Cobalt Coal tries to line up financing for Appalachia expansion

Cobalt Coal Ltd. (TSX-V: CCF), a metallurgical coal producer in southern West Virginia, is struggling to get its finances in line while looking to maintain and even expand its coal output, the company said in a financial report filed May 29 in Canada.

Cobalt operates the Westchester deep mine in McDowell County. In January 2011, the company signed a lease involving lands that contain coal deposits immediately adjacent to the Westchester mine. These newly leased lands can only be accessed from Cobalt’s existing underground infrastructure.

Cobalt said a new marketing contract for 2012 was signed with a continuing year-over-year price increase to $125 per clean ton of coal as compared to the 2011 and 2010 prices of $110 and $85 per clean ton respectively.

“Capital markets throughout the world have been quite volatile and there is no guarantee that Cobalt will not be affected by that volatility; its fund raising requirements may be more difficult,” said Cobalt. The company later added: “The Company’s ability to continue as a going concern is dependent upon management’s ability to successfully develop and execute a business plan which includes raising adequate long-term financing for future growth, achieving profitable operations and generating positive cash flow from the recoverability of reserves from its mining properties.”

During 2011, management confirmed that the Westchester mine required electrification to mine on an economic basis. Electrification has commenced, has been fully funded and is expected to be in place by the third quarter of this year.

The Westchester mine, listed with the U.S. Mine Safety and Health Administration under Cobalt Coal Corp Mining Inc., produced 9,362 tons in the first quarter of this year and 28,659 tons in all of 2011, according to MSHA data.

Cobalt’s revenue for the first quarter of this year was $1,240,439 and was earned at the Westchester mine from coal sales as compared to $1,271,975 for the 2011 comparable period. The 2011 revenue includes about $281,000 of revenue from a third party contract that is no longer in place. In the first quarter of this year, the company sold 9,362 (2011 – 9,003) clean tonnes of coal under contract to one customer under a five-year sales contract that provides for annual price renewals.

During February, the company signed letters of intent with two separate vendors involving the acquisition of mineral rights on two separate properties containing significant quantities of met coal. One of the properties is located in Dickenson County, Va., and the other is in Bell and Knox counties, Ky.

During March, Cobalt entered into agreements with five different parties (four separate vendors and one lessor) pertaining to securing leases, equipment and permits on certain lands that contain met coal deposits on five separate tracts of lands located in Dickenson County, Va. As part of that deal, the vendors and the lessor will assist Cobalt in obtaining a lease from the lessor for a rail loadout site located in Addington Station in Wise County, Va. Cobalt would also acquire all of the issued and outstanding shares of KMH Energy Corp., the holder of a valid mining permit and a disposal permit at one of the five tracts. Prior to the closing date, KMH will allow Cobalt to conduct site preparation work on, and sell up to 14,000 tons of coal from, the KMH permit lands.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.