Coalcorp ends review, seeks to up production
TORONTO - Coalcorp Mining Inc. (TSX:CCJ) is no longer trying to sell itself, choosing instead to focus on developing its La Francia project and increasing production to take advantage of high coal prices.
Coalcorp, headquartered in Toronto and focused on Colombia, said Thursday that after a review of strategic alternatives announced in February, "the company and its advisers believe that the inherent value of its assets is significantly in excess of any and all proposals received."
It's now aiming to produce about six million tonnes of coal per year by 2010, and will focus on developing the La Francia mine complex and infrastructure, including a rail line and ports at Barranquilla and Capulco.
The increase in production at La Francia, from an estimated 1.8 million this year, is expected to take 18 months "and will allow the company to take advantage of sales of coal at spot prices, which are anticipated to remain high over the near to medium terms."
La Francia's coal production in the January-March quarter was 415,000 tonnes, up from 358,000 tonnes a year earlier.
As part of its plan, Coalcorp will also implement cost-cutting measures, "including a 25 per cent salary reduction for senior management," and is seeking to hire a Colombian-based chief operating officer.
John Hughes, an analyst with Desjardins Securities, said several other Canadian coal companies are choosing to hang on to their assets, noting that both major and minor producers are looking to increase production rather than sell.
"It's been very active, Grande Cache and Western Canadian in particular, and then of course Fording (Canadian Coal) basically in the last conference call saying that things were not progressing in terms of selling the company," Hughes said.
"It's less of a priority for Fording to sell itself today than it was six or seven months ago and of course the value of the unit is now $70, so it's a much more expensive proposition for any other (metalurgical) coal producer or steel producer to look at them."
Late last year, Fording Canadian Coal Trust (TSX:FDG.UN) said it was considering a sale, citing the pending tax changes for income trusts and consolidation in the mining sector.
But coal prices have soared since then on expectations of higher demand due to Chinese production woes as southern China experiences its harshest winter weather in half a century.
Power problems in South Africa and flooding in Australia have compounded the problems, which come ahead of negotiations between coal producers and steel mills.
Metallurgical coal settled at US$305 per tonne for the year, which runs from April 1 to the following March - about 200 per cent higher than it was last year. Thermal coal, used for power plants, is currently hovering around $120 to $125 a tonne.
"We don't see a reason for next year's contract price to differ from '07," Hughes said.
Shares in Coalcorp rose seven per cent on the TSX, climbing 11 cents to trade at $1.66 with 1.8 million shares changing hands. Coalcorp's plan includes a $120-million public offering of new equity - though the company said Thursday that an unnamed major shareholder has indicated it intends to make an alternative financing proposal. Coalcorp also plans to sell non-core assets, namely its Cartagena port lands and Caypa mine. Coalcorp has recently run into problems over a coal export port in Cartagena Bay.
The company said Thursday it is delaying the pricing of the equity offering in order to consider the private placement proposal "if and when it is received."
Company officials were not immediately available for comment or to provide further details about the shareholder proposal.
In February, Pala Investments AG, a group holding a 19 per cent stake in Coalcorp, said it's was still interested in acquiring the company despite a rejection by the miner's board. Pala argued the miner should generate better value amid soaring coal prices and strong demand.
Executives at Pala Investments Holdings Ltd., a firm based in Jersey, did not immediately return calls seeking comment.
Coalcorp, reporting in U.S. dollars, said revenue from continuing operations in the third quarter of its financial year increased to $30.5 million from $13.5 million a year earlier, based on sales of 561,000 tonnes from La Francia at an average realized price of $55 per tonne.
The company reported a net loss for the quarter of $53 million or 59 cents per share, including a $43.7-million loss from discontinued operations at Caypa and Cartagena. This compared with a year-ago net loss of $16.4 million or 26 cents per share.
Coalcorp ended the quarter with $26.3 million in cash and short-term investments.
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