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LOUISVILLE, KY, Aug. 14 /PRNewswire-FirstCall/ - Phoenix Coal Inc. (TSX: PHC), a leading producer and consolidator of thermal coal reserves in the Illinois Basin, announced today its financial results for the three and six month periods ended June 30, 2008. Unless otherwise noted, all reserves and resources are expressed in imperial tons, and all financial information is expressed in U.S. dollars.
Highlights for the second quarter of 2008:
- Completed a reverse takeover ("RTO") by Phoenix Coal Corporation
("Phoenix") of Marimba Capital Corp. ("MCC") concurrently raising
$97,784,678, net of issuance costs;
- Coal sales increased 24.1% to 646,000 tons from 521,000 tons the
previous year;
- Revenue increased 29.3% to $21,326,102 from $16,494,604 with an
average revenue per ton of coal sold of $33.00;
- Secured the permit for the Company's underground mining project, the
Pratt Mine, and started planning for mine construction and equipment
purchases. The Pratt mine represents a reserve of coal that is
currently uncommitted, and is expected to realize the benefits from
higher prevailing market prices for thermal coal when the mine comes
into production; and
- Subsequent to the quarter end, the Company acquired C&R Coal Inc. and
Renfro Equipment Inc.
"With the necessary permitting in place, we are ready to begin construction on the Pratt Mine, which has the potential to significantly increase our production capacity in the years ahead," said David A. Wiley, Phoenix President and CEO. "Through our solid capital base and robust infrastructure, our company is well positioned to increase our reserves through additional acquisitions, add production capacity on our existing properties, and drive increased efficiencies in our current operations."
Financial Review:
For the three months ended June 30, 2008, Phoenix's revenue increased by 29.3% to $21,326,102 from $16,494,604 in the prior year comparative three month period. The growth in revenue was attributable to a 24.1% increase in sales volume and 4.2% increase in revenue per ton sold in the second quarter 2008 versus 2007. For the six months ended June 30, 2008, Phoenix's revenue increased by 22.2% to $39,821,562 from $32,589,816 in the prior year six month period. Sales volume was up 18.2% and revenue per ton sold grew 3.3% from 2007 to 2008. For the second quarter ended June 30, 2008 and the six months ended June 30, 2008, revenue per ton sold was very similar at $33.00 and $33.02, respectively. The increase over 2007 was due to contractual price increases from existing sales contracts and new sales contracts with better pricing terms.
For the three months ended June 30, 2008, Phoenix's cost of goods sold increased by 39% to $21,199,549 from $15,241,838 for the same period in 2007. Comparing the same periods on a cost per ton sold basis, cost of goods sold was $32.80 versus $29.27 for an increase of 12%. For the six months ended June 30, 2008, cost of goods sold was $38,684,869 versus $28,325,576 for the same period in 2007, or $32.07 per ton sold compared to $27.77. Diesel fuel and explosives had the largest impact on operating costs which was somewhat offset by lower maintenance and coal preparation costs.
For the three months ended June 30, 2008, Phoenix's Selling expenses were $2,074,001 versus $1,842,529 for the same period in 2007. For the six months ended June 30, 2008, Phoenix's Selling expenses were $4,144,935 versus $3,455,681 for the same period in 2007. Phoenix's selling costs are variable with respect to coal sales and ranged from approximately 10% to 11% of coal sales for the above mentioned periods.
General & Administrative (G&A) costs for the three months and six months ended June 30, 2008 were $3,813,178 and $5,412,290, respectively compared to $1,581,672 and $2,736,724, respectively, during similar periods in 2007. The primary variance is a non-cash charge to employee stock-based compensation, which was $2,151,277 for the second quarter 2008 and $2,291,277 for the six-month period ended June 30, 2008. On June 27, 2008, the board of directors granted 6,847,000 employee stock options, of which one-third vested on the grant date.
Depreciation and amortization expense for the three and six months ended June 30, 2008 were $2,043,344 and $3,107,176 respectively, compared to $712,721 and $1,283,565 for the corresponding periods in 2007. Depreciation expense for 2008 increased $253,750 for the quarter ended June 30 and $543,245 for the six months ended June 30 when compared to 2007. This increase in depreciation expense is directly related to $17,600,000 invested in mining equipment since September 30, 2007. Mining rights and mine development amortization expense increased year over year by $1,076,873 for the quarter and $1,280,366 for the six month period ended June 30 due to the amortization of mining rights resulting from the reclassification of goodwill to mining rights, and Stony Point operating for only part of the second quarter in 2007, and depleting its reserve in 2008 sooner than originally estimated. Additionally, amortization of development expenses at Back in Black did not begin until July 2007.
EBITDA for the three and six months ended June 30, 2008 were ($5,750,645) and ($8,541,117) respectively, compared to ($1,320,660) and ($1,100,592) during the same periods in 2007.
During the three and six months ended June 30, 2008, Phoenix incurred cash costs of $1,188,995 and $1,849,904 respectively in relation to operations that have been depleted or shuttered. These costs include post-mining reclamation expenses, royalty charges incurred in the termination of a lease, and operating losses at a depleted property. In addition to the above mentioned non-recurring losses, non-cash stock-based compensation expenses for the three and six months ended June 30, 2008 were $2,151,277 and $2,291,277 respectively.
The Adjusted EBITDA of Phoenix's ongoing operations for the three and six months ended June 30, 2008 were ($2,410,373) and ($4,399,936) respectively. The following table summarizes the adjusted EBITDA calculation.
Q2 YTD 6/30
2008 2008
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EBITDA ($5,750,645) ($8,541,117)
Non-recurring operating losses 1,188,995 1,849,904
Stock based compensation 2,151,277 2,291,277
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Adjusted EBITDA ($2,410,373) ($4,399,936)
Net loss in the three and six month periods ended June 30, 2008 were $10,695,632 and $16,711,098 respectively compared to $3,315,600 and $4,471,806 for the same periods in 2007.
As of June 30, 2008, Phoenix had $71,154,101 in cash and cash equivalents, compared to $381,374 at December 31, 2007. On June 27, the Company completed a reverse takeover ("RTO") raising $97,784,678 net of issuance costs. $25,000,000 of the proceeds was subsequently paid as final payment relating to the acquisition of Pact Resources LLC ("PACT"). Phoenix also had restricted cash as collateral for letters of credit for reclamation bonding in the amount of $2,226,075 at June 30, 2008 versus $2,312,500 at December 31, 2007.
Other Developments
Subsequent to the quarter end, the Company announced on August 5th that the Kentucky State Department of Natural Resources had issued a mine permit to Phoenix's subsidiary Pact Resources, LLC for its Pratt Mine in Webster County, Kentucky. The Pratt underground reserve is estimated to possess 28.9 million tons of proven and probable reserves with an additional 5.2 million tons of measured and indicated resource. Phoenix is in the process of establishing equipment specifications with manufacturers, and delivery dates have been targeted in advance of the planned mine opening in 2010.
In July 2008, the Company's subsidiary, R&L Winn Inc. ("R&L Winn"), purchased all of the outstanding common shares of C&R Coal Inc ("C&R"). Under the terms of the agreement, R&L Winn assumed all assets and liabilities of C&R and will pay the former owners $0.60 per ton for each ton of coal sold from the C&R mines. The current mining area, Beech Creek and Beech Creek South, contained approximately 500,000 reserve tons (697,000 reserves tons as of December 31, 2007 per the Company's National Instrument 43-101 revised technical report less coal mined in the first half of 2008) as of June 30, 2008. R&L Winn also acquired other leases in the transaction from C&R and R&G Leasing, LLC, a company that is affiliated with C&R through common ownership. Based on exploration completed to date by the Company, management estimates the leases contain approximately five to seven million tons of coal. The potential quantity is conceptual in nature as there has been insufficient exploration to define a mineral resource and it is uncertain that further exploration will result in the delineation of a mineral resource. The Company has engaged a third party engineering firm to issue a technical report that is compliant with National Instrument 43-101.
In July 2008, Phoenix purchased all of the outstanding common shares of Renfro Equipment, Inc. ("Renfro") for a purchase price of $1,500,000. The purchase includes all assets and liabilities of Renfro, except certain equipment and associated debt specifically excluded from the purchase. The purchase price will be adjusted for net working capital as of the closing date. Based on exploration completed to date by the Company, management estimates Renfro controls approximately 1.5 million tons of coal via lease. The potential quantity is conceptual in nature as there has been insufficient exploration to define a mineral resource and it is uncertain that further exploration will result in the delineation of a mineral resource. The Company has engaged a third party engineering firm to issue a technical report that is compliant with National Instrument 43-101. Additionally, if by the second anniversary of the closing date, Phoenix acquires at least 1.5 million reserve tons as defined by National Instrument 43-101 due to the direct efforts of the sellers (the "Additional Reserves"), the Company will pay the sellers $1,000,000 for the first 1.5 million tons of reserves, plus $0.50 per ton for each reserve ton in excess of 1.5 million. The share purchase agreement defines a specific territory from which the Additional Reserves can be acquired. The acquisition of the Additional Reserves is on terms and conditions acceptable to Phoenix in its sole, reasonable discretion.
Management's discussion and analysis (MD&A), consolidated financial statements and notes thereto for the second quarter are available at www.sedar.com.
About Phoenix Coal Inc.
Phoenix Coal Inc. is an integrated mining operation producing approximately 2.5 million tons of high sulphur, low chlorine, bituminous coal annually from the Illinois Basin. To address the increasing demand for energy in the Eastern US as well as in the export market, Phoenix Coal is pursuing production growth through the focused acquisition, consolidation, and extraction of coal assets. The Company's executive offices are located in Louisville, KY and its operational headquarters are stationed in Madisonville, KY.
FORWARD-LOOKING STATEMENTS
Certain information set forth in this press release contains "forward-looking statements", and "forward-looking information" under applicable securities laws. Except for statements of historical fact, certain information contained herein constitutes forward-looking statements which include management's assessment of Phoenix's future plans and operations and are based on Phoenix's current internal expectations, estimates, projections, assumptions and beliefs, which may prove to be incorrect. Some of the forward-looking statements may be identified by words such as "expects" "anticipates", "believes", "projects", "plans", and similar expressions. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause Phoenix's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to: liabilities inherent in coal mine development and production; geological, mining and processing technical problems; Phoenix's inability to obtain required mine licenses, mine permits and regulatory approvals required in connection with mining and coal processing operations; dependence on third party coal transportation systems; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; changes in commodity prices and exchange rates; changes in the regulations in respect to the use of coal; the effects of competition and pricing pressures in the coal market; the oversupply of, or lack of demand for, coal; currency and interest rate fluctuations; various events which could disrupt operations and/or the transportation of coal products, including labor stoppages and severe weather conditions; the demand for and availability of rail, port and other transportation services; and management's ability to anticipate and manage the foregoing factors and risks. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Phoenix undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements.
The TSX has neither approved nor disapproved of the contents of this
press release.
SOURCE Phoenix Coal Inc.
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