Cobalt Coal raises going concern warning, produces no coal

Cobalt Coal Ltd., a tiny metallurgical coal producer best known for being featured a few years ago in a reality TV series called “Coal,” raised a “going concern” warning about itself in a Nov. 27 financial report covering third quarter results.

Cobalt is a junior mining company based in Calgary, Alberta, that is engaged in the acquisition, development and production of metallurgical coal, principally in Central Appalachia. Cobalt stock trades on the TSX-V Exchange under the symbol “CCF.”

Cobalt owns the Westchester deep coal mine and its associated lease in McDowell County, W.Va. In January 2011, the company signed an additional 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.

In February and December 2012, the company acquired coal leases in Dickenson County, Va. The leases include five separate tracts of land covering approximately 5,300 acres, with one of the tracts being already permitted for production and for waste disposal enabling the construction of a wash plant on that tract.

As for the outlook for met coal in general, the company reported: “World–wide prices for metallurgical or ‘met’ coal have been subject to volatility during these difficult economic times, however, they have demonstrated resiliency especially compared to ‘steam’ or ‘thermal’ coal which is used for power generation as compared to met coal which is used in the steel making process. The met coal industry began a slowdown in the fall of 2011 which has continued into 2013. However, during this slowdown, principally caused by decreasing demand during this period from uncertainty in the worldwide economy (including a general slowdown in the Chinese economy), the uncertainty on the met coal supply side has subsided. There had been supply side uncertainty as a result of interruptions in Australian deliveries due to recurring floods and a newly implemented resource tax in Australia which had caused a significant increase in met coal producers’ unit production cost but Australia would now appear to be back supplying the Asian customers. Management continues to be of the belief that met coal prices will again be robust in the near term as demand increases affording the Company the opportunity to generate significant positive cash flow once Westchester production is optimized and the mines to be developed on the Virginia Properties are brought into production.”

During the first quarter of 2013, the company began preliminary work on the first tract of the Virginia Property with the intent of being in a position to commence coal production later in 2014. During 2013, the company initiated discussions with the aim of securing a joint venture partner or securing additional funding for the Virginia Properties.

In the fourth quarter of 2012, the operations at the Westchester Mine were suspended until Cobalt secures the financing necessary to complete Westchester electrification and to secure the additional equipment necessary to conduct operations on a consistent “up time” basis. The company said it continues to lack the necessary cash resources for the profitable operations of the Westchester Mine.

“Continuation of the Company as a going concern is dependent upon obtaining additional capital and/or achieving profitable operations and/or arranging a joint venture arrangement,” the filing said. “Unless the Company is able to conclude one or more of those objectives, the Company’s continuing operating losses, negative working capital at September 30, 2013 of $11.2 million and uncertainty regarding its ability to obtain financing in a timely manner, represent material uncertainties which raise significant doubt as to the Company’s ability to continue as a going concern.”

Revenue for the nine months ended Sept. 30 was nil from coal sales at the Westchester Mine as compared to $3,659,367 for the 2012 comparable period.

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.