TORONTO, July 16, 2012 /CNW/ - Cline Mining Corporation ("Cline Mining" or the "Company") (TSX: CMK) announced today its second quarter unaudited Financial Statements ("Financials") in conjunction with its Management Discussion and Analysis ("MD&A") for the interim period ended May 31, 2012. The following highlights portions of the Financials and MD&A. A complete copy of the Company's financial statements for the period, together with the MD&A, can be accessed under the Company's profile on www.sedar.com and on the Company's website at www.clinemining.com.
Second Quarter Financial Results
For the second quarter 2012, coal production reached a quarterly total of 48,779 short tons. At the end of June, year-to-date production was 213,091 ROM tons and 85,528 clean tons of coal, of which approximately 70,000 tons constitute metallurgical grade coal, with the remaining coal being higher-ash production more suited for sale in the thermal market. Higher yield in June was predominantly due to cleaning at higher gravity, slightly improved mining conditions, and also lowering the cutting height to 5.5 ft., especially in the Allen seam. The Company currently retains a workforce capable of maintaining the asset and to load the stockpiled product should a sale agreement be made. As a cash conservation measure, the Company has temporarily suspended further production of coal at the New Elk Mine until the review process is completed and the current coal stockpile is sold.
The Company's working capital position at May 31, 2012 was $19.6 million compared to $48.4 million at November 30, 2011 and cash and cash equivalents consisted of $29.0 million. The Company's current cash position is $16.9 million as at July 13, 2012. The Company's capital and operating expenditures in the first two quarters amounted to $82.8 million. With the temporary stoppage of production activity at the New Elk Mine, the Company anticipates its capital and operating expenditures per month to be approximately $0.9 million, down from an average of approximately $13.8 million per month in the first two quarters; a reduction of 93%. The Company expects to be able to maintain its working capital position at this rate from the combination of reduced capital and operating spending. Relative to peer companies, Cline Mining has a low debt load with a conservative debt to equity coverage ratio at 22%. Over the mid-term, the Company believes it can meet its financial obligations.
Ken Bates, President, CEO & Director of Cline Mining commented: "Current market conditions for coal producers in the United States are challenging and the Company is being mindful of its cash position to navigate the current market. We have a large and expanded coal resource base that we believe will increase in value as the market readjusts in coming months. Our objective is to build our production capability in tandem with an eventual upswing in commercial demand and proactively address the cyclical downturn in demand with substantial reductions in operating and capital spending. At the same time, we are continuing with our mine review process to consider longwall mining. Securing sustainable sales contracts remains a major near-term priority for the Company, and we are actively engaged in achieving this goal."
| 2nd Quarter Ended
May 31, 2012
| 1st Quarter Ended
February 29, 2012
| 2nd Quarter Ended
May 31, 2011
|Cash and cash equivalents||29,000,416||43,865,313||5,146,924|
|Total net equity||242,242,028||239,525,881||122,531,542|
As part of the previously announced New Elk Mine review process (see press release dated July 3, 2012) and due to challenging market conditions for the U.S. metallurgical coal sector, the Company is taking all necessary steps to ensure the long term viability and growth of the New Elk Mine including short-term volume optimization, cost containment and securing sustainable and long-term sales contracts for the product. The Company is concurrently reviewing strategic alternatives for its portfolio of assets, including a potential financing. The following actions summarize recent Company activities:
- Announced the executive appointment of David Stone, COO of New Elk Coal Company LLC, who is responsible for the mine plan review and the executive appointment of Darren Nicholls as Deputy Chief Operating Officer. Both individuals bring strong experience to the project in underground coal mine planning, engineering and operations.
- Temporarily reduced its employee count to preserve costs during this review process, resulting in aggregate cost savings of approximately 93%.
- Temporarily halted production to achieve cash conservation; all equipment remains on the property and is presently idled. The management team is ensuring the integrity of the asset and property so that it can quickly move into production when management determines conditions have improved.
- Capital spending has been deferred until completion of the review, at which time the Company will provide an update on project spending for the balance of the year and for 2013, subject to more favourable market conditions.
- Initiated a process to review production methods including using the longwall mining method.
- The Company has formally filed a claim for compensation from the British Columbia government for $274 million with respect to the Lodgepole coal mine property plus $235 million for the Sage Creek coal mine property. The amounts claimed represent the net present value ("NPV") assessment and calculation made by independent Canadian engineering companies compliant with and pursuant to NI 43-101 technical reporting standards.
The global seaborne coking coal market is presently weak. The Asian market, which comprises over 60% of the world's blast furnace produced steel production, has been relatively quiet. Recent reports suggest growing stockpiles of coal at Chinese ports and declining demand for coal within China. The reported settlements between the major Japanese mills and major Australian suppliers for the next quarter are basically rollover at $220/225 for the highest grade coking coals. There have been published reports saying prices $10/15 below that level have been on offer to Indian producers. Lesser quality coals are trading as low as $ 115/125 FOB into China. Japan continues to be the largest importer of coking coal with an estimated intake in excess of 65 million tons, followed by China with imports of coking coal estimated at 44 million tons in 2011. While steel production in Asia has increased compared to 2011 they are still working down high coking coal inventories, which translate into a weak spot market.
The salient statistic this past six months has been the German steel industry's report that steel production in the first six months of this year are down 6% compared to the same period in 2011. The German steel sector has historically been the bellwether of European steel production. This reduction is evidence of the macro-economic uncertainty that pervades the present global steel and coal markets. While Asia continues to achieve moderate growth it becomes apparent that the remediation of the European fiscal difficulties must be successfully concluded to restore these markets to their prior supply/demand level. Looking at Asia, several large Indian publicly owned steel mills tendered and concluded substantial coking coal tonnages at this time. The Company shares the view of these steel mills that the market has reached its lowest level and will strengthen going forward.
Cline has not been immune to market forces as evidenced by its 86% decline in share price from its 52 week high. This reduction in share price has been mirrored by other coal mining companies and challenging market conditions have not been insular, either. The following is an overview of share price declines for some of the major U.S. coal miners as a percentage of their 52-week high: CONSOL down 44%, Peabody down 63%, Alpha down 85%, Arch down 79%, Patriot down 99% and James River down 90%.
With the inclusion of the additional resources at the New Elk Mine, it was prudent to ensure the life of mine plan sequencing and process was optimal. This necessitated a revision of the mine plan and schedule, which has commenced. The resource now has the capacity to support longwall operations into the future. The detailed study has commenced and will not sterilize any resource and expects to optimize the NPV of the operation. Coal production capacity at the operation is currently being driven by sales rather than the internal production capacity. This has led to a temporary suspension of production activities in order to optimize working capital. At the present time the supply side of the metallurgical coal market exceeds demand for new entry coals, resulting in weaker coal pricing. Market forces must guide the productive capacity at the New Elk Mine during weaknesses in the demand cycle, and the Company's expectation of sales and production guidance for the remainder of the year is therefore governed principally by demand factors, rather than productive capacity. It is not possible to predict the timing, extent or turnaround of the economic and recessionary pressures currently affecting the coal market but we believe the market will rebound over time.
Metallurgical coal has moved from a seller's market to a buyer's market in the seaborne trade; where our primary target markets are China, Japan, India, Brazil and Europe. In April 2011 the 'benchmark' price for premium hard coking coal was $330 a metric tonne since and has decreased to the present reported price of $220/225. Reports out of China point to declining demand for coal in China and growing inventories of coal.
On May 1, 2012, the Company took over direct management of all mining and operations related to the New Elk Mine; previously provided by TK Mining Services on a contract basis. The strategic decision was made by the Company to integrate the miners into the mainstream culture of our organization. The transition was accomplished successfully and the change beneficial for the long-term operation of the business. At present the operation has 255 employees of whom only 36 are engaged at the mine site, with the remainder idled while the completion of the revised plan is achieved and the coal shipments commence. Upon the acceptance of an appropriate sales profile the operation is immediately ready to recommence production with the only lag factor being the procurement of labour and the associated training. With the current issues in the steam coal market, the procurement of skilled additional labour is believed to be achievable.
The Company is now focused on its New Elk Mine review process and denoting the potential for the mining areas and operations of super sections. The Company is also actively seeking sales agreements for its product.
About Cline: Cline has metallurgical coal property interests in British Columbia and in Colorado, U.S.A. with NI 43-101 independent Technical Reports. Cline Mining Corporation is focused on the exploration and development of metallurgical steel making coals in Canada and the U.S., and on its iron ore property in Madagascar and its Cline Lake gold property in northern Ontario, Canada.
Forward-Looking Statements: 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 operations of the Company, the environment in which it operates and the Company's future financial and operating performance. 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". Such statements are based on assumptions, estimates, forecasts and projections made in light of the trends, conditions and expected developments that are considered to be relevant and reasonable in the circumstances at the date that such statements are made. 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 the Company. A number of factors and assumptions may cause actual results, level of activity, performance or outcomes of the Company to be materially different from those expressed or implied by such forward-looking statements including, without limitation, the future price of coal, the estimation of mineral reserves and resources, capital, operating and exploration expenditures, costs and timing of future exploration, requirements for additional capital, government regulation of mining operations, environmental risks, reclamation expenses, title disputes or claims, limitations of insurance coverage and the timing and possible outcome of pending litigation and regulatory matters and other risks set forth in other public filings of the Company. 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. The Company 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.
Head office: Brookfield Place, 181 Bay Street, 3rd Floor, Clarkson Gordon Heritage Building, Toronto, ON, M5J 2T3
For further information:
Ken Bates, President and CEO
Office: (416) 504-7600
Principal, The Capital Lab
Office: (647) 438-2193