International Coal Group Reports Fourth Quarter and Full Year 2009 Results

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

30 Jan 2010

"We enter 2010 with positive momentum despite the general weakness in the global economy," said Ben Hatfield, ICG's President and CEO. "Both Adjusted EBITDA and margin on coal sales more than doubled compared to the fourth quarter of 2008. Our focus on cost control has been successful even while operating at reduced production levels due to weak demand. Improved shipments of metallurgical coal partially offset lower-than-expected thermal coal shipments and weather-related rail service delays."
Hatfield continued, "Despite the broad market weakness our industry encountered in 2009, a growing number of signs point toward meaningful thermal coal price recovery in 2010:
•    Natural gas prices have climbed above the critical $5.00 benchmark, thus encouraging utilities to increase coal utilization.
•    Unusually cold winter weather throughout most of the country in December and January accelerated stockpile normalization.
•    Continued economic recovery is expected to lift industrial electricity demand.
•    Demand for high-volatile metallurgical coal has increased substantially and is expected to reduce the supply of coal available for eastern thermal markets."
Hatfield concluded, "We expect metallurgical coal demand to continue to improve in 2010 due to tighter global markets and increased domestic utilization. Met pricing has increased rapidly since early December and we have recently secured several new contracts at attractive prices."
2009 Full-Year Results
Revenues for the years ended December 31, 2009 and December 31, 2008 each totaled $1.1 billion. The Company reported 2009 Adjusted EBITDA of $201.7 million, the highest level in Company history, compared to $127.2 million for 2008.  Net income for 2009 was $21.5 million, or $0.14 per share on a diluted basis, versus a net loss for 2008 of $26.2 million, or $0.17 per share on a diluted basis. 
The Company's 2009 results include a non-cash charge totaling $13.3 million for losses on extinguishment of debt resulting from private exchanges of the Company's Convertible Notes and $42.6 million of revenue related to the termination of several coal supply agreements.
Results in 2008 include a non-cash charge of $37.4 million for goodwill impairment and non-recoverable mine development costs and a $24.6 million gain realized on the exchange of coal reserves.
Sales, Production and Reserves
ICG sold 3.8 million tons of coal during the fourth quarter of 2009 compared to 4.4 million tons during the fourth quarter of 2008. Production totaled 3.6 million tons in the fourth quarter of 2009 versus 4.3 million tons in the same period of 2008.
As of December 31, 2009, ICG controlled approximately 1.1 billion tons of coal reserves, located primarily in Illinois, Kentucky, West Virginia, Maryland and Virginia.  Additionally, the Company controlled approximately 431 million tons of non-reserve coal deposits, which may be classified as reserves in the future as additional drilling and geotechnical work is completed.
Operational and Other Updates
•    On December 21, 2009, Allegheny Energy, the sole customer of the Company's Sycamore 2 mine and a substantial contract customer at two other operations, ended its three-month suspension of contract shipments reportedly due to improving demand.  The Sycamore 2 mine was immediately restarted.  All three of the affected mining operations have now returned to normal production levels.
•    ICG Beckley commenced production from a third section on November 30, 2009 that is expected to increase production of premium low-volatile metallurgical coal by approximately 300,000 tons in 2010. 
•    On November 16, 2009, the Company reached a settlement with the Kentucky Waterways Alliance and the Sierra Club in a lawsuit over the issuance of a Clean Water Act Section 404 permit to ICG Hazard's Thunder Ridge surface mine in Leslie County, Kentucky. Under the settlement, ICG Hazard was allowed to construct a fourth and final valley fill at the Thunder Ridge mine in exchange for a contribution to a non-profit group conducting watershed assessments. 
•    In the fourth quarter, ICG ADDCAR began manufacturing a new Steep-Dip Highwall Mining System for delivery to a coal producer in India. The highwall mining system is expected to be shipped in the second quarter of 2010. 
Committed Sales and Market Outlook
For 2010, committed and priced sales are approximately 15.5 million tons, or about 91% of planned shipments, at an average price of approximately $61.50 per ton, excluding freight and handling expenses.  Approximately 1.0 million uncommitted tons for 2010 are expected to be marketed as metallurgical coal.  Metallurgical coal sales in 2010 are projected to total approximately 2.4 million tons.
For 2011, committed and priced sales are approximately 8.1 million tons, or 49% of planned shipments, at an average price of $55.50 per ton, excluding freight and handling expenses. The Company expects to sell approximately 2.5 million tons of metallurgical coal in 2011, essentially all of which is unpriced.
The Company believes that producer discipline and improved demand will result in utility inventories approaching normalized levels by mid-to-late summer.  According to published reports, utility stockpiles were reduced by nearly 30.0 million tons in December 2009 and early January 2010. In addition, growing thermal demand from Asia offers encouraging signs that U. S. exports could rebound by mid-year, further improving market fundamentals. 
Liquidity and Debt
As of December 31, 2009, the Company had $92.6 million in cash and $26.4 million in borrowing capacity available under its credit agreement.  Total debt was $386.5 million, consisting primarily of $175.0 million of 10.25% Senior Notes and $161.5 million of 9% Convertible Senior Notes. 
In December 2009, the Company entered into a series of privately negotiated agreements in order to exchange its outstanding Convertible Notes.  In connection with such agreements, the Company issued a total of 18.7 million shares of its common stock in exchange for $63.5 million aggregate principal amount of its Convertible Notes through December 31, 2009.  One of the exchange agreements, as amended, provided for closing of additional exchanges on each of January 11, 2010 and January 19, 2010.  In connection with this agreement, the noteholder exchanged an additional $22.0 million aggregate principal amount of Convertible Notes for 6.2 million shares of the Company's common stock in January 2010.  As a result of these private exchanges, the Company has reduced its indebtedness by approximately $85.5 million, and its related annual interest expense by approximately $10.0 million. 
Also in December, the Company filed a shelf registration statement with the Securities and Exchange Commission (SEC). The statement, which was declared effective on January 15, 2010, is expected to provide the Company with the flexibility to raise up to $600.0 million through future sales of securities, including common stock and debt securities. The registration is effective for three years.
Current Guidance
The Company has updated its guidance to reflect modifications to its production mix and the global economic conditions affecting the coal market:
•    For 2010, the Company expects to sell 16.7 million to 17.3 million tons of coal, including approximately 2.4 million tons of metallurgical coal. The average selling price is projected to be $62.00 to $64.00 per ton, with an average cost of $49.50 to $51.50 per ton, excluding selling, general and administrative expenses. The Company expects coal production to be 16.0 million to 16.4 million tons.
•    Adjusted EBITDA is expected to be in the range of $170 million to $200 million in 2010.
•    The Company anticipates 2010 capital expenditures of approximately $85.0 million to $95.0 million.
•    In 2011, the Company expects to sell 16.5 million to 18.0 million tons of produced coal, including approximately 2.5 million tons of metallurgical coal.

Source: International Coal Group, Inc.