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James River Coal Company Reports Third Quarter 2005 Financial Results

Posted on: Tuesday, 8 November 2005, 06:00 CST

RICHMOND, Va., Nov. 8 /PRNewswire-FirstCall/ -- James River Coal Company , a producer of steam and industrial grade coal, today announced that it had a net loss of $2.2 million or $0.14 per fully diluted share, for the third quarter of 2005.

Peter T. Socha, Chairman and Chief Executive Officer of James River commented: "This was an extremely busy quarter for our company. We opened both Mine 15 at McCoy Elkhorn and the Commissary surface mine at Blue Diamond. We completed the engineering and contracting process for major upgrade projects at two of our preparation plants. We added significantly to our CAPP reserves and made progress on increasing our reserves in the Illinois Basin. We continue to attract and retain extremely talented individuals to the coal mining industry. Overall, we are moving aggressively in 2005 to implement our growth plans that we expect to result in higher production and lower costs in 2006 and beyond."

QUARTERLY RESULTS

The following table shows selected operating results for the quarter ended September 30, 2005 compared to the quarter ended September 30, 2004 (in 000's, except per ton amounts). The following table includes the results of operations of Triad from the date of acquisition (May 31, 2005).

Three Months Ended September 30, 2005 2004 Total Per Ton Total Per Ton Coal shipped (tons) 3,167 2,219 Revenues Coal sales $120,372 38.01 88,021 39.67 Synfuel handling 2,565 1,860 Cost of coal sold 106,074 33.49 73,582 33.16 Depreciation, depletion and amortization 14,769 4.66 8,023 3.62 Gross profit 2,094 0.66 8,276 3.73 Selling, general and administrative 6,651 2.10 4,842 2.18 Operating Income (loss) (4,557) (1.44) 3,434 1.55

The following table shows selected results broken out by segments for the three months ended September 30, 2005 compared to the three months ended September 30, 2004 (in 000's, except per ton amounts):

Three Months Ended September 30, 2005 2004 CAPP Midwest CAPP Midwest Volume (tons) 2,247 920 2,219 - Tons produced 2,243 911 2,065 - Coal sales revenue $ 96,094 24,278 88,021 - Average sales price per ton 42.77 26.39 39.67 - Cost of coal sold 87,130 18,944 73,582 - Cost of coal sold per ton 38.78 20.59 33.16 -

Mr. Socha continued: "As previously discussed, our mining costs during the last half of 2005 contain quite a bit of noise from extraneous factors. These factors include higher personnel costs and lower productivity during the opening phase of our new mines. This includes keeping a very high cost mine, with experienced miners, in production prior to opening Mine 15. The high cost mine was closed in October. As part of the Mine 15 development project, we have also been impacted by extra trucking costs at McCoy Elkhorn during the construction phase of the upgrade project at our coal preparation and loading facility. A third, but very important, factor has been the training process for new coal miners. We have been very successful in both attracting and retaining a new generation of individuals to the coal mines. Our retention rate for these miners has been greater than 80%. Whenever possible and appropriate, we are moving very quickly to transition these men into the skilled positions required for our future growth. While these training moves have a short-term negative impact in the form of lower productivity and higher costs, we believe that they will provide a significant long-term benefit to our company."

RESERVES

We estimate that, as of September 30, 2005, we controlled approximately 241.2 million tons of proven and probable coal reserves in the CAPP region and approximately 19.9 million tons in the Midwest. The table below provides additional information regarding changes to our reserves during the period noted (in millions of tons).

CAPP Midwest Proven and Probable Reserves, at June 30, 2005 220.2 19.6 Coal extracted (2.1) (0.9) Acquisitions and Adjustments 23.1 (1) 1.2 Proven and Probable Reserves, as 241.2 19.9 of September 30, 2005

Note 1. Subsequent to the quarter end the Company signed a lease with the Bureau of Land Management for approximately 4 million tons of coal at the existing Bledsoe operations, which is not included in these numbers.

The Company currently has an expected reserve life in the CAPP operations of greater than 20 years. The Company expects to have a similar expected reserve life in the Midwest by mid-year 2007.

MINE 15 UPDATE

Initial coal production began on September 21, 2005. The major item to be completed before beginning normal production operations is the underground development to tie together the slope with the ventilation shaft. This is expected to be completed in early November. The mine is expected to have very limited production in the fourth quarter of 2005 before ramping up to full annualized production levels of approximately 1.4 to 1.5 million tons per year by the end of 2006.

GROWTH PROJECTS

The Company provided the following update on growth initiatives for 2005 and 2006:

1. Coal Production Our strategic plan is to achieve a balance between underground and surface mining methods and coal basins. As part of executing this plan, we are developing surface mines in the Central Appalachia region. Our initial project was the development of the Commissary surface mine within the Blue Diamond mining complex. This project was originally planned to be operated by a contract miner. Our management team decided during the first quarter to change this mine to a Company mine. The mine began production in September 2005. Our operations and engineering teams have identified more than 40 additional surface mining projects that merit further review. We currently control more than 75% of these reserves. Sixteen of the projects have current state mine permits, and the Corps of Engineers permitting process has already begun on these properties. We expect initial production from two of these projects to begin during the second half of 2006 with an expected production of approximately 100,000 tons per month by the end of 2006. This production has not been included in current guidance. We have also identified six highwall mining projects for further review. Five of these projects are currently permitted. We are currently completing engineering and financial analyses for these projects. If we decide to proceed with one, or more; of these projects, we would expect initial production to begin by mid-year 2006. This production has not been included in current guidance. As a related project to upgrading our inefficient coal preparation plants, we are currently evaluating a project to recover up to 1.1 million tons of coal product from an existing impoundment. The evaluation process is expected to be completed by December 31, 2005. If we decide to proceed with the project, we would expect the initial production to begin by the end of the 3rd quarter of 2006. These tons are not included in current guidance. 2. Preparation Plants We have developed a list of projects that are intended to improve the yield from our existing preparation plants. The projects are concentrated in the screening and separation areas of the plants. We expect these projects to require total funds of $9-11 million. Approximately ninety percent (90%) of these funds will be capital expenditures. These projects are expected to improve the overall yield of our preparation plants by 1-2%, or 200,000-400,000 tons per year. We have negotiated contracts required to implement the major preparation plant projects. All major projects are expected to be completed by the end of the second quarter of 2006. TURNOVER AND EMPLOYEE RELATIONS

Low turnover and strong employee relations continue to be very important to James River Coal Company. We believe that this leads to higher productivity and lower costs. This is particularly true in mining conditions with thinner coal seams and during a period of increased competition for skilled mining labor.

James River Coal Company's net turnover for the twelve months ended September 30, 2005 was approximately 13.1%.

Mr. Socha continued: "Maintaining low turnover continues to be very important to James River. Due to normal seasonal factors as well as intense competition from other coal mining companies, our turnover ticked up a bit this quarter. We are very focused on this change. On the other hand, we are also very encouraged by the high percentage of miners that leave James River for other coal mining companies and return within a period of days or weeks."

We are actively working to improve our retention of employees by implementing safety and incentive plans that we believe will reduce turnover.

SALES COMMITMENTS

As of September 30, 2005, we had the following contractual commitments to ship coal at a fixed and known price:

2006 2007 CAPP Operations (In millions, except per ton amounts) Tons committed and priced 8.2 1.6 Average price of committed tons $45.82 $38.37 Midwest Operations (In millions, except per ton amounts) Tons committed and priced 3.4 1.2 Average price of committed tons $24.92 $24.77 JAMES RIVER COAL COMPANY AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands) September 30, 2005 December 31, 2004 Assets (Unaudited) Current assets: Cash $24,169 3,879 Receivables: Trade 40,429 23,871 Other 1,101 7,362 Total receivables 41,530 31,233 Inventories: Coal 10,935 2,305 Materials and supplies 6,104 4,084 Total inventories 17,039 6,389 Prepaid royalties 4,025 4,358 Other current assets 5,581 6,337 Total current assets 92,344 52,196 Property, plant, and equipment, at cost: Land 6,116 2,698 Mineral rights 195,106 162,577 Buildings, machinery and equipment 189,250 106,105 Mine development costs 13,632 5,729 Construction-in-progress 933 231 Total property, plant, and equipment 405,037 277,340 Less accumulated depreciation, depletion, and amortization 57,538 21,765 Property, plant and equipment, net 347,499 255,575 Goodwill 31,869 - Restricted cash - 8,404 Other assets 17,463 11,651 Total assets $489,175 327,826 JAMES RIVER COAL COMPANY AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands) September 30, 2005 December 31, 2004 Liabilities and Shareholders' (Unaudited) Equity Current liabilities: Current maturities of long-term debt $- 2,700 Current installments of obligations under capital leases 374 388 Accounts payable 25,327 15,116 Accrued salaries, wages, and employee benefits 3,626 2,093 Workers' compensation benefits 12,475 12,090 Black lung benefits 2,600 2,600 Accrued taxes 4,224 3,530 Other current liabilities 9,969 3,633 Total current liabilities 58,595 42,150 Long-term debt, less current maturities 150,000 92,300 Other liabilities: Noncurrent portion of workers' compensation benefits 39,375 38,223 Noncurrent portion of black lung benefits 23,806 23,341 Pension obligations 13,476 15,744 Asset retirement obligations 25,409 14,939 Obligations under capital leases, excluding current installments 363 637 Deferred income taxes 57,311 34,615 Other 226 292 Total liabilities 368,561 262,241 Shareholders' equity Preferred Stock, $1.00 par value. Authorized 10,000,000 shares - - Common stock, $.01 par value. Authorized 100,000,000 shares; issued and outstanding 16,788,380 and 14,740,694, respectively 168 147 Paid-in-capital 140,421 71,784 Deferred stock-based compensation (18,226) (7,540) Retained earnings (deficit) (1,757) 1,151 Accumulated other comprehensive income 8 43 Total shareholders' equity 120,614 65,585 Commitments and contingencies Total liabilities and shareholders' equity $489,175 327,826 JAMES RIVER COAL COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited) Successor Successor Three Months Three Months Ended 09/30/05 Ended 09/30/04 Revenues $122,937 89,881 Cost of sales: Cost of coal sold 106,074 73,582 Depreciation, depletion, and amortization 14,769 8,023 Total cost of sales 120,843 81,605 Gross profit 2,094 8,276 Selling, general, and administrative expenses 6,651 4,842 Total operating income (loss) (4,557) 3,434 Interest expense 3,935 2,068 Interest income (80) (37) Miscellaneous income, net (276) (377) Total other expense, net 3,579 1,654 Income (loss) before income taxes (8,136) 1,780 Income tax (benefit) expense (5,936) 381 Net income (loss) $(2,200) 1,399 Earnings (loss) per common share Basic earnings (loss) per common share $(0.14) 0.10 Shares used to calculate basic earnings (loss) per share 15,766 13,800 Diluted earnings (loss) per common share $(0.14) 0.10 Shares used to calculate diluted earnings (loss) per share 15,766 14,629 JAMES RIVER COAL COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited) Successor Successor Predecessor Nine Months Five Months Four Months Ended Ended Ended 09/30/05 09/30/04 04/30/04 Revenues $334,125 154,366 113,949 Cost of sales: Cost of coal sold 277,981 120,892 89,294 Depreciation, depletion, and amortization 35,818 13,561 12,314 Total cost of sales 313,799 134,453 101,608 Gross profit 20,326 19,913 12,341 Selling, general, and administrative expenses 18,620 7,408 5,023 Total operating income 1,706 12,505 7,318 Interest expense 9,040 3,371 566 Interest income (140) (51) - Charges associated with repayment of debt 2,524 - - Miscellaneous income, net (692) (666) (330) Total other expense, net 10,732 2,654 236 Income (loss) before reorganization items and income taxes (9,026) 9,851 7,082 Reorganization items, net - - (100,907) Income (loss) before income taxes (9,026) 9,851 107,989 Income tax (benefit) expense (6,118) 2,108 - Net income (loss) $(2,908) 7,743 107,989 Earnings (loss) per common share Basic earnings (loss) per common share $(0.20) 0.56 6,393.67 Shares used to calculate basic earnings (loss) per share 14,681 13,800 17 Diluted earnings (loss) per common share $(0.20) 0.53 6,393.67 Shares used to calculate diluted earnings (loss) per share 14,681 14,629 17

CONFERENCE CALL AND WEBCAST AND REPLAY: The Company will hold a conference call with management to discuss third quarter earnings on November 8, 2005 at 11:00 a.m. Eastern Time. The conference call can be accessed by dialing 800-949-2163, or through the James River Coal Company website at http://www.jamesrivercoal.com/. International callers, please dial 312-461-0745. A replay of the conference call will be available on the Company's website and also by telephone, at 888-203-1112 for domestic callers. International callers, please dial 719-457-0820: passcode 2352741.

FORWARD-LOOKING STATEMENTS: Certain statements in this press release, and other written or oral statements made by or on behalf of us, are "forward- looking statements" within the meaning of the federal securities laws. Statements regarding future events and developments and our future performance, as well as management's expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. These forward-looking statements are subject to a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, the following: a change in the demand for coal by electric utility customers; the loss of one or more of our largest customers; inability to secure new coal supply agreements or to extend existing coal supply agreements at market prices; failure to exploit additional coal reserves, including contiguous reserves currently held by our Midwest operations; failure to diversify our operations; increased capital expenditures; encountering difficult mining conditions; increased compliance costs; bottlenecks or other difficulties in transporting coal to our customers; lack of availability of financing sources; the effects of regulation and competition; additional turnover of employees and independent contractors; the risk that the Company is unable to successfully integrate the Triad business; and the risk factors detailed in our S-1 registration statement declared effective by the Securities and Exchange Commission on May 24, 2005, which factors are incorporated herein by reference. Management believes that these forward-looking statements are reasonable; however, you should not place undue reliance on such statements. These statements are based on current expectations and speak only as of the date of such statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise.

Additional information concerning these and other factors can be found in James River Coal Company's public filings with the Securities and Exchange Commission.

CONTACT: Elizabeth M. Cook, Director of Investor Relations of James River Coal Company, +1-804-780-3000.

James River Coal Company

CONTACT: Elizabeth M. Cook, Director of Investor Relations of JamesRiver Coal Company, +1-804-780-3000

Web site: http://www.jamesrivercoal.com/

Source: PRNewswire-FirstCall

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