Oxford Resource Partners, LP (OXF) Q2 2014 Earnings Conference Call August 5, 2014 10:00 AM ET
Brad Luke - Investor Relations Representative
Chuck Ungurean - President and Chief Executive Officer
Greg Honish - Senior Vice President of Operations
Brad Harris - Vice President and Chief Financial Officer
Sam Dubinsky - Wells Fargo Securities
Good day ladies and gentlemen, and welcome to the Second Quarter 2014 Oxford Resource Partners Earnings Conference Call. My name is Kim and I will be the operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.
I would now like to turn the conference over to your host for today, Mr. Brad Luke, Investor Relations Representative. Please proceed.
Thanks Kim. Good morning, and welcome to our second quarter 2014 earnings conference call. We appreciate your continued interest in Oxford Resource Partners. I am Brad Luke, Investor Relations Representative with Oxford.
Participating on the call today are Oxford’s President and Chief Executive Officer, Chuck Ungurean; Oxford’s Senior Vice President of Operations, Greg Honish; and Oxford’s Senior Vice President and Chief Financial Officer, Brad Harris.
Earlier this morning Oxford released its second quarter 2014 results. On today’s call, we will be discussing our operations and financial performance for the quarter. Following our prepared remarks, we will open the call up to questions.
Please be aware that some of our remarks may include statements that are not historical in nature and that may involve expectations, plans and objectives regarding future operations. These remarks are subject to the cautionary language regarding forward-looking statements contained in our press release.
Additionally, we will be discussing Adjusted EBITDA and adjusted net loss, which are non-GAAP financial measures. The definitions of Adjusted EBITDA and adjusted net loss and reconciliations thereof to net loss to the most comparable GAAP financial measures, are included in tables presented near the end of our press release. Our press release has been posted on our Web site, oxfordresources.com and furnished to the SEC in Form 8-K filing.
With that, I would like to turn the call over to Chuck for some opening remarks. Chuck?
Thanks Brad and thanks everyone for joining us today. While coal markets continued to present challenges we’re pleased to report second quarter results that are in line with our expectations. We’re particularly pleased to report that we have settled the Big Rivers lawsuit. The settlement from $19.5 million substantially compensates us for our lost profits from the wrongful termination of our coal supply agreement. We are scheduled to receive the settlement payment by mid-August. As Brad will discuss, this will enable us to pay down our first lien debt saving us interest expense. It will also enhance our liquidity.
And now turning to sales; as we discussed on our last call the increased coal burn that resulted from the extreme winter weather coupled with slow utility stock piles has created additional sales opportunities. However these opportunities have been somewhat tempered by a mild summer and below $4 natural gas prices. Despite this tempering we recently executed two additional spot orders for approximately 60,000 tonnes each. We’re now 98.1% committed and priced for 2014.
Should additional demand materialize we have the ability to increase production by up to 500,000 tonnes annually with little additional CapEx investments. We have also locked in some additional tonnes for 2015. Our projected sales volume for 2015 is now 69.8% committed with 12.3% of the projected sales volume price and 57.5% of the projected sales volumes un-priced. As a reminder a majority of the un-priced tonnes for ‘15 we priced at the end of this year based on an index calculation.
Now I’ll turn the call over to Greg to provide an update on our mining operations. Greg.
I’d like to start with the review of our safety performance. Our MSHA reportable incident rate for the second quarter was 1.0, which is 54% better than the average for Appalachian Basin mines. Our incident rate for the first half of the year was also 1.0. Now that’s a 41% improvement over the first half of 2013. Running safe operations is fundamental to achieving our business objectives. Really proud of our employees performance in this critical aspect of our operations.
Now regarding production; second quarter production was ahead of expectations. Productivity continues to run ahead of last year’s levels due in part to the addition of a second contract high wall miner during the first quarter of this year. Significant events during the quarter included the initial development work on two new mines in our Belmont and New Lexington complexes.
These mines will replace production from two depleting mines in our Belmont and Cadiz complexes. Finally regarding permitting activities. We issued one new mine permit in the second quarter covering 1.3 million tonnes of coal. This keeps us on pace to achieve issuance of mine permits on roughly 8 million tonnes of coal in 2014.
And with that I will turn the call over to Brad. Brad.
Thanks Greg good morning everyone. For the second quarter of 2014 coal sales revenues increased 2.5% over the prior year period to $52.49 per tonne. However cash cost to coal sales increased 3.4% to $44.38 per tonne primarily due to higher diesel fuel costs. The net impact was a slight decrease in our second quarter 2014 cash margin. Our cash margin for the quarter decreased to $8.11 per tonne from $8.28 per tonne for the second quarter of 2013.
Tonnes sold in the second quarter of 2014 decreased by 158,000 tonnes over the prior year period to 1.5 million tonnes. The decrease in tonnes sold was primarily attributable to the idling of our Illinois Basin operations.
For the quarter total revenues were $82 million including $79.6 million from coal sales, comparatively second quarter 2013 revenues totaled $88.1 million including $85.7 million from coal sales. Adjusted EBITDA was 13 million for the second quarter of 2014 compared to 13.9 million for the prior year period. Depreciation, depletion and amortization expense was $10.1 million for the second quarter of 2014 compared to $12.8 million for the second quarter of 2013.
Second quarter 2014 SG&A was $3.3 million down from $5.8 million in the prior year period. Last year second quarter SG&A included expenses related to our debt restructuring. In the second quarter we recorded $763,000 gain primarily related to the sale of excess land that has been fully mined out at our Belmont complex.
Interest expense was $2.6 million higher for the second quarter of 2014 primarily due to higher interest rates and amortization costs associated with our new credit facilities. And lastly we recorded a $1.9 million non-cash gain in the second quarter of 2014 related to the change in fair value of awards associated with our second lien credit facility.
CapEx totaled $3.2 million during the second quarter of 2014. Maintenance CapEx continues to benefit from the use of our Illinois Basin equipment relocated to our Northern App operations.
As of June 30, 2014 we have $3.5 million of cash and $7 million in available borrowing capacity on our revolving credit line, an improvement of $2.9 million over the first quarter. We also have the option under our second lien credit facility for an additional $10 million term loan is requested by us and approved by the issuing second lien lender.
And as Chuck mentioned we received 19.5 million from the settlement of the Big Rivers litigation. We anticipate paying down between the $12.5 million and $17.5 million on our first lien debt leaving $2 million to $7 million to further enhance our liquidity. Additionally the pay down of debt will save us $1 million to $1.4 million in cash interest expense on an annual basis.
And now for our updated 2014 guidance. We expect to produce between 5.7 million tonnes and 5.9 million tonnes and we expect to sell between 5.8 million tonnes and 6 million tonnes. Our average selling price is expected to be in the range of $52.30 to $53.30 per tonne and our average cost is expected to be in the range of $44.50 to $45.50 per tonne.
Adjusted EBITDA for the year is expected to be in the range of 38.5 million to 42.5 million not including the Big Rivers settlement. The decrease from our previous guidance reflects the impact of higher diesel fuel costs. And finally we anticipate CapEx to be between $18 million and $20 million.
With that I’ll open the call for questions. Kim.
Thank you. (Operator Instructions). Your first question comes from the line of Sam Dubinsky from Wells Fargo. Please proceed.
Sam Dubinsky - Wells Fargo Securities
Couple of quick ones. In terms of your guidance you raised your mining cost guidance slightly. Is this a steady state run rate as we look into 2015 or there are any laterals to get this down?
Chuck here Sam. It’s largely driven by diesel fuel; we feel that everything else is well under control. And we don’t anticipate any large increases or decreases. I would say it’s pretty much steady state.
Sam Dubinsky - Wells Fargo Securities
And can you also just run me through your cash flow projections for 2015. How much cash burn do you think you’ll have?
I would think our liquidity will be very consistent to where it is now between the end of the year between our cash flow generated from operations and obviously are investing in finance requirements. So I think you can expect where we are right now or where we’re at the end of the first quarter, somewhere in that level to be consistent with what we expect.
Sam Dubinsky - Wells Fargo Securities
And just anecdotally seems like coal markets are marginally better on the thermal side. As you look into next year are there any potential positive surprises and then we have been series of sort of negative surprises. And you can go right next year based on what you see today?
I think unfortunately it’s largely going to be weather dependent to a certain degree have another winter like we had this year and it would be a pleasant surprise. For our perspective the fact that we’re well contracted with scrubbed power plans. I think this is a big bus for Oxford, none of the plans that we currently supply are scheduled to close down next year, so I think that’s our best process.
Thank you ladies and gentlemen that concludes our question-and-answer session. I will now turn the conference back to Chuck for closing remarks.
Thanks again everyone for your ongoing support of Oxford. We look forward to sharing our progress with you on our next earnings call.
Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect and have a great day.
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