Fording Benefits From Full Quarter of Higher Coal Prices
<PR, 10/24/05>
Record Income and Distributions
CALGARY, Oct. 24 /PRNewswire-FirstCall/ - Fording Canadian Coal Trust (TSX: FDG.UN, NYSE: FDG) today announced strong third quarter results. Cash available for distribution for the third quarter of 2005 was $253 million ($1.72 per unit) compared with $52 million ($0.36 per unit) in 2004. On a year- to-date basis, cash available for distribution was $474 million ($3.23 per unit) in 2005 compared with $121 million ($0.84 per unit) in 2004. Per unit amounts for prior periods have been restated to reflect the three-for-one unit split that occurred in the third quarter of this year.
Net income was $427 million in the third quarter, up from $41 million in 2004, largely due to higher metallurgical coal sales prices as well as the reversal of a provision for future income taxes and the gain on the completion of the Elkview transaction. Net income before unusual items and future income taxes was $239 million in the third quarter of 2005 compared with $42 million in 2004. On a year-to-date basis, net income increased to $616 million from $65 million in 2004. Year-to-date net income before unusual items and future income taxes was $461 million in 2005 compared with $89 million in 2004.
"The third quarter of 2005 provided some significant accomplishments for both the Trust and Elk Valley Coal," said Jim Popowich, President of Fording Canadian Coal Trust. "We benefited from a full quarter of the new higher coal year prices, which doubled our distribution to unitholders over that of the second quarter. We completed our reorganization as well as our three-for-one unit split."
Jim Popowich continued: "In addition, Elk Valley Coal finalized two 10-year coal sales agreements and entered into a letter of intent for a third agreement during the quarter. Mining costs continue to be a significant focus for Elk Valley Coal. We're going through a period of higher energy and mining costs, and we expect to see this continue for the near term."
Highlights for the Third Quarter:
- The reorganization of the Trust's subsidiaries to maintain a flow-through structure was completed.
- Cash available for distribution increased to $253 million from $52 million.
- Production and sales volumes both increased 6% over 2004 levels as Elk Valley Coal's expansions started to result in additional volumes.
- Revenues were $571 million, double that of 2004 on the strength of higher coal sales prices, partially offset by a higher Canadian dollar.
-Cost of product sold increased 27% to $145 million primarily due to increased mining activity and a higher cost environment.
- Transportation costs increased 38% to $140 million, reflecting higher rail rates from the new contract with Canadian Pacific Railway as well as higher port rates due to increased coal prices.
- Agreements were finalized with POSCO and Nippon Steel Corporation that provide for 10-year sales contracts with Elk Valley Coal and a 2.5% equity investment by each company in an entity that will own and operate the Elkview operations.
- In October, Elk Valley Coal announced that it entered into a letter of intent with JFE Steel Corporation wherein the two entities will enter into a 10-year sales contract for 2.5 million tonnes per annum of metallurgical coal, representing a 39% annual increase over the 2005 coal year sales contract volumes.
- The Trust further revised downward its expectations for coal sales volumes for the 2005 calendar year. Elk Valley Coal is currently estimating sales volumes for 2005 of approximately 25 million tonnes of which the Trust's share is 60%.
- The three-for-one unit split was completed.
Conference Call and Webcast
A conference call to discuss these results will be held Tuesday, October 25 at 8:00 a.m. Mountain time, 10:00 a.m. Eastern time. To participate in the conference call, please dial 1-800-814-4890 or 416-640-4127 approximately 10 minutes prior to the call. A live and archived audio webcast of the conference call will also be available on the Trust's website www.fording.ca.
About Fording
Fording Canadian Coal Trust is an open-ended mutual fund trust. Through investments in metallurgical coal and industrial minerals mining and processing operations, the Trust makes quarterly cash distributions to unitholders. The Trust, through its wholly owned subsidiaries, holds a 60% interest in the Elk Valley Coal Partnership and is the world's largest producer of the industrial mineral wollastonite. Elk Valley Coal, comprised of Canada's senior metallurgical coal mining properties, is the world's second largest exporter of metallurgical coal, supplying high-quality coal products to the international steel industry. The Trust's shares are traded on the Toronto Stock Exchange under the ticker symbol FDG.UN and on the New York Stock Exchange under the symbol FDG.
Management's Discussion and Analysis
This management's discussion and analysis should be read in conjunction with Fording Canadian Coal Trust's unaudited consolidated financial statements and the notes thereto for the quarter ended September 30, 2005, management's discussion and analysis and consolidated financial statements for the year ended December 31, 2004, and other public disclosure documents of the Fording Canadian Coal Trust and its predecessors.
Fording Canadian Coal Trust
Fording Canadian Coal Trust (the Trust) is an open-ended mutual fund trust created pursuant to a declaration of trust and governed by the laws of Alberta. The Trust does not carry on any active business.
The Trust completed a reorganization of its investments during the third quarter of 2005. Following the reorganization, the Trust holds its investment in Elk Valley Coal Partnership (Elk Valley Coal) through its direct and indirect investment in Fording Limited Partnership (Fording LP), and its investment in NYCO directly. Prior to the reorganization, the Trust's investments in Elk Valley Coal and NYCO were held by Fording Inc. The Trust uses the cash it receives from its investments to make quarterly distributions to its unitholders.
References to "we" and "our" in management's discussion and analysis are to the Trust and its subsidiaries, and their consolidated interest in Elk Valley Coal and NYCO as the context requires.
Elk Valley Coal
Elk Valley Coal is the second largest supplier of seaborne hard coking coal in the world, with approximately 21% of the global market in 2005. Hard coking coal is a premium coal used primarily for making coke by integrated steel mills, which account for approximately 60% of worldwide steel production. The seaborne hard coking coal market is characterized by the global nature of international steel-making, the relative concentration of quality metallurgical coal deposits in Australia, Canada and the United States and the comparatively low cost of seaborne transportation.
Elk Valley Coal has an interest in six mining operations. The Fording River, Coal Mountain, Line Creek and Cardinal River operations are wholly owned by Elk Valley Coal and are accounted for as such. The Greenhills operations is a joint venture in which Elk Valley Coal has an 80% interest that is accounted for on a net basis for financial reporting purposes. As of August 1, 2005, the Elkview operations is owned by a limited partnership in which Elk Valley Coal owns a 95% interest. The Elkview operations is accounted for at 100% with the 5% non-controlling minority interest being reflected as a component of other long-term liabilities.
The Fording River, Coal Mountain, Line Creek, Elkview and Greenhills operations are located in the Elk Valley region of southeast British Columbia. The Cardinal River operations is located in west central Alberta.
Elk Valley Coal also owns numerous other properties, including the coal preparation plant and coal resources at the former Quintette operations and other coal resources in British Columbia as well as a 46% interest in Neptune Bulk Terminals (Canada) Ltd., located in Vancouver, British Columbia.
The Trust's results pertaining to its Elk Valley Coal segment consist of our proportionate interest in the operations of Elk Valley Coal and include hedging gains and losses, mineral taxes and other items recorded in Fording LP but attributable to Elk Valley Coal's operations.
NYCO
NYCO consists of subsidiaries of the Trust that operate wollastonite mining operations in New York State and Mexico and a tripoli mining operation in Missouri. NYCO is the world's leading producer of wollastonite.
Wollastonite is an industrial mineral that is used in the manufacture of automotive composites, adhesives and sealants, metallurgical fluxes, friction material, paints and corrosion-resistant coatings, fire-resistant construction wallboard, cement-based products and ceramics. Tripoli is an industrial mineral that is used primarily in buffing and polishing applications.
Important Information Regarding Comparative Financial Statements
When Elk Valley Coal was formed in February 2003, the Trust had a 65% interest with the remainder held by Teck Cominco, the managing partner. The partnership agreement permitted Teck Cominco Limited to increase its interest in Elk Valley Coal by achieving a certain level of synergies through its management of the partnership assets. Teck Cominco achieved the synergy objectives and the partners agreed that the Trust's interest would be reduced to 62% effective April 1, 2004, 61% on April 1, 2005, and to 60% on April 1, 2006.
The financial results and other information presented in this report reflect the Trust's 65% interest in Elk Valley Coal from January 1, 2004 to March 31, 2004, and 60% interest commencing with the second quarter of 2004. The Trust accounted for the estimated effect of the 5% reduction in its interest in Elk Valley Coal in its financial results in the second quarter of 2004, as well as an estimate of additional entitlements to be received until March 31, 2006. The additional distribution entitlements received since March 31, 2004, have been or will be included in cash available for distribution over the period ending March 31, 2006. Readers are cautioned that certain information included in this document for prior periods may not be directly comparable due to the reduction of the Trust's interest in Elk Valley Coal effective April 1, 2004.
All financial information in this management's discussion and analysis and financial statements is unaudited. The Trust reports its financial information in Canadian dollars and all monetary amounts set forth herein are expressed in Canadian dollars unless otherwise stated.
In addition, all per unit amounts and outstanding units disclosed herein have been restated to reflect the three-for-one unit split that occurred in the third quarter of 2005.
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