Coalcorp Mining Inc.
TSX : CCJ

Coalcorp Mining Inc.

May 14, 2008 16:16 ET

Coalcorp Announces Strategic Plan, $120 Million Financing and Third Quarter Results

TORONTO, ONTARIO--(Marketwire - May 14, 2008) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Coalcorp Mining Inc. (TSX:CCJ) announced today that it has completed its strategic review process and will be embarking on a multi-faceted, focused strategy with a view to the company producing approximately 6.0 million tonnes of coal per year (mtpa) by 2010.

As previously announced, the board of directors of the company approved a process to review strategic alternatives with the objective of maximizing shareholder value and retained GMP Securities L.P. and Endeavour International Financial Corporation as its advisors, as well as retained Steffen, Robertson and Kirsten (UK) Ltd ("SRK") to review the company's operations at La Francia. As a result of the review and after detailed financial analysis, the company and its advisors believe that the inherent value of its assets is significantly in excess of any and all proposals received as a result of the strategic review process and therefore has developed this new strategic plan to unlock this value and enhance value for shareholders.

The features of this strategy, which are explained in greater detail below, are:

- Raising $120 million through a proposed financing (the "Financing"), led by GMP Securities L.P.

- A focus on further developing the company's core assets, consisting of the two areas within La Francia I mine (pits A/B) and the development of the C area at La Francia I and the D area at La Francia II, as well as its infrastructure assets, comprising interests in the Fenoco rail line and the proposed ports at Barranquilla and Capulco

- The already announced agreement with Masering S.A. in which Masering will work with its consortium partners to expand the pit and introduce new equipment to the extraction process

- The acquisition of additional mining equipment to be used at La Francia I and II to assist in ramping up production to the projected 6.0 mtpa

- Revising the current mine plan at La Francia I and performing advance waste stripping at Pit C, as well as the retainer of SRK to assist the company in operating and expanding La Francia I and II

- The disposition of non-core assets, comprising the Cartagena port lands and the Caypa mine

- Implementing cost-cutting measures, focusing on general and administrative expenses and including a 25% salary reduction for senior management; the company has also made an offer to re-purchase its sales agency arrangement with GC Coal

The appointment of a Colombian-based Chief Operating Officer for the Colombian operations is viewed as an important step in implementing the strategic plan. The search for a suitable candidate is well-advanced.

Commenting on the strategic process, Serafino Iacono, the company's Chief Executive Officer, stated "Management and the board of directors of Coalcorp strongly believe in this company and its potential, and we believe that the plan we are implementing today will go a long way to unlocking that potential."

Financing

In addition, Coalcorp announced today the launch of a proposed public offering of units in the provinces of Ontario, British Columbia, Alberta and Manitoba (collectively, the "Offering Jurisdictions") and private placement in the US and UK. The offering will include a syndicate of underwriters led by GMP Securities L.P. and including Canaccord Capital Corporation, Loewen Ondaatje, McCutcheon Limited and Macquarie Capital Markets Canada Ltd.

In connection with the proposed offering of units, Coalcorp has filed a preliminary short form prospectus with the securities regulatory authorities in each of the Offering Jurisdictions. The terms of the offering, including the number of securities offered and the offering price, will be determined at the time of pricing; however, it is anticipated that Coalcorp will raise gross proceeds of $120 million through the Financing.

Coalcorp plans to use the net proceeds of the Financing as follows, with the details of each expenditure explained in greater detail below:



Commissioning of rail infrastructure $25 M
Mine equipment and infrastructure funding $30 M
Expansion of infrastructure $15 M
Pre-stripping operating costs $30 M
Other expenditures, including exploration drilling
and acquisition of additional rolling stock $20 M
-----
Total $120 M


Any excess funds will be used for the general working capital requirements of the company.

The securities offered have not been registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons absent registration or an applicable exemption from registration requirements. This release does not constitute an offer for sale of securities in the United States.

Focus on Core Assets

The future success of the company is dependent on the proposed expansion of the La Francia I pits (A/B) and the development of the C area at La Francia I and the D area at La Francia II, from their current capacity of approximately 2.0 mtpa to a planned capacity of approximately 6.0 mtpa by the end of 2010. La Francia I is the subject of a technical report dated October 20, 2005 (the "SRK Report") prepared by SRK Consulting, which reported an estimated proven total coal reserve of 26.75 million tonnes (to a depth of 175m). Pit C at La Francia I and Pit D at La Francia II are the subject of a report dated November 2007 with an effective date of November 12, 2007 (the "Marston Report") prepared by Marston & Marston, Inc., which reported a total proven coal reserve of 51.5 million tonnes and probable reserves of 1.6 million tonnes. Based upon production since the date of the SRK Report, and without taking into account any reserve losses that may have occurred during production, management estimates that a total coal reserve of 21.91 million tonnes remains at La Francia I (Pit A/B), resulting in a total reported coal reserve at the two mines of 74.99 million tonnes. The company's plan focuses on these almost 80 million tonnes of reported coal reserves, without accounting for reserves that may be added as the company reviews and revises the current mining plan, including the potential to deepen Pit A/B in certain areas and the negotiation of boundary agreements with neighbouring properties. The Corporation has previously identified measured and indicated resources, some of which are not yet classified as reserves, and will determine whether portions of such resources may be upgraded to reserves as the development of La Francia I and II progresses.

The increase in production at La Francia is expected to take 18 months from implementation to complete and will allow the company to take advantage of sales of coal at spot prices, which are anticipated to remain high over the near to medium terms.

The company also retains an extensive land position in and around the Cesar region of approximately 35,680 hectares, near the La Francia mines, and it intends to continue to explore these areas in effort to expand its resource base.

In conjunction with the expansion of production at La Francia I and II, construction of the rail spur to connect La Francia with the Fenoco line has commenced and is expected to be finished in September 2008. Once complete, Coalcorp is expected to have up to 3.5 million tonnes capacity of annual rail access to ship its coal to the northern ocean ports near Santa Marta. The company has also commenced the process of requesting from Fenoco an additional 2.5 million tonnes of annual rail access for 2010 and later. If successful, this is expected to provide the company not only with additional capacity to transport the increased tonnage, but will allow the company to transport its coal at a significantly reduced cost to that currently experienced. Coal is currently trucked to port. The company anticipates that it will cost approximately $25 million to complete the rail spur and also make its final capital contributions to the main Fenoco rail line, and this amount has been included in the anticipated use of proceeds of the Financing.

Implementation of Masering Consortium Contract Mining Arrangement

The company retained SRK to assist with reviewing the overall mining operations at La Francia I and II, and in particular to assess the potential to expand from the current operations of under 2.0 mtpa to 6.0 mtpa as quickly as possible. The company anticipates that, focusing only on the reported coal reserve tonnage of 74.99 million tonnes at La Francia I and II, the expected mine life at a rate of 6.0 mtpa will be 12 to 14 years. A key component of this increase in production will be the implementation of the previously announced Masering consortium contract mining arrangement.

SRK has estimated that the company's current equipment complement limits the extraction capability to just under 2.0 mtpa. The implementation of the contract mining arrangement with the Masering consortium will see the introduction of new waste stripping equipment onto the site to increase production, consisting of four Rh120 excavators. This equipment has the capacity to produce an additional 2.0 mtpa, which equals a combined capacity (with the current contractor and existing equipment) of approximately 4.0 mtpa.

In addition, additional facilities will be required to maintain the mining equipment, store the fuel, house the workers, etc. The company anticipates that a cash outlay will be required in the order of $60.0 million, with approximately $50.0 million to be dedicated to the acquisition of equipment (as detailed below) and $10.0 million for the infrastructure, to which the company has allocated $30.0 million of the anticipated use of proceeds from the Financing.

Acquisition of Additional Mining Equipment by Masering

SRK has recommended that, in addition to the equipment that Masering has allocated to its contract with the company, Masering expend approximately $50.0 million in acquiring new equipment. This equipment will include two RH200 (26m3) excavators, with a capacity of 6.6 Mm3 per year. The acquisition of these excavators would result in a combined fleet capacity as follows:



Two Rh200 excavators (26m3 buckets) @ 6.6 Mm3 per unit 13.2 Mm3 per year
Two Rh120 excavators (15m3 buckets) @ 3.8 Mm3 per unit 7.6 Mm3 per year
Four Rh120 excavators (17m3 buckets) @ 4.3 Mm3 per unit 17.2 Mm3 per year
Three Cat 365/345 excavators @ 0.9 Mm3 per unit 2.7 Mm3 per year
Total waste capacity 40.7 Mm3 per year
Assuming an average stripping ratio of 6.5 m3/t coal 6.26 Mt coal per year


The Masering consortium is contractually required to bring 29 100t haul trucks to site with the new waste excavation fleet, which will satisfy the requirements for the existing excavators. Therefore, a new fleet of trucks for the RH200 excavators will be required, and SRK has recommended that the Masering consortium acquire ten Cat 785 (140 tonne) haul trucks, which can be utilised between both of the large sized excavators.

The company's current coaling fleet consists of coal excavators (Cat 330 and Cat 345) and the 30t road coal transport trucks. The company anticipates that, in order to handle expanded production, the fleet will need to increase at least twofold.

Finally, the company and SRK have also assessed the company's drilling fleet and ancillary equipment, inclusive of tracked bulldozers, graders and other associated equipment and have estimated that additional expenditures could be required to upgrade and supplement this equipment.

It is anticipated that the last of the four Rh120 excavators will be delivered to site at the end of September 2008 and will be ready for production in the middle of November. At that time, the coal mining capacity available to the company is anticipated to be approximately 4.0 mtpa.

The ordering and delivery of the larger excavation fleet (Rh200) and associated 140t haul trucks will require considerable lead time, resulting in a 12 month programme with commissioning on site by mid-2009. It will also require negotiation of further agreements with the Masering consortium or other operators. Therefore, assuming satisfactory arrangements with the Masering consortium are achieved, it is anticipated that annual production will reach the 6.0 million tonne mark by the end of 2010.

Revising La Francia I Mining Plan

The ability of the company to increase production to 6.0 mtpa is dependent not only on the acquisition of additional equipment, but also on converting the current mining profile at La Francia I A/B pits to allow for that expansion.

SRK is in the process of reviewing the mine design and plan, and will be recommending several changes with a view to expanding the mine operations and shortening waste haulage distances, resulting in cost savings. The company is currently redesigning the mine by introducing two additional 30 metre deep working benches in the southwest advancing wall, while at the same time reducing the current upper bench to ensure a 30 metre level between all benches. The benches will be interconnected with 20 metre wide ramps in the advancing wall.

Waste stripping, at an estimated cost of $30.0 million, will be required in the advance areas before coal can be recovered, equivalent to two advance cuts to a depth of 20 metres, priced at current mining rates. Converting the current mining profile will include the removal of the two non-coaling benches at the surface, and three development benches.

The company has allocated an additional $15.0 million towards the expansion of infrastructure and facilities that will be required by the company to implement its plan to expand production. This includes the construction of offices and accommodation, the expansion of the coal stocking facilities, and the construction of site haul roads and de-watering infrastructure, as well as the anticipated costs for attaining expansion permits and associated consultants' fees.

Additionally, the company has allocated $20.0 million for other costs associated with the expansion of production, primarily the need to acquire additional rolling stock as production approaches the anticipated 6.0 mtpa level. The company also intends to continue exploration drilling, focusing on the La Francia properties.

Disposition of Non-Core Assets

In order to focus its energies and finances on the infrastructure and production assets that are key to the company's success, the company has determined that all assets not core to those objectives should be disposed of or wound down. In particular, this means the disposition of the Caypa mine and the Cartagena port lands and associated port license.

The company does not anticipate that the Caypa mine will be cash flow positive in the near or medium terms, and therefore has determined to dispose of the mine. The company has received offers to acquire the subsidiary which holds the rights to the Caypa mine and expects to enter into a binding agreement shortly to sell that subsidiary; however, at this time there is no binding agreement to sell Caypa and there is no assurance that Caypa will be sold, or if sold, at what price.

In addition, the company has determined that the Cartagena port and associated license is not critical to the company's success, given the anticipated location of the company's main coal port at Barranquilla and the restrictions on use imposed by the Colombian government on the Cartagena location. The company has received an offer to acquire the Cartagena port, and expects to complete the sale in the near future; however, at this time there is no binding agreement to sell the Cartagena port and there is no assurance that the Cartagena port will be sold, or if sold, at what price.

The company will make further announcements regarding these assets when and if negotiations are finalised.

Cost Reduction Measures

The company intends to implement a number of cost-cutting measures, focusing on general and administrative (G&A) expenses. The sale of Caypa alone is expected to generate significant G&A savings, but additional measures will be examined, including workforce reductions in Colombia. Additionally, members of senior management have agreed to take a 25% salary reduction, and consulting arrangements have been reduced, effective immediately. Finally, the company has made an offer to acquire its existing coal sales agency arrangement with GC Coal which, if accepted, will result in significant cost savings as the company increases its coal production to the 6.0 mtpa level.

Termination of BHP Exploration Arrangement

In addition to the implementation of the company's strategic plan, the company has announced the termination of its exploration joint venture arrangement with BHP Billiton World Exploration Inc., which had been entered into by the parties on April 10, 2007. Under the arrangement, BHP had agreed to expend a minimum of $2.5 million per year over three years in exploring the company's exploration properties.

Third Quarter Financial Results

The company also announced today its results for the three and nine month periods ended March 31, 2008. Financial figures quoted herein are all in U.S. dollars. As a result of the determination in the new strategic plan to dispose of the company's interests in the Caypa mine and the Cartagena port land and associated port license, these businesses are now considered as discontinued operations. Operating and financial results from the company's continuing operations include its La Francia mine and the proposed ports at Barranquilla and Capulco.

La Francia's coal production in the third quarter of fiscal 2008 increased to 415,000 tonnes from 358,000 tonnes in the third quarter last year. With La Francia's mine stripping ratio returning to its expected level of 7.1:1 in the current quarter, its mine operating costs were $31 per tonne, on par with the third quarter last year. For the nine months ended March 31, 2008, La Francia's coal production amounted to 1.3 million tonnes comparable to the 1.3 million tonnes produced in the ten month period last year. Due to the change in the company's fiscal year end to June 30th last year, the comparative year-to-date period includes an additional month.

Revenues from continuing operations in the third quarter increased to $30.5 million based on sales of 561,000 tonnes from La Francia at an average realized price of $55 per tonne compared with $13.5 million in the prior period derived from sales of 368,000 tonnes sold at an average price of $37 per tonne. Revenues for the nine month period ended March 31, 2008 totalled $59.4 million based on sales of 1.4 million tonnes at an average realized price of $44 per tonne compared with $44.3 million from 1.2 million tonnes at $36 per tonne during the ten month period last year.

In the third quarter, Coalcorp reported a loss from continuing operations of $9.3 million or $0.10 per share as compared to a loss from continuing operations of $8.9 million or $0.14 per share in the third quarter last year. For the nine months ended March 31, 2008, the company reported a loss from continuing operations of $23.7 million or $0.27 per share compared with a loss from continuing operations of $29.6 million or $0.51 per share in the ten month period ended March 31, 2007.

After the loss from discontinued operations of $43.7 million or $0.49 per share, the company reported a net loss in the third quarter of $53.0 million or $0.59 per share compared with a net loss of $16.4 million or $0.26 per share in the third quarter last year. For the nine months ended March 31, 2008, the company reported a net loss of $74.3 million or $0.83 per share compared with a net loss of $50.1 million or $0.86 per share in the ten month period ended March 31, 2007. The loss from discontinued operations during the three and nine months ended March 31, 2008 includes after-tax writedowns of the Caypa mine and the Cartagena port totaling $42.9 million or $0.48 per share to reflect the estimated proceeds to be realized on the disposition of these assets.

Coalcorp generated cash from its operations in the third quarter of $12.2 million. After capital investments of $13.2 million, the company had cash and short-term investments amounting to $26.3 million at March 31, 2008.

In fiscal 2008, Coalcorp continues to expect to produce 1.8 million tonnes from its La Francia mine with an average stripping ratio of approximately 7.2:1 and an improvement in its mine operating cost per tonne compared with the prior fiscal year.

Complete Financial Statements and Management's Discussion and Analysis will be available from our website under "Investor Info" or on SEDAR at www.sedar.com.

As the company has commenced the Financing, it will not be hosting a conference call this quarter to discuss the third quarter results.

Coalcorp is a coal mining, exploration and development company with interests in the La Francia and La Caypa coal mines and related infrastructure projects and a number of coal exploration properties, all located in Colombia. Further information can be obtained by visiting our website www.coalcorp.ca.

This press release contains forward-looking statements within the meaning of applicable Canadian securities laws including statements relating to the company's expectation of producing 6.0 mtpa by the year 2010, the company's search for a Colombian-based Chief Operating Officer, the use of proceeds of the Financing, the expected timing of the implementation to increase production at La Francia, the expected capacity of rail access to ports near Santa Maria, the expected completion date of the Fenoco line, the anticipated cost to complete rail spur and to make final capital contributions to the Fenoco line, the company's expectations with respect to port capacity and the anticipated completion dates of the Barranquilla and Capulco ports, the anticipated mine life of La Francia and stripping ratios, the anticipated cash required for additional facilities to maintain mining equipment, store fuel and house workers, the size of the fleet required to meet production, the delivery date of Masering four Rh120 excavators and their anticipated production date, the anticipated increase in the coal fleet required, the expected costs of waste stripping and expansion of infrastructure at La Francia I and the consummation of transactions to dispose of non-core assets and any expected cost savings resulting therefrom.
The terms and phrases, "expects", "will", "would", "anticipate", "estimates", "has determined to", "intends" and similar terms and phrases are intended to identify these forward-looking statements. Forward-looking statements are based on estimates and assumptions made by the company in light of its experience, its current assessment of matters relating to the review, the work done to date by SRK, and its perception of historical trends, current conditions and expected future developments, as well as other factors that the company believes are appropriate in the circumstances. Many factors could cause the company's actual results, or future events to differ materially from those expressed or implied by the forward-looking statements, including, without limitation: unanticipated developments and delays encountered in connection with expanding production at the La Francia mine and the other matters set out in the strategic plan, risks associated with operations in Colombia, unexpected requirements for additional capital to meet the strategic plan, the price of coal and environmental and other regulatory requirements. Readers are cautioned to consider the forward-looking statements in light of these risks and others relating to the companies which are discussed in greater detail in the "Risk Factors" section of the company's Annual Information Form (a copy of which may be obtained at www.sedar.com). These factors should be considered carefully, and readers should not place undue reliance on the company's forward-looking statements. The company has no intention and undertakes no obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Contact Information

  • Coalcorp Mining Inc.
    Michael Davies
    Chief Financial Officer
    (416) 360-4653
    (416) 360-7783 (FAX)
    Website: www.coalcorp.ca