MFC Industrial Ltd. Reports First Quarter Results For 2014

NEW YORK, May 15, 2014 /PRNewswire/ -- MFC Industrial Ltd. ("MFC" or the "Company") (NYSE: MIL) announces its results for the three months ended March 31, 2014 and provides an update on its recent corporate developments. The Company's financial statements are prepared in accordance with International Financial Reporting Standards "IFRS"). (All references to dollar amounts are in United States dollars unless otherwise stated.)   

FINANCIAL

The following table highlights certain selected key numbers and ratios as of March 31, 2014 in order to assist shareholders to better understand our financial position.

LIQUIDITY

As at March 31, 2014, we had cash and cash equivalents, short-term deposits and securities of $359.0 million. We monitor our capital on the basis of our debt-to-adjusted capital ratio and long-term debt-to-equity ratio.

LONG-TERM DEBT

The long-term debt-to-equity ratio is calculated as long-term debt divided by shareholders' equity.

CREDIT FACILITIES

We maintain various kinds of credit lines and facilities with banks. Most of these facilities are short-term and are used for day-to-day business and structured financing activities in commodities. The amounts drawn under such facilities fluctuate with the type and level of transactions being undertaken.

As at March 31, 2014, we had credit facilities aggregating $607.8 million, comprised of: (i) unsecured revolving credit facilities aggregating $337.2 million from banks; (ii) revolving credit facilities aggregating $47.9 million from banks for structured solutions, a special trade financing where the margin is negotiable when the facility is used; (iii) a non-recourse factoring arrangement with a bank for up to $130.9 million for our commodities activities. We may factor our commodity receivable accounts upon invoicing at the inter-bank rate plus a margin; (iv) a foreign exchange credit facility of $53.9 million with a bank; and (v) secured revolving credit facilities aggregating $38.0 million. All of these facilities are renewable on a yearly basis.

CASH FLOWS

Due to the types of businesses we engage in, our cash flows are not necessarily reflective of net earnings and net assets for any reporting period. As a result, instead of using a traditional cash flow analysis solely based on cash flows statements, our management believes it is more useful and meaningful to analyze our cash flows by overall liquidity and credit availability. The global commodity supply chain business can be cyclical and our cash flows vary accordingly. Our principal operating cash expenditures are for financing trading of securities, commodities financing and general and administrative expenses.

RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2014

Total revenues for the three months ended March 31, 2014 increased 12% to $231.4 million, from $207.3 million in the first three months of 2013. Revenues were up for the first three months of 2014 because of several factors, including increased natural gas prices and increases in volumes for some of our commodities.

EBITDA for the three months ended March 31, 2014 was $17.7 million. EBITDA has significant limitations as an analytical tool and should not be considered in isolation or as a substitute for our results as reported under IFRS. See below for a reconciliation of net income to EBITDA.

Net income for the three months ended March 31, 2014 decreased to $5.8 million, or $0.09 per share on a diluted basis, from $8.4 million, or $0.13 per share on a diluted basis. Net income for the three months, was down primarily due to:

• a primarily non-cash exchange difference loss on foreign currency transactions; and
• a non-cash unrealized loss of $3.1 million on natural gas hedges (which loss decreased to $1.4 million as of May 14, 2014).

The income statement for the three months ended March 31, 2014 includes non-cash amortization, depletion and depreciation expenses of approximately $5.2 million, representing approximately $0.08 per share on a diluted basis. Depletion and depreciation are non-cash expenses and represent the amortization of the historical cost of our natural gas assets and other assets over their economic life. They are income statement expenses but are added back in the cash flow statement.

Revenues for our commodities and resources business were $221.0 million for the three months ended March 31, 2014, compared to $199.3 million for the same period in 2013. Included are the gross revenues generated by our iron ore royalty interest which, for the three months ended March 31, 2014, were approximately $3.0 million, compared to $3.5 million in 2013. A total of 349,978 tons of iron ore products were shipped during the first three months of 2014.

Revenues from our merchant banking business were $3.3 million for the three months ended March 31, 2014, compared to $3.6 million for the same period in 2013.

All other revenues, which encompass our corporate and other operations, were $7.1 million for the three months ended March 31, 2014, compared to $4.4 million for the same period in 2013.

Costs of sales increased to $197.5 million during the first three months of 2014 from $177.7 million for the same period in 2013. Selling, general and administrative expenses increased to $17.4 million for the three months ended March 31, 2014 from $15.9 million for the same period in 2013. 

OVERVIEW OF OUR RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2014

Our total revenues by operating segment for each of the three months ended March 31, 2014 and 2013 are broken out in the table below:

Our net income from operations for each of the three months ended March 31, 2014 and 2013 is broken out in the table below:

EBITDA BREAKDOWN

EBITDA is defined as earnings before interest, taxes, amortization, depreciation and depletion. Management uses EBITDA as a measurement of its own operating results, and as a benchmark relative to its competitors. Management considers it to be a meaningful supplement to net income as a performance measurement primarily because we incur significant depreciation and depletion, and EBITDA generally represents cash flow from operations.  The following table reconciles our EBITDA to net income for the three months ended March 31, 2014.

UPDATE ON OUR NATURAL GAS & MIDSTREAM FACILITIES

Since the acquisition of our natural gas and midstream facilities, which significantly enlarged our global commodities platform into the energy sector, we have been determined to expand these operations as they present an opportunity for growth through value-added projects and the consolidation of regional gas production.

The following table sets out our average natural gas and other hydrocarbons sales prices, operating costs, royalty amounts, transportation costs and total production for the three months ended March 31, 2014:

Our land bank as of March 31, 2014 was 269,621 net undeveloped acres (1,088 square kilometers) which we do not plan to sell or develop at this time.

We are now developing midstream businesses at our existing facility, and will identify and expand these through re-purposing existing assets or by investing in new projects. The restructuring of this emerging midstream business is underway with several assets identified to be created or transferred to this new division, including:

• Consolidation of the processing facilities in the Callum, Cowley and Niton area.
• Increasing the Niton plant's capacity through a debottlenecking project to increase processing revenue from other third party production, including pursuant to our recently announced participation agreement. Pursuant to the agreement:
  • Our partner will spend a minimum of CDN$50 million to drill at least three new wells per year for a total of 12 net wells (to a minimum of 800 horizontal meters each) during the initial three-year term. Our partner will pay 100% of the drilling and completion costs of each well at its own sole risk and expense.
  • After a well is drilled and there is continuous production, we can elect to participate for up to a 30% working interest in each well on a look-back basis by paying 25% of its actual costs; or
    we can elect to receive a 10% gross royalty on future production instead.
• We are now proceeding with the 16.5 MW power plant project at our facility, which is on schedule for commissioning in the first half of 2015. Upon completion, the project will supply our processing plant's electrical needs, with excess power being sold into the grid at prices based on the Alberta Electricity System Operator's rates.
• We are in the planning stage for a deep-cut and fractionation plant that will generate additional revenue from the sales of natural gas liquids (extracted from natural gas) including ethane, propane and butane.

We are also looking at other opportunities, including with respect to marginal wells, which would potentially involve:

• Providing up-stream marginal well production and services.
• Focusing on improving production through innovation and cost optimization.
• Acquiring similar marginal well assets and apply best practices to lower costs or raise production through economies of scale and technical ability.

Hedging Natural Gas Derivatives

In December 2013, to hedge the volatility of natural gas prices and the organically long nature of our natural gas subsidiary, we entered into a short position of long-term NYMEX natural gas swaps. In January and February we increased our position. We continue to hold these hedging derivatives and, as of March 31, 2014, we were short approximately $87.5 million of NYMEX natural gas swaps with maturities ranging from August 2014 to March 2015 at an average weighted price of $4.39 per mcf. 

UPDATE ON THE ROYALTY INTEREST (WABUSH MINE)

The Wabush Iron Ore Mine is a very important asset for MFC. The following is an overview of the mine:

• The Wabush mine and concentrator are located in Newfoundland and Labrador and are owned and operated by Cliffs.
• The mine has operated since 1965 and has a reported annual capacity of 5.6 million tonnes.
• Operations at the mine consist of an open pit truck and shovel mine, a concentrator that utilizes single stage crushing, AG mills and gravity separation to produce an iron concentrate. Iron ore is concentrated at the mine facilities then transported 445 km by rail to Pointe Noire, near Sept-Isles, Quebec, Canada for shipment.
• Over the last three years, between 2.8 and 3.5 million tons of iron products were shipped from the mine annually.

In February 2014, Cliffs announced a reduction in capital expenditures, which included their decision to idle the Wabush mine by the end of the first quarter of 2014.

We currently estimate that our gross revenues from our Wabush royalty interest will be approximately $5.0 million for 2014. The current idle status of the mine will impact our results of operations in both 2014 and 2015.

Under the terms of its existing lease, Cliffs must pay MFC a minimum royalty payment of C$3.25 million a year for the term of the lease. Additionally, we have a right to acquire the fixed assets at the mine at a reasonable market price in the event that the lease underlying our royalty interest is terminated. We may also terminate the lease if production has ceased for a period of time.

We currently believe that the Wabush Mine will be sold by Cliffs and any sale will be subject to MFC's long term lease (till 2055) and, of course, our financial royalty.  We view this as a strong financial burden for any other competitive buyer.

We are currently exploring opportunities to rationalize this asset, including making an investment or acquiring an interest, directly or indirectly with a partner, in the mine. We expect that a significant investment is required to achieve acceptable levels at the mine. We have now opened dialogue with other stakeholders to rationalize this asset.

UPDATE ON OUR NEW COMMODITY COMPANY ACQUISITION

In March 2014, MFC acquired a 100% interest in Elsner, a global commodity supply chain company focused on steel and related products which was founded in 1864 with its head office in Vienna, Austria. Elsner's offerings include a full range of steel products including slabs, booms, billets, hot rolled steel plates, hot and cold rolled coils and sheets, reinforcing bars, galvanized material, pipes, tubes and merchant bars. Elsner has longstanding relationships with many steel mills in Eastern and Southern Europe as well as the Baltic States and the Commonwealth of Independent States. 

Elsner's revenue for its fiscal year ended June 30, 2013 was $145.5 million and it offers significant diversification with its products, customers and suppliers. The purchase price was for nominal consideration (including certain contingent payments). The following highlights certain opportunities related to the acquisition of Elsner:

• We now offer structured solutions to Elsner's customers and suppliers.
• The ability to market steel related raw materials to our current suppliers and industry contacts.
• Our supply chain structured solutions will reduce risks and expand the customer base.
• We may enter into exchange transactions for the supply of raw materials for offtake products with customers.

Elsner is a company now approaching its 150^th anniversary and provides MFC with a solid customer base, an excellent product portfolio and an extremely well-respected management which is already enhancing our global supply chain platform.

2014 CASH DIVIDEND  

In March 2014, MFC announced that its board of directors had declared its 2014 annual cash dividend in the amount of $0.24 per common share. The 2014 cash dividend will be paid in quarterly installments by the Company.

The first payment of $0.06 per common share was paid on April 22, 2014 to shareholders of record on April 10, 2014.  The remaining quarterly dividend payments in 2014 are expected to be made as follows:

• Second payment of $0.06 will be made in July;
• Third payment of $0.06 will be made in September; and
• Final payment of $0.06 will be made in November.

SECOND QUARTER 2014 MAJOR DEVELOPMENTS  

FESIL AS Group

Our acquisition of FESIL is now complete. FESIL is a vertically integrated commodity supply chain company with a production facility in Norway, sales companies in Germany, Luxembourg, Spain, the United States and China, and an interest in quartz quarries in Spain. 

Headquartered in Trondheim, Norway, FESIL is one of the leading producers of ferrosilicon, an essential alloy in the production of steel, stainless steel and cast iron. 

FESIL's melting plant is located in Mo i Rana, and produces a range of ferrosilicon products including granulated and refined qualities (high and semi-high purity), which makes up the bulk of its production. Annual capacity of the plant is approximately 80,000 tonnes of ferrosilicon and 23,000 tonnes of microsilica. The facility is certified according to ISO 9001 and ISO 14001 and complies with Norway's strict environmental and operational requirements. The purchase price of approximately 500 million Norwegian Krone (approximately US$82 million) is based on the net tangible asset value as of September 30, 2013, and will be adjusted to reflect the fair value of certain assets and the operating results over the period closing. In addition to the purchase price, MFC will pay a royalty based on tiered ferrosilicon production at the Mo i Rana facility for two years, which is expected to equal approximately 2.9% of ferrosilicon revenue per annum at full production. 

FESIL reported net revenues in 2013 of approximately 2.9 billion Norwegian Krone (approximately US$487.5 million) with its alloy production representing just over 25% of net revenue.  Approximately 60% of FESIL's ferrosilicon production is sold directly through its own sales offices to customers, which include some of the world's leading steelworks, aluminum/iron foundries and chemical groups. The sales offices also sell a number of complementary products including ferroalloys, metals, minerals, and specialty products. FESIL is a strategic acquisition that will add geographic reach, a diverse product portfolio, an established brand name, a well-respected management team and excellent employees to our global commodity supply-chain platform. 

Corporate Appointments

MFC is pleased to announce that its board of directors has appointed Gerardo Cortina as President and Chief Executive Officer and a director, Ferdinand Steinbauer as Treasurer and Samuel Morrow as Deputy Chief Executive Officer of the Company.

Gerardo Cortina (President, CEO and a director) most recently served as a Managing Director of the Company's subsidiary, Possehl México, S.A. de C.V.,  which has been active in trading and distribution of metals, mineral products, chemicals and ferroalloys to the iron and steel, foundry, refractory, plastics, paints, animal feed and chemicals industries. Mr. Cortina has successfully developed export markets in Central America, the Caribbean and South America. He has a track record of over 25 years of stable growth and profitable operations in the global commodities supply chain business. Mr. Cortina has a Master of Business Administration from the Wharton School of Business at the University of Pennsylvania.

Mr. Cortina replaces Michael Smith as President and CEO. Mr. Smith is continuing with the Company as Managing Director, and will assist management in this transition with the additional mandate to oversee our Asian projects and other special opportunities.

Ferdinand Steinbauer (Treasurer) is currently a Managing Director of MFC Commodities GmbH and has held that position since 1998. At MFC, he has been instrumental in building supply chain structured solutions and client acquisition. Previously he served as Treasurer for 20 years with KNP Leykam Austria (later acquired by SAPPI). Mr. Steinbauer holds a degree from the Austrian Commercial Academy in Graz and has over 35 years of experience in banking, structured trade finance and risk management.

Samuel Morrow (Deputy CEO) is a Chartered Financial Analyst and was most recently a Vice President of MFC in Vienna, Austria. He has been a key participant in the acquisitions of FESIL and Elsner in 2014. Before joining MFC, Mr. Morrow was Vice President of Tanaka Capital Management and Treasurer, CFO and COO of the Tanaka Growth Fund. Mr. Morrow is a graduate of St. Lawrence University.

CORPORATE TAXATION

We are a company that strives to be fiscally responsible. The corporate income tax paid in cash was approximately $1.0 million for the three month ended March 31, 2014.

COMMENTS

Michael Smith, commented: "In the first quarter of 2014, our revenues grew by 12% compared to the same period in 2013. This was progress, but we look forward to improving upon it. We also realized organic growth, especially from our natural gas assets. At the end of the quarter, we acquired Elsner, which we consolidated from March 31, 2014. Elsner did not provide any significant revenues or earnings contribution to the current quarter, but we believe it will have a meaningful impact on future earnings as we successfully integrate its operations.

"In addition, the recently announced acquisitions of FESIL and Elsner are expected to significantly increase our commodities and resources revenues and provide a meaningful contribution to net income."

Mr. Smith concluded, "We are very pleased with the new management appointments.  We believe this team brings strong management and years of broad-based experience in the commodity supply chain business, which positions them well to make material contributions to our expanding activities on a global basis."

Shareholders are encouraged to read our entire unaudited financial statements and management's discussion and analysis for the three months ended March 31, 2014, which were filed with the U.S. Securities and Exchange Commission on Form 6-K and Canadian securities regulators today, for a greater understanding of the Company.

Today at 10:00 a.m. EDT (7:00 a.m. PDT), a conference call will be held to review MFC's announcement and results. This call will be broadcast live over the Internet at www.mfcindustrial.com.  An online archive will be available immediately following the call and will continue for seven days. You may also listen to the audio replay by phone by dialing: 1 (888) 286 8010, using conference number 17688824 and international callers dial: 1 (617) 801 6888.

About MFC Industrial Ltd.

MFC is a global commodity supply chain company and is active in a broad spectrum of activities related to the integrated combination of commodities and resources interests. We also provide logistics, financial and risk management services to producers and consumers of commodities. To obtain further information on the Company, please visit our website at: http://www.mfcindustrial.com.

Disclaimer for Forward-Looking Information

This document contains statements which are, or may be deemed to be, "forward-looking statements" which are prospective in nature, including, without limitation, statements regarding our future plans, including in respect of partnerships and joint ventures respecting our processing facilities and related expansion projects, implementation of current strategies and our plans for our projects and the future plans and projections of the operator of our royalty interest. Forward-looking statements are not based on historical facts, but rather on current expectations and projections about future events, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of forward-looking words such as "plans", "expects" or "does not expect", "is expected", "scheduled", "estimates", "forecasts", "projects",  "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "should", "would", "might" or "will" be taken, occur or be achieved. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, revenues, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause our actual results, revenues, performance or achievements to differ materially from our expectations include, among other things: (i) periodic fluctuations in financial results as a result of the nature of our business; (ii) commodities price volatility; (iii) economic and market conditions; (iv) competition in our business segments; (v) decisions and activities of operators of our resource interests or any revisions to their current plans and projections, which could be made without notice to us; (vi) the availability of commodities for our commodities and resources operations; (vii) the availability of suitable acquisition or merger or other proprietary investment candidates and the availability of financing necessary to complete such acquisitions or development plans; (viii) our ability to realize the anticipated benefits of our acquisitions; (ix) additional risks and uncertainties resulting from strategic investments, acquisitions or joint ventures; (x) counterparty risks related to our trading activities; (xi) unanticipated grade, geological, metallurgical, processing or other problems experienced by the operators of our resource interests (xii) delays in obtaining requisite environmental and other permits or project approvals; (xiii) potential title and litigation risks inherent with the acquisition of distressed assets; (xiv) risks related to exploration, development and construction of a previously shut-down mine project, including the suitability and integrity of historic mine structures; (xv) the availability of services and supplies; (xvi) operating hazards; and (xvii) other factors beyond our control. Such forward-looking statements should therefore be construed in light of such factors. Other than in accordance with its legal or regulatory obligations, the Company is not under any obligation and the Company expressly disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  Additional information about these and other assumptions, risks and uncertainties are set out in our Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission and our Management's Discussion and Analysis for the year ended December 31, 2013, filed with the Canadian securities regulators.

AUDITED FINANCIAL TABLES FOLLOW –

SOURCE MFC Industrial Ltd.

WANT YOUR COMPANY'S NEWS FEATURED ON PRNEWSWIRE.COM?

440k+
Newsrooms &
Influencers

9k+
Digital Media
Outlets

270k+
Journalists
Opted In

GET STARTED