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Signature Sponsor
November 27, 2024 - Corsa Coal Corp. (TSXV: CSO; OTCQX: CRSXF) (“Corsa” or the “Company”), a premium quality metallurgical coal producer, has provided a corporate update and reported financial results for the three and nine months ended September 30, 2024. Corsa has filed its unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2024 and 2023 and related management’s discussion and analysis under its profile on www.sedarplus.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 (“FOB”), mine site basis, unless otherwise noted.
Corporate Update
The Company conducted investigations for significant concentrations of rare earth elements in the Company’s coal refuse disposal material, however, based on the results of such investigations, the Company believes that the extraction of rare earth elements has limited economic potential. However, in connection with the rare earth elements investigation, the Company also conducted investigations for the presence of other critical minerals, including platinum group and precious metals (“PGMs”). The Company’s internal lab analysis suggests the presence of PGMs in its coal refuse disposal material and the Company has engaged a mineral research organization in South Africa to further explore the potential capture of PGMs in such material on a commercial scale. Sample material was sent to South Africa where the mineral research organization prepared the sample, completed a particle size distribution and milling curve and performed head grade analysis using fire assay, fusion and multiple acid digestion analysis. Preliminary analysis from the mineral research organization’s laboratory suggests that further development work is justified due to the potential PGM grades in such material identified in the multiple acid digestion, but also that further analysis is required to definitively identify the minerals that contain PGMs and to determine whether a viable commercial scale extraction process exists. The expected next stages in the investigation include additional work to certify the acid digestion results, confirm testing results through an additional third-party lab, complete the mineralogy process to identify where the PGMs reside in the ore material and determine the appropriate physical separation method.
The Company’s U.S. subsidiary, Wilson Creek Holdings, Inc. (“WCH”), through an administrative agent, Madison One Capital, LLC, has made an application to the United States Department of Agriculture (“USDA”) Rural Development Business and Industry loan guarantee program. If the loan guarantee application is approved by the USDA, WCH is expected to enter into a $25.0 million term loan subject to an 80% USDA guarantee. The proceeds of the loan are expected to be utilized, in part, to refinance the Company’s existing term loan under the Main Street Facility, which had an outstanding principal balance at September 30, 2024 of $16.8 million. Although debt financings have been successful in the past, there is no assurance that the Company will be able to successfully complete this financing.
Third Quarter Highlights
Kevin M. Harrigan, President and Chief Executive Officer of Corsa, commented, “Corsa’s coal production in the third quarter of 2024 improved 22% over the second quarter of 2024 and aligned with our previous expectations of improved operational performance in the second half of the 2024 year. Operationally, deep mine production should continue at similar levels as we continue to run three production sections at the Casselman mine. The Horning mine is currently progressing in their equipment and supplies recovery efforts necessary to seal a significant portion of the mine but is expected to be back in operation in the first quarter of 2025 mining towards the portal until the economic reserves are exhausted in the current seam. We expect coal production to continue at Horning in the current seam throughout 2025.”
“Our operations made significant progress recently on lowering our production costs with a 14% improvement over the second quarter of 2024 and additional cash cost reductions expected at our deep mines. These operational improvements remain the Company’s primary focus while we are actively engaged in refinancing the Main Street Loan credit facility. The proceeds of the new loan are expected to be utilized, in part, to refinance the Company’s existing term loan. We believe that this debt refinancing and liquidity enhancement along with continued operational improvements will position Corsa to achieve better results in the 2025 year with a strengthened balance sheet.”
Coal Pricing Trends and Outlook
Price levels opened the third quarter 2024 at $245.20/metric ton (“mt”) delivered-to-the-port (“FOBT”) for spot deliveries of Australian premium low volatile metallurgical coal and closed the quarter at $204.75/mt FOBT. The quarterly average price for the third quarter 2024 was $210.73/mt FOBT compared to $242.27/mt FOBT in the second quarter and traded in a range from a high of $258.00/mt FOBT to a low of $180.00/mt FOBT.
The price for spot deliveries of Australian premium low volatile metallurgical coal opened the fourth quarter of 2024 at $204.75/mt FOBT and was trading at $203.00/mt FOBT in early November, with a high price of $211.25/mt FOBT, a low price of $199.00/mt FOBT, and an average price of $203.77/mt FOBT during the quarter. As of early November, forward curve pricing for the balance of the fourth quarter is trading at an average of $207.75/mt FOBT. Fourth quarter 2024 hot-rolled steel coil prices increased in Europe and China by 0.9% and 0.6%, respectively and decreased in the United States by 4.1%. According to the World Steel Association October 2024 Short Range Outlook, finished steel demand in 2024 is expected to decrease by 0.9% over 2023 with China driving the change at a decrease of 3.0% with the rest of the world increasing by 1.2%. Other noteworthy changes include decreases in Germany 7.0%, Turkey 5.5%, South Korea 3.8%, Japan 2.1% and the United States 1.5%, with India and Brazil increasing at 8.0% and 5.0%, respectively. Continued high inventories and ready supply of metallurgical coal with muted demand, as well as uncertainty around the timing and effectiveness of Chinese economic stimulus activities are holding down near-term prices.
See “Risk Factors” in the Company’s annual information form for the year ended December 31, 2023 for an additional discussion regarding certain factors that could impact coal pricing trends and outlook, as well as the Company’s ongoing operations.
Fourth Quarter 2024 Update
The Company’s fourth quarter 2024 sales volumes are expected to be higher than the third quarter of 2024 and comparable to historical averages. Compared to the third quarter of 2024, the fourth quarter of 2024 is forecasted to have similar production from our deep mines, decreased production from our surface mines due to reduced highwall miner operations, and lower purchases of third-party coals related to market conditions. Metallurgical coal selling prices are expected to be lower than the third quarter of 2024 due to increased participation in the export market and exposure to market-based prices. Cash cost of sales is expected to be similar to the previous quarter. Selling, general and administrative expenses are expected to be comparable to the third quarter of 2024. The main priorities of the Company are reducing costs and increasing efficient production while maintaining a balance between our open position and positive cash margin opportunities. We are committed to improving the Company’s balance sheet with minimized downside financial risk but are also focused on organic growth opportunities to complement our existing operations. The Company’s capital allocation and deployment strategy will be aligned with these priorities and the Company’s financial position.
For calendar year 2024, Corsa has to date committed sales of nearly 1,030,000 tons. Committed and priced sales are over 1,005,000 tons at an FOB mine price of nearly $142/ton. The price per ton is the equivalent of between $238/mt and $250/mt FOBT for Australian premium low volatile metallurgical coal using an illustrative freight rate of $35-$45 per short ton.
For calendar year 2025, Corsa has, to date, committed sales of 850,000 tons. Committed and priced sales are 808,000 tons at an FOB mine price of over $152/ton. The price per ton is the equivalent of between $251/mt and $263/mt FOBT for Australian premium low volatile metallurgical coal using an illustrative freight rate of $35-$45 per short ton.
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, 2024 and 2023 and related management’s discussion and analysis, filed under Corsa’s profile on www.sedarplus.com, for details of the financial performance of Corsa and the matters referred to in this news release.
Non-GAAP Financial Measures
Corsa uses certain non-GAAP financial measures to measure its performance internally and to assist in business decision-making as well as providing key performance information to senior management. 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.
Management uses the following non-GAAP financial measures:
EBITDA - earnings before deductions for interest, taxes, depreciation and amortization; Adjusted EBITDA - EBITDA adjusted for change in estimate of reclamation and water treatment 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; Realized price per ton sold - revenue from coal sales less transportation costs from the mine site to the loading terminal divided by tons of coal sold. Management evaluates our operations based on the volume of coal we can safely produce or purchase and sell in compliance with regulatory standards, and the prices we receive for our coal. Our sales volume and sales prices are largely dependent upon the terms of our contracts, for which prices generally are set based on an index. We evaluate the price we receive for our coal on an average realized price on an FOB mine site per short ton basis; Cash production cost per ton sold - cash production costs of sales excluding purchased coal costs, all included within cost of sales, divided by tons of produced coal sold. Cash production cost is based on cost of sales and includes items such as manpower, royalties, fuel, and other similar production related items, pursuant to IFRS, but relate directly to the costs incurred to produce coal and sell it on an FOB mine site basis. Cash production cost per ton sold is used as a supplemental financial measure by management and by external users to assess our operating performance as compared to the operating performance of other companies in the coal industry. Purchased coal is excluded as the purchased coal costs are based on market prices of coal purchased and not the cost to produce the coal; Cash cost purchased coal per ton sold - purchased coal costs divided by tons of purchased coal sold. Management uses this measure to assess coal purchases against the market price at which this coal will be sold; Cash cost per ton sold - cash production costs of sales, included within cost of sales, divided by total tons sold. Management uses cash cost per ton sold to assess our overall financial performance on a per ton basis to include the Company’s production and purchased coal cost in total; and Cash margin per ton sold - calculated difference between realized price per ton sold and cash cost per ton sold. Cash margin per ton sold is used by management and external users to assess the operating performance as compared to the operating performance of other coal companies in the coal industry. For a reconciliation of non-GAAP financial measures to GAAP measures, see the tabular presentation at the end of this news release.
Qualified Person
All scientific and technical information contained in this news release has been reviewed and approved by David E. Yingling, Professional Engineer and the Company’s mining engineer, who is a qualified person within the meaning of National Instrument 43-101 – Standards of Disclosure for Mineral Projects.
Caution
Potential developments and market conditions discussed in this news release are considered to be forward looking information. Readers are cautioned that actual results may vary from this forward-looking information. See “Forward-Looking Statements” below.
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.
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