Grande Cache Coal Corporation
TSX : GCE

Grande Cache Coal Corporation

February 14, 2005 08:00 ET

Grande Cache Coal Corporation announces third quarter 2005 financial results

CALGARY, ALBERTA--(CCNMatthews - Feb. 14, 2005) - Grande Cache Coal
Corporation (GCE-TSX) ("Grande Cache" or the "Corporation") announced
today its financial and operating results for the three and nine months
ended December 31, 2004.

- The net loss for the quarter was $6.0 million. For the first nine
months of the fiscal year, the Corporation's net loss was $8.7 million.

- During the third quarter, Grande Cache invested $12.4 million in
capital projects. Year to date capital expenditures are $23.0 million.

Capital expenditures related to the commencement of production from the
No. 7-4 mine and No. 12S B2 mine are expected to approximate $32 million
in the current fiscal year.

- Grande Cache commenced shipments to customers during the quarter.

- Subsequent to the end of the third quarter, the Corporation entered
into an agreement with a syndicate of underwriters pursuant to which the
underwriters agreed to purchase on an underwritten private placement
basis 2,574,000 units ("Units") of the Corporation at a price of $13.60
per Unit for aggregate gross proceeds of $35 million. Each unit consists
of one common share and one-half of one common share purchase warrant of
the Corporation. Each whole common share purchase warrant entitles the
holder to acquire one common share of the Corporation at a price of
$16.25 for a period of 12 months from the closing date of the private
placement. The Corporation also granted the underwriters an option to
purchase up to an additional 368,000 Units at a price of $13.60 per Unit
at any time up to 48 hours prior to closing.

The securities issued pursuant to the private placement will be subject
to a four month hold period in accordance with Canadian securities laws.
The private placement is scheduled to close on or about February 25,
2005 and is subject to certain conditions including satisfactory due
diligence by the underwriters and the receipt of customary regulatory
approvals.

"We were pleased to commence shipments to customers during the quarter
and to reach sales agreements for the upcoming coal year" said Robert
Stan, President and Chief Executive Officer. "However, as disclosed in
our project update press release issued on January 28, 2005, our
production costs have been higher than earlier anticipated. Our efforts
are focused on improving our cost structure and increasing
productivities in our mining operations. We are working closely with our
surface mining contractor to improve costs, as well as with our rail
service providers to ensure adequate coal movement to meet our sales
targets."

Grande Cache is an Alberta based metallurgical coal mining company whose
experienced team of coal professionals are developing a long-term mining
operation to produce metallurgical coal for the export market from
Grande Cache's coal leases covering over 15,000 hectares in the Smoky
River Coalfield located in west-central Alberta. Grande Cache's common
shares are listed on the Toronto Stock Exchange under the trading symbol
"GCE".

Management's Discussion & Analysis

This Management's Discussion and Analysis ("MD&A") should be read in
conjunction with the unaudited interim consolidated financial statements
for the period ended December 31, 2004 and the audited consolidated
financial statements, notes and related MD&A thereto of Grande Cache
Coal Corporation (the "Corporation") for the fiscal year ended March 31,
2004. The consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principals. In
accordance with regulatory guidelines, the Corporation has not presented
comparative figures for prior quarterly periods as the Corporation
became a public entity on May 12, 2004 and comparative figures were not
available for prior quarterly periods. This discussion provides
management's analysis of the Corporation's historical financial and
operating results and provides estimates of the Corporation's future
financial and operating performance based on information currently
available. Actual results will vary from estimates and the variances may
be significant. Readers should be aware that historical results are not
necessarily indicative of future performance. This MD&A was prepared
using information that is current as of February 11, 2005.

Certain information set forth in this MD&A, including management's
assessment of the Corporation's future plans and operations, contains
forward-looking statements, which are based on the Corporation's current
internal expectations, estimates, projections, assumptions and beliefs,
which may prove to be incorrect. Some of the forward-looking statements
may be identified by words such as "expects", "anticipates", "believes",
"projects", "plans" and similar expressions. These statements are not
guarantees of future performance and undue reliance should not be placed
on them. Such forward-looking statements necessarily involve known and
unknown risks and uncertainties, which may cause Grande Cache's actual
performance and financial results in future periods to differ materially
from any projections of future performance or results expressed or
implied by such forward-looking statements. These risks and
uncertainties include, among other things, changes in general economic,
market and business conditions; uncertainties associated with estimating
the quantity and quality of coal reserves and resources; commodity
prices, currency exchange rates, capital expenditures and debt service
requirements; dependence on a single rail system; changes to
legislation; liabilities inherent in coal mine development and
production; competition for, among other things, capital, acquisitions
of reserves, undeveloped lands and skilled personnel; geological, mining
and processing technical problems; ability to obtain required mine
licenses, mine permits and regulatory approvals required to proceed with
mining and coal processing operations; ability to comply with current
and future environmental and other laws; actions by governmental or
regulatory authorities including increasing taxes and changes in other
regulations; and the occurrence of unexpected events involved in coal
mine development and production. Many of these risks and uncertainties
are described in Grande Cache's 2004 Annual Information Form, Grande
Cache's Management's Discussion and Analysis and other documents Grande
Cache files with the Canadian securities authorities.

All references are to Canadian dollars unless otherwise indicated.



Financial Overview

December 31 March 31
(millions of dollars) 2004 2004
------------------------------------------------------------------
Balance Sheet
Total assets 70.0 5.6
Long-term liabilities 2.3 0.1
Shareholders' equity 52.0 5.0


Three months Nine months
ended ended
(millions of dollars, December 31 December 31
except per share amounts) 2004 2004
------------------------------------------------------------------
Income Statement
Revenue 5.1 5.5
Net loss (6.0) (8.7)
Basic and diluted loss per share (0.16) (0.27)


Three months Nine months
ended ended
(millions of dollars, December 31 December 31
except per unit amounts) 2004 2004
------------------------------------------------------------------
Statistics
Clean coal production 0.2 0.2
Coal sales 0.1 0.1
Average sales price (CAN$/tonne) 59 59
Average cost of sales (CAN$/tonne) 121 121


The net loss for the quarter was $6.0 million. The year to date net loss
was $8.7 million. The quarter ended December 31, 2004 was the first
quarter of clean coal production and coal sales for Grande Cache.

Revenue

The Corporation commenced shipments to customers in the quarter ended
December 31, 2004. The Corporation had sales revenue of $4.9 million to
December 31, 2004, earned on 0.1 million tonnes of sales.

The average sales price achieved in the quarter on U.S.$ denominated
sales was U.S.$56. The overall average sales price in the three months
was $59. Approximately 40% of coal sold in the quarter was metallurgical
coal to export markets. The rest of the coal sales volume was lower
quality coal produced as the mine began production, and was sold at
reduced prices.

Interest and other revenue of $0.2 million was earned in the quarter,
consisting primarily of interest earned on short term investments.
Interest and other revenue totaled $0.6 million year to date.

Cost of sales

Total cost of sales for the quarter was $121 per tonne. This consists of
cost of product sold of $102 per tonne and distribution costs of $19 per
tonne. Start-up delays and low productivities were encountered that
resulted in higher costs than previously anticipated. These issues are
of a short term nature and the Corporation is focused on improvement.

The surface mining operations have not yet reached target
productivities, and while some improvement has occurred, acceptable
productivity rates from the fleet of mining equipment that is on site
have not yet been reached. As a result, the volumes of waste and raw
coal moved have not been as great as anticipated. The shortfalls in
productivities have been partially compensated through the utilization
of additional smaller mining equipment, which in turn has increased unit
costs. The Corporation is working closely with the surface mining
contractor to improve productivities through operator and supervisor
training conducted by experienced operators and supervisors from other
operations.

The underground mining operation experienced delays in coal production
due primarily to equipment delivery delays and prolonged commissioning
times. The heavy demand in North America for underground mining
equipment resulted in some equipment not arriving when originally
scheduled, however all the critical underground mining equipment is now
in place. Operator training and completion of the conveyor systems from
the underground mine are in the final stages and it is anticipated that
this will result in a significant increase in the production rates from
the mine.

Major refurbishments to the processing plant were completed during the
quarter and it is now operating at acceptable rates. The marked increase
in the cost of diesel, electricity and natural gas as well as a very
competitive environment in the Canadian resource industry for the
services of consultants, contractors and equipment and service providers
also contributed to the high costs experienced in the quarter.

Other Expenses

General and administrative expenses were $0.9 million during the third
quarter of 2005. The general and administrative expenses incurred in the
quarter included customary overhead charges, while year to date general
and administrative expenses of $3.9 million also include as non-
recurring charges related to the initial startup of operations including
internal labour, equipment rental, and miscellaneous supplies that were
not capitalized.

General and administrative expenses in the quarter also include non-cash
charges of $0.1 million for stock-based compensation and $0.1 million
for foreign exchange losses. Stock-based compensation charges were $0.5
million for the nine months to December 31, 2004 and foreign exchange
losses totaled $0.1 million for the same period.

Depreciation, depletion and accretion charges were $0.1 million for the
quarter and $0.2 million year to date. Interest expense for the nine
months to December 31, 2004 was $0.1 million.

Liquidity and Capital Resources

As at December 31, 2004, the Corporation's cash and cash equivalents
position was $21.1 million. During the quarter, the Corporation used
cash of $19.6 million. Investing activities resulted in a cash use of
$12.0 million, while operations resulted in a decrease in cash of $7.0
million. Financing activities resulted in a use of cash of $0.5 million
in the quarter. For the year to date, the Corporation has increased cash
by $20.7 million.

Investing activities accounted for a cash use of $12.0 million in the
quarter, and $30.7 million year to date. During the third quarter, the
Corporation spent $12.4 million on additions to capital assets. Much of
the capital additions in the quarter were further development activities
and equipment purchases for the underground mine, as well as
expenditures for processing plant and site facilities refurbishment,
mobilization of equipment for the surface mine and a drilling program
for the No. 8 mine.

For the nine months to December 31, 2004, additions to capital assets
were $23.0 million, while $9.9 million was set aside to secure letters
of credit. The net change in non-cash working capital related to
investing activities was $0.3 million in the third quarter and $2.1
million year to date. The Corporation expects capital additions to total
approximately $32 million in the current fiscal year.

Financing activities resulted in a cash use of $0.5 million in the
quarter, consisting of a $0.6 million repayment of the note payable and
$0.1 million in proceeds from the issuance of share capital on the
exercise of warrants. For the year to date, financing activities
provided cash of $60.0 million due primarily to proceeds on issuance of
share capital from completion of the Corporation's initial public
offering on May 12, 2004. Funds raised by the initial public offering
are being used to equip, mobilize and commence production from the
Corporation's mining operations and fund development and operating
activities. In addition, an advance payment agreement entered into with
a Japanese trading company generated proceeds of U.S.$4.0 million.

Cash used in operating activities was $7.0 million in the quarter,
caused by the Corporation's net loss of $6.0 million. The net change in
non-cash working capital related to operations was a decrease of $1.3
million. Cash used in operations was $8.3 million year to date.

The high cost of production experienced in the surface mine and the
delay in shipments caused by difficulties with moving coal to the port
for sale has created a short term financing requirement. At quarter end,
the Corporation was assessing all available options for financing.

The Corporation does not hold any long term debt and there are no off
balance sheet financing structures in place at December 31, 2004. The
only long term liability of the Corporation is asset retirement
obligations with a present value of $2.3 million. These amounts are
covered by a cash deposit of $0.1 million and letters of credit totaling
$4.2 million provided to the Alberta Government, which are currently
secured by cash.

In order to ensure the continued availability of, and access to,
facilities and services to meet operational requirements, the
Corporation has entered into multi-year agreements for the provision of
rail transportation, port loading services and office space. Under
contracts existing at December 31, 2004, future minimum amounts payable
under these agreements are $0.1 million in 2005 and $1.1 million in each
of 2006 and 2007. As well, the Corporation is committed to annual coal
lease payments of $0.1 million for each of the next five years.

Outlook

Operations

The surface mine, underground mine and processing plant are all in
production. Start-up delays and cost overruns are expected to carry over
into the fourth quarter and are anticipated to result in a cost of sales
of approximately $115 per tonne during the fiscal year. The Corporation
anticipates capital and development expenditures to total $32 million
for the current fiscal year.

The Corporation is focusing on improving productivities and reducing
costs, as well as working with rail service providers to increase coal
shipments to Westshore Terminals for export to our Korean and Japanese
customers.

The high cost of sales projected for the fiscal year are a reflection of
the longer startup period encountered as the Corporation works to
improve surface and underground mining productivities. The Corporation
is working with its surface mining contractor to continue productivity
improvements. The Corporation believes that implementation of training
programs and the addition of experienced surface mining supervisors are
key components of increasing productivities to acceptable industry
standards for the surface mine.

All critical underground mining equipment is now on site and production
from the underground mine is anticipated to increase significantly. For
the fiscal year beginning April 1, 2005, our average cost of sales is
expected to be $65 to $70 per tonne as continued cost improvements are
realized.

The rail service providers are addressing their capacity issues and
implementing plans to increase productivity and reduce cycle times. The
Corporation expects improvements to rail service will result in the
ability to reach sales of 0.4 million tonnes in the current fiscal year
and 2.0 million tonnes in the next fiscal year.

The Corporation has initiated a feasibility study for a staged expansion
of operations up to four million tonnes per year. A drilling program is
underway in the No. 8 mine area which is expected to result in an
increase in reserves in that mining area. The No. 8 mine is anticipated
to be the Corporation's next mining area. It is expected that final
applications for the No. 8 mine area will be filed in the spring and all
regulatory approvals will be in place within the next 10 to 12 months.

Metallurgical Coal Markets

During the quarter, the Corporation completed price negotiations with
Korean and Japanese customers for the coal year beginning April 1, 2005,
agreeing to supply approximately 1.3 million tonnes of metallurgical
coal at a price of U.S.$125 per tonne. The Corporation has committed to
sell an additional 0.2 million tonnes of metallurgical coal to other
customers at similar prices.

Metallurgical coal sold in the current year ending March 31, 2005, is
anticipated to result in an average sales price of U.S.$64 per tonne.
Sales volume for the current fiscal year is anticipated to be
approximately 0.4 million tonnes. As the Corporation had agreed to
supply 0.6 million tonnes of metallurgical coal in the current year, the
remaining 0.2 million tonnes will be shipped after March 31, 2005 at an
average price of U.S.$64.

The global demand for metallurgical coking coal remains extremely strong
at the present time as international steel production remains high. The
worldwide supply of metallurgical coal remains tight and prices, which
have risen dramatically over the past year, are expected to remain
strong.

Capital Expenditures

Capital expenditures related to the commencement of commercial
production are anticipated to approximate $30 million in the current
fiscal year. These expenditures include the purchase of underground
mining equipment, infrastructure for the No. 7-4 underground mine,
process facilities rehabilitation, mobilization of mining equipment and
infrastructure upgrades for the No. 12S B2 mine and other site services
and facilities necessary to produce and ship metallurgical coal. An
additional $2 million is expected to be incurred related to exploration
drilling, permitting of additional mining areas and establishing
environmental protection programs in accordance with government
requirements.

Other Information

The Corporation has not entered into any off-balance sheet arrangements
at this time. Looking forward, export trade credit insurance may be used
to provide security for non-payment on certain coal sale transactions.

As at February 11, 2005, there were 37,191,781 common shares issued and
outstanding.

In addition, there were 1,600,000 common stock options outstanding at a
weighted average exercise price of $1.46. 1,325,000 common stock options
are exercisable at a price of $1.00 per share on or before March 21,
2009, 200,000 common stock options are exercisable at a price of $3.70
per share on or before July 21, 2009, and 75,000 common stock options
are exercisable at a price of $3.70 on or before August 8, 2009. There
were also 484,606 warrants outstanding, exercisable at a price of $2.60
per share on or before May 12, 2005.

On February 9, 2005, the Corporation entered into an agreement with a
syndicate of underwriters pursuant to which the underwriters agreed to
purchase 2,574,000 units ("Units") of the Corporation on an underwritten
private placement basis, at a price of $13.60 per Unit for aggregate
gross proceeds of $35 million. Each Unit consists of one common share
and one-half of one common share purchase warrant of the Corporation.
Each whole common share purchase warrant entitles the holder to acquire
one common share of the Corporation at a price of $16.25 per share for a
period of 12 months from the closing date of the private placement. The
Corporation also granted the underwriters an option to purchase up to an
additional 368,000 Units at a price of $13.60 per Unit at any time up to
48 hours prior to closing. The securities issued pursuant to the private
placement will be subject to a four month hold period in accordance with
Canadian securities laws. The private placement is scheduled to close on
or about February 25, 2005 and is subject to certain conditions
including satisfactory due diligence by the underwriters and the receipt
of customary regulatory approvals.

Additional Information

Additional information regarding the Corporation and its business
operations, including the Corporation's annual information form for the
fiscal year ended March 31, 2004, is available on the Corporation's
SEDAR company profile at www.sedar.com.



Grande Cache Coal Corporation
Consolidated Balance Sheets
(thousands of Canadian dollars)
-----------------------------------------------------------------------

December 31 March 31
2004 2004
(Unaudited) (Audited)
Assets
Current assets
Cash and cash equivalents $ 21,053 $ 337
Restricted cash (note 4) 9,633 -
Accounts receivable and prepaid expenses 2,108 55
Inventory (note 5) 7,329 -
-------------- --------------
40,123 392

Deposit for future reclamation expenditures 82 82
Mineral properties and development costs 14,046 3,380
Buildings and equipment 15,754 1,416
Other assets - 315
-------------- --------------

$ 70,005 $ 5,585
-------------- --------------
-------------- --------------

Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 11,548 $ 464
Notes payable (note 6) 4,171 -
-------------- --------------
15,719 464
Asset retirement obligations (note 7) 2,267 77
-------------- --------------
17,986 541
-------------- --------------

Shareholders' Equity
Share capital (note 8) 62,096 7,189
Contributed surplus 789 9
Deficit (10,866) (2,154)
-------------- --------------
52,019 5,044
-------------- --------------

$ 70,005 $ 5,585
-------------- --------------
-------------- --------------

See accompanying notes to the consolidated financial statements.


Grande Cache Coal Corporation
Consolidated Statements of Loss and Deficit
(thousands of Canadian dollars, except per share amounts)
-----------------------------------------------------------------------

Three Nine
months ended months ended
December 31 December 31
2004 2004
(Unaudited) (Unaudited)
Revenue
Sales $ 4,887 $ 4,887
Interest and other 231 614
-------------- --------------

5,118 5,501
-------------- --------------

Expenses
Cost of product sold 8,456 8,456
Distribution 1,555 1,555
General and administrative (note 9) 875 3,901
Interest on notes payable (note 6) 31 100
Depreciation, depletion and accretion 142 168
-------------- --------------
11,059 14,180
-------------- --------------

(5,941) (8,679)

Taxes (note 12) (33) (33)
-------------- --------------

Net loss (5,974) (8,712)

Deficit, beginning of period (4,892) (2,154)
-------------- --------------

Deficit, end of period $ (10,866) $ (10,866)
-------------- --------------
-------------- --------------
Net loss per share (note 10)

Basic and diluted $ (0.16) $ (0.27)
-------------- --------------
-------------- --------------

Note: As the Corporation did not become a public entity until May 12,
2004, there are no comparative figures for prior periods.

See accompanying notes to the consolidated financial statements.


Grande Cache Coal Corporation
Consolidated Statements of Cash Flows
(thousands of Canadian dollars)
-----------------------------------------------------------------------

Three Nine
months ended months ended
December 31 December 31
2004 2004
(Unaudited) (Unaudited)

Cash provided by (used for)

Operating activities
Net loss $ (5,974) $ (8,712)
Items not affecting cash
Stock-based compensation (note 11) 113 518
Unrealized foreign exchange gain (46) (85)
Depreciation, Depletion and accretion 142 168
-------------- --------------
(5,765) (8,111)

Net change in non-cash working capital
relating to operating activities (1,277) (203)
-------------- --------------
(7,042) (8,314)
-------------- --------------

Financing activities
Proceeds on issuance of share capital
(note 8) 134 59,085
Proceeds on issuance of note payable
(note 6) - 5,335
Repayment of note payable (note 6) (630) (630)
Initial public offering costs (note 8 - (3,601)
Net change in non-cash working capital
relating to financing activities - (197)
-------------- --------------
(496) 59,992
-------------- --------------

Investing activities
Additions to mineral properties and
development costs (6,573) (9,025)
Additions to buildings and equipment (5,825) (13,955)
Restricted cash (note 4) 137 (9,861)
Net change in non-cash working capital
relating to investing activities 268 2,101
-------------- --------------
(11,993) (30,740)
-------------- --------------

Effect of foreign exchange on cash and
cash equivalents (93) (222)
-------------- --------------

(Decrease) increase in cash and cash
equivalents (19,624) 20,716

Cash and cash equivalents, beginning of
period 40,677 337
-------------- --------------

Cash and cash equivalents, end of period $ 21,053 $ 21,053
-------------- --------------
-------------- --------------


Note: As the Corporation did not become a public entity until May 12,
2004, there are no comparative figures for prior periods.

See accompanying notes to the consolidated financial statements.

1. Basis of Presentation

The interim consolidated financial statements of the Corporation have
been prepared in accordance with Canadian generally accepted accounting
principles. The interim consolidated financial statements have been
prepared using the same accounting policies as the consolidated
financial statements for the year ended March 31, 2004, except as
described in note 2.

The interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
in the Corporation's annual report for the year ended March 31, 2004.

Reclassification

Certain prior years' figures have been reclassified to conform to the
presentation adopted in the current year.

2. Significant Accounting Policies

Inventory

Coal inventory is valued at production cost, subject to a net realizable
value test. Production costs include contract mining, direct labor,
operating materials and supplies, transportation costs and a relevant
allocation of overhead including depreciation and depletion.

Materials inventory consists of parts and supplies, and is valued at the
lower of cost and net realizable value.

Foreign Currency Translation

Foreign currency assets and liabilities are translated into Canadian
dollars at the month-end exchange rate for monetary items and at the
historical exchange rate for non-monetary items. Foreign currency
revenues and expenses are translated at the exchange rate in effect on
the dates of the related transactions. Foreign currency gains and losses
are included in income immediately.

Revenue Recognition

Product revenues are recognized when title passes to the customer.
Seaborne coal sales revenues are generally recognized when the coal has
been loaded on the vessel. Direct sales are recognized when the
ownership of the coal is transferred to the customer. Interest and other
revenue are recognized when earned.

3. Mineral Properties and Development Costs

The Corporation has acquired eight crown coal leases ("Leases") in the
Grande Cache, Alberta area, each for a term of 15 years. The Corporation
is committed, under the Lease terms, to paying an annual lease rental
and a royalty on all coal recovered from these Leases during their
respective terms. The Corporation is also required to meet certain
milestones under these Lease agreements or the Crown can, at its sole
discretion, terminate the Leases. As of December 31, 2004, all
milestones have been met by the Corporation.

4. Restricted Cash

Cash secured letters of credit in the amount of $4,204 were provided to
the Alberta Minister of Finance for abandonment security to cover
anticipated costs of reclamation for the mining areas, processing
facilities and surrounding infrastructure. In addition, cash secured
letters of credit of $500 were provided to service providers and a cash
secured letter of credit of U.S.$4,100 was provided as security for the
notes payable.



5. Inventory

December 31
2004

-----------------------------------------------------------------------

Coal inventory $ 7,245
Materials inventory 84
--------------

Total $ 7,329
--------------


6. Notes Payable

The Corporation entered into a coal sale agreement dated April 13, 2004
with a Japanese trading company (the "Trading Co.") for the sale of
approximately 250,000 tonnes of metallurgical coal to the Trading Co. by
March 31, 2005. In conjunction with the coal sale agreement, the parties
entered into an advance payment agreement pursuant to which the Trading
Co. agreed to advance U.S.$4,000 to the Corporation to be used by the
Corporation for certain development activities and operations of its
mining properties near Grande Cache, Alberta. As the advance was
denominated in U.S. dollars, changes in the U.S./Canadian dollar
exchange rate impact the carrying value of the note. Interest is payable
on the outstanding balance at LIBOR plus 2% per annum, but in any event,
shall not exceed U.S. $100 over the term of the advance.

Repayment of the advance occurs through a reduction in the price per
tonne otherwise payable by the Trading Co. for coal delivered under the
coal sale agreement. During the third quarter, U.S.$530 of principal and
interest of U.S.$69 was repaid.

As security for this advance, the Corporation granted the Trading Co. a
letter of credit in the amount of U.S.$4,100 in the second quarter of
2005, replacing the demand debenture on all present and after-acquired
property of the Corporation that had initially been granted. The
Corporation must repay the advance not later than September 30, 2005 and
has the option to repay, without penalty, the outstanding balance of the
advance at any time and thereafter obtain discharge of the letter of
credit.

Interest expense on the note of $31 was recorded in the quarter ended
December 31, 2004 ($100 year to date).

7. Asset Retirement Obligations

Future asset retirement obligations were estimated by management based
on the Corporation's estimated costs to fulfill its legal asset
retirement obligations. The Corporation has estimated the net present
value of its asset retirement obligations to be $2,267 as at December
31, 2004, based on a total future liability of $5,695. The Corporation's
credit adjusted risk free rates range from 5.5% to 7.6% depending on the
term of estimated years to reclamation.

The following table reconciles the Corporation's asset retirement
obligations:


Nine
months ended
December 31
2004
-----------------------------------------------------------------------

Balance, beginning of period $ 77
Increase in liability 2,180
Accretion expense 10
--------------

Balance, end of period $ 2,267
--------------
--------------

8. Share Capital

Authorized

Unlimited common shares

Issued
December 31
2004
Stated
(thousands) Number Value
-----------------------------------------------------------------------
Common shares
Balance - March 31, 2004 6,067 $ 485
Shares issued on initial public
offering 22,000 57,200
Conversion of Series 1 preferred
shares to common shares 8,400 6,825

Shares issued on exercise of warrants 725 2,276
-------------- --------------
Balance - December 31, 2004 37,192 66,786
-------------- --------------

Series 1 preferred shares
Balance - March 31, 2004 6,825 $ 6,825
Conversion of Series 1 preferred
shares to common shares (6,825) (6,825)
-------------- --------------
Balance - December 31, 2004 - -
-------------- --------------

66,786
Less: Share issuance costs 4,690
--------------
$ 62,096
--------------
--------------


On May 12, 2004, the Corporation completed its initial public offering
of 22.0 million common shares at a price of $2.60 per common share for
gross proceeds of $57,200. This included the full exercise by the agents
of their over-allotment option to sell an additional 2.0 million common
shares. Net proceeds to the Corporation, after deducting the agents' fee
of $3,146 and cash costs of the offering of $769 were $53,285.

Following the completion of the offering, all issued and outstanding
Series 1 preferred shares were exchanged into common shares with a
conversion factor of 1.23 common shares for each preferred share.
Holders of Series 1 preferred shares were not entitled to any accrued
and unpaid cumulative dividends up to the date of exchange.

Warrants

The Corporation issued warrants to purchase 1.21 million common shares
at an exercise price of $2.60 per common share for a period of 12 months
from the closing date of the offering. The non-cash stock-based
compensation expense of the warrants of $653, as calculated using the
Black-Scholes model, was recorded as a share issuance cost.

During the third quarter of 2005, 52 thousand (725 thousand year to
date) warrants were exercised for cash proceeds of $134 ($1,885 year to
date). On exercise of these warrants, $28 ($391 year to date) was
credited to share capital from contributed surplus.

9. General and Administrative

General and administrative expenses in the quarter consist of customary
overhead charges which include non-cash charges of $113 for stock-based
compensation (note 11) and $90 for foreign exchange losses.

Year to date general and administrative expenses consist of customary
overhead charges, as well as non-recurring charges related to the
initial startup of operations including internal labour, equipment
rental, and miscellaneous supplies that were not capitalized.

10. Net Loss per Share

The following reconciles the denominators for basic and diluted net loss
per share calculations. The treasury stock method is used to determine
the dilutive effect of the share options. The effect of all option and
warrant exercises would be anti-dilutive to the loss per share.



Three Nine
months ended months ended
December 31 December 31
2004 2004
(thousands, except per share information)
-----------------------------------------------------------------------

Weighted average shares outstanding -
basic and diluted 37,161 32,189
-------------- --------------

Net loss $ (5,974) $ (8,712)
-------------- --------------

Loss per common share:

Basic and diluted $ (0.16) $ (0.27)
-------------- --------------
-------------- --------------


11. Stock-Based Compensation

Total stock-based compensation expense included in general and
administrative expenses for the quarter was $113 and was a result of the
Corporation's share option plan. The year to date stock-based
compensation expense was $518.

The Corporation has a share option plan, pursuant to which the board of
directors or a committee thereof may from time to time grant options to
purchase common shares. At March 31, 2004, 1.40 million options to
purchase common shares at an exercise price of $1.00 were outstanding.
The options have a term of five years and vest in equal amounts over
three years. On July 30, 2004, 75 thousand of these options were
cancelled.

Options to purchase 200 thousand common shares at an exercise price of
$3.70 were granted to directors and employees of the Corporation under
the Corporation's share option plan on July 22, 2004. The options have a
five year term and were priced at the trading price of the Common Shares
on the date of the grant. Options to purchase 125 thousand of the common
shares vested immediately and options to purchase 75 thousand of the
common shares are subject to a two year vesting period.

Options to purchase 75 thousand common shares at an exercise price of
$3.70 were granted to employees and an officer of the Corporation under
the Corporation's share option plan on August 9, 2004. The options were
priced at the trading price of the Common Shares on the date of the
grant and have a five year term. Options to purchase 25 thousand of the
common shares vested immediately and options to purchase 50 thousand of
the common shares are subject to a two year vesting period.

The fair value of each option granted is estimated on the date of the
grant using the Black-Scholes option pricing model, using an estimated
volatility of 50%, risk-free interest rates of 3% and expected lives of
five years.



Details of the options outstanding are as follows:

Common Shares

Weighted
Average
Exercise
(thousands of shares) Number Price
-----------------------------------------------------------------------
Outstanding - March 31, 2004 1,400 $ 1.00
Granted - -
Cancelled - -
Exercised - -
-------------- --------------
Outstanding - June 30, 2004 1,400 $ 1.00
Granted 275 $ 3.70
Cancelled (75) $ 1.00
Exercised - -
-------------- --------------

Outstanding - September 30, 2004 1,600 $ 1.46
-------------- --------------
Granted - -
Cancelled - -
Exercised - -
-------------- --------------

Outstanding - December 31, 2004 1,600 $ 1.46
-------------- --------------
-------------- --------------


There were 150 thousand options, with an exercise price of $3.70,
exercisable at December 31, 2004. All outstanding options expire in
2009.

12. Taxes

The Corporation is required to pay Alberta Crown Royalties on product
revenues. The royalty expense for the quarter ended December 31, 2004
was $33.

13. Commitments

In order to ensure the continued availability of, and access to,
facilities and services to meet operational requirements, the
Corporation has entered into multi-year agreements for the provision of
rail transportation, port loading services and office space. Under
contracts existing at December 31, 2004, future minimum amounts payable
under these agreements are $100 in 2005 and $1,100 in each of 2006 and
2007.

The Corporation is committed, under the Lease terms, to annual coal
lease payments of approximately $54 for each of the next five years.

14. Related Party Transactions

In the first quarter of 2005, prior to the Corporation's initial public
offering, management fees of $23, which have been included in general
and administrative expenses, were paid to companies owned by two
directors of the Corporation. These transactions were in the normal
course of business and were measured at the exchange amount, which was
the consideration agreed to by the parties.

15. Subsequent Event

On February 9, 2005, the Corporation entered into an agreement with a
syndicate of underwriters pursuant to which the underwriters agreed to
purchase 2,574,000 units ("Units") of the Corporation on an underwritten
private placement basis at a price of $13.60 per Unit for aggregate
gross proceeds of $35 million. Each Unit consists of one common share
and one-half of one common share purchase warrant of the Corporation.
Each whole common share purchase warrant entitles the holder to acquire
one common share of the Corporation at a price of $16.25 per share for a
period of 12 months from the closing date of the private placement. The
Corporation also granted the underwriters an option to purchase up to an
additional 368,000 Units at a price of $13.60 per Unit at any time up to
48 hours prior to closing. The securities issued pursuant to the private
placement will be subject to a four month hold period in accordance with
Canadian securities laws. The private placement is scheduled to close on
or about February 25, 2005 and is subject to certain conditions
including satisfactory due diligence by the underwriters and the receipt
of customary regulatory approvals.

Proceeds from the financing will be used to fund the mine expansion
feasibility study, ongoing exploration and permitting, process plant
enhancements and general working capital purposes.

This news release contains certain forward-looking statements, which are
based on Grande Cache's current internal expectations, estimates,
projections, assumptions and beliefs, which may prove to be incorrect.
Some of the forward-looking statements may be identified by words such
as "expects", "anticipates", "believes", "projects", "plans" and similar
expressions. These statements are not guarantees of future performance
and undue reliance should not be placed on them. Such forward-looking
statements necessarily involve known and unknown risks and
uncertainties, which may cause Grande Cache's actual performance and
financial results in future periods to differ materially from any
projections of future performance or results expressed or implied by
such forward-looking statements. These risks and uncertainties include,
among other things, changes in general economic, market and business
conditions; uncertainties associated with estimating the quantity and
quality of coal reserves and resources; commodity prices, currency
exchange rates, capital expenditures and debt service requirements;
dependence on a single rail system; changes to legislation; liabilities
inherent in coal mine development and production; competition for, among
other things, capital, acquisitions of reserves, undeveloped lands and
skilled personnel; geological, mining and processing technical problems;
ability to obtain required mine licenses, mine permits and regulatory
approvals required to proceed with mining and coal processing
operations; ability to comply with current and future environmental and
other laws; actions by governmental or regulatory authorities including
increasing taxes and changes in other regulations; and the occurrence of
unexpected events involved in coal mine development and production. Many
of these risks and uncertainties are described in Grande Cache's 2004
Annual Information Form, Grande Cache's Management's Discussion and
Analysis and other documents Grande Cache files with the Canadian
securities authorities. Copies of these documents are available without
charge from Grande Cache or may be accessed on Grande Cache's website
(www.gccoal.com) or on the website maintained by the Canadian securities
regulatory authorities (www.sedar.com).

The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.

Contact Information

  • Grande Cache Coal Corporation
    Robert H. Stan
    President and Chief Executive Officer
    (403) 543-7070
    or
    Grande Cache Coal Corporation
    Thomas E. Pierce
    Vice President, Finance and Chief Financial Officer
    (403) 543-7070
    or
    Grande Cache Coal Corporation
    Suite 250, 703 - 6th Avenue S.W.
    Calgary, Alberta, T2P 0T9, Canada
    (403) 543-7070
    (403) 543-7092
    (FAX) Website: www.gccoal.com