XINERGY LTD. ANNOUNCES FINANCIAL Q1 2011 RESULTS

Toronto Stock Exchange: XRG
(All Amounts in $US unless otherwise stated)

KNOXVILLE, TN, May 24, 2011 /CNW/ - Xinergy Ltd., (TSX:XRG) ("Xinergy" or the "Company"), a US Central Appalachian producer of high quality coal, today announced the release of financial and operating results for the three months ended March 31, 2011, together with its Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") for the corresponding period.  These documents are posted on SEDAR at www.sedar.com and on the Company's website at www.xinergycorp.com.

During the three month period ended March 31, 2011, the company generated EBITDA of approximately $4.7 million versus a negative EBITDA of ($1.4) million for the same period in 2010.  Coal sales revenues increased 448% to $43.1 million in the first quarter of 2011 from $7.9 million in the same period in 2010, and gross margin per ton increased 583% to $14.42 in the first quarter of 2011 from $2.11 in the same period in 2010.

Commenting on the Company's first quarter results, Xinergy's Chief Financial Officer Michael R. Castle said, "Despite the numerous challenges in the first quarter of 2011 including delayed shipments to our largest customer, this quarter's performance marks a solid start to 2011 and one from which we can build on in the subsequent periods to come.  We will continue to focus on maintaining our low cash production costs and increasing margins as we continue to increase production, which will position us well for continued future growth and improved financial performance."

Highlights for the Quarter Ended March 31, 2011 and Subsequent Events

  • In May 2011, we issued at par $200.0 million face amount of our 9.25% senior secured notes due May 15, 2019.  Interest payments are required semi-annually beginning November 2011.  We may redeem the notes, in whole or in part, at any time on or after May 15, 2015 at redemption prices ranging from 104.625% beginning May 15, 2015 to 100% beginning on May 15, 2018.  We used approximately $72 million of the net proceeds from the offering to repay in full our existing 9.75% senior secured notes due 2015 (including prepayment penalties of 10% of the principal amount thereof).  The remaining funds will be used for the construction of a preparation plant, the purchase of underground mining equipment along with support equipment as well as necessary infrastructure development at the recently acquired Brier Creek underground mining property in West Virginia, the construction of a rail siding and loading facility and surface mining equipment at the recently acquired Greenbrier County, West Virginia metallurgical property and for general corporate purposes.  As of the date of this filing, the Company has approximately $123.0 million of these proceeds on hand and expects to begin employing these funds late in the second quarter and early third quarter of 2011.
  • We have been working with a nationally recognized investment banking firm to assist in our efforts to list our common stock on a United States securities exchange.  We expect this listing to be completed during the third quarter of 2011.
  • In May 2011, we entered into a non-binding letter of intent ("LOI") to acquire a high volatility metallurgical surface mining operation in southwestern Virginia.  We believe this property contains approximately 4.0 million tons of coal mineral reserves and anticipate ultimate production at an annual rate of approximately 200,000 to 300,000 tons.  We expect to pay $18.0 million in aggregate consideration consisting of (i) $200,000 non-refundable deposit that was paid upon execution of the LOI, (ii) $13.8 million payable at closing, (iii) $4.0 million upon execution of certain leases and receipt of certain mining permits, subject to a net working capital adjustment. We are currently conducting due diligence on this property and expect to enter into a purchase agreement no later than June 30, 2011.
  • In April 2011, we entered into a coal reserve lease with Michael Dean for 7,000 acres of a tract of land adjacent to and west of our Straight Creek properties in Bell County, Kentucky (referred to herein as the Dean property).  We have begun a drilling program on this tract in order to prepare a technical report in accordance with NI 43-101 standards.
  • In March 2011, we entered into leases with Penn Virginia Operating Co., LLC on a tract of land known as Brier Creek, which is adjacent to and north of our Raven Crest properties in Kanawha and Boone Counties, West Virginia.  The leases include surface leases and coal subleases to thermal coal reserves at two fully-permitted and faced-up deep mines.  We also acquired active permits for a coal preparation plant and refuse area on the adjacent property known as Bull Creek.  Summit Engineering completed a mineral reserve estimate report compliant with National Instrument 43-101 ("NI 43-101") standards on March 30, 2011.  We expect initial production to begin in early 2012 after construction of a new preparation plant on the Bull Creek property, initially at a rate 50,000 tons per month, with production expected to increase to an annual rate of 1.2 million tons per year in 2013, subject to market conditions.
  • In February 2011, we had a major customer temporarily idle a facility that was receiving coal from our Kentucky mining operations.  This resulted in a shipment deferral of approximately 90,000 to 100,000 tons in the quarter ended March 31, 2011. The customer has re-opened this facility and has scheduled for the Company to resume shipments beginning May 28, 2011.  The first quarter impact of deferring these shipments was approximately $5.0 to $5.5 million in EBITDA in addition to increases in production costs associated with temporary changes in mine plans, scheduled production and additional coal handling costs to accommodate new short term customer requirements.
  • In January 2011, we acquired a high quality, mid-volatility metallurgical coal reserve located in Greenbrier County, West Virginia.  Summit Engineering completed a mineral reserve estimate report compliant with NI 43-101 standards on March 16, 2011.  We expect to receive permits for one and possibly two mines on a portion of the property referred to as Lost Flatts by late in the third quarter of 2011, and expect initial production to begin in the early part of the fourth quarter of 2011 initially at a rate of 10,000 to 20,000 tons per month, with production expected to increase to an annual rate of approximately 1.0 million tons once fully developed.

Outlook

Thermal Coal Production and Sales

In December 2010, we announced plans to produce from then controlled thermal coal properties 2.8 to 3.0 million tons in 2011 and 3.5 to 4.0 million tons in 2012.  At this time we are updating this guidance as follows:

  • In 2011, we expect to sell 2.8 million tons of thermal coal including coal that will be produced from existing mining operations and coal purchased from third parties.   This adjustment is being driven due to our desire to defer the ramp up of previously expected 2011 production from current mines until 2012 in anticipation of sales commitments in 2012 through 2014 at prices above current 2011 market prices. To date this strategy has allowed us to develop relationships with new customers as evidenced by the increase in committed sales for 2012 of 1.6 million tons at an average sales price per ton of $82.65 or $134.4 million in the aggregate, 2.0 million tons in 2013 at an average sales price per ton of $82.90 or $165.8 million in the aggregate, and 1.7 million tons in 2014 at an average sales price per ton of $87.04 or $144.5 million in the aggregate.  As of March 31, 2011, we have contracted thermal coal sales of 1,192,553 tons at an average sales price of $95.62 per ton for the remainder of 2011.  We are continuing to develop and strengthen long term relationships with potential customers and increase committed sales in the near term.
  • In each of 2012 and 2013, we expect to produce and sell 3.0 to 3.5 million tons from all thermal mining operations. This includes the following:
    • 1.8 to 2.1 million tons from the Kentucky Straight Creek mines;
    • 0.8 to 0.9 million tons from the West Virginia Raven Crest surface mines; and
    • 0.4 to 0.5 million tons from the West Virginia Brier Creek underground mines.
  • We anticipate maintaining cash production costs on our currently active surface mines between $50 and $55 per ton through 2011, $57 and $62 per ton in 2012 and $60 to $65 per ton 2013.  This increase in mining costs in 2012 and 2013 is a direct result of additional hauling and handling costs associated with ongoing mine development and additional areas under permit as the mines continue to expand from their present locations. We anticipate cash production costs for the Brier Creek underground mining operations to be $65 to $70 per ton in 2012 and 2013.
  • We expect construction to begin on the coal preparation plant at the recently acquired Brier Creek underground property in West Virginia in the second quarter of 2011 along with upgrades to the load out facility that is currently in place and being used by the Raven Crest surface mines. Production from these permitted underground mines is expected to begin in early 2012, slowly increasing to 40,000 to 50,000 tons per month in 2012.

Metallurgical Coal Production and Sales

In January 2011, we acquired a high quality, mid-volatility metallurgical coal reserve located in Greenbrier County, West Virginia through our wholly owned subsidiary, South Fork Coal Co., LLC ("South Fork").  We expect to receive permits for one and possibly two mines on a portion of the property referred to as Lost Flats by late in the third quarter of 2011, and another permit in the first quarter of 2012 on a portion of the property known as Blue Knob. We expect initial production to begin in the early part of the fourth quarter of 2011 initially at a rate of 10,000 to 20,000 tons per month, with production expected to increase to an annual rate of up to 1.0 million tons in 2012 and up to 1.2 million tons in 2013.  Currently we do not have any metallurgical tons available for sale. However, based on indications of interest that we have received and current benchmark pricing (as adjusted for the specifications of our Blue Knob and Lost Flats product), we anticipate price realizations in excess of $200 per ton at the mine.  We expect our cash costs on the Greenbrier surface operations to be in the range of $95.00 to $100.00 per ton.

Financial Overview

The following tables present selected balance sheet, statement of operations and coal production and sales data as of March 31, 2011 and December 31, 2010 and for the three months ended March 31, 2011 and 2010.

  As of   As of  
  March 31,   December 31,  
 ($ '000) 2011   2010  
         
Balance Sheet        
         
Cash and cash equivalents       $ 17,192         $ 17,029  
Total current assets 41,334   47,442  
Total assets 162,156   153,234  
Total current liabilities 38,446   28,659  
Total long term liabilities 81,084   75,449  
Shareholders' equity 42,626   49,126  

($ '000, except per share) For the three months
ended March 31, 2011
  For the three months
ended March 31, 2010
 
Statement of Operations        
         
Total coal revenues $43,051   $ 7,860  
Cost of coal sales 35,067   7,616  
Gross margin 7,983   244  
Loss before taxes (12,845)   (6,797)  
Net loss (10,251)   (5,072)  
Basic and diluted net        
  loss per share             (0.18)               (0.09)  
         

Statistics For the three Months
ended March 31, 2011
  For the three Months
ended March 31, 2010
 
         
Tons sold 553,485   115,876  
Tons produced 465,620   155,623  
            
     Sale price/ton             $77.78               $67.83  
     COGS/ton sold             $63.36               $65.72  
     Gross margin/ton sold             $14.42               $  2.11  
     Cash costs/ton produced             $61.18               $62.09  

The following table presents selected coal production and sales data by region for the three months ended March 31, 2011 and March 31, 2010.  Prior to April 2010, all of our production was in Kentucky.

  For the three months ended March 31, 2011
           
  Kentucky   West Virginia   Total
           
Tons sold             346,276               207,209   553,485
Tons produced 292,187   173,433   465,620
           
     Sale price/ton             $70.10               $90.61               $77.78
     COGS/ton sold             $63.05               $63.87               $63.36
     Gross margin/ton sold             $  7.05               $26.74               $14.42
     Cash costs/ton produced             $60.29               $62.68               $61.18
           
      Total cash costs $17,616,910   $10,870,770   $28,487,680

  For the three months ended March 31, 2010
           
  Kentucky   West Virginia   Total
           
Tons sold             115,876               N/A   115,876
Tons produced 155,623   N/A   155,623
           
     Sale price/ton             $67.83               N/A               $67.83
     COGS/ton sold             $65.72               N/A               $65.72
     Gross margin/ton sold             $  2.11               N/A               $  2.11
     Cash costs/ton produced             $62.09               N/A               $62.09
           
      Total cash costs $9,662,193   N/A   $9,662,193

About Xinergy Ltd.

Headquartered in Knoxville, Tennessee, Xinergy Ltd., through its wholly owned subsidiary Xinergy Corp. and its subsidiaries, is engaged in coal mining in eastern Kentucky and West Virginia. Currently, Xinergy sells high quality coal to electric utilities and industrial companies throughout the south-eastern United States. For more information, please visit www.xinergycorp.com.

Forward-Looking Information

This release contains "forward-looking information" that includes information relating to future events and future financial and operating performance, including management's assessment of Xinergy's future outlook.  Forward-looking information should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by which, that performance or those results will be achieved. Forward-looking information is based on information available at the time it is made and/or management's good faith belief as of that time with respect to future events, and such information is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking information. Important factors that could cause these differences include but are not limited to: changes in contracted sales, the business of the Company may suffer as a result of uncertainty surrounding the coal market; the Company may be adversely affected by other economic, business, and/or competitive factors; the worldwide demand for coal; the price of coal; the price of alternative fuel sources; the supply of coal and other competitive factors; the costs to mine and transport coal; the ability to obtain new mining permits; the costs of reclamation of previously mined properties; the risks of expanding coal production; the ability to bring new mines on line on schedule; industry competition; the Company's ability to continue to execute its growth strategies; and general economic conditions. These and other risks are more fully described in the Company's filings with the Canadian Securities Administrators, including its Annual Information Form for the year ended December 31, 2010, available on SEDAR at www.sedar.com. You should not put undue reliance on any forward-looking information. We assume no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking information, no inference should be drawn that we will make additional updates with respect to those or other forward-looking information.

SOURCE Xinergy Ltd.

For further information:

Chris Halouma
Director, Investor Relations

Michael R. Castle
Chief Financial Officer

865-474-7000

Profil de l'entreprise

Xinergy Ltd.

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