Phoenix Coal reports Q2 2009 results and announces a definitive agreement for the sale of its surface mining assets for approximately US$30 million

    LOUISVILLE, KY, Aug. 14 /CNW/ - Phoenix Coal Inc. (TSX: PHC) ("Phoenix"
or the "Company"), announced today that it has entered into a definitive
agreement to sell the Company's ongoing surface mining business and reserves
primarily in Muhlenberg County, Kentucky (the "Assets"), to a significant
privately-owned, Ohio-based coal producer (the "Acquirer"). Upon completion of
the Transaction, Phoenix's assets will include a significant cash position and
the Gryphon Mining Complex ("Gryphon"). In addition, the Company announced its
financial results for the second quarter ended June 30, 2009. Unless otherwise
noted, all mineral reserves and mineral resources are expressed in imperial
tons, and all financial information is expressed in U.S. dollars.

    Sale of Surface Mining Assets

    Subsequent to the end of the second quarter 2009, the Company entered
into a definitive agreement for the Transaction with the Acquirer. The Assets
included in the Transaction primarily consist of four operating surface mines,
surface mining equipment, a preparation plant facility, the Island Dock barge
loading facility, and coal properties containing the coal reserves of the
surface mining business. As consideration, the Acquirer will pay Phoenix $5.7
million in cash at closing and will assume all debt associated with the
equipment being sold, reclamation liabilities for ongoing coal mining
operations, coal sales contracts and other obligations associated with the
Assets. The Company can potentially receive an additional $1.0 million, upon
satisfaction of certain post-closing obligations. The Acquirer will provide
surety bonds for the assumed reclamation obligations which, upon transfer of
the active mining permits, will replace Phoenix's letters of credit, thereby
freeing up approximately $5.8 million of restricted cash of the Company. The
Company estimates the total value of the Transaction to be approximately $30
million, before any working capital adjustment. Completion of the Transaction
is subject to certain closing conditions.
    Upon closing the Transaction, targeted for September 30, 2009, Phoenix
expects to have a cash balance of approximately $23.7 million, reclamation
liability of $2.3 million, and vendor financing related to the Gryphon Mining
Complex of $3.0 million. Phoenix's assets will also include Gryphon, which
contains 68.4 million tons of proven and probable coal reserves and 46.4
million tons of measured and indicated coal resources.
    "Phoenix had been committed to an aggressive growth strategy focused on
the acquisition of operating mines and greenfield reserves in order to build
the scale necessary to support long-term growth. However, the challenging
economic environment, coupled with the downdraft in the coal market, hampered
our ability to execute this strategy. In light of these issues, and in
addition to other unexpected challenges we encountered at our surface mining
operations, the Board of Directors and Management believe it is in the best
interest of shareholders to divest of these assets to a major coal producer
with the scale necessary to run a profitable surface mining business," said
David Wiley, President and CEO of Phoenix Coal. "With the divestiture, we are
now better positioned to take advantage of opportunities in the current
market. We have a strong cash position, minimal liabilities, and nearly 70
million tons of proven and probable coal reserves at the Gryphon Mining
Complex. We are currently engaged in advanced discussions with a number of
qualified parties regarding the strategic options available to us with regard
to Gryphon and the Company as a whole. Cormark Securities Inc., which we
recently hired as financial advisors, together with Management and the Board,
is evaluating options that include a joint venture to finance and operate the
mine, the sale of the Gryphon reserve, or a merger of Phoenix with other
operating entities."
    Cormark Securities Inc. has indicated that it will provide an opinion to
Phoenix's Board of Directors representing that the Transaction is fair to the
Company's shareholders, and the Company's Board of Directors has unanimously
determined that the Transaction is in the best interest of Phoenix and its

    Financial and Operational Review

    As at June 30, 2009, Phoenix had $20.8 million, or $0.14 per share in
cash, cash equivalents and short-term investments (C$0.16 per share). In
addition, the Company had $12.5 million in restricted cash, cash equivalents
and certificates of deposit as collateral for letters of credit for
reclamation bonding.
    During Q2 2009, Marshall Miller & Associates, Inc. ("MM&A"), an
independent geological and engineering consulting firm headquartered in
Bluefield, Virginia, completed a National Instrument 43-101 technical report
on the Gryphon Mining Complex (the "TR"). Based on the report, the Company
controls 68.4 million tons of proven and probable underground coal mineral
reserves, 3.7 million tons of underground measured and indicated coal
resources, and 0.2 million tons of underground inferred coal resources at the
Gryphon Mining Complex. In addition to the underground coal, Phoenix controls
42.7 million tons of measured and indicated surface resource at Gryphon.
    During the second quarter of 2009, the Company produced approximately
450,000 tons of saleable coal and purchased nearly 83,000 tons of saleable
coal. For the six months ended June 30, 2009, the Company produced
approximately 943,000 tons of saleable coal and purchased nearly 136,000 tons
of saleable coal.
    Production for the six months ended June 30, 2009 was negatively impacted
by several factors, including permit delays, a devastating ice storm that hit
Western Kentucky in late January, heavy rainfall during the second quarter
2009, and certain mine closing and opening issues.
    For the three months ended June 30, 2009, the Company's revenue decreased
by 19% to $17.3 million from $21.3 million in the prior year comparative
three-month period. For the six months ended June 30, 2009, Phoenix's revenue
decreased by 11% to $35.3 million from $39.8 million in the prior year
six-month period. For the three months ended June 30, 2009, tons sold
decreased 19% from 646,000 tons to 522,000 tons, and for the six months ended
June 30, 2009, tons sold decreased 12% from 1.2 million tons to 1.1 million
tons. The decrease in revenue was primarily attributable to a decrease in
sales volume due to the year over year reductions in coal production
previously discussed.
    For the six months ended June 30, 2009, average revenue per ton sold
increased to $33.30 from $33.02 in the same period in 2008. The increase of
$0.28 per ton resulted from shipments on several sales contracts which
transitioned to 2009 contract pricing after fulfilling 2008 contract
commitments. Additionally, due to renegotiating a change in quality
specifications with two customers, and deferring tons shipped to another
customer with a higher quality requirement into 2010, the Company was able to
ship a higher percentage of its sales on contracts which currently provide the
highest base price realization of all its sales contracts.
    Overall, the Company's cost of sales decreased by 20% to $17.0 million in
the second quarter 2009 from $21.2 million in the similar period for 2008.
Comparing the same periods on a cost per ton sold basis, cost of sales was
$32.62 versus $32.80. For the six months ended June 30, 2009, cost of sales
decreased from $38.7 million in 2008 to $31.8 million in 2009. Cost per ton
sold for the six months ended June 30, 2009 was $29.97 compared to $32.07 in
2008 for a decrease of 7%.
    General and administrative costs in the second quarter 2009 were $2.0
million compared to $3.8 million during the similar period in 2008. The
primary variance between the 2009 and 2008 quarters is a non-cash charge to
employee share-based compensation, which was $6,000 in 2009 and $2.2 million
in 2008. General and administrative costs for the six months ended June 30,
2009 were $5.6 million and $5.4 million for the similar period in 2008.
    As a consequence of the pending Transaction, at June 30, 2009, the assets
and liabilities associated with the Company's surface mining business have
been classified as current assets and current liabilities held for sale and
shown separately on the balance sheet. Furthermore, effective June 30, 2009,
the property, plant and equipment, mining rights, mine development costs and
mineral reserves being sold have been written down to the amount expected to
be realized from the Transaction, namely the cash to be received plus the
amount of the liabilities being assumed by the purchaser on closing, less
costs to sell. This resulted in a write down of assets held for sale in the
amount of $38.9 million in the three months ended June 30, 2009.
    Net loss was $44.9 million or $0.30 per share for the second quarter 2009
and $52.4 million or $0.35 per share for the six months ended June 30, 2009,
including the $38.9 million write down of assets held for sale described
above. As at August 14, 2009, the Company had 150.0 million common shares
issued and outstanding.

    Notice of Conference Call

    Phoenix will host a conference call on August 17, 2009 at 8:30 a.m. ET to
discuss the Transaction and the Company's fiscal Q2 2009 financial results.
David Wiley, President and Chief Executive Officer, and Dustin Angelo, Chief
Financial Officer, will co-chair the call. All interested parties can join the
call by dialing 416-644-3428 or 1-800-590-1508. Please dial in 15 minutes
prior to the call to secure a line. The conference call will be archived for
replay until Friday, August 21, 2009 at 11:59 p.m. ET. To access the archived
conference call, please dial 416-640-1917 or 1-877-289-8525 and enter the
reservation code 213-117-73 followed by the number sign.
    A live audio webcast of the conference call will be available at and Please connect at least 15 minutes prior
to the conference call to ensure adequate time for any software download that
may be required to join the webcast. An archived replay of the webcast will be
available for 365 days.

    About Phoenix Coal Inc.

    Phoenix Coal Inc. is an integrated mining company producing high sulphur,
low chlorine, bituminous coal from the Illinois Basin. To address the
increasing demand for energy in the Eastern United States as well as in the
export market, Phoenix Coal is pursuing production growth through the focused
acquisition, consolidation, and extraction of coal assets. Phoenix Coal
currently operates surface coal mines in Muhlenberg County, Kentucky and a
barge loading facility on the Green River. Development plans for additional
surface operations, as well as an underground mine, are underway. The
Company's executive offices are located in Louisville, KY and its operational
headquarters are stationed in Madisonville, KY. For additional information,


    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.

For further information:

For further information: Joanna Longo, The Equicom Group, Investor
Relations, (416) 815-0700 ext. 233,; Stephen McLean,
Director of Corporate Communications, Phoenix Coal Inc., (502) 587-5900,

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