Fording coughs up Elk Valley tax charge

FORDING Canadian Coal Trust’s has declared net profit of C$13 million, after paying a C$28 million tax charge to reduce the Trust’s interest in Elk Valley Coal over the next two years.

Staff Reporter

Income from operations was C$54 million during the quarter compared with C$23 million during the same period last year.

Revenues were C$308 million, up 24% on the strength of higher coal sales volumes and prices, offset to a degree by a higher Canadian dollar. The cost of product sold declined slightly to C$112 million, mainly due to lower unit costs. Transportation and other costs rose 32% to C$121 million on increased coal sales volumes and higher rail and ocean freight costs.

Development of the first phase of the Cheviot Creek pit at the Cardinal River operations continues, on schedule and on budget, with initial coal production expected in the fourth quarter.

"Our operating results for the second quarter reflect improved coal markets and the positive effect of our mine rationalization programs implemented last year," said Jim Popowich, President of Fording Canadian Coal Trust. "High production levels in the quarter made for efficient operations at our minesites and lower unit cost of sales, while overall operating costs rose due to increased transportation costs.

The company said demand for seaborne hard coking coal remains robust and its mines were running flat out to meet the demands of customers.

With coal sales of 6.8 million tonnes in the second quarter, Elk Valley Coal is on track to meet its sales target of about 25 million tonnes for the year.

"Together with our partner, Teck Cominco, we have worked hard to maximize the value of the combined assets that make up Elk Valley Coal. As a result of the attainment of substantial synergies, a portion of the Trust's interest will be transferred to Teck Cominco, reducing our distribution entitlements to 60% over the next two years. We believe the value flowing from these synergies will more than offset the corresponding reduction in the Trust's interest," Popowich said.

Elk Valley Coal was initially owned 65% by the Trust and 35% by Teck Cominco, the managing partner. The agreement governing Elk Valley Coal provided for an increase in Teck Cominco's interest to a maximum of 40% to the extent that synergies from the combination of various metallurgical coal assets contributed to Elk Valley Coal exceed certain target levels. The report of an independent expert engaged by the partners concluded that sufficient synergies had been realized to increase Teck Cominco's interest to 40%.

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