Calgary, AB / ACCESSWIRE / April 30, 2014 / CanAm Coal Corp. (TSXV: COE) ("CanAm" or the "Company") has filed its audited consolidated financial statements and related management discussion and analysis for the year ended December 31, 2013. Definitions of commonly used non-IFRS financial measures (EBITDA from operations and Free Cash Flow) are included at the end of this press release.
The Company announced today its full year 2013 and fourth quarter financial results for the period ending December 31, 2013. Full year revenue, EBITDA from Operations and net loss for the year were $62.2 million, $10.5 and ($8.5) million respectively as compared to $55.4 million, $9.8 million and ($6.1) million in the prior year. Fourth quarter revenue, EBITDA from Operations and net loss were $14.9 million, $2.6 million and ($4.2) million respectively as compared to $14.5 million, $2.8 million and ($2.3) million in the prior year. Excluding one-time impairment and other charges recorded in 2013 and 2012, net loss for the year was ($6.1) million and ($3.9) million respectively.
The Company continued on its growth path and since CanAm embarked on its new strategic direction of becoming a small to medium-sized coal producer, production and sales have steadily grown both organically and through acquisition. Over the last three years, sales have increased from 403,000 tons in 2011 to 682,000 tons in 2013, an increase of 279,000 tons or 69%. Likewise, revenue and EBITDA from Operations have grown from $38.9 million and $8.5 million, respectively in 2011 to $62.2 million and $10.5 million in 2013.
Note:
Refer to the definition of EBITDA from operations and Free Cash Flow on the last page of this press release.
Certain comparative figures have been reclassified to conform with the current period's presentation.
The year 2013 saw continued growth with coal sales and revenue up 22% and 12% respectively as compared to last year. Most importantly we have turned around free cash flow and have seen a significant improvement from ($7.6) million to generating free cash flow of $2.0 million in 2013. Although 2013 was successful on many accounts, the year was not without its challenges. In the first half of 2013, following the award of three new permits in late 2012 and early 2013, we migrated the majority of our operations into a new mine complement: Knight, Posey Mill 2 and Old Union 2. Together with our existing Powhatan mine, the productive capacity of this new mine complement is expected to consistently be in the range of 60,000 to 80,000 tons per month. We completed this mine transition by the end of Q2. In the second half of 2013, we turned our attention to optimizing our cost structure and driving operational efficiencies across all of our mines. In this context, we also targeted to closely match our production to our projected monthly and quarterly sales in order to minimize coal inventories. We have seen good improvement in this area and our production costs have come down from $56/ton in Q1 to $50/ton in Q4 of 2013. We are targeting an average production cost per ton of $50 or lower on a forward going basis.
Fourth Quarter and Full Year 2013 Financial Results
(1) 2012 EBITDA (as reported in the 2012 MD&A) excluded allowance for doubtful accounts and financing charges. For 2013 (and 2012 comparative), these categories are classified as part of general and administrative costs and included in the calculation of EBITDA. Please refer to the definition of EBITDA from operations on the last page of this MD&A.
Key quarterly statistics for 2013 are as follows:
Note: Operating cash flow is before changes in non-cash working capital
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-.Sales for the fourth quarter were 168,113 tons as compared to 153,841 tons, an increase of 14,272 tons or 9%. Sales in the quarter were impacted by shipping curtailments of a number of our key customers as a result of extended plant maintenance issues and annual inventory management practices. Full year 2013 sales were up 122,354 tons or 22%.
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-.Long term off-take contracts continue to enable the Company to achieve better than market pricing for our high quality coals. Excluding the sales of purchased coal fines and some low grade coal totaling about 8,000 tons, average sales price per ton for Q4 was $91/ton, consistent with prior 2013 quarters. The lower average price as compared to last year is a result of our changing coal mix (i.e. a higher ratio of thermal coal versus metallurgical coal) and the termination of a met coal contract in early 2013.
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-.All of our 2014 production is currently committed into our off-take contracts with our customers and we are fully contracted for 2014.
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-.Average production cost per ton continues to trend down and was $50/ton as compared to $56/ton in Q1 of 2013 or a decrease of 11%. With all mines at steady state production now and with an ongoing focus on operational efficiencies, we are targeting to achieve an average cost per ton of at or below $50/ton. Q4 production costs were somewhat impacted by shipment curtailments which necessitated the Company to slow down production which in turn impacted operational efficiency.
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-.Investment in equipment and mine development in Q4 was $1.9 million as compared to $1.6 million in the comparable period last year. For 2013, capital expenditures were $8.5 million or less than half of the $17.4 million in expenditures in 2012. Major investments in equipment, capital repairs and mine development were made in 2012 in order to position to Company for growth.
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-.Free cash flow for the quarter was $0.7 million as compared to $1.2 million in Q4 2012. This is the third consecutive quarter of positive free cash flow with full 2013 free cash flow of $2.0 million as compared to ($7.6) in 2012. Increased EBITDA performance and significantly reduced capital expenditures have both contributed to this turnaround.
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-.Repayment of equipment financing obligations continues at a healthy pace and in 2013, the Company repaid $7.6 million of these obligations as compared to $6.4 million in 2012.
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-.Loss for 2013 was $8.5 million as compared to $6.1 million in 2012 with the increase mainly the result of a number of factors: $2.4 million impairment charge on the Buick project, increased depreciation, amortization and depletion arising from a larger asset base, increased financing charges related to additional equipment and debenture financing and increased debenture issue amortization and accretion expenses. The majority of these increases are non-cash related and therefore do not impact the Company's EBITDA from Operations and Free Cash Flow.
Liquidity and Financial Position
As at December 31, 2013 the Company had a working capital deficit of $22.8 million. The majority of the deficit relates to repayment of approximately $12 million in debentures due in May 2014.
Subsequent to year-end the Company has taken the following steps to address this deficit.
Additional US $3 million financing by major US Financial Institution
Effective April 18, 2014, the Company amended its equipment financing agreement with its main banking and equipment lender. The main changes were to increase the principal amount of the loan by US $3 million (54 month term) and to reset the amortization period for the outstanding amount of the original loan (US $13.2 million outstanding at April 2014) to 48 months. The blended interest rate on the facility is 4.04%.
Included in the revised agreement is a new covenant requiring the Company to convert at least $6,500,000 of its 2012, 9.5% debenture to equity prior to July 31, 2014. This represents approximately 50% of the face value of the debenture. The debenture matures in August 2016.
Private placement financing of up to $14 million
The Company has signed an agreement with Richardson GMP Limited to sell by private placement on a commercially reasonable efforts basis up to 14 million units for proceeds of up to $14 million. Each unit will consist of $1,000 principal amount of non-convertible secured debentures and 670 common share purchase warrants. The debentures mature 48 months from the date of issuance and will bear interest at a rate of 12% per annum, payable semi-annually. The Debentures have a principal repayment feature starting in month 25 and early redemption provisions starting in month 13. Further details on this proposed financing are included in a separate press release dated May 1, 2014.
CanAm intends to use the net proceeds from the private placement for the repayment of its 10% and 9.5% debentures that mature on May 8 and May 9, 2014, respectively, and for general working capital purposes.
Summary impact
The impact of the additional equipment financing, the extension of the equipment financing loan term, a successful refinancing of the May debentures and other measures taken by the Company will reduce the working capital deficit by approximately $17 million. In addition, long-term debt will be reduced by a minimum of $6.5 million resulting from the debt to equity conversion.
The Company believes that these transactions, taken together sufficiently improve the financial position of the Company to allow it to achieve its future business plans. That said, the refinancing of the May debenture, which is a critical component of the Company's plan has not been finalized. While the Company believes that this financing will close on or about May 9, 2014, there is no certainty that this will occur. Accordingly, the Company has included a reference in the consolidated financial statements respecting the Company's ability to continue as a going concern (see Note 2 of the financial statements).
Company President and CEO, Jos De Smedt commented: "Our 2013 performance showed continued growth and improvement of our performance at all levels and, most importantly, we are now generating free cash flow on a consistent basis with a major turnaround in this metric as compared to 2012. The year 2013 saw us transition to a new mine complement in the first half and since then we have and continue to focus on operational efficiencies and lowering our cost of production. Our production cost per ton has come down by some 11% since the start of the 2013 and our target for 2014 and beyond is below $50/ton. As to our financial position, we continue to pay down our equipment debt at a healthy pace but our overall debt levels remain high and the Company requires additional financial flexibility to continue to execute on its business plan. In this regard, we are extremely pleased with the additional funding of our US banking partner, our proposed private placement financing spearheaded by Richardson GMP Limited and our debt to equity conversion amounting to $6.5 million which is anticipated to take place prior to July 31, 2014."
Outlook for 2014
The Company is optimistic about 2014 as the overall coal market has improved following the colder-than-normal winter in most of North America including Alabama. As a result thereof, gas prices have increased, coal demand has been high and coal inventories are at record lows which will bode well for coal demand in 2014.
For 2014, the Company expects to continue on its path of steady growth and is targeting an increase of coal sales of approximately 10%. With 95% of 2014 production under contract, the Company is well positioned to deliver on the anticipated sales and revenue growth. With an increase in sales and the Company's continued focus on operating efficiency, it is expected that EBITDA from Operations will grow in 2014. The Company believes that its existing equipment fleet is sufficient for the foreseeable future to support the existing mine plan and has therefore positioned the Company well from a capital expenditures perspective. On this basis, no significant new equipment purchases are planned for 2014.
On the basis of the forgoing and the fact that the majority of 2014 production has been sold into off-take contracts, the Company expects to consistently generate free cash flow in 2014.
For Further Information:
CanAm Corporate Office:
Jos De Smedt, President & CEO
Tel: 403.262.3797
Toll Free: 1.877.262.5888
Email: [email protected]
EBITDA from operations and Free Cash Flow
Statements throughout this MD&A make reference to EBITDA from operations and Free Cash Flow which are non-IFRS financial measures commonly used by financial analysts in evaluating financial performance of companies, including companies in the mining industry. Accordingly, management believes EBITDA from operations and Free Cash Flow may be a useful metric for evaluating the Company's performance as it is a measure management uses internally to assess performance, in addition to IFRS measures. As there is no generally accepted method of calculating EBITDA from operations and Free Cash Flow, the terms used herein are not necessarily comparable to similarly titled measures of other companies. The items excluded from EBITDA from operations and Free Cash Flow are significant in assessing the Company's operating results and liquidity. EBITDA from operations and Free Cash Flow have limitations as an analytical tool and should not be considered in isolation from, or as an alternative to, net income or other data prepared in accordance with IFRS. EBITDA from operations is calculated as income from mining operations plus depreciation, depletion, accretion and amortization less general and administrative costs. Free Cash Flow is calculated as EBITDA from operations less financed and non-financed capital expenditures. Other financial data has been prepared in accordance with IFRS.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Information and Statements
This press release contains certain forward-looking statements and forward-looking information (collectively referred to herein as "forward-looking statements") within the meaning of applicable Canadian securities laws. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "could", "should", "can", "anticipate", "estimate", "expect", "believe", "will", "may", "project", "budget", "plan", "sustain", "continues", "strategy", "forecast", "potential", "projects", "grow", "take advantage", "well positioned" or similar words suggesting future outcomes. In particular, this press release contains forward-looking statements relating to the future production of the RAC and BCC mines. This forward looking information is based on management's estimates considering typical strip mining operations, equipment requirements and availability and typical permitting timelines.
In addition, forward-looking statements regarding the Company are based on certain key expectations and assumptions of the Company concerning anticipated financial performance, business prospects, strategies, the sufficiency of budgeted capital expenditures in carrying out planned activities, the availability and cost of services, the ability to obtain financing on acceptable terms, the actual results of exploration projects being equivalent to or better than estimated results in technical reports or prior exploration results, and future costs and expenses being based on historical costs and expenses, adjusted for inflation, all of which are subject to change based on market conditions and potential timing delays. Although management of the Company consider these assumptions to be reasonable based on information currently available to them, these assumptions may prove to be incorrect.
By their very nature, forward-looking statements involve inherent risks and uncertainties (both general and specific) and risks that forward-looking statements will not be achieved. Undue reliance should not be placed on forward-looking statements, as a number of important factors could cause the actual results to differ materially from the Company's beliefs, plans, objectives and expectations, including, among other things: general economic and market factors, including business competition, world and local coal markets, changes in government regulations or in tax laws; changes in market conditions, variations in coal recovery rates, risks relating to international operations, fluctuating coal prices and currency exchange rates, changes in project parameters, the possibility of project cost overruns or unanticipated costs and expenses, labour disputes and other risks of the mining industry, failure of plant, equipment or processes to operate as anticipated, the business of the companies not being integrated successfully or such integration proving more difficult, time consuming or more costly than expected, the early stage development of the Company and its projects; general political and social uncertainties; commodity prices; the actual results of current exploration and development or operational activities; changes in project parameters as plans continue to be refined; accidents and other risks inherent in the mining industry; lack of insurance; delay or failure to receive board or regulatory approvals; changes in legislation, including environmental legislation, affecting the Company; timing and availability of external financing on acceptable terms; conclusions of economic evaluations; and lack of qualified, skilled labour or loss of key individuals. These factors should not be considered exhaustive. Many of these risk factors are beyond the Company's control and each contributes to the possibility that the forward-looking statements will not occur or that actual results, performance or achievements may differ materially from those expressed or implied by such statements. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these risks, uncertainties and factors are interdependent and management's future course of action depends upon the Company's assessment of all information available at that time.
Forward -looking statements in respect of the future production of the RAC and BCC mines may be considered a financial outlook. These forward-looking statements were approved by management of the Company on April 29, 2014. The purpose of this information is to provide an operational update on the company's activities and strategies and this information may not be appropriate for other purposes. The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this press release are made as of the date of this press release and the Company does not undertake and is not obligated to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise unless so required by applicable securities laws.