MFC Industrial Ltd. Reports Third Quarter And Nine Month Results For 2014

NEW YORK, Nov. 14, 2014 /PRNewswire/ -- MFC Industrial Ltd. ("MFC" or the "Company") MIL announces its results for the three and nine months ended September 30, 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.)   

Revenues for the first nine months of 2014 reached the $1.0 billion mark, an increase of 72% over the same period of 2013. This was primarily due to two acquisitions and some organic growth.  However, our net income did not keep pace with our revenue growth. Some of this was due to certain one-time expenses, a higher tax expense (the majority of which is non-cash utilization of our deferred tax assets) and a reduction in royalty payments. But we still need to improve our supply chain business.

FINANCIAL

The following table highlights certain selected key numbers and ratios as of September 30, 2014 and December 31, 2013 in order to assist shareholders to better understand our financial position.

LIQUIDITY

As at September 30, 2014, we had cash and cash equivalents, short-term deposits and securities of $202.7 million. We monitor our capital on the basis of our net debt-to-equity ratio and long-term debt-to-equity ratio.

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 our 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 September 30, 2014, we had credit facilities aggregating approximately $773.5 million, comprised of: (i) unsecured revolving credit facilities aggregating $372.1 million from banks; (ii) revolving credit facilities aggregating $103.4 million from banks for structured solutions, a special trade financing where the margin is negotiable when the facility is used; (iii) non-recourse factoring arrangements with a bank for up to an aggregate credit limit of $190.6 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 $72.4 million with a bank; and (v) secured revolving credit facilities aggregating $35.0 million. All of these facilities are either renewable on a yearly basis or usable until further notice.

RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014

Total revenues for the nine months ended September 30, 2014 increased 72% to $1,020.5 million, compared to $591.8 million in first nine months of 2013. Revenues were up for the first nine months of 2014 primarily due to the inclusion of our two new acquisitions, Elsner and FESIL, and increases in natural gas prices and volumes for some of our commodities.

Income from operations for the nine months ended September 30, 2014 increased to $33.8 million, compared to $25.5 million in the same period of 2013.

Net income for the nine months ended September 30, 2014 decreased to $19.3 million, or $0.31 per share on a diluted basis, from $22.2 million, or $0.35 per share on a diluted basis, in the same period of 2013. Net income was down primarily due to:

• higher tax expense, the majority of which is non-cash utilization of our deferred tax assets;
• receiving less royalty payments; and
• income from operations being affected by certain one-time expenses, including relocation, legal, employment and restructuring expenses.

The income statement for the nine months ended September 30, 2014 includes non-cash amortization, depletion and depreciation expenses of approximately $18.0 million, representing approximately $0.29 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 and other assets over their respective lives.

EBITDA BREAKDOWN

EBITDA is defined as earnings before interest, taxes, depreciation, depletion and amortization. Management uses EBITDA as a measurement of its own operating results. 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 net income to EBITDA for each of the nine months ended September 30, 2014 and 2013.

RESULTS BY OPERATING SEGMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014

Revenues for our commodities and resources business were $988.0 million for the nine months ended September 30, 2014, compared to $566.6 million for the same period in 2013.

Revenues from our merchant banking business were $10.8 million for the nine months ended September 30, 2014, compared to $8.9 million for the same period in 2013.

All other revenues, which encompass our corporate and other operations, were $21.7 million for the nine months ended September 30, 2014, compared to $16.4 million for the same period in 2013.

Costs of sales increased to $910.1 million during the first nine months of 2014 from $508.4 million for the same period in 2013, primarily as a result of the consolidation of our two new acquisitions in the second quarter of 2014.

Selling, general and administrative expenses increased to $62.9 million for the nine months ended September 30, 2014 from $46.3 million for the same period in 2013, primarily due to the consolidation of our two new acquisitions in the second quarter of 2014.

Our total revenues by operating segment for each of the nine months ended September 30, 2014 and 2013 are broken out in the table below.

Our net income from operations for each of the nine months ended September 30, 2014 and 2013 is broken out in the table below.

UPDATE ON OUR NATURAL GAS ASSETS & MIDSTREAM FACILITIES

At MFC Energy, our goal is to optimize our declining asset base and capitalize on specified economic opportunities to stimulate production, de-risk our portfolio and develop our undeveloped properties through partnerships and farm-out agreements and minimize structural costs until attractive and sustainable natural gas prices warrant investment in the exploration and exploitation of our hydrocarbons. 

The following table sets out our average natural gas and other hydrocarbons sales prices, and related information for the nine months ended September 30, 2014.

In addition, we generated third party processing revenues of CDN$3.6 million during the nine months ended September 30, 2014, compared to CDN$3.2 million in the same period of 2013.

Midstream Update

We remain on schedule and on budget in the construction of our 16.5 MW power plant at our Mazeppa Gas Processing Plant in Alberta, which is scheduled for final commissioning in the first half of 2015.  Upon completion, the project will supply the facility's electricity demand, with the majority of the power being sold into the grid at prices based on the Alberta Electricity System Operator's rates. 

In addition, the Alberta electricity market is fully deregulated, which provides us with the option to run our project as a peaking power plant, supplying electricity only when volatile prices are at their highest.  We continue to explore other midstream opportunities including projects at our existing gas processing plant.

Niton Update

Our drilling partner has committed to spending a minimum of CDN$50 million to drill at least three new wells per year for a total of 12 net wells during the initial three-year term.  To date, they have drilled six gross wells, four of which have been placed into production, with the gas being processed at our Niton facility. 

UPDATE ON OUR INTEREST IN THE WABUSH MINE

The Wabush mine has been an important asset to MFC for decades.  Wabush is an important asset to MFC today.  We are working diligently to ensure that Wabush will be an important asset to MFC for decades to come. 

The mining lease which MFC granted to Cliffs is still in effect until Cliffs officially terminates the lease or it is otherwise terminated. MFC will effectively continue to receive a minimum annual lease payment of CDN$3.25 million while we wait for their official termination notice.

Upon such termination, MFC will exercise its rights like any landlord to take back its property. We have announced our intention to restart operations and undertake a capital expenditure program which would be designed to both reduce costs and increase production.

We believe that the Wabush mine presents a relative commercial advantage in comparison to other mines being developed in the region. Given the existing infrastructure and history of operations at the mine, we generally expect that the potential capital costs required at Wabush will be relatively lower than new developments in the region. 

Upon formal notice to terminate the lease, Cliffs may remove any of their equipment, buildings or structures from Wabush within a period of six months. However, prior to any such removal, MFC holds the sole and absolute right to purchase any of these assets at a then reasonable market price.

We are moving forward on this project and have received excellent cooperation from various stakeholders.

UPDATE ON OUR RECENT ACQUSITIONS

FESIL, our Norwegian subsidiary, signed a four-year partnership and off-take agreement in 2012 for 60,000 tonnes of standard grade ferrosilicon per annum with a project in Sarawak, Malaysia.  The off-take is exclusive for selected European and North African markets.  In the third quarter of 2014, the operator realized the first production of ferrosilicon from the new facility.  Full-scale commercial operation is expected in the second quarter of 2015.

2014 CASH DIVIDEND  

In March 2014, MFC announced a cash dividend in the amount of $0.24 per common share, payable in quarterly installments by the Company. The first three payments of $0.06 per common share each were paid to our shareholders on April 22, August 8 and October 27, 2014.

CORPORATE TAXATION

We are a company that strives to be fiscally responsible. The corporate income tax paid in cash was approximately $2.1 million for the nine month ended September 30, 2014.

COMMENTS

Gerardo Cortina, President and CEO of the Company, commented: "We have made progress in the integration of our new companies into MFC and continue to work on synergies and efficiencies utilizing our geographic diversification and strong customer base to improve our margins.  In addition, we are pursuing opportunities to increase the value proposition of our existing businesses by cross-selling supply chain structured solutions and products and increasing logistics and warehousing capabilities. 

We are actively evaluating potential investment opportunities in captive commodity sources, off-take agreements and other sourcing agreements from third parties to further diversify our core business both geographically and by product."

Mr. Cortina concluded, "We have challenges, but with the right people in place, the assets, the liquidity, a strong customer base, and long standing relationships with financial institutions, we are prepared to capitalize on the opportunities ahead of us."

Shareholders are encouraged to read our entire unaudited financial statements and management's discussion and analysis for the three and nine months ended September 30, 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. EST (7:00 a.m. PST), 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 (877) 344 7529, using conference number 10055397 and 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 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

Investor are cautioned that MFC has not completed any technical reports, including reserves or resource estimates under Canadian National Instrument 43-101 with respect to the Wabush mine. No final production decision has been made and any decision will be based on studies demonstrating economic and technical visibility.

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 regarding our interest in the Wabush 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 or any revisions to their current plans and projections, which could be made without notice to us, including the operator's decisions with respect to mine closure and /or termination of the sub-lease; (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.

UNAUDITED FINANCIAL TABLES FOLLOW –

 

 

 

 

 

 

 

 

SOURCE MFC Industrial Ltd.