Forbes & Manhattan Coal Corp.
TSX : FMC

Forbes & Manhattan Coal Corp.

November 17, 2010 18:34 ET

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

TORONTO, ONTARIO--(Marketwire - Nov. 17, 2010) - Forbes & Manhattan Coal Corp. (TSX:FMC) ("Forbes Coal" or the "Company") announces results for its third quarter ended September 30, 2010. 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.
  • Completion of an offering of Special Warrants at a price of $2.80 per Special Warrant for gross proceeds of $41.9 million.
  • Completion of the acquisition of a 53.5% interest in Slater Coal (Pty) Ltd. ("Slater Coal") in July 2010, as amended in September 2010. Completion of a NI43-101 compliant independent technical report for the Slater Coal Properties.
  • Completion of a Reverse Takeover and related transactions with Nyah Resources Corp. as approved by shareholder on September 20, 2010 and graduation to the Toronto Stock Exchange under the symbol "FMC".
  • Reported total revenue of CAD$6.6 million during the third quarter ended September 30, 2010, which includes 2 months of operations from the acquisition of Slater Coal.
  • EBITDA of C$3.08 million and estimated EBITDA of C$1.5 million generated in inventory for the months of August and September, representing the two months of operations post acquisition of Slater Coal
  • Successful integration of existing Forbes Coal and Slater Coal management teams.
  • Slater Coal's year to date production March 1 to September 30, 2010 was 515,558 t ROM - 2 months were consolidated into Forbes Coal.
  • The production target for Slater Coal for its fiscal year ending February 2011 is an estimated 1,040,000 t ROM.

In releasing this information, President and Chief Executive Officer of Forbes Coal, Stephan Theron, commented, "Our third quarter results incorporate 2 months of operating results from Slater Coal since completing the acquisition at the end of July. Our management team is delivering at both a corporate and operational level. The completion of our listing on the TSX and the production ramp up at Magdalena and Aviemore set the tone for an exciting year. We are gradually gaining momentum and with the planned addition of a second continuous miner at Magdalena, we anticipate continued growth of production results in the near future. The Forbes Coal management team has integrated well with the operational team at Slater Coal and we are focused on exceeding expectations."

Operational highlights

Forbes Coal management team took control of the Slater Coal operations in August 2010. The ramp-up program, launched in the previous quarter under guidance of the previous management team, has gained momentum. The following key points are noted:

  • Aviemore anthracite operation, reopened in June 2010, exceeded targeted output of 22,000 t ROM per month for the quarter.
  • Anthracite Calcine unit was successfully started at the end of August and reached production target with 5,183 t anthracite peas calcined in September 2010.
  • Additional staffing and equipment were deployed at Magdalena U/G to support the ramp- up programme.
  • Magdalena operations, underground and open pit combined, produced 129,126 t ROM which is in line for the planned for the period August to September 2010.
  • Total ROM production from all operations for the period August to September 2010 was 174,799 t ROM which is in line with the production plan.
  • Total production from Slater Coal March 2010 to September 2010 was 515,558 t ROM. The Slater Coal fiscal year is March to February, Forbes and Manhattan Coal intends to change its fiscal year end to align the year ends.
  • The production ramp-up is going according to plan. We expect to open the second continuous miner section at Magdalena in the next quarter to maintain the growth targets.
  • Saleable coal production for August 2010 to September 2010 was 130,540 t at a yield of 71%, which is above mine plan.
  • Total Slater sales from March 2010 to September 2010 were 296,648 t, with 79,074 t sold in August and September and attributed to Forbes Coal.
  • Sales for the 2 months of August and September 2010 did not meet expectations as a result of logistics constraint, which is currently being addressed.
  • Coal is transported by rail and truck to domestic customers, while export coal reports to Richards Bay Coal Terminal by rail

Financial highlights

1. Slater Coal financial highlights

     
   
Summarized Financial Results  
Slater Coal  
     
   
  Date of acquisition to  
  September 30, 2010  
  2 months  
   
Run of Mine (ROM) (t) 174,799  
Saleable production (t) 130,540  
Yield (%) 71.4 %
Sales (t) 79,074  
   
Revenue 000,000's ($) 6.63  
EBITDA 000,000's ($) 3.08  
Depreciation and depletion 000,000's ($) 0.67  
EBIT 000,000's ($) 2.41  
Net profit after tax 000,000's ($) 1.39  
   
CAD$: US$ (average) 1.04  
ZAR: CAD (average) 6.94  
   
Selling price (average) / t (CAD$) 83.8  
Selling price (average) / t (US$) 80.8  
   
Cash cost of sales and operating expenses 000,000's ($) 3.4  
   
Cash cost of sales and operating expenses / sold 43.0  
Cash cost of sales and operating expenses/ sold (includes transportation, rail and port handling costs) 41.5  
   
Capital expenditures 000,000's 0.6  
Capital expenditures per t of Salable production (CAD$) 4.8  
 
numbers in this chart are derived from the Slater Coal stand alone financial
these are not affected by the adjustments related to the purchase price allocation
see non GAAP measures

2. 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 variable interest entity.

The total net loss and comprehensive loss for the three and nine months ended September 30, 2010, was $10.1 million and $10.8 million respectively.

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

Revenue from coal sales during the two month period ended September 30, 2010 was $6.6 million which represented 79,074 tonnes sold. 75,454 tonnes were sold from the Magdalena underground operation, 2,795 tonnes were sold from the Aviemore anthracite operation and 815 tonnes we sold for the Calcine operation. Run of Mine production generated 174,799 gross tonnes and 130,540 saleable tonnes were produced (30.488 tonnes from Aviemore and 100,052 tonnes from Magdalena underground). During the period the Company experienced certain logistics backlogs which generated stockpiles as 130,540 saleable tonnes were produced and 79,074 tonnes were sold.

Cash cost of sales and operating expenses were $3.4 million ($43 per tonne) during the Q3 2010 (for the two consolidated months of August and September 2010) which includes transportation, rail and port handling costs. Depreciation and depletion amounted to $1.8 million ($23 per tonne).

The Company recorded $7.6 million during the third quarter ended September 30, 2010 in stock based compensation related to the issuance of performance special warrants (the "Performance Special Warrants") and the re-pricing of 260,000 stock options previously issued to reflect the Special Warrant pricing that was completed in July of 2010. $7.7 million was recorded during the nine month period ended September 30, 2010 related to the Performance Special Warrants and the initial issuance of the 260,000 stock options.

The Company also recorded $0.39 million and $0.68 million for consulting and professional fees and $0.47 million and $0.71 million related to general and administrative expenses for the three and nine months ended September 30, 2010, respectively. The Company has been steadily building its management team and engaging professionals as it embarks on its new coal operations.

During the three and nine months ended September 30, 2010 the Company recorded $3.1 million in other items. Included in these amounts were certain transaction costs associated with the Slater Coal purchase and the reverse takeover and related transactions completed with Nyah Resources Corp. (See Press Releases dated September 21, 2010 and September 24, 2010) totaling $1.0 million. The Company has also recorded foreign exchange losses of $1.4 million. The Company owes R280 million payable in two installments in March 2011 and March 2012. Movements in the South African Rand against the Canadian dollar from July 31 to September 30 have generated significant non cash foreign exchange movements.

The Company recorded income tax expense of $0.80 million during the three and nine months ended September 30, 2010.

Liquidity and cash

Cash and cash equivalents increased from $0.05 million at December 31, 2009 to $9.22 million at September 30, 2010 representing an increase of $ $9.17 million. The Company also holds $3.1 million in liquid investments.

The Company had negative working capital (see non GAAP measures) of $4.2 million dollars as at September 30, 2010, compared to positive working capital of $.028 million as at December 31, 2009 The primary contributor to the negative working capital is the R140 million (approximately $20.6 million) payment due in March of 2011. The Company expects to fund the payment with working capital and funds generated from operations over the next six months.

Non-GAAP Performance Measures

The Company has included the non-GAAP performance measures below in this document. This non-GAAP performance measure does 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 this performance measure and reconciliation of the non-GAAP measure to reported GAAP measures is as follows:

Working Capital 30-Sep-10   31-Dec-09
  000,000's   000,000's
  $   $
Current assets      
Cash and cash equivalents 9.22   0.05
Investments held for trading 3.15    
Accounts receivable and other receivables 7.54   0.00
Inventories 6.86    
Prepaid expenses 0.00   0.01
  26.77   0.06
Current liabilities      
Accounts payable and accrued liabilities 5.96   0.03
Acquisition obligation 21.98    
Other financial liabilities 1.94    
Loans payable 1.15    
  31.03   0.03
 
Working capital (4.26 ) 0.03
Current assets less current liabilities      
     
     
Cash cost of sales and operating expenses /sold production t    
  cash operating costs represent operating expenses $ 3,389,874
  divided by tonnes sold   79,074
cash cost of sales and operating expenses /sold production t $ 43
     
Capital expenditures per t of salable production    
  additions to property plant and equipment $ 628,494
  divided by tonnes salable production   130,540
Capital expenditures per t of salable production $ 4.8
     
     
  EBIT and EBITDA reconciliation  
  Three months ended  
  30-Sep-10  
  $ 000,000's  
           
  Consolidated statements of operations and loss   Corporate & Non Slater related expenses Two months Slater Stand alone EBIT and EBITDA  
   
   
Consolidated net loss $ (10.99 )   $ (10.99 )
add back           -  
  Tax expense   0.80       0.80  
  interest expense   0.21       0.21  
  Consulting and professional fees       0.39   0.39  
  General and administration       0.16   0.16  
  Stock based compensation       7.62   7.62  
  Mineral properties investigation costs       0.02   0.02  
  Business combination transaction costs       1.03   1.03  
  Accretion       0.64   0.64  
  Foreign exchange gain/loss       1.41   1.41  
  Amortization and depletion charged in Forbes and Manhattan Coal       1.12   1.12  
EBIT $ (9.98 )   $ 2.41  
add back              
    Amortization and depletion   1.79   1.12   0.67  
EBITDA $ (8.19 )   $ 3.08  

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.

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.

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