Western Canadian Coal Corp.
TSX : WTN
AIM : WTN

Western Canadian Coal Corp.

November 07, 2005 09:11 ET

Western Canadian Coal Corp. Presents Second Quarter Fiscal 2006 Operating Results

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Nov. 7, 2005) - Western Canadian Coal Corp. (TSX:WTN)(AIM:WTN) ("WCCC" or the "Company") announces its operating results for the three months ending September 30, 2005:

Second Quarter Financial Highlights (unaudited, in Canadian dollars unless otherwise indicated):

- Operating profit of $7.6 million for the quarter ending September 30, 2005 on sales of $19.1 million. Year-to-date operating profit of $15.6 million on sales of $38.6 million.

- Sales consisted of 155,879 tonnes of pulverized coal injection ("PCI") coal at an average price of $122.72 (US$102.14) per tonne. Cash costs for production were $72.11 per tonne.

- Net income for the quarter ending September 30, 2005 of $5.2 million or $0.06 per share compared to a net loss of $1.2 million or ($0.03) per share for the same quarter in 2004.

- Cash flow from operations of $2.6 million before changes in non-cash working capital items for the quarter ending September 30, 2005 compared to cash used in operations before changes in non-cash working capital items of $0.7 million in same quarter in 2004.

- As at September 30, 2005, the Company's working capital position was $94.6 million.

Gary K. Livingstone, President & Chief Executive Officer of Western Canadian Coal will host a conference call and webcast to discuss the second quarter results on Tuesday, November 8, 2005 at 8:00am PST / 11:00am EST.

The call can be accessed by calling the operator at 416-695-6622 or toll-free on 1-877-888-3490 prior to the scheduled start time. An archived recording of the call will be available for two weeks after the completion of the call by dialing 416-695-5275 or 1-888-509-0081.

A live and archived audio webcast of the conference call will also be available on the Company's website at www.westerncoal.com.

News Release

This news release is prepared as at November 7, 2005 and should be read in conjunction with the Company's 2005 Annual Report and the audited financial statements and notes contained therein. This news release does not constitute Management's Discussion and Analysis as contemplated by relevant securities rules. Western Canadian Coal Corp.'s Second Quarter Report and MD&A for the three months ending September 30, 2005 are filed on SEDAR and are available at www.sedar.com.



Financial Summary - unaudited:

(In thousands of Canadian dollars, September 30, March 31,
except tonnes and per share data) 2005 2005
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Cash $ 93,318 $ 115,186
Other current 3,324 7,041
Inventory 13,976 8,831
Total Assets 169,956 149,802

Current liabilities 16,002 11,682
Long-term liabilities 2,380 966
Shareholders' equity $ 151,574 $ 137,154
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Three months ending Six months ending
September 30, September 30,
2005 2004 2005 2004
--------------------------------------------------------------------
Tonnes shipped 155,879 - 323,567 -

Revenue $ 19,129 $ - $ 38,644 $ -
Cost of goods sold 11,534 - 23,079 -
Operating profit 7,595 - 15,565 -
Other expenses 6,415 1,190 9,793 2,643
Income tax recovery 4,006 - 4,006 -
Net income (loss ) $ 5,186 $ (1,190) $ 9,778 $ (2,643)

Earnings (loss) per share,
basic $ 0.06 $ (0.03) $ 0.12 $ (0.07)
Earnings (loss) per share,
diluted $ 0.06 $ (0.03) $ 0.12 $ (0.07)
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Included in the above balances and results are the Company's proportionate share of its interest in and results from the Belcourt Saxon joint venture, as follows:



September 30, March 31,
(In thousands of Canadian dollars) 2005 2005
--------------------------------------------------------------------
Cash $ 7,683 $ 4,829
Due from the Company - 3,000
Due from NEMI - 2,000
Total Assets $ 11,598 $ 10,908

Current liabilities 846 56
Equity 10,752 10,852

Three months ending Six months ending
September 30, September 30,
2005 2004 2005 2004
--------------------------------------------------------------------

Expenses $ 100 $ - $ 49 $ -
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Revenues

Currently, the Company's sole source of revenue is from the sale of PCI coal from the Dillon mine located within the Burnt River property of the Brazion Group in northeastern British Columbia. The Dillon Mine produces an ultra low-volatile PCI coal which is mined and crushed and requires no washing prior to shipment.

The Company mined approximately 192,570 tonnes and realized FOB sales of 155,879 tonnes for total revenues of $19.1 million during the second quarter of fiscal 2006. The average selling price realized during the period was $122.72 or US$102.14 at an average foreign exchange rate of 1.2015. The Company's inventory comprises approximately 202,380 tonnes of coal as at September 30, 2005.

Year to date, the Company mined approximately 393,570 tonnes and realized FOB sales of 323,567 tonnes for total revenues of $38.6 million. The average selling price per tonne realized for the six-month period was $119.43 or US$97.68 at an average foreign exchange rate of 1.2227.

Cost of goods sold

Cost of goods sold during the three months ended September 30, 2005 totaled $11.5 million or $74.00 per tonne compared to cost of goods sold during the three months ended June 30, 2005 of $11.53 million or $67.82 per tonne. Cost of goods sold include cost of production, transportation, and depletion, amortization and accretion charges as presented in the table below:



(In thousands of 2nd quarter 1st quarter
Canadian dollars) 2006 $/tonne 2006 $/tonne
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Cost of production $ 5,706 $ 36.61 $ 3,714 $ 22.11
Transportation and other 5,534 35.50 6,333 37.70
Depletion, amortization
and accretion 294 1.89 1,497 8.91

Total cost of goods sold $ 11,534 $ 74.00 $ 11,544 $ 68.72
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Cost of product sold in the quarter was adversely affected by the discovery, during September mining operations, of a previously undefined fault in the southern end of the Dillon syncline. The net effect of the fault is a decrease in the coal reserves of 188,000 tonnes. This 12% decrease in recoverable reserves, along with a concurrent finding of an increase in associated waste of 1,154,000 cubic metres or 34% over original pit estimates, and an adjustment to cost of production of previously deferred stripping costs (resulting from increase in the life of mine strip ratio), resulted in an increase to overall mining costs of approximately $14/tonne.

Transportation and other costs included expenses such as coal haul to the rail load-out, rail costs including surcharges, fuel allocations, port charges and various surveying and agent fees incurred in loading vessels. For the quarter ended September 30, 2005, total transportation and other costs were $5,534,000 or $35.50/tonne. The decrease from the first quarter is primarily due to reduced rail freight rates, effective July 1, 2005, as a result of the decision in favour of WCCC by the arbitrator appointed under the final offer arbitration ("FOA") mechanism to settle the unresolved dispute over rates. As announced by WCCC on October 13, 2005, Canadian National Railway Company ("CN") filed an application for judicial review in the Federal Court of Canada seeking declarations that (a) all sections of the Canada Transportation Act relating to FOA are inoperative, being in contravention of the Canadian Bill of Rights and (b) the decision of the arbitrator be set aside.

Depletion, amortization and accretion relate to the various capital expenditures required for production. The reduction in depletion and amortization for the quarter ended September 30, 2005 is a result of the Brule Mine project having reached the feasibility stage, thereby increasing the coal reserve base for depletion and amortization of the Burnt River property assets.

The Company expects that the costs incurred for the second quarter 2006 are indicative of the remaining operating costs for the balance of Dillon Mine coal reserve estimates given the recent mine geology revisions.

Operating profit

The operating profit for the second quarter of 2006 totaled $7.6 million or 39.7% of second quarter revenues compared with the first quarter 2006 operating profit of $8.0 million or 40.8% of first quarter revenues.

Other expenses

Other expenses for the quarter ending September 30, 2005 were $6.4 million and include the following:



Three months ending Six months ending
(In thousands of September 30, September 30,
Canadian dollars) 2005 2004 2005 2004
--------------------------------------------------------------------
General, administration
and selling $ 4,469 $ 1,099 $ 6,904 $ 2,486
Coal exploration 2,855 121 4,563 195
Interest expense 4 - 8 -
Other income (913) (30) (1,682) (38)
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Total other expenses $ 6,415 $ 1,190 $ 9,793 $ 2,643
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Included in general, administration and selling costs are non-cash stock-based compensation charges of $1.9 million and $0.4 million for the quarters ended September 30, 2005 and 2004, respectively. General, administration and selling costs also include legal, professional and consulting costs which are $1.2 million and $0.1 for the quarters ended September 30, 2005 and 2004, respectively. The increase is attributed to the resolution of the transportation dispute with CN, and other professional costs associated with preparing corporate disclosure documents, periodic interim reviews of financial statements, and contract analysis and preparation related to construction activities at Wolverine.

Coal exploration expenditures as of September 30, 2005 increased to $2.9 million from $0.1 million in the corresponding period in 2004. Exploration expenditures for the quarter, include the Company's proportionate share of expenses recorded by the Belcourt-Saxon Coal Limited Partnership of $1.9 million (2004 - nil), and relate to properties on which the capitalization criteria have not been met.

Net income

For the quarter ended September 30, 2005, in accordance with CICA Handbook Section 3465 "Income Taxes", the Company recorded an income tax recovery of $4.0 million. This represents the previously unrecognized future income tax asset to be realized as a result of it being more likely than not that sufficient future taxable income will be available to utilize such tax assets. Accordingly, net income for the quarter ended September 30, 2005 was $5.2 million compared to net loss of $1.2 million in the same period last year. Similarly, net income for the six-month period was $9.8 million compared to net loss of $2.6 million in the same period last year.

Outlook

As previously reported, the Company is constructing a coal preparation plant at Wolverine to handle 3.0 million tonnes of hard coking coal per annum. Initial throughput, however, is expected to commence in July 2006, at the rate of 2.4 million tonnes per annum. Earlier this year, the Company applied to the BC government for an increase in the allowable production at Wolverine from 1.6 million tonnes to 2.4 million tonnes per annum and expects a decision before year end. Total Wolverine capital costs are estimated to be $242 million, including pre-production stripping costs of $55 million and contingencies of approximately $30 million, but excluding mining equipment. To date, the Company believes the capital costs are on budget and the construction completion date remains on schedule for July 2006.

The mining contractor selected by the Company has been mobilized based on a letter of intent completed during the quarter ended September 30th and the first excavator is on site and is operational for pre-stripping. The mining contractor and the Company are currently working toward a final mining contract which provides for contract mining services for a four year term, after which the Company will conduct the mining operations. Equipment now on site includes five new CAT 789 trucks, three new D10T dozers, and a 16H grader. The open-pit mines will be operated and managed by the contractor and the Company will provide overall management and engineering and, on completion, will operate the coal preparation plant. It was initially expected that the mining contractor would provide the mining equipment. However, in order to reduce long term operating costs, the Company expects to lease and ultimately own the majority of the mining equipment. The total value of mining equipment necessary to conduct the mining and stripping operations at Wolverine is approximately $60 million.

Within 18 - 24 months following the start of production at Wolverine, the Company expects to increase production from the Wolverine group of properties from 2.4 million tonnes to 3.0 million tonnes per year with the inclusion of production from future mining activities at the nearby Hermann property and the Perry Creek underground resource.

A significant factor in the outlook for the Company is the price of metallurgical coal which is influenced by numerous factors beyond the Company's control, including international economic and political trends, fluctuations in currency, interest rates, competition and improvements in mining and production methods. Although there have been announcements of reductions in steel production, this has generally been attributed to a de-stocking cycle which was anticipated within the industry given the rapid build-up in inventories during 2004. Consequently, many steel producers are currently facing high coal inventory levels. Despite a general industry softening, given the two to three year forecasts for robust economic and steel demand growth rates for China, India, Brazil and Russia, industry analysts expect the global steel industry to continue to be strong in the medium to long term.

As a result of the recent reduction in crude steel production and high PCI inventory levels, as a result of previous over-buying, PCI requirements have dropped in recent months. Some mills, like POSCO in South Korea, have improved their PCI rates and increased the use of low volatile PCI. The Company has finalized one of two long-term purchase and sale agreements with POSCO. While POSCO is expected to exceed its initial ultra low volatile PCI commitment for the current coal year, some of the Company's other customers have indicated that their hard coking and PCI purchases to date have exceeded their immediate needs. Accordingly, the Company anticipates that of the 800,000 tonnes of its ultra low volatile PCI coal initially scheduled for delivery in the 2006 fiscal year, as much as 100,000 tonnes will be delivered during the first quarter of the next fiscal year.

As reported in an earlier press release, the Company has completed a feasibility study and declared coal reserves for the Brule Mine on the Burnt River property, immediately adjacent to Dillon. The Company has filed for initial screening by the Provincial Government the Environmental Assessment Certificate application to mine ultra low volatile PCI coal at a rate of 2 Mt per year for the Brule Mine project. The Company will be assessing trends in the PCI market before committing to significant capital expenditures for this project. It will be possible to begin production from the Brule Mine as a replacement for Dillon prior to undertaking most of those capital costs.

Forward-Looking Information

This release may contain forward-looking statements that may involve risks and uncertainties. Such statements relate to the Company's expectations, intentions, plans and beliefs. As a result, actual future events or results could differ materially from those suggested by the forward-looking statements. Readers are referred to the documents filed by the Company on SEDAR. Such risk factors include, but are not limited to, changes in commodity prices; strengths of various economies; the effects of competition and pricing pressures; the oversupply of, or lack of demand for, the Company's products; currency and interest rate fluctuations; various events which could disrupt operations; the Company's ability to obtain additional funding on favourable terms, if at all; and the Company's ability to anticipate and manage the foregoing factors and risks. Additionally, statements related to the quantity or magnitude of coal deposits are deemed to be forward-looking statements. The reliability of such information is affected by, among other things, uncertainties involving geology of coal deposits; uncertainties of estimates of their size or composition; uncertainties of projections related to costs of production; the possibilities in delays in mining activities; changes in plans with respect to exploration, development projects or capital expenditures; and various other risks including those related to health, safety and environmental matters.

WESTERN CANADIAN COAL CORP.

Gary K. Livingstone, President and Chief Executive Officer


Contact Information

  • Western Canadian Coal Corp.
    Gary K. Livingstone
    President & CEO
    (604) 608-2692
    or
    Western Canadian Coal Corp.
    Fausto Taddei
    CFO & Corporate Secretary
    (604) 608-2692
    (604) 629-0075 (FAX)
    info@westerncoal.com
    www.westerncoal.com