CLINE MINING CORP. 
By
In addition to announcing the filing of their third quarter
2012 Financials and MD&A, the Company is providing an update
on the following:
• The operational strategy at the New Elk Mine; and
• A review of industry trends and Company outlook.
The Company has three major objectives: to sell the Company's
stockpile of metallurgical coal, to secure long-term sales
contracts, and to restart production at the New Elk Mine at
the earliest opportune time.
Ken Bates, President, Chief Executive Officer & Director of
Cline Mining commented: "Current market conditions for coal
producers continue to be challenging. Demand continues to be
weak in the metallurgical coal market with prices declining
across the board. The benchmark industry contract price
settlement for the fourth quarter this year starting October
1 declined US$55 per tonne from the previous quarter
settlement of US$225 per tonne. We are taking a longer-term
view of the metallurgical coal market as our industry faces
this current cyclical downturn in demand, focusing on China
and India. Cline's New Elk Mine is a major metallurgical coal
mine with a large resource base of over 618 million short
tons of metallurgical coking coal in place. During the
short-term, the Company must navigate this difficult market
by conserving its cash resources, raising additional ongoing
working capital and aggressively pursuing long-term coal
contracts with the world's steel mills."
The Company's loss of $1,925,330 and comprehensive loss of
$8,380,785 for third quarter 2012 compares with a loss of
$2,256,586 and comprehensive loss of $4,638,058 for third
quarter 2011. For the nine-month period ending August 31,
2012 the loss of $7,791,398 ($0.04 per share) compares with a
loss of $10,430,997 ($0.06 per share) for the nine-month
period ending August 31, 2011. Comprehensive loss of
$16,655,189 for the nine-month period ending August 2012
compares with $12,357,469 for the nine-month period ending
August 2011.
Cash flow from operations for third quarter 2012 and
nine-month period ending August 2012 of $144,935 and
$3,298,813 respectively compare with $691,667 and $2,603,616
for the corresponding periods last year. Cash flows from
operations are consistent with the corresponding periods last
year when excluding the effect of foreign exchange. Please
refer to the third quarter 2012 MD&A for further discussion
in this regard.
The Company's cash and cash equivalents position at
August 31, 2012 was $7.6 million and the working capital
position at August 31, 2012 was $2.2 million, compared to
$58.6 million and $48.4 million respectively at November 30,
2011. The Company's current cash position is approximately
$5.8 million as at October 15, 2012. The Company incurred
operational and development costs (inclusive of translation
adjustment and impairment) of
$7,836,683 during the third quarter 2012, bringing mineral
properties under development at August 31, 2012 to
$263,076,641, compared with $172,402,775 at November 30, 2011
(December 1, 2010: $66,179,284).
The Company has not recognized any revenues from the sale of
coal and is working to secure long-term off-take arrangements
with senior industry players.
In addition to its working capital requirements, the Company
must secure sufficient funding to continue developing and
expanding the New Elk Mine and keep its mineral claims and
title in good standing. The Company is currently working on
securing additional capital to meet these needs and several
initiatives are underway in this regard. There is however no
guarantee that the Company's financing efforts will be
successful or sufficient to fund existing commitments.
Third quarter 2012 financial highlights are found in the
table below:
3rd Quarter Ended August 31, 2012 | 2nd Quarter Ended May 31, 2012 | 3nd Quarter Ended August 31, 2011 | |
C$ | C$ | C$ | |
Cash and cash equivalents | 7,605,837 | 29,000,416 | 57,353,320 |
Total assets | 282,172,951 | 296,530,236 | 208,433,672 |
Total liabilities | 48,311,708 | 54,288,208 | 5,886,289 |
Total net equity | 233,861,243 | 242,242,028 | 202,547,383 |
The Company currently retains a workforce maintaining the
mine and its assets in preparation for a rapid restart of
coal mining immediately when the economic landscape
permits.
In the Company's September 17, 2012 release, the Company
stated that it expected to formalize its production plan at
the time it resumes production. Key aspects of the New Elk
Mine review include:
The technical mine planning review process for operations of
the New Elk Mine, conducted by New Elk Coal Company LLC ("New
Elk") Chief Operating Officer, David Stone, was completed on
schedule in September 2012. The main focus of the review and
subsequent mine plan was on the development of the Central
Zone of the mining lease which provides optimum utilization
of the already present infrastructure coupled with the
highest short-term production output possible without
sterilizing any of the existing resource. The Northern and
Southern areas of the lease provide an exceptional upside
case and will be fully developed once the action plan for the
Central Zone is complete and pending future production
scheduling. These areas in supplement to the Central Zone
facilitate the ability to perform low capital brownfields
expansion.
As part of the review process the entire New Elk Mine
resource has been zoned geologically and short- and long-
term production areas were identified and included in the
plan, providing conservative and achievable outputs. The
Company has identified the coal seams in the Central Zone
that provide the most cost effective restart option in the
short-term. These seams include the Allen Seam and the Blue
seam. The mine review assumes four operating development
units plus an additional unit permanently set up as a spare;
the longwall operation being added to the productive capacity
of the mine as the coal market cycle recovers. The coal
resource is to be extracted 'top down'. All production and
revenue assumptions will assume a conservative and optimally
staggered restart. The Company is initially working within
the parameters of using existing equipment on site, which
includes 10 continuous miners and 15 shuttle cars.
Dave Stone, Chief Operating Officer of New Elk commented "At
this time we are completing the detailed reimplementation
plan to enact the review's outcomes. The operation can
re-commence production in a structured and sustainable way
rapidly upon the securing of an appropriate off-take and
long-term sales contracts."
Rationalization of costs is key to the phased reimplementation plan of the New Elk Mine. The mine review contemplates cost efficiency with the standardization of supply, consolidation of labour contracts, scheduled maintenance and overhauls coupled with a unit cost reduction through volume maximization and the staged closing of old workings.
Industry Trends
Consistent and continuing uncertainties over the European
debt crisis, economic activity and signs of a Chinese
economic slowdown are placing ongoing downward pressure on
coal demand and prices. Recent reports suggest stockpiles at
Chinese seaports remain high as growth in Chinese steel
production grew marginally by 1% in the first half of 2012,
as compared to the same period in 2011, a growth rate which
lags behind its 5-year CAGR of 10%. Leading Japanese
companies have recently settled the quarterly benchmark
coking coal price at $170/t for Peak Downs/Saraji material
and $165/t for Goonyella. This represents a $55/t reduction
in price from the previous quarterly benchmark. Japan
continues to be the largest importer of coking coal with an
estimated intake in excess of
47 million tons followed by China with imports of coking coal
estimated at 34 million tons year-to-date. While steel
production in Asia has increased compared with 2011 they are
still working down high coking coal inventories, which
translates into a very weak spot market.
The Euro-zone sovereign debt crisis has cultivated a frail
demand environment. Historically, Germany has been the
bellwether of European steel production and according to the
World Steel Association Report, crude steel output from
Germany nudged down to 3.6 million metric tonnes in July,
down 5.0% over the last six months, or 2.1% lower than a year
ago. This reduction has been reflective of the overall macro
landscape as steel production within the European Union
inched down 4.9% year-over-year to 14.2 million metric
tonnes.
Looking at Asia, emerging steel-making countries like India
seem poised for a strong fourth quarter and beyond as the
capacity from both public and private steel plants are set to
increase from expansion and modernization initiatives. As
projected by the Indian Ministry of Steel, capacity is set to
grow to approximately 200 million metric tonnes by 2020. The
Company shares the view that the market has reached its
lowest level and will strengthen going forward.
The current market outlook for coking coal remains bearish
due to slow demand growth, but a recent $158 billion stimulus
package announced by China in early September can act as a
catalyst for a metallurgical coal rebound. The package
focuses on the infrastructure sector, and aims to boost the
slowing domestic demand for steel. According to the
Australian Bureau of Resource and Energy (BREE), China's
steel consumption in 2013 is forecasted to reach
643 million metric tonnes, a 2.0% increase relative to 2011
levels. Steel consumption in the EU is forecasted to remain
stagnant through 2013 relative to 2012, due to contraction in
economic growth for the European Union. The World Bank's
economic growth projection of 6.0% for India in 2013, will
spur an increased appetite for steel through rising demand
for infrastructure.
BREE expects China to import the bulk of hard coking coal as
flat domestic production schedules will force imports to
increase by 15%, totalling 48 million metric tonnes in 2013.
Consistent with the unchanged steel production forecast,
imports of coal from the European Union during 2013 will be
similar to their 2012 levels. India's imports are believed to
increase by 9% to total 23 million metric tonnes by 2013.
Coal production levels at the New Elk Mine are currently being driven by lack of sales rather than the internal production capacity. This has led to a temporary suspension of production activities in order to optimize working capital and coal inventories and match them with the sales profile. At the present time the supply side of the metallurgical coal market exceeds demand for new entry coals, resulting in weaker coal pricing. Market forces must guide the productive capacity at the New Elk Mine during weaknesses in the demand cycle, and the Company's expectation of sales and production is presently governed principally by demand factors, rather than productive capacity. It is not possible to predict the timing, extent or turnaround of the economic and recessionary pressures currently affecting the coal market but we believe the market will rebound over time and that the coal asset at New Elk is being positioned for long term supply growth.
About ClineCline has metallurgical coal property interests in British Columbia and in Colorado, U.S.A. with NI 43-101 independent Technical Reports. Cline Mining Corporation is focused on the exploration and development of metallurgical steel making coals in Canada and the U.S., and on its iron ore property in Madagascar and its Cline Lake gold property in northern Ontario, Canada.
Forward-Looking StatementsThis press release contains forward-looking statements (including "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of the US Private Securities Litigation Reform Act of 1995) relating to, among other things, the operations of the Company, the environment in which it operates and the Company's future financial and operating performance. Generally, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Such statements are based on assumptions, estimates, forecasts and projections made in light of the trends, conditions and expected developments that are considered to be relevant and reasonable in the circumstances at the date that such statements are made. Forward-looking statements are not guarantees of future performance and such information is inherently subject to known and unknown risks, uncertainties and other factors that are difficult to predict and may be beyond the control of the Company. A number of factors and assumptions may cause actual results, level of activity, performance or outcomes of the Company to be materially different from those expressed or implied by such forward-looking statements including, without limitation, the future price of coal, industry market trends and predictions, the estimation of mineral reserves and resources, capital, operating and exploration expenditures, costs and timing of future exploration, requirements for additional capital, government regulation of mining operations, environmental risks, reclamation expenses, title disputes or claims, limitations of insurance coverage and regulatory matters and other risks set forth in other public filings of the Company. Consequently, undue reliance should not be placed on such forward-looking statements. In addition, all forward-looking statements in this press release are given as of the date hereof. The Company disclaims any intention or obligation to update or revise any forward- looking statements, whether as a result of new information, future events or otherwise, save and except as may be required by applicable securities laws.
Head office:Brookfield Place, 181 Bay Street, 3rd Floor, Clarkson Gordon Heritage Building, Toronto, ON, M5J 2T3
Contact:
Ken Bates, President and CEO Office: (416) 504-7600
Email: kbates@clinemining.com
Belinda Labatte Greg DiTomaso The Capital Lab
Office: (647) 438-2193
Email: investor@clinemining.com
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