CanAm Coal’s loss increases as it reworks its Alabama mines

CanAm Coal (TSX VENTURE: COE) (OTCQX: COECF), which has coal mines in Alabama, said May 28 that its revenue, EBITDA and net loss for the first quarter were $13.9m, $1.9m and a negative $1.8m respectively, as compared to $12.8m, $1.8m and a negative $1.2m in the year-ago quarter.

Sales for the first quarter were 150,000 tons as compared to 117,000 tons in the first quarter of 2012 and were on par with sales in in the third quarter (158,000 tons) and fourth quarter (154,000 tons) of 2012.

The first quarter of 2013 was mainly a transition quarter during which the company said it: undertook major mine development work at Old Union 2 and Knight; completed mine operations at Old Union and wound down operations at Bear Creek; performed mine reclamation work at Gooden Creek and Old Union; and moved equipment between mines.

While these transition activities took place, the company still delivered sales of approximately 150,000 tons in the quarter, on par with Q3 and Q4 of 2012 and substantially higher than in Q1 2012. This flurry of activities throughout the quarter resulted in less than optimal operating conditions and therefore the company said it was not able to sustain its normal production level efficiencies and the average production cost per ton was $56/ton, on par with the 2012 average production cost but higher than the company’s target of about $50/ton.

Sales for the quarter were 149,453 tons, more than double the Q1 2012 originally reported tons of 67,153 and up 27% on a restated basis of 117,192 tons. 

Long term off-take contracts continue to enable the company to achieve better than market pricing for its high quality coals. However, average sales price per ton is down quarter over quarter as a result of a changing coal mix following the additional 30% acquisition of Birmingham Coal & Coke (BCC). BCC only produces and sells thermal coal. The Q1 2013 price decline also relates to lower quality coals being sold in the power market due to end of mine situations mainly at the Bear Creek mine. 

Two new customer contracts were signed for a thermal and blend product for average monthly volumes of some 10,000 tons. A met coal contract for 4,000 tons a month was terminated in February and replaced in April with a new monthly off-take deal for about 3,000 tons, albeit at a lower price. On this basis, contracted sales for 2013 are now in the range of 700,000 to 800,000 tons, which corresponds to between 85% and 100% of expected production from the new mine complement. 

Company President and CEO Jos De Smedt said: “Our first quarter was extremely challenging from an operations perspective which translated in reasonable but weaker financial results. Operationally we continued the migration of our 2012 mine complement, comprised of our Bear Creek, Gooden Creek, Old Union and Powhatan mines, to an almost entire new mine configuration comprised of the Knight, Old Union 2, Posey Mill 2 and Powhatan mines. This transition and migration exercise involved major mine development work at our new mines, close out and reclamation activities at our old mines and moving of equipment and other resources from our old mines to our new mines. Basically our work force was building roads, stockyards and ponds at our new mines, closing and reclaiming our old mines, moving equipment between locations while at the same time producing and selling 150,000 tons of coal in the quarter. This complex transition resulted in less than optimal operating conditions and efficiency circumstances. Despite these challenges, which included usually wet weather through much of the quarter, the Company achieved sales levels on par with Q3 and Q4 of last year.”

He added: “With our new mines fully permitted, major mine development now completed and full production levels to be achieved in the latter part of Q2 2013, further significant growth is expected in 2013. In addition, the Company’s $14.5 million investment in equipment in 2012 positions CanAm to efficiently optimize production and sales from these new mines. With these building blocks in place, we look forward to strong growth into the remaining of 2013.”

Mines repositioned into new, higher-production configuration

Starting in late 2012, the company commenced a significant repositioning of its mining operations, as follows:

  • During Q4 2012, it opened the first pit of a new mine, Old Union 2, which will have an eventual three-pit mine configuration under a permit covering 1,393 acres. Old Union 2 replaced the Old Union mine, which completed mineable operations in Q1 2013;
  • During Q4 2012, received final permitting was done for the Knight mine, which covers 178 acres. The Knight mine replaces the Bear Creek mine, which was mined out in April 2013. The Knight mine achieved initial commercial level production in March 2013;
  • In Q1 2013, the company opened the second and third pits at Old Union 2; and
  • In Q1 2013, received final permitting for the Posey Mill 2 mine, which covers 781 acres. Operations started in May 2013 utilizing the equipment package currently operating at the Bear Creek mine.

Upon completion of the mine transition the company will operate four mines with six pits (Knight, Old Union 2 (three pits), Posey Mill 2 and Powhatan). Once fully operational, the productive capacity of the new mine complement is expected to be in the range of 60,000 to 80,000 tons per month, significantly in excess of the capacity of the old mine complement.

Overall Q1 2013 average pricing was $93/ton compared to $109/ton realized in Q1 2012 and $96/ton in Q4 2012. Metallurgical coal pricing was lower due to the February termination of a 4,000 ton per month contract. Metallurgical volumes for the remainder of the quarter were primarily used in a blend product, which realized a lower price. The company said it secured a new offtake arrangement for metallurgical volumes starting in Q2 2013, but at a lower price.

Q1 2013 thermal pricing was $88/ton compared to $103/ton in Q1 2012 and $90/ton in Q4 2012. Q1 2012 pricing was unusually high due to several one-off factors and is not a meaningful comparative, the company said. The $2/ton price decline to Q4 2012 relates to lower quality coal being sold into the power market partially offset by higher pricing achieved on new contracts. At the Bear Creek mine, coal quality has been declining the last two quarters as that mine nears the end of its useful life. The company believes this price decline is temporary and that average thermal pricing will improve back over $90 (and on increased volumes) once the Knight mine (which replaces the Bear Creek mine) achieves fullproduction during Q2.

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.