Oxford Resource Partners, LP Reports Fourth Quarter and Full Year 2010 Financial Results

COLUMBUS, Ohio, Feb. 24, 2011 /PRNewswire/ -- Oxford Resource Partners, LP (NYSE: OXF) (the "Partnership" or "Oxford") today announced results for the fourth quarter and full year 2010.  Net loss for the fourth quarter of 2010 was $1.6 million, or $0.05 per diluted limited partner unit, compared to net income for the fourth quarter of 2009 of $0.9 million, or $0.02 per diluted limited partner unit.  Adjusted EBITDA, a non-GAAP financial measure, was $14.4 million for the fourth quarter of 2010, up 10.8% from $13.0 million for the fourth quarter of 2009.  Fourth quarter 2009 results included a temporary price increase that positively impacted net income and adjusted EBITDA by $3.0 million in that quarter.  

For the year ended December 31, 2010, coal production increased 28.3% to 7.4 million tons from 5.8 million tons in 2009. The Partnership's tons sold increased 29.2% to 8.2 million tons in 2010 from 6.3 million tons in 2009.  During 2010, 96% of tons sold were sold under long-term coal sales contracts. Total revenue for the year ended December 31, 2010 was $356.6 million compared to $293.8 million for 2009.  The full year 2010 net loss was $7.4 million, or $0.45 per diluted limited partner unit, compared to the full year 2009 net income of $23.5 million, or $2.08 per diluted limited partner unit.  Net income in 2009 was positively impacted by a temporary price increase and gain on acquisition of $13.3 million and $3.8 million, respectively. The 2010 net loss included higher depreciation, depletion and amortization (DD&A) of $16.4 million, primarily due to the full year impact on DD&A of the Partnership's 2009 acquisition of Phoenix Coal's active Illinois Basin surface mining assets in western Kentucky and the partial year impact on DD&A from the Partnership's purchase of previously leased and additional major mining equipment using proceeds from the Partnership's initial public offering and borrowings under the Partnership's credit facility.

Adjusted EBITDA for 2010 was $51.6 million versus $57.0 million for 2009.  Adjusted EBITDA in 2009 was positively impacted by the aforementioned $13.3 million temporary price increase.  

Distributable cash flow, a non-GAAP financial measure, was $8.5 million for the last two quarters of 2010 during which Oxford was a publicly-traded partnership.  Of the $8.5 million in distributable cash flow, $5.2 million was attributable to the fourth quarter of 2010.  

Definitions of adjusted EBITDA and distributable cash flow, which are non-GAAP financial measures referred to in the preceding four paragraphs of this press release, and reconciliations to comparable GAAP financial measures, are included in the non-GAAP financial measures tables presented at the end of this press release.  Adjusted EBITDA and distributable cash flow have been recalculated and/or redefined with resulting adjustments to previously-reported amounts, as shown in the non-GAAP financial measures tables presented at the end of this press release.

President and Chief Executive Officer Charles C. Ungurean commented, "The 2010 year was a momentous one as we became a publicly-traded partnership and integrated our Illinois Basin assets while maintaining strong operational execution and excellent mine safety.  I am extremely pleased with our full year and fourth quarter 2010 results, which were achieved while dealing with a number of unexpected challenges."

Ungurean continued, "Looking ahead, we believe the domestic steam coal market dynamics will continue to be strong as electricity consumption is projected to increase while utility coal stockpiles continue to deplete.  Meanwhile, production volumes remain challenged in certain coal producing regions, particularly in Central Appalachia.  Coal from our production regions - Northern Appalachia and the Illinois Basin - should benefit from the supply pressures faced in the Central Appalachia region.  In addition, the export markets remain very solid, which will further reduce domestic supply.  We believe we are well positioned to benefit from these dynamics given our foothold in Northern Appalachia and the Illinois Basin.  During 2010, we increased coal sales by 29% year-over-year and anticipate continued growth in sales and production in 2011 with a higher average sales price while maintaining our cost structure thereby realizing additional margin growth."

During 2010, the Partnership executed over $250 million in long-term coal sales contracts primarily having an effect beginning in 2012.  These contracts, the majority of which were related to the Illinois Basin operations, were executed at prices significantly higher than current levels.  For 2011, 2012, 2013 and 2014, the Partnership currently has long-term coal sales contracts in place that represent 100%, 78%, 52% and 47%, respectively, of the Partnership's estimated 2011 coal sales of 9.1 million tons.

Update on Temporary Factors Impacting Second Half 2010 Performance

The second half 2010 net loss, adjusted EBITDA and distributable cash flow were negatively impacted by $6.6 million, $4.3 million and $2.3 million, respectively, in the third and fourth quarters of 2010 together, as more fully described below.  

• In the Illinois Basin, the unexpected delay in the receipt of the Partnership's Rose France mine 404 permit adversely impacted production by 36,000 tons in the third quarter and 64,000 tons in the fourth quarter.  This delay increased operating costs by approximately $0.5 million in the third quarter and $0.7 million in the fourth quarter, or $0.24 and $0.37 per ton, respectively.
  • Production is currently ramping up and the Partnership expects to achieve full production at this mine by the end of the first quarter of 2011.
• In Northern Appalachia, geologic conditions at the Partnership's Plainfield complex and higher strip ratios (the ratio of removed earth overburden to extracted coal) at certain of the Partnership's other Ohio mining complexes increased operating costs by approximately $1.3 million in the third quarter and $1.6 million in the fourth quarter, or $0.68 and $0.85 per ton, respectively.
  • The Partnership implemented a plan to resolve these issues and eliminate the impact to future quarters.  To compensate for the resulting reduced production at its Plainfield complex, Oxford took the necessary steps to replace lost future production by relocating some equipment and personnel from its Plainfield complex to other Oxford mining complexes (including the Belmont County complex for which Oxford also took the related step of acquiring additional permitted reserves), thereby positioning Oxford to increase its production at those other mining complexes.
• Higher repair and maintenance expenses increased operating costs by approximately $1.9 million in the third quarter due to timing differences.
  • Repair and maintenance expenses were back in line with historical levels in the fourth quarter.
• A temporary reduction in royalty payments on the Partnership's underground reserves leased to a third party reduced royalty and non-coal revenue by approximately $0.6 million in the third quarter.
  • Mining activity resumed on the Partnership's royalty-generating property in late September, resulting in the normal level of royalty payments being received in the fourth quarter.  

Production and Sales Information Summary

A summary of certain production and sales information providing year-over-year comparisons for the full year and fourth quarter 2010 and 2009 and comparisons for the fourth quarter over the third quarter 2010 is presented in the table set forth below.

Three Months Ended December 31, 2010

Coal Production.  Tons of coal produced increased 5.2% to 1.9 million tons in the fourth quarter of 2010 from 1.8 million tons in the fourth quarter of 2009.  This increase was primarily due to a 4.0% increase in production from the Ohio mining complexes in Northern Appalachia ("NAPP") and a 9.1% increase in production from the Muhlenberg County complex in the Illinois Basin ("ILB").  As noted previously, fourth quarter 2010 production was negatively impacted by the delayed start-up of the Rose France mine and adverse geologic conditions at the Plainfield complex.

Sales Volume.  The Partnership sold 2.0 million tons in each of the fourth quarters of 2010 and 2009, and also sold 2.0 million tons in the third quarter of 2010.  

Average Sales Price.  Average sales price per ton increased 1.5% to $38.66 in the fourth quarter of 2010 from $38.10 in the fourth quarter of 2009.  Adjusted for a 2009 temporary price increase from a customer, the increase in average sales price per ton for the fourth quarter 2010 would have been 5.5% year-over-year.  The increase from the prior year's fourth quarter was attributable to higher-priced committed sales for both NAPP and ILB operations.  Average sales price per ton in the fourth quarter of 2010 was slightly higher than the third quarter of 2010.  

Coal Sales Revenue.  For the fourth quarter of 2010, coal sales revenue increased by $0.6 million, or 0.8%, to $78.1 million from $77.5 million for the fourth quarter of 2009 due to a higher average sales price.  Compared to the third quarter of 2010, fourth quarter 2010 coal sales revenue was at the same level.

Royalty and Non-Coal Revenue.  For the fourth quarter of 2010, royalty and non-coal revenue was equal to the fourth quarter of 2009. Compared to the third quarter of 2010, royalty and non-coal revenue for the fourth quarter of 2010 increased $0.3 million, or 23.5%, from $1.3 million due primarily to mining activity resuming on the Partnership's royalty-generating property as previously discussed, partially offset by lower non-coal revenues due to a retroactive adjustment to limestone sales included in the third quarter of 2010 non-coal revenue.  

Cost of Coal Sales (Excluding DD&A). Cost of coal sales (excluding DD&A) increased 5.3% to $57.8 million in the fourth quarter of 2010 from $54.9 million in the fourth quarter of 2009 due primarily to higher production volumes.  Excluding the unfavorable impact of the temporary factors related to Rose France and Plainfield discussed previously, cost of coal sales per ton for the fourth quarter of 2010 would have totaled $29.16 per ton, or 3.9% lower than the $30.35 per ton for the fourth quarter of 2009. This reduction in cost per ton was primarily due to cost improvements at the Muhlenberg County complex in the ILB.  Cost of coal sales per ton increased 1.1% from $30.04 in the third quarter of 2010 to $30.38 in the fourth quarter of 2010.  This increase was primarily due to a shift in production mix in the fourth quarter as compared to the third quarter of 2010.

Cost of Purchased Coal.  Cost of purchased coal declined to $3.4 million in the fourth quarter of 2010 from $7.2 million in the fourth quarter of 2009 and $3.8 million in the third quarter of 2010, due to both a lower average cost of purchased coal per ton and a lower volume of coal purchased.  Average cost of purchased coal per ton decreased by 9.3% to $29.15 per ton in the fourth quarter of 2010 compared to the fourth quarter of 2009 due to a significant portion of purchases in the fourth quarter of 2010 being supplied under a favorably-priced long-term coal purchase contract assumed in the acquisition of ILB assets compared to a high percentage of purchases in the fourth quarter of 2009 through higher-priced spot market purchases.  Average cost of purchased coal per ton in the fourth quarter of 2010 declined 6.3% from $31.10 in the third quarter of 2010 due to a greater amount of purchases being supplied under the favorably-priced long-term coal purchase contract and a lower volume of higher-priced spot market purchases.

Depreciation, Depletion and Amortization (DD&A).  DD&A expense in the fourth quarter of 2010 was $11.7 million compared to $8.6 million in the fourth quarter of 2009, an increase of $3.1 million.  This increase resulted primarily from an increase in depreciation due to the Partnership's 2010 purchase of previously leased and additional major mining equipment using proceeds from the Partnership's initial public offering and borrowings under the Partnership's credit facility.  DD&A expense in the fourth quarter of 2010 declined to $11.7 million from $12.3 million in the third quarter of 2010.

Selling, General and Administrative Expenses (SG&A).  SG&A expenses in the fourth quarter of 2010 were $4.3 million compared to $3.9 million in the fourth quarter of 2009, primarily due to expenses related to being a publicly-traded partnership.  SG&A expenses in the fourth quarter of 2010 increased $0.3 million from the third quarter of 2010 primarily due to additional publicly-traded partnership expenses and additional administrative expenses for supporting the Muhlenberg County complex in the ILB.

Recent Developments

Oxford has reached an agreement in principle with an existing customer for the sale and delivery of approximately 400,000 additional tons of coal in 2012 and 600,000 additional tons of coal in 2013.  Based on the agreement in principle, the Partnership will receive a base price increase over its current pricing with the customer along with standard fuel and other price escalators.  A definitive agreement documenting such agreement in principle has not yet been negotiated and executed, and there is no certainty that the Partnership will be able to successfully complete the negotiation and execution of such definitive agreement.

Subsequent Event

On January 21, 2011, the Partnership declared a cash distribution of $0.4375 per unit for the quarter ended December 31, 2010.  The distribution was paid on February 14, 2011 to all unitholders of record as of the close of business on February 1, 2011.

2011 Outlook

President and Chief Executive Officer Charles C. Ungurean commented, "We believe our performance in 2011 will be driven by our fully contracted sales book and record volume along with cost efficiencies realized from the investments we made in 2010.  We believe our cost per ton will be in-line in 2011 as compared to 2010, primarily from cost improvements in our Illinois Basin operations, offset by low single-digit cost inflation.  With our expected average sales price increasing at least 5% and up to 7% from the 2010 level, we believe we will be able to achieve growth in our revenue, net income, adjusted EBITDA and distributable cash flow in 2011.  We are excited about the future of the coal markets and for Oxford, and we expect to fully cover our distribution in 2011.  And with our committed sales portfolio, we believe we are poised to provide growth in distributions to unitholders in subsequent years."

The below table sets forth the Partnership's outlook for 2011 performance.

Conference Call

Oxford will host a conference call at 10:00 a.m. Eastern Time today to review its financial results for the fourth quarter and full year 2010.  To participate in the call, dial (866) 356-4281 or (617) 597-5395 for international callers and provide the passcode 11965302. The call will also be webcast live on the Internet in the Investor Relations section of Oxford's website at www.OxfordResources.com.

An audio replay of the conference call will be available for seven days beginning at 1:00 p.m. Eastern Time on February 24, 2011 and can be accessed at (888) 286-8010 or (617) 801-6888 for international callers.  The replay passcode is 80949258.  The webcast will also be archived on the Partnership's website at www.OxfordResources.com for 30 days following the call.

About Oxford Resource Partners, LP

Oxford Resource Partners, LP is a low cost producer of high value steam coal in Northern Appalachia and the Illinois Basin.  Oxford markets its coal primarily to large electric utilities with coal-fired, base-load scrubbed power plants under long-term coal sales contracts.  As of December 31, 2010, Oxford controlled 93.5 million tons of proven and probable coal reserves, and it currently operates 18 active mines that are managed as eight mining complexes.  The Partnership is headquartered in Columbus, Ohio.

For more information about Oxford Resource Partners, LP (NYSE: OXF), please visit www.OxfordResources.com.  Financial and other information about us is routinely posted on and accessible at www.OxfordResources.com.

This announcement is intended to be a qualified notice under Treasury Regulation Section 1.1446-4(b), with 100% of Oxford's distributions to foreign investors attributable to income that is effectively connected with a United States trade or business.  Accordingly, Oxford's distributions to foreign investors are subject to federal income tax withholding at the highest applicable tax rate.

FORWARD-LOOKING STATEMENTS: Except for historical information, statements made in this press release are "forward-looking statements."  All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the Partnership expects, believes or anticipates will or may occur in the future are forward-looking statements, including the statements and information included under the heading "2011 Outlook."  These statements are based on certain assumptions made by the Partnership based on its management's experience and perception of historical trends, current conditions, expected future developments and other factors the Partnership's management believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the Partnership's control, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements.  These risks, uncertainties and contingencies include, but are not limited to, the following: productivity levels, margins earned and the level of operating costs; weakness in global economic conditions or in customers' industries; changes in governmental regulation of the mining industry or the electric power industry and the increased costs of complying with those changes; decreases in demand for electricity and changes in coal consumption patterns of U.S. electric power generators; the Partnership's dependence on a limited number of customers; the Partnership's inability to enter into new long-term coal sales contracts at attractive prices and the renewal and other risks associated with the Partnership's existing long-term coal sales contracts, including risks related to adjustments to price, volume or other terms of those contracts; difficulties in collecting the Partnership's receivables because of credit or financial problems of major customers, and customer bankruptcies, cancellations or breaches to existing contracts, or other failures to perform; the Partnership's ability to acquire additional coal reserves; the Partnership's ability to respond to increased competition within the coal industry; fluctuations in coal demand, prices and availability due to labor and transportation costs and disruptions, equipment availability or governmental regulations; significant costs imposed on the Partnership's mining operations by extensive environmental laws and regulations, and greater than expected environmental regulation, costs and liabilities; legislation, regulatory and related court decisions and interpretations including issues related to climate change and miner health and safety; a variety of operational, geologic, permitting, labor and weather-related factors; limitations in the cash distributions the Partnership receives from Harrison Resources, LLC, and the ability of Harrison Resources, LLC to acquire additional reserves on economical terms from Consolidation Coal Company in the future; the potential for inaccuracies in estimates of the Partnership's coal reserves; the accuracy of the assumptions underlying the Partnership's reclamation and mine closure obligations; liquidity constraints; risks associated with major mine-related accidents; results of litigation; the Partnership's ability to attract and retain key management personnel; greater than expected shortage of skilled labor; the Partnership's ability to maintain satisfactory relations with employees; and failure to obtain, maintain or renew security arrangements.  The Partnership undertakes no obligation to publicly update or revise any forward-looking statements. Further information on risks and uncertainties is available in the Partnership's filings with the U.S. Securities and Exchange Commission, which are incorporated by reference.

SOURCE Oxford Resource Partners, LP