Phoenix Coal Inc announced its financial results for the 3 and 9 month periods ended September 30th 2009. Unless otherwise noted, all reserves and resources are expressed in imperial tonnes and all financial information is expressed in US dollars. US dollar to Canadian dollar conversions are based on the exchange rate of USD 1.0000 CAD 1.0728 as at September 30th 2009.
1. Highlights for Q3 2009:
(I). On September 30th 2009, the Company sold substantially all of its surface coal mining assets to a privately-owned Ohio based coal producer, Oxford Mining Company, LLC for total consideration of approximately USD 32.2 million.
(II). At September 30th 2009, the Company had approximately USD 17.4 million in cash, cash equivalents and short term investments. The Company also had restricted cash, cash equivalents and certificates of deposit as collateral for letters of credit for reclamation bonding and escrowed funds from the sale of its surface mining operations in the amount of USD 14.4 million. Of the USD 14.4 million, the Company expects approximately USD 10.4 million or USD 0.070 per share to be released from restriction by the end of the Q1 2010. On per share basis, at September 30th 2009, Phoenix had USD 0.116 per share in cash, cash equivalents and short term investments and an additional USD 0.096 per share in restricted cash, cash equivalents and certificates of deposit and escrowed funds.
2. Closing sale of Surface Mining Assets;
On September 30th 2009, the Company announced the closing of the sale of all of its operating assets and surface mining operations in Western Kentucky to Oxford. The transaction, valued at approximately USD 32.2 million, consisted of 4 operating surface mines, surface mining equipment, a preparation plant facility, the Island Dock barge loading facility, coal properties containing the coal reserves of the surface mining business and contracts related to the purchase and sale of coal.
Under the terms of the agreement Phoenix received for the surface mining operations cash, assumption by Oxford of all debt associated with the equipment being sold and the assumption of certain asset retirement obligations. Reclamation liabilities related to surface mining operations whose reserves had been depleted as at September 30th 2009 were not included in the sale. Phoenix can potentially receive an additional USD 500,000 of cash consideration if, by June 30th 2010, it satisfies certain post closing obligations. Phoenix will recognize the 2010 Fee when it is received. In addition, upon completion of the regulatory transfer of the acquired mining permits, the purchaser will replace the Company's letters of credit for assumed reclamation obligations, which will release the restrictions on approximately USD 5.6 million of restricted cash and certificates of deposit.
With respect to the cash consideration, Phoenix received USD 4.6 million at closing and USD 2.3 million was placed in escrow. The Company will receive from Oxford an additional USD 1.5 million during the 2009 Q4 as a result of satisfying certain post closing obligations and thus has recorded the 2009 Fee in the consolidated financial statements as at September 30th 2009. Of the USD 1.5 million, USD 500,000 will be placed in escrow when received. The 2009 Fee will be offset by approximately USD 207,000 for the amount of the working capital adjustment that is due the purchaser pursuant to the Acquisition Agreement. Additionally, if earned by Phoenix, the 2010 Fee will also be placed in escrow. Subject to the indemnification provisions of the Acquisition Agreement, the escrowed funds will be released to the Company with one third of the escrowed balance released March 31st 2010, one half of the remaining escrowed balance released September 30th 2010, and the balance of the escrowed funds released March 31st 2011.
For the nine months ended September 30th 2009, the Company realized a loss on the sale of its surface mining operations of USD 36.2 million. For the quarter ended September 30th 2009, the Company recorded an adjustment of USD 2.7 million to the previously estimated loss of USD 38.9 which was reported in the quarter ended June 30th 2009. The reported loss is a preliminary estimate and may differ from the final loss calculation upon finalization of working capital and other post-closing adjustments that will occur after September 30th 2009.
Mr David A Wiley president and CEO of Phoenix Coal Inc said that "The sale of our surface mining business has significantly improved the Company's balance sheet; and we are currently in the process of evaluating strategic alternatives for the Gryphon Mining Complex. Over the coming weeks, as we advance strategic discussions with interested parties, we will work with the Board of Directors to evaluate the optimal direction for Phoenix and its shareholders."
3. Financial and Operational Review
As at September 30th 2009, Phoenix Coal had USD 17.4 million in cash, cash equivalents and short term investments, compared to USD 40.6 million as at December 31st 2008. In addition, the Company had restricted cash, cash equivalents and certificates of deposit as collateral for letters of credit for reclamation bonding and escrowed funds from the sale of its surface mining operations in the amount of USD 14.4 million as at September 30th 2009 versus USD 11.6 million as at December 31st 2008.
All of the Company's revenues were derived from its surface mining operations that were sold to Oxford during the Q3. For the Q3 of 2009, the Company's revenue increased by 28% to USD 23.2 million from USD 18.1 million in the prior year comparative 3 month period. For the 9 months ended September 30th 2009, Phoenix's revenue increased to USD 58.5 million from USD 57.9 million in the prior year 9 month period.
The Company's cost of sales increased by 27% to USD 22.8 million in Q3 of 2009 from USD 17.9 million in the Q3 2008. Comparing the same periods on cost per ton sold basis, cost of sales was USD 33.46 versus USD 33.87. For the 9 months ended September 30th cost of sales decreased from USD 56.6 million in 2008 to USD 54.5 million in 2009. Cost per ton for the 9 months ended September 30th 2009 was USD 31.34 compared to USD 32.62 in 2008 for a decrease of 4%.
