Forbes & Manhattan Coal Corp.
TSX : FMC

Forbes & Manhattan Coal Corp.

February 16, 2011 16:37 ET

Forbes & Manhattan Coal Corp. Announces Fourth Quarter Financial Results and Operations Update

TORONTO, ONTARIO--(Marketwire - Feb. 16, 2011) -

THIS NEWS RELEASE IS INTENDED FOR DISTRIBUTION IN CANADA ONLY AND IS NOT INTENDED FOR DISTRIBUTION TO UNITED STATES NEWS WIRE SERVICES OR DISSEMINATION TO THE UNITED STATES

Forbes & Manhattan Coal Corp. (TSX:FMC) ("Forbes Coal" or the "Company") announces results for its fourth quarter ended December 31, 2011. All figures are in Canadian dollars, unless otherwise stated.

Highlights include:

  • Management believes the Company is on track to meet its production and EBITDA targets.
  • Reported total revenue was $9.03 million and $15.66 million during three and five months ended December 31, 2010 which includes three and five months of operations from Slater Coal respectively.
  • On December 7th, 2010, the Company announced increased port capacity at Richards Bay - Grindrod Terminals (the "Terminal") to provide export capacity of coal product through the Terminal for the shipment of coal products in the following amounts:
    • 2011 – 600 000 metric tons (m/t) per annum
    • 2012 – 720 000 metric tons (m/t) per annum
    • 2013 – 960 000 metric tons (m/t) per annum
  • South African operations generated EBITDA of $1.24 million and $4.32 million (See non GAAP measures) during the three and five months ended December 31, 2010 respectively and management estimates that there is approximately $11.39 million of finished goods in inventory at December 31, 2010.
  • Slater Coal's year to date production March 1 to December 31, 2010 was 743,715 t Run of Mine ("ROM"). Five months, or 402,956 t ROM were consolidated into Forbes Coal.
  • A new continuous miner was delivered to Magdalena site on November 29, 2010 and the expansion of section 4 of the Magdalena property is well under way
  • The production target for Slater Coal for its fiscal year ending February 2011 is an estimated 976,000 ROM Subsequent to December 31, 2010, the Company announced a $36.4 million bought deal co-led by GMP Securities L.P and Canaccord Genuity Corp. with a 15% over-allotment option for aggregate gross proceeds in the amount of $41,860,000.
  • The Company has changed its year end to February 28 to align itself with Slater Coal, consequently, the year ended February 28, 2011 will be a fourteen month year.

In releasing this information, President and Chief Executive Officer of Forbes Coal, Stephan Theron, commented, "Our fourth quarter results highlight strong production results from both the Magdalena and Aviemore properties. We are in the process of commissioning the new continuous miner at Magdalena and expect a commensurate increase in production over the next quarter. Furthermore, with the expanded port capacity and a strong focus on logistics management, we believe the Company is in a strong position to benefit from rising coal prices in the near future."

Operational highlights

Forbes Coal management team took control of the Slater Coal operations in August 2010. The ramp-up programme, launched in the second quarter under guidance of the previous management team, continued to gain momentum through December 31, 2010. The following key points are noted:

  • Aviemore anthracite operation, reopened in June 2010, regularly exceeded targeted output of 22,000 t ROM per month, with average of 22,742 t ROM produced per month between August and November 2010. The target performance was achieved two months ahead of schedule.
  • Mining production halted on December 10, 2010 for scheduled year-end maintenance and the production team holiday break. A total of 99,099 t ROM was produced at Aviemore between August 2010 and December 2010.
  • Anthracite Calcine unit was successfully commissioned at the end of August with 25,151 t anthracite peas calcined between September 2010 and December 2010.
  • Additional staffing and equipment were deployed at the Magdalena underground site to support the ramp-up programme, including the successful commissioning of a new 2,500 KVA power supply to Magdalena underground operations.
  • Magdalena underground took delivery of a new continuous miner for the development of the new Section 4. It is anticipated that the development of this section will add up to 330,000 tonnes per year in saleable production.
  • Magdalena operations, underground and open pit combined, produced 303,857 t ROM for the period August to December 2010.
  • Total ROM production from all operations for the period August to December 2010 was 402,956 t ROM .
  • Total production from March 2010 to December 2010 is 743,715 t ROM. March 2010 to July 2010 production was prior to the Company's acquisition of Slater Coal and is therefore not attributable to the Company
  • The production forecast for the fiscal year ending February 2011 is 976,000 t ROM. ROM planned. The March 2010 to July 2010 production included in these estimates was prior to the Company's acquisition of Slater Coal and is therefore not attributable to the Company
  • The production ramp-up plan is generally going according to plan. A delay in the delivery and commissioning of the new Section 4 continuous miner, in addition to unplanned maintenance on the original Section 1 continuous miner, significantly contributed to the downward adjustment in forecast production for the period ending February 2011.
  • Mining production halted earlier on December 10, 2010 for the scheduled year-end maintenance and the production team holiday break. 
  • Saleable coal production for August 2010 to December 2010 was 280,128 t vs 296,000 t targeted. The total yield was 69.5% in this period.
  • Total sales from March 2010 to December 2010 is 399,482 t, with 102,834 t moved in the last three months. The March 2010 to July 2010 sales were prior to the Company's acquisition of Slater Coal and is therefore not attributable to the Company
  • Coal is transported by rail and truck to domestic customers, while export coal reports to the Richards Bay Coal Terminal by rail.
  • Forbes Coal successfully negotiated an agreement with Grindrod Navitrade port terminal for incremental capacity of up to 960,000 tonnes per annum over a three year period. 
    • Grindrod Terminals provide certain logistical, handling and stock piling services to shippers in connection with the shipment of bulk cargoes through the dry bulk coal Terminal known as the Navitrade Terminal (and its associated facilities), connected to berths in the Port of Richards Bay.
    • Grindrod Terminals will provide up to 70,000 t in stockpile capacity to receive the coal at the terminal. We can deliver coal to the Terminal either by road or rail.

Financial highlights

  1. Slater Coal financial highlights
Summarized Financial Results (Actual)  
   
Slater Coal  
   
   
  1-Oct-10   Date of acquisition to   1-Mar-10  
  31-Dec-10   31-Dec-10   31-Dec-10  
  3 months   5 months   10 months  
             
Run of Mine (ROM) (t) 228,157   402,956   743,715  
Saleable production (t) 149,588   280,128   509,739  
Plant feed (t) 219,549   402,500   750,836  
Yield (%) on ROM 65.6 % 69.5 % 68.5 %
Yield (%) on Plant feed 68.1 % 69.6 % 67.9 %
Inventory tonnes balance open 139,212   86,742   74,704  
Inventory tonnes balance close 173,791   173,791   173,791  
Sales (t) 102,834   181,908   399,482  
             
Revenue 000,000's ($) 9.03   15.66   34.72  
EBITDA 000,000's ($) 1.24   4.32   11.02  
             
CDN$: US$ (average) 1.01   1.02   1.03  
ZAR: CDN$(average) 6.82   6.91   7.10  
             
Selling price (average) / sold production t (CAD$) 87.82   86.08   85.67  
Selling price (average) / sold production t (US$) 86.95   84.38   83.16  
Cash cost of sales and operating expenses 000,000 (CAD $) 7.60   10.99   23.18  
Cash cost of sales and operating expenses / sold production t (CDN$) 73.89   60.41   58.02  
Cash cost of sales and operating expenses / sold production t (US$) 73.16   59.22   56.51  
Capital expenditures 000,000's (CAD$) 1.83   2.46   5.62  
Capital expenditures per t of saleable production $ 12.30   8.77   11.03  
             
Numbers in this chart are derived from the Slater Coal stand alone financial statements        
The Company acquired Slater Coal at the end of July 2010. The March 1, 2010 to December 31, 2010 results include information prior to the acquisition of Slater coal and are presented here for reference purposes only    
See non GAAP measures             
  1. Forbes and Manhattan Coal Corp consolidated financial highlights

The Company has determined that Slater Coal is a variable interest entity ("VIE") where the Company is the primary beneficiary, as the Company will absorb the majority of Slater Coal's expected losses and will receive the majority of Slater Coal's expected residual returns. Consequently, under CICA accounting guideline AcG-15, the Company has consolidated 100% of Slater Coal as a variable interest entity.

The Company completed the acquisition of Slater Coal at the end of July 2010. Consequently, five months of results for Slater Coal were consolidated into the Company.

Total comprehensive loss

The net loss for the three and twelve months ended December 31, 2010, was $5.17 million and $16.88 million, respectively, compared to $0.04 million and $0.04 million for the comparative periods in 2009. Comprehensive loss for the three and twelve months ended December 31, 2010, was $0.17 million and $10.98 million respectively compared to $0.04 million and $0.04 million for the comparable periods in 2009. As described in the "Overview of the Company" section of this report Forbes & Manhattan (Coal) Inc., was incorporated in November 2009. Forbes & Manhattan Coal Corp, is the continuing combined entity following the September 2010 business combination between Forbes & Manhattan (Coal) Inc. and Nyah Resources Corp. whereby Nyah, a public company listed on the Toronto Venture Stock Exchange ("TSX-V"), acquired all of the outstanding shares of the Company in exchange for common shares of Nyah (the "Transaction"). Consequently, the comparative results for Q4 2009 contain only minimal overhead expenses as the Company had recently been incorporated. Following completion of the Transaction, the Forbes & Manhattan (Coal) Inc Board of Directors and management team became the Board of Directors and management team of the combined entity, which was renamed Forbes & Manhattan Coal Corp. Forbes and Manhattan Coal Corp. began trading on the TSX under the symbol "FMC" as of September 27, 2010.

The Company completed the acquisition of Slater Coal at the end of July 2010. Consequently five months of results for Slater Coal have been consolidated into Forbes & Manhattan Coal Corp.

Revenue

Coal sales during the three and twelve months ended December 31, 2010 were $9.03 million and $15.66 million, which represented 102,834 and 181,908 tonnes sold respectively. During the quarter ended December 31, 2010, 83,854 tonnes were sold from the Magdalena operation, 11,960 tonnes were sold from the Aviemore anthracite operation and 7,020 tonnes were sold for the Calcine operation. Run of Mine production generated 228,157 gross tonnes and 149,588 saleable tonnes were produced (33,198 tonnes from Aviemore and 116,390 tonnes from Magdalena). The Company has experienced a logistics backlog which generated stockpiles as 228,157 saleable tonnes were produced and 180,908 tonnes were sold during the five months since the acquisition.

The Company has taken initiatives to increase its' port allocations in order to sell the backlogged inventory and provide increased capacity for the future.

The Company has entered into agreements with Transnet Freight Rail ("TFR"), and Grindrod Terminals Richards Bay, a division of Grindrod South Africa (Pty) Ltd., to export coal produced by Forbes Coal from the Slater Coal operations in Dundee through the Port of Richards Bay.

The production target for Slater Coal for its fiscal year ending February 2011 is an estimated 680,000 tonnes of attributable coal production. Currently Forbes Coal conducts the majority of its coal sales in the domestic market and continues to have the availability to ship up to 197,000 tonnes per annum from Richards Bay Coal Terminal in addition to the new agreements.

Cost of sales and operating expenses

Cash cost of sales and operating expenses for the three and twelve months ended December 31, 2010, was $7.60 million and $10.99 million respectively ($73.89 per tonne and $60.41 per tonne). This amount includes transportation, rail and port handling costs. Amortization and depletion amounted to $0.18 million and $1.97 million.

The cash cost of sales and operating expenses were high during the 4th quarter for the following reasons;

  • the December production was low as the mine was in operation for only 11 days due to the holiday and maintenance shutdown;
  • higher downtime on the continuous miner as a function of maintenance in certain sections of the mine; and
  • lower than forecasted sales as previously discussed.

Expenses

The Company recorded expenses of $6.95 million during the three months and $16.17 million during the twelve months ended December 31, 2010, respectively. During the three months ended December 31, 2010 the Company recorded $5.80 million in stock based compensation primarily related to the issuance of 2,175,000 options granted during the 4th quarter. The Company also recorded non cash expenses of $7.73 million during the 3rd Quarter of the year in stock based compensation primarily related to the issuance of performance special warrants.

On July 20, 2010, prior to the transaction with Nyah, the original shareholders of the Company were issued the 2,700,000 performance special warrants as per the underwriting agreement. Each Performance Special Warrant automatically exercised into one common share of the Company (each "Performance Share" and, collectively, the "Performance Shares") for no additional consideration immediately prior to the completion of the Nyah acquisition, provided that such Performance Shares shall be deposited in escrow with an escrow agent (the "Escrowed Shares"), to be released as follows:

  1. 50% of the Escrowed Shares (the "First Tranche Escrowed Shares") will be released once the Company achieves US$22,000,000 in EBITDA from the Slater Coal Properties over a 12 consecutive month period by July 20, 2013. In the event of not achieving US$22,000,000 in EBITDA from Slater Coal Properties, the above mentioned Escrowed Shares will be cancelled;
  1. The remaining Escrowed Shares will be released once the Company achieves US$35,000,000 in EBITDA from the Slater Coal Properties over a 12 consecutive month period within a three year period following the release of the First Tranche Escrowed Shares. For further clarity, EBITDA generated from the Slater Coal Properties will exclude any gains or losses generated by the combined company from the disposition of the Slater Coal Properties. In the event of not achieving US$35,000,000 in EBITDA from Slater Coal Properties, the above mentioned Escrowed Shares will be cancelled. (EBITDA is a non-GAAP measure and defined as earnings before interest, taxes, depreciation and amortization).

During the three and twelve months ended December 31, 2010 the Company recorded a gain of $0.54 million and a loss of $2.59 million in other items.

Included in these amounts are the transaction costs associated with the Slater Coal purchase and the Nyah Transaction, totaling $1.22 million. The Company has adopted CICA handbook section 1582 and consequently these transaction costs have been expensed to the consolidated statements of operational loss and comprehensive loss and deficit.

Other items

The Company has also recorded the estimated fair value of the two cash payments of Rand 140 million (approximately $21.14 million) payable by March 1, 2011 and Rand 140 million (approximately $21.14 million) payable by March 1, 2012 (See Press Release dated September 20, 2010). The estimated fair value of these payments was calculated using a Random Walk method. Probabilities were assigned to the amounts are based on various scenarios and management's and other expert's expectations of the scenarios materializing. The results were present valued using a discount rate of 10%. As a result an amount of $0.98 million and $1.62 million has been accreted during the quarter and twelve months ended December 31, 2010 respectively related to the current and long term portion of the amounts due which are included on the consolidated balance sheets under acquisition obligations. As at December 31, 2010, based on revised estimates related to production targets, the Company has adjusted the estimated fair value of the contingent consideration related to the payments. The current portion of the liability related to the March 1, 2011 payment has been reduced by $3.15 million and the long term portion of the liability related to the March 1, 2012 has been increased by $0.43 million. These adjustments have resulted in a net recovery on the estimated fair value of the contingent liability of $2.72 million being recorded.

The Company recorded other income of $0.06 million and $0.21 million during the three and twelve months ended December 31, 2010 respectively. Other income, results from small scrap sales, dividends received, discounts received and certain fair value adjustments.

The Company recorded interest income of $0.08 million and $0.11 million during the three and twelve months ended December 31, 2010 respectively and interest expense of $0.08 million and $0.32 million during the three and twelve months ended December 31, 2010 respectively. Investment revenue results primarily from interest bearing deposits held in banks. The Company invests its excess cash in liquid low risk investments.

The Company has also recorded foreign exchange losses of $1.07 million and $2.48 million respectively for the three and twelve months ended December 31, 2010. As previously discussed, the Company owes Rand 280 million, payable in two instalments in March 2011 and March 2012. Movements in the South African Rand against the Canadian dollar from July 31 to December 31 have generated significant non cash foreign exchange movements.

NON-GAAP PERFORMANCE MEASURES    
 
The Company has included in this document certain non-GAAP performance measures that are detailed below. These non-GAAP performance measures do not have any standardized meaning prescribed by GAAP and, therefore, may not be comparable to similar measures presented by other companies. The Company believes that, in addition to conventional measures prepared in accordance with GAAP, certain investors use this information to evaluate the Company's performance. Accordingly, they are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared with GAAP. The definition for these performance measures and reconciliation of the non-GAAP measures to reported GAAP measures are as follows:
       
Working Capital      
  December 31, 2010   December 31, 2009
  $000's   $000's
Current Assets      
  Cash and cash equivalents   4,390.06   52.18
  Restricted cash   1,872.40   -
  Accounts receivable and other receivables   8,461.75   0.60
  Inventories   12,135.73   -
  Prepaid expenses   68.08   7.14
    26,928.02   59.92
         
Current Liabilities        
  Accounts payable and accrued liabilities   7,268.23   32.36
  Acquisition obligation   19,915.72   -
  Other financial liabilities   1,393.43   -
  Loans payable   616.41   -
    29,193.79   32.36
Working capital (deficiency)        
Current assets less current liabilities $ (2,265.77 ) 27.57

Johan Odendall, B.Sc.(Geol.), B.Sc.(Hons)(Min. Econ.), M.Sc. (Min. Eng.), a director of Minxcon and an independent Qualified Person, as defined in National Instrument 43-101, has reviewed and approved the scientific and technical information contained in this release.

Prospecting Right – Aviemore

Further to the press release of the Company dated September 20, 2010, the Company is pleased to announce that Zinoju Coal (Pty) Ltd., an indirectly held subsidiary of the Company, has entered into a purchase and sale agreement with Leeuw Mining & Exploration (Pty) Ltd., with respect to the acquisition by Zinoju Coal (Pty) Ltd. of certain mining claims comprising the Aviemore property. Closing of the acquisition is expected to occur on or about August 31, 2011, and shall remain subject to receipt of all necessary regulatory approval, including but not limited to, the statutory approval for the transfer of such mining rights in accordance with the South African Mineral and Petroleum Resources Act.

About Forbes Coal 

The Company holds a 53.5% interest in Slater Coal (Pty) Ltd., a South African company ("Slater Coal") which has a 70% interest in Zinoju Coal (Pty) Ltd. ("Zinoju"). Zinoju holds a 100% interest in certain coal mines in South Africa (the "Slater Coal Properties"). The Slater Coal Properties comprise the operating Magdelena bituminous mine (the "Magdelena Property") and the Aviemore anthracite mine (the "Aviemore Property") and have a substantial resource base of bituminous and anthracite coal. The Slater Coal Properties are located in the Klipriver coalfield, near Dundee, in the KwaZulu Natal Province of South Africa and can be accessed via the N3, N11 Ladysmith and R102 Dundee tarred national highways that run between Johannesburg and Durban, South Africa. The other 46.5% of Slater Coal is beneficially owned by members of the Slater family. 

This press release does not constitute an offer of securities for sale in the United States. The securities 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 absent U.S. registration or an applicable exemption from U.S. registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Common Shares or Warrants in any jurisdiction in which such offer, solicitation or sale would be unlawful.

Cautionary Note Regarding Forward-Looking Information This press release contains "forward-looking information" within the meaning of applicable Canadian securities legislation. Forward-looking information includes, but is not limited to, statements with respect to the anticipated production results with respect to the Slater Properties, future financial or operating performance of the Company and its projects, statements regarding the prospects for the business of the Company, requirements for additional capital, government regulation of the mineral exploration industry, environmental risks, acquisition of mining licences, title disputes or claims, limitations of insurance coverage and the timing and possible outcome of pending litigation and regulatory matters. Generally, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information, including but not limited to: general business, economic, competitive, foreign operations, political and social uncertainties; a history of operating losses; delay or failure to receive board or regulatory approvals; timing and availability of external financing on acceptable terms; not realizing on the potential benefits of the proposed transaction; conclusions of economic evaluations; changes in project parameters as plans continue to be refined; future prices of mineral products; failure of plant, equipment or processes to operate as anticipated; accidents, labour disputes and other risks of the mining industry; and, delays in obtaining governmental approvals or required financing or in the completion of activities. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws.

Contact Information

  • Forbes & Manhattan Coal Corp.
    Stephan Theron
    President and Chief Executive Officer
    (416) 861-5912
    stheron@forbescoal.com