Corsa Coal Announces Financial Results for Second Quarter 2019
CANONSBURG, Aug. 20, 2019 - Corsa Coal Corp. (TSXV: CSO; OTCQX: CRSXF) ("Corsa" or the "Company"), a premium quality metallurgical coal producer, today reported financial results for the three and six months ended June 30, 2019. Corsa has filed its unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2019 and 2018 and related management's discussion and analysis under its profile on www.sedar.com.
Unless otherwise noted, all dollar amounts in this news release are expressed in United States dollars and all ton amounts are short tons (2,000 pounds per ton). Pricing and cost per ton information is expressed on a free-on-board, or FOB, mine site basis, unless otherwise noted.
Second Quarter and First Half Highlights
- Corsa reported net and comprehensive income from continuing operations of $3.6 million, or $0.03 per share attributable to shareholders, for the second quarter 2019, compared to a loss of $4.9 million, or $(0.05) per share attributable to shareholders, for the second quarter 2018. Net and comprehensive income from continuing operations for the six months ended June 30, 2019 was $6.6 million, or $0.05 per share attributable to shareholders compared to a loss of $2.9 million, or $(0.04) per share attributable to shareholders for the six months ended June 30, 2018.
- Corsa's adjusted EBITDA(1) was $10.1 million and $19.3 million for the three and six months ended June 30, 2019 compared to $4.3 million and $15.2 million for the three and six months ended June 30, 2018. Corsa's EBITDA(1) was $10.2 million and $19.8 million for the three and six months ended June 30, 2019 compared to $2.3 million and $11.4 million for the three and six months ended June 30, 2018.
- Cash production cost per ton sold(1) was $84.55 for the second quarter 2019, a decrease of $7.65 per ton, or 8%, as compared to the second quarter 2018. Cash production cost per ton sold(1) was $83.92 for the six months ended June 30, 2019, a decrease of $7.87 per ton, or 9%, as compared to the six months ended June 30, 2018.
- Operating cash flows provided by continuing operations for the three and six months ended June 30, 2019 were $8.8 million and $14.5 million, respectively, compared to a use of $4.6 million and cash provided by continuing operations of $3.2 million for the three and six months ended June 30, 2018, respectively.
- Total revenue from continuing operations was $63.0 million for the second quarter 2019 compared to $57.3 million for the second quarter 2018, an increase of 10%. Total revenue from continuing operations was $120.3 million for the six months ended June 30, 2019 compared to $137.8 million for the six months ended June 30, 2018.
- Low volatile metallurgical coal sales tons, comprised of "Company Produced" tons and "Value Added Services" purchased coal tons, were 414,105 in the second quarter 2019 compared to 282,444 in the second quarter 2018. In the second quarter 2019, Corsa sold a total of 36,306 "Sales and Trading" tons, which are treated as pass-through from a profitability perspective, compared to 109,890 tons in the second quarter 2018. See "2019 Year-to-Date Sales Metrics" for a description of Corsa's three types of metallurgical coal sales.
- Corsa achieved an average realized price per ton of metallurgical coal sold(1) of $117.48 for all metallurgical qualities in the second quarter 2019 compared to $115.52 in the second quarter 2018. This average realized price is the approximate equivalent of $168 to $174 on an FOB vessel basis.(2) For the second quarter 2019, Corsa's sales mix included 31% of sales to domestic customers and 69% of sales to international customers.
- Subsequent to June 30, 2019, certain wholly-owned subsidiaries of Corsa, as borrowers, entered into a senior secured revolving credit facility with KeyBank National Association for up to $25 million and a lease financing agreement with Key Equipment Finance, as lessor and assignor, and 36th Street Capital Partners, LLC, as assignee, for the sale and leaseback of various coal mining equipment for a funding amount of $12 million. These new facilities replace the $25 million senior secured term credit facility with Sprott Resource Lending Corp.
| (1) | This is a non-GAAP financial measure. See "Non-GAAP Financial Measures" below. |
| (2) | Similar to most U.S. metallurgical coal producers, Corsa reports sales and costs per ton on an FOB mine site basis and denominated in short tons. Many international metallurgical coal producers report prices and costs on a delivered-to-the-port basis (or "FOB vessel basis"), thereby including freight costs between the mine and the port. Additionally, Corsa reports sales and costs per short ton, which is approximately 10% lower than a metric ton. For the purposes of this figure, we have used an illustrative freight rate of $35-$40 per short ton. Historically, freight rates rise and fall as market prices rise and fall. As a note, most published indices for metallurgical coal report prices on a delivered-to-the-port basis and denominated in metric tons. |
Peter Merritts, Chief Executive Officer of Corsa, commented, "During the second quarter of 2019, Corsa reached a milestone as all of our active mining locations are now operating at their full run-rate capacity. We began realizing the benefits of this ramp-up in the second quarter, as production from our mines hit a new five-year high for the Company, surpassing the previous quarterly production record, set in the first quarter of this year, by 13%. Operations continued to perform well in the second quarter as cash production cost per ton sold improved by 8% from a year ago. We expect to continue to experience these benefits as the year progresses. The Company made significant advances on free cash flow generation during the quarter increasing the Company's cash position by $4.5 million.
The outlook for metallurgical coal pricing is challenged in the upcoming months, and we are taking steps to minimize the market decline impact on our business. Although the market has weakened in the near term, we continue to believe the fundamentals for metallurgical coal pricing will remain supportive in the coming quarters, driven by continued global economic growth and limited investment in new coal production. As a result of this market pull back, we have adjusted our guidance downward to reflect the impact of the current price forecasts. We expect to continue to be profitable in the existing price environment and will continue to focus on cost control and discipline in managing our operations."
2019 Year-to-Date Sales Metrics
Corsa's metallurgical coal sales figures are comprised of three types of sales: (i) selling coal that Corsa produces ("Company Produced"); (ii) selling coal that Corsa purchases and provides value added services (storing, washing, blending, loading) to make the coal saleable ("Valued Added Services"); and (iii) selling coal that Corsa purchases on a clean or finished basis from suppliers outside the Northern Appalachia region ("Sales and Trading"). For the six months ended June 30, 2019, Corsa's sales were broken down into the following categories.
| Metallurgical Coal Sales by Category (Tons) | |||||||||
| Q1 2019 | Q2 2019 | YTD 2019 | |||||||
| Company Produced | 280,657 | 319,202 | 599,859 | ||||||
| Purchased - Value Added Services | 78,197 | 94,903 | 173,100 | ||||||
| Purchased - Sales and Trading | 49,982 | 36,306 | 86,288 | ||||||
| Total | 408,836 | 450,411 | 859,247 | ||||||
Financial and Operations Summary
| For the three months ended | For the six months ended | |||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||
| Increase | Increase | |||||||||||||||||||
| (in thousands) | 2019 | 2018 | (Decrease) | 2019 | 2018 | (Decrease) | ||||||||||||||
| Revenues | $ | 62,974 | $ | 57,331 | $ | 5,643 | $ | 120,308 | $ | 137,779 | $ | (17,471) | ||||||||
| Cost of sales(2) | $ | 55,017 | $ | 55,097 | $ | (80) | $ | 104,919 | $ | 125,826 | $ | (20,907) | ||||||||
| Selling, general and administrative | $ | 4,155 | $ | 5,100 | $ | (945) | $ | 8,710 | $ | 11,557 | $ | (2,847) | ||||||||
| expense | ||||||||||||||||||||
| Net and comprehensive income (loss) for | $ | 3,603 | $ | (4,889) | $ | 8,492 | $ | 6,605 | $ | (2,932) | $ | 9,537 | ||||||||
| the period from continuing operations | ||||||||||||||||||||
| Cash provided by operating activities from | $ | 8,754 | $ | (4,556) | $ | 13,310 | $ | 14,472 | $ | 3,215 | $ | 11,257 | ||||||||
| continuing operations | ||||||||||||||||||||
| EBITDA(1) | $ | 10,236 | $ | 2,287 | $ | 7,949 | $ | 19,754 | $ | 11,393 | $ | 8,361 | ||||||||
| Adjusted EBITDA(1) | $ | 10,088 | $ | 4,305 | $ | 5,783 | $ | 19,272 | $ | 15,166 | $ | 4,106 | ||||||||
| Coal sold - tons | ||||||||||||||||||||
| NAPP – metallurgical coal | 450 | 392 | 58 | 859 | 950 | (91) | ||||||||||||||
| (1) | This is a non-GAAP financial measure. See "Non-GAAP Financial Measures" below. |
| (2) | Cost of sales consists of the following: |
| For the three months ended | For the six months ended | |||||||||||
| June 30, | June 30, | |||||||||||
| (in thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||
| Mining and processing costs | $ | 25,249 | $ | 17,107 | $ | 47,299 | $ | 37,447 | ||||
| Purchased coal costs | 12,928 | 20,146 | 24,946 | 48,561 | ||||||||
| Royalty expense | 1,826 | 1,041 | 3,406 | 3,124 | ||||||||
| Amortization expense | 5,667 | 6,233 | 11,160 | 12,422 | ||||||||
| Transportation costs from preparation plant to customer | 8,281 | 9,884 | 15,482 | 22,785 | ||||||||
| Idle mine expense | 323 | 131 | 795 | 240 | ||||||||
| Tolling costs | 802 | 696 | 1,871 | 1,131 | ||||||||
| Write-off of advance royalties and other assets | — | — | — | 5 | ||||||||
| Other costs | (59) | (141) | (40) | 111 | ||||||||
| $ | 55,017 | $ | 55,097 | $ | 104,919 | $ | 125,826 | |||||
| For the three months ended | For the six months ended | |||||||||||||||||
| June 30, | June 30, | |||||||||||||||||
| 2019 | 2018 | Variance | 2019 | 2018 | Variance | |||||||||||||
| Realized price per ton sold(1) | ||||||||||||||||||
| NAPP – metallurgical coal | $ | 117.48 | $ | 115.52 | $ | 1.96 | $ | 117.00 | $ | 117.25 | $ | (0.25) | ||||||
| Cash production cost per ton sold(1)(2) | ||||||||||||||||||
| NAPP – metallurgical coal | $ | 84.55 | $ | 92.20 | $ | 7.65 | $ | 83.92 | $ | 91.79 | $ | 7.87 | ||||||
| Cash cost per ton sold(1)(3) | ||||||||||||||||||
| NAPP – metallurgical coal | $ | 88.66 | $ | 97.02 | $ | 8.36 | $ | 87.48 | $ | 93.28 | $ | 5.80 | ||||||
| Cash margin per ton sold(1) | ||||||||||||||||||
| NAPP – metallurgical coal | $ | 28.82 | $ | 18.50 | $ | 10.32 | $ | 29.52 | $ | 23.97 | $ | 5.55 | ||||||
| EBITDA(1) (000's) | ||||||||||||||||||
| NAPP | $ | 11,865 | $ | 4,462 | $ | 7,403 | $ | 23,280 | $ | 15,590 | $ | 7,690 | ||||||
| Corporate | (1,629) | (2,175) | 546 | (3,526) | (4,197) | 671 | ||||||||||||
| Total | $ | 10,236 | $ | 2,287 | $ | 7,949 | $ | 19,754 | $ | 11,393 | $ | 8,361 | ||||||
| Adjusted EBITDA(1) (000's) | ||||||||||||||||||
| NAPP | $ | 11,155 | $ | 5,660 | $ | 5,495 | $ | 21,615 | $ | 17,879 | $ | 3,736 | ||||||
| Corporate | (1,067) | (1,355) | 288 | (2,343) | (2,713) | 370 | ||||||||||||
| Total | $ | 10,088 | $ | 4,305 | $ | 5,783 | $ | 19,272 | $ | 15,166 | $ | 4,106 | ||||||
| (1) | This is a non-GAAP financial measure. See "Non-GAAP Financial Measures" below. |
| (2) | Cash production cost per ton sold excludes purchased coal. This is a non-GAAP financial measure. See "Non-GAAP Financial |
| (3) | Cash cost per ton sold includes purchased coal. This is a non-GAAP financial measure. See "Non-GAAP Financial Measures" |
GUIDANCE(a)
Corsa's updated guidance for the year ending December 31, 2019 reflects the impact of coal market reactions to concerns of a slowing global economy. This reaction caused index prices to weaken and is the primary reason that our guidance has been reduced. Additionally, in response to the market decline, Corsa has reduced general and administrative expense.
| (all dollar amounts in U.S. dollars and | Updated Guidance | Previous Guidance | Change to Previous | ||||
| Metallurgical Coal Sales Tons | |||||||
| Company Produced | 1.250 to 1.400 million | 1.250 to 1.400 million | — | ||||
| Purchased - Value Added Services | 0.300 to 0.350 million | 0.300 to 0.400 million | 0 - (0.050) million | ||||
| Purchased - Sales and Trading | 0.300 to 0.400 million | 0.325 to 0.425 million | (0.025) million | ||||
| Total Metallurgical Coal Sales Tons | 1.850 to 2.150 million | 1.875 to 2.225 million | (0.025) - (0.075) million | ||||
| Share of Metallurgical Coal Sales Tons | |||||||
| % Domestic Sales at the mid-point | 27% | 29% | (2)% | ||||
| % Export Sales at the mid-point | 73% | 71% | 2% | ||||
| Metallurgical Coal Sales Tons Commitments(f) | |||||||
| Committed at the mid-point | 89% | 79% | 10% | ||||
| Committed and Priced at the mid- | 74% | 50% | 24% | ||||
| point | |||||||
| Cash Production Cost per ton sold (FOB Mine)(c)(d) | |||||||
| NAPP Division Metallurgical Coal | $78 - $82 | $78 - $82 | — | ||||
| General and Administrative Expenses(e) | |||||||
| NAPP Division | $7.5 - $8.0 million | $8.5 - $9.0 million | ($1.0) million | ||||
| Corporate Division | $3.9 - $4.4 million | $5.0 - $5.5 million | ($1.1) million | ||||
| Total Corsa | $11.4 - $12.4 million | $13.5 - $14.5 million | ($2.1) million | ||||
| Note: Selling expenses are forecasted to be covered by margins from Sales and Trading tons sold. | |||||||
| Net and comprehensive income | $7 to $10 million | $13 to $15 million | ($6) - ($5) million | ||||
| Adjusted EBITDA(c) | $33 - $37 million | $42 - $46 million | ($9) million | ||||
| Capital Expenditures per ton sold(f) | |||||||
| Maintenance capital expenditures | $5 | $5 | — | ||||
| Total capital expenditures | $5 | $5 | — | ||||
| (a) | Guidance projections ("Guidance") are considered "forward-looking statements" and "forward looking information" and represent management's |
| (b) | Previous guidance was presented in the Company's MD&A for the three months ended March 31, 2019 dated May 8, 2019. |
| (c) | This is a non-GAAP financial measure. See "Non-GAAP Financial Measures" below. |
| (d) | Cash production cost per ton sold excludes purchased coal. |
| (e) | Exclusive of stock-based compensation and selling related commissions, bank fees and finance charges. |
| (f) | Tons sold excludes purchased coal used in the Sales and Trading platform. |
| 2019 Net Income and Adjusted EBITDA Guidance Assumptions | ||
| Price Case 2H 2019: $164.83/mt FOB Vessel | Net and comprehensive income $7 - $10 million | |
| Current TSI FOB Aus. Spot Price | $153.90/metric ton FOB Vessel | |
| Forward TSI FOB Aus. Curve ($/mt FOB Vessel) | ||
| 2H 2019 (Average) | $161.42 | |
| Adjusted EBITDA sensitivity to movement in seaborne price (unpriced volumes only): | ||
| $10/metric ton FOB Vessel: | $3.5 to $4.0 million | |
Coal Pricing Trends and Outlook
Price levels stayed above $200/metric ton ("mt") delivered-to-the-port basis ("FOBT") for spot deliveries of Australian premium low volatile metallurgical coal through early June, hitting a high in mid-May of $210/mt, primarily due to strong imports into China and India. Late in the second quarter the market reacted to concerns of a slowing global economy and finished at $193 FOBT for Australian premium low volatile metallurgical coal. Since the end of the second quarter 2019, spot prices have further weakened to $154/mt, a decrease of $62/mt since the beginning of 2019, a 29% decline. The quarterly price average for the second quarter of 2019 was $203/mt FOBT for Australian premium low volatile metallurgical coal, compared to $207/mt in the first quarter of 2019. The forward curve for the balance of the year has weakened with current prices at $161/mt down $22/mt since the beginning of the year. The forward curve for 2020 declined from $175/mt to $160/mt.
In late May 2019, Turkey reduced its import tariff on imported coking coal from the U.S. from 13.7% to 5%. The lower import tariff will allow U.S. coking coal exports to be sold into Turkey more competitively. Recent news has been focused on bankruptcies of U.S. coking coal producers. Currently, there are three U.S. producers in bankruptcy and two of the producers have shut down production, which has limited near term supply availability. Finally, U.S. domestic buyers have started their annual buying process by issuing the first round of tenders for 2020 business.
The World Steel Association reports that global steel production through May is up 5% year-to-date while the U.S. is up 6.2%, China is up 10.2% and Asia is up 7.4%. China represents 54.7% of global steel production. Chinese hot-rolled coil steel prices are up 6% since the start of the year while Northern European prices are down 10% and U.S. prices are down 24% to $560/net ton. Trade data through May shows Chinese coking coal imports are up 30% year-to-date while India's coking coal imports are up 23% year-to-date. China recently announced new coking coal import restrictions until further notice. Preliminary U.S. coking coal export data shows an 8.5% decline for a total of 24 million tons year-to-date through May which would imply annual coking coal exports declining 3-4 million tons in 2019.
Financial Statements and Management's Discussion and Analysis
Refer to Corsa's unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2019 and 2018 and related management's discussion and analysis, filed under Corsa's profile on www.sedar.com, for details of the financial performance of Corsa and the matters referred to in this news release.
Non-GAAP Financial Measures
Management uses realized price per ton sold, cash production cost per ton sold, cash cost per ton sold, cash margin per ton sold, EBITDA and adjusted EBITDA as internal measurements of financial performance for Corsa's mining and processing operations. These measures are not recognized under International Financial Reporting Standards ("GAAP"). Corsa believes that, in addition to the conventional measures prepared in accordance with GAAP, certain investors and other stakeholders also use these non-GAAP financial measures to evaluate Corsa's operating and financial performance; however, these non-GAAP financial measures do not have any standardized meaning and therefore may not be comparable to similar measures presented by other issuers. Accordingly, these non-GAAP financial measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Reference is made to the management's discussion and analysis for the three and six months ended June 30, 2019 for a reconciliation and definitions of non-GAAP financial measures to GAAP measures.
Corsa defines adjusted EBITDA as EBITDA (earnings before deductions for interest, taxes, depreciation and amortization) adjusted for change in estimate of reclamation provision for non-operating properties, impairment and write-off of mineral properties and advance royalties, gain (loss) on sale of assets and other costs, stock-based compensation, non-cash finance expenses and other non-cash adjustments. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements to assess our performance as compared to the performance of other companies in the coal industry, without regard to financing methods, historical cost basis or capital structure; the ability of our assets to generate sufficient cash flow; and our ability to incur and service debt and fund capital expenditures.
Qualified Person
All scientific and technical information contained in this news release has been reviewed and approved by Peter Merritts, Professional Engineer and the Company's Chief Executive Officer, who is a qualified person within the meaning of National Instrument 43-101 – Standards of Disclosure for Mineral Projects.
Caution
The estimated coal sales, projected market conditions and potential development disclosed in this news release are considered to be forward looking information. Readers are cautioned that actual results may vary from this forward-looking information. Actual sales are subject to variation based on a number of risks and other factors referred to under the heading "Forward-Looking Statements" below as well as demand and sales orders received.
Information about Corsa
Corsa is a coal mining company focused on the production and sales of metallurgical coal, an essential ingredient in the production of steel. Our core business is producing and selling metallurgical coal to domestic and international steel and coke producers in the Atlantic and Pacific basin markets.
Forward-Looking Statements
Certain information set forth in this press release contains "forward-looking statements" and "forward-looking information" (collectively, "forward-looking statements") under applicable securities laws. Except for statements of historical fact, certain information contained herein relating to projected sales, coal prices, coal production, mine development, the capacity and recovery of Corsa's preparation plants, expected cash production costs, geological conditions, future capital expenditures and expectations of market demand for coal, constitutes forward-looking statements which include management's assessment of future plans and operations and are based on 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 "estimates", "expects" "anticipates", "believes", "projects", "plans", "capacity", "hope", "forecast", "anticipate", "could" 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 Corsa'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: risks that the actual production or sales for the 2019 fiscal year will be less than projected production or sales for this period; risks that the prices for coal sales will be less than projected; liabilities inherent in coal mine development and production; geological, mining and processing technical problems; inability to obtain required mine licenses, mine permits and regulatory approvals or renewals required in connection with the mining and processing of coal; risks that Corsa's preparation plants will not operate at production capacity during the relevant period, unexpected changes in coal quality and specification; variations in the coal mine or preparation plant recovery rates; 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, mining and processing of coal; changes in regulations on refuse disposal; the effects of competition and pricing pressures in the coal market; the oversupply of, or lack of demand for, coal; inability of management to secure coal sales or third party purchase contracts; 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; the ability to purchase third party coal for processing and delivery under purchase agreements; and management's ability to anticipate and manage the foregoing factors and risks. The forward-looking statements and information contained in this press release are based on certain assumptions regarding, among other things, coal sales being consistent with expectations; future prices for coal; future currency and exchange rates; Corsa's ability to generate sufficient cash flow from operations and access capital markets to meet its future obligations; the regulatory framework representing royalties, taxes and environmental matters in the countries in which Corsa conducts business; coal production levels; Corsa's ability to retain qualified staff and equipment in a cost-efficient manner to meet its demand; and Corsa being able to execute its program of operational improvement and initiatives. 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. The reader is cautioned not to place undue reliance on forward-looking statements. Corsa does not undertake to update any of the forward-looking statements contained in this press release unless required by law. The statements as to Corsa's capacity to produce coal are no assurance that it will achieve these levels of production or that it will be able to achieve these sales levels.
The TSX Venture Exchange has in no way passed on the merits of this news release. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
SOURCE Corsa Coal Corp.
Contact
Kevin M. Harrigan, Chief Financial Officer and Corporate Secretary, Corsa Coal Corp., (724)754-0028, communication@corsacoal.com, www.corsacoal.com