) (c)	74,749		3,407			78,032
			(124		)
Future income tax asset (c)	4,813		2,551			7,364
	301,984		5,050			307,034
Deposits	33,481		—			33,481
Mineral property, plant and equipment (a) (b) (c)	722,261		(10,156		)	766,712
			(1,143		)
			55,750
Investments and other assets (a) (b)	51,245		1,139			58,104
			5,720
Future income tax asset	466					466
	$	1,109,437	$	56,360		$	1,165,797
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities (b)	$	131,499	$	(854	)	$	130,645
Income tax payable	22,683		—			22,683
Derivative financial liabilities	7,442		—			7,442
Long-term debt	4,089		—			4,089
Capital lease obligations	28,580		—			28,580
Convertible debentures	—		—			—
Royalty and other liabilities	2,241		—			2,241
Asset retirement obligations	1,094		—			1,094
	197,628		(854		)	196,774
Long-term debt (b)	4,532		(58		)	4,474
Capital lease obligations	56,716		—			56,716
Convertible debentures	—					—
Royalty and other liabilities	11,072		—			11,072
Asset retirement obligations	28,926		—			28,926
Derivative financial liability	—		—			—
Future income tax liability	51,769		—			51,769
	350,643		(912		)	349,731
Non-controlling interests (a)	—		—			—
Shareholders’ equity (a) (c) (d)	758,794		57,272			816,066
	$	1,109,437	$	56,360		$	1,165,797

30

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

Consolidated Balance Sheets (continued)

As at December 31

(Expressed in thousands of Canadian dollars)

(Unaudited)

	2009	U.S. GAAP			2009
	Canadian GAAP	Adjustments			U.S. GAAP
ASSETS
Current assets
Cash and cash equivalents (b)	150,146	(292		)	149,854
Restricted cash	5,004				5,004
Amounts receivable (b)	26,257	(347		)	25,910
Income tax receivable	—				—
Inventory (b) (c)	60,755	(483		)	60,272
Future income tax asset (c)	—				—
	242,162	(1,122		)	241,040
Deposits	27,992				27,992
Mineral property, plant and equipment (a) (b) (c)	518,420	(1,037		)	581,524
		64,141
Investments and other assets (a) (b)	47,537	1,444			54,844
		5,863
Future income tax asset
	836,111	69,289			905,400
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities (b)	48,589	(651		)	47,938
Income tax payable	17,604				17,604
Derivative financial liabilities	2,774				2,774
Long-term debt	6,449				6,449
Capital lease obligations	18,799				18,799
Convertible debentures	3,681				3,681
Royalty and other liabilities	167				167
Asset retirement obligations	1,009				1,009
	99,072	(651		)	98,421
Long-term debt (b)	7,404	(64		)	7,340
Capital lease obligations	20,198				20,198
Convertible debentures	37,382				37,382
Royalty and other liabilities	5,879				5,879
Asset retirement obligations	29,181				29,181
Derivative financial liability	5,703				5,703
Future income tax liability	29,124				29,124
	233,943	(715		)	233,228
Non-controlling interests (a)	25,841	(25,841		)	—
Shareholders’ equity (a) (c) (d)	576,327	95,845			672,172
	836,111	$	69,289		905,400

31

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

Consolidated Statements of Income

For the nine months ended December 31

(Expressed in thousands of Canadian dollars, except per share amounts)

(Unaudited)

	2010			U.S. GAAP			2010
	Canadian GAAP			Adjustments			U.S. GAAP
Revenues (b) (c)	$	594,417		$	50,412		$	644,829
Cost of goods sold
Operating expenses (b) (c)	350,414			54,319			404,733
Depletion, amortization and accretion (a) (b) (c)	43,479			3,434			46,913
	393,893			57,753			451,646
Income (loss) from mining operations	200,524			(7,341		)	193,183
Other expenses (income)
General and administration (b) (c)	46,677			354			47,031
Sales and marketing	12,660			—			12,660
Coal exploration and other mine costs	3,905			—			3,905
Interest, accretion and financing fees (b) (c)	4,268			1,303			5,571
Other income (expense)	(2,545		)	1,453			(1,092		)
	64,965			3,110			68,075
Net income before the undernoted items	135,559			(10,451		)	125,108
Income tax (expense) recovery
Current income tax recovery (b) (c) (d)	(28,162		)	3,115			(25,047		)
Future income tax expense	(18,927		)	—			(18,927		)
	(47,089		)	3,115			(43,974		)
Equity (loss) gain (b)	(7,614		)	145			(7,469		)
Net income attributable to shareholders of the Company	$	80,856		$	(7,190	)	$	73,666
Attributable to:
Non-controlling interests	(531		)				(531		)
Shareholders of the Company	81,387						74,197
Income per share
Basic	$	0.30					$	0.28
Diluted	$	0.30					$	0.27
Weighted average common shares outstanding
Basic	268,131,414						268,131,414
Diluted	273,878,356						273,878,356

32

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

Consolidated Statements of Income (continued)

For the nine months ended December 31

(Expressed in thousands of Canadian dollars, except per share amounts)

(Unaudited)

	2009			U.S. GAAP			2009
	Canadian GAAP			Adjustments			U.S. GAAP
Revenues (b) (c)	$	301,997		$	(984	)	$	301,013
Cost of goods sold
Operating expenses (b) (c)	205,029			136			205,165
Depletion, amortization and accretion (a) (b) (c)	29,198			929			30,127
	234,227			1,065			235,292
Income (loss) from mining operations	67,770			(2,049		)	65,721
Other expenses (income)
General and administration (b) (c)	21,022			7,865			28,887
Sales and marketing	7,653			—			7,653
Coal exploration and other mine costs	3,729			—			3,729
Interest, accretion and financing fees (b) (c)	8,958			(47		)	8,911
Other income (expense)	(16,595		)	(70,195		)	(86,790		)
	24,767			(62,377		)	(37,610		)
Net income before the undernoted items	43,003			60,328			103,331
Income tax (expense) recovery
Current income tax recovery (b) (c) (d)	(4,064		)	—			(4,064		)
Future income tax expense	(10,291		)	—			(10,291		)
	(14,355		)	—			(14,355		)
Equity (loss) gain (b)	870			446			1,316
Net income attributable to shareholders of the Company	$	29,518		$	60,774		$	90,292
Attributable to:
Non-controlling interests	(86		)				(86		)
Shareholders of the Company	29,604						90,378
Income per share
Basic	$	0.13					$	0.39
Diluted	$	0.13					$	0.39
Weighted average common shares outstanding
Basic	232,628,178						232,628,178
Diluted	234,470,329						234,470,329

33

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

Consolidated Statements of Income (continued)

For the three months ended December 31

(Expressed in thousands of Canadian dollars, except per share amounts)

(Unaudited)

	2010			U.S. GAAP			2010
	Canadian GAAP			Adjustments			U.S. GAAP
Revenues (b) (c)	$	170,530		$	26,840		$	197,370
Cost of goods sold
Operating expenses (b) (c)	112,002			34,787			146,789
Depletion, amortization and accretion (a) (b) (c)	14,745			2,064			16,809
	126,747			36,852			163,599
Income (loss) from mining operations	43,783			(10,012		)	33,771
Other expenses (income)
General and administration (b) (c)	20,891			97			20,988
Sales and marketing	3,308			—			3,308
Coal exploration and other mine costs	471			—			471
Interest, accretion and financing fees (b) (c)	798			663			1,461
Other income (expense)	(7,434		)	1,453			(5,981		)
	18,034			2,212			20,246
Net income before the undernoted items	25,749			(12,224		)	13,525
Income tax (expense) recovery
Current income tax recovery (b) (c) (d)	(11,452		)	4,349			(7,103		)
Future income tax expense	4,969			—			4,969
	(6,483		)	4,349			(2,134		)
Equity (loss) gain (b)	1,110			35			1,145
Net income attributable to shareholders of the Company	$	20,376		$	(7,839	)	$	12,537
Attributable to:
Non-controlling interests	—						—
Shareholders of the Company	20,376						12,537
Income per share
Basic	$	0.07					$	0.05
Diluted	$	0.07					$	0.04
Weighted average common shares outstanding
Basic	276,685,135						276,685,135
Diluted	284,225,032						284,225,032

34

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

Consolidated Statements of Income (continued)

For the three months ended December 31

(Expressed in thousands of Canadian dollars, except per share amounts)

(Unaudited)

	2009			U.S. GAAP			2009
	Canadian GAAP			Adjustments			U.S. GAAP
Revenues (b) (c)	$	118,662		$	(716	)	$	117,946
Cost of goods sold
Operating expenses (b) (c)	69,813			(182		)	69,631
Depletion, amortization and accretion (a) (b) (c)	11,099			1,117			12,216
	80,912			935			81,847
Income (loss) from mining operations	37,750			(1,651		)	36,099
Other expenses (income)
General and administration (b) (c)	9,134			(140		)	8,994
Sales and marketing	3,403			—			3,403
Coal exploration and other mine costs	1,369			—			1,369
Interest, accretion and financing fees (b) (c)	2,713			(47		)	2,666
Other income (expense)	(9,711		)	—			(9,711		)
	6,908			(186		)	6,722
Net income before the undernoted items	30,842			(1,465		)	29,377
Income tax (expense) recovery
Current income tax recovery (b) (c) (d)	(2,245		)	—			(2,245		)
Future income tax expense	(5,498		)	—			(5,498		)
	(7,743		)	—			(7,743		)
Equity (loss) gain (b)	1,042			215			1,257
Net income attributable to shareholders of the Company	$	24,141		$	(1,250	)	$	22,891
Attributable to:
Non-controlling interests	111						111
Shareholders of the Company	24,030						22,780
Income per share
Basic	$	0.10					$	0.09
Diluted	$	0.09					$	0.09
Weighted average common shares outstanding
Basic	250,748,997						250,748,997
Diluted	253,810,593						253,810,593

35

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

Consolidated Statements of Comprehensive Income

For the nine months ended December 31

(Expressed in thousands of Canadian dollars, except per share amounts)

(Unaudited)

	2010			U.S. GAAP			2010
	Canadian GAAP			Adjustments			U.S. GAAP
Net income	$	80,856		$	(7,190	)	$	73,666
Other comprehensive income (loss) in the year
Change in fair value of available-for-sale securities (d)	7,313			904			8,217
Currency translation adjustment (a)	(3,006		)	(781		)	(3,787		)
	4,307			123			4,430
Comprehensive income	$	85,163		$	(7,067	)	$	78,096

For the nine months ended December 31

(Expressed in thousands of Canadian dollars, except per share amounts)

(Unaudited)

	2009			U.S. GAAP			2009
	Canadian GAAP			Adjustments			U.S. GAAP
Net income	$	29,518		$	60,774		$	90,292
Other comprehensive income (loss) in the year
Change in fair value of available-for-sale securities (d)	1,724			—			1,724
Currency translation adjustment (a)	(2,275		)	(6,334		)	(8,609		)
	(551		)	(6,334		)	(6,885		)
Comprehensive income	$	28,967		$	54,440		$	83,407

For the three months ended December 31

(Expressed in thousands of Canadian dollars, except per share amounts)

(Unaudited)

	2010						2010
	Canadian GAAP						U.S. GAAP
Net income	$	20,376		$	(7,839	)	$	12,537
Other comprehensive income (loss) in the year
Change in fair value of available-for-sale securities (d)	5,159			904			6,063
Currency translation adjustment (a)	(4,284		)	(2,199		)	(6,483		)
	875			(1,295		)	(420		)
Comprehensive income	$	21,251		$	(9,134	)	$	12,117

36

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

Consolidated Statements of Comprehensive Income (continued)

For the three months ended December 31

(Expressed in thousands of Canadian dollars, except per share amounts)

(Unaudited)

	2009						2009
	Canadian GAAP						U.S. GAAP
Net income	$	24,141		$	(1,250	)	$	22,891
Other comprehensive income (loss) in the year
Change in fair value of available-for-sale securities (d)	374			—			374
Currency translation adjustment (a)	(4,066		)	(1,119		)	(5,185		)
	(3,692		)	(1,119		)	(4,811		)
Comprehensive income	$	20,449		$	(2,369	)	$	18,080

There were no significant adjustments within other comprehensive income between the shareholders of the company and the non-controlling interests under U.S. GAAP.

37

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

Consolidated Statements of Cash Flows

For the nine months ended December 31

(Expressed in thousands of Canadian dollars)

(Unaudited)

	2010			2009
Cash flows provided by operating activities under Canadian GAAP	$	106,953		$	77,232
Adjustment for transaction costs (a)	(1,535		)	(4,975		)
Cash flows provided by operating activities under U.S. GAAP	105,418			72,257
Cash flows provided by financing activities under Canadian and U.S. GAAP	853			20,540
Cash flows used in investing activities under Canadian GAAP	(164,316		)	(19,438		)
Adjustment for transaction costs (a)	1,535			4,975
Adjustment for joint venture accounting (b)	(366		)	(292		)
Cash flows used in investing activities under U.S. GAAP	(163,147		)	(14,755		)
Effect of exchange rate change on cash and cash equivalents in U.S. dollars under U.S. GAAP	(214		)	(3,041		)
Increase in cash and cash equivalents during the year under U.S. GAAP	(57,090		)	75,001
Cash and cash equivalents, beginning of year under U.S. GAAP	135,853			74,853
Cash and cash equivalents, end of year under U.S. GAAP	$	78,763		$	149,854

For the three months ended December 31

(Expressed in thousands of Canadian dollars)

(Unaudited)

	2010			2009
Cash flows provided by operating activities under Canadian GAAP	$	32,202		$	69,387
Adjustment for transaction costs (a)	—			82
Cash flows provided by operating activities under U.S. GAAP	32,202			69,469
Cash flows provided by financing activities under Canadian and U.S. GAAP	3,365			3,624
Cash flows used in investing activities under Canadian GAAP	(72,361		)	(15,904		)
Adjustment for transaction costs (a)	—			(82		)
Adjustment for joint venture accounting (b)	(171		)	(257		)
Cash flows used in investing activities under U.S. GAAP	(72,532		)	(16,243		)
Effect of exchange rate change on cash and cash equivalents in U.S. dollars under U.S. GAAP	(545		)	(1,559		)
Increase in cash and cash equivalents during the year under U.S. GAAP	(37,510		)	55,291
Cash and cash equivalents, beginning of year under U.S. GAAP	116,274			94,563
Cash and cash equivalents, end of year under U.S. GAAP	$	78,763		$	149,854

38

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

(a)   Business combination

Under U.S. GAAP, for business combinations that close in fiscal years that commence on or after December 15, 2008, acquisition related costs are excluded from the consideration transferred in a business combination (formerly referred to as purchase price) and are expensed as incurred. Before that date, such costs were included in the purchase price. Prior to April 1, 2010, Western Coal’s accounting policy under Canadian GAAP was to include acquisition related costs in the consideration transferred in business combinations.

Until April 1, 2010, under Western Coal’s accounting policy under Canadian GAAP, the measurement date for equity interests issued by the acquirer in a business combination was two days before and after the terms of an acquisition are agreed to and announced while the measurement date is the closing date under U.S. GAAP. Western Coal announced the acquisition of Cambrian Mining Plc on May 20, 2009 and closed the acquisition on July 13, 2009.

Prior to April 1, 2010, under Western Coal’s accounting policy under Canadian GAAP, any excess of the fair value of identifiable assets acquired and liabilities assumed over the fair value of purchase consideration was allocated to certain acquired non-current assets until their carrying amounts were reduced to zero, and any remaining amount, which was considered negative goodwill, was recognized as an extraordinary gain in the statement of income. Under U.S. GAAP, for business combinations that close in fiscal years that commence on or after December 15, 2008, any such excess is recorded as a gain from bargain purchase in the statement of income. Before that date, the U.S. GAAP treatment of such excess was similar to Canadian GAAP.

In addition, under Canadian GAAP, the noncontrolling interests’ percentage of net assets acquired are recorded at the carrying values of the acquiree. Under U.S. GAAP, for business combinations that close in fiscal years that commence on or after December 15, 2008, the acquirer must measure noncontrolling interests in the acquiree at fair value as of the closing date. Until April 1, 2010, the Company’s accounting policy under Canadian GAAP was to present non-controlling interest as a separate line item on the balance sheet between liabilities and shareholders’ equity.  Under U.S. GAAP non-controlling interests are presented as a component of shareholders’ equity.

39

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

(b)   Joint venture

Under Canadian GAAP, Western Coal has accounted for its 50% interest in Energy Recovery Investments Ltd. (the “Joint Venture”) using the proportionate consolidation method whereby Western Coal’s proportionate share of each line item of assets, liabilities, revenues and expenses is included in the corresponding financial statement line item. Under U.S. GAAP, Western Coal would account for its Joint Venture interest using the equity method whereby Western Coal’s share of earnings and losses would be included in its statement of income as share of income (loss) of the entities accounted for using the equity method, and the carrying value of Western Coal’s share in the equity of the Joint Venture would be recorded on the balance sheet in other long-term assets.

(c)   Pre-operating results

Under Canadian GAAP, the concept of commercial production is not concisely defined but recognizes that the transition from development to production is subject to management’s judgment. As such, certain minerals extracted and sold during the management-defined development period are treated as a reduction to the cost of the capital asset exclusive of depreciation. Under U.S. GAAP, the development of a surface mine is deemed to conclude when more than de minimus saleable minerals are extracted from an ore body regardless of the level of production. As such, all revenues and expenses relating to extracted minerals are recorded in the statement of income.

(d)   Available for sale security

As of December 31, 2010, Western Coal no longer exercised significant influence over its available for sale investment, Mandalay Resources Corporation (“Mandalay”) due to the additional issuance of common shares of Mandalay and the exercise of the existing call options. As a result, Western Coal changed from equity method accounting to fair value accounting. Under Canadian GAAP, the initial basis of the investment is the fair value of the security and the difference between the carrying amount and the fair value is recognized in the statement of income. Under U.S. GAAP, Western Coal would account for its investment in Mandalay as an available for sale security. The initial basis of the investment would be the carrying amount of the investment and the difference between the carrying amount and the fair value would be recorded in other comprehensive income.

40

Western Coal Corp.

Notes to Consolidated Financial Statements

For the three and nine months ended December 31, 2010

(All dollar amounts are stated in Canadian dollars unless otherwise indicated.  Tables are expressed in thousands of Canadian dollars, except share and per share amounts.)

(Unaudited)

(e)   Impact of adoption of new U.S. GAAP accounting pronouncements

In December 2007, the FASB issued ASC 810 Non-controlling Interests in Consolidated Financial Statements, that amended ARB-51, Consolidated Financial Statements, to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The adoption of this statement, which became effective April 1, 2009, did not have a material effect on Company’s consolidated financial statements.

Also in December 2007, the FASB issued ASC 805, Business Combinations, a replacement of SFAS No. 141, Business Combinations. The objective of this statement is to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. This statement establishes principles and requirements for how the acquirer recognizes and measures the identifiable assets acquired and liabilities assumed, measures the goodwill acquired or gain from a bargain purchase, and determines what information to disclose. The adoption of this statement, which became effective April 1, 2009, had a material effect on the Company’s financial statements.

41

EX-99.4

Exhibit 99.4

WALTER ENERGY, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial statements are based on the historical financial statements of Walter Energy, Inc. (“Walter Energy”) and Western Coal Corp. (“Western Coal”) after giving effect to the business combination transaction (the “Transaction”) between Walter Energy and Western Coal on April 1, 2011 and the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined balance sheet as of December 31, 2010 is presented as if the Transaction had occurred on December 31, 2010. The unaudited pro forma condensed combined balance sheet as of December 31, 2010 combines Walter Energy’s historical audited consolidated balance sheet as of December 31, 2010 and Western Coal’s historical unaudited consolidated balance sheet as of December 31, 2010 adjusted to conform with accounting principles generally accepted in the United States and converted to United States dollars. The unaudited pro forma condensed combined statement of operations of Walter Energy and Western Coal for the year ended December 31, 2010 is presented as if the Transaction had taken place on January 1, 2010 and carried forward through December 31, 2010.

The unaudited pro forma condensed combined financial statements are based on preliminary valuations of assets acquired and liabilities assumed, and the pro forma adjustments and allocations of the estimated consideration transferred are based in part on estimates of the fair value of assets acquired and liabilities assumed. The full and detailed valuation of the Western Coal assets and liabilities is being completed with the assistance of an independent third party and certain information and analysis currently remains pending. Therefore, upon additional analysis it is possible that the fair values of assets acquired and liabilities assumed could differ from those presented in the unaudited pro forma condensed combined financial statements and the differences could be material.

The unaudited pro forma condensed combined financial statements are not intended to represent or be indicative of the consolidated results of operations or financial position that would have been reported had the Transaction been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial position of Walter Energy and Western Coal.  The unaudited pro forma condensed combined financial statements do not reflect any operating efficiencies and cost savings that may be achieved with respect to the combined companies. The unaudited pro forma condensed combined financial statements also do not include the effects of restructuring certain activities of pre-acquisition operations. The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements and accompanying notes of Walter Energy (included in Walter Energy’s annual reports on Form 10-K and quarterly reports on Form 10-Q) and of Western Coal (see Exhibits 99.1, 99.2 and 99.3 included with this amended Form 8-K).

1

WALTER ENERGY, INC.

PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)

AS OF DECEMBER 31, 2010

(IN THOUSANDS OF UNITED STATES DOLLARS)

	Historical Walter Energy			Historical Western Coal (Schedule 1)			Note	Pro forma adjustments			Pro forma condensed combined
ASSETS
Current assets
Cash and cash equivalents	$	293,410		$	79,724		4 (a), (c)	$	(337,999	)	$	35,135
Receivables, net	143,238			116,255				—			259,493
Inventories	97,631			78,456			4 (a)	19,401			195,488
Deferred income taxes	62,371			7,404			4 (a)	(7,404		)	62,371
Prepaid expenses	28,179			26,862				—			55,041
Other current assets	4,798			—			4 (c)	15,171			19,969
Current assets of discontinued operations	5,912			—				—			5,912
Total current assets	635,539			308,701				(310,831		)	633,409
Property, plant and equipment, net	790,001			770,875			4 (a)	4,195,377			5,756,253
Goodwill	—			—			4 (a)	222,566			222,566
Deferred income taxes	149,520			469				—			149,989
Other long-term assets	82,705			92,081			4 (a), (c)	83,839			258,625
TOTAL ASSETS	$	1,657,765		$	1,172,126			$	4,190,951		$	7,020,842
LIABILITIES
Current liabilities
Accounts payable and accrued expenses	$	123,091		$	131,354		4 (d)	$	21,354		$	275,799
Current debt	13,903			32,846			4 (c)	42,564			89,313
Accumulated postretirement benefits obligation	24,753			—				—			24,753
Other current liabilities	24,362			33,642			4 (a)	6,742			64,746
Current liabilities of discontinued operations	7,738			—				—			7,738
Total current liabilities	193,847			197,842				70,660			462,349
Long-term debt	154,570			61,523			4 (c)	2,171,374			2,387,467
Accumulated postretirement benefits obligation	451,348			—				—			451,348
Deferred income taxes	—			52,050			4 (a)	1,540,209			1,592,259
Other long-term liabilities	262,934			40,216				—			303,150
TOTAL LIABILITIES	1,062,699			351,631				3,782,243			5,196,573
STOCKHOLDERS’ EQUITY
Common stock	531			571,354			3, 4 (a)	90			621
							4 (b)	(571,354		)
Capital in excess of par value	355,540			16,692			4 (b)	(16,692		)	1,595,881
							3, 4 (a)	1,240,341
Retained earnings	411,383			251,469			4 (b)	(251,469		)	400,155
							4 (d)	(28,545		)
							3, 4 (c)	17,317
Accumulated other comprehensive income (loss):
Cumulative translation adjustment	—			(31,051		)	4 (b)	31,051			—
Pension and other postretirement benefit plans, net of tax	(172,317		)	—				—			(172,317		)
Unrealized loss on hedges, net of tax	(71		)	—				—			(71		)
Unrealized gain on available for sale securities, net of tax	—			12,031			4 (b)	(12,031		)	—
TOTAL STOCKHOLDERS’ EQUITY	595,066			820,495				408,708			1,824,269
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,657,765		$	1,172,126			$	4,190,951		$	7,020,842

2

WALTER ENERGY, INC.

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)

FOR THE YEAR ENDED DECEMBER 31, 2010

(IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE AMOUNTS)

	Historical Walter Energy			Historical Western Coal (Schedule 2)			Note	Pro forma adjustments			Pro forma condensed combined
Revenues:
Sales	$	1,570,845		$	757,523			$	—		$	2,328,368
Miscellaneous income	16,885			—				—			16,885
	1,587,730			757,523				—			2,345,253
Costs and expenses:
Cost of sales (exclusive of depreciation, depletion and amortization)	766,516			504,982				—			1,271,498
Depreciation, depletion and amortization	98,702			60,560			4 (e)	118,436			277,698
Selling, general and administrative	86,972			71,611			4 (d)	(12,909		)	145,674
Postretirement benefits	41,478			—				—			41,478
	993,668			637,153				105,527			1,736,348
Operating income (loss)	594,062			120,370				(105,527		)	608,905
Share of loss for entities accounted for using the equity method	—			(8,080		)		—			(8,080		)
Other income	—			8,457				—			8,457
Interest expense	(17,250		)	(10,382		)	4 (f)	(104,011		)	(125,245		)
							4 (g)	6,398
Interest income	784			2,170				—			2,954
Income (loss) from continuing operations before income tax expense (benefit)	577,596			112,535				(203,140		)	486,991
Income tax expense (benefit)	188,171			30,595			4 (h)	(76,909		)	141,857
Net income (loss) from continuing operations	$	389,425		$	81,940			$	(126,231	)	$	345,134
Basic income per share from continuing operations (Note 5)	$	7.32									$	5.55
Diluted income per share from continuing operations (Note 5)	$	7.25									$	5.50

3

WALTER ENERGY, INC.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(Expressed in thousands of United States dollars, except where otherwise specified and share and per share amounts)

1.Basis of presentation

The unaudited pro forma condensed combined financial statements have been prepared in connection with the business combination transaction (the “Transaction”) between Walter Energy, Inc. (“Walter Energy”) and Western Coal Corp. (“Western Coal”). On December 2, 2010, Walter Energy and Western Coal entered into an agreement whereby Walter Energy agreed to acquire all of the issued and outstanding shares of Western Coal (other than shares held by Walter Energy, Western Coal or their respective affiliates)for C$11.50 per share in cash or 0.114 of a Walter Energy share of common stock, or for a combination thereof at the holder’s election, and all subject to proration. On January 20, 2011, Walter Energy purchased 25.3 million common shares of Western Coal from funds advised by Audley Capital for C$11.50 per share. Western Coal became a wholly-owned subsidiary of Walter Energy on April 1, 2011, the closing date of the Transaction.

The unaudited pro forma condensed combined financial statements are presented in United States dollars (“$”), which is the functional currency of Walter Energy.  References to “C$” represent amounts presented in Canadian dollars.

The unaudited pro forma condensed combined financial statements have been prepared for illustrative purposes only and give effect to the Transaction pursuant to the assumptions described in Notes 3 and 4 to the unaudited pro forma condensed combined financial statements. The acquisition of Western Coal by Walter Energy has been accounted for under accounting principles generally accepted in the United States of America (“U.S. GAAP”) as if the Transaction had been completed as of January 1, 2010 for the unaudited pro forma condensed combined statement of operations and as of December 31, 2010 for the unaudited pro forma condensed combined balance sheet. Walter Energy’s fiscal year end is December 31, whereas Western Coal’s fiscal year end was March 31. For purposes of the pro forma condensed combined financial statements, results for Western Coal have been prepared on a calendar year basis.

The unaudited pro forma condensed combined financial statements are not necessarily indicative of the operating results or financial condition that would have been achieved if the Transaction had been completed on the dates or for the periods presented, nor do they purport to project the results of operations or financial position of the combined entities for any future period or as of any future date. Actual amounts recorded upon consummation of the Transaction will likely differ from those recorded in the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined financial statements do not reflect any special items such as integration costs or operating synergies that may be realized as a result of the Transaction.

The pro forma adjustments and allocations of the estimated consideration transferred are based in part on estimates of the fair value of assets acquired and liabilities assumed. A preliminary determination of the related purchase price allocation has been presented herein; however, additional analysis with respect to the value of certain assets, contractual arrangements, tax attributes and liabilities could materially affect the allocation of the consideration to the assets and liabilities as presented in the unaudited pro forma condensed combined financial statements.

In preparing the unaudited pro forma condensed combined balance sheet and the unaudited pro forma condensed combined statement of operations in accordance with U.S. GAAP, the following historical information was used:

(a)the audited consolidated financial statements of Walter Energy as of and for the year ended December 31, 2010 prepared in accordance with U.S. GAAP;

(b)the unaudited consolidated financial statements of Western Coal as of and for the nine months ended December 31, 2010 prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”);

(c)the audited consolidated financial statements of Western Coal for the year ended March 31, 2010 prepared in accordance with Canadian GAAP; and

(d)the unaudited consolidated statement of income of Western Coal for the nine months ended December 31, 2009 prepared in accordance with Canadian GAAP.

Note 6 provides additional information with respect to the nature of the U.S. GAAP adjustments needed to reconcile Western Coal’s consolidated financial statements prepared in accordance with Canadian GAAP to those prepared in accordance with U.S. GAAP.

4

WALTER ENERGY, INC.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 (Expressed in thousands of United States dollars, except where otherwise specified and share and per share amounts)

The unaudited pro forma condensed combined balance sheet and the unaudited pro forma condensed combined statement of operations should be read in conjunction with the historical financial statements including the notes of Walter Energy (included in Walter Energy’s annual reports on Form 10-K and quarterly reports on Form 10-Q) and of Western Coal (see Exhibits 99.1, 99.2 and 99.3 included with this amended Form 8-K).

The significant accounting policies used in preparing the unaudited pro forma condensed combined financial statements are set out in Walter Energy’s consolidated financial statements for the year ended December 31, 2010.

2.Translation of Western Coal’s historical financial statements to U.S. dollars

The unaudited pro forma condensed combined financial statements are presented in U.S. dollars unless otherwise stated, and accordingly, financial information of Western Coal used to prepare the unaudited pro forma condensed combined financial statements was translated from Canadian dollars to U.S. dollars (Schedules 1 and 2) using the following exchange rates, which correspond with the exchange rates for the periods being presented:

Balance sheet as of December 31, 2010: Closing rate	C$1 = US$1.0054
Statement of operations for the year ended December 31, 2010: Average for the period	C$1 = US$0.9708

3.Acquisition of Western Coal

On December 2, 2010, Walter Energy and Western Coal entered into an agreement whereby Walter Energy agreed to acquire all of the issued and outstanding common shares of Western Coal (other than shares held by Walter Energy, Western Coal or their respective affiliates) for C$11.50 per share in cash or 0.114 of a Walter Energy share of common stock, or for a combination thereof at the holder’s election, and all subject to proration.

In January 2011, the Company acquired 25,274,745 common shares of Western Coal, or 9.15% of the outstanding shares, from funds advised by Audley Capital. The shares were purchased for $293.7 million in cash and had a fair value of $314.2 million on April 1, 2011. On April 1, 2011, the Company acquired the remaining outstanding common shares of Western Coal for a combination of $2,171.0 million in cash and the issuance of 8,951,558 common shares of Walter Energy valued at $1,224.1 million. The fair value of Walter Energy’s common stock on April 1, 2011 was $136.75 per share based on the closing value on the New York Stock Exchange.  All of the outstanding options to purchase Western Coal common shares that were not exercised prior to the closing date of the Transaction were exchanged for fully-vested and immediately exercisable options to purchase shares of Walter Energy common stock (the “Replacement Options”).  The outstanding warrants of Western Coal (the “Western Warrants”) were not directly affected by the Transaction.  Instead, upon exercise, each Western Warrant will entitle the holder to receive the cash and shares of Walter Energy common stock that would have been issued if the Western Warrant had been exercised immediately before closing of the Transaction.  The Transaction is being accounted for using the acquisition method, with Walter Energy as the acquirer of Western Coal.

The preliminary allocation of the estimated consideration is summarized as follows:

Cash consideration	$	2,464,723
Exchange of 8,951,558 shares of Walter Energy common stock at $136.75 per share	1,224,126
Fair value of Replacement Options issued and Western Warrants	16,305
Fair value of consideration transferred	3,705,154
Increase in fair value of Walter Energy’s equity interest in Western Coal before the Transaction	20,553
Total estimated consideration	$	3,725,707

5

WALTER ENERGY, INC.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(Expressed in thousands of United States dollars, except where otherwise specified and share and per share amounts)

The estimated fair value of consideration transferred was allocated based on the income, cost and market price valuation methods as deemed appropriate, resulting in the following:

Net working capital	$	116,118
Property, plant and equipment, net	4,966,252
Goodwill	222,566
Other long-term assets	114,769
Deferred income taxes	(1,592,259		)
Other long-term liabilities	(101,739		)
Net identifiable assets	$	3,725,707

A full and detailed valuation of the Western Coal assets and liabilities is being completed with the assistance of an independent third party and certain information and analysis remains pending at this time.  Therefore, it is possible that the fair values of assets acquired and liabilities assumed could differ from those presented herein upon additional analysis and the differences may be material. Additional analysis with respect to the value of certain assets, contractual arrangements, tax attributes and liabilities could materially affect the allocation of the consideration to the assets and liabilities as presented in the unaudited pro forma condensed combined financial statements.  After the Transaction, the earnings of the combined company will include the effect of acquisition method accounting adjustments, including the effect of changes in the cost basis of tangible assets, identifiable intangible assets and liabilities assumed on operating costs, including depreciation, depletion and amortization expenses.

The determination of the combined reporting units and the method of allocating goodwill, if any, to those reporting units has not yet been completed.

The deferred income tax liability has been determined using an estimated tax rate of 34.75%, which represents the weighted average jurisdictional statutory tax rate of Western Coal. The actual effective income tax rate could be significantly different than the estimated tax rate, and depends on the consideration transferred and final valuation of assets acquired and liabilities assumed.

4.             Effect of the Transaction on the unaudited pro forma condensed combined financial statements

The unaudited pro forma condensed combined financial statements incorporate the following pro forma assumptions and adjustments:

(a)This adjustment reflects the payment of cash and the issuance of equity interests in connection with the acquisition of all of the outstanding common shares of Western Coal and gives rise to fair value adjustments to the book values of certain assets and liabilities of Western Coal, and the resulting deferred income taxes and goodwill, as follows:

Fair Value Adjustments
Inventories	$	19,401
Property, plant and equipment, net	4,195,377
Goodwill	222,566
Other long-term assets	22,223
Other current liabilities	(6,742		)
Deferred income taxes	(1,547,613		)
	2,905,212
Book value of net assets of Western Coal acquired	820,495
Total consideration transferred	$	3,725,707

(b)This adjustment eliminates the historical stockholders’ equity accounts of Western Coal.

6

WALTER ENERGY, INC.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(Expressed in thousands of United States dollars, except where otherwise specified and share and per share amounts)

(c)This adjustment reflects the effect of the cash paid and borrowings incurred to affect the acquisition of Western Coal.

The source of funds used to pay the total cash consideration of $2,464.7 million includes the $293.7 million paid from existing cash to funds managed by Audley Capital in January 2011 and $2,171.0 million of borrowed funds under a $2,725.0 million credit facility (“new credit facility”).  Financing fees and transaction related costs totaling $86.9 million were also paid from funds borrowed under the credit facility.  Additionally, Walter Energy repaid in full all outstanding loans and accrued interest totaling $136.4 million under the 2005 credit agreement utilizing $92.1 million of borrowed funds under the new credit facility and $44.3 million of existing cash and simultaneously terminated the agreement.  No penalties were due in connection with the repayments.

(d)Total transaction costs are expected to be approximately $41 million. Of this amount, approximately $13 million was incurred prior to December 31, 2010, approximately $7 million was paid from funds borrowed under the new credit facility, and approximately $21 million has been included in Accounts payable and accrued expenses in the unaudited pro forma condensed combined balance sheet. These transaction costs are not included in the unaudited pro forma condensed combined statement of operations as these costs are nonrecurring.

The following adjustments are included in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2010 assuming that the acquisition of Western Coal occurred on January 1, 2010.

(e)This adjustment represents an estimated increase to depreciation, depletion and amortization expense associated with the preliminary estimate of the fair value adjustment of approximately $4,195.4 million allocated to property, plant and equipment, of which $4,151.9 million relates to an adjustment of mineral interests and $43.5 million relates to an adjustment to other property plant and equipment. The mineral interests are amortized using the unit of production method. The estimated depletion expense on the preliminary adjustment to fair value for the mineral interests for each of the five succeeding fiscal years is as follows (in millions):

Year Ending December 31
Remainder of 2011 — post acquisition	$	128
2012	203
2013	227
2014	247
2015	256
2016	273
Total	$	1,334

Walter Energy has completed a preliminary assessment of the fair values of Western Coal’s assets and liabilities. Additional analysis could result in adjustments to the fair value estimates of identifiable assets and liabilities, including but not limited to, inventory, depreciable tangible assets, proven and probable reserves, value beyond proven and probable reserves (“VBPP”), intangible assets and contract-related liabilities.

7

WALTER ENERGY, INC.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(Expressed in thousands of United States dollars, except where otherwise specified and share and per share amounts)

(f)This adjustment reflects interest expense on the borrowings (the “Tranche A” and “Tranche B” facilities) used to finance the acquisition of the outstanding shares of Western Coal and amortization of the deferred financing costs on the new bank facility. For purposes of calculating the pro forma interest expense, an interest rate of 3.25% on the Tranche A facility and 4.00% on the Tranche B facility was used.

The interest rate on the Tranche A facility of 3.25% is based on an adjusted LIBOR plus 300 basis points and the interest rate on the Tranche B facility of 4.00% is based on an adjusted LIBOR floor of 1.0% plus 300 basis points.  The effect of a 0.125% increase or decrease in the assumed interest rate on the Tranche A facility would effect net income by approximately $0.7 million. Because the LIBOR rate for the Tranche B facility was more than 0.125% below the 1.0% floor as of April 1, 2011, a 0.125% change in the assumed interest rate would not impact interest expense related to the Tranche B facility.

The adjustments to interest expense are presented as if the borrowings occurred on January 1, 2010. The amortization of deferred financing costs is presented as if the financing costs were incurred on January 1, 2010 and have been amortized over the applicable lives of each tranche in the new credit facility.

(g)This adjustment reflects the reversal of interest expense relating to the previous debt structure that was eliminated as a result of the Transaction.

(h)This adjustment reflects the income tax effect of the above noted pro forma adjustments at the statutory rate applicable to the jurisdiction giving rise to the adjustment.

5.             Walter Energy common shares outstanding

The average number of common shares (in thousands) used in the computation of pro forma basic and diluted income per share has been determined as follows:

	Year ended
	December 31, 2010
Basic weighted average common shares outstanding	53,179
Shares issued to acquire Western Coal	8,952
Pro forma basic weighted average common shares	62,131
Diluted weighted average common shares outstanding	53,700
Shares issued to acquire Western Coal and dilutive effect of the Replacement Options and Western Warrants	9,031
Pro forma diluted weighted average common shares	62,731

6.             U.S. GAAP adjustments to Western Coal’s historical financial statements included in Schedules 1 and 2

(a)          Pre-operating results

Under Canadian GAAP, the concept of commercial production is not concisely defined but recognizes that the transition from development to production is subject to management’s judgment. As such, certain minerals extracted and sold during the management-defined development period are treated as a reduction to the cost of the capital asset exclusive of depreciation. Under U.S. GAAP, the development of a surface mine is deemed to conclude when more than de minimus saleable minerals are extracted from an ore body regardless of the level of production. As such, all revenues and expenses relating to extracted minerals are recorded in the statement of operations. Western Coal generated Net sales of $50.3 million during its defined development period in the year ended December 31, 2010. Associated Costs of sales (exclusive of depreciation, depletion and amortization), Selling, general and administrative costs and interest expense incurred were $53.6 million, $0.5 million and $1.3 million, respectively.

8

WALTER ENERGY, INC.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(Expressed in thousands of United States dollars, except where otherwise specified and share and per share amounts)

(b)          Joint venture

Under Canadian GAAP, Western Coal has accounted for its 50% interest in Energy Recovery Investments Ltd. (the “Joint Venture”) using the proportionate consolidation method whereby Western Coal’s proportionate share of each line item of assets, liabilities, revenues and expenses is included in the corresponding financial statement line item. Under U.S. GAAP, Western Coal would account for its Joint Venture interest using the equity method whereby Western Coal’s share of earnings and losses would be included in its statement of operations as share of income (loss) of the entities accounted for using the equity method, and the carrying value of Western Coal’s share in the equity of the Joint Venture would be recorded on the balance sheet in other long-term assets.

(c)           Business combination

Under U.S. GAAP, for business combinations that close in fiscal years that commence on or after December 15, 2008, acquisition related costs are excluded from the consideration transferred in a business combination (formerly referred to as purchase price) and are expensed as incurred. Before that date, such costs were included in the purchase price. Prior to April 1, 2010, Western Coal’s accounting policy under Canadian GAAP was to include acquisition related costs in the consideration transferred in business combinations.

Until April 1, 2010, under Western Coal’s accounting policy under Canadian GAAP, the measurement date for equity interests issued by the acquirer in a business combination was two days before and after the terms of an acquisition are agreed to and announced while under U.S. GAAP the measurement date is the closing date. Western Coal announced the acquisition of Cambrian Mining Plc on May 20, 2009 and closed the acquisition on July 13, 2009.

Prior to April 1, 2010, under Western Coal’s accounting policy under Canadian GAAP, any excess of the fair value of identifiable assets acquired and liabilities assumed over the fair value of purchase consideration was allocated to certain acquired non-current assets until their carrying amounts were reduced to zero, and any remaining amount, which was considered negative goodwill, was recognized as an extraordinary gain in the statement of operations. Under U.S. GAAP, for business combinations that close in fiscal years that commence on or after December 15, 2008, any such excess is recorded as a gain from bargain purchase in the statement of operations. Before that date, the U.S. GAAP treatment of such excess was similar to Canadian GAAP.

In addition, under Canadian GAAP, the noncontrolling interests’ percentage of net assets acquired are recorded at the carrying values of the acquiree. Under U.S. GAAP, for business combinations that close in fiscal years that commence on or after December 15, 2008, the acquirer must measure noncontrolling interests in the acquiree at fair value as of the closing date.

The above noted differences resulted in an increase in depreciation, depletion and amortization expense of $2.7 million for the year ended December 31, 2010.

(d)          Available for sale security

As of December 31, 2010, Western Coal no longer exercised significant influence over its available for sale investment, Mandalay Resources Corporation (“Mandalay”) due to the issuance of additional common shares of Mandalay and the exercise of the existing call options. As a result, Western Coal changed from equity method accounting to fair value accounting. Under Canadian GAAP, the initial basis of the investment is the fair value of the security and the difference between the carrying amount and the fair value is recognized in the statement of operations. Under U.S. GAAP, Western Coal would account for its investment in Mandalay as an available for sale security. The initial basis of the investment would be the carrying amount of the investment and the difference between the carrying amount and the fair value would be recorded in other comprehensive income.

9

WALTER ENERGY, INC.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Schedule 1

WESTERN COAL CORPORATION

BALANCE SHEET AS OF DECEMBER 31, 2010

(in thousands)

	Canadian GAAP			U.S. GAAP Adjustments				As Coverted To U.S. GAAP
	C$										US$
	(1)			C$			Note	C$			(2)
ASSETS
Current assets
Cash and cash equivalents	$	79,866		$	(572	)	6 (b)	$	79,294		$	79,724
Receivables, net	115,839			(212		)	6 (b)	115,627			116,255
Inventories	74,749			3,283			6 (a), (b)	78,032			78,456
Deferred income taxes	4,813			2,551			6 (a)	7,364			7,404
Prepaid expenses	26,717			—				26,717			26,862
Total current assets	301,984			5,050				307,034			308,701
Property, plant and equipment, net	722,261			44,451			6 (a), (b), (c)	766,712			770,875
Deferred income taxes	466			—				466			469
Other long-term assets	84,726			6,859			6 (b), (c)	91,585			92,081
TOTAL ASSETS	$	1,109,437		$	56,360			$	1,165,797		$	1,172,126
LIABILITIES
Current liabilities
Accounts payable and accrued expenses	$	131,499		$	(854	)	6 (b)	$	130,645		$	131,354
Current debt	32,669			—				32,669			32,846
Other current liabilities	33,460			—				33,460			33,642
Total current liabilities	197,628			(854		)		196,774			197,842
Long-term debt	61,248			(58		)	6 (b)	61,190			61,523
Deferred income taxes	51,769			—				51,769			52,050
Other long-term liabilities	39,998			—				39,998			40,216
TOTAL LIABILITIES	350,643			(912		)		349,731			351,631
STOCKHOLDERS’ EQUITY
Common stock	561,008			7,261			6 (c)	568,269			571,354
Capital in excess of par value	16,602			—				16,602			16,692
Retained earnings	190,755			59,356			6 (a), (c), (d)	250,111			251,469
Accumulated other comprehensive income (loss):
Cumulative translation adjustment	(20,633		)	(10,250		)	6 (c)	(30,883		)	(31,051		)
Unrealized gain on available-for-sale-securities, net of tax	11,062			905			6 (d)	11,967			12,031
TOTAL STOCKHOLDERS’ EQUITY	758,794			57,272				816,066			820,495
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,109,437		$	56,360			$	1,165,797		$	1,172,126

(1)  Presentation reclassified to be consistent with the unaudited pro forma combined financial statements included elsewhere in the document.

(2)  See Note 2 to the unadited pro forma condensed combined financial statements.

10

WALTER ENERGY, INC.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Schedule 2

WESTERN COAL CORPORATION

STATEMENT OF OPERATIONS

(in thousands)

	For the nine months ended December 31, 2009			For the twelve months ended March 31, 2010			For the nine months ended December 31, 2010			Canadian GAAP			U.S. GAAP Adjustments				As Converted To U.S. GAAP
	C$			C$			C$			C$										US$
	A (1)			B (1)			C (1)			A+B+C (1)			C$			Note	C$			(2)
Net sales and revenues:
Net sales	$	301,997		$	438,568		$	594,417		$	730,988		$	49,336		6 (a), (b)	$	780,324		$	757,523
Costs and expenses:
Cost of sales (exclusive of depreciation, depletion and amortization)	208,758			321,425			354,319			466,986			53,196			6 (a), (b)	520,182			504,982
Depreciation, depletion and amortization	29,198			43,857			43,479			58,138			4,245			6 (a), (c)	62,383			60,560
Selling, general and administrative	28,675			42,604			59,337			73,266			501			6 (a), (b)	73,767			71,611
	266,631			407,886			457,135			598,390			57,942				656,332			637,153
Operating income	35,366			30,682			137,282			132,598			(8,606		)		123,992			120,370
Share of income (loss) for entities accounted for using the equity method	870			(237		)	(7,614		)	(8,721		)	398			6 (b)	(8,323		)	(8,080		)
Other income (expense)	14,886			23,328			1,723			10,165			(1,453		)	6 (d)	8,712			8,457
Interest expense	(8,958		)	(14,109		)	(4,268		)	(9,419		)	(1,276		)	6 (a), (b)	(10,695		)	(10,382		)
Interest income	1,709			3,122			822			2,235			—				2,235			2,170
Income before income tax expense	43,873			42,786			127,945			126,858			(10,937		)		115,921			112,535
Income tax expense	14,355			1,882			47,089			34,616			(3,100		)	6 (a), (d)	31,516			30,595
Net income	$	29,518		$	40,904		$	80,856		$	92,242		$	(7,837	)		$	84,405		$	81,940
Attributable to
Noncontrolling interests	(86		)	100			(531		)	(345		)	—				(345		)	(335		)
Shareholders of the company	29,604			40,804			81,387			92,587			(7,837		)		84,750			82,275

(1) Presentation reclassified to be consistent with the unaudited pro forma combined financial statements included elsewhere in the document.

(2) See Note 2 to the condensed combined financial statements.

11