CanAm's smooth Q1 transition

DESPITE transitioning to three new mines during the 2013 first quarter, CanAm Coal has managed to keep its losses to a minimum and increase sales.
CanAm's smooth Q1 transition CanAm's smooth Q1 transition CanAm's smooth Q1 transition CanAm's smooth Q1 transition CanAm's smooth Q1 transition

CanAm's Powhatan mine

Staff Reporter

"Our first quarter was extremely challenging from an operations perspective which translated in reasonable but weaker financial results,” CanAm president and chief executive officer Jos De Smedt said.

CanAm reported a net loss of $1.8 million for the three months ended March 31, compared to a net loss of $1.2 million for Q1 2012.

The company cited not only the burden of its mine transitions for the loss but also acknowledged increased depreciation, amortization and depletion arising from a larger asset base, increased financing charges related to additional equipment financing and debenture issuances in 2012, increased debenture issue amortization and accretion expenses and an unrealized foreign exchange loss on the company's US dollar denominated debenture.

Earnings before interest, tax, depreciation and amortization for Q1 2013 were $1.87 million, a slight improvement over the $1.85 million in EBITDA realized in Q1 2012.

CanAm’s Q1 2013 revenue was 9% ($1.1 million) higher than Q1 2012 but 5% ($670,000) lower than Q4 2012.

The company said the revenue decrease was a combination of slightly lower volumes (down 2.9% or 4400 tons) and a lower average realized sales price.

CanAm said both reductions were primarily the result of the transition to the new mine configuration and were considered temporary.

“Operationally we continued the migration of our 2012 mine complement, comprised of our Bear Creek, Gooden Creek, Old Union and Powhatan mines, to an almost entire new mine configuration comprised of the Knight, Old Union 2, Posey Mill 2 and Powhatan mines,” De Smedt said.

“This transition and migration exercise involved major mine development work at our new mines, close-out and reclamation activities at our old mines and moving of equipment and other resources from our old mines to our new mines.

“Basically our work force was building roads, stockyards and ponds at our new mines, closing and reclaiming our old mines, moving equipment between locations while at the same time producing and selling 150,000 tons of coal in the quarter.

“This complex transition resulted in less than optimal operating conditions and efficiency circumstances.

“Despite these challenges, which included usually wet weather through much of the quarter, the company achieved sales levels on par with Q3 and Q4 of last year.”

CanAm reported total sales of 149,453t compared to 117,192t sold in Q1 2012, citing improved mine operating efficiency implemented in the second half of 2012 for the increase.

Average sales price dropped from $96 per ton to $93/t from Q1 2012.

Two new customer contracts were signed during the quarter for average monthly volumes of some 10,000t.

A metallurgical coal contract for 4000 tons per month was terminated in February and replaced in April with an offtake arrangement for approximately 3000tpm, albeit at a lower price.

On this basis, contracted sales for 2013 are in the range of 700,000-800,000t which corresponds to between 85% and 100% of expected production of the new mine complement.

Upon completion of the mine transition the company will operate four mines with six pits.

Once fully operational, the productive capacity of the mine complement is expected to be in the range of 60,000-80,000tpm, in excess of the previous capacity.

“With our new mines fully permitted, major mine development now completed and full production levels to be achieved in the latter part of Q2 2013, further significant growth is expected in 2013,” De Smedt said.

“In addition, the company's $14.5 million investment in equipment in 2012 positions CanAm to efficiently optimize production and sales from these new mines.

“With these building blocks in place, we look forward to strong growth into the remaining of 2013.”

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