Xinergy Ltd.
TSX : XRG

Xinergy Ltd.

March 08, 2012 22:17 ET

Xinergy Ltd. Announces Fourth Quarter and Full Year 2011 Financial Results

KNOXVILLE, TENNESSEE--(Marketwire - March 8, 2012) - Xinergy Ltd. (TSX:XRG) ("Xinergy" or the "Company"), a Central Appalachian coal producer, today announced the release of its Audited Consolidated Financial Statements for the year ended December 31, 2011, together with its Management's Discussion and Analysis ("MD&A") for the corresponding period. These documents are posted on SEDAR at www.sedar.com and on the Company's website at www.xinergycorp.com.

The Company reports fiscal 2011 coal sales revenue of $166.3 million, and adjusted EBITDA of $30.6 million. These are increases of 53% and 13%, respectively, year over year. EBITDA is adjusted for an $11 million non-recurring gain on the sale of the Company's Elk Horn investment. Coal sale revenues increased in 2011 principally due to incremental production from the addition of Raven Crest operations in West Virginia commencing in April 2010, the True Energy acquisition in July 2011 as well as increases in sales from our Straight Creek property in Kentucky. Full year 2011 coal production was 2.0 million tons, up 53% year over year from 1.3 million tons produced in 2010.

In 2011 the Company reported a net loss of $14.1 million or $0.25 on a per share basis (basic and diluted) as compared to $2.1 million for 2010. The increase in the net loss for 2011 was primarily a result of an increase in finance and related costs associated with the issuance of the $200 million senior secured notes that were issued in May 2011 and due May 2019.

In the fourth quarter of 2011 the Company reported coal revenues of $33.9 million and adjusted EBITDA of $6.7 million. Coal revenues were $38.1 million the same quarter last year, and adjusted EBITDA was $12.2 million. The decreases in the fourth quarter are principally due to customers deferred shipments. In the fourth quarter 2011, the Company had a net loss of $6.5 million as compared to $2.5 million the same quarter last year.

The Company remains in a strong cash position with $73.0 million in cash and cash equivalents at December 31, 2011. Management will maintain its target working capital levels for 2012 without requiring additional working capital debt facilities. Current debt service requirements will be met using cash flow from operations. For 2012, the Company has a total of 900,000 tons in committed thermal sales, at an average sales price of $70.00 per ton. This cash flow will be supplemented by sales from metallurgical mining operations and reductions in inventory levels as well as negotiated contract settlements that were concluded in March 2012.

Jon E. Nix, Xinergy's Chairman and CEO commented: "The Company achieved record revenues, adjusted EBITDA and increased production volumes in 2011. This past year Xinergy made important acquisitions to grow its portfolio of assets with the goal of ensuring sustainable growth in the future, adding high quality mid- and high-volatility metallurgical surface mines to the production profile. We originally controlled approximately 89.5 million tons of proven and probable reserves, we expect that to grow to well over 100 million by year end including our recent land acquisitions, of which one third are now metallurgical, demonstrating significant upside exposure to this revenue stream. The True Energy and South Fork metallurgical acquisitions provide a high margin area of growth for Xinergy in the near term and position the Company well in the current challenging environment for thermal coal prices. In addition, we continue to focus on margin expansion and cost efficiency across all mines. Gross margins on a per ton basis stand at $22.20, moderately lower from the year prior at $26.90, yet we remain a highly competitive producer on a cash cost basis. In 2011 we achieved cash costs of $59.01 per ton, affirming our position as one of the lowest cost producers in Central Appalachia. With our temporary mine closures now in place and our metallurgical coal assets coming on line in 2012 we expect to see further margin improvement in 2012."

Mr. Nix added: "Due to the contraction of CAPP thermal prices the Company's operations and production forecasts have been adjusted accordingly. We view current prices as being stabilized, yet not robust enough to warrant sales into the spot market. We have worked intensively to adapt to the changing market conditions by redeploying capital and equipment to the higher margin True Energy and South Fork metallurgical mines and adjusting sales volumes to account for the softer thermal coal market. Subsequent to year end results, the Company negotiated an early termination of a thermal coal supply agreement resulting in a cash payment of $9.9 million, and a partial buyout of a second thermal coal agreement resulting in a cash payment of $9.0 million and the return of $12.0 million restricted cash. These contract adjustments provide an improved liquidity position for 2012, and importantly preserve valuable permitted reserves."

Highlights for the Quarter Ended December 31, 2011 and subsequent events

  • In December, we executed an Asset Purchase Agreement to acquire coal assets in Bell, Clay and Leslie counties, Kentucky, including reserves that increase our reserve base in Kentucky by effectively expanding the reserve profile of the Company's Straight Creek mining complex.
  • In December, we received all necessary permits and approvals for the South Fork Lost Flats mid-volatility metallurgical surface mine in Greenbrier County West Virginia. Production began in the first quarter of 2012.
  • Our cash cost per ton of coal produced was $57.07 for the quarter as compared to $59.64 per ton for the previous quarter.
  • Coal production increased to 532,000 tons for the quarter as compared to 525,000 tons in the previous quarter and 419,000 tons in same quarter of 2010.
  • In March 2012, we negotiated a contract settlement and a partial buyout with two major thermal coal customers realizing $18.9 million in cash to the Company and releasing an additional $12.0 million of restricted cash.

Financial Overview

As at As at As at
December 31 December 31 January 1
($ '000) 2011 2010 2010
Balance Sheet
Cash $ 72,983 $ 17,029 $ 10,193
Total current assets 117,269 47,075 13,264
Total assets 289,701 153,234 63,759
Total current liabilities 40,309 28,659 11,297
Total long term liabilities 224,803 75,449 7,164
Shareholders' equity 24,589 49,126 45,297
($ '000, except per share) 2011 2010 As reported, under Canadian GAAP
2009
Statement of Operations
Total coal revenues $ 166,280 $ 108,841 $ 59,448
Cost of coal sales 122,092 74,447 46,354
Gross margin 44,188 34,393 13,094
Loss before taxes (24,893 ) (2,093 ) (16,616 )
Net loss (14,107 ) (2,071 ) (11,389 )
Basic and diluted net loss per common and non-voting common share (0.25 ) (0.04 ) (0.34 )
2011


($ '000, except per share)
Three months ended
December 31
Three months ended
September 30
Three months ended
June 30
Three months ended
March 31
Statement of Operations
Coal revenues $ 33,940 $ 48,652 $ 40,637 $ 43,051
Cost of coal sales 24,544 32,527 29,954 35,067
Gross margin 9,396 16,125 10,683 7,984
(Loss) income before taxes (11,377 ) 4,618 (5,289 ) (12,845 )
Net (loss) income (6,448 ) 5,409 (2,817 ) (10,251 )
Basic net loss income per common and non-voting common share (0.12 ) 0.10 (0.05 ) (0.18 )
Diluted net loss income per common and non-voting common share (0.12 ) 0.09 (0.05 ) (0.18 )
Sales & Operating Statistics 2011 2010 2009
Tons sold 1,990,447 1,278,585 666,185
Tons produced 2,037,002 1,332,571 669,525
Sale price/ton 83.54 85.13 89.23
COGS/ton sold 61.34 58.23 69.58
Gross margin/ton sold 22.20 26.90 19.65
Cash costs/ton produced 59.01 54.16 69.77
2011
Three months ended
December 31
Three months ended
September 30
Three months ended
June 30
Three months ended
March 31
Sales & Operating Statistics
Tons sold 394,857 531,724 510,381 553,485
Tons produced 532,387 525,129 513,866 465,620
Sales price/ton $ 85.96 $ 91.50 $ 79.62 $ 77.78
COGS/ton sold $ 62.16 $ 61.17 $ 58.69 $ 63.36
Gross margin/ton sold $ 23.80 $ 30.33 $ 20.93 $ 14.42
Cash costs/ton produced $ 57.07 $ 59.64 $ 58.39 $ 61.18
2011
Kentucky West
Virginia
Virginia Total
Tons sold 1,315,338 630,006 45,103 1,990,447
Tons produced 1,239,114 746,285 51,603 2,037,002
Sale price/ton 77.37 94.07 116.44 83.54
COGS/ton sold 62.32 57.39 87.95 61.34
Gross margin/ton sold 15.05 36.68 28.49 22.20
Cash costs/ton produced 60.81 54.24 84.58 59.01
Total cash costs $ 75,352,418 $ 40,481,138 $ 4,364,801 $ 120,198,357
Three months ended December 31, 2011
Kentucky West
Virginia
Virginia Total
Tons sold 252,945 115,327 26,585 394,857
Tons produced 309,390 194,962 28,035 532,387
Sale price/ton $ 76.10 $ 100.69 $ 115.85 $ 85.96
COGS/ton sold $ 62.11 $ 53.44 $ 100.49 $ 62.16
Gross margin/ton sold $ 13.99 $ 47.25 $ 15.36 $ 23.80
Cash costs/tons produced $ 58.20 $ 49.87 $ 94.71 $ 57.07
Total cash costs $ 18,006,324 $ 9,722,957 $ 2,655,062 $ 30,384,343

Outlook

Since our last guidance update, the Company has made significant progress in improving our goals of expanding our metallurgical mines while continuing to add to our low cost thermal coal reserves yet also make noteworthy strides to preserve these resources for a better margin environment. We are also making huge strides in increasing our liquidity by implementing major reductions in previously expected capital expenditures at all operations, especially our expanding metallurgical mines, and by re-deploying equipment from our thermal operations. Likewise, we continue to seek opportunities for assets that will require substantially less capital outlay that will allow us to maximize our margins. In addition, we were able to negotiate the receipt substantial cash payments that approximated the net present value of the expected margin realizable over the term on two thermal coal supply agreements and we retained the inventory and reserves.

Market conditions have changed rapidly over the last few months and as a result, in February 2012, we idled two surface mines and one high wall miner job at our Straight Creek operations in Kentucky. This decision, which affected many employees, was not made lightly. A wide mixture of market conditions, including very low prices for natural gas, increased inventory levels at several utility customers, very mild winter weather and general weak demand for thermal coal all led to our conclusions. This changing market environment required us to focus on adjusting our thermal production levels in order to better match committed sales going forward while continuing to maintain our ability to be a low cost producer. These decisions not only allow us to sustain our valuable, permitted thermal reserves, but will allow us to quickly get these mines back into production when market conditions improve.

While we have made very difficult decisions to reduce our workforce and idle mines at our thermal operations, we are re-deploying equipment and manpower to our higher margin, True Energy and South Fork metallurgical mines. By moving mining equipment, accordingly, we expect to reduce previously anticipated capital expenditures in 2012 by approximately $40.0 to $60.0 million. Not only will this allow us to significantly strengthen our liquidity by substantially increasing our free cash flow, it allows us to utilize already owned equipment and avoid possibly lengthy delivery periods for equipment that would otherwise need to be ordered from manufacturers. Therefore, we anticipate being able to increase production from these operations in a more opportune manner.

For 2012, we expect to produce at levels necessary to service sales commitments at our thermal mining operations while taking efforts to substantially reduce our existing inventories at these operations as well.

2012 Thermal Coal Sales Guidance
Revised Guidance Previous Guidance
Straight Creek 0.6--0.8 million tons 1.5--1.8 million tons
Raven Crest 0.2--0.3 million tons 0.6--0.7 million tons
Brier Creek 0.0--0.0 million tons 0.4--0.5 million tons
0.8--1.1 million tons 2.5--3.0 million tons

In 2012, we expect to produce and sell approximately 560,000 to 730,000 million tons from our metallurgical mining operations as follows:

2012 Metallurgical Coal Sales Guidance
Revised Guidance Previous Guidance
South Fork 360,000--480,000 tons 300,000--750,000 tons
True Energy 200,000--250,000 tons 200,000--250,000 tons
560,000--730,000 tons 500,000--1,000,000 tons

Conference Call

The Company will hold a conference call to discuss fourth quarter and full year 2011 results on Friday, March 9, 2012 at 10:00 a.m. ET. Interested parties are invited to participate in the conference call, during which prepared remarks from the Company's management team will be followed by a question and answer session. The conference call will be webcast live on the Internet for those who want to listen only with a replay available on the Company's website shortly after the event.

Event: Conference call to discuss fourth quarter and full year 2011 results.
Time: March 9, 2012 at 10:00 a.m. Eastern Time
Phone: Dial In 877-317-6789 (International 412-317-6789) Canada 866-605-3852 five to ten minutes prior to scheduled start and reference Xinergy conference call.
Internet: Log on to the Company's website, www.xinergycorp.com five to ten minutes prior to scheduled start, follow links to Investors page.
Replay: A telephonic replay will be available approximately 1 hour after conclusion of the call through March 21, 2012 at 9:00 a.m. ET by calling 877-344-7529 (International 412-317-0088) and entering conference number 10009695. Replay of the webcast will also be available on the Company's website.

About Xinergy Ltd.

Headquartered in Knoxville, Tennessee, Xinergy Ltd., through its wholly owned subsidiary Xinergy Corp. and its subsidiaries, is engaged in coal mining in eastern Kentucky, West Virginia and Virginia. Currently, Xinergy sells high quality thermal coal to electric utilities and industrial companies throughout the south-eastern United States as well as metallurgical coal. For more information, please visit www.xinergycorp.com.

Contact Information

  • Xinergy Ltd.
    Chris Halouma
    Director, Investor Relations
    865-474-7000

    Xinergy Ltd.
    Michael R. Castle
    Chief Financial Officer
    865-474-7000
    www.xinergycorp.com