Western Coal Net Income Up 18-fold on 105% Revenue Growth in Fiscal Second Quarter 2011
VANCOUVER, Nov. 10 /PRNewswire-FirstCall/ - Western Coal Corp. (TSX: WTN & WTN.WT and AIM: WTN) announced today that its net income for the fiscal second quarter ended September 30, 2010 was $40.8 million, up 18-fold from $2.2 million a year earlier. Basic earnings per share were $0.15, up 15-fold from $0.01. Revenue was $220.4 million, up 105% from $107.6 million.
"Our record production in the second quarter demonstrated strong growth and that our strategy and delivery plan is working", said Keith Calder, President and Chief Executive Officer. "Our objective is to create long term shareholder value by more than tripling production to 10 million tonnes over the next three years through organic growth alone. We remain on track to reach that objective by fiscal 2013."
Net income for the second fiscal quarter of 2011 included a non-cash unrealized gain on forward exchange contracts of $10.8 million and a $6.1 million provision for underlying impairment losses in equity investments. Excluding these two items, adjusted net income and basic earnings per share were $36.1 million (fiscal Q2 2010 - $10.0 million loss) and $0.13 (fiscal Q2 2010 - $0.04 loss), respectively.
Fiscal Q2 2011 operations highlights, compared with Fiscal Q2 2010
- Revenue $220.4 million, up 105% from $107.6 million
- Net income $40.8 million, up from $2.2 million
- Earnings per share $0.15, up from $0.01
- Cash cost of sales per tonne:
- Consolidated - $91, down 4% from $95
- Canada - $102, up 2% from $100
- US - $68, down 19% from $84
- Coal production 1.5 million tonnes, up 90% from 0.8 million tonnes
- Consolidated average realized coal price $169 per tonne, up 41% from
$120 per tonne
- Capital expenditures $84.8 million, up from $3.0 million
First Half Fiscal 2011 operations highlights, compared with First Half Fiscal 2010
- Revenue $423.9 million, up 131% from $183.3 million
- Net income $61.0 million, up from $5.6 million
- Earnings per share $0.23, up from $0.02
- Cash cost of sales per tonne:
- Consolidated $92, down 9% from $101
- Canada - $103, down 3% from $106
- US - $70, down 17% from $84
- Coal production 2.8 million tonnes, up 131% from 1.2 million tonnes
- Consolidated average realized coal price $163 per tonne, up 19% from
$137 per tonne
- Capital expenditures $156.9 million, up from $3.4 million
Other highlights and significant items in Fiscal Q2 2011:
- Completed the acquisition of the remaining 45.3% interest in
Energybuild Group Plc ("Energybuild") that the Company did not
previously own on August 9, 2010, issuing 8,551,578 new common shares
of Western to shareholders of Energybuild
- Completed a US$125 million revolving two-year credit facility in
August 2010
- Executive management team was strengthened by the appointments of Mr.
Jim Griffin as Global Head of Commercial and Business Development and
Mr. Keenan Hohol as Global Head of Legal
- Appointed Mr. Graham Mascall as a non-executive director to the Board
effective November 1, 2010 following Mr. Julian Treger's resignation
Overview
Western's business is the exploration, development and production of coal. Approximately 80% of our coal is metallurgical, which in the long term is in short supply to meet global demand from steelmakers. The remainder of our coal is thermal, used for electric power generation. We have a global customer base and supply five of the largest steel mills in the world with our high quality metallurgical coal.
Western has three mines in British Columbia, Canada; four mines in West Virginia, USA; and one mine in Wales, UK. The Company also is actively engaged in coal exploration and seeks to acquire new coal assets. The table below shows the geographic distribution of our coal production for the most recent and comparative reporting periods.
-------------------------------------------------------------------------
Three Three Six Six
months months months months
ended ended ended ended
September September September September
Country 30, 2010 30, 2009 30, 2010 30, 2009
-------------------------------------------------------------------------
Canada 67% 62% 68% 75%
-------------------------------------------------------------------------
US 31% 34% 30% 23%
-------------------------------------------------------------------------
UK 2% 4% 2% 2%
-------------------------------------------------------------------------
Total 100% 100% 100% 100%
-------------------------------------------------------------------------
Guidance
Production
Western's three-year organic growth strategy is to increase production by 212% to 10 million tonnes for fiscal 2013 from 3.2 million tonnes produced in fiscal 2010.
The production target for the current fiscal year is 6.1 million tonnes, up 91% from 3.2 million tonnes a year earlier. The table below shows our expected production for fiscal 2011 by country, compared with actual production for fiscal 2010 (in millions of tonnes):
-------------------------------------------------------------------------
Fiscal Fiscal
Country 2011 2010 Change
-------------------------------------------------------------------------
Canada 4.2 2.1 100%
-------------------------------------------------------------------------
US 1.8 1.0 80%
-------------------------------------------------------------------------
UK 0.1 0.1 -
-------------------------------------------------------------------------
Total 6.1 3.2 91%
-------------------------------------------------------------------------
For the second half (H2) of fiscal 2011, the production targets by country compared with the second half fiscal 2010 and first half (H1) 2011 are as follows (in millions of tonnes):
-------------------------------------------------------------------------
H2 Fiscal H2 Fiscal
H2 Fiscal H2 Fiscal 2011 vs. H1 Fiscal 2011 vs.
2011 2010 H2 Fiscal 2011 H1 Fiscal
Country Forecast Actual 2010 Actual 2011
-------------------------------------------------------------------------
Canada 2.3 1.2 92% 1.9 21%
-------------------------------------------------------------------------
US 0.9 0.7 29% 0.8 13%
-------------------------------------------------------------------------
UK 0.1 0.1 - 0.1 -
-------------------------------------------------------------------------
Total 3.3 2.0 65% 2.8 18%
-------------------------------------------------------------------------
The Company expects to achieve the targeted second half fiscal 2011 increase in production primarily by the increase in capacity resulting from the deployment of new trucks and shovels and through further productivity improvement initiatives.
Cash Costs
Western's cash cost of production target range for its Canadian operations in fiscal 2011 is $94 to $99 per tonne (FOB), down from $102 per tonne in fiscal 2010. The US operations cash cost of production target range for fiscal 2011 is US$68 to US$72 per tonne, compared with US$72 per tonne in the prior year. The Company has not yet set cash cost targets for its UK operations.
Western expects to achieve these reductions in its cash costs by improving productivity primarily through the introduction of larger equipment, namely more efficient trucks and shovels, and productivity improvement initiatives. The equipment additions to the fleet are mostly company-owned and are part of a strategy of phasing out reliance on contractor fleets.
In addition, the Company expects its Canadian operations to begin to benefit by the fourth fiscal quarter of 2011 from the completion of a new 60-kilometre Falling Creek Connector road from the Brule mine to the Willow Creek processing facility. The Falling Creek Connector road is an alternative to the 100-kilometre part public highway currently used and allows for the use of more efficient 110 tonne haulage trucks compared to the current 40 tonne trucks. In addition to reducing haulage costs by an expected 25%, the new road will allow the Brule mine to achieve its growth production targets.
Market Outlook
Substantially all of Western's fiscal 2011 coal production from Canada is under contract for sale to international steel producers. The price for our Canadian coal is predominantly established on a quarterly basis, although one contract to a major European steel mill is on an annual basis. Prices for US production generally are established annually and prices for UK production are reviewed on a three and six monthly basis.
For the fiscal third quarter of 2011, we negotiated benchmark prices for our Canadian hard coking coal products in the range of US$205-US$208 per tonne and for low volatile pulverized coal injection coal at US$150 per tonne, in line with other producers. Prices are Free On Board and Trimmed (FOBT).
For hard coking coal, the benchmark represents an increase of 63% from US$126 per tonne from the fiscal third quarter of 2010 but a decrease of approximately 9% from US$225 in the second quarter of fiscal 2011. For low volatile pulverized injection coal (LV-PCI) the benchmark represents an increase of 67% from US$90 per tonne from the fiscal third quarter of 2010 but a decrease of approximately 17% from US$180 in the fiscal second quarter of 2011.
The Canadian metallurgical coal prices reflect steel company production cuts in the seasonally slow September quarter. However, subsequent to the quarterly negotiations, Queensland's mining and infrastructure operations experienced heavy rainfall, triggering a number of force majeure declarations. These events, in addition to weather forecasts indicating the looming Australian summer could be the wettest ever recorded for coal regions, have dramatically altered market sentiment and suggest firmer prices for Western's fiscal fourth quarter.
In early October 2010, the World Steel Association (WSA) issued its Short Range Outlook (SRO), which projected global apparent steel use to increase by 13.1% year-on-year to 1,272 million tonnes in 2010 after contracting by 6.6% in 2009. In calendar 2011, WSA forecasts that world steel demand will grow by 5.3% to reach a record 1,340 million tonnes, suggesting a steady and stable steel recovery, boding well for both LV-PCI and hard coking coal markets. Key elements of the outlook include strong growth in steel usage in China and India.
In the longer term, the market fundamentals - strong demand and shortage of supply for high quality metallurgical coal - are expected to prevail, which should provide continued opportunity for Western as it expands production to increasingly diversify its international markets. China, India and South America remain the driving forces for this increase in demand.
Results of Operations
-------------------------------------------------------------------------
In thousands
of Canadian Three Three Six Six
dollars months months months months
unless ended ended ended ended
otherwise September September Change September September Change
noted 30, 2010 30, 2009 % 30, 2010 30, 2009 %
-------------------------------------------------------------------------
Financial
Highlights:
Revenues $ 220,350 $ 107,637 105 $ 423,887 $ 183,335 131
Cost of
goods sold 134,238 97,266 38 267,146 153,315 74
-------------------------------------------------------------------------
Income from
mining
operations 86,112 10,371 730 156,741 30,020 422
Operating
margin 39% 10% 37% 16%
Other
expenses 12,623 7,858 61 46,931 17,859 163
Net income 40,812 2,186 1,767 61,011 5,574 995
Earnings
per share,
basic $ 0.15 $ 0.01 $ 0.23 $ 0.02
Weighted
average
shares
outstanding
(thousands) 269,475 236,486 263,831 223,664
Production
(tonnes):
Canadian
operations
- Hard
coking 573,000 327,000 75 1,060,000 686,000 55
Canadian
operations
- Low vol
PCI 457,000 173,000 164 830,000 220,000 277
US
operations -
Metal-
lurgical 205,000 93,000 120 381,000 93,000 310
US
operations -
Thermal 270,000 183,000 48 468,000 183,000 156
UK
operations -
Anthracite 28,000 29,000 (3) 62,000 29,000 114
-------------------------------------------------------------------------
Total
produc-
tion(a) 1,533,000 805,000 90 2,801,000 1,211,000 131
-------------------------------------------------------------------------
Sales (tonnes):
Canadian
operations
- Hard
coking 535,000 370,000 45 963,000 672,000 43
Canadian
operations
- Low vol
PCI 305,000 248,000 23 672,000 381,000 76
US
operations -
Metal-
lurgical 159,000 86,000 85 358,000 93,000 285
US
operations -
Thermal 271,000 165,000 64 534,000 165,000 224
UK
operations -
Anthracite 31,000 31,000 - 66,000 31,000 113
-------------------------------------------------------------------------
Total
sales(b) 1,301,000 900,000 45 2,593,000 1,342,000 93
-------------------------------------------------------------------------
(a) Includes pre-production at Willow Creek mine
(b) Excludes pre-production at Willow Creek mine
The results of operations are reported in the following segments:
Canadian Operations
Three Three Six Six
In thousands of months months months months
Canadian dollars ended ended ended ended
unless otherwise September September September September
noted 30, 2010 30, 2009 30, 2010 30, 2009
-------------------------------------------------------------------------
Financial Highlights:
Revenues $ 180,152 $ 75,585 $ 338,876 $ 151,283
Cost of goods sold 96,481 70,342 189,692 126,391
-------------------------------------------------------------------------
Income from mining
operations $ 83,671 $ 5,243 $ 149,184 $ 24,892
-------------------------------------------------------------------------
Production (tonnes):
Hard coking 573,000 327,000 1,060,000 686,000
Low-vol PCI 457,000 173,000 830,000 220,000
-------------------------------------------------------------------------
Total production 1,030,000 500,000 1,890,000 906,000
-------------------------------------------------------------------------
Sales (tonnes):
Hard coking 535,000 370,000 963,000 672,000
Low-vol PCI 305,000 248,000 672,000 381,000
-------------------------------------------------------------------------
Total sales 840,000 618,000 1,635,000 1,053,000
-------------------------------------------------------------------------
Per sales tonne:
Coal price realized $ 214 $ 122 $ 207 $ 144
Coal price realized
(USD) $ 206 $ 111 $ 200 $ 126
Cost of goods sold
Cost of product sold $ 68 $ 71 $ 69 $ 77
Transportation and
other 34 29 34 29
Depletion,
amortization and
accretion 13 14 13 14
-------------------------------------------------------------------------
Total cost of goods
sold $ 115 $ 114 $ 116 $ 120
-------------------------------------------------------------------------
Comparing the Three Months Ended September 30, 2010 to the Three Months Ended September 30, 2009.
Revenues increased by 138% reflecting a 36% increase in shipments to customers and an 86% increase in realized prices, partially offset by the adverse effect of a weakening of the US dollar against the Canadian dollar. The average US dollar relative to the Canadian dollar exchange rate for the three month period ended September 30, 2010 was $1.03, compared to $1.10 in the comparable period in the prior year. Realized prices benefitted from higher coal contract prices for the second fiscal quarter of 2011, for which benchmark prices were US$225 per tonne for hard coking coal and US$180 per tonne for ULV-PCI compared to US$126 per tonne and US$90 per tonne, respectively, for fiscal 2010. The increase in shipments reflected the continuing recovery in demand for the Company's coal products due to improvement in the global economy.
Total production increased by 106% due to operational efficiencies, improved processing yields and the favourable impact of the Company's program to increase equipment capacity to 4.0 million tonnes per year, up 54% from the 2.6 million tonnes per year before the program commenced.
Cost of product sold per tonne, which primarily represents mining and plant costs, declined 4% to $68 per tonne, while transportation and other costs, which include rail, port and haulage costs, increased 17% to $34 per tonne, is principally attributable to higher fuel costs and temporary costs incurred to haul coal from Brule to a third-party load-out facility. The temporary costs incurred at the third party load-out facility will be eliminated once the Falling Creek Connector Road is commissioned in December 2010. Overall, cash cost of goods sold increased slightly to $102 per tonne, but were down from $105 per tonne in the first fiscal quarter 2011.
Comparing the Six Months Ended September 30, 2010 to the Six Months Ended September 30, 2009
Revenues increased by 124% reflecting a 55% increase in shipments to customers and a 59% increase in realized prices, partially offset by the adverse effect of a weakening of the US dollar against the Canadian dollar. The average US dollar relative to the Canadian dollar exchange rate for the six month period ended September 30, 2010 was $1.03, compared to $1.14 in the comparable period in the prior year. Realized prices benefitted from higher coal contract prices as discussed above. The increase in shipments reflected the continuing recovery in demand for the Company's coal products due to the improvement in the global economy.
Total production increased by 109% for the reasons discussed above.
The slight decrease in the unit cost of goods sold is primarily due to improved productivity at the Wolverine mine which included a decline in the stripping ratio and higher coal recoveries.
US Operations
Three Three Six Six
In thousands of months months months months
Canadian dollars ended ended ended ended
unless otherwise September September September September
noted 30, 2010 30, 2009 30, 2010 30, 2009
-------------------------------------------------------------------------
Financial Highlights:
Revenues $ 35,424 $ 27,338 $ 76,107 $ 27,338
Cost of goods sold 33,037 22,433 69,076 22,433
-------------------------------------------------------------------------
Income from mining
operations $ 2,387 $ 4,905 $ 7,031 $ 4,905
-------------------------------------------------------------------------
Production (tonnes):
Metallurgical 205,000 93,000 381,000 93,000
Thermal 270,000 183,000 468,000 183,000
-------------------------------------------------------------------------
Total production 475,000 276,000 849,000 276,000
-------------------------------------------------------------------------
Sales (tonnes):
Metallurgical 159,000 86,000 358,000 86,000
Thermal 271,000 165,000 534,000 165,000
-------------------------------------------------------------------------
Total sales 430,000 251,000 892,000 251,000
-------------------------------------------------------------------------
Per sales tonne:
Coal price realized $ 82 $ 109 $ 85 $ 109
Coal price realized
(USD) $ 80 $ 92 $ 83 $ 92
Cost of goods sold
Operating expenses $ 68 $ 84 $ 70 $ 84
Depletion,
amortization
and accretion 9 5 7 5
-------------------------------------------------------------------------
Total cost of goods sold $ 77 $ 89 $ 77 $ 89
-------------------------------------------------------------------------
On July 13, 2009, Western acquired its US operations, which consist of an underground mine and an open pit mine on each of the Maple and Gauley Eagle properties in West Virginia. The US operations are included in the Company's results from July 14, 2009.
Revenues for the three month period ended September 30, 2010 increased by 30% compared with the corresponding 2009 period reflecting a 71% increase in shipments to customers, partially offset by a 13% decrease in realized prices. The higher shipments reflected increased demand for both metallurgical and thermal coal in the United States due to general economic improvement year over year. Revenues for the six month period ended September 30, 2010 increased by 178% compared with the corresponding 2009 period reflecting a 255% increase in shipments to customers, partially offset by a 10% decrease in realized prices. The higher shipments were primarily due to the aforementioned increase in demand and the inclusion of results for two quarters in fiscal 2011. The decrease in realized prices for both periods was primarily due to the sale of certain lower quality coal at reduced spot prices resulting from mining lower quality seams at the Gauley Eagle surface mine.
Total production increased by 72% and 208% in the three and six month periods ended September 30, 2010, respectively, due to operational efficiencies, improved processing yields and the favourable impact of the Company's program to increase equipment capacity. In addition, the six month period ended September 30, 2010 included the results of two quarters.
Cost of goods sold per tonne for the three and six month periods ended September 30, 2010 were lower than the corresponding 2009 periods as a result of improved production rates and operating efficiencies.
UK Operations
Three Three Six Six
In thousands of months months months months
Canadian dollars ended ended ended ended
unless otherwise September September September September
noted 30, 2010 30, 2009 30, 2010 30, 2009
-------------------------------------------------------------------------
Financial Highlights:
Revenues $ 4,774 $ 3,044 $ 8,904 $ 3,044
Cost of goods sold 4,720 2,781 8,378 2,781
-------------------------------------------------------------------------
Income from mining
operations 54 $ 263 $ 526 $ 263
Production (tonnes) 28,000 29,000 62,000 29,000
Sales (tonnes) 31,000 31,000 66,000 31,000
Per sales tonne:
Coal price realized $ 154 $ 98 $ 135 $ 98
Coal price pnds pnds pnds pnds
realized (pnds stlg) stlg 98 stlg 55 stlg 86 stlg 55
Cost of goods sold $ 152 $ 90 $ 127 $ 90
-------------------------------------------------------------------------
On July 13, 2009, the Company acquired a controlling interest in its UK operations, of which the primary operation is the Aberpergwm underground mine. On August 9, 2010 the Company acquired the remaining 45.3% interest in Energybuild that it did not previously own. The UK operations are included in the Company's results from July 14, 2009.
Revenues for the three month period ended September 30, 2010 increased by 57% compared to the corresponding 2009 period reflecting significantly higher realized prices. Revenues for the six month period ended September 30, 2010 increased by 193% compared to the corresponding 2009 period which was due to significantly higher realized prices. In addition, the six month period ended September 2009 included the results of the UK operations from July 14, 2009.
Cost of goods sold per tonne for the three and six month periods ended September 30, 2010 were higher than the corresponding 2009 periods primarily due to increased costs from the underground mine. The underground mine is still in the expansion phase and its production cost is expected to fluctuate depending on tonnes produced during each phase of development. The current reported unit cost is not reflective of the expected long-term cost of the operation.
Other expenses
Other expenses for the three and six months ended September 30, 2010 include the following:
Three Three Six Six
In thousands of months months months months
Canadian dollars ended ended ended ended
unless otherwise September September September September
noted 30, 2010 30, 2009 30, 2010 30, 2009
-------------------------------------------------------------------------
General and
administration $ 14,022 $ 7,463 $ 25,786 $ 11,888
Sales and marketing 4,434 3,128 9,352 4,250
Coal exploration 1,153 1,057 3,434 2,360
Interest, accretion and
financing fees 1,066 3,603 3,470 6,245
Loss (gain) on forward
exchange contracts (9,967) (14,571) 6,395 (21,270)
Other expense (income) 1,915 7,178 (1,506) 14,386
-------------------------------------------------------------------------
Total other expenses $ 12,623 $ 7,858 $ 46,931 $ 17,859
-------------------------------------------------------------------------
General and Administration
For the three month period ended September 30, 2010, general and administration expenses increased $6,559,000, or 88%, over the corresponding 2009 period. The increase was primarily due to the growth of the Company's operations, which contributed to higher stock-based compensation, reflecting the granting of stock options to new employees, and higher recruiting, legal and audit, and consulting expenses. Recruiting expenses increased due to the strengthening of the senior leadership team, renewal of the Board of Directors and the continued building of competence in the Company's core mining and engineering functional areas. This recruitment was primarily focused on building and developing the workforce in both the Canadian and UK operations. During this period, the Company recruited 160 employees as part of this ongoing exercise. Higher legal and audit and consulting expenses reflected the defence of the potential class action, preparation for the intended migration to the main market of the London Stock Exchange, group restructuring, fees associated with the new US$125 million credit facility and other strategic initiatives.
For the six month period ended September 30, 2010, general and administration expenses increased $13,898,000, or 117%, over the corresponding 2009 period. The increase reflects the related expenses of the Cambrian group that was acquired in July 2009 as well as higher salaries, benefits and other remuneration, stock-based compensation, legal and audit, consulting and recruiting expenses. The increase in salaries, benefits and other remuneration was due to higher annual incentive plan payments, severance payments due to restructuring activities and an increase in corporate and operational staff to support the Company's growth objective. Stock-based compensation, recruiting, legal and audit, and consulting expenses increased for the reasons discussed above.
Sales and Marketing
For the three and six month periods ended September 30, 2009, sales and marketing expenses increased $1,306,000, or 42%, and $5,102,000, or 120%, respectively, over the corresponding 2009 periods. These increases were principally attributable to higher sales volumes and prices.
Coal Exploration
Coal exploration includes property development expenditures, field programs, consultants, coal licenses and leases, engineering, environmental matters and other project administration. Exploration costs are charged to income in the quarter in which they are incurred, except where these costs related to specific properties for which economically recoverable reserves have been established, in which case they are capitalized. Also included are the carrying costs of the Willow Creek mine prior to its reopening on June 4, 2010.
Coal exploration for the three month period ended September 30, 2010 increased slightly to $1,153,000 from $1,057,000 in the corresponding 2009 period. For the six month period ended September 30, 2010, these costs increased by $1,074,000 to $3,434,000 from $2,360,000 in the corresponding 2009 period. These increases reflect increased exploration and operating activities.
Interest, Accretion and Financing Fees
For the three month period ended September 30, 2010, interest, accretion and financing fees decreased $2,537,000 to $1,066,000 from $3,603,000 in the corresponding 2009 period. For the six month period ended September 30, 2010, interest, accretion and financing fees decreased $2,775,000 to $3,470,000 from $6,245,000. These decreases were due to the conversion into equity of the Company's convertible debentures in May 2010 and the repayment of certain long-term debt, resulting in lower debt levels, partially offset by interest on additional capital lease obligations relating to the purchase of equipment.
Loss (Gain) on Forward Exchange Contracts
The Company has operations in Canada, the US and UK, and therefore foreign exchange risk exposures arise from transactions denominated in foreign currencies. All sales revenues for the Canadian operations are denominated in US dollars, while the majority of costs are denominated in Canadian dollars. The Company may also become exposed to currency fluctuations on the purchase of certain equipment or facilities for its new and existing mines which could be denominated in US dollars. To minimize the exposure of foreign currency fluctuations on sales revenues from its Canadian operations, the Company from time to time enters into forward exchange contracts to fix the rate at which future anticipated flows of US dollars are exchanged for Canadian dollars.
For the three month period ended September 30, 2010, the Company recorded gains on its forward exchange contracts in the amount of $9,967,000 compared to gains of $14,571,000 for the corresponding 2009 period. For the six month period ended September 30, 2010, the Company recorded losses of $6,395,000 compared with gains of $21,270,000 in the corresponding 2009 period. The US dollar relative to the Canadian dollar exchange rate as of September 30, 2010 was 1.03 compared with 1.02 at March 31, 2010. The Company reversed an unrealized mark-to-market gain of $2,201,000 on its forward exchange contracts included in its results for the three month period ended March 31, 2010 and recorded an unrealized mark-to-market loss of $2,254,000 on outstanding forward exchange contracts as of September 30, 2010. Realized losses on forward exchange contracts in the three and six month periods ended September 30, 2010 were $812,000 and $1,940,000, respectively, compared with realized gains of $2,247,000 and $5,766,000 in the corresponding 2009 periods, respectively.
The Company maximizes the benefit and limits the actual losses on its forward exchange contracts by settling its US dollar forward contracts when they are "in the money" or when the forward selling price is in close proximity to the actual exchange rate for contracts that are "out of the money". During the second fiscal quarter of 2011, the value of the Canadian dollar relative to the US dollar fluctuated significantly in a range of 0.99 to 1.07. The average exchange rate for the quarter was 1.03, which is consistent with the exchange rate of the Company's outstanding foreign exchange contracts.
Other Expense (Income)
Three Three Six Six
In thousands of months months months months
Canadian dollars ended ended ended ended
unless otherwise September September September September
noted 30, 2010 30, 2009 30, 2010 30, 2009
-------------------------------------------------------------------------
Net foreign exchange loss
(gain) $ 2,366 $ 13,353 $ (265) $ 22,086
Gain on redemption of
convertible debentures - (4,155) - (4,155)
Gain on fair value
adjustment of available-
for-sale investments and
derivatives (910) (74) (1,578) (74)
Interest expense (income) 439 (2,020) (82) (3,513)
Other expense 20 74 419 42
-------------------------------------------------------------------------
$ 1,915 $ 7,178 $ (1,506) $ 14,386
-------------------------------------------------------------------------
Net foreign exchange gains and losses principally reflect the impact of changes in the US dollar relative to the Canadian dollar on a quarter by quarter basis on US dollar denominated working capital. The net foreign exchange loss in the three month period ended September 30, 2010 primarily reflects the impact of the weakening of the US dollar relative to the Canadian dollar.
The gain on fair value adjustment of investments relates to the Company's marketable securities which were acquired on July 13, 2009 as part of the Cambrian acquisition.
Equity (Loss)
Equity losses of $6,054,000 and $8,724,000 for the three and six month periods ended September 30, 2010, respectively, reflect an estimate of the Company's share of the net loss of its investments accounted for under the equity method. The increase in the equity loss for both periods, compared to the corresponding 2009 periods, was primarily due to an estimated asset impairment charge recorded by one of the underlying investees. The Company is not obligated to finance its equity investments.
Income Tax Recovery (Expense)
Income tax expense for the three and six month period ended September 30, 2010 was $26,773,000, or 36.4%, and $40,606,000, or 37.0%, respectively, of pre-tax income, which is slightly higher than the combined federal and provincial Canadian statutory tax rate. The Company's tax rate for each reporting period depends largely on the nature of its income and the jurisdictions in which it is earned. In general, mining income is subject to additional taxes while interest, overhead costs and capital items are subject to lower rates of tax.
Liquidity and Capital Resources
The Company's financial position and liquidity continued to improve during the three month period ended September 30, 2010, primarily as a result of higher cash flows from operating activities. At September 30, 2010, the Company's cash balance was $116,674,000 and working capital was $155,011,000.
For the six month period ended September 30, 2010, the Company generated positive cash flow of $185,475,000 from sales of $423,887,000, up significantly from cash flow of $48,119,000 from sales of $183,335,000 in the corresponding 2009 period. Cash flows generated from future shipments will depend on volumes, settlement prices, exchange rates, the level of operating and transportation costs and other factors noted throughout this MD&A, including the items identified under "Risks and Uncertainties" in the Company's MD&A for the fiscal year ended March 31, 2010.
Positive cash flow from sales is a non-GAAP measure and is reconciled in the table below:
Six Six
In thousands of months months
Canadian dollars ended ended
unless otherwise September September
noted 30, 2010 30, 2009
-------------------------------------------------------------------------
Sales $ 423,887 $ 183,335
Operating expenses 238,412 135,216
-------------------------------------------------------------------------
Positive cash flow from sales $ 185,475 $ 48,119
-------------------------------------------------------------------------
Cash flow from operating activities, before net changes in non-cash working capital items, was $136,598,000 for the six month period ended September 30, 2010, up from $18,378,000 in the corresponding 2009 period. The significant increase is primarily the result of higher sales volumes and realized prices. Changes in non-cash working capital items for the six month period ended September 30, 2010 resulted in a use of cash of $61,344,000 compared with $10,533,000 in the corresponding 2009 period. This increase in non-cash working capital reflected higher revenues and the related impact on accounts receivable and equipment deposits.
Expenditures on mineral property, plant and equipment were $88,168,000 in the six month period ended September 30, 2010, up substantially from $3,417,000 in the prior fiscal year. This increase is primarily due to the introduction of larger and more efficient trucks and shovels to expand production at existing operations and for infrastructure to expand the Company's mines. These activities include restarting the Willow Creek mine and expanding the Brule mine at the Canadian operations as well as expanding the Maple underground mine at the US operations. The equipment additions to the fleet are part of a strategy of phasing out reliance on contractor fleets. Total capital expenditures in the six month period ended September 30, 2010, including equipment accruals and equipment financed by capital leases, were $156,882,000.
To support the Company's capital expenditure program and growth plan over the current year and future periods, the Company secured US$120,000,000 in capital leasing facilities and entered into a new syndicated two-year revolving term credit facility in the amount of US$125,000,000. These facilities together with the Company's cash of $116,674,000 and cash flow from operating activities are expected to be sufficient to fund its growth plans for the remainder of fiscal 2011.
During the six month period ended September 30, 2010, the Company made repayments on capital lease obligations of $9,040,000 and repayments of $3,297,000 on long-term debt, and received proceeds of $10,027,000 from the exercise of stock options and warrants.
On May 31, 2010, the Company completed its 7.5% convertible unsecured subordinated debenture redemption program. Other than debentures totaling $202,000, which were redeemed for cash, all of the debentures were converted into common shares.
On August 9, 2010, the Company acquired all the issued ordinary share capital of Energybuild Group Plc not already held by the Company. The Company accounted for this acquisition as an equity transaction. The purchase price of $38,051,000 was financed by the issuance of 8,551,578 common shares of the Company valued at $35,831,000, the issuance of 1,457,750 stock options and warrants valued at $685,000 and included transaction costs of $1,535,000.
The Company entered into agreements to purchase equipment for its Perry Creek, Brule and Willow Creek mines, with payments in the amount of $28,124,000 remaining, which are expected to all be delivered by the end of January 2011. Further capital commitments were made in the UK operations aggregating $1,978,000 as of September 30, 2010.
MD&A and Financial Statements
This news release is prepared as at November 10, 2010 and should be read in conjunction with the Managements' Discussion and Analysis and Financial Statements for the fiscal second quarter ended September 30, 2011 which have been posted on Western's website at www.westerncoal.com and on SEDAR at www.sedar.com under the Company's profile. This news release does not constitute a MD&A as contemplated by relevant securities rules.
Webcast/Conference Call
Western's senior management will host a conference call and webcast on Thursday November 11, 2010 at 9:00 am (Vancouver) to discuss financial and operating results for fiscal Q2 2011. Presentation slides will accompany the webcast and conference call and will be available at www.westerncoal.com/investors/financial_information.
To participate on the conference call, dial 1.888.231.8191 or 647.427.7450. A replay of the conference call will be available at 1.800.642.1687, passcode 21777408.
To listen to the live audio webcast, visit the Company's website at www.westerncoal.com/investors/financial_information.
About Western Coal
Western Coal is a producer of high quality metallurgical coal from three mines in northeast British Columbia (Canada), high quality metallurgical coal and compliant thermal coal from four mines located in West Virginia (USA), and high quality anthracite and metallurgical coal in South Wales (UK). Other interests owned include a 24% interest in Mandalay Resources Corporation (MND: TSX), 40% interest in Xtract Energy (XTR: AIM), and a 20% interest in NEMI Northern Energy & Mining (NNE.A: TSX). The Company is headquartered in Vancouver, BC, Canada, and trades on the AIM and TSX stock exchanges under the symbol "WTN". More information can be found at www.westerncoal.com
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 the Company's construction schedule or 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.
SOURCE Western Coal Corp.
WANT YOUR COMPANY'S NEWS FEATURED ON PRNEWSWIRE.COM?
Newsrooms &
Influencers
Digital Media
Outlets
Journalists
Opted In
Share this article