TIDMWTN
RNS Number : 0921B
Western Coal Corporation
11 February 2011
Immediate Release 11 February 2011
Western Coal Corp
Western Coal Announces Fiscal Q3-2011 Results
The Q3 results for Western Coal Corp, released today (11th
February 2011) at 0700GMT under RNS number 0739B, has be
re-released to facilitate onward transmission by third party
vendors. The announcement is unchanged and reproduced below in
full.
Vancouver, BC, February 11, 2011 - Western Coal Corp. (TSX: WTN,
WTN.WT and AIM: WTN) (the "Company" or "Western") announces today
that its net income for the fiscal third quarter ended December 31,
2010 was $20.4 million, or $0.07 per share, basic. Revenue for the
period was $170.5 million.
"We continue to make great strides to achieve our fiscal 2011
production plan of 6.1 million tonnes by producing over 1.5 million
tonnes in the third quarter. This keeps us on target to achieve our
3-year strategy of producing 10 million tonnes by fiscal 2013,"
said Keith Calder, President and Chief Executive Officer. "We also
remain on track to close the merger of Western Coal and Walter
Energy on April 1, 2011 which will deliver immediate and long-term
value for our shareholders."
Proposed merger with Walter Energy, Inc.
On December 2, 2010, Western and Walter Energy, Inc. ("Walter
Energy") entered into an arrangement agreement (the "Agreement")
for Walter Energy to acquire all of the outstanding common shares
of Western for $11.50 per share in cash or 0.114 of a Walter Energy
share, or for a combination thereof, all subject to pro-ration. It
is anticipated that the proposed transaction will create the
world's leading, publicly traded, "pure-play" metallurgical coal
producer. Assuming the conditions noted below are met and the
merger is completed as proposed, this will be the final quarterly
disclosure for Western as a reporting company.
Completion of the proposed merger is conditional on approval by
Western shareholders and by the Supreme Court of British Columbia
and satisfaction of other customary conditions, including
regulatory and stock exchange approvals. Subject to the
satisfaction or waiver of all conditions precedent, it is currently
anticipated that the merger will be completed on or about April 1,
2011. A special meeting of the Western shareholders to consider the
proposed merger will be held on March 8, 2010 at 9:00 a.m. (Eastern
Time) in Toronto. Further information on the proposed merger can be
found in the management information circular which is available on
SEDAR (www.sedar.com) and the company's website
(www.westerncoal.com/walter energy news/).
Summary of Western's results for the third quarter of fiscal
2011
Western continued to deliver on its production growth strategy
in the third quarter of fiscal 2011. Revenue increased as a result
of higher coal shipments, which more than offset lower realized
coal prices compared with a year earlier. Western anticipates a
further increase in sales volume and, based on recently completed
price negotiations, significantly higher coal prices for the fourth
quarter of fiscal 2011 compared with a year earlier.
Net income declined in the third quarter of fiscal 2011 from a
year earlier, in part due to the Canadian dollar strengthening
against the U.S. dollar and weather-related operational delays at
Ridley Terminals in Prince Rupert, BC that shifted into the fourth
quarter of fiscal 2011 a significant volume of Canadian coal
shipments that would otherwise have been sold in the third
quarter.
Other factors contributing to the net income decline were
transitory or unusual in nature, including costs of the proposed
Walter Energy transaction, a one-time adjustment to port fees at
Ridley Terminals, special pricing circumstances that contributed to
the exceptional year-earlier results and Canadian production costs
in the third quarter of fiscal 2011 that were higher than
anticipated. With the completion of negotiations and related due
diligence for the proposed Walter Energy transaction, management is
refocusing on reducing production costs in the fourth quarter of
fiscal 2011 and beyond.
Q3 fiscal 2011 highlights, compared with Q3 fiscal 2010
-- Revenues of $170.5 million, up 44% from $118.7 million
-- Net income of $20.4 million, or $0.07 per share, down from
$24.0 million, or $0.10 per share
-- Transaction costs for the proposed merger of $8 million
versus nil
-- Cash cost of sales per tonne:
o Consolidated - $92, up 8% from $85
o Canada - $109 (includes $3 impact of port fee adjustment), up
14% from $96
o U.S. - $70, down 4% from $73
-- Coal production of 1.5 million tonnes, up 68% from 0.9
million tonnes
-- Consolidated average realized coal price of $140 per tonne,
down 5% from $148 per tonne
-- Capital expenditures of $74.1 million, up from $13.8
million
Year-to-date fiscal 2011 highlights, compared with year-to-date
fiscal 2010
-- Revenues of $594.4 million, up 97% from $302.0 million
-- Net income of $81.4 million, or $0.30 per share, up from
$29.6 million, or $0.13 per share
-- Transaction costs for the proposed merger of $8 million
versus nil
-- Cash cost of sales per tonne:
o Consolidated - $92, down 2% from $94
o Canada - $105 (includes $1 impact of port fee adjustment), up
2% from $103
o U.S. - $70, down 10% from $75
-- Coal production of 4.3 million tonnes, up 104% from 2.1
million tonnes
-- Consolidated average realized coal price of $156 per tonne,
up 11% from $141 per tonne
-- Capital expenditures of $162.3 million, up from $17.2
million
Other highlights and significant items in Q3 fiscal 2011:
-- Western is on track to realize its stated production target
of 6.1 million tonnes for fiscal 2011, which would be an increase
of 91% from fiscal 2010
-- During the third quarter, Western negotiated price increases
for the fourth quarter of fiscal 2011 compared with the prior year,
including the following (per tonne):
o Canadian hard coking US$221 to US$225, up 75% to 79% from
US$126
o Canadian LV-PCI US$180 to US$191, up 100% to 112% from
US$90
-- Settlements for delivery of U.S. coking coal in calendar 2011
were reached in the range of US$148 to US$150 per ton FOB barge, an
increase of approximately 50% over the previous year
-- Western substantially completed the Falling Creek Connector
Road between the Brule and Willow Creek mines. The road should
deliver significant coal hauling cost efficiencies for the Brule
mine beginning in the fourth quarter of fiscal 2011
-- The Willow Creek mine commenced commercial production on
January 1, 2011 as scheduled. Western anticipates receiving
requisite permits in the first half of fiscal 2012 to facilitate
expansion of Willow Creek production capacity up to 1.7 million
tonnes per annum from its currently permitted capacity of 0.9
million tonnes per annum
-- Western has secured a revised and extended agreement with
Ridley Terminals Inc. for the provision of terminal services. This
agreement is anticipated to provide sufficient throughput capacity
to enable achievement of growth targets for our Canadian
operations
Overview
Western's business is the exploration, development and
production of coal. Approximately 83% 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 ten 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, U.K. The Company is
also 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 Nine Nine
months months months months
ended ended ended ended
December December December December
Country 31, 2010 31, 2009 31, 2010 31, 2009
Canada 67% 59% 67% 68%
U.S. 30% 36% 30% 29%
U.K 3% 5% 3% 3%
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 in the prior year. The table
below shows our expected production for fiscal 2011 by country,
compared with actual production for fiscal 2010 (in millions of
tonnes):
Country Fiscal 2011 Fiscal 2010 Change
Canada 4.1 2.1 95%
U.S. 1.8 1.0 80%
U.K 0.2 0.1 100%
Total 6.1 3.2 91%
The production targets for the fourth quarter of fiscal 2011 by
country compared with the actual production for the comparable
fiscal 2010 period are as follows (in millions of tonnes):
Q4 Fiscal 2011 Q4 Fiscal 2010
Country Forecast Actual Change
Canada 1.2 0.7 71%
U.S. 0.5 0.4 25%
U.K 0.1 - -
Total 1.8 1.1 64%
The Company expects to achieve the targeted Q4 fiscal 2011
increase in production primarily through the increase in capacity
resulting from the deployment of new trucks and shovels and through
further productivity improvement initiatives, including the
expected commissioning of the Falling Creek Connector Road between
the Brule and Willow Creek mines at the end of February 2011.
Cash Costs of Production
Western's cash cost of production target range established at
the beginning of fiscal 2011 for its Canadian operations in fiscal
2011 was $94 to $99 per tonne (FOB), down from $102 per tonne in
fiscal 2010. The U.S. operations cash cost of production target
range for fiscal 2011 was 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 U.K. operations as the mine is in an expansion
phase.
Due in part to factors that are not expected to be long-lasting,
Western now expects Canadian cash cost of production for fiscal
2011 in the range of $101 to $105 per tonne, which is higher than
the initial target for the year. Western still expects to achieve
its cash cost target for its U.S. operations.
The targeted fiscal 2011 cash cost of production reductions for
both the Canadian and U.S. operations were based on improving
productivity primarily through the introduction of larger
equipment, more efficient trucks and shovels, and other
initiatives. The equipment additions to the fleet are mostly
company-owned and are part of a strategy of phasing out reliance on
contractor fleets. As discussed in more detail below under Canadian
Operations, short-term adverse factors have offset some of the
benefits of these fleet improvements in Canada during fiscal 2011.
Western continues to expect that the fleet efficiency improvements
will deliver significant long-term benefits. Beyond fleet
improvements, starting in the fourth quarter of fiscal 2011 Western
expects its Canadian operations to begin to benefit from the
completion of the 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 haul-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.
Western began test hauls along the full length of the Falling
Creek Connector Road in February 2011 and anticipates production
hauling to commence around the end of February 2011. However, this
timing represents a two-month delay from the previously disclosed
plan to commence hauling. The delay is attributable mainly to
unexpected geotechnical challenges. To overcome these challenges
and ensure the stability of the roadbed for safe operations,
Western's contractor performed more excavation and filling than
originally anticipated.
Market Outlook
Substantially all of Western's fiscal 2011 coal production from
Canada is committed under term contracts to large and reputable
international steel producers. The price for our Canadian coal is
predominantly established on a quarterly basis, although some
contracts are priced on a longer term and others on an annual
basis. Prices for U.S. production generally are established
annually and prices for U.K. production are reviewed on three and
six monthly bases.
For the fourth quarter of fiscal 2011, we finalized our Canadian
hard coking coal (HCC) products in the range of US$221 - US$225 per
tonne and for low volatile pulverized coal injection (LV-PCI)
products in the range US$180 - US$191 per tonne, in line with and
in some cases better than reported market settlements. Prices are
Free On Board and Trimmed (FOBT).
Relative to the third quarter of fiscal 2011, the current fourth
quarter settlements represent an increase of approximately 8% for
HCC and an increase of over 20% for LV-PCI. Relative to the fourth
quarter of fiscal 2010, settlements for the fourth quarter of
fiscal 2011 represent an increase of approximately 75% to 79% for
HCC and 100% to 112% for LV-PCI.
The increases gained for our Canadian metallurgical coal prices
reflect a tightening of coal supply arising from heavy rainfall
that impacted Queensland's mines and transportation infrastructure,
triggering a number of force majeure declarations. Subsequent to
the price negotiations, further supply disruptions were reported in
Russia, Canada and the U.S. These events have dramatically altered
market sentiment and suggest potentially higher prices for our
Canadian metallurgical coal products into fiscal 2012.
Settlements for delivery of our U.S. coking coal in calendar
2011 were reached in the range of US$148 to US$150 per ton FOB
barge, an increase of approximately 50% over the previous year. The
outlook for the U.S. domestic coking coal sector remains firm and
market development continues for additional sales of U.S. coking
coal in calendar 2011.
In October 2010, the World Steel Association (WSA) forecasted a
13% growth in apparent steel use in 2010, and a further growth of
5% in 2011 to reach a new record level. WSA's forecast for 2011
describes a steady and stable recovery in production that bodes
well for both LV PCI and HCC markets. Key elements of the outlook
include strong growth in steel usage in China and India.
In January 2011, the WSA issued its review of global crude steel
production in 2010 showing a year-on-year increase of 15% to a new
global record of 1,414 million tonnes. All major steel producing
regions showed double digit growth, however, the EU, Japan and
North America were coming off a low base in 2009. Asia produced
over 60% of the World's crude steel in 2010 and strong year-on-year
growth was recorded in Western's key markets, with Japan producing
110 million tonnes (up 25%) and Korea producing 59 million tonnes
(up 20%).
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, particularly into the growing sectors of
China, India and South America.
Results of Operations
In thousands Three Three Nine Nine
of Canadian months months months months
dollars unless ended ended ended ended
otherwise December December Change December December Change
noted 31, 2010 31, 2009 % 31, 2010 31, 2009 %
------------------- -------------- -------------- ----------- -------------- -------------- -----------
Financial
Highlights
Revenues $ 170,530 $ 118,662 44 $ 594,417 $ 301,997 97
Cost of goods
sold 126,747 80,912 57 393,893 234,227 68
------------------- -------------- -------------- ----------- -------------- -------------- -----------
Income from
mining
operations 43,783 37,750 16 200,524 67,770 196
Operating
margin 26% 32% 34% 22%
Other expenses 18,034 6,908 161 64,965 24,767 162
Net income 20,376 24,030 (15) 81,387 29,604 175
Earnings per
share, basic $ 0.07 $ 0.10 $ 0.30 $ 0.13
Weighted
average
shares
outstanding
(thousands) 276,685 250,749 268,131 232,628
Production
(tonnes):
Canadian
operations
Hard Coking 560,000 354,000 58 1,620,000 1,040,000 56
Low-vol PCI 458,000 179,000 156 1,288,000 399,000 223
U.S.
operations
Metallurgical 177,000 109,000 62 558,000 201,000 178
Thermal 281,000 220,000 28 749,000 404,000 85
U.K.
operations
Anthracite 48,000 44,000 9 110,000 73,000 51
------------------- -------------- -------------- ----------- -------------- -------------- -----------
Total
Production
(a) 1,524,000 906,000 68 4,325,000 2,117,000 104
------------------- -------------- -------------- ----------- -------------- -------------- -----------
Sales
(tonnes):
Canadian
operations
Hard coking 486,000 301,000 61 1,449,000 973,000 49
Low-vol PCI 239,000 146,000 64 911,000 527,000 73
U.S.
operations
Metallurgical 169,000 103,000 64 527,000 190,000 177
Thermal 269,000 210,000 28 803,000 375,000 114
U.K.
operations
Anthracite 52,000 42,000 24 118,000 73,000 62
------------------- -------------- -------------- ----------- -------------- -------------- -----------
Total Sales
(b) 1,215,000 802,000 51 3,808,000 2,138,000 78
------------------- -------------- -------------- ----------- -------------- -------------- -----------
(a) Includes pre - commercial production at Willow Creek
mine.
(b) Excludes pre - commercial production at Willow Creek
mine.
The results of operations are reported in the following
segments:
Canadian Operations
Three
In thousands of Three months Nine Nine
Canadian months ended months months
dollars unless ended December ended ended
otherwise December 31, December December
noted 31, 2010 2009 31, 2010 31, 2009
-------------------- -------------- ------------- -------------- --------------
Financial
Highlights:
Revenues $ 132,155 $ 83,781 $ 471,031 $ 235,064
Cost of goods
sold 89,438 49,946 279,130 176,337
-------------------- -------------- ------------- -------------- --------------
Income from
mining
operations $ 42,717 $ 33,835 $ 191,901 $ 58,727
-------------------- -------------- ------------- -------------- --------------
Production
(tonnes):
Hard coking 560,000 354,000 1,620,000 1,040,000
Low-vol PCI 458,000 179,000 1,288,000 399,000
-------------------- -------------- ------------- -------------- --------------
Total
production
(a) 1,018,000 533,000 2,908,000 1,439,000
-------------------- -------------- ------------- -------------- --------------
Sales (tonnes):
Hard coking 486,000 301,000 1,449,000 973,000
Low - vol PCI 239,000 146,000 911,000 527,000
-------------------- -------------- ------------- -------------- --------------
Total sales (b) 725,000 447,000 2,360,000 1,500,000
-------------------- -------------- ------------- -------------- --------------
Per sales tone:
Coal price
realized $ 182 $ 187 $ 200 $ 157
Coal price
realized
(US$) $ 180 $ 177 $ 195 $ 141
Cost of goods
sold
Cost of product
sold $ 72 $ 67 $ 70 $ 74
Transportation
and other 37 29 35 29
Depletion,
amortization
and accretion 14 16 13 15
-------------------- -------------- ------------- -------------- --------------
Total cost of
goods sold $ 123 $ 112 $ 118 $ 118
-------------------- -------------- ------------- -------------- --------------
(a) Includes pre - commercial production at Willow Creek
mine.
(b) Excludes pre - commercial production at Willow Creek
mine.
Comparing the Three Months Ended December 31, 2010 to the Three
Months Ended December 31, 2009
Revenues increased by 58% reflecting a 62% increase in shipments
to customers and a slight increase in realized prices, partly
offset by the adverse effect of a weakening of the U.S. dollar
against the Canadian dollar. The average U.S. dollar relative to
the Canadian dollar exchange rate for the third quarter of fiscal
2011 was $1.01, versus $1.06 in the comparable quarter of fiscal
2010.
Realized prices for the comparable fiscal 2010 quarter were
above prevailing benchmark prices for the quarter because of
175,000 carry-over tonnes of both HCC and LV-PCI sold at fiscal
2009 prices averaging approximately US$276 per tonne.
Total production increased by 91% primarily due to operational
efficiencies derived from the Company's capital investment program
to increase operational capacity to 4.1 million tonnes per year, up
58% from the 2.6 million tonnes per year before the program
commenced. Additionally, pre-commercial production during the
commissioning phase from the Willow Creek mine contributed
approximately 199,000 tonnes to the increase over the comparable
period of the prior year.
Cost of product sold, which primarily represents mining and
plant costs, increased 7% to $72 per tonne mainly due to commodity
price increases. Transportation and other costs, which include
truck hauling, rail and port fees, increased 28% to $37 per tonne
due primarily to haulage costs to a third-party load-out facility
on a temporary basis until the Falling Creek Connector Road is
commissioned and higher port fees. Port fees for the third quarter
of fiscal 2011 included a one-time fee adjustment related to coal
shipments in the first six months of fiscal 2011. Overall, cash
cost of goods sold increased 14% to $109 per tonne.
Comparing the Nine Months Ended December 31, 2010 to the Nine
Months Ended December 31, 2009
Revenues increased by 100%, reflecting a 57% increase in
shipments to customers and a 38% increase in realized prices,
partially offset by the effect of a weaker U.S. dollar. The
increase in shipments reflects the continuing recovery in demand
for the Company's coal products due to the improvement in the
global economy. Realized prices benefitted from strong market
fundamentals as discussed above. The average U.S. dollar relative
to the Canadian dollar exchange rate for the nine month period
ended December 31, 2010 was $1.03, versus $1.11 in the comparable
period of fiscal 2010.
Total production increased by 102% for the reasons discussed
above. Pre-commercial production during the commissioning phase
from the Willow Creek mine contributed approximately 390,000 tonnes
to the increase over the comparable period of the prior year.
The 5% improvement in cost of product sold is primarily due to
improved productivity at the Wolverine mine. Transportation and
other costs increased 21% to $35 per tonne primarily for the same
reasons discussed above for the quarter period, with the higher
port fees reflecting a fee adjustment related to coal shipments
during the nine month period.
U.S. Operations
Three Three Nine
In thousands months months Nine months
of Canadian ended ended months ended
dollars unless December December ended December
otherwise 31, 31, December 31,
noted 2010 2009 31, 2010 2009
------------------- ------------- ------------- -------------- -------------
Financial
Highlights:
Revenues $ 35,792 $ 29,821 $ 111,899 $ 57,159
Cost of goods
sold 33,948 25,933 103,024 48,366
------------------- ------------- ------------- -------------- -------------
Income from
mining
operations $ 1,844 $ 3,888 $ 8,875 $ 8,793
------------------- ------------- ------------- -------------- -------------
Production
(tonnes):
Metallurgical 177,000 109,000 558,000 201,000
Thermal 281,000 220,000 749,000 404,000
------------------- ------------- ------------- -------------- -------------
Total
production
(a) 458,000 329,000 1,307,000 605,000
------------------- ------------- ------------- -------------- -------------
Sales
(tonnes):
Metallurgical 169,000 103,000 527,000 190,000
Thermal 269,000 210,000 803,000 375,000
------------------- ------------- ------------- -------------- -------------
Total sales
(b) 438,000 313,000 1,330,000 565,000
------------------- ------------- ------------- -------------- -------------
Per sales
tone: $ 82 $ 95 $ 84 $ 101
Coal price
realized $ 81 $ 88 $ 82 $ 84
Coal price
realized
(US$)
Cost of goods
sold
Operating
expenses $ 70 $ 73 $ 70 $ 75
Depletion,
amortization
and
accretion 8 10 7 11
Total cost of
goods sold $ 78 $ 83 $ 77 $ 86
------------------- ------------- ------------- -------------- -------------
On July 13, 2009, Western acquired its U.S. 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 U.S.
operations are included in the Company's results from July 14,
2009.
Revenues for the three month period ended December 31, 2010
increased by 20% from the comparable fiscal 2010 period, reflecting
a 40% increase in shipments to customers, partly offset by an 8%
decrease in realized coal prices and the effect of a weaker U.S.
dollar. The higher shipments reflect increased demand for both
metallurgical and thermal coal in the United States due to general
economic improvement year-over-year. Revenues for the nine month
period ended December 31, 2010 increased by 96% from the comparable
fiscal 2010 period, reflecting a 135% increase in shipments to
customers, partially offset by a 13% decrease in realized prices.
The higher shipments were primarily due to the aforementioned
increase in demand and the inclusion of results for three 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 39% and 116% in the three and nine
month periods ended December 31, 2010, respectively, due mainly to
operational efficiencies and the favourable impact of the Company's
program to increase equipment capacity. In addition, the nine month
period ended December 31, 2010 included results for three
quarters.
Cost of goods sold per tonne for the three and nine month
periods ended December 31, 2010 were lower than the corresponding
fiscal 2010 periods as a result of improved production rates and
operating efficiencies.
U.K. Operations
In thousands Three Three Nine
of Canadian months months months Nine
dollars ended ended ended months
unless December December December ended
otherwise 31, 31, 31, December
noted 2010 2009 2010 31, 2009
----------------- ------------- ------------- ------------- --------------
Financial
Highlights:
Revenues $ 2,583 $ 4,076 $ 11,487 $ 7,120
Cost of
goods sold 3,361 3,142 11,739 5,923
----------------- ------------- ------------- ------------- --------------
Income
(loss) from
mining
operations $ (778) $ 934 $ (252) $ 1,197
Production
(tonnes) 48,000 44,000 110,000 73,000
Sales
(tonnes) 52,000 42,000 118,000 73,000
Per sales
tone:
Coal price
realized $ 50 $ 97 $ 97 $ 98
Coal price
realized
(GBP) GBP 31 GBP 55 GBP 61 GBP 55
Cost of
goods sold $ 65 $ 75 $ 99 $ 81
----------------- ------------- ------------- ------------- --------------
On July 13, 2009, the Company acquired a controlling interest in
its U.K. 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 U.K. operations are included in the
Company's results from July 14, 2009.
Revenues for the three month period ended December 31, 2010
decreased 37% compared to the corresponding fiscal 2010 period,
primarily due to lower realized prices, partly offset by a 24%
increase is shipments to customers. The lower realized price
principally reflects the transition of the underground mine into an
expansion project during the quarter, which contributed to a lower
average quality of coal being produced. Revenues for the nine month
period ended December 31, 2010 increased by 61% compared to the
corresponding fiscal 2010 period, primarily the result of a 62%
increase in shipments to customers. This increase in shipments is
partly due to the nine month period ended December 31, 2009 only
including results of the U.K. operations from July 14, 2009.
Cost of goods sold for the three months ended December 31, 2010
declined 13% per tonne from the comparable fiscal 2010 period
primarily as a result of higher production. For the nine month
period ended December 31 2010, cost of goods sold increased 22% per
tonne primarily due to increased costs from the underground mine.
The underground mine is still in the expansion phase and its
production costs are expected to fluctuate depending on tonnes
produced during each phase of development. The current reported
unit costs are not reflective of the expected long-term costs of
the operation.
Other expenses
Other expenses for the three and nine months ended December 31,
2010 include the following:
Three Three Nine Nine
In thousands of months months months months
Canadian ended ended ended ended
dollars unless December December December December
otherwise 31, 31, 31, 31,
noted 2010 2009 2010 2009
-------------------- ------------- ------------- ------------- -------------
General and
administration $ 20,891 $ 9,134 $ 46,677 $ 21,022
Sales and
marketing 3,308 3,403 12,660 7,653
Coal
exploration 471 1,396 3,905 3,729
Interest,
accretion and
financing
fees 798 2,713 4,268 8,958
Loss (gain) on
forward
exchange
contracts (5,093) (1,551) 1,302 (22,821)
Other expense
(income) (2,341) (8,160) (3,847) 6,226
-------------------- ------------- ------------- ------------- -------------
Total other
expenses $ 18,034 $ 6,908 $ 64,965 $ 24,767
-------------------- ------------- ------------- ------------- -------------
General and Administration
For the three month period ended December 31, 2010, general and
administration expenses increased $11.8 million, or 129%, over the
corresponding fiscal 2010 period. The increase is partly due to the
growth of the Company's operations and workforce which resulted in
higher employment costs, including stock based compensation and
recruiting expenses. Recruiting expenses increased due to the
strengthening of the senior management team and the continued
building of competence in the Company's core mining and engineering
functional areas. The increase also reflects approximately $8.0
million of non-recurring legal, professional and consulting
expenses in respect of the proposed acquisition of Western by
Walter Energy.
For the nine month period ended December 31, 2010, general and
administration expenses increased $25.7 million, or 122%, over the
corresponding fiscal 2010 period. The increase reflects the same
factors noted above for the quarter period, as well as expenses of
the Cambrian group which was acquired in July 2009 and fees in
respect of the previously intended migration to the main market of
the London Stock Exchange.
Sales and Marketing
For the three and nine month periods ended December 31, 2010,
sales and marketing expenses decreased $0.1 million, or 3%, and
increased $5.0 million, or 65%, respectively, over the
corresponding fiscal 2010 periods. The decrease for the quarter
period is primarily attributable to a higher proportion of sales to
customers of the Canadian operations for which certain sales
commissions are not incurred and a lower average realized price.
The increase for the nine month period is attributable to higher
sales volumes and average realized prices, in addition to the
comparable fiscal 2010 period only including expenses of the
Cambrian group since July 2009.
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 relate 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 December 31,
2010 decreased $0.9 million, or 66%, from the corresponding fiscal
2010 period. For the nine month period ended December 31, 2010,
these costs increased $0.2 million, or 5%, from the corresponding
fiscal 2010 period. The increase in the nine month period reflects
increased exploration activities.
Interest, Accretion and Financing Fees
For the three month and nine month periods ended December 31,
2010, interest, accretion and financing fees decreased $1.9
million, or 71%, and $4.7 million, or 52%, respectively, from the
comparable fiscal 2010 period. These decreases are 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 for mining equipment.
Loss (Gain) on Forward Exchange Contracts
The Company has operations in Canada, the U.S. and U.K., and
therefore foreign exchange risk exposures arise from transactions
denominated in foreign currencies. Western's currency risk
primarily relates to its Canadian operations, for which sales are
denominated in U.S. dollars while the majority of costs are
denominated in Canadian dollars. The Company may also become
exposed to currency fluctuations on any equipment purchases or
related financing facilities denominated in U.S. dollars. To
mitigate its currency risk, the Company from time to time enters
into forward currency exchange contracts to fix the rate at which
certain future anticipated inflows of U.S. dollars are exchanged
for Canadian dollars.
During the three month period ended December 31, 2010, the value
of the Canadian dollar relative to the U.S. dollar fluctuated
within a range of 0.99 to 1.04. The average exchange rate for this
period was 1.01.
At December 31, 2010, Western had US$97 million of forward
currency exchange contracts outstanding with various maturity dates
through March 31, 2011, with a weighted average C$/US$ exchange
rate of 1.0273. The Company has entered into forward exchange
contracts to offset certain of these contracts outstanding totaling
US$60 million. A $1.2 million net unrealized gain on these
contracts is reflected in the balance sheet as at December 31,
2010. For the three month period ended December 31, 2010 the
Company recognized a gain of $5.1 million on forward exchange
contracts, which is attributable to the U.S. dollar weakening
against a combination of realized and unrealized contract rates.
For the nine month period ended December 31, 2010, the Company
recognized a loss of $1.3 million.
Other Expense (Income)
In thousands Nine
of Canadian Three Three Nine months
dollars months months months ended
unless ended ended ended December
otherwise December December December 31,
noted 31, 2010 31, 2009 31, 2010 2009
----------------- -------------- -------------- -------------- -------------
Net foreign
exchange
loss
(gain) $ 4,149 $ (2,556) $ 3,884 $ 19,530
Loss (gain)
on fair
value
adjustment
of
held-for-
trading
investments
and
derivatives (2,917) 26 (4,495) (48)
Gain on fair
value
adjustment
of
investment
in
Mandalay (1,860) - (1,860) -
Gain on
recovery of
note
receivable (691) - (691) -
Interest
expense
(income) (740) 1,804 (822) (1,709)
Gain on
redemption
of
convertible
debentures - - - (4,155)
Gain on
disposal of
subsidiary - (6,996) - (6,996)
Other income (282) (438) 137 (396)
----------------- -------------- -------------- -------------- -------------
$ (2,341) $ (8,160) $ (3,847) $ 6,226
----------------- -------------- -------------- -------------- -------------
Net foreign exchange gains and losses principally reflect the
impact of changes in the U.S. dollar relative to the Canadian
dollar on a quarter by quarter basis on U.S. dollar denominated
working capital. The net foreign exchange loss in the three month
period ended December 31, 2010 primarily reflects the impact of the
weakening of the U.S. dollar relative to the Canadian dollar.
Income Tax Recovery (Expense)
Income tax expense for the three and nine month periods ended
December 31, 2010 was $6.5 million, or 25%, and $47.1 million, or
35%, respectively, of pre-tax income. 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.
Equity Earnings (Loss)
Equity earnings (loss) were $1.1 million and $(7.6) million for
the three and nine month periods ended December 31, 2010,
respectively, which reflect the Company's share of the net earnings
of its equity investees. The equity loss for the nine month period
is primarily due to an asset impairment charge recorded by one of
the underlying investees. During the three month period ended
December 31, 2010, one of Western's equity investees, Mandalay
Resources Ltd. was reclassified to an available-for-sale
investment, due to a loss of significant influence. At December 31,
2010, the Company's sole equity investee was Xtract Energy Plc. The
Company is not obligated to finance its equity investee.
Liquidity and Capital Resources
The Company's strong financial position and liquidity continued
through the three month period ended December 31, 2010, primarily
as a result of generating positive cash flows from operating
activities. At December 31 2010, the Company's cash and cash
equivalents balance was $79.3 million and working capital was
$104.4 million.
For the nine month period ended December 31, 2010, the Company
generated positive cash flow from sales of $244.0 million on
revenues of $594.4 million, up significantly from $97.0 million on
revenues of $302.0 million in the comparable fiscal 2010 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:
In
thousands
of
Canadian Three Three Nine Nine
dollars months months months months
unless ended ended ended ended
otherwise December December December December
noted 31, 2010 31, 2009 31, 2010 31, 2009
--------------- -------------- -------------- -------------- --------------
Revenues $ 170,530 $ 118,662 $ 594,417 $ 301,997
Operating
Expenses 112,002 69,813 350,414 205,029
--------------- -------------- -------------- -------------- --------------
Positive
cash flow
from
sales $ 58,528 $ 48,849 $ 244,003 $ 96,968
--------------- -------------- -------------- -------------- --------------
Cash flow from operating activities, before settlement of asset
retirement obligations and net changes in non-cash working capital
items was $161.0 million for the nine month period ended December
31, 2010, up from $59.9 million for the corresponding fiscal 2010
period. The significant increase is primarily the result of higher
sales volumes and realized prices. Changes in non-cash working
capital items for the nine month period ended December 31, 2010
resulted in a use of cash of $53.4 million compared with a source
of cash of $17.3 million for the corresponding fiscal 2010 period.
This increase in non-cash working capital primarily reflects the
impact of higher revenues on accounts receivable and equipment
deposits.
Cash expenditures on mineral property, plant and equipment were
$162.3 million in the nine month period ended December 31, 2010, up
substantially from $17.2 million in the corresponding fiscal 2010
period. 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 U.S.
operations. The equipment additions to the fleet are part of a
strategy of phasing out reliance on contractor fleets. Total
capital expenditures in the nine month period ended December 31,
2010, including equipment accruals and equipment financed by
capital leases, were $255.0 million.
To support the Company's capital expenditure program and growth
plan over the current year and future periods, the Company has
secured US$120 million in capital leasing facilities, of which
approximately US$58 million remained unused as at December 31,
2010, and a syndicated two-year revolving term credit facility in
the amount of US$125 million. These facilities together with the
Company's existing cash balance and future cash flow from operating
activities are expected to be sufficient to fund its growth plans
for the remainder of fiscal 2011.
As at December 31, 2010, the Company had commitments to purchase
equipment for its Canadian operations totaling $18.5 million, with
delivery of this equipment anticipated to occur in the fourth
quarter of fiscal 2011.
During the nine month period ended December 31, 2010, the
Company made repayments on capital lease obligations of $16.8
million and repayments of $4.8 million on long-term debt, and
received proceeds of $24.1 million 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 $0.2 million, 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 $38.0 million was financed by
the issuance of 8,551 578 common shares of the Company valued at
$35.8 million, the issuance of 1,457,750 stock options and warrants
valued at $0.7 million and included transaction costs of $1.5
million.
On August 19, 2009, the Company raised $55.9 million, net of
issuance costs, through the issuance of 22,100,000 common shares at
a purchase price of $2.70 per share. The net proceeds were used by
the Company primarily to fund development of the Willow Creek mine
and further development of the Brule, Maple Coal and Gauley Eagle
mines as well as construction of the Falling Creek Connector
Road.
MD&A and Financial Statements
This news release is prepared as at February 10, 2011 and should
be read in conjunction with the Managements' Discussion and
Analysis and Financial Statements for the fiscal third quarter
ended December 31, 2010 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 Friday February 11, 2011 at 8:00 am (Vancouver) to
discuss financial and operating results for fiscal Q3 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 42527095.
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). 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.
For further information:
Western Coal Corp. Buchanan Communications
David Jan James Strong / Charles
Head of Investor Relations O'Brien
+1 604 694 2891 +44 (0)207 466 5000
David.jan@westerncoal.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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