CanAm Coal Corp. (TSX VENTURE:COE)(OTCQX:COECF) ("CanAm" or the "Company") has
filed its audited consolidated financial statements and related management
discussion and analysis for the year ended December 31, 2012. These audited 2012
financial statements include a restatement of the 2011 financials and of Q1 and
Q2 for 2012 which is discussed at the end of this press release. Definitions of
commonly used non-IFRS financial measures (EBITDA and Free Cash Flow) are also
included at the end of this press release.
Full Year 2012 and Q4 Highlights
The Company announced today its full year 2012 and fourth quarter financial
results for the period ending December 31, 2012. Full year revenue, EBITDA and
net loss for the year were $55.4 million, $10.2 and ($6.1) million respectively
as compared to $38.9 million, $8.5 million and ($1.7) million in the prior year.
Fourth quarter revenue, EBITDA and net loss were $14.6 million, $3.2 million and
($2.3) million respectively as compared to $8.4 million, $1.7 million and ($1.0)
million in the prior year. Excluding one- time impairment charges and a
correction of an error in the calculation of mineral property amortization, the
fourth quarter loss was ($0.7) million as compared to ($1.0) million in Q4 of
2011.
The Company continued its momentum from Q3 and our fourth quarter operating
results were in-line with third quarter results. Our quarter over quarter and
full 2012 key performance indicators highlight the significant progress the
Company has achieved during the year:
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Q1 Q2 Q3 Q4 2012
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Production (in tons) 117,192 130,517 157,900 153,841 559,450
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(in $ per Ton)
Revenue $ 114 $ 106 $ 94 $ 96 $ 99
Production Cost 71 65 47 49 56
RTO 21 21 20 18 19
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EBITDA $ 14 $ 14 $ 21 $ 20 $ 18
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(in $'millions) Q1 Q2 Q3 Q4 2012
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Operating Cash Flow $ 1.3 $ 1.6 $ 1.0 $ 3.1 $ 7.0
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EBITDA 1.8 1.9 3.3 3.2 10.2
Capex (5.4) (5.2) (5.2) (1.6) (17.4)
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Free Cash Flow $ (3.6) $ (3.3) $ (1.9) $ 1.6 $ (7.2)
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-- Sales for the year were at record levels and were up 95% on an original
reported basis and 39% on a restated basis. Sales for Q4 of 153,841 tons
were in line with Q3 but were impacted by delayed customer shipments
over the Christmas holiday period.
-- Long term off-take contracts enabled the Company to achieve better than
market pricing for our high quality coals. Average sales price per ton
has however gone down quarter over quarter as a result of our changing
coal mix following the additional 30% acquisition of BCC who only
produces and sells thermal coal.
-- Contracted sales for 2013 are in the range of 700,000 to 800,000 tons
which corresponds to between 85% and 100% of expected production of our
new mine complement.
-- Focus on operational excellence through ongoing cost improvement
initiatives, integration and centralization of our mining operations
across all mines and entities and improved mining conditions resulted in
a significant reduction in production cost which started in Q3 and
continued in our fourth quarter. Fourth quarter production cost per ton
was $49 as compared to $71 in Q1 2012.
-- Operating cash flow continued to improve throughout the year and set a
record level in Q4 of $3.1 million.
-- Investment in equipment and mine development was significant during the
year and totaled $17.4 million. This investment was required in order to
position the Company for continued growth and involved the opening and
development of three new mines and the purchase and
upgrade/refurbishment of equipment. The Company's investment program is
substantially completed and 2013 capital expenditures will be
significantly lower.
-- Transition to our new mine complement and configuration, which commenced
in October 2012, is nearly complete and the Company expects to reach
full production in early Q2 2013.
-- Free cash flow turned positive in the fourth quarter and amounted to
$1.5 million. This represents a major milestone for the Company as we
can now start to build our cash position which will enable us to improve
our overall working capital and position us to start paying down our
debt.
-- One-time provisions of $2.2 million were recorded in Q4 to correct an
error in the calculation of mineral property amortization and to write
down certain equipment and project development expenses to their net
realizable value.
Company President and CEO, Jos De Smedt commented: "CanAm completed another
record year and continued its progress towards becoming an intermediate coal
producer with a goal to achieving annual production of between 2 to 3 million
tons within the next 5 years. Although we achieved a number of major milestones
in 2012, including the acquisition of an additional 30% ownership in BCC and
obtaining three new major mining permits, 2012 was not without its challenges.
Delays in obtaining our mine permits, consolidation and integration of our mine
operations, significant mine development and infrastructure work at our new
mines and transitioning our resources, both people and equipment, to our new
mines, all contributed to a challenging operating and work environment. In spite
of these challenges, the hard work of our team paid off and the operational
improvements achieved at our mines in the second half of the year, coupled with
improved mining conditions, resulted in higher production levels and a
significantly lower cost structure. This contributed to continued improvement in
our cash flow from operations and, for the first time, the Company generated
free cash flow.
With our new mines fully permitted, mine development nearing completion and full
production levels achieved in Q2 of 2013, further significant growth is expected
in 2013. In addition, the Company's $14.5 million investment in equipment in
2012 positions CanAm to efficiently optimize production and sales from these new
mines. With these building blocks in place, we look forward to strong growth in
2013."
Detailed Financial Results and Discussion
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2012 Coal Sales Revenue EBITDA
Tons $'000's $'000's
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Q1 Restated 117,192 12,789 1,854
Q1 Original 67,153 7,672 973
Q2 Restated 130,517 11% 13,310 4% 1,932 4%
Q2 Original 76,577 8,153 1,080
Q3 157,900 21% 14,741 11% 3,281 70%
Q4 153,841 -3% 14,553 -1% 3,150 -4%
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2012 559,450 39% 55,392 42% 10,217 21%
2011 Restated 402,766 38,946 8,479
2011 Original 256,221 24,432 4,606
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Q1, Q2 and comparative 2011 financial information has been restated to reflect
full (100%) consolidation accounting of BCC commencing with the purchase of the
initial 50% ownership stake in May 2011 (see end of press release for full
discussion and EBITDA definition). The previously reported results are presented
for reference.
Summary of Recent Operations History and Mine Transition
Since May 2011, the Company has mined an average of between 40,000 and 60,000
tons of coal per month at four mines located in Alabama: Bear Creek, Old Union,
Gooden Creek and Powhatan. In Q4, the Company commenced a significant
repositioning of its mining operations, as follows:
a. Opened the first of three pits of a new mine, Old Union 2. Old Union 2
replaces the original Old Union mine, which completed mineable
operations in Q1 2013.
b. Temporarily suspended mining operations at Gooden Creek and accelerated
plans to open pits 2 and 3 at Old Union 2. These pits were opened during
Q1 2013.
c. Received final permitting for the Knight mine, which replaces the Bear
Creek mine (mined out in Q2 2013). The Knight mine achieved initial
commercial level production in March 2013.
d. In January, received final permitting for the Posey Mill 2 mine, with
first production scheduled for Q2 2013.
Upon completion of the mine transition the Company will operate 4 mines with 6
pits (Knight, Old Union 2 (3 pits), Posey Mill 2 and Powhatan) with productive
capacity of 60,000 to 80,000 tons per month, significantly in excess of the
capacity of the old mine complement. In excess of 85% of 2013 production, or
approximately 750,000 tons, is contracted for. The Company is pursuing
permitting and other development stage activities to facilitate further
expansion in early 2014.
Financial Results Analysis
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Eleven
Two month Twelve month
Three month period month period
period ended period ended
ended (Unaudited, ended (Audited,
(Unaudited) Restated) (Audited) Restated)
Dec 31, Dec 31, Dec 31, Dec 31,
2012 2011 2012 2011
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Tons sold
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Metallurgical coal
sales 21,250 9,152 68,266 52,355
Thermal coal sales 132,591 78,313 491,184 350,411
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Total 153,841 87,465 559,450 402,766
Coal sales revenue $ 14,553,219 $ 8,429,742 $ 55,392,400 $ 38,945,873
Income from mining
operations 284,975 (36,363) 1,370,584 3,446,785
Other expenses (3,631,438) (1,122,028) (9,399,515) (5,318,492)
Loss for the period (2,258,175) (1,074,220) (6,057,784) (1,715,677)
EBITDA 3,150,091 1,650,738 10,217,499 8,478,832
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Per ton metrics
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Average
metallurgical coal
price $ 127 138 $ 142 139
Average thermal coal
price 90 92 93 90
Average overall coal
price 96 96 99 99
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Average production
cost 49 54 56 53
Average RTO cost 18 18 19 18
Income from mining 2 (0) 2 9
EBITDA $ 20 $ 19 $ 18 $ 21
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Q1, Q2 and comparative 2011 financial information has been restated to reflect
full (100%) consolidation accounting of BCC (see end of press release for full
discussion and EBITDA definition). The previously reported results are presented
for reference. In 2011, the Company changed its year-end from January to
December. As a result, the comparative financial information presented is for
the two and 11 month periods ended.
Sales volume and pricing
Consolidated fourth quarter sales volumes were 153,841 tons compared to 87,465
tons sold in the two month period ended December 31, 2011. Both thermal and
metallurgical sales volumes exceeded the prior year even taking into account the
additional month of results. Q4 production reached an all-time high of 174,000
as a result of initial production from the first pit at the new Old Union 2 mine
and strong performance at Powhatan, Old Union and Bear Creek. Sales were lower
(153,841 tons) due to shipment curtailments during the Christmas period. The
difference between Q4 production and sales is reflected as inventory in the
year-end accounts.
Full year thermal and metallurgical volumes also significantly exceeded the
prior year. The increase in full year results is partially attributable to
inclusion of a full year of BCC, but also reflects important operational
improvements realized in the second half of 2012. These improvements stemmed
from a combination of improved mining conditions (better strip ratios) and
improved operating efficiency at all of our mines, which resulted from a
decision taken in Q2 to centralize all of the Company's mine operations under
BCC management. Previous to this, the Powhatan mine was managed separately. A
key benefit of this change was a realignment of our equipment packages, which
contributed to performance improvement at all of our mines.
Overall fourth quarter average pricing was $96 per ton, the same price realized
in the previous year. Metallurgical coal pricing was lower than the previous
year due to coal specification issues encountered with one of our customers.
Full year average pricing was $99 per ton, the same price realized in the
previous year.
Cost of Product Sold, Cost of Royalties, Transportation & Other (RTO)
Fourth quarter cost of product sold was $49 per ton compared to $47 per ton in
Q3. This compares with $54 per ton achieved in the previous year and $56 per ton
for the full year. The substantial reduction can be attributed to the
operational improvements previously discussed, which resulted in higher
production levels and a lower cost structure. Additionally, the Company made
significant investment in new equipment and major repairs to existing equipment
(particularly at Powhatan) in the first three quarters of 2012 and this
contributed to lower repairs and maintenance expenditures in Q4.
Q4 royalty, transportation and other (RTO) costs were $18 per ton sold as
compared to $18 per ton in the prior year. Full year RTO costs were $19 per ton
compared to $18 per ton the previous year. RTO tend to be directly variable with
sales volumes and only minor quarter to quarter per/ton fluctuations are
expected.
EBITDA
Fourth quarter consolidated EBITDA was $3.2 million compared to $3.3 million in
the previous quarter, $1.8 million in the first quarter and $1.9 million in the
second quarter. Full year EBTIDA was $10.2 million compared to $8.5 million in
the prior year. The significant increase achieved in the second half of the year
can be attributed to increased production and sales levels and lower production
costs previously discussed. EBITDA per ton was $20, compared to $21 per ton in
Q3. EBITDA per ton in Q1 and Q2 was $14 per ton.
Net Income
Notwithstanding improved operating results, the Company recorded a Q4 loss of
$2.3 million contributing to a full year loss of $6.1 million. The substantial
majority of the Q4 loss relates to the following provisions and error
corrections ($2.2 million (pre-tax)) recorded in Q4, as follows:
-- A $770,000 charge was recorded against equipment to restate certain
units to appraised value.
-- The Company's investments in coal to liquids and related technologies
and certain other project investments ($190,000) were written off on the
basis that future commercialization is uncertain.
-- The Company corrected an error in the calculation of mineral property
amortization at the BCC level. The 2011 comparatives were also restated
to correct the error related to this period. The Q4 adjustment was
$188,000.
-- During Q4, the Company changed its estimate of the carrying value of the
asset retirement obligation at the BCC level, resulting in a Q4 charge
of $826,000 million.
-- The Company recorded a provision for doubtful accounts of $184,000
against certain old trade receivables.
Capital Expenditures
Fourth quarter capital expenditures on new equipment, capital repairs and
mineral property development totalled $1.6 million, compared to $5.2 million in
the previous quarter. The Company financed $200,000 of this investment and
funded the remainder from cash flow.
For the year ended December 31, 2012 new equipment, capital repair and mineral
property development expenditures totalled $17.4 million, including $14.5
million of equipment additions. As described above, the Company has made
significant capital investments in anticipation of its 3 new mines opening. The
Company's investments in new equipment were substantially completed in Q3 2012.
New equipment purchases in Q4 totalled $200,000 and no new equipment was
purchased in Q1 2013. The main portion of the Company's investment in new mine
infrastructure occurs in Q4 2012, Q1 2013 and the first half of Q2 2013.
Liquidity
In Q4, the Company generated free cash flow from operations (EBTIDA less capital
expenditures) of $1.5 million. At December 31, 2012 the Company had cash on hand
of $2.4 million, compared to $3.5 million at December 31, 2011. In addition, the
Company has undrawn operating lines of credit of $2.1 million, undrawn capital
equipment facilities of $1 million and restricted cash of $384,000.
During Q4, the Company's working capital position declined from the end of Q3
principally as a result of capital expenditures on new mine development and
expenditures on exploration project opportunities. At December 31, 2012, the
Company had a working capital deficiency of $4.8 million ($3.7 million excluding
the repayment of a $1.1 million, 12% convertible debenture due in August 2013)
compared to a deficiency of $3.7 million at September 30, 2012 (restated to
include current portion of asset retirement obligations) and $2.8 million as at
December 31, 2011.
The Company believes it has sufficient cash reserves, capital and operating line
credit access and other available cash sources (e.g. restricted cash, surplus
equipment, which it intends to auction in Q2 2013) to finance the final
development of its new mine complement. Once complete, the Company anticipates
generating significant free cash flow from its new mines (from additional coal
sales and reduced mine development capital spending requirements).
Reserves
The Company's most recent 43-101 report (dated May 2011) identified 6 million
tons of reserves covering Bear Creek, Posey Mill, Old Union, Old Union 2 and
Gooden Creek. The report does not cover Knight, Powhatan and the Company's other
lease holdings. The Company intends to obtain an updated 43-101 report during
2013.
Subsequent Events
Subsequent to year end, the Company achieved a number of significant milestones
including:
-- Commenced mining at the Knight Mine. Production is anticipated to reach
optimum levels by the middle of Q2 2013.
-- Received a final permit from the Alabama Surface Mining Commission for
the Posey Mill 2 mine. First production is anticipated during Q2 2013.
-- Won two important new sales contracts with industrial customers for
2013. The opportunity exists to grow production at both clients and to
secure long-term off take agreements.
-- Mutually agreed to terminate a sales contract with an existing customer
covering 4,000 tons per month of metallurgical coal sales, effective
February 2013. Secured a six month purchase order to sell the coal
impacted by the termination to a new customer commencing April 2013.
-- Signed a three year surface coal mining lease covering approximately
1,500 acres close to the
Company's existing mines.
Outlook
The Company is in an important period of transition as it repositions its mine
portfolio from a 40,000 to 60,000 ton per month run rate to an operating
platform capable of producing 60,000 to 80,000 tons a month and beyond. As of
the date of this press release, the Company has substantially completed the mine
build out of all 3 pits at Old Union 2 and the Knight mine. Full scale
commercial production is underway as of April, 2013. Mine development is well
underway at the Posey Mill 2 mine and first production is anticipated before the
end of Q2 2013. Therefore, full scale production at all of the mines is
anticipated in Q2 2013.
The transition to the new mines has taken longer than anticipated. This has
partially been due to adverse weather conditions but also unanticipated
engineering challenges with pond and road construction, which occurred during
February and March. In addition, coal deliveries into two new customers were
lower than expected as these customers were burning off coal inventory acquired
from previous suppliers and the Company only replaced its lost met coal order
with a new customer in April. As a result, the Company had a slower start to the
year and anticipates sales for Q1 to be around 150,000 tons, in line with Q3 and
Q4 of 2012 but below the sales range the Company expects to achieve with its new
mine complement.
The outlook for 2013 remains positive and the Company believes that it can
achieve significant production and sales growth as compared to 2012. The mine
build out is nearly complete and the Company's customers have been scaling up
deliveries to originally planned levels in April and this is expected to
continue. For 2013, the Company has sales commitments in the range of 700,000 to
800,000 tons which corresponds to between 85% and 100% of the expected
production of our new mine complement. As a result, overall average 2013 pricing
is expected to be relatively consistent with 2012. Capital expenditures for 2013
are expected to be significantly lower than in 2012 and will be in the range of
$7 to $9 million.
The Company will provide an update to its 2013 sales guidance after all of its
new mines have achieved commercial production.
Restatement of 2011 Comparative Financial Information
The comparative financial information included in the 2012 consolidated
financial statements and accompanying MD&A has been restated.
Prior to July 1, 2012, the Company proportionally consolidated its 50%
investment in BCC. Coincident with its July 1, 2012 acquisition of an additional
30% interest in BCC, the Company commenced full (100%) consolidation of BCC's
financial results.
The Company has determined that it should have fully (100%) consolidated the
financial results of BCC starting at the time of the original 50% acquisition in
May 2011. At that time, the Company acquired not only a 50% interest in BCC but
also the option, at the Company's sole discretion to acquire the remaining 50%
interest along with control of BCC's board, before May 2016. In accordance with
IAS 27, the Company's ownership position and sole discretion option constituted
effective control of the Company.
The Company has restated the comparative financial information in the 2012
financial statements, as well as comparative information for Q1 and Q2 2013 to
reflect consolidation accounting commencing May 2011. Additionally, the Company
has restated the comparative financial information in the 2012 financial
statements to correct an error in the calculation of mineral property
amortization.
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 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.
EBITDA and Free Cash Flow
Statements throughout this press release make reference to EBITDA and Free Cash
Flow which are non-IFRS financial measures commonly used by financial analysts
in evaluating financial performance of companies, including companies in the
mining industry. Accordingly, management believes EBITDA and Free Cash Flow may
be a useful metric for evaluating the Company's performance as it is a measure
management uses internally to assess performance, in addition to IFRS measures.
As there is no generally accepted method of calculating EBITDA and Free Cash
Flow, the terms used herein are not necessarily comparable to similarly titled
measures of other companies. The items excluded from EBITDA and Free Cash Flow
are significant in assessing the Company's operating results and liquidity.
EBITDA and Free Cash Flow have limitations as an analytical tool and should not
be considered in isolation from, or as alternative to, net income or other data
prepared in accordance with IFRS. EBITDA is calculated as income from mining
operations plus depreciation, depletion, accretion and amortization less general
and administrative costs. Free Cash Flow is calculated as EBITDA less financed
and non-financed capital expenditures. Other financial data has been prepared in
accordance with IFRS.
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 April 24, 2013. 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.
FOR FURTHER INFORMATION PLEASE CONTACT:
CanAm Coal Corp.
Jos De Smedt
President & CEO
403.262.3797
Toll Free: 1.877.262.5888
jdesmedt@canamcoal.com
Brisco Capital Partners
Scott Koyich
Partner
403.262.9888
scott@briscocapital.com