(Adds details on results, hedge fund issue, share move, context)

Feb 20 (Reuters) - Walter Energy Inc, squaring off with a hedge fund that wants to replace half its board, reported a wider-than-expected quarterly loss on Wednesday as a drop in metallurgical coal prices held back the miner's revenue, sending its shares lower.

The company said metallurgical coal prices averaged $149 per tonne in the fourth quarter, 22 percent lower than in the third quarter, and 39 percent lower than the fourth quarter of 2011.

Most of Walter Energy's production is metallurgical coal, used to make steel. It also sells some thermal coal, most often used to generate electricity. It has operations in western Canada, the United States and Britain.

In recent quarters, weak demand from steelmakers has hit metallurgical coal miners' sales volumes and prices.

On Tuesday, hedge fund Audley Capital Advisors LLP announced plans to nominate five candidates to Walter Energy's 10-member board, saying investors have lost confidence in the miner's current directors.

Walter Energy's net loss for the quarter to Dec. 31 came in at $71.0 million, or $1.13 a share, compared with a profit of $80.3 million, or $1.29, a year earlier.

Excluding impairment and restructuring charges, the adjusted loss was $66.4 million. That is equivalent to a loss of $1.06 a share, according to Thomson Reuters data.

The Birmingham, Alabama-based company said revenue dropped to $478.8 million, from $703.0 million.

Analysts, on average, had been expecting a loss of 89 cents a share on revenue of $511.3 million, according to Thomson Reuters I/B/E/S.

Shares fell 6.4 percent to $34.40 after the close in New York.

(Editing by Frank McGurty and Andrew Hay) Keywords: WALTERENERGY RESULTS/

(allison.martell@thomsonreuters.com)(+1 416 941 8196)(Reuters Messaging: allison.martell.thomsonreuters.com@reuters.net)

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