International Coal Group Reports First Quarter 2011 Results

SCOTT DEPOT, W.Va., April 27, 2011 /PRNewswire/ --

First-Quarter Highlights:

• Adjusted EBITDA increases 39% over first quarter 2010
• Record margin of $17.07 per ton is a 46% increase over first quarter 2010
• Metallurgical shipments up 53% over first quarter 2010

International Coal Group, Inc. (NYSE: ICO) today reported its results for the first quarter of 2011.

• Adjusted EBITDA was $65.1 million in the first quarter of 2011 compared to $46.9 million during the first quarter of 2010.

• Net income was $22.0 million, or $0.10 per share on a diluted basis, in the first quarter of 2011 compared to a net loss of $8.9 million, or $0.05 per share on a diluted basis, during the first quarter of 2010. Net loss for the first quarter of 2010 included a $22.0 million pre-tax loss on extinguishment of debt related to the Company's capital restructuring. Excluding this loss, first quarter 2010 net income would have been $6.2 million, or $0.03 per share on a diluted basis.

• Margin per ton sold increased 46% to $17.07 in the first quarter of 2011 compared to $11.67 during the same period in 2010, primarily due to higher price realization from increased metallurgical sales.

• Coal sales revenues increased to $283.7 million in the first quarter of 2011 compared to $270.5 million during the first quarter of 2010.

"International Coal Group delivered another strong quarter as our commitment to increasing metallurgical coal production continues to pay dividends," said Ben Hatfield, President and CEO of ICG. "However, the quarter was not without its challenges, as extreme winter weather reduced production at our Vindex mine complex and continued rail congestion lowered shipments at several other operations."

Hatfield continued, "Steady operational performance at most business units during the quarter, coupled with strong sales prices, resulted in the highest per ton margin in our company's history. We expect margins to grow in each quarter this year as our metallurgical output is projected to increase and lower-priced sales commitments roll off."

Summarizing the current coal markets, Hatfield stated, "Metallurgical coal demand improved throughout the quarter, with prices reaching near-record levels. Conversely, thermal market conditions remain somewhat weak as low natural gas prices continue to constrain coal-fired electricity output."

Sales, Production and Reserves

ICG sold 3.9 million tons of coal during the first quarter of 2011 compared to 4.3 million tons during the first quarter of 2010. Production totaled 4.0 million tons for the first quarter of 2011 versus 3.9 million in the same period of 2010. Metallurgical shipments of 718,000 tons represented a 53% increase over the same period in 2010.

As of March 31, 2011, ICG controlled approximately 1.1 billion tons of coal reserves, located primarily in Illinois, Kentucky, West Virginia, Ohio, Maryland and Virginia. Additionally, the Company controlled approximately 437 million tons of non-reserve coal deposits, which may be classified as reserves in the future as additional drilling and geological work is completed.

Operational and Other Updates

• Construction at the new Tygart Valley No. 1 deep mine complex is proceeding on schedule. Slope and shaft construction are progressing as planned. Foundation construction for the state-of-the-art coal preparation facility is underway, with construction of the structure expected to begin in June 2011. Initial coal production is projected for late fourth quarter of this year. At full output, currently projected for early 2014, Tygart Valley No. 1 is expected to produce approximately 3.5 million tons per year.

• Results for the first quarter of 2011 include a $6.5 million pre-tax gain from the sale of an idled dragline, previously used at ICG Eastern's Birch River operation.

Market Outlook and Committed Sales      

Near term market conditions remain mixed. While metallurgical markets are near record price levels, thermal demand has been lukewarm, as low natural gas prices continue to restrict coal-fired electricity output. The effect of low natural gas prices is magnified during the "shoulder months" when electricity demand is traditionally curbed. Nevertheless, several positive signs support our expectation of a stronger thermal market in the second half of 2011 and throughout 2012, including:

• cold winter weather that helped draw down record level natural gas inventories;
• coal inventories that are approaching more normalized levels as industry-wide coal production remains disciplined;
• an overall economic climate that is anticipated to improve; and
• metallurgical markets that are expected to remain strong.

Recent over-the-counter trades support this view as prompt-month CSX pricing is 17% higher than a year ago, calendar year 2012 pricing is nearly 10% higher and the recent Australian quarterly benchmark price settlement of $330 per tonne is 46% higher than last year.

For 2011, committed and priced sales total approximately 13.9 million tons, or 85% of planned shipments, at an average price of $75.75 per ton, excluding freight and handling expenses. Unpriced tonnage includes approximately 1.8 million tons of thermal coal and 0.6 million tons of metallurgical coal.

For 2012, committed and priced sales total approximately 4.2 million tons, or 25% of planned shipments, at an average price of $60.00 per ton, excluding freight and handling expenses. Unpriced tonnage includes approximately 9.6 million tons of thermal coal and 3.2 million tons of metallurgical coal. The majority of 2012 committed sales consists of lower-priced Illinois Basin and Northern Appalachia legacy contracts.

Liquidity and Debt

As of March 31, 2011, the Company had $186.6 million in cash and $39.2 million in borrowing capacity available under its credit agreement.

Debt outstanding as of March 31, 2011 totaled $333.6 million, net of a $32.3 million discount, consisting primarily of $115.0 million aggregate principal amount of 4.0% Convertible Senior Notes and $200.0 million aggregate principal amount of 9.125% Senior Secured Second-Priority Notes.

On March 31, 2011, the Company announced that its $115.0 million of 4.0% Convertible Senior Notes and $731,000 of 9.0% Convertible Senior Notes became convertible at the option of the holders beginning April 1, 2011. Although all of the convertible notes are now classified as current liabilities, the Company does not believe that a significant number of conversions are likely at this time, and to date has received no notices of exercise of conversion rights. The triggering of the conversion rights are not expected to have a material effect on the Company's financial position.

Outlook

The Company has updated its guidance, reflecting modifications to its production mix and the global economic conditions affecting the coal market, as follows:

• For 2011, the Company expects to produce and sell between 16.1 million and 16.5 million tons of coal, including 3.2 million to 3.5 million tons of metallurgical coal. The average selling price is projected to be $76.00 per ton to $79.00 per ton, with an anticipated average cost of $56.50 to $58.50 per ton, excluding selling, general and administrative expenses.

• Adjusted EBITDA, or earnings before deducting interest, income taxes, depreciation, depletion, amortization and noncontrolling interest, is expected to be in the range of $290 million to $320 million in 2011.

• The Company projects its effective tax rate to be approximately 30% for 2011.

• The Company's expectation for average coal pricing by region for 2011 is as follows:

• The Company anticipates 2011 capital expenditures of between $225 million and $245 million, including approximately $145 million related to development projects, primarily at our Tygart Valley No. 1, Illinois and Vindex operations.

• For 2012, the Company expects to produce and sell between 16.5 million and 17.5 million tons of coal, including 3.3 million to 3.7 million tons of metallurgical coal. The average selling price is projected to be $83.00 per ton to $89.00 per ton

General Information

ICG is a leading producer of coal in Northern and Central Appalachia and the Illinois Basin. The Company has 13 active mining complexes, of which 12 are located in Northern and Central Appalachia and one in Central Illinois. ICG's mining operations and reserves are strategically located to serve utility, metallurgical and industrial customers domestically and internationally.

Forward-Looking Statements

• Statements in this press release that are not historical facts are forward-looking statements within the "safe harbor" provision of the Private Securities Litigation Reform Act of 1995 and may involve a number of risks and uncertainties. We have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project" and similar terms and phrases, including references to assumptions, to identify forward-looking statements. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to various risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. The following factors are among those that may cause actual results to differ materially from our forward-looking statements: market demand for coal, electricity and steel; availability of qualified workers; future economic or capital market conditions; weather conditions or catastrophic weather-related damage; our production capabilities; consummation of financing, acquisition or disposition transactions and the effect thereof on our business; a significant number of conversions of our convertible senior notes prior to maturity; our plans and objectives for future operations and expansion or consolidation; our relationships with, and other conditions affecting, our customers; availability and costs of key supplies or commodities, such as diesel fuel, steel, explosives and tires; availability and costs of capital equipment; prices of fuels which compete with or impact coal usage, such as oil and natural gas; timing of reductions or increases in customer coal inventories; long-term coal supply arrangements; reductions and/or deferrals of purchases by major customers; risks in or related to coal mining operations, including risks related to third-party suppliers and carriers operating at our mines or complexes; unexpected maintenance and equipment failure; adoption by Appalachian states of EPA guidance regarding stringent water quality-based limitations in CWA Section 402 wastewater discharge permits and CWA Section 404 dredge and fill permits; environmental, safety and other laws and regulations, including those directly affecting our coal mining and production, and those affecting our customers' coal usage; ability to obtain and maintain all necessary governmental permits and authorizations; competition among coal and other energy producers in the United States and internationally; railroad, barge, trucking and other transportation availability, performance and costs; employee benefits costs and labor relations issues; replacement of our reserves; our assumptions concerning economically recoverable coal reserve estimates; availability and costs of credit, surety bonds and letters of credit; title defects or loss of leasehold interests in our properties which could result in unanticipated costs or inability to mine these properties; the impact of the mine explosion at a competitor's mine on federal and state authorities' decisions to enact laws and regulations that result in more frequent mine inspections, stricter enforcement practices and enhanced reporting requirements; future legislation and changes in regulations or governmental policies or changes in interpretations or enforcement thereof, including with respect to safety enhancements and environmental initiatives relating to global warming and climate change; impairment of the value of our long-lived and deferred tax assets; our liquidity, including our ability to adhere to financial covenants related to our borrowing arrangements; adequacy and sufficiency of our internal controls; and legal and administrative proceedings, settlements, investigations and claims, including those related to citations and orders issued by regulatory authorities, and the availability of related insurance coverage.

• You should keep in mind that any forward-looking statement made by us in this press release or elsewhere speaks only as of the date on which the statements were made. See also the "Risk Factors" in our 2010 Annual Report on Form 10-K and subsequent filings with the Securities and Exchange Commission, all of which are currently available on our website at www.intlcoal.com. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us or our anticipated results. We have no duty to, and do not intend to, update or revise the forward-looking statements in this press release, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this press release might not occur.

SOURCE International Coal Group, Inc.