MFC Industrial Ltd. Reports First Quarter Results For 2012
- Revenues up 10 percent and earnings per share up 20 percent -
NEW YORK, May 15, 2012 /PRNewswire/ -- MFC Industrial Ltd. ("MFC" or the "Company") (NYSE: MIL) announces its results for the three months ended March 31, 2012 and provides an update on its recent corporate developments. The Company's financial statements are prepared in accordance with International Financial Reporting Standards. Unless otherwise noted, all dollar amounts are in United States dollars.
We are a global commodities supply chain company. Our primary business focus is our integrated commodities operations and our mineral interests and we supply various commodities, including minerals and metals, chemicals, plastics and wood products to our customers. Such commodities originate either from our directly or indirectly held interests in resource projects or are secured by us from third parties. Through our global commodity supply chain business, we also provide logistics, supply chain management and other services to producers and consumers of commodities. These activities are supported by strategic direct or indirect investments in natural resource assets operating in our core commodities.
HIGHLIGHTS AND CHALLENGES |
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Our net earnings for the three months ended March 31, 2012, increased 20 percent to $14.6 million, or $0.23 per share, compared to the comparative quarter in 2011, when a one-time expense of $0.14 per share incurred in the comparative quarter is excluded. |
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In February and April 2012, we completed the first two quarterly payments to our shareholders of our 2012 annual cash dividend, which represented a 10 percent increase over the 2011 cash dividend. |
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We have entered into an agreement for a new source of ferrous metals in India, which is now in the process of obtaining operating permits. |
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Our potential captive source of ferrous metals, the Pea Ridge Mine project, is on its development schedule. |
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Under Canadian National Instrument 43-101 ("NI 43-101"), we are limited in our disclosure of our mineral assets. Accordingly, we must complete additional steps to disclose the economic value and additional information on the Pea Ridge Mine project. The transparency of this asset is important to our shareholders. We will strive to update you on our progress on a quarterly basis. |
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RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2012
Total revenues for the three month period ended March 31, 2012 increased to $147.6 million, compared to $133.8 million in the first quarter of 2011. Net income for the first quarter of 2012 increased to $14.6 million, or $0.23 per share on a diluted basis, from $2.9 million, or $0.05 per share on a diluted basis in the same quarter last year. Earnings per share in the current quarter were up 20 percent, compared to the comparative quarter in 2011, when a one-time expense of $0.14 per share incurred in the comparative quarter is excluded.
Revenues for our commodities and resources business were $138.5 million for the three months ended March 31, 2012, compared to $118.7 million for the same period in 2011. Included in our commodities and resources business are the gross revenues generated by our royalty interest, which decreased to approximately $4.4 million for the three months ended March 31, 2012 versus $5.5 million in the same period last year.
The decrease in royalty revenue was another disappointment, and was due to lower than expected tonnage of pellets shipped by the mine operator. The operator only shipped a total of 482 thousand tons of iron ore pellets during the quarter versus 719 thousand tons of iron ore pellets during the first quarter of last year. The reduction in pellet shipments experienced during the first quarter was directly attributable to ice problems experienced by the operator, resulting in its access to the St. Lawrence Seaway being closed for a period of time and a customer postponing delivery of its order from March to May.
However, on the positive side, we are happy to state that we received a higher royalty rate than we did last year for the same period and that we are now anticipating that the mine will ship 3.7 million tons of pellets in 2012.
Revenues for our merchant banking business were $4.6 million for the three months ended March 31, 2012, compared to $11.4 million for the same period in 2011.
Other revenues, which encompass our corporate and other investments, were $4.6 million for the three months ended March 31, 2012, compared to $3.7 million for the same period in 2011.
Costs of sales increased to $121.6 million during the three months ended March 31, 2012 from $106.4 million for the same period in 2011. Selling, general and administrative expenses decreased to $9.4 million for the three months ended March 31, 2012 from $11.4 million for the same period in 2011.
OVERVIEW OF OUR RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2012
Our total revenues by operating segment for each of the three months ended March 31, 2012 and March 31, 2011 are broken out in the table below:
REVENUES (All amounts in thousands) |
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March 31, 2012 three months |
March 31, 2011 three months |
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Commodities and resources |
$ 138,485 |
$ 118,745 |
Merchant banking |
4,558 |
11,401 |
Other |
4,590 |
3,691 |
Total revenues |
$ 147,633 |
$ 133,837 |
Our income from continuing operations for each of the three months ended March 31, 2012 and March 31, 2011 is broken out in the table below:
INCOME FROM CONTINUING OPERATIONS All amounts in thousands, except per share amounts |
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March 31, 2012 three months |
March 31, 2011 three months |
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Commodities and resources |
$ 10,620 |
$ 4,861 |
Merchant banking |
5,485 |
11,980 |
Other |
(586) |
(12,262) |
Income before income taxes |
15,519 |
4,579 |
Income tax recovery (expenses) |
280 |
(1,777) |
Resource property revenue tax expenses |
(901) |
(1,181) |
Net (income) loss attributable to non-controlling interests |
(313) |
1,299 |
Net income from continuing operations to shareholders |
$ 14,585 |
$ 2,920 |
Earning per share |
$ 0.23 |
$ 0.05 |
Note: It should be noted that the first quarter of 2011 included a one-time expense of $0.14 per share. |
LIQUIDITY
As at March 31, 2012, we had cash, short-term deposits and securities of $342.7 million. We monitor our capital on the basis of our debt-to-adjusted capital ratio and long-term debt-to-equity ratio. The debt-to-adjusted capital ratio is calculated as net debt divided by adjusted capital, while net debt is calculated as total debt less cash and cash equivalents.
LIQUIDITY All amounts in thousands |
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March 31, 2012 |
December 31, 2011 |
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Total debt |
$ 22,507 |
$ 47,127 |
Less: cash and cash equivalents |
(329,379) |
(387,052) |
Net debt (net cash & cash equivalents) |
(306,872) |
(339,925) |
Shareholders' equity |
558,003 |
546,623 |
LONG-TERM DEBT All amounts in thousands, except ratio |
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March 31, 2012 |
December 31, 2011 |
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Long-term debt, less current portion |
$ 19,200 |
$ 20,150 |
Shareholders' equity |
558,003 |
546,623 |
Long-term debt-to-equity ratio |
0.03 |
0.04 |
Note: Long-term debt-to-equity ratio is calculated as long-term debt, less current portion divided by shareholders' equity. |
CREDIT FACILITIES
We maintain various types of credit lines and facilities with various banks, and most of these are short-term. These facilities are used for day-to-day business, structured solutions and various other activities in both the commodities and finance areas.
As at March 31, 2012, we had credit facilities aggregating $376.5 million as follows: (i) we had unsecured revolving credit facilities aggregating $167.1 million from banks; (ii) we had revolving credit facilities aggregating $53.3 million from banks for structured solutions, a special financing. The margin is negotiable when the facility is used; (iii) we had a structured factoring arrangement with a bank for up to a credit limit of $113.3 million for our commodities activities. Generally, we may factor our commodity receivable accounts upon invoicing at the inter-bank rate plus a margin; and (iv) we had a foreign exchange credit facility of $42.7 million with a bank. All of these facilities are renewable on a yearly basis.
RECENT ACQUISITION OF FERROUS METALS (PEA RIDGE) SOURCE UPDATE
During the first quarter of 2012, we and our partner Alberici Group, Inc. engaged the consulting firm Behre Dolbear and Company (USA), Inc. ("Behre Dolbear") to assist and advise in our plans to re-open the Pea Ridge underground iron ore mine (the "Mine") located near Sullivan, Missouri, USA. Behre Dolbear prepared and completed an independent NI 43-101 compliant technical report on the Mine (the "Technical Report"). The Technical report was completed on March 9, 2012 and was filed with Canadian securities regulators on March 30, 2012. The Technical Report cites non-NI 43-101 compliant historical resource estimates, prepared by DataGeo Geological Consultants in May 2008 and commissioned by the prior owners of the project, which estimated the following in situ (originally present) iron resources in all categories of mineralized material:
HISTORICAL MINERAL RESOURCE ESTIMATES CLASSIFIED EXPANDED IN SITU MINERAL RESOURCE All amounts in thousands, except percentages |
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Class |
Short Tons |
% Magnetic iron |
Total iron % (1) |
Measured |
94,124 |
50.8 |
58.0 |
Indicated |
94,116 |
51.9 |
58.9 |
Inferred |
54,953 |
40.6 |
55.9 |
Previous production (2) |
58,542 |
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Notes: |
(1) The Company anticipates that future mining operations at the Mine would include beneficiating the resource in a processing plant or mill, similar to past production practices at the Mine. This would involve the removal of the non-iron bearing portion of the resource and generally results in iron-rich concentrates. Historic data for the Mine indicates that beneficiation resulted in iron-rich concentrates that were typically in the range of 66% to 69% iron. |
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(2) Approximation based on historical production data for the period between 1963 and 2001. The above historical resource estimates of measured, indicated and inferred resources did not account for past production. |
The Company has not yet completed the work necessary to verify the classification of the above mineral resource estimates as current mineral resources under NI 43-101. Accordingly, it is not treating these historical resource estimates as current defined resources and, therefore, they should not be relied upon. However, the Company is providing these historical results and estimates of remaining iron resources to provide an indication of the potential of the Mine project and believes such information is relevant to its future development plans. The Mine will require further evaluation, which MFC and its partner intend to carry out in due course. Further a NI 43-101 compliant feasibility study has not been completed and there is no certainty that the project will be economically viable. For further information regarding the Mine, please refer to the Technical Report.
Behre Dolbear is proceeding with the preparation of a NI 43-101 compliant current resource estimate for the Mine. This work involves, among other things, re-analysis of existing drill core from underground mineralized material and careful examination of the records of previous exploration and mining, in order to determine the tonnages and grades of mineralized material remaining in the Mine within and below the levels previously mined underground. Behre Dolbear expects to complete this work and submit its report by the end of the third quarter.
As part of the work necessary to evaluate the Mine for re-opening, Geotechnology, Inc., a consulting firm, has been engaged to conduct a 3D detailed seismic survey over the Mine site to determine, in conjunction with direct measurements within existing vertical drill holes above the Mine deposit, the depth and shape of the top of the subsidence cave zone which is present above the deposit. They expect to complete this work and provide a report in the third quarter of 2012. The results of this work will be useful in determining the best way to develop and mine the iron deposit within the Mine.
A necessary step in the completion of feasibility and other studies and the re-opening of the Mine is dewatering the existing underground mine workings. Three large submersible pumps have been ordered and arrangements have been made for power to the Mine site adequate for the pumps. We expect to begin pumping the underground water in the early parts of the fourth quarter of this year.
We have begun testing and evaluation of the large tonnage of tailings material at the Mine site, which was produced as a waste product during historic iron mining operations. This material contains small but potentially valuable recoverable quantities of the iron minerals magnetite and hematite. We have begun the initial phase of drilling and sampling of this tailings accumulation. Samples are being sent to laboratories for analysis.
CAPTIVE SOURCE OF COBALT
Pursuant to an asset purchase agreement, in March 2012, MFC acquired a 75% equity interest and a shareholder loan in Kasese Cobalt Company Limited ("KCCL") for consideration of $28 million from Blue Earth Refineries Inc. ("Blue Earth"). As a result of the acquisition, we acquired KCCL which has a mineral refinery plant and power plant in Uganda. KCCL's operations are comprised of the recovery of cobalt metal from pyrite tailings located near its refinery.
Currently, KCCL has approximately a 17-month supply of tailings left to process. With completion of the processing of the remaining tailings, the refinery will have no alternative use and we will shut down the site and start the procedures for environmental cleaning that will return the site to its original state.
Blue Earth announced a final cash distribution to it shareholders in the amount of US$0.44 per share. The distribution is a return of capital and therefore no withholding tax will be payable. This will be the final cash distribution for Blue Earth.
Blue Earth determined that it is in the best interest of its shareholders to sell its interest to MFC because MFC has substantial experience to complete this closure in a secure manner and rationalize the power plant and all of the fixed assets.
INCREASING OUR CAPTIVE SOURCES OF FERROUS METALS IN INDIA
We have entered into an agreement respecting the processing, purchase and sale of iron ore from a new mine property located in Goa, India. The new property is in very close proximity to our existing iron ore operations. This proximity will enables us to use many common facilities, laboratory, engineering staff and other equipment when the mine becomes operational. We are now in the process of obtaining the necessary permits to commence operations.
ODD-LOT SHARE REPURCHASE PROGRAM
As previously announced MFC has commenced an odd-lot share repurchase program, pursuant to which we are offering to buy back common shares from registered and beneficial shareholders who own 99 or fewer common shares. The repurchase program affords eligible shareholders the opportunity to sell all, but not less than all, of their common shares or to continue to maintain their current holdings. The repurchase program began on April 9, 2012 and will expire at the close of business on May 21, 2012, and may be extended by us, in our discretion, for up to an additional six weeks. Shareholders encouraged call Georgeson Inc. toll free at: 1 (888) 274 5157 with questions regarding the repurchase program.
ANNUAL CASH DIVIDEND
On February 10, 2012, we paid the first quarterly payment of $0.05 per share to our shareholders and the second payment of $0.05 per share was paid in April 2012. The 2012 annual cash dividend is 10% higher than the dividend paid in 2011.
COMMENTS
Chairman Michael Smith commented: "We continue to seek to increase our captive commodities sources to provide us a continuous supply, which will allow us better margins and greater returns. The recently announced acquisition of the Pea Ridge Mine project and the potential new ferrous metals source in India are very good examples of our strategy to increase our captive sources of supply. We now have several of these types of projects underway, including outside the ferrous metals sector."
Mr. Smith concluded: "When we review the first quarter of 2012, we see that more banks and lenders are looking at their loan portfolios with more realistic views and we are encouraged that the credit markets seem to be normalizing. All of this should provide more opportunities for us in the future."
Shareholders are encouraged to read the entire Form 6-K, which includes our unaudited financial statements and management's discussion and analysis for the three months ended March 31, 2012 and was filed with the Securities and Exchange Commission ("SEC") and Canadian securities regulators on May 15, 2012, 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 to listen to the audio replay by phone by dialing: 1 (877) 344 7529, using conference number 10013875. International callers dial: 1 (412) 317 0088.
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, including commodity and resource interests, and structured finance, and proprietary investing. To obtain further information on the Company, please visit our website at: http://www.mfcindustrial.com.
Cautionary Note on Historical Resource Estimates
As a reporting issuer in Canada, the Company is required by Canadian law to provide disclosure in accordance with NI 43-101. Accordingly, you are cautioned that the information contained in this press release may not be comparable to similar information made public by U.S. companies under the United States federal securities laws and the rules and regulations thereunder. In particular, the terms "measured resource", "indicated resource" and "inferred resource" as used in this press release are not defined in the SEC Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into mineral reserves with demonstrated economic viability. In addition, the estimation of inferred resources involves far greater uncertainty as to their existence and economic viability than the estimation of other categories of resources. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. U.S. investors are cautioned not to assume that part or all of an inferred resource exists, or is economically or legally minable.
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, implementation of current strategies and our plans and expectation in respect of the Mine. 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; (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, mining 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; and (xv) 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 three months ended March 31, 2012, filed with the Canadian securities regulators and on the Form 6-K with the SEC.
UNAUDITED FINANCIAL TABLES FOLLOW –
MFC INDUSTRIAL LTD. |
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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
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March 31, 2012 and December 31, 2011 |
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(Unaudited) |
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(United States Dollars in Thousands) |
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ASSETS |
March 31, |
December 31, |
Current Assets |
2012 |
2011 |
Cash and cash equivalents |
$ 329,379 |
$ 387,052 |
Short-term deposits |
168 |
163 |
Securities |
13,164 |
13,062 |
Restricted cash |
651 |
623 |
Loan receivable |
81 |
19,869 |
Bills of exchange |
– |
10,545 |
Trade receivables |
53,704 |
21,154 |
Other receivables |
11,682 |
9,144 |
Inventories |
91,752 |
81,223 |
Real estate held for sale |
12,346 |
12,012 |
Deposits, prepaid and other |
11,500 |
9,344 |
Total current assets |
524,427 |
564,191 |
Non-current Assets
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Securities |
13,276 |
11,606 |
Equity method investments |
21,070 |
18,726 |
Investment property |
34,519 |
33,585 |
Property, plant and equipment |
32,052 |
3,743 |
Interests in resource properties |
216,854 |
219,582 |
Deferred income tax assets |
7,651 |
7,524 |
Total non-current assets |
325,422 |
294,766 |
Total assets |
$ 849,849 |
$ 858,957 |
MFC INDUSTRIAL LTD. |
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION (cont'd) |
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March 31, 2012 and December 31, 2011 |
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(Unaudited) |
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(United States Dollars in Thousands) |
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LIABILITIES AND EQUITY |
March 31, 2012 |
December 31, 2011 |
Current Liabilities
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Short-term bank borrowings |
$ 110,756 |
$ 114,239 |
Debt, current portion |
3,307 |
26,977 |
Dividends payable |
3,128 |
– |
Account payables and accrued expenses |
54,123 |
42,226 |
Provisions |
118 |
115 |
Income tax liabilities |
3,838 |
4,453 |
Deferred sale liabilities |
5,404 |
14,958 |
Total current liabilities |
180,674 |
202,968 |
Long-term Liabilities
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Debt, less current portion |
19,200 |
20,150 |
Deferred income tax liabilities |
60,396 |
61,045 |
Provisions |
2,881 |
– |
Deferred sale liabilities |
25,824 |
25,647 |
Total long-term liabilities |
108,301 |
106,842 |
Total liabilities |
288,975 |
309,810 |
EQUITY
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Capital stock |
382,443 |
382,289 |
Treasury stock |
(68,271) |
(68,117) |
Contributed surplus |
13,037 |
13,028 |
Retained earnings |
221,529 |
213,200 |
Accumulated other comprehensive income |
9,265 |
6,223 |
Shareholders' equity |
558,003 |
546,623 |
Non-controlling interests |
2,871 |
2,524 |
Total equity |
560,874 |
549,147 |
$ 849,849 |
$ 858,957 |
MFC INDUSTRIAL LTD. |
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CONSOLIDATED STATEMENTS OF OPERATIONS |
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For the Three Months Ended March 31, 2012 and 2011 |
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(Unaudited) |
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(United States Dollars in Thousands, Except Per Share Amounts) |
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2012 |
2011 |
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Net Sales |
$ 146,049 |
$ 132,582 |
Equity income |
1,584 |
1,255 |
Gross revenues |
147,633 |
133,837 |
Costs and Expenses: |
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Costs of sales |
121,625 |
106,446 |
Selling, general and administrative |
9,426 |
11,410 |
Share-based compensation - selling, general and administrative |
9 |
7,219 |
Finance costs |
1,826 |
1,968 |
132,886 |
127,043 |
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Income from operations |
14,747 |
6,794 |
Other item: |
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Exchange differences on foreign currency transactions |
772 |
(2,215) |
Income before income taxes |
15,519 |
4,579 |
Income tax (expense) recovery: |
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Income taxes |
280 |
(1,777) |
Resource property revenue taxes |
(901) |
(1,181) |
(621) |
(2,958) |
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Net income for the period |
14,898 |
1,621 |
Net (income) loss attributable to non-controlling interests |
(313) |
1,299 |
Net income attributable to owners of the parent company |
$ 14,585 |
$ 2,920 |
Basic earnings per share: |
$ 0.23 |
$ 0.05 |
Diluted earnings per share: |
$ 0.23 |
$ 0.05 |
Weighted average number of common shares outstanding - basic - diluted |
62,560,990 62,560,990 |
62,561,421 62,626,861 |
MFC INDUSTRIAL LTD. |
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FINANCIAL HIGHLIGHTS |
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As of March 31, 2012 |
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(Unaudited) |
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(United States Dollars in Thousands, Except Per Share Amount and Ratios) |
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Cash and cash equivalents |
$ 329,379 |
Short-term securities |
13,164 |
Trade receivables |
53,704 |
Current assets |
524,427 |
Total assets |
849,849 |
Current liabilities |
180,674 |
Working capital |
343,753 |
Current ratio |
2.90 |
Acid test ratio |
2.26 |
Long term debt, less current portion |
19,200 |
Long-term debt-to-shareholders' equity |
0.03 |
Total Liabilities |
288,975 |
Shareholders' equity |
558,003 |
Equity per common share |
8.92 |
Corporate |
Investors |
MFC Industrial Ltd. |
Allen & Caron Inc. |
Rene Randall |
Joseph Allen |
1 (604) 683-8286 ex 224 |
1 (212) 691-8087 |
SOURCE MFC Industrial Ltd.
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