Also under discussion was the hiring of investment firm Morgan Stanley to help the company review its “strategic alternatives” to increase value to shareholders, including a possible sale of the company.
In a conference call, the Richmond, Virginia-based company reported financial turbulence in its fourth quarter and year-end performance, which was headlined by a net loss of $US12.3 million.
Results for the fourth quarter of 2005 showed that coal shipments increased 52% over the same period last year to over 3Mt and revenues from coal sales increased 56% to $117 million. However, gross profits slipped despite the production increases from a loss of just under $1 million for the fourth quarter of 2004 to a loss of over $7 million in 2005.
For the year, the company reported a 25% increase in coal sales to just over 11Mt and a 32% increase in revenues to $446 million. Similar to the fourth quarter results, the increase in sales resulted in a decrease in gross profit, from $31 million in 2004 to $13 million in 2005.
As James River Coal’s chief Peter Socha explained, the decrease in current year profits is primarily due to the company’s efforts to strengthen their infrastructure and increase profitability in the years to come.
“We spent a great deal of time and effort setting the stage for profitable growth in 2006 and 2007. However, setting the stage for profitable future growth has required substantial current investment,” he said. “Thus far in 2006, we are clearly seeing the results of these investments.”
Socha was confident that the timing was right for the company’s $9 million purchase of the underground and surface reserves and rail assets in Pike County and Warrick County, Indiana.
“This transaction represents the next phase in our strategic plan to expand mining operations in the fast-growing Illinois Basin,” he said.
“The reserves are all located in close proximity to the existing mines of our Triad Mining subsidiary in southern Indiana. The rail loadout facility will allow us to increase our shipments to existing customers in the Illinois Basin [and] give us the flexibility to ship coal by rail to potential customers located in other market regions.”
The company also noted that the hiring of Morgan Stanley for “exploring various strategic alternatives” does not necessarily mean the company is going on the auction block. The firm, it said in a statement, has been “authorised to contact and provide information to prospective strategic and financial purchasers. No assurance can be given that any transaction will be pursued, or if a transaction is pursued, that it will be consummated”
Overall, Socha said, James River is amidst a sea of opportunity in the new financial year.
“We are very confident about the future,” he said. “Our major investment program has almost concluded, we have continued to attract some of the best employees and management in the coal mining industry and the overall industry dynamics continue to be very bright.”