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May 10, 2018 - Corsa Coal Corp. (TSXV:CSO), a premium quality metallurgical coal producer, has reported financial results for the three months ended March 31, 2018. Corsa has filed its unaudited condensed interim consolidated financial statements for the three months ended March 31, 2018 and 2017 and related management's discussion and analysis under its profile on www.sedar.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.
First Quarter Highlights
During the quarter, Corsa executed against an operational milestone by achieving first production at the Horning mine in Somerset County, Pennsylvania. Horning will provide Corsa with a high quality, low volatile coal, which will be used across many blends, and will help move the Company closer to its stated goal of doubling metallurgical coal production from 2017 levels by 2019. Additionally, in the quarter, Corsa was successful in the sale of its thermal and industrial coal Central Appalachia division, turning the Company into a pure play metallurgical producer and shedding the associated environmental and end-of-mine closure liabilities.
There were several items that had the effect of negatively impacting profitability in the first quarter of 2018. First, Corsa encountered challenging geology at both the Casselman and Acosta mines. This led to reduced production and higher mining costs per ton for the quarter. At Casselman, we are finalizing the development of a main travel way to the northern part of the reserve base, and expect to be through this geologically difficult zone in late May. This area is a vital part of the mine which will provide access to several years of economic reserves. We are incurring additional roof support costs in order to ensure the long-term integrity of this important access point. At Acosta, we expect production to increase as we receive the final regulatory approvals for our depth of cuts and as the coal seam regains its average thickness. We view these conditions as temporary in nature and expect the mining costs per ton at these mines to return to forecasted levels in the second half of the year, if not earlier. Finally, in the quarter, Corsa incurred over $1.7 million of demurrage-related expenses with export shipments. We are optimistic that the port congestion on the U.S. East Coast will be worked through in the months ahead.
We continue to experience strong customer demand from our international customers, which has driven Corsa's sales volume growth and profits from our purchased coal and blending activity. Domestically, steel prices are at seven year highs and the market for low volatile metallurgical coal is very tight owing to elevated demand from our customers. Metallurgical coal prices remain at healthy levels, and the forward curve remains well supported through 2020. While the spot price gets the most attention, calendar 2019 and 2020 forward prices have risen by 14% and 18% respectively since the beginning of this year. This supports the view that the seaborne market for metallurgical coal is expected to remain at profitable levels for a sustained period of time.
First Quarter 2017 Sales Metrics
Metallurgical Coal Sales Volume
Corsa’s metallurgical coal sales in first quarter 2018 were 557,721 tons, an increase of 89% from first quarter 2017 levels. A fifteen month history of Corsa’s metallurgical coal sales volumes, adjusted for discontinued operations, 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”). For the first quarter of 2018, Corsa’s sales were broken down into the following categories.
Metallurgical Coal Sales by Category (Tons)
Coal Pricing Trends and Outlook
Strong global steel demand and corresponding high levels of steel production continue to support metallurgical coal prices in both domestic and export markets. United States steel trade actions and continued economic growth have led to higher domestic steel prices, increased blast furnace production and added demand for metallurgical coal. These drivers, as well as the limited availability of high quality, low volatile metallurgical coal, should support current price levels for 2018.
Export pricing remains favorable for the balance of 2018 with metallurgical coal prices indicative of a tightly balanced supply and demand relationship. First quarter seaborne metallurgical coal prices were lifted by logistical issues and weather concerns. These supply constraints eased into the beginning of the second quarter as railroads and ports approached normal operations, vessel queues were reduced, and mills worked through inventories on hand. However, most logistics systems have limited capacity for additional throughput so there will be minimal opportunity for additional supply to put downward pressure on prices in the near term. Chinese import restrictions, production policies and high production costs for metallurgical coal, along with increased steel production in India, continue to support pricing in the export market.
The NAPP Division'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 gives us the ability to market a greater variety of products, access more users and respond to sales opportunities.
Financial Statements and Management's Discussion and Analysis
Refer to Corsa's unaudited condensed interim consolidated financial statements for the three months ended March 31, 2018 and 2017 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.
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"). Corsa 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 Corsa'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 months ended March 31, 2018 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.
Qualified Person
All scientific and technical information contained in this news release has been reviewed and approved by Peter V. Merritts, Professional Engineer and the Company's President - NAPP Division, who is a qualified person within the meaning of National Instrument 43-101 - Standards of Disclosure for Mineral Projects.
Caution
The estimated coal sales, projected market conditions and potential development disclosed in this news release are considered to be forward looking information. Readers are cautioned that actual results may vary from this forward looking information. Actual sales are subject to variation based on a number of risks and other factors as well as demand and sales orders received.
Information about Corsa
Corsa is a coal mining company focused on the production and sales of metallurgical coal, an essential ingredient in the production of steel. Our core business is producing and selling metallurgical coal to domestic and international steel and coke producers in the Atlantic and Pacific basin markets.
To read the full quarterly report with financial figures, please click here.
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