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Signature Sponsor
November 17, 2017 - Corsa Coal Corp. (TSXV: CSO) ("Corsa"), a premium quality metallurgical, thermal and industrial coal producer, today reported financial results for the three and nine months ended September 30, 2017. Corsa has filed its unaudited Condensed Interim Consolidated Financial Statements for the three and nine months ended September 30, 2017 and 2016 and related Management's Discussion and Analysis under its profile on www.sedar.com. An updated investor presentation has been added to www.corsacoal.com.
Unless otherwise noted, all dollar amounts in this news release are expressed in United States dollars and all ton amounts are short tons (2,000 pounds per ton). Pricing and cost per ton information is expressed on a free-on-board, or FOB, mine site basis, unless otherwise noted.
Third Quarter 2017 Highlights
George Dethlefsen, Chief Executive Officer of Corsa, commented, "Driven by volume gains and operational efficiency, Corsa achieved increased profitability in the third quarter of 2017 as compared to the second quarter of 2017. Our sales and operations teams continue to perform well, with volume growth across all three classifications of metallurgical coal sales - from company produced tons, value added services tons, and sales and trading tons. We remain on track to double production volumes of low volatile metallurgical coal over the next two years. Corsa achieved a sixth consecutive quarter of at least 20% sequential volume growth for sales of metallurgical coal, growing 44% in the third quarter versus the second quarter.
Within our NAPP Division, over the past number of months we have developed, staffed, and equipped the Acosta Deep Mine, started placing equipment orders for the Horning Mine and have positioned the Quecreek Mine for retreat mining. This development work is expected to translate into increased production levels in the months ahead from the Acosta Deep and Quecreek Mines. We project the Acosta Deep Mine to hits its run-rate production level of 30,000 to 35,000 saleable tons per month within the next three months. Additionally, we recently submitted our permit application for the Keyser Mine, which we expect to be fully permitted in the first half of 2018. In the third quarter of 2017, we started production of metallurgical coal from two surface mines in Pennsylvania. Collectively, we expect these moves to increase company produced metallurgical tons at the NAPP Division by more than 50% in 2018 as compared to projected 2017 levels. Continued metallurgical production growth into 2019 can grow production to levels double that of 2017.
Strong steel pricing and production levels have helped to sustain a high level of demand for raw materials such as metallurgical coal. The global supply chain for metallurgical coal remains challenged and prone to disruption. We expect Chinese policy to continue to reduce metallurgical coal production capacity and drive consolidation in the industry, which should support metallurgical coal prices. We expect to see continued volatility in metallurgical coal prices over the coming quarters. Corsa has made excellent progress in constructing its sales order book for 2018 and has a diversified portfolio of price exposure to fixed prices, FOB Australia prices and FOB U.S. East Coast prices.
We continue to remain focused on growth opportunities from our sales and trading platform, acquisitions, and organic projects."
Third Quarter 2017 Sales Metrics
Metallurgical Coal Sales Volume
Corsa's metallurgical coal sales in third quarter 2017 were 575,080 tons, an increase of 45% from second quarter 2017 levels. This marks the sixth consecutive quarter of at least 20% sequential quarterly sales volume growth for Corsa. Year-to-date metallurgical coal sales volumes through September are up 199% from first nine months of 2016 levels. A twelve month history of Corsa's metallurgical coal sales volumes is presented below.
Corsa's metallurgical coal sales figures are comprised of three types of sales: (i) selling coal that Corsa produces ("Company Produced"); (ii) selling coal that Corsa purchases and provides value added services (storing, washing, blending, loading) to make the coal saleable ("Valued Added Services"); and (iii) selling coal that Corsa purchases on a clean or finished basis from suppliers outside the Northern Appalachia region ("Sales and Trading"). Corsa's Company Produced metallurgical sales volumes were updated to reflect future production assumptions based on current productivity and coal seam thickness. Value Added Services and Sales and Trading purchased coal reflect updated availability of coal that the Company will be able to procure. The CAPP Division metallurgical coal has been updated to reflect additional blend vessels that are scheduled to ship during the fourth quarter 2017. Thermal coal sales volumes have been updated to reflect future production assumptions primarily related to the projected coal quality at the CAPP Division due to the timing of the Double Mountain Mine exhausting economical coal reserves as well as current qualities at the surface mines meeting the metallurgical coal specifications. The cash production cost has been updated to reflect the mix of production from the Company's mines taking into account the current operating conditions, advance rates and coal recovery. Coal Pricing Trends and Outlook
NAPP Division
Spot prices for low volatile metallurgical coal experienced significant volatility in the third quarter of 2017, rising approximately 40% to a high in early September 2017 and then ending the quarter at levels 30% higher than at the end of the second quarter of 2017. High rates of global steel production growth fueled increased demand for raw materials which created tightness in the seaborne metallurgical coal market. Chinese domestic metallurgical coal prices have risen as a result of strong steel production and government policy initiatives to decrease coal production capacity and consolidate coal production. Currently, Chinese domestic metallurgical coal prices remain elevated, which encourages imports and creates supply tightness in the seaborne market. The forward curve for low volatile metallurgical coal prices for calendar 2018 is above $165/mt, suggesting that a supply deficit will continue in the quarters ahead. We are seeing a localized scarcity of low vol metallurgical coal in the United States, as a result of significant supply disruptions in 2017 and increased demand. We continue to see high levels of interest for low, medium, and high vol coals from our international customers.
Corsa's geographic proximity to over 50% of domestic coke production capacity and short rail distance and multiple options to access the Maryland and Virginia export terminals solidify Corsa's ability to serve both domestic and international customers. Our sales and trading platform operations also give us the ability to market a greater variety of products, access more users and increases our ability to respond to market-shaping events.
CAPP Division
The CAPP Division mineral reserve base exclusively consists of high BTU and high carbon content coal. These unique qualities, combined with advantaged logistics, set the CAPP Division apart from other producers and create a niche in the utility and industrial marketplace. Coal prices for utility and industrial coal shipments from the CAPP Division in the third quarter were in line with the previous quarter and are reflective of our annual contracts. Fourth quarter utility and industrial coal prices for the CAPP Division will be at the annual contract rates as well. CAPP Division high vol metallurgical coal prices are subject to the same market influences noted above in the NAPP Division Coal Pricing Trends and Outlook.
Financial Statements and Management's Discussion and Analysis
Refer to Corsa's unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2017 and 2016 and related Management's Discussion and Analysis, filed under Corsa's profile on www.sedar.com, for details of the financial performance of Corsa and the matters referred to in this news release.
Stock Options Granted
Corsa also announces that its Board of Directors has granted stock options to purchase a total of 2,252,500 common shares of Corsa (the "Common Shares") to certain directors, officers and employees of Corsa, which grant represents approximately 2.4% of the total outstanding Common Shares. These options were granted in accordance with Corsa's Second Amended and Restated Option Plan (the "2017 Plan"), are exercisable for five years at a price of the higher of (a) C$1.53, being the closing price of the Common Shares on the TSXV on November 15, 2017 and (b) the closing price of the Common Shares on the TSX-V on November 20, 2017, being the date following Corsa's "blackout" period in connection with its third quarter 2017 financial statements, and are subject to the terms and conditions of the Option Plan and TSX-V approval. Such options will vest one-third on the first anniversary of the date of grant, one-third on the second anniversary of the date of grant and one-third on the third anniversary of the date of grant.
Officers of Corsa were granted an aggregate of 865,000 options, Corsa's non-executive directors, other than Robert C. Sturdivant and Kai Xia, were each granted 75,000 options and other employees of Corsa received an aggregate of 1,012,500 options. Mr. Sturdivant and Mr. Xia are representatives of Corsa's significant shareholder Quintana Energy Partners L.P. and its affiliated investment funds, elected not to receive any options.
Non-GAAP Financial Measures
Management uses realized price per ton sold, cash production cost per ton sold, cash cost per ton sold, cash margin per ton sold and adjusted EBITDA as internal measurements of financial performance for Corsa's mining and processing operations. These measures are not recognized under International Financial Reporting Standards ("GAAP"). The Company believes that, in addition to the conventional measures prepared in accordance with GAAP, certain investors and other stakeholders also use these non-GAAP financial measures to evaluate the Company's operating and financial performance; however, these non-GAAP financial measures do not have any standardized meaning and therefore may not be comparable to similar measures presented by other issuers. Accordingly, these non-GAAP financial measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Reference is made to the Management's Discussion and Analysis for the three and nine months ended September 30, 2017 for a reconciliation and definitions of non-GAAP financial measures to GAAP measures.
Corsa defines adjusted EBITDA as EBITDA (earnings before deductions for interest, taxes, depreciation and amortization) adjusted for change in estimate of reclamation provision for non-operating properties, impairment and write-off of mineral properties and advance royalties, gain (loss) on sale of assets and other costs, stock-based compensation, non-cash finance expenses and other non-cash adjustments. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements to assess our performance as compared to the performance of other companies in the coal industry, without regard to financing methods, historical cost basis or capital structure; the ability of our assets to generate sufficient cash flow; and our ability to incur and service debt and fund capital expenditures. Management also uses adjusted EBITDA for the purposes of making decisions to allocate resources among segments or assessing segment performance. |
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