International Coal Group Reports Second Quarter Resultsadmin
International Coal Group, (Nachrichten) Inc. today reported second quarter 2006 revenues of $223.3 million, a 45% year-over-year increase. Increased revenues primarily resulted from favorable pricing and increased sales tons due to shipments from the former Anker operations acquired on November 18, 2005. EBITDA of $20.3 million was in line with the Company’s previously published second quarter guidance, but below the $26.9 million reported for the second quarter of 2005.
As detailed in the Company’s June 6 press release, second quarter performance was adversely affected by several unusual events and operating difficulties, including a fire at the Company’s ICG Illinois mine complex, closure of the Company’s Stony River deep mine, the bankruptcy of a key coal supplier for ICG’s Vindex operation, an extended construction outage at the Sentinel Mine, and lingering effects of the Sago mine accident in January 2006.
The Company reported a net loss of $0.6 million, or essentially break-even on a fully diluted share basis, versus net income of $9.1 million, or $0.09 per share, for the comparable period in 2005. Net income included a one-time write-off of $1.4 million in deferred financing costs as a result of the renegotiation and expansion of the Company’s credit facility.
“We are pleased that despite the unusual operating challenges in the first half of 2006 we achieved our guidance,” said Ben Hatfield, president and chief executive officer. “We believe these issues are largely behind us and we are now focusing our efforts on improving results of operations over the balance of the year.”
Revenues for the first six months of 2006 totaled $435.5 million, compared to $307.3 million for the comparable period in 2005. The Company reported EBITDA of $30.9 million in the first half of 2006, compared to $56.1 million in the same period a year ago. Net income for the first half was a loss of $6.8 million, or $(0.04) per fully diluted share, versus net income of $19.9 million, or $0.19 per fully diluted share, for the comparable six months in 2005.
Capital Resources, Reserves, Sales and Sales Commitments
At June 30, 2006, cash totaled $65.8 million and ICG had an additional $265.1 million of unused borrowing capacity. Total debt was $197.7 million, versus net worth of $661.4 million. Capital expenditures totaled $55.5 million during the second quarter of 2006, compared to $24.7 million in 2005.
ICG now controls approximately 1.1 billion tons of coal reserves located principally in Kentucky, West Virginia, Maryland, Illinois and Virginia. The Company also controls approximately 560 million tons of non-reserve coal deposits, which may become classified as reserves in the future as additional drilling and geotechnical work is completed.
ICG sold 4.9 million tons of coal during the second quarter of 2006, a 40% year-over-year increase. Production of 4.1 million tons increased 33% from last year’s second quarter. Coal sales revenue increased 46% to $212.2 million for the three months ended June 30, 2006, compared to the same period in 2005, due to a $1.70 per ton increase in the average sales price and an increase in tons sold.
Price realization remained strong in the second quarter. ICG’s overall average price per ton of coal rose to $43.60 during the second quarter of 2006, representing a 4% gain compared to the same period in 2005.
Second Quarter Highlights In Millions 2nd Qtr 2nd Qtr 1st Qtr 2006 2005 2006 Tons sold 4.9 3.5 4.7 Coal Revenue $212.2 $145.6 $203.3 Coal Revenue per ton $43.60 $41.90 $43.27 Cash cost per ton sold $40.09 $34.52 $41.18 EBITDA $20.3 $26.9 $10.6 *See note b to attached financial data
As of June 30, 2006, consistent with the Company’s market strategy, ICG had committed sales for approximately 93% of its planned shipments for 2006. For 2007, committed sales currently stand at approximately 55% to 60% of planned shipments.
Other Business Developments
ICG’s reserve holdings were significantly expanded during the second quarter through the acquisition of two coal properties. As previously reported, in April 2006, the Company’s Wolf Run subsidiary leased over 14 million tons of Clarion seam reserves that the Company expects to begin mining from its Sentinel Mine complex in the fourth quarter of this year. In early June 2006, Wolf Run acquired leased properties near its Vindex complex that contain approximately 28 million tons of metallurgical and steam quality coal reserves.
During June 2006, ICG completed the critical process of establishing debt financing to fund future growth. The financing included an offering of $175 million senior notes due 2014, which was closed on June 23, 2006. Simultaneous with the senior notes offering, ICG completed the renegotiation and expansion of its revolving credit facility to $325 million.
On July 10, 2006, ICG relocated its offices to its newly constructed corporate headquarters building in the community of Scott Depot, near Charleston, West Virginia. The facility is owned by ICG and contains over 50,000 square feet of space to serve as the offices for more than 90 ICG employees.
The coalbed methane (CBM) recovery project owned jointly by the Company’s subsidiary, CoalQuest Development LLC, and CDX Gas began producing CBM gas on July 14, 2006 from the Hillman property. Gas is flowing from the first of four now-completed wells while drilling continues for 13 additional wells.
On July 19, 2006, J. Davitt McAteer, special advisor to West Virginia Governor Joe Manchin III, issued his preliminary report related to the Sago Mine accident that occurred on January 2, 2006. The McAteer report’s conclusions as to the cause and nature of the explosion are generally consistent with the Company’s initial findings issued on March 15, 2006, which identified lightning as the probable source of the ignition. As noted in the report, the investigation is ongoing and additional tests and analyses are being conducted. The Company will continue to cooperate with those efforts in a diligent search for answers that will help make coal mines safer in the future.
For the full year, the Company is reaffirming the following guidance provided in its June 6 news release:
– Coal production from ICG operations in 2006 is forecast at 18 million tons, with projected sales of 22 million tons. – Total revenues for 2006 are forecast at $980 million to $1.05 billion. – 2006 EBITDA is expected to be $130 million to $150 million. – Earnings for the full year are expected to be between $23 million and $33 million or $0.15 to $0.21 per fully diluted share.
“We are encouraged by the improvement in operating performance we’ve seen over the course of the second quarter,” said Hatfield. “Looking to the second half of 2006 and beyond, there are several positive operating developments that should help us continue that improvement trend. At our Flint Ridge complex, the Number Two Mine started producing coal in mid-June and has demonstrated a very consistent ramp-up in output. At the new Raven complex in Knott County, Kentucky, the preparation plant construction is on schedule for a late-August start-up and initial mine productivity is favorable to forecast. At our ICG Beckley complex, the slope and shaft development is also on pace for the targeted production start-up in early 2007. We believe that these events, along with the anticipated strengthening in coal prices with warm summer weather, should bode well for International Coal Group’s future.”
ICG is a leading producer of coal in Northern and Central Appalachia and the Illinois Basin. The Company has 11 active mining complexes, of which 10 are located in Northern and Central Appalachia and one in Central Illinois. ICG’s mining operations and reserves are strategically located to serve utility, metallurgical and industrial customers throughout the Eastern United States.