CanAm Coal Corp. (TSX VENTURE:COE)(OTCQX:COECF) ("CanAm" or the "Company") has filed its unaudited condensed consolidated financial statements and related management's discussion and analysis for the period ended March 31, 2012. As the Company has changed its year end to December 31 from January 31 in order to align year ends across all subsidiaries, the comparative prior year numbers presented in these financial statements are for April 30, 2011. Copies of these documents may be obtained via the SEDAR website or on the Company's website at www.canamcoal.com or on our Facebook page.
For the first quarter of fiscal 2012 ending March 31, 2012, the Company once again delivered year over year growth at all levels.
Highlights and key events for the quarter include:
-- Achieved coal sales of 67,153 tons, up from 30,655 tons in Q1 2011;
-- Generated revenue of $7.7 million, up from $3.2 million in Q1 2011;
-- Generated EBITDA of $1 million, up from $0.9 million in Q1 2011;
-- Generated cash flow from operations of $0.2 million, down from $0.8
million in Q1 2011
-- Invested $3.0 million in mine equipment and infrastructure, up from $0.4
million in Q1 2011
Tim Bergen, CanAm's CEO and Director commented: "Although we delivered year over year growth for all metrics, our first quarter was challenging but, during the quarter, we undertook several key steps to position our mines to run at or near productive capacity starting in the second half of this year while at the same time improve cost efficiency. Operationally, first quarter production was impacted by a number of planned and unplanned events. A planned mine reconfiguration/development at Bear Creek and a management realignment at Powhatan impacted Q1 production as these changes were put in place. Q1 was also impacted to a smaller degree by an operational incident at Gooden Creek, which resulted in damage to an excavator, which impacted production at this mine.
On the sales side, we continue to see strong demand and excellent pricing for our coal production. All of our 2012 planned production is contracted for and the outlook into 2013, 2014 and beyond looks positive. For Q1, we achieved a record average sales price of $114/ton. This speaks to the strength of our customer base, our geographic location, our market reputation and the quality of our coal. Our challenge is on the production side, which is being proactively remedied as opposed to the sales side where our outlook remains positive despite current market conditions.
As we move forward into Q2 and the remainder of the fiscal year, we expect to see production at our existing mines improve significantly as our operational changes take hold. This improvement combined with production due to come on from new mines is expected to result in a strong second half of the year."
Other highlights and significant events for the quarter include:
-- Concluded a number of off-take agreements with various customers which
resulted in 100% of estimated 2012 production being contracted for.
Average price increases in such contracts were between 4% to 17% as
compared to last year.
-- Achieved good progress on permitting a number of the new mines that are
slated to open in 2012 and 2013 including Old Union 2, Posey Mill 2,
Knight and Davis.
-- Consolidated all mine operations under one common structure in order to
drive operational efficiencies.
-- Renegotiated the reclamation bonding program in place for the BCC mines
resulting in the release of approximately $0.7 million of restricted
cash.
-- Appointed Scott Bolton, a senior partner with PricewaterhouseCoopers, as
the new CFO of the Company and Jos De Smedt, the current CFO, as the
President and COO. Both appointments are effective June 1, 2012.
Financial results for the three month period were as follows:
March 31, 2012 April 30, 2011
------------------ ------------------
Revenue $ 7,671,284 $ 3,233,121
Income from mining operations $ 32,220 $ 892,824
Other income (expenses) $ (1,359,143) $ (539,845)
Income (loss) before tax $ (1,326,923) $ 352,979
Net income (loss) $ (952,486) $ 227,604
EBITDA $ 972,564 $ 867,870
Coal sales and average sales prices (per ton) for the three month period were as follows:
Coal Sales (in tons) Average Sales Price ($/ton)
March 31, 2012 April 30, 2011 March 31, 2012 April 30, 2011
--------------------------------------------------------------
Metallurgical
coal 15,280 19,198 $ 151 $ 134
Thermal coal 51,873 11,457 $ 103 $ 84
--------------------------------------------------------------
Total 67,153 30,655 114 105
--------------------------------------------------------------
Coal sales for the three month period ended March 31, 2012 were 67,153 tons as compared to 30,655 tons in the prior year or coal sales more than doubled. The increase is mainly the result of the acquisition of a 50% ownership in BCC which was effective May 1, 2011.
Sales for the quarter were characterized by:
-- Contribution of 48,325 tons of coal sales from the Company's 50%
ownership in BCC's three operating mines, Bear Creek, Old Union and
Gooden Creek. All of BCC's mines produce high quality thermal coal.
Production for the quarter was below its expected level of some 60,000
tons per quarter due to mine reconfiguration and infrastructure
development at the Bear Creek mine resulting in 9,000 tons of lower
production for the quarter and a mine incident resulting in equipment
damage at the Gooden Creek mine which temporarily curtailed production
by about 2,000 tons at Gooden Creek. In the first quarter, BCC did not
broker any third party coal.
-- Coal sales at the Powhatan mine were 18,828 tons compared to 30,655 tons
in the prior year. Coal sales were lower as the Company executed on its
operational realignment strategy and brought the Powhatan mine
operations under the responsibility of the BCC team. This transition
necessarily reduced production at Powhatan as management changes were
instituted and operational changes were put in place. These changes were
successfully completed by the end of April. Coal sales were also
impacted by a lower than usual recovery rate on thermal coal.
-- The production shortfall from these factors impacted revenues by
approximately $2.5 million. This shortfall impacted our margin as our
mining cost structure has been established to deliver a higher
production level, which we expect to begin achieving in the remainder of
the year.
-- The mix of metallurgical/thermal coal for the first quarter at the
Powhatan mine was 80/20% as a result of a lower recovery rate on the
thermal coal as compared to 63/37% in the prior year. The Company's
target coal mix for the Powhatan mine is 60/40%.
The average sales price obtained during the quarter was $114/ton as compared to $105/ton in the prior year or an increase of 8.6%. Strong pricing for the quarter is the result of new long term off-take contracts signed by the Company towards the end of fiscal 2011 and in early 2012. Such contracts not only provide for annual price increases but some also provide cost inflation protection for labor, fuel and explosives. The new contracts are for a term of 3 years and therefore the Company has substantially sold its production through the end of 2014.
Mine operating results for the three month period were as follows:
Three Month Period Ended
March 31, 2012 April 30, 2011
----------------------------------------------
Metallurgical coal 15,280 19,198
Thermal coal 51,873 11,457
----------------------------------------------
Total 67,153 30,655
----------------------------------------------
Coal sales revenue 7,671,284 3,233,121
Income from mining operations 32,220 892,824
EBITDA 972,564 867,870
Coal sales (in tons) 67,153 30,655
Average coal price 114 105
Average cost of product sold 71 43
Average cost of royalties
transportation and other 21 24
Average income from mining 0 29
Average EBITDA 14 28
Notes:
- Averages are all presented on a per ton basis.
- EBITDA: Earnings Before Interest, Taxes, Depreciation and
Amortization equals income from mining operations plus
depreciation, depletion, amortization and accretion minus general
and administrative expenses. EBITDA is a supplemental measure that
is not presented in accordance with International Financial
Reporting Standards (IFRS). This non-IFRS measure may not be
comparable to the calculation of similarly titled measures
reported by other companies and should not be considered in
isolation, as an alternative to, or more meaningful than financial
measures calculated and reported in accordance with IFRS.
Revenue, Income and EBITDA
Revenue for the three month period more than doubled as compared to last year as a result of the increased production following the acquisition of a 50% ownership stake in BCC and improved pricing on both metallurgical and thermal coal. Production costs for the first quarter were on average $71/ton as compared to $43/ton in fiscal 2011 as a result of higher direct mining costs and increased operating expenses associated with reduced production levels. One-time mine reconfiguration/development at Bear Creek, a mine management transition at Powhatan and equipment damage following a mine incident at Gooden Creek also resulted in higher costs for the quarter. Both the Bear Creek and the Powhatan mine have returned to normal operating conditions in the second quarter. Royalties, transportation and other ("RTO") costs were on average $21/ton as compared to $24/ton in fiscal 2011 mainly as a result of the lower RTO costs at BCC. EBITDA was $972,564 as compared to $867,870 in fiscal 2011.
Other Income (Expenses)
Other expenses for the three month period ended March 31, 2012 were $1.3 million as compared to $0.5 in the prior year. The increase for the year was mainly the result of: higher general and administrative expenses as a result of the increased activity in the Company's operations and additional overhead following the acquisitions of BCC and RAC (+$230,000), interest and costs associated with the Company's 9.5% and 12% debenture (+$241,000), higher stock based compensation expenses (+$53,000) and higher equipment interest expense mainly as a result of the BCC acquisition (+$91,000). The increase was offset by a favourable impact of fluctuations in the US$/CDN$ foreign exchange (-$25,000).
The Company's overall financial position remained healthy as a result of the cash flow generated from mining operations, the renegotiation of the reclamation bonding program and additional funds generated from a private placement with the Company's new CFO. Cash on hand at March 31, 2012 was $2.1 million as compared to $2.6 million at December 31, 2011. In addition, the Company has $0.9 million in cash as security for reclamation bonds.
Outlook
Over the last three years, the Company has aggressively grown its production from 4,700 tons in 2009 to 256,000 tons in 2011. Likewise, EBITDA has grown from ($0.5) million in 2009 to $4.6 million in 2011. In order to continue on this growth path, the Company executed on a number of key activities in the latter part of 2011 and the first quarter of 2012:
-- Signed two new long term off-take contracts that secure significant off-
take of metallurgical and thermal coal through 2014;
-- Executed on its operational realignment strategy which resulted in the
BCC management team assuming direct responsibility for the Powhatan
mine. These changes are expected to bring operational and cost
efficiencies as well as improved production performance in future
quarters.
-- Achieved good progress on permitting a number of the new mines. Old
Union 2 and Posey Mill 2 are on track to open in the second half of this
year. As to the Davis and Knight mines, the Company has decided to
accelerate the permitting of the Knight mine to achieve production
starting in September 2012 due to a more favorable permitting and mine
development profile. The Company has slowed development of the Davis
mine, which is now expected to start production in 2013.
-- Continued an aggressive capital investment program in both equipment and
mine development to prepare for future production growth in the second
half of 2012 and beyond.
-- Strengthened its management team with the hiring of Mr. Scott Bolton as
CFO of CanAm and Mr. Eric Hallmark as controller of Alabama coal
operations.
On this basis, the Company remains confident that it will be able to significantly grow its production and sales for 2012 and beyond. Target production for 2012 is now estimated at 390,000 to 425,000 tons (previously 450,000 to 550,000 tons), up from 256,000 tons in 2011. The reduced target is the result of lower production from the Bear Creek mine (mine reconfiguration and development), from the Powhatan mine (mine transition to a new management team) and from the Gooden Creek mine (equipment failure). The deferral of the Davis mine into 2013 also contributes to the lower production target. These factors are partially offset by the acceleration of the start date of the Knight mine.
Further expansion and growth will continue to be pursued by either adding adjacent lands to our reserve portfolio or by pursuing accretive acquisitions with a focus on high quality thermal or metallurgical coal. The Company also has an option to purchase an additional 30% ownership in BCC within the next 2 years and the remaining 20% within 5 years. It is the Company's intention to exercise a portion of this option within the next 6 months.
In addition, the Company continues to pursue the development of the Buick Coal Property which holds significant coal resources, 188 million tons of indicated and 103 million tons of inferred coal resources, in Colorado, USA. In this context, CH2M HILL, an independent major engineering firm, has recently completed a study to identify alternative development opportunities for this resource and they recommended that the Company pursue two alternatives: the production of activated carbon or the gasification of the coal resource to produce liquid motor and/or jet fuels.
About CanAm Coal Corp.
CanAm is a coal producer and development company focused on growth through the acquisition, exploration and development of coal resources and resource-related technologies. CanAm's main activities and assets include its four operating coal mines in Alabama, the exclusive rights to a proprietary Coal to Liquids technology which converts coal into liquid fuels (such as oil, jet fuel) at an economical cost with zero airborne emissions and the Buick Coal Project which holds significant coal resources, 188 million indicated and 103 million inferred resources, in Colorado, USA (see the technical report entitled "Limon Lignite Project, Elbert County, Colorado, USA," dated October 26, 2007 and filed on SEDAR on November 2, 2007). Other coal and related opportunities continue to be evaluated on an ongoing basis.
Forward-Looking Information and Statements
This press release contains certain forward-looking statements and forward-looking information (collectively referred to herein as "forward-looking statements") within the meaning of applicable Canadian securities laws. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "could", "should", "can", "anticipate", "estimate", "expect", "believe", "will", "may", "project", "budget", "plan", "sustain", "continues", "strategy", "forecast", "potential", "projects", "grow", "take advantage", "well positioned" or similar words suggesting future outcomes. In particular, this press release contains forward-looking statements relating to: the future production of the Powhatan mine; the permitting of the Davis mine; and the potential production at the Davis mine. This forward looking information is based on management's estimates considering typical strip mining operations, equipment requirements and availability and typical permitting timelines.
In addition, forward-looking statements regarding the Company are based on certain key expectations and assumptions of the Company concerning anticipated financial performance, business prospects, strategies, the sufficiency of budgeted capital expenditures in carrying out planned activities, the availability and cost of services, the ability to obtain financing on acceptable terms, the actual results of exploration projects being equivalent to or better than estimated results in technical reports or prior exploration results, and future costs and expenses being based on historical costs and expenses, adjusted for inflation, all of which are subject to change based on market conditions and potential timing delays. Although management of the Company consider these assumptions to be reasonable based on information currently available to them, these assumptions may prove to be incorrect.
By their very nature, forward-looking statements involve inherent risks and uncertainties (both general and specific) and risks that forward-looking statements will not be achieved. Undue reliance should not be placed on forward-looking statements, as a number of important factors could cause the actual results to differ materially from the Company's beliefs, plans, objectives and expectations, including, among other things: general economic and market factors, including business competition, changes in government regulations or in tax laws; the early stage development of the Company and its projects; general political and social uncertainties; commodity prices; the actual results of current exploration and development or operational activities; changes in project parameters as plans continue to be refined; accidents and other risks inherent in the mining industry; lack of insurance; delay or failure to receive board or regulatory approvals; changes in legislation, including environmental legislation, affecting the Company; timing and availability of external financing on acceptable terms; conclusions of economic evaluations; and lack of qualified, skilled labour or loss of key individuals. These factors should not be considered exhaustive. Many of these risk factors are beyond the Company's control and each contributes to the possibility that the forward-looking statements will not occur or that actual results, performance or achievements may differ materially from those expressed or implied by such statements. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these risks, uncertainties and factors are interdependent and management's future course of action depends upon the Company's assessment of all information available at that time.
Forward -looking statements in respect of the future production of the Powhatan and BCC mines may be considered a financial outlook. These forward-looking statements were approved by management of the Company on May 30, 2012. The purpose of this information is to provide an operational update on the company's activities and strategies and this information may not be appropriate for other purposes.
The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this press release are made as of the date of this press release and the Company does not undertake and is not obligated to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise unless so required by applicable securities laws.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Contacts:
CanAm Corporate Office:
Tim Bergen
Chief Executive Officer
403.262.3797
Toll Free: 1.877.262.5888
tbergen@canamcoal.com
Brisco Capital Partners:
Scott Koyich, Partner
403.262.9888
scott@briscocapital.com
