CanAm Coal makes operational improvements in first half

CanAm Coal (TSX VENTURE: COE) (OTCQX: COECF), which has mining operations in Alabama, said Aug. 31 that it achieved coal sales of 76,577 tons in the second quarter, an increase of 14% (9,424 tons) from the first quarter but a decrease of 6% (4,876 tons) from the year-ago quarter.

The company achieved coal sales of 143,730 tons for the first half of 2012, an increase of 28% (31,622 tons) from the previous year. In the second quarter, the company achieved revenue growth of 9% over the previous year. The increase was driven by a higher average sales price in the quarter ($106/ton vs. $92/ton in 2011), reflecting improved pricing from new long term contracts entered into late last year and early this year.

In contrast, second quarter physical coal sales, while improved over the first quarter, were 6% below last year, the company added. Physical sales were impacted by two of the factors that hampered first quarter sales; namely, the transitional impact of management and operational changes at the Powhatan mine and an operational incident that damaged an excavator at the Gooden Creek mine. Also, the company did a lot of grading and vegetation reclamation work in the second quarter, which also impacted production.

Management and operational changes made at Powhatan, which produces all of CanAm’s metallurgical coal, began to show positive results in June where mine production and sales exceeded 12,000 tons, the best month under CanAm ownership. As well, the company has replaced the damaged excavator with another unit and impacted production is returning to normal levels. Overall, June production, sales and resultant EBITDA improved considerably.

Jos De Smedt, President and COO of CanAm, said: “During the first half of the year, CanAm made significant investments in equipment, mine development, operations, and senior management. We did this while continuing to deliver reasonable financial results in the short term, despite a number of challenges. In August 2012, we completed the acquisition of an additional 30% interest in [Birmingham Coal & Coke]. We believe these investments position the Company to realize on the full potential of our existing mines and our 3 planned new mines. In August, we received final permitting for the largest of the three new mines at Old Union 2 and production will commence in the coming weeks. We expect to receive final permitting for the other 2 mines in the near future. Overall, we look forward to improved second half results and a strong 2013.”

Production recovering after Gooden Creek mishap

Sales for the second quarter were characterized by:

  • Coal sales of 55,000 tons from the company’s 50% ownership in BCC’s three operating mines – Bear Creek, Old Union and Gooden Creek – a 14% increase over Q1. All of BCC’s mines produce high quality thermal coal. Q2 production from these mines was below the previous year (by 6%) and originally planned levels, mostly as a result of equipment damage to an excavator at Gooden Creek. The incident, which occurred in March, led to equipment reconfigurations at both the Gooden Creek and Old Union mines to compensate. Production is returning to planned levels.
  • Coal sales at the Powhatan mine were 22,000 tons, a 17% increase over Q1. Notwithstanding this improvement, production was below planned levels in April and May as the company completed the integration of Powhatan’s mine operations under the BCC team. April and May production was maintained at minimal levels (below 5,000 tons in each month) as a new mine plan and operating structure were put in place. The transition was completed in April/May and the benefits started to be realized in June with production and sales in that month exceeding 12,000 tons.

Over the last three years, CanAm has grown production from 4,700 tons in 2009 to 256,000 tons in 2011. Likewise, EBITDA has grown from ($0.5)m in 2009 to $4.6m in 2011. To date in 2012, the company has undertaken a number of key initiatives, which include:

  • Acquiring an additional 30% of BCC, effective July 1, financed by a non-convertible, unsecured debenture issue. This transaction is now closed.
  • Signing of two new long term off-take contracts that secure significant sales of met and thermal coal at strong pricing through 2014.
  • Continuing the execution of a plan to open three new mines in the second half of 2012. The Old Union 2 permit was received in August and mining will start shortly. Final permitting for the Knight and Posey Mill 2 mines is expected in the near future.
  • Substantially completed a significant capital investment program in both equipment and mine development to prepare for the opening of the three new mines in the second half of 2012.
  • Completing an operational realignment strategy, which placed all of its mines under the direct management of the BCC team. These changes have been implemented and are expected to bring operational and cost efficiencies as well as improved production performance in future quarters.

Further expansion and growth will continue to be pursued by either adding adjacent lands to our reserve portfolio or by pursuing accretive acquisitions with a focus on high quality thermal or metallurgical coal in markets that the company understands. The company noted it also has an option to purchase the remaining 20% of BCC before 2016.

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.