CanAm Coal Corp.
TSX VENTURE : COE

CanAm Coal Corp.

June 01, 2011 09:01 ET

CanAm Coal Reports Fiscal 2011 Financial Results

CALGARY, ALBERTA--(Marketwire - June 1, 2011) - CanAm Coal Corp. (TSX VENTURE:COE) ("CanAm" or the "Company") has filed its audited consolidated financial statements and related management's discussion and analysis for the year ended January 31, 2011. Copies of these documents may be obtained via the SEDAR website.

"Fiscal 2011 was a pivotal year for CanAm as we became an active coal producer, this year was still largely transitionary in nature as we ramped up production and took over mining operations from a contract miner. As a result, production volumes were inconsistent throughout the year", said Tim Bergen, CEO of CanAm. "With transition now completed at RAC Mining and our new acquisition of a 50% ownership stake in Birmingham Coal & Coke, the Company is now positioned for more stable production volumes and resulting cash flows in a strong global coal market. Therefore, we are targeting exit coal sales for fiscal 2012 of 36,000 to 41,000 tons".

Highlights and events for the year ended January 31, 2011 include:
  • Achieved total production for the year at RAC of 84,535 tons as compared to 9,716 tons in fiscal 2010 or almost a nine-fold increase. CanAm's share of production was 48,360 tons as compared to 4,761 tons in fiscal 2010. Production for the fourth quarter of fiscal 2011 was 15,705 tons as compared to 9,716 tons in fiscal 2010 or an increase of 62%;
  • Generated revenue, income and EBITDA from mining operations of $5,328,935 (2010 - $544,116), $342,281 (2010 – 71,582) and $695,874 (2010 - $80,399), respectively;
  • Improved the overall financial position of the Company and cash and cash equivalents at January 31, 2011 amounted to $1,497,029 as compared to $357,223 at January 31, 2010;
  • Raised approximately $5 million of funds in fiscal 2011 as a result of the issuance of 12% unsecured convertible debentures for an amount of $2.5 million, the exercise of warrants for proceeds of approximately $2.4 million and a private placement for proceeds of $100,000;
  • Completed the acquisition of an additional 49% ownership interest in RAC and certain other assets associated with the Powhatan mine site for a purchase price of US$1,486,250 which resulted in the Company now owning 98% of RAC Mining LLC;
  • Took control of RAC on November 8, 2010 and worked during the fourth quarter of fiscal 2011 on the transition and repositioning of the operations in order to set up the mine for success. This exercise included complementing the equipment fleet with drilling and dozer capacity, hiring of employees, maintenance and upgrading of existing equipment, re-evaluating mining plans, review of mining practices and procedures, negotiation of 2011 sales contracts, permit revisions and extensions and, last but not least, safety, health and environmental practices;
  • Invested in mine equipment and related capital expenditures for the year amounted to approximately $4 million excluding equipment acquired through the acquisition of the additional 49% of RAC. In addition, the Company deposited some $0.5 million in cash as security for reclamation bonds posted with the Alabama Surface Mining Commission;
  • Halted the development of the RPS Fuels LLC activities and therefore wrote off project development expenses of $145,597, an advance (or operating loan) that was provided to RPS of $301,562 and the initial purchase price consideration of $1,066,000 which was paid through an aggregate of four million common shares of the Company. In this context, a provision for impairment of $713,659 was recorded and an amount of $799,500 was debited against share capital as a result of the cancellation of three million shares;
  • Renewed our Board of Directors and three new senior and experienced executives joined our team: Jonathan Legg (Chairman of the Board), Robert Power (Director) and Tim Nakaska (Chairman of the Audit Committee).
Highlights and events subsequent to the year ended January 31, 2011 include:
  • Completed the transition of the Powhatan mine from the previous contract miner to RAC with production ramping up and anticipated to reach exit coal sales of 14,000 to 16,000 for fiscal 2012;
  • Completed the purchase of a 50% ownership stake in Birmingham Coal & Coke ("BCC") which operates 3 operating mines and a brokerage business in Alabama that will add coal sales of approximately 22,000 to 25,000 tons per month starting in May of 2011. The Company has an option to purchase an additional 30% ownership within the next 2 years and the remaining 20% within 5 years;
  • Raised $11.5 million through a 9.5% convertible debenture offering which will be used to fund the Company's acquisition, its 2011 capital expenditure program and for working capital purposes;
  • Converted approximately $0.5 million of the 12% convertible debenture debt. A total of some $0.7 million of the $2.5 million of 12% convertible debt has now been converted by its debenture holders.
Financial results for the year ended January 31, 2011 were as follows:
20112010
Revenue$5,328,935$544,116
Income from mining operations$342,281$71,582
Other income (expenses)$(2,197,889)$(1,011,354)
Net profit (loss)$(1,850,706)$(945,596)
EBITDA from mining operations$695,874$80,399
Mine operating results for the year ended January 31, 2011 were as follows:
20112010
RACCanAmRACCanAm
Coal sales revenue$8,805,521$5,176,648$1,047,438$544,116
Equipment rental$279,905$152,287--
Income from mining operations$872,345$342,281$140,151$71,582
EBITDA from mining operations$1,372,607$695,874$155,923$80,399
Coal sales (in tons)84,53548,3609,7164,761
Average coal price$104$107$108$114
Average cost of product sold$67$70$65$69
Average cost of royalties transportation & other$24$25$27$28
Average income from mining$10$7$14$15
Average EBITDA from mining$16$14$16$17
Note:
  • Averages are all presented on a per ton basis.
  • RAC represents 100% of production and is quoted in US$ whereas CanAm represents the Company's proportionate 49% share through November 8, 2010 and 100% from November 9, 2010 through January 31, 2011 and is quoted in CDN$.
  • EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization is a supplemental measure that is not presented in accordance with generally accepted accounting principles (GAAP). This non-GAAP 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 GAAP.

Coal Sales

Coal sales for the year of 84,535 tons represent a full year of production as compared to 2 months in fiscal 2010. CanAm's share of production is comprised of 49% of production for the majority of the year and 100% of production starting Nov 9, 2010. Average production mix for the year was 75% metallurgical coal and 25% thermal coal. Coal sales for the fourth quarter of fiscal 2011 were 15,705 tons as compared to 9,716 tons in fiscal 2010 or an increase of 62%. Sales for the fourth quarter were down from third quarter sales of 23,281 tons as a result of the transition of mining operations from the previous contract miner to RAC. Transition impacted production in the month of November and December of 2011 and included complementing the equipment fleet with drilling and dozer capacity, hiring of employees, maintenance and upgrading of existing equipment, re-evaluating mining plans, review of mining practices and procedures, negotiation of 2011 sales contracts, permit revisions and extensions and, last but not least, safety, health and environmental practices.

Revenue, Income and EBITDA from Mining Operations

Revenue, income and EBITDA from mining operations represent a full year of production as compared to 2 months in fiscal 2010 and starting November 9, 2010 results include 100% of RAC. Although coal prices for metallurgical coal and thermal coal improved from fiscal 2010, average coal prices experienced some erosion as a result of the coal mix which changed from 80/20% to 75/25% metallurgical/thermal coal. For fiscal 2011, the Company realized an average sale price of $107/ton as compared to $114/ton in fiscal 2010. Production cost and cost of royalties, transportation and other remained fairly consistent year over year. Depletion and amortization increased substantially following the transition of mining operations to RAC as the Company now runs its own fleet of equipment with resulting amortization charges. EBITDA from mining operations was $695,874 (or $14 per ton) as compared to $80,399 (or $17 per ton) for fiscal 2010.

Other Income (Expenses)

Other expenses for the twelve month period ended January 31, 2011 were $2,197,889 as compared to $1,011,354 in fiscal 2010 or an increase of $1,186,535. The increase was mainly the result of: higher impairment charges recorded on the Company's RPS activities (+$438,000), interest and costs associated with the Company's 12% debenture which was not in place in fiscal 2010 (+$230,000), higher foreign exchange losses as a result of the strengthening of the Canadian dollar (+$88,000), higher stock based compensation expenses as a result of options awarded to new management, directors and consultants (+$83,000), higher general and administrative expenses as a result of the increased activity in the Company's operations (+$300,000) and higher equipment interest expense (+$47,000).

The Company's overall financial position improved significantly throughout the year as a result of the $2.5 million debenture financing and the additional funds of some $2.4 million generated through the exercise of warrants. The Company also continued its investment in its mining operations in Alabama and capital expenditures for the year ended January 31, 2011, were approximately $6 million including $4 million of additional mining equipment and $0.5 million for a deposit on mine reclamation bonds.

Outlook

Since November 2009, the Company has embarked on a strategy to become an emerging coal producer and in the last year the Company has successfully completed two acquisitions: gaining control of RAC Mining LLC, a predominantly metallurgical coal producer, and acquiring a 50% ownership stake in Birmingham Coal & Coke Inc., a predominantly thermal coal producer. As a result, CanAm's assets now comprise an ownership stake in:

  • 4 producing coal mines
  • 1 development mine
  • Permits and leases covering approximately 5,000 acres of land
  • Workforce of 110+ employees

With transition of mining operations to RAC completed, production has resumed to normalized levels in the first quarter of fiscal 2012 and the Company anticipates exit coal sales from the Powhatan mine at 14,000 to 16,000 tons per month. In addition, effective May 1, 2011, the Company will include its 50% proportionate share of BCC's results of operations in the Company's accounts. Fiscal 2012 exit coal sales from BCC are estimated at 22,000 to 25,000 tons per month. The Company will also continue to evaluate other mining opportunities in North America and it is the Company's intention to exercise its option on the remaining 50% ownership stake in Birmingham Coal & Coke, Inc.

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 (see the technical report entitled "Limon Lignite Project, Elbert County, Colorado, USA," dated October 26, 2007 and filed on SEDAR on November 2, 2007).

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, 2011. 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.

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