MFC Industrial Ltd. Reports Results For The First Six Months Of 2013

NEW YORK, Aug. 14, 2013 /PRNewswire/ -- MFC Industrial Ltd. ("MFC" or the "Company") (NYSE: MIL) announces its results for the six- and three-month periods ended June 30, 2013 and provides an update on its recent corporate developments. The Company's financial statements are prepared in accordance with International Financial Reporting Standards. (All references to dollar amounts are in United States dollars unless otherwise stated.)

In the first six months of 2013, our revenues grew by 48%, compared to the same period in 2012. This was good, but we can improve. Earnings for the current six-month period were negatively impacted by reduced shipments from the Wabush mine (our royalty interest), the loss of our Indian operations and a foreign exchange loss. We also saw pricing of most commodities under some pressure during the first six months of the year. Our margins are improving, but still have a long way to go to reach acceptable levels.

RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2013

Total revenues for the six months ended June 30, 2013 increased 48% to $376.2 million, compared to $253.8 million in 2012. Revenues were up for the six months ended June 30, 2013 because of several factors, including the integration of our new acquisitions and increases in volumes and pricing for some of our commodities.

EBITDA for the first six months of 2013 was $37.0 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 the end of this news release for a reconciliation of net income to EBITDA.

Net income for the first six months of 2013 decreased to $11.2 million, or $0.18 per share on a diluted basis, from $28.0 million, or $0.45 per share on a diluted basis, for the same period last year. Net income for the current six month period was down due to several factors, including reduced shipments from the Wabush mine (our royalty interest), the loss of our Indian operations and a foreign exchange loss. Our margins have slightly improved, but still have a long way to go to get to the levels that are acceptable.

The income statement for the six months ended June 30, 2013 includes non-cash depletion and depreciation expenses of approximately $13.4 million, or $0.21 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 fixed assets over their economical productive life. They are income statement items but are added back in the cash flow statements.

Revenues for our commodities and resources business were $360.6 million for the six months ended June 30, 2013, compared to $238.0 million for the same period in 2012. Included are the gross revenues generated by our royalty interest which, for the six months ended June 30, 2013, were approximately $7.9 million, compared to $12.6 million in 2012. A total of 857,287 tons of iron ore products were shipped during the first six months of 2013, compared to 1,393,602 tons shipped during the same period in 2012.

Revenues from our merchant banking business were $6.2 million for the six months ended June 30, 2013, compared to $6.9 million for the same period in 2012.

Other revenues, which encompass our corporate and other investments, were $9.4 million for the six months ended June 30, 2013, compared to $8.9 million for the same period in 2012.

Costs of sales increased to $316.3 million during the six months ended June 30, 2013 from $202.4 million for the same period in 2012. Selling, general and administrative expenses increased to $33.3 million for the six months ended June 30, 2013 from $20.8 million for the same period in 2012. 

OVERVIEW OF OUR RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2013

Our total revenues by operating segment for each of the six months ended June 30, 2013 and 2012 are broken out in the table below:

Our net income for each of the six months ended June 30, 2013 and 2012 are broken out in the table below:

LIQUIDITY

As at June 30, 2013, we had cash, short-term deposits and securities of $330.7 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 and insurers. 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 kind and level of transactions being undertaken.

As at June 30, 2013, we had credit facilities aggregating $463.5 million as follows: (i) unsecured revolving credit facilities aggregating $187.9 million from banks; (ii) revolving credit facilities aggregating $46.8 million from banks for structured solutions, a special trade financing. The margin is negotiable when the facility is used; (iii) a non-recourse factoring arrangement with a bank for up to a credit limit of $121.0 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 $57.3 million with a bank; (v) an unsecured general use facility of $12.4 million and (vi) secured revolving credit facilities aggregating $38.0 million. All of these facilities are renewable on a yearly basis.

UPDATE ON OUR NATURAL GAS & MIDSTREAM FACILITIES

Midstream facilities: The plans for our gas processing facility include development of midstream facilities that will help reduce our exposure to the volatility of natural gas prices and have the potential to create long-term stable processing income, as well as a value-added-component for our natural gas asset. Our strategy involves pursuing bolt-on or value-added projects to our existing facility. These may involve potential aggregate investments of approximately $220 million, including the following:

We have assessed various alternatives for proceeding with these projects, and have concluded that having a strategic partner for some aspects of the project is in our best interest to better balance our risks and returns.

Wells and other processing facilities: The following table sets out our average sales prices, operating costs, royalty amounts, transportation costs and production for the first six months of 2013:

Well Cycle Policy: Our well cycle policy gives us the ability to maximize and protect the value of our assets by shutting in unprofitable production until natural gas pricing returns to adequate economical levels. When our production becomes economical we will resume operations.

Land bank: Our land bank as at June 30, 2013 was 294,296 net undeveloped acres (1,191.0 square kilometers) which we do not plan to sell or develop at this time.

UPDATE ON NEW MARKETS AND EXPANSION OF OUR COMMODITIES PLATFORM

We are progressing with the integration of our two new businesses, Park Ridge, NJ-based ACCR and its affiliated company, Mexico City-based, Possehl into MFC.  ACCR, Possehl, and MFC are adding new products to our existing product range. By utilizing MFC's offices, we have been able to identify new and additional sourcing opportunities and have expanded our sales teams and continue to search for specialists in the identified new markets.

The importance of China continues to grow. With our expansion in both sourcing and supply to the region, MFC China has assumed responsibility for all China activities. The allocation of additional staff to work alongside the existing ACCR and Possehl employees in China improves our communications, quality control and logistics. Sourcing and training programs are ongoing.

UPDATE ON THE ROYALTY INTEREST AT THE WABUSH MINE

The operator of the Wabush Iron Ore Mine ("Wabush"), Cliffs Natural Resources Inc., has announced that it is changing its production to iron ore concentrates ("Con") from iron ore pellets, and as a result has closed the pelletizing plant at Pointe Noire. We receive a royalty on all iron ore products sold by the mine, including pellets, concentrates and chips. The mine operator advised that it has existing contracts to supply pellets; however, most of the produced pellets are still on site as they could not be shipped in the current quarter because of weather conditions. They have also advised that they intend to fulfill their customer contracts.

While the operator may not yet have firm commitments to sell all of its planned Con production, they have publicly stated that several trial shipments are scheduled for the second half of the year to customers in Europe, Japan and China.

We believe this Con should be desirable since the manganese content is being steadily reduced, has relatively low-silica and it should find its way into the marketplace.

The operator has disclosed that there are two manganese reduction lines installed at the plant, with a current plan calling for four more of the existing production lines to also be converted within the next five years. The operator has advised that it has ordered the equipment to complete two of these conversions, with these two lines projected to become operational by the end of 2014.

The operator also recently publicly announced a revision of its 2013 forecast, and it still expects to achieve its production estimate of approximately 3.0 million tons for 2013. We believe this to be positive news.

While we are disappointed with the lower than expected shipment volumes from Wabush during the 2013 period to date, we are optimistic the operator will meet its 2013 goals. The royalty received in the second quarter of 2013 was C$9.33 per ton compared to C$9.55 per ton in the second quarter of 2012, and only C$0.02 per ton lower than the first quarter of 2013. The average per ton price for the six months ended June 30, 2013 was C$9.34, compared to C$9.56 for the same period in 2012.

The foregoing is based upon publicly available information of the mine operator and normal course business discussions with the operator. However, we are unable to independently verify the same and the same is subject to the ongoing plans of the mine operator, including any changes to its operation and forecasted plans.

UPDATE ON MFC COMMODITIES GMBH

MFC Commodities GmbH continues to increase its presence in the wood pellet business with our relationship with German Pellets GmbH ("German Pellets"). This began in 2005 when German Pellets started its first production site in Wismar, Germany and sourced raw material from MFC Commodities. This was the start and the cornerstone for a longtime business relationship that can be seen as an important component for the rapid growth of German Pellets in subsequent years. German Pellets is now the leading manufacturer of wood pellets in the world, and it produces wood pellets at 14 sites in Germany and Austria.

As a commodity, wood pellets have reached commercial viability and are able to replace oil as a source of heat energy. German Pellets and MFC Commodities have coordinated their strategies to establish strong trading activity in this commodity. Today, the business relationship ranges from the purchase of wood raw materials to wood pellet sales for warehouse receipt and trading.

German Pellets stated that they are looking forward to keeping MFC Commodities as a strong business partner in the field of wood pellets and look forward to further growth together.

Wood pellets are small cylindrical pellets made from untreated dry wood. Under high pressure, the material is pressed through a steel die and connected by its own wood lignin without the addition of chemical binders. German Pellets produces its pellets from natural and untreated wood together with a plant starch. The origin of its raw materials is obtained and documented as part of their quality management system. The energy consumption for the production and supply of pellets is far below that of heating oil and natural gas.

The switch from oil to pellets is easy and heating with pellets is convenient, environmentally sound and economical. Pellets are environmentally friendly and are a renewable resource which is readily available.

Recently, German Pellets announced it is further expanding its production capacities in North America with the planned construction of a new pellet production facility In Urania, Louisiana, The Urania facility will be the group's second North American site following a new plant opening in Woodville, Texas in June.

UPDATE ON OUR CAPTIVE SOURCES OF FERROUS METALS AT PEA RIDGE

Together with our partner, we are continuing to conduct additional analysis and investigation regarding the Pea Ridge Iron Ore project (the "Project"). We believe that the first phase of development will focus on the tailings materials at the Project and would likely require construction of a beneficiation plant to process the tailings at the Project. We are still in the process of determining the most effective method for processing the tailings minerals.

The second phase would center on re-opening of the underground mine. This will involve dewatering the mine, substantial new development work, installing new equipment and, in part, will require construction of additional beneficiation facilities.

The Project is currently at a preliminary stage and any decision on proceeding, including development activities, is dependent on the completion of further analysis. Activities at the Project are proceeding in an orderly fashion. Please refer to the technical report titled "Technical Report on the PRR Mining Pea Ridge Property" dated August 13, 2012 for further information on the Project.

ANNUAL CASH DIVIDEND

In January, our Board of Directors declared an annual cash dividend for 2013 of $0.24 per common share. The dividend is 9% higher than the dividend paid in 2012 and represents a yield of approximately 2.81% compared to an annual dividend yield of approximately 2.5% for the NYSE Composite Index in 2012. Details of the dividend are as follows:

• The 2013 cash dividend was to be paid in equal quarterly installments of $0.06 per common share.
• The first payment of $0.06 per common share was paid on February 8, 2013, the second payment of $0.06 was paid on April 22, 2013 and the third payment of $0.06 was paid on July 30, 2013.
• The remaining quarterly dividend payment of $0.06 per common share in 2013 is expected to be made to shareholders of record in September.

HYDROELECTRIC POWER STATION UPDATE

Kasese Cobalt Company Limited pyrite tailings pile, comprising the reserves at the refinery, will now be depleted by the end of August 2013 and we are focusing on the planned dismantling of the existing structure.

The other asset is our Mubuku III hydroelectric power station, which will shortly become an independent power producer. In May, the Nyamwamba River which flows down the Kilembe valley broke its banks and flooded large areas of the valley.  The flooding was caused by many days of heavy rains in the catchment area above Kilembe. The flood waters destroyed housing, crops and infrastructure, displacing over 15,000 residents and isolated communities dependant upon the bridges and roads for travel and commerce. 

Our operations were impacted by flood disruptions to the power supply, water supply, stockpile management and tailings dam controls.  This resulted in the process being slowed down dramatically to maintain cooling to the reactors, with the limited water available in the onsite storage ponds. Emergency raw water was reinstated at low flows after two days and water supply to the site was stabilised within four days. 

The power line from the Mubuku III Hydro Power Station was washed away, but we were able to reinstate the line within four days. The Hydro Power station intake was bypassed when the Mubuku River broke its banks upstream of the intake and diverted into a tributary, effectively stopping all power generation capability. Our heavy equipment was diverted to the Mubuku River to divert the river back into its main course and away from settlements which were effected by the floods.  The river was mainly restored and power generation at our power station was back online within 7 days. We congratulate our local employees for their great work during this natural disaster.

APPOINTMENT

The Company is pleased to announce that, effective today, Silke S. Stenger has been appointed to the Board of Directors of the Company. Ms. Stenger is a former director of the Company when it was KHD Humboldt Wedag International Ltd. Ms. Stenger is the Chief Financial Officer of Management One Human Capital Consultants Ltd. She is a certified controller (German Chamber of Industry and Commerce IHK) and IFRS accountant specializing in financial communication, corporate governance and SOX compliance.

We are still looking at a number of candidates for the position of Chief Executive Officer of the Company. We are in continuing discussions with them and hope to fill the position before the end of the year.

CORPORATE TAXATION

We are a company that strives to be fiscally responsible. The corporate income tax paid in cash was approximately $2.2 million for the six months ended June 30, 2013.

COMMENTS

Chairman Michael Smith commented: "We are pleased with the expansion of our commodity platform into new products and new markets. With any expansion or acquisition, our policy is to avoid diluting our shareholders by issuing new shares and to maintain or improve our balance sheet and financial ratios.

We have a stronger financial base than many other companies of our size and are making progress towards our goal of building a global commodities supply chain company. Together with the emphasis on the expansion of our operations and increasing our captive sources of supply, we remain cautiously optimistic as we pursue our strategy."

Shareholders are encouraged to read the entire Form 6-K, which includes our unaudited financial statements and management's discussion and analysis for the six months ended June 30, 2013 and was filed with the Securities and Exchange Commission ("SEC") 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 64701581. 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; (xvii) our ability to enter into definitive agreements on acceptable terms respecting joint ventures and partnerships relating to our processing facilities; and (xviii) 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 and our Management's Discussion and Analysis for the year ended December 31, 2012, filed with the Canadian securities regulators.

UNAUDITED FINANCIAL TABLES FOLLOW –

Reconciliation of Net Income to EBITDA

EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Management uses EBITDA as a benchmark 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 measure primarily because we incur depreciation, depletion and amortization expenses ("DD&A") and EBITDA generally represents cash flow from operations. In addition, we believe EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.

EBITDA does not reflect the impact of a number of items that affect our income from operations, including DD&A.  EBITDA is not a measure of financial performance under IFRS, and should not be considered as an alternative to net income.

The following table sets forth a reconciliation of our net income to EBITDA for the six months ended June 30, 2013:

SOURCE MFC Industrial Ltd.

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