Corsa Coal Announces Financial Results for Third Quarter 2019
November 7, 2019 - Corsa Coal Corp. (TSXV: CSO; OTCQX: CRSXF) ("Corsa" or the "Company"), a premium quality metallurgical coal producer, today reported financial results for the three and nine months ended September 30, 2019. Corsa has filed its unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2019 and 2018 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.
Third Quarter and Year-to-Date September Highlights
- Corsa reported net and comprehensive income from continuing operations of $1.0 million , or $0.01 per share attributable to shareholders, for the third quarter 2019, compared to a loss of $1.5 million , or $(0.02) per share attributable to shareholders, for the third quarter 2018. Net and comprehensive income from continuing operations for the nine months ended September 30, 2019 was $7.6 million , or $0.06 per share attributable to shareholders compared to a loss of $4.4 million , or $(0.06) per share attributable to shareholders for the nine months ended September 30, 2018 .
- Corsa's adjusted EBITDA(1) was $6.1 million and $25.4 million for the three and nine months ended September 30, 2019 , respectively, compared to $8.5 million and $23.7 million for the three and nine months ended September 30, 2018 , respectively. Corsa's EBITDA(1) was $7.2 million and $26.9 million for the three and nine months ended September 30, 2019 , respectively, compared to $6.9 million and $18.3 million for the three and nine months ended September 30, 2018 , respectively.
- Cash production cost per ton sold(1) was $77.91 for the third quarter 2019, an increase of $0.54 per ton, or 1%, as compared to the third quarter 2018. Cash production cost per ton sold(1) was $82.00 for the nine months ended September 30, 2019 , a decrease of $4.37 per ton, or 5%, as compared to the nine months ended September 30, 2018 .
- Operating cash flows provided by continuing operations for the three and nine months ended September 30, 2019 were $2.2 million and $16.6 million , respectively, compared to $6.5 million and $9.7 million for the three and nine months ended September 30, 2018 , respectively.
- Total revenue from continuing operations for the three and nine months ended September 30, 2019 were $58.1 million and $178.4 million , respectively, compared to $61.6 million and $199.3 million for the three and nine months ended September 30, 2018 , respectively.
- Low volatile metallurgical coal sales tons, comprised of "Company Produced" tons and "Value Added Services" purchased coal tons, were 338,837 in the third quarter 2019 compared to 342,105 in the third quarter 2018. In the third quarter 2019, Corsa sold a total of 126,304 "Sales and Trading" tons, which are treated as pass-through from a profitability perspective, compared to 113,420 tons in the third quarter 2018.
- Corsa achieved an average realized price per ton of metallurgical coal sold(1) of $97.98 for all metallurgical qualities in the third quarter 2019 compared to $106.99 in the third quarter 2018. This average realized price is the approximate equivalent of $147 to $152 on an FOB vessel basis.(2) For the third quarter 2019, Corsa's sales mix included 27% of sales to domestic customers and 73% of sales to international customers.
- In August 2019 , certain wholly-owned subsidiaries of Corsa, as borrowers, entered into a senior secured revolving credit facility with KeyBank National Association for up to $25 million and a lease financing agreement with Key Equipment Finance, as lessor and assignor, and 36th Street Capital Partners, LLC, as assignee, for the sale and leaseback of various coal mining equipment for a funding amount of $12 million . These new facilities replaced the $25 million senior secured term credit facility with Sprott Resource Lending Corp.
-In the third quarter 2019, Corsa recognized income of $3.4 million , net of contingent legal fees, related to the July 23, 2019 ruling by the Pennsylvania State Mining Commission in favor of PBS Coals, Inc. in its claim against the Pennsylvania Department of Transportation. This income was partially offset by debt extinguishment expense of $1.2 million as a result of the debt refinancing noted above.
Peter Merritts , Chief Executive Officer of Corsa, commented, "Operationally, Corsa's active mining locations are performing well, as production from our mines hit a new five-year high in the third quarter, exceeding the previous quarterly production record, set in the second quarter of this year, by 8%. Also, our cash mining cost per ton produced has decreased steadily this year with the third quarter being the lowest in the last nine quarters. We expect to see the benefit of this higher production and lower cash cost in the fourth quarter 2019 as the inventory levels are reduced.
We continued to execute on our plan of focusing on operational performance, debt restructuring and general and administrative expense reductions. With the new debt facilities in place and a plan to reduce our leverage over the next several years, we have eliminated the refinancing risk of our previous debt position, which had a 2020 maturity. We have also focused on reducing general and administrative expenses of the Company in response to market conditions by making several changes to our corporate office staff which are expected to reduce annual general and administrative expenses by approximately $2 million .
The metallurgical coal market challenges impacted the Company in the third quarter of 2019 as our average sales prices declined. We expect challenging market conditions to continue through the fourth quarter of 2019, although we continue to believe the fundamentals for metallurgical coal pricing will remain supportive for the long term, driven by global economic growth, limited investment in new coal production and production cuts which have already been announced by several other mining companies. We expect to continue to generate cash margins in the existing price environment and will continue to focus on cost control and discipline in managing our operations."
2019 Year-to-Date Sales Metrics
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 updated guidance for the year ending December 31, 2019 reflects the impact of coal market reactions to concerns of a slowing global economy. This reaction caused index prices to weaken and is the primary reason that our guidance has been reduced. Additionally, in response to the market decline, Corsa has reduced general and administrative expense.
Coal Pricing Trends and Outlook
Price levels decreased during the third quarter from $193 /metric ton ("mt") delivered-to-the-port based ("FOBT") for spot deliveries of Australian premium low volatile metallurgical coal at the beginning of the quarter to a low of $137 /mt in late September and closed the third quarter at $147 /mt. Prices further rebounded to the low $150s/mt through mid-October. Import permit halts instituted during the third quarter of 2019 by Chinese authorities were one of the main drivers of the price decline as they reduced the number of tons able to serve the Chinese market. The quarterly average price for the third quarter of 2019 was $161 /mt FOBT for Australian premium low volatile metallurgical coal, compared to $203 /mt in the second quarter of 2019. The coking coal market continues to react to concerns of a slowing global economy and uncertainty regarding a trade deal between the U. S. and China . As a result, coking coal consumers are evaluating their inventory levels and adjusting their destocking and purchasing activities accordingly. The forward curve for the fourth quarter of 2019 according to various indexes are trading in the mid- $150s/mt FOBT range and the 2020 forward curve is in the low $160s/mt.
In May 2019 , Turkey reduced its tariff on imported coking coal from the U.S. from 13.7% to 5%. The lower import tariff in the third quarter of 2019, increased the ability of U.S. coking coal exporters to compete in the Turkish market. However, geopolitical events in the eastern Mediterranean and potential changes in trade relations between the U.S. and Turkey could negatively impact the competitiveness of U.S. coking coal exported to the Turkish market. In the U.S., negotiations with domestic coking coal consumers continued to progress in the quarter with pricing levels that reflect the year-over-year price decreases of the broader market. The supply of U.S. coking coals continues to be impacted by bankruptcy and related actions, announced production reductions and cessations. A reduction in U.S. port congestion and reduced railroad utilization support an environment of improved operational efficiencies and decreased transportation costs.
The World Steel Association reports that global steel production is up 4.4% year-to-date through August, with the U.S. up 4.1 %, China up 9.1% and Asia up 7.0%. Excluding China, which represents 54% of 2019 global steel production, year-to-date global steel production through August is down by 0.5%. Additionally, year-to-date steel production from the European Union and Brazil are down 2.9% and 5.4%, respectively. Chinese hot-rolled coil steel prices are down approximately 9.3% since the start of the year, with U.S. and Northern European prices down 34.9% and 19.0%, respectively, in the same time period. Preliminary U.S. coking coal export data through August, shows a 10.7% year-to-date decline for a total of 38 million tons. Extrapolating a 10% decline in coking coal exports results in approximately 56-57 million metric tons of exports versus 62 million metric tons in 2018.
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, 2019 and 2018 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 2,005,000 common shares of Corsa to certain directors, officers and employees of Corsa, which represents approximately 2.1% 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$0.38 , being the closing price of the common shares on the TSX Venture Exchange (the "TSXV") on November 5, 2019 or (b) the closing price of the common shares on the TSXV on November 8, 2019 , being the date following Corsa's "blackout" period in connection with its third quarter 2019 financial statements, and are subject to the terms and conditions of the 2017 Plan and TSXV 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 550,000 options, Corsa's non-executive directors, other than Robert C. Sturdivant and Kai Xia , were each granted 100,000 options and other employees of Corsa received an aggregate of 1,055,000 options. Messrs. Sturdivant and Xia are representatives of Corsa's significant shareholder, Quintana Energy Partners L.P. and its affiliated investment funds, and elected not to receive any options.
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