Cobalt Coal Corp.
TSX VENTURE : CBT

May 03, 2011 13:19 ET

Cobalt Coal Corp. Announces Annual Results and Operational Review

CALGARY, ALBERTA--(Marketwire - May 3, 2011) - Cobalt Coal Corp. ("Cobalt" or the "Company") (TSX VENTURE:CBT), announces its 2010 financial results and its review of operations.

Annual Results

The Company announces it has filed its financial statements and Management Discussion & Analysis for the year ended December 31, 2010 on SEDAR (www.sedar.com).

The Independent Auditors' Report on the 2010 financial statements includes a section "Emphasis of Matters" pertaining to the appropriateness of presenting the financial statements on a going concern basis. The Company has incurred a net loss for the year of $1,782,261 and has a working capital deficiency of $2,016,367 at December 31, 2010. Note 2 to the 2010 financial statements entitled "Forbearance and Going Concern" further describe issues impacting the Company.

Operational Review

Over the past few weeks, the Company has undertaken a thorough review of operations focusing on the impediments that are restricting the Company from being profitable. The Company has arrived at the conclusion that it will be very difficult to achieve profitable operations in the near term or quite possibly at all under the current financial structure.

Due to insufficient cash flow to meet mining costs together with interest payments and corporate administrative costs the Company faces a short-term cash crisis which is expected to require an additional $150,000 to fund operations to the end of June 2011. Most of this is attributable to inconsistent production in April resulting in smaller cash receipts than were anticipated from April coal revenues. The Company believes it will able to solve this short-term cash requirement, however, management further believes that a significant financial restructuring is required and is currently exploring various restructuring options.

The significant impediments that are contributing to the continued operating losses include the following:

  • Lack of working capital – as an example, the Company has been unable to inventory key spare parts and as a result they are obtained on an as needed basis resulting in longer than necessary production shutdowns
  • Power – mining equipment is currently being powered by diesel generators that are expensive to operate and prone to shutdowns. The mine requires electrical power from the main grid that could reduce operating costs by as much as $50,000 per month and allow uninterrupted service and therefore much improved recoveries. Such electrical power is currently not available at the mine but rather a power line over approximately four (4) miles of rugged terrain is required to be built.
  • Equipment – the Company needs to acquire additional equipment in order to achieve what would be considered a "full spread" thus providing increased operational efficiency.
  • Debt – the Company will soon require additional equity. The bridge loan of $1.2 million is due to be repaid by June 30, 2011 and has a 15% interest rate attached to it. There are currently no definite arrangements in place to repay this amount. In addition to the bridge loan are debentures payable which also carry an interest rate of 15% and are required to be repaid in the next sixteen (16) months.
  • Loading area – as the Company expands into the Westchester Expansion lease, more loading area will be required as the coal is mined and inventoried awaiting trucking to the wash plant which will require obtaining additional land by lease or purchase.

Operations

During the first quarter of 2011, Cobalt sold 9,003 clean tons and experienced considerable downtime due to weather conditions and required mine maintenance requested by regulators. Equipment downtime and preparation for future mining activities in the Westchester Expansion reserve base also impacted production during the period. Clean ton production during January and February 2011 averaged 2,728 tons and production for March 2011 was 3,547 clean tons. During March 2011, while operating during normal production conditions without downtime, the mine achieved production of 250 clean tons per day which is management's targeted production rate, however, the mine was operating for only half of the available days.

Cobalt's coal sales revenue for Q1 2011 was approximately $990,000.

Also, during Q1 2011, Cobalt began providing contract mining services on a coal property located in Fayette County, West Virginia. Contract mining activities resulted in additional revenues of $281,426 for Q1.

During Q1, Cobalt commenced the permitting process for Westchester Expansion reserve base.

About Cobalt:

Cobalt is a publicly traded coal exploration and production company headquartered in Calgary, Alberta, Canada with a regional office in Welch, West Virginia USA. Cobalt was created in August 2007 to capitalize on the growth opportunities that exist in the modem metallurgical coal mining industry.

The securities of Cobalt being offered have not been, nor will be, registered under the United States Securities Act of 1933, as amended, and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons absent U.S. registration or an applicable exemption from U.S. registration requirements. This release does not constitute an offer for sale of securities in the United States.

READER ADVISORY

Statements in this news release may contain forward-looking information including the timing of closing of the Offering and the intended use of proceeds of the Offering. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the Company. These risks include, but are not limited to, the risks associated with the coal mining industry, commodity prices and exchange rate changes. Industry related risks could include, but are not limited to, operational risks in exploration, development and production, delays or changes in plans, risks associated to the uncertainty of reserve estimates, health and safety risks and the uncertainty of estimates and projections of production, costs and expenses. The reader is cautioned not to place undue reliance on this forward-looking information.

NEITHER TSX VENTURE EXCHANGE NOR ITS REGULATION/SERVICE 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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