TORONTO, Feb. 29, 2012 /CNW/ - Cline Mining Corporation ("Cline Mining" or the "Company") (TSX:CMK) today announced its results for the year ended November 30, 2011 ("2011"). Dennis Z. Mraz, P.Eng., Chief Operating Officer of Cline, is a Qualified Person within the meaning of NI 43-101 and is responsible for the technical content of this press release.
Income of $9,539,076 and comprehensive income of $11,032,162 (basic and diluted earnings of $0.05 per share) for 2011 compares with a loss of $9,678,306 and comprehensive loss of $9,796,122 (basic and diluted loss of $0.08 per share) for the year ended November 30, 2010 ("2010"). Cash used in operating activities of $5,282,780 for 2011 compares with $3,089,101 for 2010.
Mineral properties and deferred development expenditures (including expenditures written off) for 2011 of $103,194,824 brings the total for capitalized mineral property and development costs to $170,643,414. The expenditures were substantially all incurred at New Elk mine.
As at November 30, 2011 the Company had cash of $58,561,743, total assets of $250,927,601 and shareholders equity of $237,435,535, compared with $43,758,330, $122,928,937 and $116,731,279 respectively as at November 30, 2010.
Cash and Liquidity
As at November 30, 2011 the Company had cash and cash equivalents of $58,561,743 compared with $43,758,330 at November 30, 2010. The increase in cash is associated with $81,284,042 in net proceeds from the issuance of shares related to the short form prospectus offering of 31,372,000 common shares at a price of $2.75 per common share for aggregate gross proceeds of $86,273,000 (which included the exercise of the over-allotment option by the underwriters in full) and the sale of the Lossan property for proceeds of $37,976,345, offset by operational and capital expenditures at the New Elk mine.
Capitalized mineral property and deferred costs increased in aggregate by $103,194,824 during 2011. To minimize liquidity risk, the Company prepares budgets for both its exploration activities and its overhead expenditures and closely monitors its liquidity position. The Company's working capital position at November 30, 2011 of $48.4 million compares with $40.0 million at November 30, 2010.
At November 30, 2011, the Company did not recognize operating revenues and will offset its capitalized operating costs with any revenue until such time as certain revenue recognition criteria are met, as detailed in its Management's Discussion and Analysis for the year ended November 30, 2011 ("MD&A"). The Company will continue utilizing its current cash reserves and funding secured through the exercise of outstanding warrants and stock options and/or new financing efforts until sustainable sales are achieved. Production at the New Elk mine started at the end of December 2010 and although commercial sales have not been recognized during 2011, production will ramp up during 2012 such that the annualized rate of production of 3 million tons is anticipated to be reached by the fourth quarter of 2012.
Over the course of 2012, the Company anticipates spending approximately $50.0 million in new capital costs and approximately $125.0 million in operating costs. The Company's plan for calendar 2012 anticipates the production and sale of 1.7 million tons of coal, with projected cash breakeven being achieved upon sales of approximately 900,000 tons. In addition to the sales of metallurgical coal that will offset operational and capital costs, the Company has drawn down on the first $25 million of its debt facility as described in the MD&A and will draw down the remaining $25 million of its available debt facility by April 30, 2012 to provide it with the necessary working capital flexibility it will require as sales ramp up over the course of 2012.
The ultimate revenues received are highly dependent on anticipated coal prices and production levels. Readers are directed to the Market Risk disclosures in Note 4 to the Company's annual audited consolidated financial statements for a fulsome discussion in this regard.
New Elk Production and Development
The New Elk coal mine received the last regulatory approval required for room and pillar mining in the Blue Seam. Regulatory approval had previously been granted for mining the Allen Seam. Accordingly, all approvals are now in place for mining in both of the seams required to carry out the long term mining of coal in accordance with the mining plan.
The recent upgrade of the plant, which was completed in December 2011, included increasing the plant capacity from 650 to 800 Run Of Mine ("ROM") tons per hour, as well upgrading of the fines circuit. The fines circuit, which processes coal at sizes below 1.0 mm, is now capable of producing clean coal at below the product specification of 8.0% ash. This will substantially improve coal recovery and potentially improve the pricing of New Elk's coal. The coal processing plant was modified during 2011 in light of the initial start-up coal production experience to maximize the saleable coal production and quality for market. The modification was successful and the plant is producing specification coal at design levels.
In accordance with the Mine Plan, the first continuous miner continued its drive in Apache first to open the new ventilation and access entries in order to provide full airflow into the mine to service both the Apache and later the Allen seams. The drive was continued to the designated point where three parallel 300 foot rock slopes could be driven at an angle of 8.5 degrees down to intercept the Allen seam below. The slopes to the Allen seam were successfully completed in December 2011, when the first continuous mining machine entered the seam and commenced the seam development in preparation for the introduction of the walk-through supersection, which was deployed in the third week of February 2012.
The three 500-foot slopes planned and driven from the Plant Site down to the Blue seam at 10% slope were successfully completed in November 2011, when the first continuous miner entered the seam to prepare for the introduction of the first supersection in the Blue Seam. Two continuous miners are now operating in the Blue Seam, which will increase to four in the second week of March 2012 to complete the planned two supersections, as mentioned above.
The Company now continues to process coal and mine from both the Allen and Blue Seams and is actively marketing the coal.
New Elk continues with detailed engineering for the introduction of a longwall mining system into the mine, as soon as possible. The Company anticipates publishing the engineering report during 2012. The longwall system would supplement the present room and pillar mining system to produce incremental and additional saleable coal. The longwall system could be brought into operation in 2015, subject to timely approvals in the normal course. The objective is to increase New Elk mine production to approximately 7.0 million tons of saleable coal per annum, through the addition of the longwall system in the mine.
A total of four continuous mining machines are presently employed in two walk-through super-sections in the two coal seams of the New Elk Mine. Two more will be deployed in the second week of March 2012. An additional four continuous mining machines with associated mining equipment have been delivered to the mine and will be introduced into production during May and June 2012.
The ten continuous mining machines will be organized into operating walk-through supersections comprising two continuous miners per supersection, for a total of five operating supersections. Each supersection has a production capacity of 600,000 tons of clean saleable coal annually and the full deployment of five supersections will therefore have a production capacity of 3,000,000 tons of clean coal per year. Total saleable clean coal production in 2012 is now projected at 1.7 million tons of saleable clean coal, reduced from the previous estimate of 2.5 million tons as a result of not unusual start-up complications in the plant and the mine, now substantially overcome, and unanticipated delays in regulatory approvals, now fully received.
Coal production guidance from time to time is always subject to unforeseen start-up and other unexpected delays.
Coal prices and trends
The international coking coal market prices continue to weaken. The price for the benchmark prime Australian coking coal on April 1, 2011 was $320 MT FOB, Queensland. The price for this coal for the quarter beginning April 1, 2012 is presently expected to be $ 210 MT FOB, Queensland. The spot market can be expected to be significant below benchmark in this pricing environment. The current pricing reflects the economic supply/demand pressures, largely related to the EU and U.S. recessionary cycle. China and India have been the engines of commodity demand and growth but are now exhibiting reduced production and sales resulting from weak demand largely in the EU and the U.S. The pricing and market for the Company's coal product will depend upon the evolving world economic situation. The Company anticipates that it will be able to compete for product sales in the current coal market.
The outlook for the Company therefore is heavily dependant on the price of internationally traded metallurgical coal. This coal produces coke, which along with iron ore and limestone are the major components of the blast furnace steel making process. The global steel production reached 1.5 billion tons in 2011, of which 65% was produced in Asia. Due to this record production, prices for all raw materials used in steel making reached record high levels. Historically, the coal fiscal year commenced April 1. Australia is by far the largest exporter of coking coal to the world market, over 125,000,000 tons, and as such traditionally sets the annual coking coal benchmark price with major Asian steel producers. Commencing April 1, 2011 the major Australian coal producers insisted on quarterly pricing. Australian prime coking coal, the global benchmark, reached $320 MT FOB, Queensland in April 2011. The April 1, 2012 benchmark is reported to be in the $210 MT FOB range. The global recessionary forces were major factors, along with the Tsunami in Japan. Japan is still the largest importer of coking coal and the reduced demand there had a negative impact on spot pricing and demand. The global economic malaise during the past year has had a significant negative effect on metallurgical coal demand and pricing. The Company believes that the projected April 1 2012 supply/demand situation reflects the present cautious attitude of the world steel makers, but is expected to improve as the global recovery continues.
Despite the recent economic conditions, the International Iron and Steel Institute is projecting increased steel production in 2012 and the Company expects to be well positioned in 2012 to capitalize on strengthening demand for and pricing of metallurgical coal.
CLINE MINING CORPORATION
Ken Bates, President and Chief Executive Officer
This press release contains forward-looking statements (including "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of the US Private Securities Litigation Reform Act of 1995) relating to, among other things, the future financial and operating performance of Cline Mining and its affiliates, the production of coal from the New Elk mine, projected mine plans, operations, and development and the timing and amount of capital and operating expenditures required by Cline Mining in 2012. Generally, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Cline Mining has relied on a number of assumptions and estimates in making such forward-looking statements, including, without limitation, the future price of coal and the capital and operating costs associated with projected mine plans, operations and development. Such assumptions and estimates are made in light of the trends and conditions that are considered to be relevant and reasonable based on information available and the circumstances existing at this time. A number of risk factors may cause actual results, level of activity, performance or outcomes to be materially different from those expressed or implied by such forward-looking statements including, without limitation, fluctuations in the price of coal, requirements for additional capital, operating or technical difficulties in connection with projected mine plans, operations or developments, conclusions of economic evaluations, changes in general economic, market and business conditions, and those other risks set forth in Cline Mining's other public filings which may be accessed on the Company's profile page at www.sedar.com. Forward-looking statements are not guarantees of future performance and such information is inherently subject to known and unknown risks, uncertainties and other factors that are difficult to predict and may be beyond the control of Cline Mining. Although Cline Mining has attempted to identify important risks and factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors and risks that cause actions, events or results not to be as anticipated, estimated or intended. Consequently, undue reliance should not be placed on such forward-looking statements. In addition, all forward-looking statements in this press release are given as of the date hereof.
Cline Mining disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, save and except as may be required by applicable securities laws. The forward-looking statements contained herein are expressly qualified by this disclaimer.
For further information:
Head office: Brookfield Place, 181 Bay Street, 3rd Floor, Clarkson Gordon Heritage Building, Toronto, ON, M5J 2T3
Ken Bates, President and CEO
Ernest Cleave, Vice-President and CFO
Office: (416) 504-7600
Email: [email protected]