CanAm Coal Corp.
TSX VENTURE : COE
OTCQX : COECF

CanAm Coal Corp.

September 30, 2011 08:00 ET

CanAm Reports Coal Sales of $7.5 million for Q2

CALGARY, ALBERTA--(Marketwire - Sept. 30, 2011) - CanAm Coal Corp. (TSX VENTURE:COE) (OTCQX:COECF) ("CanAm" or the "Company") has filed its unaudited condensed interim consolidated financial statements and related management's discussion and analysis for the three and six month period ended July 31, 2011. Copies of these documents may be obtained via the SEDAR website.

With the primary focus of the Company on growing coal production and resources, the main activities of the CanAm team in the second quarter were devoted to successfully completing and integrating the 50% acquisition of Birmingham Coal & Coke ("BCC"). BCC operates 3 mines and a brokerage business in Alabama with coal sales of approximately 40,000 to 50,000 tons per month. The Company was successful on both counts and delivered record production, revenue, income and EBITDA from mining operations.

"We successfully completed the purchase and integration of a 50% ownership stake in BCC and as such, our second quarter includes, for the first time, the full contribution of our share of their production and results", said Jos De Smedt, CFO of CanAm. "All of our key metrics; production, revenue and EBITDA from mining operations; saw a minimum five-fold increase as compared to prior year's second quarter. We delivered $7.5 million of revenue, $1.9 million of EBITDA from mining and generated $2.6 million of cash flow from operations during the quarter. Our cash position significantly improved with cash on hand of $5.7 million, including $1.6 million of restricted cash, at July 31, 2011".

Highlights and events for the second quarter include:

  • Achieved coal sales of 81,453 tons in Q2 or an increase of 69,139 tons from last year's second quarter and an increase of 50,798 tons from the previous quarter.
  • Achieved coal sales of 112,108 tons for the first half of fiscal 2012 or a fivefold increase from last year;
  • Generated revenue of $7.5 million in Q2 as compared to $1.4 million in Q2 of last year;
  • Topped $10 million in revenue for the first half of fiscal 2012 as compared to $2.6 million last year;
  • Generated EBITDA from mining operations of $1.9 million for Q2 as compared to $0.3 million last year and topped $3 million for the first half of fiscal 2012 as compared to $0.5 million last year;
  • Delivered average EBITDA from mining of $23/ton for the quarter and $27/ton for the first half of fiscal 2012;
  • Generated cash from operations of $2.6 million in Q2 as compared to a use of cash from operations of $0.1 million last year;
  • Improved the overall financial position of the Company. Cash on hand and working capital at July 31, 2011 amounted to $5.7 million, including $1.6 million of restricted cash, and $0.4 million, respectively;
  • Recorded a one-time charge in Q2 of fiscal 2012 relating to BCC acquisition expenses in the amount of $0.5 million and a non-cash charge of $0.3 million related to 2.4 million broker warrants issued as a result of the 9.5% debenture financing;
  • Completed a NI 43-101 independent reserve report for BCC which determined the coal resource at 6 million tons of proven reserves. On this basis, and considering current production levels, average mine life for the BCC mines is 10 years;
  • Started trading on the US OTC market, OTCQX International, under the symbol COECF.

Highlights and events subsequent to the quarter ended July 31, 2011 include:

  • Converted approximately $0.75 million of the 12% convertible debenture debt into common shares and raised additional funds as a result of the exercise of warrants and options for proceeds of approximately $200,000.

Financial results for the three and six month period ended July 31 were as follows:

Three Month Period Six Month Period
Ended July 31 Ended July 31
2011 2010 2011 2010
Revenue 7,474,506 1,434,064 10,707,627 2,558,801
Income from mining operations 686,903 216,408 1,579,727 394,392
Profit (loss) before tax * (1,343,478) 29,358 (990,499) 22,356
Net profit (loss) (1,274,219) 6,389 (1,046,615) (18,664)
EBITDA from mining operations 1,864,549 288,109 3,045,010 495,060

* includes $0.8 M of one-time expenses relating to the BCC acquisition & debenture financing

Mine operating results for the three and six month period ended July 31 were as follows:

Three Month Period Six Month Period
Ended July 31 Ended July 31
2011 2010 2011 2010
Mettalurgical coal 10,830 10,027 30,028 18,366
Thermal coal 70,623 2,287 82,080 3,898
Total 81,453 12,314 112,108 22,264
Coal sales revenue 7,474,506 1,368,789 10,707,627 2,463,885
Income from mining operations 686,903 216,408 1,579,727 394,392
EBITDA from mining operations 1,864,549 288,109 3,045,010 495,060
Coal sales (in tons) 81,453 12,314 112,108 22,264
Average coal price 92 111 96 111
Average cost of product sold 53 68 50 67
Average cost of royalties
transportation and other 16 25 18 25
Average income from mining 8 18 14 18
Average EBITDA from mining 23 23 27 22

Notes:

  • Averages are all presented on a per ton basis.
  • Through November 8, 2010, the Company only owned 49% of the mining operations and therefore for the second quarter ended July 31, 2010, all numbers represent CanAm's proportionate 49% share.
  • EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization 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.

Coal Sales

Coal sales were 81,453 tons in the second quarter of fiscal 2012 as compared to 12,314 tons in Q2 of fiscal 2011 or an increase of 69,139 tons. The significant increase is mainly the result of the first time contribution of 59,069 tons of coal sales from BCC's three operating mines; Bear Creek, Old Union and Gooden Creek. Coal sales at the Powhatan mine were up 6,865 tons from the comparable period in the previous year. The ratio of metallurgical/thermal coal at the Powhatan mine was 56/44% as a result of higher recovery rates from the Mary Lee coal seam.

For the six month period ended July 31, 2011, coal sales were 112,108 tons as compared to 22,264 tons in fiscal 2011 or a fivefold increase. The ratio of metallurgical/thermal coal for the six month period ended July 31, 2011 at the Powhatan mine was 60/40% as compared to 82/18% in the first half of fiscal 2011.

Revenue, Income and EBITDA from Mining Operations

Revenue, income and EBITDA from mining operations for the quarter were all up significantly as compared to the prior period 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. Although prices for both coals increased quarter over quarter, the average coal price was lower due to the Company's coal mix of 13/87% metallurgical/thermal coal as compared to 81/19% in the comparable prior period. The major shift in the coal mix is primarily due to the BCC acquisition which only mines high quality thermal coal. For the quarter, the Company realized an average sales price of $92/ton as compared to $111/ton in fiscal 2011. Production costs for the quarter were on average $53/ton as compared to $68/ton in fiscal 2011 with the decrease mainly coming from the lower production costs at the BCC mines. EBITDA from mining operations was $1,864,549, as compared to $288,109 in the second quarter of fiscal 2011.

For the six month period ended July 31, 2011, the Company exceeded $10 million in revenue and $3 million in EBITDA from mining operations and changes from the prior year are mainly the result of the BCC acquisition.

Revenue, income and EBITDA from mining operations were negatively impacted from the strengthening of the Canadian dollar. Average exchange rate for the first half of fiscal 2012 was US$1=CDN$0.9620 as compared to US$1=CDN$1.0368 in the comparable prior period.

Other Income (Expenses)

Other expenses for the three and six month period ended July 31, 2011 were $2,030,381 (2011 - $187,050) and $2,570,226 (2011 – 372,036), respectively. The increase for the quarter was mainly the result of: one-time expenses associated with the acquisition of BCC and the related debenture financing (+$772,000), 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 (+$379,000), interest and costs associated with the Company's 9.5% and 12% debenture which were not in place in fiscal 2011 (+$554,000), higher stock based compensation expenses (+$83,000) and higher equipment interest expense as a result of the BCC acquisition (+$54,000).

The Company's overall financial position improved as a result of the cash flow generated from mining operations and funds raised through the 9.5% convertible debenture. Cash on hand at July 31, 2011 was $4.1 million as compared to $1.5 million at January 31, 2011. In addition, the Company held $1.6 million in restricted cash as security for reclamation bonds. The Company continued its investment in its mining operations in Alabama and capital expenditures, excluding the BCC acquisition, for the first half of fiscal 2012 were approximately $0.5 million.

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

With the acquisition of BCC completed, the Company is estimating coal sales of between 300,000 to 325,000 tons for fiscal 2012 (ending January 31, 2012). The Company also believes that it will continue to benefit from a strong pricing environment as a result of the high quality of both its metallurgical and thermal coal and existing off-take contracts for some of its metallurgical coal and the majority of its thermal coal. In addition, the Company is looking to organically grow its production in Alabama by increasing its existing capacity and adding adjacent land positions to its portfolio. 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.

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 September 28, 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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