International Coal Group Reports Third Quarter 2010 Results

SCOTT DEPOT, W.Va., Oct. 27 /PRNewswire-FirstCall/ --

Third Quarter Highlights:

• Adjusted EBITDA increases by 63% over third quarter 2009, excluding non-routine transactions
• Per ton operating margins increase by 63% compared to the same period last year
• Metallurgical shipments up 127% over third quarter 2009  
• Long-term debt reduced significantly through repurchase of notes

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

• Adjusted EBITDA was $61.6 million for the third quarter of 2010 compared to $64.7 million for the third quarter of 2009. Third quarter 2009 results, however, included a $27.0 million payment received for the early termination of two related coal supply agreements and lost margin on pre-termination shipments. Exclusive of this payment, Adjusted EBITDA would have been $37.7 million for the third quarter of 2009.

• Net income was $24.9 million, or $0.12 per share on a diluted basis, for the third quarter of 2010 compared to net income of $18.7 million, or $0.12 per share on a diluted basis, for the third quarter of 2009. Net income for the third quarter of 2010 included a $0.9 million pre-tax loss on extinguishment of debt related to repurchases of 10.25% Senior Notes and 9% Convertible Senior Notes as part of the Company's recapitalization efforts. Excluding the loss on extinguishment of debt, adjusted net income for the third quarter of 2010 would have been $25.3 million, or $0.12 per share on a diluted basis. Excluding the $27.0 million payment received for the aforementioned contract termination last year, adjusted net income for the third quarter of 2009 would have been $1.9 million, or $0.01 per share on a diluted basis.

• Margin per ton sold increased 63% to $15.30 in the third quarter of 2010 compared to $9.36 for the same period last year, primarily due to higher price realization from growing metallurgical shipments.

• Coal sales revenues increased to $293.6 million for the third quarter of 2010 compared to $246.8 million for the third quarter of 2009.

"Robust metallurgical coal deliveries and solid thermal shipments led to our strong third-quarter performance," said Ben Hatfield, President and CEO of ICG. "Despite cost pressures resulting from proactive regulatory compliance-improvement efforts and heightened enforcement, we still improved our margins compared to prior periods. Investment in safety and compliance improvement initiatives is not only the right thing to do, it is essential for the financial health of our business."

Hatfield continued, "Pricing in the metallurgical market was firm during the quarter, and we are pleased with recent progress on our contracting efforts for 2011. Since our last earnings release, we have committed 1.3 million tons of metallurgical coal at an average price of $150.00 per ton. In the thermal market, prices and spot demand rebounded sharply during July and August. Despite a pull-back in September, we were successful in committing 1.5 million tons of thermal coal at an average price of $70.00 per ton since our last report. We remain encouraged that utility inventory levels have dropped substantially, but our outlook is somewhat tempered due to sizeable natural gas inventories and low natural gas prices."  

Nine-Month Results

Coal sales revenues for the first nine months of 2010 totaled $834.8 million compared to $775.3 million for the same period of 2009. The Company reported Adjusted EBITDA of $153.3 million for the first nine months of 2010 compared to $161.4 million for the first nine months of 2009. However, Adjusted EBITDA was reduced in 2010 by a $10.0 million contract buyout, but increased in 2009 by a $27.0 million payment received for early termination of coal supply agreements and lost margin on pre-termination shipments and a $7.7 million gain on the termination of a below-market contract. Excluding these transactions, Adjusted EBITDA would have been $163.3 million for 2010 and $126.7 million for 2009, respectively.

Net income for the first nine months of 2010 was $20.5 million, or $0.10 per share on a diluted basis, versus net income of $32.8 million, or $0.21 per share on a diluted basis, for the same period a year ago. Excluding the $10.0 million contract buyout and $29.0 million of loss on extinguishment of debt, adjusted net income for the first nine months of 2010 would have been $45.1 million, or $0.23 per share on a diluted basis. Excluding the $27.0 million payment for early termination of coal supply agreements and lost margin on pre-termination shipments and the $7.7 million gain related to the contract termination, adjusted net income for the first nine months of 2009 would have been $11.2 million, or $0.07 per share on a diluted basis.

Sales, Production and Reserves

ICG sold 4.4 million tons of coal during the third quarter of 2010 compared to 4.1 million tons during the third quarter of 2009. Production totaled 4.0 million tons for the third quarter of 2010 versus 3.9 million tons for the same period of 2009. Metallurgical shipments of 621,000 tons represented a 127% increase over the third quarter of the prior year.

As of September 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 433 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

• Site development at ICG Tygart Valley's #1 mine complex continued on pace in the third quarter and is expected to be completed by year-end. Construction of the slope is expected to commence in early November and work on the shafts is expected to begin in December 2010.

• In October 2010, ICG Beckley was presented with the Office of Surface Mining Reclamation and Enforcement Gold Good Neighbor Award for Excellence in Surface Coal Mining for outstanding active mine reclamation and community involvement. The award recognizes companies for successfully working with surrounding landowners and the community while completing mining and reclamation projects.    

• Initial production commenced at Vindex Energy's Bismarck deep mine in September 2010. The Company anticipates that the mine will contribute approximately 180,000 tons of low-volatile metallurgical coal sales in 2011, and achieve the targeted run-rate of 250,000 annual tons by the fourth quarter of 2011.

• During the third quarter and early fourth quarter of 2010, the Company substantially completed its capital restructuring which began late in 2009. In July 2010, the Company repurchased $5.9 million aggregate principal amount of its 10.25% Senior Notes due 2014 and, in September 2010, repurchased $14.0 million aggregate principal amount of its 9.0% Convertible Senior Notes due 2012. The Company incurred a $0.9 million loss related to these transactions in the third quarter of 2010. In October 2010, the Company redeemed an additional $10.3 million aggregate principal amount of its 9.0% Convertible Senior Notes, incurring a $0.3 million loss that will be recognized in the fourth quarter of 2010. The Company used cash on hand to fund all of these transactions.

Market Outlook and Committed Sales      

Current market conditions remain mixed: while the metallurgical segment is stable with prices steadily improving, near-term thermal demand is relatively soft due to utility coal burn displacement by cheap natural gas and reduced weather-related demand. The Company anticipates that thermal coal prices will rise in 2011 due to production constraints and an improving economic outlook, and that rising global steel demand will continue to strengthen pricing on premium metallurgical coal.

For 2010, committed and priced sales are approximately 16.6 million tons, or 99% of planned shipments, at an average price of $65.75 per ton, excluding freight and handling expenses. The uncommitted tonnage for 2010 includes approximately 0.1 million tons that are expected to be marketed as metallurgical coal.

For 2011, committed and priced sales are approximately 11.6 million tons, or 71% of planned shipments, at an average price of $71.50 per ton, excluding freight and handling expenses. The uncommitted tonnage for 2011 includes 1.1 million to 1.3 million tons of metallurgical coal.

Liquidity and Debt

As of September 30, 2010, the Company had $213.2 million in cash and $22.5 million in borrowing capacity available under its credit agreement.

Debt outstanding as of September 30, 2010 totaled $341.1 million, net of a $34.6 million discount, consisting primarily of $115.0 million aggregate principal amount of 4.0% Convertible Senior Notes and $200.0 million aggregate principal amount of 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 16.7 million and 16.8 million tons of coal, including 2.4 million to 2.5 million tons of metallurgical coal. The average selling price is projected to be $65.75 per ton to $66.25 per ton, with an average cost of $52.25 to $52.75 per ton, excluding selling, general and administrative expenses. The Company expects coal production to be between 15.6 million and 15.7 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 $210 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 $110 million and $115 million.

• For 2011, the Company expects to produce and sell between 16.0 million and 17.0 million tons of coal, including 3.0 million to 3.4 million tons of metallurgical coal. The average selling price is projected to be $71.00 to $76.00 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 and 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.