CanAm reports strong coal sales, plans for production bump

CanAm Coal Corp. (TSX VENTURE: COE) (OTCQX: COECF) said Nov. 29 that record financial results were achieved during the third quarter as a result of the company’s increased ownership in Birmingham Coal & Coke (BCC), integration of mine operations and the company’s focus on operational execution.

CanAm President Jos De Smedt said: “This was a breakthrough quarter for CanAm Coal. Not only did we close an additional 30% acquisition of BCC, we made significant progress in improving operating efficiency at our mines resulting in record production, EBITDA and operating cash flow. The hard work of our team paid off and the operational improvements achieved at our mines in the quarter, coupled with improved mining conditions, resulted in higher production levels and a significantly lower cost structure. We also received our Old Union 2 permit in August and our Knight Mine permit subsequent to quarter end. While there is more work ahead, we are pleased with our performance and look forward to further improvement in the fourth quarter and into 2013”.

Highlights for the third quarter include:

  • Coal sales at the Powhatan mine of 33,332 tons, an all-time high;
  • Coal sales at the BCC mines of 124,568 tons, the highest since Q1 of 2008;
  • EBITDA of $3.3m, up 90% over last year and triple Q2;
  • Acquired an additional 30% interest in BCC for $11.5m, financed by debentures;
  • Obtained the Old Union 2 mine permit covering 1,108 minable acres with an estimated 1.3 million tons of recoverable coal. Production commenced in Q4;
  • Acquired 133 acres of surface mining rights, on top of the 574 acres acquired in the period April to June 2012; and
  • Added Steve Somerville, former President of BMO Capital, to the Board of Directors.

Coal sales volumes jump in the third quarter

Consolidated third quarter sales volumes were 157,900 tons, a 68% increase over the previous year and double the second quarter. Thermal sales volumes were 142,457 tons, a 76% increase over the prior year and a 136% increase over the second quarter.

The company’s acquisition of an additional 30% interest in BCC (effective July 1), as well operational improvements at its Powhatan, Old Union and Bear Creek mines, were the key factors contributing to this significant increase. Metallurgical coal sales volumes were 15,443 tons, a 17% increase over the previous year but a 5% decrease over the previous quarter. During the quarter, the company experienced inconsistencies in coal quality, which resulted in decreased shipments to a key metallurgical customer compared to the second quarter. Overall in the third quarter, sales and production at the Powhatan mine set an all-time high and, likewise at BCC, sales and production numbers were the highest since the first quarter of 2008.

Revenue for the third quarter was $14.7m compared to $8.7m in the prior year, an increase of 81%. Third quarter average sales prices were slightly higher than in the prior year.

Third quarter average thermal pricing was $89/ton compared to $84/ton in the prior year and $92/ton achieved in the previous quarter. Thermal pricing was lower than the previous quarter as the company’s sales mix was weighted more heavily to lower priced coals. Average quarterly pricing will fluctuate above or below $90/ton depending on the particular sales mix in the quarter, CanAm noted.

Third quarter average met pricing was $141 per ton compared to $141/ton in the prior year and $155/ton in the previous quarter. During the quarter, the company sold met coal which did not meet specifications for a key customer to other industrial customers at a lower price.

For the three and nine month periods ended Sept. 30, the company reported a net loss of $0.9m and $3.1m respectively. This compares to a three and nine month loss of $0.5m and $1.5m in the previous year.

CanAm adds new mines to its production plans

Subsequent to the end of the third quarter, the company achieved a number of significant milestones including:

  • Commenced mining at Old Union 2 in mid-October. Production results to date have been at or above planned levels.
  • In October, the company moved forward the start date for two Old Union 2 pits to December from the middle of 2013. In order to facilitate this adjustment, it temporarily suspended production at its Gooden Creek mine. The company believes the revised mine plan is more efficient.
  • In November, the company received a final permit from the Alabama Surface Mining Commission for the Knight mine. First production will commence at the beginning of December. The company anticipates receiving a mining permit for the Posey Mill 2 mine in the near future.
  • Realigned the corporate executive roles as Tim Bergen stepped down as the company’s CEO and assumed the title of Vice Chairman of the board responsible for business development. Jos De Smedt, CanAm’s President and COO, has assumed Bergen’s day to day management responsibilities.

The company said it expects to continue to build on its momentum in the last quarter of the fiscal year and going into 2013. With three new mines in production by early 2013 (Old Union 2 in October 2012, Knight in December 2012 and Posey Mill 2 in early 2013), the company should be in a position to steadily grow production into 2013. Fourth quarter 2012 sales are forecasted to be in the range of 155,000 to 175,000 tons with all of the production going into existing contracts. Improvements in mine operating costs realized in the third quarter are expected to continue into the fourth quarter. Also, fourth quarter capital expenditures will be substantially lower compared to the previous quarter and this trend is expected to continue into 2013. On this basis, the company expects to generate free cash flow in the fourth quarter.

Company does new deal with Anadarko on Buick lignite reserve

The company noted in a Nov. 29 financial report filed in Canada that on Sept. 17, it obtained a thre-year extension of its lease agreement with Anadarko Land Corp. for the mineral rights associated with the Buick Coal Project, which is an undeveloped lignite reserve in Colorado. As a result of this extension, rentals and minimum advance royalties will not commence until the earlier of Jan. 23, 2016, or the start of production from this property. In October, the company engaged CH2M Hill to perform an assessment of the permitting process and timeline for a 300,000 ton per year mining operation at Buick.

CanAm, under another corporate name, tried years ago to develop both conventional coal-fired and coal-gasification power plants on this site, selling power to Public Service Co. of Colorado.

“Various permits and approvals are necessary to begin commercial operations of any proposed coal mining and/or heavy mineral mining,” the company said related to Buick. “Developing the property is capital intensive and the company will need to raise additional funding to maintain its position with regards to the coal. Furthermore, as a result of political and environmental pressure, coal-fired power plants will be required to capture a significant amount of the CO2 emissions. Although, various technologies and systems are under development and being tested, ‘clean coal’ energy power plants are not in use on a commercial scale at this time. Alternatives do exist for the development of Buick and they include development of a coal to gas or a coal to liquids plant. Likewise this development will require various permits and approvals and will be capital intensive and the company will need to raise additional funding to maintain its position in the property and development.”

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.