Interim Results

Atlantic Coal plc / Index: AIM / Epic: ATC / Sector: Mining

27 September 2012

Atlantic Coal plc ("Atlantic" or the "Company")

Interim Results

Atlantic Coal, the AIM listed open cast coal production and processing company with primary activities in Pennsylvania, USA, announces its results for the six months ended 30 June 2012.

Overview:

·; Increased production and revenues in the first half of 2012:

o 17% increase in clean coal production to 69,415 tons (H1 2011: 59,553 tons)

o 19% increase in revenues to $8,866,364 (H1 2011: $7,481,880)

o 79% increase in gross profit to $1,510,722 (H1 2011: $843,106)

·; Increase in loss before tax $1,366,923 (H1 2011: $1,052,524)

·; Railway diversion provides access to c. 1.0 million tons of previously unworkable coal

·; Options acquired over Pott & Bannon anthracite coal mining property in Schuykill County believed to contain 4.1 million tons of clean coal as well as further anthracite mining asset

Atlantic Coal Managing Director Steve Best said, "This has been a period of exciting progress in terms of delivering on our strategy to become a mid-tier producer of anthracite in Pennsylvania. Production at Stockton reached record highs during Q2 2012. We are confident this momentum will be built on and were particularly pleased to receive a report from independent consultants that production of 160,000 tons per annum of clean coal at Stockton is achievable during 2012, as announced on 18 April 2012. We are continuing with our due diligence on a number of possible acquisition sites over which we have secured lease options, which, if successful, will fulfil our strategy and with domestic demand for our product consistently strong, I believe we are increasingly well placed to capitalise upon this and build value for shareholders."

Chairman's statement

This has been an active and successful period for Atlantic. Our strategy remains dual focussed, aimed at increasing the production levels and capacity of our primary asset, the Stockton Colliery ("Stockton"), in tandem with consolidating our position in the Pennsylvanian coal field through the acquisition of complimentary projects. I am therefore pleased to report that solid progress has been made in both areas and we look forward to updating shareholders further on this at the appropriate time.

As shareholders will know, we operate in a region which is anthracite rich and politically stable. Importantly, domestic demand for our product remains strong, and Stockton generated increased revenues during the period. Over the period we successfully transformed its production profile following the completion of our structured investment programme to improve access to the anthracite and our productivity. In particular we completed the Norfolk Southern Railroad diversion, which allowed access to a further 1.0 million tons ("Mt") of previously unworkable coal reserves and with a positive trend in production in Q2 2012, we are now on track to deliver our targeted production figures for the year ending 31 December 2012.

In January 2012 we announced the entry into a lease option agreement with Pennsylvania based Reading Anthracite Company which holds a permitted 410 acre anthracite mining property. We estimate the site to contain Reserves of approximately 12Mt ROM coal at 3.9 ratio. This equates to approximately 4.1Mt of clean coal, thus providing the potential to more than double our existing anthracite reserves. Further detail on the reserve estimates are contained in the announcement made in January 2012 together with a statement by a qualified person within the meaning of the AIM Rules for Companies. Importantly, the site is located 25 miles from the Company's Stockton site which has established infrastructure and domestic and international demand for anthracite coal. Should we decide to proceed with the acquisition, a consideration of c. US$6.0 million in cash and shares will be paid to Reading Anthracite Company ("RAC"), along with the grant of US$3.0 million of warrants in Atlantic at 0.75 pence per share. As announced on 26 September 2012 we extended our due diligence evaluation period until 27 March 2013 (and were able to agree these extensions without Atlantic Coal being required to make any further payments to RAC). The US$250,000.00 escrow payment made by Atlantic Coal to RAC in January 2012 remains held in an escrow account and is repayable to Atlantic Coal in the event that it does not wish to exercise the Lease Option. Further announcements will be made at the appropriate time.

Additionally, on 15 February 2012 we announced that we had entered into an option agreement to acquire additional anthracite mining assets in Pennsylvania. This option, which is exercisable entirely at the Company's discretion, has an exercise price of US$35 million and the exercise period ends on 31 October 2012. As a result of the size of the exercise price, the acquisition of the assets in question would be likely to constitute a reverse takeover under the AIM Rules for Companies and would therefore be, inter alia, subject to shareholder approval. Due diligence is on-going although is unlikely to be completed prior to the expiry of the option exercise period. The Company has had discussions with the vendor in connection with the extension of the option exercise period and anticipates that this will be agreed shortly. However, there can be no certainty that the vendor will in fact agree an option extension or that such an extension will be on acceptable terms to the Company. Further announcements will be made in this regard at the appropriate time. 

Operations review

Developments made over the period have had a transformational effect on operations at Stockton. As mentioned previously, a pivotal milestone for the Company was the completion of the Norfolk Southern Railroad diversion in April. This enabled us to access over approximately 1.0 Mt of previously unworkable coal reserves at Stockton.

Additionally, over the past year we have made significant investment in on-site machinery to ensure that production is maximised and efficient. As well as having an anthracite preparation plant capable of washing 300,000 tons of coal per annum, the Group's equipment now includes a Komatsu PC2000 hydraulic excavator and a Liebherr 9250 19-yard bucket hydraulic excavator ("Liebherr 9250"). Haulage efficiency has also been improved by the acquisition of three Volvo A40 articulated dump trucks for haulage of Run of Mine ("ROM") coal from the pit to the preparation plant. This allows the fleet of twelve 100 ton capacity Terex and Caterpillar dump trucks to be used solely for overburden haulage. As announced previously, the Company has ordered a second Liebherr 9250 and, with the Group's machinery at Stockton currently sufficient for its production requirements, it is envisaged that the new Liebherr 9250 will be put to work at one of the potential acquisition sites. Accordingly, delivery has been delayed until H1 2013.

We were delighted to announce that our production figures reached record highs during Q2 2012. Clean coal production increased 18.8% compared with the previous quarter, bringing total clean coal production for H1 2012 to 69,415 tons (H1 2011: 59,553). This represents an increase of 16.6% year on year.

Additionally, the Company removed 1,844,672 Bank Cubic Yards ("BCY") of overburden (H1 2011: 1,641,727 BCY) and washed 174,673 tons of coal ROM (H1 2011: 123,037 tons ROM), representing year on year growth of 12.4% and 42% respectively. Importantly, the sales price achieved has also remained strong during the first half of 2012 and the average sales price achieved for the period was US$166.41 (H1 2011: US$136.14) as a result of consistent demand for Stockton's anthracite.

Financial review

Revenue increased substantially to $8,866,364 (H1 2011: $7,481,880) and we are reporting an increased gross profit of $1,306,603 for the period (H1 2011: $843,106). The Company's loss for the period has increased to $1,366,923 as a result of costs of the rail road diversion, exploratory drilling and due diligence costs (H1 2011: $1,052,524). 

Having made substantial investment at Stockton, at the end of the period the Company had a solid cash position of $2,158,171. This was down on the cash balance as at 30 June 2011 of $15,707,669 and the bulk of the expenditure by the Company since that time has been on the purchase of plant and equipment, due diligence costs for potential acquisitions, the railway relocation and the Gowen reclamation as well as on debt repayments and interest.

The net asset position of the Group as at 30 June 2012 was $11,909,505.

Outlook

Key development milestones met over the period have placed Atlantic for growth. Having significantly increased production at Stockton and made substantial investments in our operations, we look forward to benefiting from increased production over the rest of the year and beyond. 

We are now focussed on increasing our regional presence through the acquisition of prime assets in Pennsylvania, and having made solid progress to date, we hope to make further developments in the near to medium term. 

I would like to take this opportunity to thank our team, shareholders and associates for their support over recent months. We look forward to providing further updates at the appropriate time.

Adam Wilson

Chairman

For further information on the Company, visit www.atlanticcoal.com or contact:

All activities are classified as continuing.

Condensed Consolidated Statement of

Changes in Equity

Significant non-cash transactions

During the period ended 30 June 2012 the Group purchased various items of plant and equipment with an aggregate value of $342,611 through finance lease.

During the period ended 30 June 2011 the Company issued 107,264,476 ordinary shares to convertible loan note holders upon the exercise of their option to convert. The aggregate loan note principal and accrued interest settled through the issue of shares during the period was $808,128.

During the period ended 30 June 2011 the Group renegotiated the debt due to Mayford LLC (refer note 10). The renegotiation of amounts due resulted in a reduction in the debt principal of $78,388 and accrued interest of $259,622. The aggregate non-cash gain in the income statement was therefore $338,010.

Notes to the unaudited interim results

1. General information

The principal activity of Atlantic Coal plc ('the Company') and its subsidiary (together 'the Group') is the development and operation of the Stockton Colliery which comprises the Stockton Mine and an anthracite washing plant in Pennsylvania. There is no significant seasonality or cyclicality of the Group's operations between interim periods.

The Company's shares are listed on the Alternative Investment Market of the London Stock Exchange (AIM). The Company is incorporated and domiciled in the United Kingdom. The address of its registered office is 200 Strand, London WC2R 1DJ.

2. Basis of preparation

The condensed consolidated interim financial statements have been prepared in accordance with the requirements of the AIM Rules for Companies. As permitted, the Company has chosen not to adopt IAS 34 "Interim Financial Statements" in preparing this interim financial information. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2011, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

The interim financial information set out above does not constitute statutory accounts within the meaning of the Companies Act 2006. It has been prepared on a going concern basis in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) as adopted by the European Union. Statutory financial statements for the year ended 31 December 2011 were approved by the Board of Directors on 17 May 2012 and delivered to the Registrar of Companies. The report of the auditors on those financial statements was unqualified.

The 2012 interim financial report of the Company has not been audited but has been reviewed by the Company's auditor, Littlejohn LLP, whose independent review report is included in this Interim Report.

Going concern

The Directors, having made appropriate enquiries, consider that adequate resources exist for the Group to continue in operational existence for the foreseeable future and that, therefore, it is appropriate to adopt the going concern basis in preparing the condensed interim financial statements for the period ended 30 June 2012.

Risks and uncertainties

The Board continuously assesses and monitors the key risks of the business. The key risks that could affect the Group's medium term performance and the factors that mitigate those risks have not substantially changed from those set out in the Group's 2011 Annual Report and Financial Statements, a copy of which is available on the Group's website: www.atlanticcoal.com. The key financial risks are liquidity risk, foreign exchange risk, credit risk, price risk and interest rate risk.

Critical accounting estimates

The preparation of condensed interim financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the end of the reporting period. Significant items subject to such estimates are set out in note 2 of the Group's 2011 Annual Report and Financial Statements. The nature and amounts of such estimates have not changed significantly during the interim period.

3. Accounting policies

The same accounting policies, presentation and methods of computation have been followed in these condensed interim financial statements as were applied in the preparation of the Group's financial statements for the year ended 31 December 2011, except for the impact of the adoption of the Standards and interpretations described below.

3.1 Changes in accounting policy and disclosures

(a) There are no new and amended standards, and interpretations mandatory for the first time for the financial year beginning 1 January 2012 and relevant to the Group.

New and amended standards, and interpretations mandatory for the first time for the financial year beginning 1 January 2012 but not currently relevant to the Group:

Amendments to IAS 12 "Income Taxes" introduce a presumption that recovery of the carrying amount of an asset measured using the fair value model in IAS 40 "Investment Property" will normally be through sale. This standard is effective for annual periods beginning on or after 1 January 2012, subject to EU endorsement.

(b) New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2012 and not early adopted are as follows.

The Group's assessment of the impact of these new standards and interpretations is set out below.

IFRS 13 "Fair Value Measurement" improves consistency and reduces complexity by providing, for the first time, a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. It does not extend the use of fair value accounting, but provides guidance on how it should be applied where its use is already required or permitted by other standards. This standard is effective for periods beginning on or after 1 January 2013, subject to EU endorsement. The Directors are assessing the possible impact of this standard on the Group's Financial Statements.

Amendments to IFRS 1 "First-time Adoption of International Financial Reporting Standards" require that first-time adopters apply the requirements in IFRS 9 "Financial Instruments" and IAS 20 "Accounting for Government Grants and Disclosure of Government Assistance" prospectively to government loans existing at the date of transition to IFRSs. Entities may choose to apply the requirements retrospectively if the information needed to do so had been obtained at the time of initially accounting for the loan. This standard is effective for annual periods beginning on or after 1 January 2013, subject to EU endorsement. This is not expected to have an impact on the Group as IFRS has been historically used;

Amendments to IFRS 7 "Financial Instruments: Disclosures" require disclosure of information that will enable users of financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity's recognised financial assets and recognised financial liabilities, on the entity's financial position. This standard is effective for annual periods beginning on or after 1 January 2013 and interim periods within those annual periods, subject to EU endorsement;

Amendments to IFRS 9 "Financial Instruments" and IFRS 7 "Financial Instruments: Disclosures" require entities to apply IFRS 9 for annual periods beginning on or after 1 January 2015 instead of on or after 1 January 2013, subject to EU endorsement. Early application continues to be permitted. The amendments also require additional disclosures on transition from IAS 39 "Financial Instruments: Recognition and Measurement" to IFRS 9;

IFRIC 20 "Stripping Costs in the Production Phase of a Surface Mine" clarifies when stripping costs incurred in the production phase of a mine's life should lead to the recognition of an asset and how that asset should be measured, both initially and in subsequent periods. This interpretation is effective for periods beginning on or after 1 January 2013, subject to EU endorsement. This will impact the Group's Financial Statements, however the Directors believe they are in a position to ensure compliance with this standard when it becomes effective;

IAS 27 "Separate Financial Statements" replaces the current version of IAS 27 "Consolidated and Separate Financial Statements" as a result of the issue of IFRS 10 (see above). This revised standard is effective for periods beginning on or after 1 January 2013, subject to EU endorsement. The Directors are assessing the possible impact of this standard on the Group's Financial Statements.

IAS 28 "Investments in Associates and Joint Ventures" replaces the current version of IAS 28 "Investments in Associates" as a result of the issue of IFRS 11 (see above). This revised standard is effective for periods beginning on or after 1 January 2013, subject to EU endorsement, and is not expected to have an impact on the Group's Financial Statements.

Amendments to IAS 1 "Presentation of Financial Statements" require items that may be reclassified to the profit or loss section of the income statement to be grouped together within other comprehensive income (OCI). The amendments also reaffirm existing requirements that items in OCI and profit or loss should be presented as either a single statement or two consecutive statements. These amendments are effective for periods beginning on or after 1 July 2012, subject to EU endorsement. The Directors are assessing the possible impact of these amendments on the Group's Financial Statements.

Amendments to IAS 19 "Employment Benefits" eliminate the option to defer the recognition of gains and losses, known as the "corridor method"; streamline the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring remeasurements to be presented in other comprehensive income; and enhance the disclosure requirements for defined benefit plans, providing better information about the characteristics of defined benefit plans and the risks that entities are exposed to through participation in those plans. These amendments are effective for periods beginning on or after 1 January 2013, subject to EU endorsement, and are not expected to have an impact on the Group's Financial Statements.

Amendments to IAS 32 "Financial Instruments: Presentation" add application guidance to address inconsistencies identified in applying some of the criteria when offsetting financial assets and financial liabilities. This includes clarifying the meaning of "currently has a legally enforceable right of set-off" and that some gross settlement systems may be considered equivalent to net settlement. This standard is effective for annual periods beginning on or after 1 January 2014, subject to EU endorsement.

Amendments to IFRS 10 "Consolidated Financial Statements", IFRS 11 "Joint Arrangements" and IFRS 12 "Disclosure of Interests in Other Entities" clarify the IASB's intention when first issuing the transition guidance in IFRS 10, provide similar relief in IFRS 11 and IFRS 12 from the presentation or adjustment of comparative information for periods prior to the immediately preceding period, and provide additional transition relief by eliminating the requirement to present comparatives for the disclosures relating to unconsolidated structured entities for any period before the first annual period for which IFRS 12 is applied. This applies to annual periods beginning on or after 1 January 2013;

"Annual Improvements 2009 - 2011 Cycle" sets out amendments to various IFRSs and provides a vehicle for making non-urgent but necessary amendments to IFRSs:

·; An amendment to IFRS 1 "First-time Adoption of International Financial Reporting Standards" clarifies whether an entity may apply IFRS 1:

(a) if the entity meets the criteria for applying IFRS 1 and has applied IFRS 1 in a previous reporting period; or

(b) if the entity meets the criteria for applying IFRS 1 and has applied IFRSs in a previous reporting period when IFRS 1 did not exist.

The amendment also addresses the transitional provisions for borrowing costs relating to qualifying assets for which the commencement date for capitalisation was before the date of transition to IFRSs.

·; An amendment to IAS 1 "Presentation of Financial Statements" clarifies the requirements for providing comparative information:

(a) for the opening statement of financial position when an entity changes accounting policies, or makes retrospective restatements or reclassifications; and

(b) when an entity provides financial statements beyond the minimum comparative information requirements.

·; An amendment to IAS 16 "Property, Plant and Equipment" addresses a perceived inconsistency in the classification requirements for servicing equipment.

·; An amendment to IAS 32 "Financial Instruments: Presentation" addresses perceived inconsistencies between IAS 12 "Income Taxes" and IAS 32 with regard to recognising the consequences of income tax relating to distributions to holders of an equity instrument and to transaction costs of an equity transaction.

·; An amendment to IAS 34 "Interim Financial Reporting" clarifies the requirements on segment information for total assets and liabilities for each reportable segment.

This applies to annual periods beginning on or after 1 January 2013.

4. Loss for the period

Loss for the period includes the following items which are unusual because of their nature, size or incidence:

5. Dividends

No dividend is proposed for the period.

6. Loss per share

The calculation of loss per share of 0.04 cents (30 June 2011: 0.03 cents) is based on a retained loss of $1,366,923 for the period ended 30 June 2012 (30 June 2011: $1,052,524) and the weighted average number of shares in issue in the period ended 30 June 2012 of 3,868,772,016 (30 June 2011: 3,302,759,190). No diluted earnings per share is presented as the effect on the exercise of share options would be to decrease the loss per share.

Details of share options that could potentially dilute earnings per share in future periods are disclosed in note 8 to these condensed interim financial statements.

7. Property plant and equipment

During the period the Group acquired various items of mining equipment with an aggregate value of $451,885. Assets with a net book value of $57,989 were disposed of during the period.

8. Called up share capital

There has been no movement in the authorised share capital during the period. The movements in issued share capital are as follows:

Share options and warrants

A reconciliation of the movements in the number of options and warrants outstanding and exercisable during the period is as follows:

9. Other Reserves

10. Borrowings

On 7 March 2012 Stephen Best, a Director of Atlantic Coal took assignment of a debt totalling £153,890 owed to Religare Capital Markets Plc by Coal Contractors (1991) Inc. The fair value of the debt at the date of assignment was £153,890.

11. Events after balance sheet date

On 31 July 2012 the loan reassigned from Religare Capital Plc to Stephen Best on 7 March 2012 was repaid in full with a cash payment of £132,532.

On 25 September 2012 the Company agreed an extension with Reading Anthracite Company to extend the lease option agreement over the Pott & Bannon anthracite mining property until 27 March 2013 which will enable the completion of due diligence. There were no costs incurred by Company in receiving this extension. Further details in relation this extension are contained in the Company's announcement on 26 September 2012.

12. Approval of interim financial statements

The Condensed interim financial statements were approved by the Board of Directors on 26 September 2012.

13. Copies of report:

Copies of these Interim results will be sent to shareholders upon request. Otherwise, shareholders will be able to download a copy of the interim results from the Company's website www.atlanticcoal.com. Further copies will be available from the Company Secretary, Manu Consulting Limited, at Atlantic Coal Plc, 200 Strand, London WC2R 1DJ.

Independent Review Report to Atlantic Coal Plc

Introduction

We have been engaged by Atlantic Coal Plc to review the condensed set of Financial Statements in the half-yearly financial report for the six months ended 30 June 2012 which comprise the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, consolidated statement of changes in equity, condensed consolidated cash flow statement and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of Financial Statements.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules for Companies.

The annual Financial Statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of Financial Statements included in this half-yearly financial report has been prepared in accordance with the requirements of the AIM Rules for Companies.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of Financial Statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the AIM Rules for Companies and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with the International Standard on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of Financial Statements in the half-yearly financial report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with the AIM Rules for Companies.

Littlejohn LLP

Chartered Accountants and Registered Auditors

1 Westferry Circus

Canary Wharf

London

E14 4HD

26 September 2012