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Pacific Coal Resources Ltd. Announces 2014 Second Quarter Financial Results and Operational Update

TORONTO, Aug. 29, 2014 /PRNewswire/ - Pacific Coal Resources Ltd. (TSXV: PAK) has filed its unaudited consolidated financial statements for the three months ended June 30, 2014, together with its management's discussion and analysis ("MD&A") for the corresponding period. All financial figures contained herein are expressed in U.S. dollars unless otherwise noted. These documents will be posted on the Company's website at www.pacificcoal.ca and under the Company's profile at www.sedar.com.

Hernan Martinez, Executive Chairman, commented: "In the second quarter of 2014, we were able to maintain year to date general and administrative expenses below forecasted amounts and further ramp up south pit production at La Caypa. We are also currently negotiating a joint venture at Cerro Largo that is expected to provide the Company with a steady cash flow. We aim to further develop the south pit at La Caypa to maximize its coal production and strengthen our focus on core assets by disposing off the remaining interest in the Barranquilla port."

Financial and Operating Summary

A summary of the financial and operating results for the second quarter of 2014 is as follows:

(000's except per share and operating data) Second Quarter
2014 2013
Operational    
Tonnes of coal produced(1) 279,593 398,865
Average stripping ratio - operations 14.09:1 8.28:1
Tonnes of coal sold 229,276 349,818
Average realized thermal coal price per tonne sold (2) $                  95.39 $              106.05
Operating margin per tonne sold (2) $               (14.91) $                13.60
     
Financial    
Revenues $                22,289 $              37,100
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") (2) (4,917) 3,112
Earnings (loss) from operations (6,578) 413
Net loss attributed to shareholders (12,772) 2,051
Basic and fully diluted loss per share (0.26) 0.04
     
Cash 335 6,423
Mineral properties additions - La Caypa south pit 1,844 4,408
Total assets 250,154 255,889
Total debt (3) 47,879 67,623

(1)      Excludes 4,669 tonnes of coal produced from underground mine.  See 'Outlook' for details of the pilot project.
(2)      Adjusted EBITDA, average realized thermal coal price per tonne sold and operating margin per tonne sold are non-GAAP finance performance measures, none of which have standardized definitions under IFRS.  See pages 18-19 of the Company's Q2 2014 MD&A for further details.
(3)      Total debt includes short-term debt, long-term debt, finance leases and amounts owed to Chipalo Resources (formerly Masering S.A.S.) by Norcarbon S.A.S. ("Norcarbon") (June 30, 2014 - $16.1 million, June 30, 2013 - $23.9 million).

Q2 2014 Highlights

  • Coal production: The Company produced 284,262 tonnes of coal in the second quarter of 2014, representing an increase of 3% from the first quarter of 2014 (276,744 tonnes). The operational stripping ratio at the Company's Cerro Largo mine of 10.42:1 in the second quarter of 2014 represented a decrease of 6% from the first quarter of 2014 (11.06:1).

  • Revenues: Coal revenues for the second quarter of 2014 were $21.9 million - 229,276 tonnes of coal sold at an average realized price of $95.39 per tonne, consistent with $95.67 per tonne in the first quarter of 2014.

  • Earnings from operations: Loss from operations for the second quarter of 2014 was $6.6 million, compared to earnings of $1.2 million in the first quarter of 2014 and $0.4 million in the second quarter of 2013. This can be primarily attributed to production issues noted at the La Caypa mine during the quarter.

  • Adjusted EBITDA and operating margin: Adjusted EBITDA for the second quarter of 2014 was a loss of $4.9 million. The total operating loss for the second quarter of 2014 on a per tonne sold basis was $14.91.

  • Bond Issuance: In July 2014, the Company completed a private debt offering for aggregate gross proceeds of $6.5 million. The note expires in 2015 and is guaranteed by a July 2015 payment relating to the 2013 Barranquilla port concession sale agreements.

  • Operation of La Caypa mine: After commencing in late 2013, operations in the south pit continued in the first half of 2014 as the Company produced 197,106 tonnes from the pit as of June 30, 2014 (174,603 in the second quarter). The Company also capitalized stripping costs of $6.2 million during the first half of the year as production at the south pit continues to ramp-up.

  • General and administrative ("G&A") expenses: The Company recorded $1.4 million in G&A expenses, excluding DD&A, in the three months ended June 30, 2014, compared to $1.6 million in the same period of 2013, a reduction of 13%. G&A expenses in the first half of 2014 were also 5% lower than the $2.8 million forecasted. The Company anticipates a quarterly G&A run rate of $1.4 million for the remainder of 2014.

Operational Update

La Caypa mine

  Production of Coal
(metric tonnes)
Waste
(bcm)(1)
Stripping Ratio
       
Open-pit operations(2) 191,975 3,026,723 15.77:1
South pit development - 609,841 N/A
Total 191,975 3,636,564 18.94:1

(1) Bank cubic meters
(2) 174,603 tonnes from La Caypa's south pit and 17,372 tonnes from the north pit.

Production from the La Caypa mine was 196,644 tonnes in the second quarter of 2014 (open-pit operations of 191,975 tonnes and underground operations of 4,669 tonnes), achieving 73% of its planned production, a decrease of 39% of the tonnes produced in the second quarter of 2013 (320,436 tonnes) and 18% less than the tonnes produced in the first quarter of 2014 (241,151 tonnes).

Missing the production forecast and the decrease from prior periods can be attributed to adverse geological conditions in the section produced from in the second quarter of 2014. The issue is outside of the Company's control and primarily a result of naturally occurring burning of the coal mantles in addition to the mantles being affected by the presence of a geological fault.

The Company is forecasting thermal coal from La Caypa in 2014 of approximately 928,000 tonnes (open pit production of 920,000 tonnes and underground production of 8,000 tonnes), representing an 8% production decrease from 2013. The Company had initially forecasted production of an additional 135,000 tonnes from open pit production in 2014, but as a result of the lower than originally estimated tonnes produced in the second quarter, the forecast has been reduced.

Cerro Largo mine

  Production of Coal
(metric tonnes)
Waste
(bcm)
Stripping Ratio
Q2 2014 87,618 912,825 10.42:1

In the second quarter of 2014, the Company produced 87,618 tonnes from the Cerro Largo mine, more than two times the 35,593 tonnes produced in the first quarter of 2014. The second quarter of 2014 production also represented a 12% increase from the second quarter of 2013 (78,429 tonnes), although it only represented 64% of planned production for the quarter.

The company that operated the Cerro Largo mine from March to mid-July 2014 began operating after limited production in the first two months of 2014. This resulted in reduced production in the first quarter. The Company produced well below planned production for the second quarter of 2014 because the forecast was made under the assumption that the transition to third party operation (after own operation in the second half of 2013) would be finalized before the end of 2013, when in actuality the third party operator had just started production and was in the process of bringing new equipment to the mine to ramp up operations as of the second quarter of 2014.

Production targets for 2014 at Cerro Largo are 0.3 million tonnes, an approximately 14% increase over the tonnes produced in 2013.  The Company had originally estimated production in 2014 to be 0.5 million tonnes, but the results of the first half of 2014 and production stoppages as a result of the ongoing negotiations with a new operator reduced the annual plan.

Outlook

The Company has concentrated its efforts on the production of thermal coal after re-focusing its strategic goals in 2013, which included the sale of a majority of the Barranquilla port concession in the fourth quarter of 2013. Management is also focusing on eliminating the funds owed to Chipalo Resources (formerly Masering) for past operation of the Cerro Largo mine, with a balance of $16.1 million owed at June 30, 2014, compared to a high of $27.6 million owed at December 31, 2012. Subsequent to June 30, 2014, the Company made a payment towards the amount owed of $3.4 million.  The funds generated from the sale of the Barranquilla port concession will go towards the amount owed to Chipalo Resources, helping the Company focus efforts on improving operations. The Company continues to explore options to sell its remaining 15% interest of the Barranquilla port concession.

Operationally, La Caypa mine faced adverse geological conditions during production in the second quarter of 2014 that were outside of the Company's control. The Company adjusted its mining plan for the second half of 2014, reducing the forecasted focus on development of the south pit in order to conserve funds after the issues in the first half.  Limiting development in the second half of 2014 will impact the mine's production in the first half of 2015. The Company is forecasting 2014 La Caypa thermal coal open pit production of 920,000 tonnes, reduced by 135,000 tonnes from the original forecast based on geological issues discovered, and underground production of 8,000 tonnes. After beginning late in the fourth quarter of 2013, production at the south pit neared full operation with approximately 174,603 tonnes produced in the second quarter of 2014 (197,106 in the first half of 2014). The underground mine pilot project began in February 2014, with approximately 4,669 tonnes of coal produced from the mine in the second quarter (6,992 in the first half of 2014). The underground miner will complete a pilot project of approximately 8,000 tonnes of coal with the goal of contracting all of the underground mining if the pilot project is successful, which would be expected to commence in 2015. Production from the south pit and underground mine is critical for the La Caypa mine going forward as the main pit nears the end of its life in the second half of 2014.

In an effort to maximize efficiencies of the mine and increase cash flow from operations, as of the end of August 2014 the Company is in for a multi-year joint venture involving the take over by a third party of Cerro Largo mine operations. The operator would be responsible for Cerro Largo's thermal coal production and the associated costs going forward. Norcarbon would be entitled to a percentage of the tonnes produced. The agreement is expected to provide the Company a steady cash inflow that will be used to fund the continued ramp-up of south pit operations and improve the Company's working capital deficit position. Production targets for 2014 at Cerro Largo are 0.3 million tonnes, an approximately 14% increase over the tonnes produced in 2013.

In July 2014, the Company completed a private debt offering for aggregate gross proceeds of $6.5 million at an annual interest rate of 12%, payable monthly. The notes expire in July 2015 and are guaranteed by a $6.5 million payment as part of the 2013 Barranquilla port concession sale agreements, which is also due in July 2015. The Company used a majority of the net proceeds of $6.3 million (after excluding fees associated with the offering) to pay amounts owed to Chipalo Resources and towards La Caypa royalties owed to the community of El Cerrejón.

In terms of G&A expenses, after exceeding the Company's 2013 cost cutting objective,   management was able to surpass the Company's reduction goal for the first half of 2014.  Actual G&A expenses were $2.6 million for the first half of 2014, compared to the Company's forecast of $2.8 million.  The Company anticipates a quarterly G&A run rate of $1.4 million for the remainder of 2014, but further cost reduction continues to be a priority.

About Pacific Coal Resources Ltd.

Pacific Coal Resources Ltd. is a Canadian-based mining company engaged in the acquisition, exploration and production of coal and coal-related assets from properties located in Colombia. The Company's common shares are listed on the TSX Venture Exchange and trade under the symbol "PAK".

Forward Looking Information:

This news release contains "forward-looking information", which may include, but is not limited to, statements with respect to the future financial or operating performance of the Company and its projects. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates", or believes" or variations (including negative variations) of such words and phrases, or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Pacific Coal to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements contained herein are made as of the date of this press release and Pacific Coal disclaim, other than as required by law, any obligation to update any forward-looking statements whether as a result of new information, results, future events, circumstances, or if management's estimates or opinions should change, or otherwise. 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. Accordingly, the reader is cautioned not to place undue reliance on forward-looking statements.

Neither 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 news release. 

 

 

SOURCE Pacific Coal Resources Ltd.

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