International Coal Group Reports Second Quarter 2010 Results

SCOTT DEPOT, W. Va., July 28 /PRNewswire-FirstCall/ --

Second Quarter Highlights:

• Net income increases by 142% over second quarter 2009, excluding non-routine transactions
• Operating margins increase by 26% compared to the same period last year
• Metallurgical shipments triple versus second quarter 2009  
• ICG ADDCAR delivers its first overseas highwall mining system to India

International Coal Group, Inc. (NYSE: ICO) today reported its results for the second quarter of 2010.

• Adjusted EBITDA was $44.8 million for the second quarter of 2010 compared to $52.2 million for the second quarter of 2009.  Second quarter 2010 Adjusted EBITDA was reduced by a $10.0 million charge due to a negotiated early termination of a thermal coal sales agreement.  This termination enables ICG to sell approximately 400,000 additional tons as premium high-volatile metallurgical coal at significantly higher prices during 2010 and 2011. Second quarter 2009 results included a $7.7 million gain related to the termination of a below-market coal supply agreement.  Exclusive of these items, Adjusted EBITDA would have been $54.8 million in the second quarter of 2010 and $44.5 million for the same period in 2009, a 23% increase.

• Net income was $4.5 million, or $0.02 per share on a diluted basis, for the second quarter of 2010 compared to net income of $10.4 million, or $0.07 per share on a diluted basis, for the second quarter of 2009. Net income for the second quarter of 2010 also included a $6.1 million pre-tax loss on extinguishment of debt related to the Company's capital restructuring.  Excluding the $10.0 million contract buyout and the $6.1 million loss on extinguishment of debt, pro forma net income in the second quarter of 2010 would have been $13.5 million, or $0.07 per share on a diluted basis.  Excluding the $7.7 million gain related to the 2009 contract termination, pro forma net income in the second quarter of 2009 would have been $5.6 million, or $0.04 per share on a diluted basis.

• Margin per ton sold increased 26% to $14.28 in the second quarter of 2010 compared to $11.32 for the same period last year, primarily due to higher price realization.

• Revenues increased to $300.4 million for the second quarter of 2010 compared to $277.8 million for the second quarter of 2009, primarily due to increased coal sales revenues.

"Our operating performance was solid throughout the second quarter," said Ben Hatfield, President and CEO of ICG.  "The improved margins, compared to the second quarter of 2009, were driven primarily by our moves to sell more metallurgical tons with higher pricing and our continued focus on effective cost control."

Hatfield continued, "We're seeing a steady improvement in thermal coal pricing, as utility coal inventories have fallen from record highs in November 2009 and are slowly approaching normalized levels.  Above-normal summer temperatures are expected to further reduce coal stockpiles and provide more support for thermal prices.  Although demand for metallurgical coal slowed in the second half of the quarter, we believe this plateau is temporary and not an indication of an extended change in the market outlook."

Six-Month Results

Revenues for the first six months of 2010 totaled $589.0 million compared to $582.8 million for the same period in 2009.  The Company reported Adjusted EBITDA of $91.7 million in the first six months of 2010 compared to $96.7 million in the first six months of 2009.  First-half Adjusted EBITDA was reduced in 2010 by a $10.0 million contract buyout and increased in 2009 by a $7.7 million contract termination gain.  Excluding these transactions, first-half Adjusted EBITDA would have been $101.7 million in 2010 and $89.0 million in 2009.

Net loss for the first half of 2010 was $4.4 million, or $0.02 per share on a diluted basis, versus net income of $14.1 million, or $0.09 per share on a diluted basis, for the same period a year ago. Excluding the $10.0 million contract buyout and the $28.1 million loss on the extinguishment of debt, pro forma net income in the first six months of 2010 would have been $19.7 million, or $0.10 per share on a diluted basis.  Excluding the $7.7 million gain related to the contract termination, pro forma net income in the first six months of 2009 would have been $9.3 million, or $0.06 per share on a diluted basis.

Sales, Production and Reserves

ICG sold 4.1 million tons of coal during the second quarter of 2010 compared to 4.2 million tons during the second quarter of 2009.  Production totaled 4.0 million tons in the second quarter of 2010 versus 4.2 million tons in the same period of 2009.  Metallurgical shipments of 622,000 tons represented a 421,000-ton increase over the second quarter of the prior year.

As of June 30, 2010, ICG controlled approximately 1.1 billion tons of coal reserves, located primarily in Illinois, Kentucky, West Virginia, Maryland and Virginia.  Additionally, the Company controlled approximately 431 million tons of non-reserve coal deposits, which may be classified as reserves in the future as additional drilling and geotechnical work is completed.

Operational and Other Updates

• Construction resumed in June at the Tygart No. 1 deep mine complex in Taylor County, West Virginia.  Initial production of high-volatile metallurgical and high-quality thermal coal is expected in late 2011 with longwall production scheduled to begin in early 2014.  At full output, the Tygart No. 1 mine is expected to produce 3.5 million tons per year.

• As previously discussed, during the second quarter of 2010, ICG reached a $10.0 million contract termination settlement with a utility customer.  This transaction allows the Company to market approximately 400,000 tons of coal as premium high-volatile metallurgical coal at significantly higher margins.  Approximately 80% of these tons have already been committed for sale at more favorable prices.

• ICG ADDCAR Systems completed the sale of a new highwall mining system to a customer in India.  This sale marks the first delivery of ADDCAR's unique highwall mining system outside of North America.  The system includes ADDCAR's latest steep-dip mining technologies.    

• In March and April 2010, in connection with tender offers and consent solicitations, the Company repurchased approximately $169.1 million aggregate principal amount of its 10.25% Senior Notes due 2014 and $114.5 million aggregate principal amount of its 9.0% Convertible Senior Notes due 2012 as part of a capital restructuring.  The Company incurred a $6.1 million loss related to these transactions in the second quarter of 2010.  In July 2010, the Company redeemed the remaining $5.9 million of the 10.25% Senior Notes at a redemption price of 105.125% of the principal amount, plus accrued and unpaid interest. The Company used cash on hand to fund the redemption.

• Various ICG mining operations received prestigious awards in May for outstanding safety performance during 2009 from the West Virginia State Council of the Joseph A. Holmes Association and District 3 of the Mine Safety and Health Administration (MSHA).  ICG's Wolf Run Mining operations received two Holmes and two MSHA awards; ICG Eastern operations received two Holmes awards; and Vindex Energy operations received one Holmes and one MSHA award. Additionally, ICG ADDCAR's Bridger HWM operation was recognized by the State of Wyoming for working all of 2009 without a lost-time accident.

Market Outlook and Committed Sales      

Despite the uncertain near-term global economic outlook, thermal coal fundamentals appear to be improving due to declining utility inventories and increasing electricity consumption.  The Company expects metallurgical coal pricing to strengthen going forward as the outlook for world steel demand continues to improve.

For 2010, committed and priced sales are approximately 16.2 million tons, or 97% of planned shipments, at an average price of $65.25 per ton, excluding freight and handling expenses.  The uncommitted tonnage for 2010 includes approximately 0.4 million tons that are expected to be marketed as metallurgical coal.  

For 2011, committed and priced sales are approximately 8.8 million tons, or 52.3% of planned shipments, at an average price of $61.37 per ton, excluding freight and handling expenses.  The uncommitted tonnage for 2011 includes approximately 2.3 million tons of metallurgical coal.

Liquidity and Debt

As of June 30, 2010, the Company had $205.3 million in cash and has $33.3 million in borrowing capacity available under its new credit agreement.

Debt outstanding as of June 30, 2010 totaled $365.3 million, net of a $36.3 million discount, consisting primarily of $115.0 million aggregate principal amount of newly issued 4.0% Convertible Senior Notes and $200.0 million aggregate principal amount of newly issued 9.125% Senior Secured Second-Priority Notes.

Outlook

The Company has updated its guidance to reflect modifications to its production mix and the global economic conditions affecting the coal market:

• For 2010, the Company expects to sell between 16.6 million and 16.8 million tons of coal, including 2.7 million to 2.8 million tons of metallurgical coal.  The average selling price is projected to be $66.25 to $67.25 per ton, with an average cost of $51.75 to $52.75 per ton, excluding selling, general and administrative expenses.  The Company expects coal production to be between 15.8 million and 16.0 million tons.

• Adjusted EBITDA, or earnings before deducting interest, income taxes, depreciation, depletion, amortization, loss on extinguishment of debt and noncontrolling interest, is expected to be in the range of $200 million to $220 million in 2010.

• The Company's expectation for average coal pricing by region for 2010 is as follows:

• The Company anticipates 2010 capital expenditures of between $105.0 million and $115.0 million.

For 2011, the Company expects to produce and sell between 16.5 million and 17.5 million tons of coal, including 3.1 million to 3.2 million tons of metallurgical coal.  The average selling price is projected to be $72.00 to $77.00 per ton.  

General Information

ICG is a leading producer of coal in Northern and Central Appalachia and the Illinois Basin.  The Company has 13 active mining complexes, of which 12 are located in Northern and Central Appalachia and one in Central Illinois.  ICG's mining operations and reserves are strategically located to serve utility, metallurgical and industrial customers domestically and internationally.

Forward-Looking Statements

• Statements in this press release that are not historical facts are forward-looking statements within the "safe harbor" provision of the Private Securities Litigation Reform Act of 1995 and may involve a number of risks and uncertainties. We have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project" and similar terms and phrases, including references to assumptions, to identify forward-looking statements. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to various risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. The following factors are among those that may cause actual results to differ materially from our forward-looking statements: market demand for coal, electricity and steel; availability of qualified workers; future economic or capital market conditions; weather conditions or catastrophic weather-related damage; our production capabilities; consummation of financing, acquisition or disposition transactions and the effect thereof on our business; a significant number of conversions of our convertible senior notes prior to maturity; our plans and objectives for future operations and expansion or consolidation; our relationships with, and other conditions affecting, our customers; availability and costs of key supplies or commodities, such as diesel fuel, steel, explosives and tires; availability and costs of capital equipment; prices of fuels which compete with or impact coal usage, such as oil and natural gas; timing of reductions or increases in customer coal inventories; long-term coal supply arrangements; reductions and/or deferrals of purchases by major customers; risks in or related to coal mining operations, including risks related to third-party suppliers and carriers operating at our mines or complexes; unexpected maintenance and equipment failure; adoption by Appalachian states of EPA guidance regarding stringent water quality-based limitations in CWA Section 402 wastewater discharge permits and CWA Section 404 dredge and fill permits; environmental, safety and other laws and regulations, including those directly affecting our coal mining and production, and those affecting our customers' coal usage; ability to obtain and maintain all necessary governmental permits and authorizations; competition among coal and other energy producers in the United States and internationally; railroad, barge, trucking and other transportation availability, performance and costs; employee benefits costs and labor relations issues; replacement of our reserves; our assumptions concerning economically recoverable coal reserve estimates; availability and costs of credit, surety bonds and letters of credit; title defects or loss of leasehold interests in our properties which could result in unanticipated costs or inability to mine these properties; the impact of the mine explosion at a competitor's mine on federal and state authorities' decisions to enact laws and regulations that result in more frequent mine inspections, stricter enforcement practices and enhanced reporting requirements; future legislation and changes in regulations or governmental policies or changes in interpretations or enforcement thereof, including with respect to safety enhancements and environmental initiatives relating to global warming or climate change; impairment of the value of our long-lived and deferred tax assets; our liquidity, including our ability to adhere to financial covenants related to our borrowing arrangements; adequacy and sufficiency of our internal controls; and legal and administrative proceedings, settlements, investigations and claims, including those related to citations and orders issued by regulatory authorities, and the availability of related insurance coverage.

• You should keep in mind that any forward-looking statement made by us in this press release or elsewhere speaks only as of the date on which the statements were made. See also the "Risk Factors" in our 2009 Annual Report on Form 10-K and subsequent filings with the Securities and Exchange Commission, all of which are currently available on our website at www.intlcoal.com. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us or our anticipated results. We have no duty to, and do not intend to, update or revise the forward-looking statements in this press release, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this press release might not occur.

SOURCE International Coal Group, Inc.