18th Dec 2015 18:38
LONDON (Alliance News) - New World Resources PLC said late Friday that it expects to incur costs of up to EUR100.0 million by closing down two of its mines and said it will need to slash costs further and secure more funds in order to survive the downturn in coal prices.
New World is looking at all of its options and provided some "unaudited illustrative financial projections" that anticipate losses before certain items between 2015 and 2018, as it struggles to deal with falling prices.
The company launched a strategic review of the entire business in November as coking-coal prices continue to be placed under further pressure due to slower industrial demand, whilst the thermal coal market is struggling with oversupply and aggressive pricing from competitors.
The company said despite slashing overheads by more than 40% over the last three years, it is still cashflow negative and looks set to remain that way for "several years". It has already conceded it will need to refinance its credit facility sometime in 2016.
Initially, it has decided to close the Paskov and Lazy mines in the Czech Republic by the end of 2017, leading to an "employee-restructuring", which will cost the company between EUR85.0 million and EUR100.0 million overall.
Those two mines are part of the company's portfolio of seven mines, six of which are producing. The Lazy and Paskov mines contribute the least toward group production apart from its CSM North operation.
New World Resources did not state how those costs would be paid for, or provide any further details on the restructuring, but job cuts look likely.
"Management is aware that all of this may create a level of uncertainty for our stakeholders, including employees. Management will work closely with employees' representatives and will provide regular updates," said New World.
New World Resources reported its third quarter results back in November, when its pretax loss narrowed to EUR25.9 million from the EUR66.9 million pretax loss in the corresponding period the prior year, as revenue rose to EUR159.1 million from EUR157.7 million.
Cash fell to EUR57.4 million at the end of the third quarter, from EUR88.6 million at the start. The company said cash then bounced back up to EUR77.0 million by the end of October.
It has other mines in the country, with other assets in neighbouring Poland, but New World is now reviewing its options for "those low potential mines" with the aim of securing some cash-generative assets.
"Parallel to the strategic review, the group is in discussions with its stakeholders. These discussions will focus on securing a sustainable portfolio of cash-generative mines and related capital structure for the group, designed for an extended period of low coal prices," said New World.
The company released some additional "illustrative" financial projections, but said they "should not be construed as estimates or forecasts".
According to those illustrative forecasts, revenue from the sale of coal by-products is estimated to be around EUR30.0 million in 2016, falling 20% in 2017 and the by 75% in 2018 as those two mines shut down. After that, there will be "minimal revenue".
In 2014, New World reported a 20% year-on-year fall in group revenue to EUR676.0 million, with earnings before interest, tax, depreciation and amortisation of EUR11.0 million.
Ebitda is set to be a EUR51.0 million loss in 2016, and that excludes the costs related to mine closures and restructuring costs, according to the projections.
That loss will then widen to a EUR60.0 million loss in 2017, before returning to a EUR36.0 million profit in 2018. Beyond that, it forecasts Ebitda in 2019 would rise to EUR40.0 million, but drop to only EUR16.0 million in 2020.
Alongside the cost to close the mines and employee restructuring, those forecasts assume the Debiensko and Morcinek mines will grow, "but operating costs are minimal", with around half of all operating costs being made up of contractors and personnel - suggesting labour is a particular burden on costs as it enters the restructuring process.
It also excluded its plans to reduce its overheads further by EUR4.0 million to EUR6.0 million a year and "extra employee efficiency measures" which could save the company as much as EUR5.0 million to EUR10.0 million per year all the way up to 2020.
Capital expenditure was forecast to total EUR28.0 million in 2016, EUR42.0 million in 2017, EUR26.0 million in 2018, EUR19.0 million in 2019 and then only EUR10.0 million in 2020. Importantly, those forecasts exclude development capital expenditure for the Debiensko and Morcinek mines.
"In 2016 assumes a working capital inflow driven by the release of inventory. From 2017 onwards working capital is assumed to be largely neutral with the exception of outflows in the years following mine closures," it said.
New World said it has no concerns about finding buyers for its coal, and has projected it will sell 9% more coal than it will produce in 2016 to bring down its inventory. At the end of the first half of 2015, it had over 900,000 tonnes of coal inventory.
In terms of overall group production, the illustrative forecasts suggest the company will produce 6.7 million tonnes of coal in 2016, with steady year-on-year declines to only 4.8 million tonnes in 2020.
To put that into context, the company produced a total of 8.6 million tonnes of coal in 2014. In the first half of 2015, it produced 3.6 million tonnes, which was down from 5.0 million tonnes a year earlier.
"The purpose of providing today's additional, unaudited illustrative financial projections is to build a common foundation for the stakeholder discussions," said the company. "The 2015 outlook provided with the third quarter of 2015 results announcement remains unchanged."
New World shares closed down 19.5% to 0.242 pence per share on Friday.
By Joshua Warner; [email protected]; @JoshAlliance
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
New World Resources