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Phoenix Coal Inc. Reports Fiscal 2008 Third Quarter Results

November 14, 2008

LOUISVILLE, KY, Nov. 14 /PRNewswire-FirstCall/ — Phoenix Coal Inc. (TSX: PHC) (“Phoenix” or “the Company”), a leading producer and consolidator of thermal coal reserves in the Illinois Basin, announced today its financial results for the three- and nine-month periods ended September 30, 2008. Unless otherwise noted, all reserves and resources are expressed in imperial tons, and all financial information is expressed in U.S. dollars.

   Highlights for the Q3 2008 and the Year-to-Date ("YTD") periods:    -   Ended the quarter with approximately $47.8 million in cash, cash       equivalents and short-term investments;    -   Coal sales were 529,000 tons in Q3 2008 and 1.7 million tons in the       YTD period, compared with 562,000 tons and 1.6 million tons,       respectively, in the comparable periods of the prior year;    -   Q3 2008 clean coal production was approximately 431,000 tons and       purchases were approximately 109,000 tons. For the YTD period, clean       coal production was approximately 1.4 million tons and purchases were       approximately 305,000 tons;    -   Revenue increased 1.9% to $18.1 million for Q3 2008 and 15% to $57.9       million for the YTD period, compared with the prior year periods;    -   Average revenue per ton of coal sold was $34.20 in Q3 2008 and $33.38       in the YTD period, compared with $31.62 and $31.83, respectively, in       the comparable periods of the prior year;    -   Average cost per ton of coal sold was $33.87 in Q3 2008 and $32.62 in       the YTD period, compared with $27.21 and $27.57, respectively, in the       comparable periods of the prior year    -   Completed the acquisitions of C&R Coal Inc. ("C&R") and Renfro       Equipment Inc. ("Renfro"), which added Beech Creek and Jessup mines       to the Company's owned portfolio; and    -   Received the required permitting from the Kentucky Department of       Natural Resources and the U.S. Army Corps of Engineers ("COE") to       begin production at the Pratt mine.    -   A two-week vacation was taken in August 2008 to coincide with a       portion of the Green River shutdown to perform maintenance on the       locks.   

“During the quarter, we invested in our core business by purchasing new, more productive mobile equipment and constructing a preparation plant at the Briar Hill Mine. We also made some smaller acquisitions in Muhlenberg County that will help expand our footprint in the Illinois Basin,” said David A. Wiley, President and CEO of Phoenix Coal. “Over the next quarter, we will focus on resolving permitting delays and continuing to deliver the coal that is available from our existing permits on a pro rata basis. Looking ahead, with a strong balance sheet, we believe we are well positioned to pursue both organic growth, by driving additional operational efficiencies, as well as further consolidation opportunities in the Illinois basin to drive improvements in our financial performance prior to the Pratt Mine coming on line in 2010.”

Other Corporate Developments:

During the quarter, production was negatively impacted due to a two-week scheduled vacation shutdown that coincided with a portion of the maintenance period on the Green River. The Green River was closed for approximately six weeks during August and September to perform maintenance on the lock system. With fewer run days, the Company had less production output over which to spread its fixed costs. Productivity levels fell as a result of stretched trucking capacity and the buildup of coal stockpiles. Despite this shutdown, revenue grew as the Company was paid additional compensation from certain customers for extra transportation cost incurred during August and September.

On September 26, 2008 the COE advised Phoenix that certain environmental groups filed a protest with the COE with respect to one of the Company’s three pending permit applications under Section 404 of the Clean Water Act. Due to the protest, Phoenix is currently unable to bring into production the coal reserves associated with these permits. As a result, the Company will not be able to satisfy a portion of its contractual obligations until this situation is resolved and the necessary permits are received. The Company and its consultants are currently working with regulators to address issues raised by the protesters and expedite the permitting process. The protest does not impact any of the permits that Phoenix currently has, including the recently issued permits for the Pratt mine underground development project.

As a result of the protest, on October 26, 2008, the Company provided notice of force majeure to its customers due to permitting delays. The Company is currently evaluating the extent of the ongoing force majeure events and working with its customers to reach an optimal outcome for all parties involved.

Financial Review:

At September 30, 2008, the Company had $47.8 million in cash, cash equivalents and short-term investments as well as $11.4 million in restricted cash, cash equivalents and certificates of deposit as collateral for letters of credit for reclamation bonding. As of September 30, 2008, the Company had net working capital of $38.2 million.

From an operating perspective, earnings before interest, taxes, depreciation and amortization (“EBITDA”) for Q3 2008 and the nine months ended September 30, 2008 was ($4.8 million) and ($13.4 million), respectively. Adjusted EBITDA for Phoenix’s ongoing operations and adding back non-cash stock-based compensation expenses would be ($3.6 million) for Q3 2008 and ($7.9 million) for the YTD period. The following table summarizes the adjusted EBITDA calculation.

   -------------------------------------------------------------------------                                                        Q3         YTD 9/30                                                      2008             2008                                                     -----            -----   EBITDA                                      ($4,833,234)    ($13,374,351)   Non-recurring operating losses                  626,844        2,498,840   Stock-based compensation                        640,000        2,931,277                                               ------------    -------------   Adjusted EBITDA                             ($3,566,390)     ($7,944,234)   -------------------------------------------------------------------------   

Q3 2008 revenue increased by 1.9% to $18.1 million, compared with $17.8 million for Q3 2007. The growth in revenue was attributable to an 8.2% increase in revenue per ton sold in the third quarter 2008 compared to 2007. Revenue for the YTD period increased by 15% to $57.9 million compared to $50.4 million in the prior year period. The increase over 2007 was due to contractual price increases from existing sales contracts and new sales contracts with better pricing terms. Specifically, for the third quarter 2008, the Company was paid additional compensation from certain customers for extra transportation costs incurred by the Company to transport coal to, and load coal at, dock facilities on the Ohio River during the Green River shutdown in August and September.

The Company’s revenue per ton has averaged between $31 and $34 per ton over the last several quarters as it has been shipping on contract commitments that were entered into before the recent rise in coal prices and cost of inputs. The Company expects to realize higher revenue per ton of coal sold and improved profitability as the legacy contracts are fulfilled and it enters into new contracts at current market prices.

Q3 2008 cost of goods sold increased by 17% to $17.9 million compared to $15.3 million for Q3 2007. Comparing the same periods on a cost per ton sold basis, cost of goods sold was $33.87 versus $27.21 for an increase of nearly 25%. However, in Q3 2008, the Company incurred $425,000 of additional costs that were reimbursable, or $0.80 per ton sold, related to transporting and loading coal to alternate dock facilities on the Ohio River due to the Green River closure. The cost of goods sold for the YTD period was $56.6 million compared to $43.6 million for the same period in 2007, or $32.62 per ton sold compared to $27.57 per ton. The Green River shutdown together with the high costs of diesel fuel and explosives had the largest impact on the increase in operating costs, which were slightly offset by lower maintenance and coal preparation costs.

Q3 2008 general and administrative costs were $2.5 million compared to $1.2 million for Q3 2007. General and administrative costs for the YTD period were $8.0 million, compared to $3.9 million in the same period of the prior year. The primary variance is a non-cash charge to employee stock-based compensation, which was $640,000 for Q3 2008 and $2.9 million for the YTD period.

Net loss was $6.7 million for Q3 2008 and $23.4 million for the YTD period compared to $5.7 million and $10.1 million in the comparable periods of the prior year.

Outlook

During the quarter, Phoenix Coal continued to significantly invest in new mobile equipment. With properly capitalized operations, the Company expects a reduction in downtime, an increase in productivity and production capacity, lower maintenance costs and a decrease in cash operating costs for its surface mines. Looking forward, the Company anticipates continuing to replace old equipment, and has financing arranged for approximately $10.4 million of mobile equipment on order.

The Company expects production of approximately 440,000 tons and purchased coal of approximately 40,000 tons for the fourth quarter of 2008. During 2009, production and purchased coal is expected to come from the surface operations in Muhlenberg County where the Company is currently experiencing permitting delays. While Phoenix believes it will be successful in obtaining all pending permits, there is no assurance that the process will not delay the receipt of permitting and negatively impact its ability to increase production in the near-term. This uncertainty has led the Company to manage costs by reducing its work force by 19 employees (nearly 10%) subsequent to the quarter end. A more significant increase in production is not expected until the Company begins mining its first underground development project, the Pratt mine.

At September 30, 2008, the Company had coal sales contract commitments of approximately 7.8 million tons at a weighted average price of $34.57 per ton that extends through 2011. Approximately 90% of those commitments would be fulfilled by the end of 2010, pursuant to the contract terms. These legacy contracts were entered into before the recent rise in coal prices and cost of inputs. Consequently they are negatively impacting the Company’s revenues and profitability. As the contracts are fulfilled and assuming current coal prices continue to prevail, the Company expects significant increases in revenue and improved operating performances as it enters into new contracts at current market prices.

As the Company moves forward in this uncertain economic environment, it will be especially prudent in the pursuit of growth opportunities, focusing on those that are the nearest term value drivers. Phoenix’s strong cash position coupled with a flexible strategy allows the Company to not only meet its capital requirements, but also to sustain and grow its business.

Management’s Discussion and Analysis (MD&A), consolidated financial statements and notes thereto for the third quarter are available at http://www.sedar.com/ and http://www.phxcoal.com/.

Notice of Conference Call

Phoenix Coal will host a conference call on Friday November 14, 2008 at 8:30 a.m. ET to discuss the Company’s fiscal 2008 third quarter financial results David Wiley, President and Chief Executive Officer, and Dustin Angelo, Chief Financial Officer will co-chair the call. All interested parties can join the call by dialing 416-644-3423 or 1-800-595-8550. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until Friday, November 21, 2008 at midnight. To access the archived conference call, please dial 416-640-1917 or 1-877-289-8525 and enter the reservation code 21287126 followed by the number sign.

A live audio webcast of the conference call will be available at http://www.phxcoal.com/ and http://www.newswire.ca/. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. An archived replay of the webcast will be available for 365 days.

About Phoenix Coal Inc.

Phoenix Coal Inc. is an integrated mining operation producing high sulphur, low chlorine, bituminous coal from the Illinois Basin. To address the increasing demand for energy in the Eastern US as well as in the export market, Phoenix Coal is pursuing production growth through the focused acquisition, consolidation, and extraction of coal assets. The Company’s executive offices are located in Louisville, KY and its operational headquarters are stationed in Madisonville, KY.

FORWARD-LOOKING STATEMENTS

Certain information set forth in this press release contains “forward-looking statements”, and “forward-looking information” under applicable securities laws. Except for statements of historical fact, certain information contained herein constitutes forward-looking statements which include management’s assessment of Phoenix’s future plans and operations and are based on Phoenix’s current internal expectations, estimates, projections, assumptions and beliefs, which may prove to be incorrect. Some of the forward-looking statements may be identified by words such as “expects”"anticipates”, “believes”, “projects”, “plans”, and similar expressions. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause Phoenix’s actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to: liabilities inherent in coal mine development and production; geological, mining and processing technical problems; Phoenix’s inability to obtain required mine licenses, mine permits and regulatory approvals required in connection with mining and coal processing operations; dependence on third party coal transportation systems; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; changes in commodity prices and exchange rates; changes in the regulations in respect to the use of coal; the effects of competition and pricing pressures in the coal market; the oversupply of, or lack of demand for, coal; currency and interest rate fluctuations; various events which could disrupt operations and/or the transportation of coal products, including labor stoppages and severe weather conditions; the demand for and availability of rail, port and other transportation services; and management’s ability to anticipate and manage the foregoing factors and risks. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Phoenix undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements.

The TSX has neither approved nor disapproved of the contents of this

press release.

Phoenix Coal Inc.

CONTACT: Joanna Longo, The Equicom Group, Investor Relations, (416)815-0700 ext. 233, jlongo@equicomgroup.com




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