Czech coal miner posts Q4 loss

New World Resources, the Czech coal miner, has posted a net loss of €466.1 million from continuing operations in the fourth quarter of 2013, largely due to a massive impairment charge.

The miner, which is undergoing a restructuring to cope with weaker coal prices, also cut its saleable reserves by approximately 65% to 64 million t.

Financial summary

• Revenues from continuing operations of €850 million, down 28% on falling coal prices.
• Coking coal average price of €98/t, down 22%.
• Thermal coal average price of €56/t, down 24%.
• Cash mining unit costs of €78/t, up 10% on a 21% decline in production, down 14% on a stable production basis.
• Q4 2013 cash mining unit costs at €68/t.
• Impairment charges of €807 million recognised on continuing operations.

Operational summary

• Coal production of 8.8 million t, and coal sales of 9.7 million t.
• Coal sales mix of 48% coking and 52% thermal coal.
• CAPEX of €100 million for continuing operations, down 55%.
• Inventories down 70% to 380 000 t.
• Total headcount including contractors down 7%.

Chairman’s statement

Market conditions

“Market conditions have remained challenging during the fourth quarter of last year, which was marked by a further 15% decline in global coking coal spot prices. This has inevitably impacted the pricing for our coking coal in the first quarter of this year, down another 7% on the previous quarter.

“Throughout 2013 and into 2014 NWR’s management has delivered on the initiatives that we launched last spring and has consistently executed our cost containment programme. As a result, our cash mining unit costs amounted to €68/t in Q4 2013, administrative expenses decreased significantly year-on-year and €100 million of cash-enhancing measures were realised.

Important achievements

“Further important achievements in Q4 2013 included a) the successful completion of the divestment of our coke subsidiary OKK to the METALIMEX group for a gross €95 million, b) agreement of additional waivers for the ECA loan, and c) the securing of a new five-year collective agreement with OKD’s trade unions. These steps have strengthened our short-term liquidity, which nevertheless remains under pressure as a result of the current coal pricing environment.

“Following the conclusion of the memorandum of understanding with the Czech Government as regards the Paskov mine, we are jointly with the Czech government exploring the possibility of keeping the high-cost Paskov mine open beyond the end of 2014. Any such scenario would have to be beneficial for all concerned and also compliant with EU rules regarding state aid. Discussions will continue through March and we will inform the market of the outcome as appropriate.

2014 targets

“Our 2014 operational targets remain broadly unchanged: coal production of between 9 and 9.5 million t, 55 – 60% of coking coal in the sales mix, cash mining unit costs run-rate of €60/t achieved by the end of the year, lower overheads, less than €100 million of maintenance CAPEX, and continuing improvements in the safety performance. Dale Ekmark, the newly appointed managing director of OKD and his team are working hard to achieve these targets.

Safety

“Throughout what has been an extremely difficult year for everyone at NWR I am pleased to report that our safety performance in 2013 remained strong, with our key metric LTIFR improving by 3%. Despite the on-going positive safety trend, it is with deepest regret that we report a loss of two of our miners at work during the year – an unacceptable result and we remain committed to achieving our ultimate target of fatality-free operations. Whilst the divestment of OKK has had an influence on our absolute LTIFR, our mines remain among the safest deep underground mines in Europe and the safety of our people remains our number one priority.

Resources review

“On 22nd January 2014, we announced that a review of our mineral resources and reserves was underway. Independent third parties are conducting this review. John T. Boyd Company (JT Boyd) is reviewing the Company’s Czech assets and IMC-Montan Consulting GmbH (IMC) is reviewing the Debiensko project in Poland.

Czech assets

“For the Czech assets, having regard to the revised Life of Mine Plan, JT Boyd has reported on a preliminary basis a total of 64 million t of JORC compliant saleable (proven and probable) reserves as at 31st December 2013. The 2013 JORC reserve figure for the Czech assets represents a 65% decrease from the JORC saleable reserves as at 31st December 2012 of 184 million t. This decrease principally relates to a downward adjustment of the company’s long-term coal prices of €108/t and €57/t respectively for coking and thermal coal.

“In the context of the review, the company has updated its Life of Mine Plan. The revised Life of Mine Plan excludes the Paskov mine after 2014, and part of the Karvina expansion project. In the revised Life of Mine Plan, the annual production of the company declines progressively over the coming ten years: from the 2014 target of 9 – 9.5 million t to around 4 million t in 2021. At current long-term coal price assumptions, production beyond 2023 is not expected to exceed 2 million tpa.

Polish assets

“For the Debiensko project, for which IMC is currently preparing a revised mineral resources and reserves report, it is probable that the previously reported reserves for Debiensko will be reclassified to resources principally due to a combination of an increase in the reporting requirements introduced in the 2012 JORC Code (which became effective 1st December 2013) and the downward adjustment of the company’s long-term coal price outlook. The company is undertaking the additional geological investigations necessary to complete the ongoing feasibility study being undertaken by IMC.

Global coal prices

“The prolonged and unprecedented global pressure on both coking and thermal coal prices, the expiry of our RCF credit line and the likely downward revision of our coal resource and reserve balance (as a direct result of the deterioration in the long-term coal price outlook), triggered the Board’s decision to initiate a review of NWR’s capital structure on 22nd January 2014.

Company restructuring

“The company has commenced discussions with all of its stakeholders with a view to developing and implementing a capital structure that recognizes and respects the interests of all stakeholders. This includes the company’s majority shareholder, BXR, who has indicated that it and its shareholders are prepared to invest new equity capital into a revised and satisfactory capital structure. The company has also commenced discussions to advisers to the ad hoc committee of note holders, who represent holders of both the €500 million senior secured notes due 2018 and the €275 million senior unsecured notes due 2021 (and those holders that hold both notes).

“Once we have completed this process along with our ongoing operational efficiency improvements at OKD, we believe NWR’s business will emerge from this very difficult period as a competitive player on the European hard coal market. We remain committed to our longer-term strategy to become Europe’s leading miner and marketer of coking coal by 2017.”

Edited from various sources by Katie Woodward

Read the article online at: https://www.worldcoal.com/coal/13022014/new_world_resources_posts_large_q4_loss_511/