Fording Achieves Strong Results in 2004 Income from Operations
Increased 54% for the Fourth Quarter and 38% for the Year CALGARY,
Feb. 2 /PRNewswire-FirstCall/ -- Fording Canadian Coal Trust (TSX:
FDG.UN, NYSE: FDG) today announced strong fourth quarter results.
Net income was $85 million in the fourth quarter, nearly triple the
$31 million in 2003. On a full year basis, net income was $150
million, down from $241 million for the same period in 2003.
Results for both years included various unusual items as described
in the overview section, which had a pronounced effect on the
comparability of results between 2004 and 2003. Net income before
unusual items, future income taxes and discontinued operations was
$57 million in the fourth quarter of 2004 compared with $27 million
in 2003 and $146 million and $92 million respectively on a
year-to-date basis. Distributable cash for 2004 was $3.80 per unit
while total distributions were $4.40 per unit, including $0.39 per
unit carried over from 2003. Income from operations increased to
$57 million during the fourth quarter compared with $37 million
during the same period in 2003, due mainly to higher coal prices.
On an annual basis, income from operations increased 38% to $170
million from $123 million in 2003. "Robust coal markets resulted in
strong sales near our production capacity," said Jim Popowich,
President of Fording Canadian Coal Trust. "This combined with
higher sales prices for metallurgical coal improved our income from
operations over 2004. We are progressing with capacity additions at
Cardinal River's Cheviot Creek pit, Fording River and Elkview to
respond to the continuing strong demand for high quality coking
coal. This will increase Elk Valley Coal's production capacity by 3
million tonnes to about 28 million tonnes per year by the end of
2005." Jim Popowich continued: "Results of the fourth quarter were
affected by higher rail rates as well as increased mining costs. We
also continued with accelerated stripping for future coal release.
Our hard work and dedication delivered strong operating results for
the Trust in 2004." Highlights for the Fourth Quarter: - Revenues
were $324 million, up 5% mainly on the strength of higher coal
sales prices, partially offset by lower volumes and a higher
Canadian dollar as compared to the fourth quarter of 2003. - Cost
of products sold decreased 12% to $115 million from $130 million
because of lower coal sales volumes, but rose on a per tonne basis
mainly due to higher maintenance and mining and processing input
costs. - Transportation and other costs increased 9% to $127
million from $117 million in the fourth quarter of 2003 largely on
higher rail and port costs for our metallurgical coal segment. -
Completion of final offer arbitration during the quarter determined
rail rates for the Elkview mine; this decision has been factored
into our rail accruals for all mines pending the outcome of our
dispute with Canadian Pacific Railway Company (CPR) over rail
rates. Subsequent to the fourth quarter, Elk Valley Coal entered
into non-binding mediation with CPR to resolve the dispute over
westbound rates. The mediation process is continuing. - Cash
available for distribution was $62 million, or $1.26 per unit. The
distribution declared for the quarter totalled $64 million, or
$1.30 per unit. - Elk Valley Coal entered into letters of intent
with two major steel producers that contemplate 10-year sales
contracts and a 5% equity investment in the Elkview mine. The
transactions, which are subject to board approvals, due diligence,
the negotiation and settlement of binding agreements and other
customary conditions, are expected to be completed during the first
quarter of 2005. Year at a Glance: - Revenues were $1,168 million,
up 12% due to the robust market demand for coal. Realized coal
prices increased due to higher U.S. dollar coal prices and gains on
foreign currency hedges, offset by a stronger Canadian dollar. -
Cost of product sold was up slightly to $454 million due to higher
mining and processing costs. The decision to accelerate removal of
overburden to accelerate future coal release also contributed to
the higher unit cost of coal produced. - Transportation and other
costs increased 17% to $449 million due to high demurrage (costs
largely incurred during the first quarter when shipments were
delayed due to weather), ocean freight and higher rail and port
rates. Some of the higher rail costs relate to a contract dispute
with Canadian Pacific Railway Company. A reasonable provision has
been accrued to mitigate the estimated negative impact to financial
results that would occur from an unfavourable resolution of the
dispute over rail rates. - Higher coal sales prices were the main
reason for the improvement in income from operations in 2004, which
increased to $170 million for 2004, up 38% as compared to the
previous year. - The Trust's share of capital expenditures was $73
million of which $27 million was sustaining capital and $46 million
was expansion capital for projects such as development of the
Cheviot Creek pit at Cardinal River operations and capacity
expansion at Fording River operations. - Distributable cash for the
year ended December 31 was $3.80 per unit. Total distributions for
2004 were $4.40 per unit and included $0.39 per unit carried over
from 2003. ------------------------------------- Important
Information Regarding Financial Statements and Results
----------------------------------------------------------------
All financial information in this news release is unaudited.
Readers are cautioned that certain information included in this
news release for prior periods may not be directly comparable
because of the Plan of Arrangement, the reduction of the Trust's
interest in Elk Valley Coal effective April 1, 2004 and three
accounting changes related to asset retirement obligations, the
reclassification of certain sales transactions and the inclusion of
depreciation, depletion and amortization in the carrying value of
inventory. These items, which are described below, resulted in a
number of unusual items being included in income in 2003 and 2004.
Plan of Arrangement ------------------- Fording Canadian Coal Trust
was established in connection with a Plan of Arrangement
(Arrangement) that became effective February 28, 2003. For
accounting purposes, the Trust is a continuation of its predecessor
company, Fording Inc., being the public company existing prior to
the Arrangement (Old Fording). The financial statements for the
prior year reflect the results of operations and cash flows of Old
Fording for the period from January 1, 2003 to February 28, 2003
and the results of the Trust and its operating subsidiary companies
thereafter. The Arrangement also created the Elk Valley Coal
Partnership (Elk Valley Coal) by combining the metallurgical coal
mining operations and assets formerly owned by Old Fording (Fording
River, Greenhills and Coal Mountain mines), Teck Cominco Limited
(Elkview mine) and the Luscar/CONSOL Joint Ventures (Line Creek and
Cardinal River mines and a 46% interest in Neptune Bulk Terminals
(Canada) Ltd. in Vancouver). Our financial results and financial
position include our metallurgical coal segment through our
interest in Elk Valley Coal following its formation and prior to
that the metallurgical coal operations of Old Fording; our
industrial minerals segment, which has mining and processing
operations in the United States and Mexico; and our corporate
segment encompassing general and administration expenses not
allocated to the other two operating segments. Since formation, the
metallurgical coal operations have included our interest in Elk
Valley Coal, which operates six open-pit mines in British Columbia
and Alberta. Prior to this date, the metallurgical coal operations
included 100% of the results of the three Old Fording mines. The
financial results and other information presented in this report
reflect our ultimate 60% interest in Elk Valley Coal commencing
with the second quarter of 2004; our 65% interest from February 28,
2003 to March 31, 2004 and, prior to that, Old Fording, unless
stated otherwise. Because of the change in metallurgical coal
assets and the reduction in our interest, fourth quarter and annual
results for 2004 may not be directly comparable to prior periods.
Reduction of Interest in Elk Valley Coal
---------------------------------------- Elk Valley Coal was
initially owned 65% by the Trust and 35% by Teck Cominco, the
managing partner. The agreement governing Elk Valley Coal provided
for an increase in Teck Cominco's interest to a maximum of 40% to
the extent that synergies from the combination of various
metallurgical coal assets contributed to Elk Valley Coal exceed
certain target levels. The June 2004 report of an independent
expert engaged by the partners concluded that sufficient synergies
had been realized to increase Teck Cominco's interest to 40%. The
Trust and Teck Cominco considered the report of the independent
expert and agreed that substantial synergies were achieved. As a
result, the partners agreed that the Trust's distribution
entitlement would be reduced to 62% effective April 1, 2004, to 61%
on April 1, 2005, and to 60% on April 1, 2006, as the benefits of
synergies flow through to unitholders. Teck Cominco's entitlements
will increase correspondingly over the same period. We recorded a
$38 million non-cash charge to earnings for the second quarter,
reflecting the entire 5% reduction in our interest in Elk Valley
Coal. This charge was reduced by an estimate of cash to be received
for the additional distribution entitlements of 2% for the year
ended March 31, 2005 and 1% for the year ended March 31, 2006.
These additional distribution entitlements will be included in cash
available for distribution over the period ending March 31, 2006.
Non-GAAP Financial Measures --------------------------- This report
refers to certain financial measures that are not determined in
accordance with GAAP in Canada or the United States. These measures
do not have standardized meanings and may not be comparable to
similar measures presented by other trusts or corporations.
Although such measures as cash available for distribution and net
income before unusual items, future income taxes and discontinued
operations do not have standardized meanings prescribed by GAAP,
these measures are determined by reference to our financial
statements. We discuss these measures, which have been applied on a
consistent basis, because we believe that they facilitate the
understanding of the results of our operations and financial
position. Caution on Forward-looking Information
-------------------------------------- Certain information included
in this document is of a forward-looking nature. Forward-looking
information is subject to known and unknown risks, as well as
uncertainties and other factors. Accordingly, actual results may
differ materially from those expressed or implied in
forward-looking information. Some of the risks, uncertainties and
other factors affecting Fording Canadian Coal Trust are discussed
in our public filings with the securities regulatory authorities in
Canada and the United States. Copies of Fording Canadian Coal
Trust's Canadian filings, including our most recent management
information circular, annual information form, annual report,
quarterly reports, material change reports and news releases, are
available online at http://www.sedar.com/, and copies of our U.S.
filings, including our most recent annual report on Form 40-F as
supplemented by filings on Form 6-K, are available at
http://www.sec.gov/. Information in this document is presented as
of February 2, 2005 and is subject to change after this date.
However, Fording Canadian Coal Trust disclaims any intention or
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
------------------------------------- Key Statistics The table
below summarizes our financial results and some of our key
operating statistics on a consolidated basis. Three months ended
Year ended (millions of Canadian December 31 December 31 dollars
except per ----------------------- ----------------------- unit
amounts) 2004 2003 2004 2003
-------------------------------------------------
----------------------- Revenue $ 324.3 $ 310.3 $ 1,167.5 $ 1,043.7
Income from operations $ 57.1 $ 37.2 $ 170.4 $ 123.1 Net income $
85.4 $ 30.6 $ 150.1 $ 240.9 Income before unusual items, future
income taxes and discontinued operations $ 57.0 $ 27.4 $ 145.5 $
91.5 Basic and diluted earnings per unit: Net income $ 1.74 $ 0.65
$ 3.09 $ 5.08 Net income before unusual items, future income taxes
and discontinued operations $ 1.16 $ 0.59 $ 3.00 $ 1.93
Metallurgical Coal Statistics: Coal sales (million tonnes) 4.0 4.8
15.3 15.3 Average sales price U.S.$/tonne $ 57.30 $ 44.10 $ 52.20 $
44.50 CDN$/tonne $ 79.30 $ 62.10 $ 73.10 $ 64.60 Operating expenses
Cost of product sold, coal (CDN$/tonne) $ 27.30 $ 25.80 $ 28.00 $
27.50 Transportation and other (CDN$/tonne) $ 31.70 $ 24.20 $ 28.90
$ 24.70 Industrial Minerals Statistics (Wollastonite): Sales
(thousands of tonnes) 21 19 82 75 Average sales price (U.S.$/tonne)
$ 395 $ 434 $ 425 $ 429 -------------------------------------
Overview Cash available for distribution in the fourth quarter of
2004 generally reflects higher sales prices and earnings from our
metallurgical coal operations. Distributions declared in the fourth
quarter were $1.30 per unit. Three months ended Year February 28
(millions of Canadian December 31 ended 2003 to dollars except per
----------------------- December 31 December 31 unit amounts) 2004
2003 2004 2003(x) -------------------------------------------------
----------------------- Cash available for distribution $ 61.7 $
41.0 $ 182.2 $ 118.9 Distributions declared $ 63.7 $ 46.9 $ 213.5 $
210.3 Weighted average number of units outstanding (in millions)
49.0 46.8 48.5 47.4 Per unit amounts: Cash available for
distribution $ 1.26 $ 0.87 $ 3.76 $ 2.51 Distributions declared $
1.30 $ 1.00 $ 4.40 $ 4.49 (x) The period from the formation of the
Trust to December 31, 2003. For 2004, distributions include $18
million of available cash carried over from 2003, or $0.39 per
unit. In 2003, distributions were for a ten-month period and
included special distributions of $70 million, or $1.50 per unit,
resulting from the Arrangement plus a $40 million, or an $0.85 per
unit benefit from a one-time inventory reduction. The
reconciliation from net income to net income before unusual items,
future income taxes and discontinued operations, which is a
non-GAAP measure, is provided in the following table: Three months
ended Year ended December 31 December 31 (millions of
----------------------- ----------------------- Canadian dollars)
2004 2003 2004 2003
-------------------------------------------------
----------------------- Net income per financial statements $ 85.4
$ 30.6 $ 150.1 $ 240.9 Add (deduct): Loss (gain) on corporate
reorganization - - 37.5 (48.7) Benefit of change in inventory
valuation - - (10.8) - Future income taxes (28.4) (3.2) (31.3)
(22.0) Net income from discontinued operations - - - (78.7)
----------------------- -----------------------
----------------------- ----------------------- Net income before
unusual items, future income taxes and discontinued operations $
57.0 $ 27.4 $ 145.5 $ 91.5 -----------------------
----------------------- -----------------------
----------------------- INCOME FROM OPERATIONS Metallurgical Coal
Three months ended Year ended (millions of Canadian December 31
December 31 dollars except per -----------------------
----------------------- tonne amounts) 2004 2003 2004 2003
-------------------------------------------------
----------------------- Metallurgical Coal Statistics Coal
production (millions of tonnes) 3.9 3.9 15.2 14.4 Coal sales
(millions of tonnes) 4.0 4.8 15.3 15.3 Average sales price
U.S.$/tonne $ 57.30 $ 44.10 $ 52.20 $ 44.50 CDN$/tonne $ 79.30 $
62.10 $ 73.10 $ 64.60 Operating expenses Cost of product sold
(CDN$/tonne) $ 27.30 $ 25.80 $ 28.00 $ 27.50 Transportation and
other (CDN$/tonne) $ 31.70 $ 24.20 $ 28.90 $ 24.70 Income from
operations Revenue $ 313.5 $ 298.9 $ 1,118.4 $ 995.6 Cost of
product sold 108.2 123.3 428.2 422.0 Transportation and other 125.7
115.5 442.2 378.4 Selling, general and administration 6.6 5.4 20.3
14.9 Depreciation and depletion 12.4 15.6 53.0 53.0
----------------------- ----------------------- Income from
operations $ 60.6 $ 39.1 $ 174.7 $ 127.3 -----------------------
----------------------- -----------------------
----------------------- Fourth quarter and annual revenues
benefited from higher prices for the 2004 coal year, offset
slightly by a higher effective U.S./Canadian dollar exchange rate.
Income from metallurgical coal operations increased 55% in the
fourth quarter to $61 million due primarily to an increase in the
average Canadian dollar sales price, offset by lower sales volumes
and higher transportation costs. Sales volumes decreased in the
fourth quarter of 2004 as compared with 2003 as a result of two
factors: the reduction in the Trust's distribution entitlement from
Elk Valley Coal; and the decision to reduce inventory levels. High
production levels continued into the fourth quarter, with Elk
Valley Coal moving 8% more waste and raw coal in the quarter and
28% for the year as compared to 2003. Unit cost of product sold
increased 6% in the fourth quarter and 2% for the year largely due
to higher maintenance costs and costs for mining and processing
inputs. Items such as steel surcharges and high diesel prices
contributed to increased costs. In addition, the decisions to mine
overburden during shutdowns to accelerate future coal release and
to maximize production of available coal in order to meet customer
needs contributed to the rise in unit costs. The most significant
impact to operations during the year was the increase in
transportation and other costs. These costs were $126 million in
the fourth quarter, up 9% over the same period in 2003, and $442
million for 2004, an increase of 17% over 2003. Higher rail and
port rates combined with a contingency provision for disputed rail
rates were the major contributors to the year over year increase.
In July 2004, Canadian Pacific Railway Company (CPR), the exclusive
rail service provider for the shipment of coal from our Elk Valley
mines to the ports in Vancouver, commenced an action in the Alberta
courts relating to the dispute over rail rates and claimed damages
of $14 million to June 30, 2004. Elk Valley Coal has filed a
statement of defence responding to CPR's action. In the fourth
quarter of 2004, a final offer arbitration determined rail rates
for the Elkview mine, subject to the pending decision from the
Canadian Transportation Agency (CTA). Unitholders are directed to
the news release of December 14, 2004 for more information
regarding the final offer arbitration. In January 2005, Elk Valley
Coal and CPR agreed to engage in non-binding mediation to resolve
the dispute over rail rates. The parties agreed to hold the legal
proceedings and the decision of the CTA in abeyance pending the
outcome of mediation. At this time, mediation discussions are
continuing. As at December 31, 2004, we have accrued a reasonable
provision for rail rates. However, this accrual may have to be
increased or decreased if the mediation discussions are settled
prior to the issuance of our audited 2004 consolidated financial
statements. On an annual basis, demurrage charges of $22 million,
the majority of which were incurred in the first quarter,
contributed to higher transportation and other costs in 2004.
Higher ocean freight rates during the year also affected
transportation and other costs. However, higher ocean freight costs
are recovered from customers in the form of higher coal sales
prices and have no net impact to income from operations. In 2004,
selling, general and administration costs increased 36% due to
higher marketing costs and an $8 million charge for severance
benefits pursuant to change in control agreements with certain
former senior executives. Development and Expansion
------------------------- Initial coal production from the Cheviot
Creek pit at the Cardinal River operations began in the fourth
quarter of 2004. The Trust's share of total capital expenditures
for the project is $72 million, of which approximately $46 million
was spent in 2004. Development of the pit is progressing; however
increased activity in the global mining industry is resulting in
delays in deliveries of equipment from manufacturers. It is
anticipated that the full annual production rate of 2.8 million
tonnes annually will be achieved in the third quarter of 2005 with
the Trust's share being 1.7 million tonnes. All licenses and
approvals have been received for the Cheviot Creek pit and the
haulroad at the Cardinal River operations. A number of
environmental organizations have applied to the Federal Court
seeking a further environmental assessment of the project and
challenging certain federal authorizations that the project has
received. The Federal Court is expected to hear the applications in
June 2005. In addition, an individual appealed certain approvals
issued by Alberta Environment in connection with the project. The
Environmental Assessment Board heard the appeal in mid-January and
the parties are awaiting a decision. The board dismissed an appeal
filed by a second individual. While unanticipated, negative
decisions related to these legal issues could impact future
operations at the site. Elk Valley Coal continues to monitor
progress on these legal issues, and management does not expect that
outcomes from these proceedings represent a material risk to the
ongoing mining at the Cheviot Creek pit. Plant expansion commenced
at the Fording River operations in the fourth quarter of 2004. The
majority of the $18 million budgeted to expand processing capacity
by 1.0 million tonnes to 10.5 million tonnes of coal per year will
be spent in 2005. With plant expansion underway, further capital
will be spent to increase the capacity of the mine by the end of
the second quarter of 2005 in order to utilize plant capacity. In
December, Elk Valley Coal entered into letters of intent with two
major steel producers that contemplate 10-year sales contracts and
a 5% equity investment (2.5% for each POSCO and Nippon Steel
Corporation) in the Elkview mine. The U.S.$50 million proceeds of
the investment is intended to be used to increase the annual
production capacity of the Elkview mine from 6.0 to 7.0 million
tonnes of coal by the end of 2007, of which our share is
approximately four million tonnes. The transactions, which are
subject to board approvals, due diligence, the negotiation and
settlement of binding agreements and other customary conditions,
are expected to be completed during the first quarter of 2005. The
completion of this transaction is expected to result in a pre-tax
gain for the Trust of approximately $25 million on the sale of the
5% interest in the Elkview mine. Our share of capital expenditures
for 2005 will be approximately $100 million of which approximately
$65 million will be for expansion and $35 million for sustaining
purposes. Planned sustaining capital expenditures are expected to
be approximately $40 million per year over the next few years in
order to replace older equipment and achieve productivity gains.
Industrial Minerals Three months ended Year ended December 31
December 31 (millions of Canadian -----------------------
----------------------- dollars except as noted) 2004 2003 2004
2003 -------------------------------------------------
----------------------- Statistics - Wollastonite Sales (thousands
of tonnes) 21 19 82 75 Average sales price (U.S.$/tonne) $ 395 $
434 $ 425 $ 429 Income from operations Revenue $ 10.8 $ 11.4 $ 49.1
$ 48.1 Cost of product sold 6.7 6.7 26.2 26.8 Transportation and
other 1.6 1.4 7.0 6.2 Selling, general and administration 1.6 1.0
5.2 5.6 Depreciation and depletion 1.0 1.3 5.0 5.7
----------------------- ----------------------- Income from
operations $ (0.1) $ 1.0 $ 5.7 $ 3.8 -----------------------
----------------------- -----------------------
----------------------- Income from our industrial mineral
operations increased 50% from the previous year to $6 million for
2004, despite lower sales prices in the fourth quarter, which
contributed to a loss from operations for the quarter. Increased
sales volumes from an improving economy, new product development
and lower cost of product sold were the main contributing factors,
partially offset by a higher U.S./Canadian exchange rate compared
to the same periods last year. OTHER INCOME AND EXPENSES AND
DISCONTINUED OPERATIONS Interest expense decreased almost $2
million to $2 million in the fourth quarter of 2004 and from $15
million to $13 million for the year as compared to the same periods
in 2003. The decrease is mainly due to the $99 million reduction in
debt from the proceeds of our equity issue in April 2004 and $1
million of interest capitalized in the fourth quarter of 2004
related to the Cheviot Creek pit expansion at Cardinal River
operations. Other income and expenses includes interest and
investment income as well as miscellaneous income and expenses. A
change in accounting practices adopted in 2004 resulted in unusual
income of $11 million, related to the inclusion of depreciation and
depletion in the valuation of product inventories on hand at the
start of the year. Other income in 2003 includes $5 million of
interest earned on income tax reassessments. Income tax expense
Current income taxes consist primarily of British Columbia mineral
taxes and Alberta Crown royalties on the cash flows of the
metallurgical coal operations and, to a lesser extent, income tax
related to the industrial minerals operations. While our average
effective mineral tax rate increased in 2004 due to increased cash
flows from the metallurgical coal operations, mineral taxes and
Crown royalties were reduced by higher capital expenditures in
2004. The future income tax recovery during the fourth quarter of
2004 reflects the recognition of the benefit of net tax operating
losses of Fording Inc. With the settlement of coal sale contracts
for the 2005 coal year which increased coal prices significantly,
management expects that the benefit of these losses will be
realized. The recovery in 2003 resulted from the enactment of lower
income tax rates. Three months ended Year ended December 31
December 31 (millions of -----------------------
----------------------- Canadian dollars) 2004 2003 2004 2003
-------------------------------------------------
----------------------- Current income taxes: Canadian income taxes
$ 0.5 $ (0.2) $ 2.6 $ 5.7 Provincial mineral taxes and Crown
royalties - 4.9 11.7 14.6 Foreign income taxes 0.5 0.5 4.0 2.3
----------------------- ----------------------- 1.0 5.2 18.3 22.6
Future income tax (recovery) (28.4) (3.2) (31.3) (22.0)
----------------------- ----------------------- Total income tax
expense (recovery) $ (27.4) $ 2.0 $ (13.0) $ 0.6
----------------------- -----------------------
----------------------- ----------------------- LIQUIDITY AND
CAPITAL RESOURCES ------------------------------- Three months
ended Year ended December 31 December 31 (millions of
----------------------- ----------------------- Canadian dollars)
2004 2003 2004 2003
-------------------------------------------------
----------------------- Summary of Cash Flows Operating activities
$ 101.1 $ 70.9 $ 269.5 $ 174.3 Investing activities (22.9) (8.1)
(59.5) 322.0 Financing activities, excluding distributions - 0.3
(1.3) (280.4) ----------------------- -----------------------
Increase in cash before distributions 78.2 63.1 208.7 215.9
Distributions to unitholders (53.9) (46.8) (196.7) (163.4)
----------------------- ----------------------- Increase in cash
24.3 16.3 12.0 52.5 Cash - beginning of period 40.2 36.2 52.5 -
----------------------- ----------------------- Cash - end of
period $ 64.5 $ 52.5 $ 64.5 $ 52.5 -----------------------
----------------------- -----------------------
----------------------- At the end of the fourth quarter of 2004,
we held cash and cash equivalents of $65 million and had $192
million of revolving bank credit facilities. There are no
borrowings under these facilities; however $43 million was used to
support letters of credit and letters of guarantee at December 31,
2004. Cash flows from operating activities are largely influenced
by the results of our metallurgical coal operations. Cash flows
from operating activities before working capital changes were $73
million for the fourth quarter of 2004, up $28 million from the
prior year on the strength of the improved results from
metallurgical coal operations. Changes in non-cash working capital
stayed relatively consistent for the quarter as compared to the
fourth quarter of 2003 but increased $28 million over the year.
Variations in items such as accounts receivable, inventories and
accounts payable generally contribute to variances that fluctuate
over various time periods. In 2004, accounts receivable increased
due mainly to higher sales prices. Inventories decreased due mainly
to the reduction of raw coal stockpiles. Accounts payable were up
mainly due to the accrual related to the dispute over rail rates.
Cash flow from operating activities was $270 million in 2004, up
significantly from the prior year due to higher coal prices, offset
to some degree by higher operating costs. In 2003, certain
transactions under the Arrangement did not affect cash flow from
operating activities, and results from the metallurgical coal
operations in 2003 and a decrease in working capital were offset in
part by reorganization costs. Investing activities during the
fourth quarter included capital expenditures of $27 million, of
which approximately $12 million were sustaining and the balance was
for development and start-up costs related to the Cheviot Creek pit
at Cardinal River operations and plant expansion at Fording River
operations. Additions to capital assets in 2004 increased to $73
million from $20 million spent in 2003, reflecting a greater level
of development activity to expand capacity and production as well
as higher sustaining capital projects at the mines in order to
upgrade equipment, accelerate coal release and achieve productivity
gains. A significant portion of sustaining capital expenditures in
the fourth quarter of 2004 was at Fording River for new equipment
and plant upgrades. The major financing activity during the fourth
quarter was payment of distributions of $54 million. For the year,
the major financing activities were the payment of distributions of
$197 million and the units offering that raised net proceeds of $99
million, which were used to repay bank debt. The financing
activities in 2003 were mainly related to the Plan of Arrangement
and the payment of distributions to unitholders. At December 31,
2004, our long-term bank debt amounted to $201 million, while $149
million of unused lines of credit were available under the current
bank credit facilities. Terms of the long-term bank debt require
$51 million to be refinanced by February 28, 2005 and $150 million
by February 28, 2006. Fording and Elk Valley Coal are in the
process of finalizing a new credit facility, substantially with
their existing banking syndicate, which would provide each with a
five-year revolving, floating rate, annually extendable facility.
The Fording $400 million facility would be utilized first to
refinance the full amount of the outstanding term debt of $201
million. The unutilized line would be available for general
corporate purposes, including the funding of Fording's interest in
the proposed expansions. The Elk Valley Coal $150 million facility
will be utilized for general operating purposes. Adequate credit
facilities are available to fund working capital, expected capital
spending requirements for our expansion plans and other
requirements. We anticipate that we have the ability to generate
sufficient funds from operating and financing activities, in the
short term and the long term, to maintain our productive capacity
and to fund planned growth and development activities. The Trust's
planned capital expenditures are expected to be financed with a
combination of debt, equity from the proposed investment in Elkview
by the steel mills and available cash flow. This may have an impact
on distributions to unitholders. The Trust also has the ability to
establish a reserve from cash otherwise available for distribution.
We mitigate some of the risk surrounding foreign currency exchange
rates by our policy to hedge a portion of our U.S. dollar exposure
through the use of foreign exchange forward contracts. In the
fourth quarter, Fording entered into an additional $180 million of
foreign exchange forward contracts for the 2005 and 2006 years. Our
realized gain on foreign exchange included in revenues in 2004 was
$83 million compared with $43 million in 2003. OUTLOOK -------
Going into 2005, we will continue to focus on increasing capacity
and production. We are targeting to increase Elk Valley Coal's
metallurgical coal operations' capacity to 28 million tonnes in
2005, while attaining a coal sales volume of over 27 million
tonnes, of which the Trust's share will be 16 million tonnes. We
intend to focus on additional expansion thereafter to further
increase capacity to approximately 30 million tonnes by the end of
2007. At that time, we will work with the railways in order to
ensure rail capacity for future expansion. We will continue to
advance our strategy of building long-term unitholder value through
efficient management of the Trust and prudent capital investment.
Our expertise and hard work combined with the robust coal markets
are expected to provide strong returns in 2005. However, as a
result of coal year pricing and carryover impacts, we expect better
results in the last half as compared with the first half of 2005.
Recent poor weather conditions in January has somewhat hampered our
mining operations and the movement of coal to port, which may
affect first quarter results. Cash Available for Distribution Our
financial results, and therefore the amount of cash available for
distribution to unitholders, are highly dependent on key variables
such as coal prices, coal production and sales volumes, the
U.S./Canadian dollar exchange rate, production and transportation
costs, sustaining capital expenditures and other financial and
legal requirements. Changes in any of these factors could have a
material impact on our results and cash available for distribution
to unitholders. Coal Markets Hard coking coal markets continue to
remain very tight due to the ongoing increased demand from the
global steel industry. Over the past few years, China has reversed
its position from a net exporter of hard coking coal to a net
importer, and at the same time has reduced exports of coke to the
steel industry. The global steel industry has responded by planning
significant additions to future domestic coke production capacity
to replace lost Chinese coke imports, which will increase the
demand for hard coking coal from producers such as Elk Valley Coal.
A trend is emerging for steel producers to sign long-term contracts
or purchase interests in coal producers in order to secure
additional supplies of hard coking coal to meet their future needs.
Higher coal prices are serving to attract new production supply to
the market. In addition to Elk Valley Coal's planned production
increases, other smaller-scale Canadian producers started
production and made their first metallurgical coal shipments in
2004. Australian producers have also announced plans for capacity
increases. However, few brownfield opportunities exist that can be
brought into production quickly. This is aggravated by the fact
that logistics chains are strained and will require expansion in
major exporting nations, and because the global increase in mining
has resulted in significant lead time on the delivery of large
mining equipment. These factors and continued strong demand
indicate that it may be one to two years time before the
metallurgical coal markets can be brought back into balance. Our
coal is fully contracted for the remainder of the 2004 coal year
and all of the 2005 coal year, with more than 95% of volumes
contracted under evergreen or long-term agreements. The robust
metallurgical coal market and undersupply situation provided an
environment of higher priceswith coal producers realizing the
highest level of coal year sales prices ever experienced. Fording
believes that the current tight markets will continue through 2005
and likely into 2006. Realizing the cyclical nature of the
metallurgical coal industry and the expectation that new supply
will influence market dynamics, expansion must be managed with an
understanding of future variability in sales prices. Fording has a
number of other properties that have the potential to provide
additional metallurgical coal volumes in the future if market
conditions warrant their development. Based on the ongoing
undersupply situation, Elk Valley Coal is progressing with
initiatives such as the development of the Cheviot Creek pit at the
Cardinal River operations and incremental growth opportunities at
existing mines to increase annual production to 30 million tonnes
over the next two to three years. Mining Costs Underlying mining
and processing costs such as fuel, steel, tires, labour and
maintenance can have a significant impact to our cost of product
sold. With the increase in global petroleum prices and demand for
steel, we have experienced higher charges for diesel fuel and steel
used for operating supplies, which has continued into 2005. In
addition, the recent growth in global mining activities has created
a demand for mining equipment and tires that outpaces supply. As a
result, future operations could be impacted if we have trouble
obtaining tires on a timely basis. Lastly, labour costs have
increased as the growth in the mining industry has created demand
and competition for available trades people. These factors could
affect production, productivity and costs of the metallurgical coal
operations, and have a material adverse effect on cash available
for distribution to unitholders. Mine Collective Agreements
Collective agreements covering production and maintenance employees
at three of Elk Valley Coal's mines will expire prior to the end of
2005. The collective agreement at the Coal Mountain operations
expired on December 31, 2004, and negotiations are ongoing.
Agreements at Line Creek and Elkview operations expire at the end
of May and October 2005, respectively. The agreement at Fording
River operations expires in 2006 while Cardinal River's agreement
expires in 2007. Should an agreement not be reached at one or more
of these operations, prolonged work stoppages could occur that
would have a material adverse effect on cash available for
distribution to unitholders. Rail Service and Rates The rail
systems servicing our mines are being pressed to meet the capacity
requirements of all industries shipping westbound to Vancouver.
Going forward, our ability to substantially increase coal sales
from the Elk Valley mines will require additional rail capacity. As
previously mentioned, Elk Valley Coal is in a contract dispute over
freight rates with Canadian Pacific Railway Company (CPR). CPR has
stated that the dispute is not expected to adversely affect the
shipment of coal from the Elk Valley mines. However, an
unfavourable resolution could result in a material increase in
future rail rates charged to Elk Valley Coal. Expectations for 2005
Elk Valley Coal settled 2005 coal year negotiations at a weighted
average coal price of approximately U.S$122 per tonne on an FOB
west coast port equivalent basis. Taking into account various
factors that impact yearly coal sales, the weighted average price
of 2005 calendar year sales for our various brands of coal are
expected to be slightly over U.S.$100 per tonne. Coal sales volumes
are targeted to exceed 27 million tonnes for 2005, of which the
Trust's share will be 16 million tonnes. We estimate that our 2005
expansion plans will require approximately $35 million in
sustaining capital expenditures and $65 million in expansion
capital expenditures from the Trust, which will be allocated
primarily to the Cardinal River, Elkview and Fording River
operations. Foreign Exchange Hedging To help manage exposure to
currency fluctuations, foreign exchange forward contracts are used
to fix the rate at which certain future anticipated flows of U.S.
dollars are exchanged into Canadian dollars. The foreign exchange
hedging activities of the Trust take into account the existing
foreign exchange forward contracts of Fording Inc. and Elk Valley
Coal. Our hedging policy has no minimum limits. The following table
summarizes the Trust's outstanding hedged positions at December 31,
2004. Amount Hedged (millions of U.S.$)
------------------------------------- Average Exchange Rates
---------------------- Elk Valley Coal (U.S.$1 (CDN$1
--------------- Fording Trust's equals equals Year 100% 60% Inc.
Total CDN$) U.S.$)
-------------------------------------------------------------------------
2005 $ 355 $ 213 $ 216 $ 429 1.40 0.71 2006 95 57 53 110 1.44 0.69
2007 - - 16 16 1.46 0.69 ------------------------------------- $
450 $ 270 $ 285 $ 555 -------------------------------------
------------------------------------- At December 31, 2004, the
Trust's portion of unrealized gains on foreign exchange forward
contracts was $116 million based on the U.S./Canadian dollar
exchange rate of U.S. $0.83. The Trust's realized gain on foreign
exchange included in revenues in the fourth quarter of 2004 was $36
million (2003 - $19 million) and for the year-to-date was $83
million (2003 - $43 million). Number of Units Outstanding There
were approximately 49 million trust units outstanding on December
31, 2004 and February 2, 2005. Foreign Ownership Legislation After
consultation with the trust industry, the Federal government
decided to defer implementation of certain amendments to federal
income tax laws that were proposed in the March 2004 Federal Budget
and in a news release issued in September, until further review and
consultation can be undertaken. These amendments dealt with
non-resident ownership limitations, which generally provide that an
income trust, in order to retain its status as a mutual fund trust
for purposes of the Income Tax Act, must not be established or
maintained primarily for the benefit of non-residents. Based on the
best available information, the Trust's foreign ownership is
currently estimated to be approximately 47%. The Declaration of
Trust contains a number of provisions that permit the Trustees to
undertake a variety of actions in order to limit non-resident
ownership so as to maintain the Trust's status as a mutual fund
trust. The Trustees will continue to monitor the level of
non-resident ownership and is considering the options available to
the Trust in order to maintain such status, including
implementation of a mandatory registration system in order to
control the level of non-resident ownership. Risk Factors
Unitholders should refer to the 'Risk Factors' section in the 2003
annual report and the annual information form dated March 19, 2004
for other factors that could potentially impact Fording's financial
performance and targets. -------------------------------------
Conference Call and Webcast A conference call to discuss these
results will be held Thursday, February 3 at 8:00 a.m. Mountain
time, 10:00 a.m. Eastern time. To participate in the conference
call, please dial 1-800-814-3911 or 416-640-4127 approximately 10
minutes prior to the call. A live and archived audio webcast of the
conference call will also be available on the Trust's website
http://www.fording.ca/. About Fording Fording Canadian Coal Trust
is an open-ended mutual fund trust. Through investments in
metallurgical coal and industrial minerals mining and processing
operations, the Trust makes quarterly cash distributions to
unitholders. The Trust, through its wholly-owned subsidiary,
Fording Inc., holds a 60% interest in the Elk Valley Coal
Partnership and is the world's largest producer of the industrial
mineral wollastonite. Elk Valley Coal Partnership, comprised of
Canada's senior metallurgical coal mining properties, is the
world's second largest exporter of metallurgical coal, currently
supplying approximately 25 million tonnes of high-quality coal
products annually to the international steel industry. The Trust's
shares are traded on the Toronto Stock Exchange under the ticker
symbol FDG.UN and on the New York Stock Exchange under the symbol
FDG. CONSOLIDATED STATEMENTS OF INCOME (unaudited) Three months
ended Year ended (millions of Canadian December 31 December 31
dollars, except per ----------------------- -----------------------
unit amounts) 2004 2003 2004 2003
-------------------------------------------------
----------------------- Revenues $ 324.3 $ 310.3 $ 1,167.5 $
1,043.7 Expenses Cost of products sold 114.9 130.0 454.4 448.8
Transportation and other 127.3 116.9 449.2 384.6 Selling, general
and administration 10.9 8.6 32.8 25.9 Depreciation and depletion
14.1 17.6 60.7 61.3 ----------------------- -----------------------
267.2 273.1 997.1 920.6 -----------------------
----------------------- Income from operations 57.1 37.2 170.4
123.1 Other income (expense) Interest expense (2.4) (4.0) (12.8)
(15.1) Other, net 3.3 (0.6) 17.0 6.1 Gain (loss) on corporate
reorganization - - (37.5) 48.7 -----------------------
----------------------- Income before taxes and discontinued
operations 58.0 32.6 137.1 162.8 Income tax (recovery) expense
(27.4) 2.0 (13.0) 0.6 -----------------------
----------------------- Income before discontinued operations 85.4
30.6 150.1 162.2 Discontinued operations - - - 78.7
----------------------- ----------------------- Net income $ 85.4 $
30.6 $ 150.1 $ 240.9 -----------------------
----------------------- -----------------------
----------------------- Weighted average number of units
outstanding (in millions) 49.0 46.8 48.5 47.4 Basic and diluted
earnings per unit Before discontinued operations $ 1.74 $ 0.65 $
3.09 $ 3.42 Net income $ 1.74 $ 0.65 $ 3.09 $ 5.08 CONSOLIDATED
STATEMENTS OF ACCUMULATED EARNINGS (unaudited) Three months ended
Year ended December 31 December 31 (millions of
----------------------- ----------------------- Canadian dollars)
2004 2003 2004 2003
-------------------------------------------------
----------------------- Balance - beginning of period $ 255.2 $
159.9 $ 190.5 $ 291.8 Net income for the period 85.4 30.6 150.1
240.9 Adjustment for adoption of new accounting standard for asset
retirement obligations - - - 8.8 Repurchase of capital stock - - -
(351.0) ----------------------- ----------------------- Balance -
end of period $ 340.6 $ 190.5 $ 340.6 $ 190.5
----------------------- -----------------------
----------------------- ----------------------- CONSOLIDATED
STATEMENTS OF CASH FLOWS (unaudited) Three months ended Year ended
December 31 December 31 (millions of -----------------------
----------------------- Canadian dollars) 2004 2003 2004 2003
-------------------------------------------------
----------------------- Operating activities Net income $ 85.4 $
30.6 $ 150.1 $ 240.9 Items not using (providing) cash: Loss on
reduction of interest in Elk Valley Coal - - 35.2 - Depreciation
and depletion 13.9 17.3 58.6 62.3 Provision for asset retirement
obligations, net 0.5 0.5 3.0 2.8 Future income taxes (28.4) (3.2)
(31.3) 34.3 Income from change in inventory valuation - - (10.8) -
Loss (gain) on disposal of assets 0.1 0.2 0.2 (202.8) Other items,
net 1.0 (0.8) 0.3 0.9 -----------------------
----------------------- 72.5 44.6 205.3 138.4 Decrease in non-cash
working capital 28.6 26.3 64.2 35.9 -----------------------
----------------------- Cash from operating activities 101.1 70.9
269.5 174.3 ----------------------- -----------------------
Investing activities Additions to capital assets (26.8) (6.7)
(72.8) (20.4) Proceeds on disposal of assets 0.5 - 1.1 362.8 Cash
payment for Luscar assets - - - (12.3) Other investing activities,
net 3.4 (1.4) 12.2 (8.1) -----------------------
----------------------- Cash (used in) from investing activities
(22.9) (8.1) (59.5) 322.0 -----------------------
----------------------- Financing activities Increase (decrease) in
long-term debt - 1.3 (99.0) 165.0 Increase (decrease) in bank
indebtedness - - 0.4 (1.1) Issuance of units, net 0.9 1.4 100.4
12.3 Repurchase of capital stock - - - (377.1) Payments under the
Arrangement - - - (75.3) Other financing activities, net (0.9)
(2.4) (3.1) (4.2) ----------------------- -----------------------
Financing activities, before distributions - 0.3 (1.3) (280.4)
----------------------- ----------------------- Distributions
declared (63.7) (46.9) (213.5) (210.3) Increase in distributions
payable 9.8 0.1 16.8 46.9 -----------------------
----------------------- Financing activities related to
distributions (53.9) (46.8) (196.7) (163.4) -----------------------
----------------------- Cash used in financing activities (53.9)
(46.5) (198.0) (443.8) -----------------------
----------------------- Increase in cash and equivalents 24.3 16.3
12.0 52.5 Cash and cash equivalents - beginning of period 40.2 36.2
52.5 - ----------------------- ----------------------- Cash and
cash equivalents - end of period $ 64.5 $ 52.5 $ 64.5 $ 52.5
----------------------- -----------------------
----------------------- ----------------------- CONSOLIDATED
BALANCE SHEETS (unaudited) December 31 December 31 (millions of
Canadian dollars) 2004 2003
-------------------------------------------------------------------------
Assets Current assets Cash and cash equivalents $ 64.5 $ 52.5
Accounts receivable 86.8 79.0 Inventory 113.0 130.3 Prepaid
expenses 2.6 2.9 ----------------------- 266.9 264.7 Capital assets
635.8 661.1 Goodwill 44.4 46.7 Other assets 21.1 26.9
----------------------- $ 968.2 $ 999.4 -----------------------
----------------------- Liabilities Current liabilities Accounts
payable and accrued liabilities $ 132.6 $ 91.2 Income taxes payable
10.7 7.0 Distribution payable 63.7 46.9 Current portion of
long-term debt 52.7 3.3 ----------------------- 259.7 148.4
Long-term debt 154.2 306.6 Other long-term liabilities 91.9 81.6
Future income taxes 180.4 211.9 Commitments and contingencies
----------------------- 686.2 748.5 -----------------------
Unitholders' equity Trust units 357.7 257.3 Accumulated earnings
340.6 190.5 Accumulated cash distributions (423.8) (210.3) Foreign
currency translation adjustments 7.5 13.4 -----------------------
282.0 250.9 ----------------------- $ 968.2 $ 999.4
----------------------- ----------------------- Notes to
Consolidated Financial Statements (unaudited)
-------------------------------------------------------------------------
1. DISTRIBUTABLE CASH Distributable cash is a term defined in the
Declaration of Trust and generally refers to the net cash received
by the Trust that is available for payment to unitholders on a
quarterly basis. Available cash generated by Fording Inc. is the
principal contributor to distributable cash of the Trust. Fording
Inc. distributes its available cash to the Trust in a quarter,
which is derived from results for the quarter and takes into
account other considerations such as expected future performance,
variations in levels of quarterly operating and capital activities
and other financial or legal requirements. Future distributions of
available cash will take into account these factors, our changing
interest in Elk Valley Coal and any amounts paid in prior periods
that were greater or less than the actual distributable cash for
those prior periods. Distributable cash and cash available for
distribution have no standardized meaning and are not defined by
generally accepted accounting principles in Canada. Accordingly,
distributable cash and cash available for distribution as it is
presented below may not be comparable to similarly named measures
presented by other trusts. The per-unit amounts of cash paid or
declared to be paid to unitholders reflect the actual amounts based
on the number of units outstanding on the record dates for the
payments, which differs from the weighted average number of units
used to calculate earnings per unit. February 28 Three months ended
Year ended 2003 to December 31 December 31 December 31 (millions of
---------------------- Canadian dollars) 2004 2003 2004 2003(x)
--------------------------------------------
------------------------ Cash Available for Distribution Cash flows
from operating activities $ 101.1 $ 70.9 $ 269.5 $ 229.6 Add
(deduct): Decrease in non-cash working capital (28.6) (26.3) (64.2)
(99.5) Sustaining capital expenditures, net (11.7) (2.9) (25.9)
(8.7) Capital lease payments $ - (0.4) (0.7) (1.3) Other 0.9 (0.3)
3.5 (1.2) Cash reserve - - - - ----------------------
------------------------ Cash available for distribution $ 61.7 $
41.0 $ 182.2 $ 118.9 ----------------------
------------------------ ----------------------
------------------------ (x) The period from the formation of the
Trust to December 31, 2003. The 2003 distributions included a
special payment of $70 million pursuant to the Arrangement. In
addition, the draw down of product inventory contributed $39.8
million to the distribution paid in the fourth quarter of 2003. 2.
SEGMENT INFORMATION Three months ended Year ended December 31
December 31 -------------------- -------------------- (millions of
Canadian dollars) 2004 2003 2004 2003
------------------------------------------------
-------------------- Metallurgical Coal Revenues $ 313.5 $ 298.9 $
1,118.4 $ 995.6 Cost of products sold (108.2) (123.3) (428.2)
(422.0) Transportation and other (125.7) (115.5) (442.2) (378.4)
Selling, general and administration (6.6) (5.4) (20.3) (14.9)
Depreciation and depletion (12.4) (15.6) (53.0) (53.0)
-------------------- -------------------- Income from operations
60.6 39.1 174.7 127.3 Interest expense (0.3) 0.4 (1.1) (2.1) Other
income (expense) 1.1 0.4 12.3 1.8 Income taxes (expense) recovery
26.0 (1.4) 15.4 1.8 -------------------- --------------------
Income before discontinued operations 87.4 38.5 201.3 128.8
-------------------- -------------------- Industrial Minerals
Revenues 10.8 11.4 49.1 48.1 Cost of products sold (6.7) (6.7)
(26.2) (26.8) Transportation and other (1.6) (1.4) (7.0) (6.2)
Selling, general and administration (1.6) (1.0) (5.2) (5.6)
Depreciation and depletion (1.0) (1.3) (5.0) (5.7)
-------------------- -------------------- Income (loss) from
operations (0.1) 1.0 5.7 3.8 Interest expense - - (0.1) (0.1) Other
income (expense) - - 0.5 - Income taxes 1.4 (0.6) (2.4) (2.4)
-------------------- -------------------- Income before
discontinued operations 1.3 0.4 3.7 1.3 --------------------
-------------------- Corporate Selling, general and administration
(2.7) (2.2) (7.3) (5.4) Depreciation and depletion (0.7) (0.7)
(2.7) (2.6) -------------------- -------------------- Loss from
operations (3.4) (2.9) (10.0) (8.0) Interest expense (2.1) (3.6)
(11.6) (12.9) Other income (expense) 2.2 (0.2) 4.2 4.3 Corporate
reorganization - - (37.5) 48.7 --------------------
-------------------- Income (loss) before discontinued operations
(3.3) (6.7) (54.9) 32.1 -------------------- --------------------
Consolidated Revenues 324.3 310.3 1,167.5 1,043.7 Cost of products
sold (114.9) (130.0) (454.4) (448.8) Transportation and other
(127.3) (116.9) (449.2) (384.6) Selling, general and administration
(10.9) (8.6) (32.8) (25.9) Depreciation and depletion (14.1) (17.6)
(60.7) (61.3) -------------------- -------------------- Income from
operations 57.1 37.2 170.4 123.1 Interest expense (2.4) (4.0)
(12.8) (15.1) Other income (expense) 3.3 (0.6) 17.0 6.1 Corporate
reorganization - - (37.5) 48.7 Income taxes 27.4 (2.0) 13.0 (0.6)
-------------------- -------------------- Income before
discontinued operations $ 85.4 30.6 $ 150.1 $ 162.2
-------------------- -------------------- --------------------
-------------------- DATASOURCE: Fording Canadian Coal Trust
CONTACT: Susan J. Soprovich, Director, Investor Relations, Ph:
(403) 260-9834, E: ; Catherine Hart, Coordinator, Investor
Relations, Ph: (403) 260-9817, E: ; Website: http://www.fording.ca/
Copyright