Attached files
| file | filename |
|---|---|
| EX-99.2 - EXHIBIT 99.2 - WESTMORELAND COAL Co | westmorelandadjustedebit.htm |
| EX-23.1 - EXHIBIT 23.1 - WESTMORELAND COAL Co | exh23-1_070114.htm |
| 8-K - 8-K - WESTMORELAND COAL Co | f8k_070114i502701801.htm |
| EX-99.1 - EXHIBIT 99.1 - WESTMORELAND COAL Co | exh99-1_070814.htm |
| EX-99.4 - EXHIBIT 99.4 - WESTMORELAND COAL Co | exh99-4_070114.htm |
Exhibit 99.3
Combined Consolidated Financial Statements of
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc.
March 31, 2014
-1-
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc.
Interim condensed combined consolidated statement of financial position
(Unaudited)
March 31, | December 31, | ||||||||
Canadian $ thousands, as at | Note | 2014 | 2013 | ||||||
ASSETS | |||||||||
Current assets | |||||||||
Cash and cash equivalents | $ | 59,770 | $ | 113,563 | |||||
Short-term investments | 201,545 | 140,659 | |||||||
Trade accounts receivable | 70,631 | 67,775 | |||||||
Loans receivable | 3,503 | 3,244 | |||||||
Other assets | 4 | 1,154 | 2,764 | ||||||
Finance lease receivables | 5 | 16,345 | 15,851 | ||||||
Inventories | 6 | 143,491 | 149,741 | ||||||
Prepaid expenses | 1,568 | 3,130 | |||||||
Due from related parties | 7 | — | 209 | ||||||
498,007 | 496,936 | ||||||||
Non-current assets | |||||||||
Loans receivable | 14,584 | 15,270 | |||||||
Other assets | 4 | 12,378 | 13,406 | ||||||
Finance lease receivables | 5 | 112,738 | 116,604 | ||||||
Property, plant and equipment | 8 | 343,326 | 344,613 | ||||||
Intangible assets | 9 | 557,533 | 560,256 | ||||||
1,040,559 | 1,050,149 | ||||||||
$ | 1,538,566 | $ | 1,547,085 | ||||||
LIABILITIES AND SHAREHOLDER'S EQUITY | |||||||||
Current liabilities | |||||||||
Loans and borrowings | 10 | $ | 299,930 | $ | 299,657 | ||||
Trade accounts payable and accrued charges | 90,530 | 83,350 | |||||||
Other liabilities | 11 | 49,125 | 44,673 | ||||||
Environmental rehabilitation obligations | 12 | 21,930 | 35,026 | ||||||
Due to related parties | 7 | — | 293 | ||||||
Related party loans | 7 | 732,094 | 732,094 | ||||||
1,193,609 | 1,195,093 | ||||||||
Non-current liabilities | |||||||||
Loans and borrowings | 10 | — | — | ||||||
Other liabilities | 11 | 99,286 | 110,205 | ||||||
Environmental rehabilitation obligations | 12 | 151,911 | 145,981 | ||||||
Deferred income taxes | 13 | 121,338 | 118,987 | ||||||
372,535 | 375,173 | ||||||||
1,566,144 | 1,570,266 | ||||||||
Capital deficiency | |||||||||
Capital deficiency | (27,578 | ) | (23,181 | ) | |||||
$ | 1,538,566 | $ | 1,547,085 | ||||||
The accompanying notes are an integral part of these interim condensed combined consolidated financial statements.
-2-
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc.
Interim condensed combined consolidated statement of (loss) earnings and
comprehensive (loss) income
(Unaudited)
March 31, | March 31, | ||||||||
Canadian $ thousands, for the 3 months ended | Note | 2014 | 2013 | ||||||
Revenue | 15 | $ | 203,201 | $ | 179,338 | ||||
Cost of sales | 16 | 181,661 | 165,357 | ||||||
Gross profit | 21,540 | 13,981 | |||||||
Administrative expenses | 5,790 | 3,417 | |||||||
Other | — | (33,867 | ) | ||||||
Operating profit | 15,750 | 44,431 | |||||||
Financing income | 17 | (3,722 | ) | (3,930 | ) | ||||
Financing expense | 17 | 22,249 | 20,276 | ||||||
Net finance expense | 18,527 | 16,346 | |||||||
(Loss) profit before tax | (2,777 | ) | 28,085 | ||||||
Income tax expense | 13 | 2,160 | 7,378 | ||||||
Net (loss) earnings | $ | (4,937 | ) | $ | 20,707 | ||||
Other comprehensive income (loss) | |||||||||
Items that will not be subsequently reclassified to profit or loss; | |||||||||
Actuarial gains on pension plans, net of tax | 540 | 2,337 | |||||||
Total comprehensive (loss) income | $ | (4,397 | ) | $ | 23,044 | ||||
The accompanying notes are an integral part of these interim condensed combined consolidated financial statements.
-3-
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc.
Interim condensed combined consolidated statement of changes in capital deficiency
(Unaudited)
Canadian $ thousands | |||||||||||||||||||
Common shares | Contributed surplus | Accumulated deficit | Accumulated other comprehensive loss | Total | |||||||||||||||
Balance as at January 1, 2013 | $ | 708,460 | $ | 2,028 | $ | (510,161 | ) | $ | (26,154 | ) | $ | 174,173 | |||||||
Net earnings | — | — | 20,707 | — | 20,707 | ||||||||||||||
Actuarial gain on defined benefit obligations | — | — | — | 2,337 | 2,337 | ||||||||||||||
Reclassification of actuarial losses on settlement of pension obligation | — | — | (22,842 | ) | 22,842 | — | |||||||||||||
Balance as at March 31, 2013 | 708,460 | 2,028 | (512,296 | ) | (975 | ) | 197,217 | ||||||||||||
Net loss | — | — | (221,637 | ) | — | (221,637 | ) | ||||||||||||
Actuarial gain on defined benefit obligations | — | — | — | 1,239 | 1,239 | ||||||||||||||
Balance as at December 31, 2013 | 708,460 | 2,028 | (733,933 | ) | 264 | (23,181 | ) | ||||||||||||
Net loss | — | — | (4,937 | ) | — | (4,937 | ) | ||||||||||||
Actuarial gain on defined benefit obligations | — | — | — | 540 | 540 | ||||||||||||||
Balance as at March 31, 2014 | $ | 708,460 | $ | 2,028 | $ | (738,870 | ) | $ | 804 | $ | (27,578 | ) | |||||||
The accompanying notes are an integral part of these interim condensed combined consolidated financial statements.
-4-
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc.
Interim condensed combined consolidated statement of cash flow
(Unaudited)
March 31, | March 31, | |||||||||
Canadian $ thousands, for the 3 months ended | Note | 2014 | 2013 | |||||||
Operating activities | ||||||||||
Net (loss) earnings | $ | (4,937 | ) | $ | 20,707 | |||||
Add (deduct) | ||||||||||
Depreciation and amortization | 28,305 | 25,018 | ||||||||
Environmental rehabilitation obligations accretion | 12 | 722 | 643 | |||||||
Environmental rehabilitation obligations change in estimate | 12 | — | (519 | ) | ||||||
Stock based compensation expense | 91 | 101 | ||||||||
Impairment of inventory | 6 | 631 | — | |||||||
Gain on Highvale pension | — | (39,626 | ) | |||||||
Current income tax recovery | — | (356 | ) | |||||||
Deferred income tax expense | 2,160 | 7,609 | ||||||||
Unrealized foreign exchange loss | 1,827 | 684 | ||||||||
(Loss) gain on disposal of property, plant and equipment | (62 | ) | 57 | |||||||
Loss on disposal of intangibles | — | 5,459 | ||||||||
Loss on settlement of environmental rehabilitation obligations | 261 | 757 | ||||||||
Impairment | 759 | 676 | ||||||||
Employee benefits recovery | (558 | ) | (113 | ) | ||||||
Environmental rehabilitation obligations settled | (15,884 | ) | (6,193 | ) | ||||||
Financing expense | 3,276 | 2,497 | ||||||||
Financing expense, related parties | 15,336 | 15,195 | ||||||||
Financing income | (3,722 | ) | (3,949 | ) | ||||||
Other items | 416 | 1,541 | ||||||||
28,621 | 30,188 | |||||||||
Net change in non-cash working capital items | 18 | 6,040 | (5,144 | ) | ||||||
34,661 | 25,044 | |||||||||
Interest received | 2,723 | 11,239 | ||||||||
Interest paid, related parties | (8,024 | ) | (15,335 | ) | ||||||
Interest paid | (3,320 | ) | (2,504 | ) | ||||||
Cash provided by operating activities | 26,040 | 18,444 | ||||||||
Investing activities | ||||||||||
Property, plant and equipment expenditures | (17,160 | ) | (13,146 | ) | ||||||
Change in working capital | 4,383 | (2,326 | ) | |||||||
Purchase of short-term investments | (60,886 | ) | — | |||||||
Net proceeds from sale of property, plant and equipment | 144 | 3,975 | ||||||||
Increase in loans receivable | (505 | ) | (674 | ) | ||||||
Repayments of loans receivable | 932 | 1,007 | ||||||||
Cash used in investing activities | (73,092 | ) | (11,164 | ) | ||||||
Financing activities | ||||||||||
Proceeds from loans and borrowings | 273 | — | ||||||||
Repayments of loans and borrowings | — | (14,984 | ) | |||||||
Payment of financing fees on loans and borrowings | — | (4,199 | ) | |||||||
Increase in finance lease receivables | (988 | ) | — | |||||||
Repayment of finance lease receivables | 4,360 | 30,384 | ||||||||
Repayments of other equipment financing arrangements | (423 | ) | (711 | ) | ||||||
Repayment of finance lease obligations | (9,963 | ) | (23,760 | ) | ||||||
Cash used in financing activities | (6,741 | ) | (13,270 | ) | ||||||
Change in cash and cash equivalents | (53,793 | ) | (5,990 | ) | ||||||
Cash and cash equivalents, beginning of year | 113,563 | 7,804 | ||||||||
Cash and cash equivalents, end of year | $ | 59,770 | $ | 1,814 | ||||||
The accompanying notes are an integral part of these interim condensed combined consolidated financial statements.
-5-
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
1. NATURE OF OPERATIONS AND CORPORATE INFORMATION
Prairie Mines & Royalty Ltd. (“PMRL”) is Canada’s largest coal producer, operating seven surface mines in Alberta and Saskatchewan, and is a wholly owned subsidiary of Sherritt International Corporation (“Sherritt”). PMRL supplies domestic utilities with thermal coal for electricity generation and has abundant, high-quality and strategically located reserves in Canada that are suited to providing customers with a stable, low-cost, long-term fuel supply. PMRL owns and operates the Paintearth, Sheerness, Genesee (50% interest), Poplar River, Boundary Dam and Bienfait mines, and operates the Highvale mine under contract.
On January 10, 2013, PMRL and its Highvale mine contract customer agreed to transfer operations to the customer who also owns the mine and terminate the mining contract. On January 17, 2013 the customer assumed responsibility for direct mining activities and a transition process was completed on July 9, 2013.
PMRL directly owns a 50% joint venture interest in the Bienfait Activated Carbon Joint Venture, which produces activated carbon for the removal of mercury from flue gas, and sells char to the barbeque briquette industry from the Bienfait Char facility. PMRL also holds a portfolio of mineral rights located in Alberta and Saskatchewan from which it earns royalties on the production of coal, potash and other minerals.
Coal Valley Resources Inc. (“CVRI”) is an incorporated company established under the laws of the Province of Alberta on May 10, 2006. CVRI is a wholly owned subsidiary of Sherritt. CVRI operates two surface mines at the Coal Valley and Obed Mountain mines where the majority of coal is exported overseas to Asian utility companies and commodity traders. CVRI’s sole product is bituminous coal which has a suitable calorific value to make its sale overseas economical. Obed Mountain’s operations were suspended in November 2012.
PMRL and CVRI (collectively the “Company”) are domiciled in Edmonton, Alberta, Canada and their registered office is 100, 10123 - 99 Street, Edmonton, Alberta, T5J 3H1. The combined consolidated financial statements were authorized for issue by the Company’s directors on June 27, 2014.
2. BASIS OF PRESENTATION
The interim condensed combined consolidated financial statements of the Company are prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting” as issued by the International Accounting Standards Board (“IASB”). Accordingly, certain information and footnote disclosures normally included in the annual combined consolidated financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB, have been omitted or condensed.
The interim condensed combined consolidated financial statements were prepared on a going concern basis, under the historical cost convention except for certain financial assets which are presented at fair value in Canadian dollars, which is the Company’s functional currency. All financial information is presented in Canadian dollars rounded to the nearest thousands, except as otherwise noted.
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Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim condensed combined consolidated financial statements have been prepared using the same accounting policies and methods of computation as the annual combined consolidated financial statements of the Company as at and for the year ended December 31, 2013.
Accordingly, these interim condensed combined consolidated financial statements should be read in conjunction with the combined consolidated financial statements for the year ended December 31, 2013.
Principles of Consolidation
These condensed combined consolidated financial statements include the financial position, results of operations and cash flow of the Company, its subsidiaries, and its share of assets, liabilities, revenues and expenses related to its interests in joint operations. Intercompany balances, transactions, income and expenses, profits and losses, including unrealized gains and losses relating to subsidiaries and joint operations have been eliminated on consolidation.
Subsidiaries
Subsidiaries are entities over which the Company has control. Control is defined as when the Company is exposed or has rights to the variable returns from the subsidiary and has the ability to affect those returns though its power over the subsidiary. Power is defined as existing rights that give the Company the ability to direct the relevant activities of the subsidiary. Subsidiaries are fully consolidated from the date control is transferred to the Company and are de-consolidated from the date control ceases.
Joint arrangements
A joint arrangement is an arrangement whereby two or more parties are subject to joint control. Joint control is considered to be when all parties to the joint arrangement are required to reach unanimous consent over decisions about relevant business activities pertaining to the contractual arrangement.
There are two types of joint arrangements:
Joint ventures
A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control and whereby each party has rights to the net assets of the arrangement. Interests in joint ventures are recognized as an investment and accounted for using the equity method of accounting. The Company is not party to any joint ventures.
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Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
Joint operations
A joint operation is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control and whereby each party has rights to the assets and obligations for liabilities relating to the arrangement. Interests in joint operations are accounted for by recognizing the Company’s share of assets, liabilities, revenues, and expenses. The Bienfait Activated Carbon Joint Venture is classified as a joint operation.
Associate
An associate is an entity over which the Company has significant influence but does not have the power to participate in the operating and financial policies of the entity. The Company does not have any investments in associates.
4. OTHER ASSETS
Canadian $ thousands, | March 31, 2014 | December 31, 2013 | |||||
Deferred reclamation recoveries (a) | $ | 7,513 | $ | 7,061 | |||
Deferred financing charges (b) | 1,440 | 1,610 | |||||
Pension recoveries (c) | 2,899 | 4,629 | |||||
Port reservation fee (d) | 1,680 | 1,260 | |||||
13,532 | 14,560 | ||||||
Current portion | (1,154 | ) | (1,154 | ) | |||
$ | 12,378 | $ | 13,406 | ||||
(a) | Deferred reclamation recoveries relate to a recovery of environmental rehabilitation costs from a domestic customer at two mine sites. |
(b) | Deferred financing charges relate the credit facility described in Note 10. They are amortized using the effective interest method over the term of the credit agreement and will be fully amortized upon extinguishment of the facility. |
(c) | Pension recoveries relate to a recovery from a domestic customer of employer contributions to a defined benefit plan at a 50% owned mine. |
(d) | Reservation fee relates to port space at an export terminal. |
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Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
5. FINANCE LEASE RECEIVABLES
Future minimum lease payments | Interest | Present value of minimum lease payments | Future minimum lease payments | Interest | Present value of minimum lease payments | ||||||||||||||||||
Less than one year | $ | 27,882 | $ | 11,537 | $ | 16,345 | $ | 27,644 | $ | 11,793 | $ | 15,851 | |||||||||||
Between one and five years | 100,472 | 33,420 | 67,052 | 101,181 | 34,537 | 66,644 | |||||||||||||||||
More than five years | 106,211 | 18,081 | 88,130 | 112,240 | 19,836 | 92,404 | |||||||||||||||||
Impairment (a) | — | — | (42,444 | ) | — | — | (42,444 | ) | |||||||||||||||
$ | 234,565 | $ | 63,038 | $ | 129,083 | $ | 241,065 | $ | 66,166 | $ | 132,455 | ||||||||||||
(a) | Due to historically low thermal export prices in 2013, the Company recorded a $42,444 impairment charge in the year ended December 31, 2013 to reduce the carrying amount of finance lease receivables to their recoverable amount. |
6. INVENTORIES
Canadian $ thousands, | March 31, 2014 | December 31, 2013 | |||||
Uncovered coal | $ | 7,704 | $ | 10,832 | |||
Finished product | 73,396 | 79,628 | |||||
81,100 | 90,460 | ||||||
Spare parts and operating materials | 62,391 | 59,281 | |||||
$ | 143,491 | $ | 149,741 | ||||
For the 3 months ended March 31, 2014, the cost of inventories recognized as an expense and included in cost of sales was $167,889 (for the 3 months ended March 31, 2013 - $140,565). Depreciation and amortization included in inventories at March 31, 2014 totaled $7,342 (December 31, 2013 - $8,111). For the 3 months ended March 31, 2014, the Company recorded a lower-of-cost-and-net-realizable-value impairment for clean coal inventory at Obed Mountain mine of $631 (for the 3 months ended March 31, 2013 - $nil), which is included in cost of sales.
-9-
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
7. RELATED PARTY TRANSACTIONS
Related party loans
Canadian $ thousands, | March 31, 2014 | December 31, 2013 | |||||
Subordinated note (a) | $ | 377,094 | $ | 377,094 | |||
Promissory note (b) | 325,000 | 325,000 | |||||
Loan payable (c) | 30,000 | 30,000 | |||||
$ | 732,094 | $ | 732,094 | ||||
(a) | Relates to the Sherritt subordinated loan to PMRL bearing interest at an annual rate of interest of 8.15%. The note is unsecured and due on June 27, 2026. |
(b) | Relates to a promissory note payable to Sherritt from CVRI bearing interest at an annual rate of interest of 9.00%. The note is unsecured and due on March 30, 2022. |
(c) | Relates to a loan payable to Sherritt from CVRI bearing an annual rate of interest of 6.00%. The loan is unsecured and is due on June 30, 2017. |
All related party loans have been presented as current liabilities because the Company will be required to repay these balances in connection with the arrangement agreement between Sherritt and Westmoreland Coal Company (Note 14).
Loan interest expense
Canadian $ thousands, for the 3 months ended March 31 | 2014 | 2013 | |||||
Sherritt (a) | $ | 7,333 | $ | 7,213 | |||
Sherritt (b) | 7,558 | 7,518 | |||||
Sherritt (c) | 445 | 445 | |||||
(a) | Relates to interest expense paid on the subordinated loan described above. |
(b) | Relates to interest on promissory note described above. |
(c) | Relates to interest expense paid on the loan payable described above. |
Management and administrative services
Canadian $ thousands, for the 3 months ended March 31 | 2014 | 2013 | |||||
Sherritt and other related parties | $ | 558 | $ | 419 | |||
-10-
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
The Company, Sherritt and other related parties in the Sherritt group are involved in management and administrative services agreements (“MSAs”) effective June 1, 2006 for a period of ten years, subject to early termination under certain conditions. Pursuant to the MSAs, Sherritt agrees to provide or arrange for provision of management, administrative and support services, including the reimbursement of third-party expenditures incurred related to these services, to the Company, at amounts which are determined and agreed to by the related parties. As part of the same MSAs, the Company charges other related parties in the Sherritt group for provision of management, administrative and support services, including the reimbursement of third-party expenditures incurred related to these services, at cost. These transactions are in the normal course of operations.
As described in Note 19, PMRL holds a 50% direct interest in the Bienfait Activated Carbon Joint Venture from which it earns operator service fees. For the 3 months ended March 31, 2014 operator service fees were $1,399 (2013 - $1,818).
Due from related parties
Canadian $ thousands, as at | March 31, 2014 | December 31, 2013 | |||||
Sherritt and other related parties (a) | $ | — | $ | 209 | |||
(a) | Relates to payments made or received on behalf of entities owned by Sherritt for the provision of shared services described within this note. The amounts are non-interest bearing, due on demand and unsecured. |
Due to related parties
Canadian $ thousands, as at | March 31, 2014 | December 31, 2013 | |||||
Sherritt and other related parties (a) | $ | — | $ | 293 | |||
Sherritt (b) | 7,213 | — | |||||
$ | 7,213 | $ | 293 | ||||
(a) | Relates to payments made or received on behalf of entities owned by Sherritt for the provision of shared services described within this note. The amounts are non-interest bearing, due on demand and unsecured. |
(b) | Relates to accrued interest, included in other liabilities (Note 11), on promissory note described above. |
-11-
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
8. PROPERTY, PLANT AND EQUIPMENT
Canadian $ thousands, | March 31, 2014 | ||||||||||
Mining properties | Plant, equipment and land | Total | |||||||||
Cost | |||||||||||
Balance, beginning of the period | $ | 562,485 | $ | 917,597 | $ | 1,480,082 | |||||
Additions | 5,193 | 11,967 | 17,160 | ||||||||
Capitalized closure costs | 5,202 | 1,368 | 6,570 | ||||||||
Disposals | — | (11,599 | ) | (11,599 | ) | ||||||
Balance, end of the period | 572,880 | 919,333 | 1,492,213 | ||||||||
Depreciation and impairment losses | |||||||||||
Balance, beginning of the period | 484,827 | 650,642 | 1,135,469 | ||||||||
Additions | 7,891 | 16,922 | 24,813 | ||||||||
Disposals | — | (11,395 | ) | (11,395 | ) | ||||||
Balance, end of the period | 492,718 | 656,169 | 1,148,887 | ||||||||
Net book value | $ | 80,162 | $ | 263,164 | $ | 343,326 | |||||
Canadian $ thousands, | December 31, 2013 | ||||||||||
Mining properties | Plant, equipment and land | Total | |||||||||
Cost | |||||||||||
Balance, beginning of the year | $ | 518,795 | $ | 874,351 | $ | 1,393,146 | |||||
Additions | 20,945 | 64,272 | 85,217 | ||||||||
Capitalized closure costs | 23,435 | (3,973 | ) | 19,462 | |||||||
Disposals | (690 | ) | (19,227 | ) | (19,917 | ) | |||||
Transfers and movements | — | 2,174 | 2,174 | ||||||||
Balance, end of the year | 562,485 | 917,597 | 1,480,082 | ||||||||
Depreciation and impairment losses | |||||||||||
Balance, beginning of the year | 425,901 | 515,709 | 941,610 | ||||||||
Additions | 34,690 | 61,464 | 96,154 | ||||||||
Disposals | (650 | ) | (14,167 | ) | (14,817 | ) | |||||
Transfers and movements | — | 2,092 | 2,092 | ||||||||
Impairment (a) | 24,886 | 85,544 | 110,430 | ||||||||
Balance, end of the year | 484,827 | 650,642 | 1,135,469 | ||||||||
Net book value | $ | 77,658 | $ | 266,955 | $ | 344,613 | |||||
(a) | Due to historically low thermal export prices in 2013, the Company recorded a $110,430 impairment charge in the year ended December 31, 2013 to reduce the carrying amount of property, plant and equipment to its recoverable amount. |
-12-
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
Assets under finance lease included in above
Canadian $ thousands, | March 31, 2014 | December 31, 2013 | |||||
Mobile mining equipment | $ | 136,244 | $ | 144,606 | |||
9. INTANGIBLE ASSETS
Canadian $ thousands, | March 31, 2014 | ||||||||||
Royalty agreements | Mining contracts | Total | |||||||||
Cost | |||||||||||
Balance, beginning of the period | $ | 479,000 | $ | 236,000 | $ | 715,000 | |||||
Balance, end of the period | 479,000 | 236,000 | 715,000 | ||||||||
Amortization and impairment losses | |||||||||||
Balance, beginning of the period | 61,735 | 93,009 | 154,744 | ||||||||
Amortization for the period | 2,723 | — | 2,723 | ||||||||
Balance, end of the period | 64,458 | 93,009 | 157,467 | ||||||||
Net book value | $ | 414,542 | $ | 142,991 | $ | 557,533 | |||||
Remaining amortization period | |||||||||||
Weighted-average number of years, as at March 31, 2014 | 38.7 | — | |||||||||
-13-
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
Canadian $ thousands, | December 31, 2013 | ||||||||||
Royalty agreements | Mining contracts | Total | |||||||||
Cost | |||||||||||
Balance, beginning of the year | $ | 479,000 | $ | 236,000 | $ | 715,000 | |||||
Balance, end of the year | 479,000 | 236,000 | 715,000 | ||||||||
Amortization and impairment losses | |||||||||||
Balance, beginning of the year | 50,843 | 34,713 | 85,556 | ||||||||
Amortization for the year | 10,892 | 7,017 | 17,909 | ||||||||
Impairment (a) | — | 51,279 | 51,279 | ||||||||
Balance, end of the year | 61,735 | 93,009 | 154,744 | ||||||||
Net book value | $ | 417,265 | $ | 142,991 | $ | 560,256 | |||||
Remaining amortization period | |||||||||||
Weighted-average number of years, as at December 31, 2013 | 38.9 | 31.9 | |||||||||
(a) | Due to historically low thermal export prices in 2013, the Company recorded a $45,821 impairment charge in the year ended December 31, 2013 to reduce the carrying amount of intangibles to their recoverable amount. As part of the Highvale mining contract termination, for the year ended December 31, 2013, the Company also recorded a $5,458 impairment charge related to the Highvale mining contract and customer relationship intangible assets. |
10. LOANS AND BORROWINGS
Canadian $ thousands, | March 31, 2014 | December 31, 2013 | |||||
Credit facility agreement | $ | 299,930 | $ | 299,657 | |||
299,930 | 299,657 | ||||||
Current portion | (299,930 | ) | (299,657 | ) | |||
$ | — | $ | — | ||||
Loans and borrowings have been presented as current liabilities at March 31, 2014 because the Company will be required to repay these balances in connection with the arrangement agreement between Sherritt and Westmoreland Coal Company (Note 14).
-14-
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
11. OTHER LIABILITIES
Canadian $ thousands, as at | March 31, 2014 | December 31, 2013 | |||||
Finance lease obligations | $ | 133,914 | $ | 142,232 | |||
Other equipment financing arrangements | 5,030 | 5,415 | |||||
Stock-based compensation | 1,505 | 1,598 | |||||
Related party (Note 7) | 7,213 | — | |||||
Pension liability | (51 | ) | 2,968 | ||||
Deferred revenue | 800 | 2,665 | |||||
148,411 | 154,878 | ||||||
Current portion of other liabilities | (49,125 | ) | (44,673 | ) | |||
$ | 99,286 | $ | 110,205 | ||||
Finance lease obligations
Canadian $ thousands, | March 31, 2014 | December 31, 2013 | |||||||||||||||||||||
Future minimum lease payments | Interest | Present value of minimum lease payments | Future minimum lease payments | Interest | Present value of minimum lease payments | ||||||||||||||||||
Less than one year | $ | 44,153 | $ | 5,469 | $ | 38,684 | $ | 45,486 | $ | 5,916 | $ | 39,570 | |||||||||||
Between one and five years | 101,242 | 6,012 | 95,230 | 109,772 | 7,110 | 102,662 | |||||||||||||||||
$ | 145,395 | $ | 11,481 | $ | 133,914 | $ | 155,258 | $ | 13,026 | $ | 142,232 | ||||||||||||
Other equipment financing arrangements
Canadian $ thousands, | March 31, 2014 | December 31, 2013 | |||||
Present value of minimum lease payments | Present value of minimum lease payments | ||||||
Less than one year | $ | 1,751 | $ | 1,718 | |||
Between one and five years | 3,279 | 3,697 | |||||
$ | 5,030 | $ | 5,415 | ||||
-15-
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
Pension liability
PMRL sponsors defined benefit and defined contribution pension arrangements covering substantially all employees. The following tables summarize the significant actuarial assumptions used to calculate the pension expense and obligations under the defined benefit pension plans:
As at | March 31, 2014 | December 31, 2013 | |||
Plan assets | |||||
Expected long-term rate of return on plan assets | 4.70 | % | 4.70 | % | |
Accrued benefit obligation | |||||
Discount rate on pension obligations | 4.70 | % | 4.70 | % | |
Average remaining service period of active employees | 4-9 years | 4-9 years | |||
Benefit costs | |||||
Inflation rate | 2.50 | % | 2.50 | % | |
Discount rate on benefit costs | 4.70 | % | 4.70 | % | |
Rate of compensation increases | 3.50 | % | 3.50 | % | |
Approximate asset allocations, by asset category, of PMRL’s defined benefit pension plans were as follows:
As at | March 31, 2014 | December 31, 2013 | |||
Equity securities | 65 | % | 65 | % | |
Debt securities | 33 | % | 33 | % | |
Cash | 2 | % | 2 | % | |
100 | % | 100 | % | ||
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Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
Actuarial reports and updates are prepared by independent actuaries for funding and accounting purposes. Net pension plan expense relating to defined contribution plans, included in cost of sales in the condensed combined consolidated statement of (loss) earnings and comprehensive (loss) income, was as follows:
Canadian $ thousands, for the 3 months ended March 31 | 2014 | 2013 | |||||
Defined contribution plan current service cost | $ | 2,475 | $ | 2,832 | |||
Net pension plan expense relating to defined benefit plans was as follows:
Canadian $ thousands, for the 3 months ended March 31 | 2014 | 2013 | |||||
Current service cost | $ | 263 | $ | 559 | |||
Net interest cost | 19 | 160 | |||||
Settlement/curtailment gain | (851 | ) | (39,732 | ) | |||
Total defined benefit plan expense | $ | (569 | ) | $ | (39,013 | ) | |
Amounts recognized in the combined consolidated statement of financial position are as follows:
Canadian $ thousands | March 31, 2014 | December 31, 2013 | |||||
Accrued benefit obligations | |||||||
Balance, beginning of period | $ | 40,926 | $ | 152,607 | |||
Current service cost | 256 | 2,607 | |||||
Benefits paid | (1,098 | ) | (3,671 | ) | |||
Interest cost | 469 | 1,886 | |||||
Actuarial (gains) | — | (856 | ) | ||||
Acquisitions, settlements and curtailments | (851 | ) | (111,647 | ) | |||
Balance, end of period | 39,702 | 40,926 | |||||
Plan assets | |||||||
Fair value, beginning of period | 37,962 | 104,026 | |||||
Employers' contributions | 671 | 3,365 | |||||
Benefits paid | (1,098 | ) | (3,382 | ) | |||
Interest on assets | 450 | 1,477 | |||||
Administrative cost | (7 | ) | (27 | ) | |||
Actuarial gains | 1,994 | 4,418 | |||||
Acquisitions, settlements and curtailments | — | (71,915 | ) | ||||
Fair value, end of period | 39,972 | 37,962 | |||||
Impact of asset ceiling | 219 | 4 | |||||
Net accrued pension (asset) liability | $ | (51 | ) | $ | 2,968 | ||
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Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
Total cash payments for the 3 months ended March 31, 2014 in respect of the Company’s defined benefit and defined contribution pension plans consisting of cash payments made by the Company directly to employees, their beneficiaries or estates, payments to the plans, and payments to a third-party service provider on behalf of the employees were $2,475 (for the 3 months ended March 31, 2013 - $2,832).
12. PROVISIONS
Environmental rehabilitation obligations
The following is a reconciliation of the environmental rehabilitation provision:
Canadian $ thousands | 3 Months Ended March 31, 2014 | 12 Months Ended December 31, 2013 | |||||
Balance, beginning of the period | $ | 181,007 | $ | 174,706 | |||
Additions | 3,693 | 34,246 | |||||
Change in estimates | 3,281 | (13,022 | ) | ||||
Settled during the period | (14,862 | ) | (17,530 | ) | |||
Accretion | 722 | 2,607 | |||||
Balance, end of the period | 173,841 | 181,007 | |||||
Current portion | (21,930 | ) | (35,026 | ) | |||
$ | 151,911 | $ | 145,981 | ||||
Contingencies
The Company is contingently liable by way of the letters of credit issued. The Company has issued $143,552 (December 31, 2013 - $143,552) in letters of credit providing reclamation security and an additional $15,187 (December 31, 2013 - $15,575) in other letters of credit.
The Company has been subject to reassessments of income tax for past years. Certain amounts have been accrued for these assessments and are considered appropriate. The Company does not believe that unfavorable decisions in any pending procedure, or the threat of procedures related to any future assessment or any amount it might be required to pay will have a material impact on the financial condition of the Company.
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Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
13. INCOME TAXES
Income tax expense is comprised of the following:
Canadian $ thousands, for the 3 months ended March 31 | 2014 | 2013 | |||||
Current tax (recovery) expense | $ | — | $ | (356 | ) | ||
Deferred tax expense | |||||||
Origination and reversal of temporary differences | (679 | ) | 7,734 | ||||
Derecognition (recognition) of tax assets | 2,839 | — | |||||
Deferred tax (recovery) expense | 2,160 | 7,734 | |||||
Income tax (recovery) expense | $ | 2,160 | $ | 7,378 | |||
14. SALE OF COAL ASSETS
On December 24, 2013, Sherritt announced its divestiture of the coal business for total consideration of $971 million. A group led by Altius Minerals Corp. has acquired Sherritt’s entire royalty portfolio and its interest in coal development assets for cash consideration of $481 million. Westmoreland Coal Company acquired Sherritt’s operating coal assets for total consideration of $490 million, comprised of $355 million in cash and assumption of finance leases of $135 million, subject to closing adjustments. Sherritt indemnified Westmoreland Coal Company for all costs incurred by the Company associated with the October 31, 2013 incident at the Obed Mountain mine. The transaction was completed on April 28, 2014.
The transaction required that all loans and borrowings and related party loans were repaid upon closing of the purchase by Westmoreland Coal Company. These liabilities have been presented as current liabilities on the combined consolidated statement of financial position. The provision for costs associated with the October 31, 2013 incident at the Obed Mountain mine are consistent with the Cooperation Agreement between Westmoreland Coal Company and Sherritt.
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Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
15. SEGMENTED INFORMATION
Canadian $ thousands, for the 3 months ended March 31 | 2014 | ||||||||||||||
Prairie Mining | Mountain Mining | Royalties | Total | ||||||||||||
Revenue | $ | 110,528 | $ | 81,794 | $ | 10,879 | $ | 203,201 | |||||||
Cost of sales | 98,535 | 82,979 | 147 | 181,661 | |||||||||||
Gross profit (loss) | 11,993 | (1,185 | ) | 10,732 | 21,540 | ||||||||||
Administrative expenses | 2,932 | 134 | 2,724 | 5,790 | |||||||||||
Gain on contract termination | — | — | — | — | |||||||||||
Impairment loss | — | — | — | — | |||||||||||
Operating (loss) profit | 9,061 | (1,319 | ) | 8,008 | 15,750 | ||||||||||
Financing income | (3,712 | ) | — | (10 | ) | (3,722 | ) | ||||||||
Financing expense | 12,326 | 9,923 | — | 22,249 | |||||||||||
Net finance expense (income) | 8,614 | 9,923 | (10 | ) | 18,527 | ||||||||||
(Loss) earnings before tax | 447 | (11,242 | ) | 8,018 | (2,777 | ) | |||||||||
Income tax (recovery) expense | 2,160 | — | — | 2,160 | |||||||||||
Net (loss) earnings | $ | (1,713 | ) | $ | (11,242 | ) | $ | 8,018 | $ | (4,937 | ) | ||||
Supplemental information | |||||||||||||||
Depreciation and amortization | $ | 13,167 | $ | 12,414 | $ | 2,724 | $ | 28,305 | |||||||
Property, plant and equipment expenditures | 10,733 | 6,427 | — | 17,160 | |||||||||||
Canadian $ thousands, as at March 31, 2014 | |||||||||||||||
Non-current assets | 432,534 | 193,484 | 414,541 | 1,040,559 | |||||||||||
Total assets | $ | 859,514 | $ | 260,186 | $ | 418,966 | $ | 1,538,666 | |||||||
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Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
Canadian $ thousands, for the 3 months ended March 31 | 2013 | ||||||||||||||
Prairie Mining | Mountain Mining | Royalties | Total | ||||||||||||
Revenue | $ | 112,197 | $ | 56,381 | $ | 10,760 | $ | 179,338 | |||||||
Cost of sales | 100,096 | 64,809 | 452 | 165,357 | |||||||||||
Gross profit (loss) | 12,101 | (8,428 | ) | 10,308 | 13,981 | ||||||||||
Administrative expenses | (2,239 | ) | 1,764 | 3,892 | 3,417 | ||||||||||
Other | (39,313 | ) | — | 5,446 | (33,867 | ) | |||||||||
Operating profit (loss) | 53,653 | (10,192 | ) | 970 | 44,431 | ||||||||||
Financing income | (3,921 | ) | — | (9 | ) | (3,930 | ) | ||||||||
Financing expense | 10,284 | 9,992 | — | 20,276 | |||||||||||
Net finance expense (income) | 6,363 | 9,992 | (9 | ) | 16,346 | ||||||||||
Earnings (loss) before tax | 47,290 | (20,184 | ) | 979 | 28,085 | ||||||||||
Income tax expense (recovery) | 12,756 | (5,378 | ) | — | 7,378 | ||||||||||
Net earnings (loss) | $ | 34,534 | $ | (14,806 | ) | $ | 979 | $ | 20,707 | ||||||
Supplemental information | |||||||||||||||
Depreciation and amortization | $ | 11,471 | $ | 9,655 | $ | 3,892 | $ | 25,018 | |||||||
Property, plant and equipment expenditures | 8,492 | 4,654 | — | 13,146 | |||||||||||
Canadian $ thousands, as at December 31, 2013 | |||||||||||||||
Non-current assets | 436,307 | 196,577 | 417,265 | 1,050,149 | |||||||||||
Total assets | $ | 855,214 | $ | 269,349 | $ | 422,522 | $ | 1,547,085 | |||||||
Geographic segments
The Company earns revenue from several geographic regions as follows:
Canadian $ thousands, for the 3 months ended March 31 | 2014 | 2013 | |||||
Canada | $ | 119,115 | $ | 118,596 | |||
Asia | 59,643 | 39,436 | |||||
United States | 6,085 | 6,154 | |||||
Other foreign countries | 18,358 | 15,152 | |||||
$ | 203,201 | $ | 179,338 | ||||
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Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
Significant customers
The Company earns the majority of its coal and royalty revenue from a small number of customers from each segment as follows:
Canadian $ thousands, for the 3 months ended March 31 | 2014 | 2013 | |||||
Prairie Mining segment | |||||||
Revenue | $ | 112,845 | $ | 108,368 | |||
Number of major customers | 3 | 4 | |||||
Mountain Mining segment | |||||||
Revenue | $ | 51,959 | $ | 52,092 | |||
Number of major customers | 3 | 3 | |||||
16. COST OF SALES
Cost of sales includes the following select information:
Canadian $ thousands, for the 3 months ended March 31 | 2014 | 2013 | |||||
Employee costs | $ | 46,729 | $ | 53,627 | |||
Depreciation and amortization on property, plant and equipment and intangible assets | 28,134 | 24,868 | |||||
Gain on environmental rehabilitation obligations | (1,020 | ) | (1,433 | ) | |||
-22-
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
17. NET FINANCE EXPENSE
Canadian $ thousands, for the 3 months ended March 31 | 2014 | 2013 | |||||
Interest income on loans and finance lease receivables | $ | (3,012 | ) | $ | (3,901 | ) | |
Interest income on cash and cash equivalents | (710 | ) | (29 | ) | |||
Total financing income | (3,722 | ) | (3,930 | ) | |||
Interest expense on Sherritt promissory note | 7,333 | 7,213 | |||||
Interest expense on subordinated note | 7,558 | 7,518 | |||||
Interest expense on finance lease obligations and other equipment financing arrangements | 1,719 | 1,914 | |||||
Interest expense on Sherritt loan payable | 445 | 445 | |||||
Accretion expense on environmental rehabilitation obligations | 722 | 643 | |||||
Interest expense on loans and borrowings | 2,720 | 1,790 | |||||
Other finance charges | 488 | 216 | |||||
Foreign exchange loss | 1,264 | 537 | |||||
Total financing expense | 22,249 | 20,276 | |||||
Net finance expense | $ | 18,527 | $ | 16,346 | |||
18. NET CHANGE IN NON-CASH WORKING CAPITAL ITEMS
Canadian $ thousands, for the 3 months ended March 31 | 2014 | 2013 | |||||
Trade accounts receivable | $ | 566 | $ | (4,689 | ) | ||
Inventories | 5,258 | (12,706 | ) | ||||
Prepaid expenses | 1,029 | (957 | ) | ||||
Due from related parties | (538 | ) | (144 | ) | |||
Trade accounts payable and accrued charges | 125 | 11,661 | |||||
Due to related parties | (400 | ) | 1,691 | ||||
$ | 6,040 | $ | (5,144 | ) | |||
-23-
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
19. INTEREST IN JOINT VENTURE
PMRL has a contractual arrangement with another company for the production and sale of activated carbon to coal fired utility plants in Canada and the United States. PMRL acts as operator for the plant facilities and the other venturer conducts marketing activities.
PMRL accounts for its 50% interest in the Venture using proportionate consolidation. The following is a summary of PMRL’s proportionate interest in the Venture which has a December 31 reporting date:
Canadian $ thousands, | March 31, 2014 | December 31, 2013 | |||||
Current assets | $ | 5,185 | $ | 5,038 | |||
Non-current assets | 32,426 | 32,747 | |||||
Current liabilities | (1,234 | ) | (785 | ) | |||
Non-current liabilities | (719 | ) | (650 | ) | |||
Net assets | $ | 35,658 | $ | 36,350 | |||
Canadian $ thousands, for the 3 months ended March 31 | 2,014 | 2,013 | |||||
Revenue | $ | 3,909 | $ | 3,589 | |||
Expenses | 2,514 | 2,137 | |||||
Net earnings | $ | 1,395 | $ | 1,452 | |||
20. FINANCIAL RISK AND CAPITAL RISK MANAGEMENT
Risk management policies and hedging activities
The Company is sensitive to changes in commodity prices, foreign-exchange and interest rates. The Company’s Management Committee has overall responsibility for the establishment and oversight of the Company’s risk management framework. Although the Company has the ability to address its price-related exposures through the use of options, futures and forward contacts, it does not generally enter into such arrangements.
Credit risk
The Company’s sale of coal, activated carbon and char exposes it to the risk of non-payment by customers. The Company manages this risk by monitoring the credit worthiness of its customers, covering some exposure through receivables insurance, documentary credit and seeking pre-payment or other forms of payment security from customers with an unacceptable level of credit risk. Although the Company seeks to manage its credit risk exposure, there can be no assurance that it will be successful in eliminating all potential material adverse impacts of such risks.
-24-
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
Liquidity risk
Liquidity risk arises from financial obligations of the Company and in the management of its assets, liabilities and capital structure. The Company manages this risk by regularly evaluating its liquid financial resources to fund current and long-term obligations and to meet its capital commitments in a cost-effective manner. The main factors that affect liquidity include realized sales prices, production levels, cash production costs, working capital requirements, capital-expenditure requirements, scheduled repayments of loans and borrowings, credit capacity and debt and equity capital market conditions. The Company’s liquidity requirements are met through a variety of sources, including cash and cash equivalents, cash generated from operations, existing credit facilities, leases, and debt and equity capital markets.
Based on management’s assessment of its financial position and liquidity at March 31, 2014 management believes the Company will be able to satisfy its current and long-term obligations as they come due.
Financial obligation maturity analysis
The Company’s significant contractual commitments, obligations, and interest and principal repayments on its financial liabilities are as follows:
Canadian $ thousands, as at March 31, 2014 | Total | Falling due within 1 year | Falling due between 1-2 years | Falling due between 2-3 years | Falling due between 3-4 years | Falling due between 4-5 years | Falling due more than 5 years | ||||||||||||||||||||
Loans and borrowings | $ | 300,671 | $ | 300,671 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
Trade accounts payable and accrued charges | 90,530 | 90,530 | — | — | — | — | — | ||||||||||||||||||||
Finance lease obligations | 145,395 | 44,152 | 41,198 | 34,732 | 24,101 | 1,212 | — | ||||||||||||||||||||
Pension obligations | 15,794 | 2,623 | 2,654 | 2,333 | 1,372 | 1,036 | 5,776 | ||||||||||||||||||||
Other equipment financing | 5,444 | 1,966 | 1,700 | 1,034 | 637 | 107 | — | ||||||||||||||||||||
Operating leases | 11,104 | 3,188 | 491 | 909 | 909 | 909 | 4,698 | ||||||||||||||||||||
Environmental rehabilitation obligations (1) | 209,554 | 19,671 | 25,719 | 26,533 | 18,944 | 19,302 | 99,385 | ||||||||||||||||||||
Related party loans | 732,094 | 732,094 | — | — | — | — | — | ||||||||||||||||||||
Total | $ | 1,510,586 | $ | 1,194,895 | $ | 71,762 | $ | 65,541 | $ | 45,963 | $ | 22,566 | $ | 109,859 | |||||||||||||
(1) Environmental rehabilitation obligations are undiscounted.
Market risk
Market risk is the potential for financial loss from adverse changes in underlying market factors, including interest rates and foreign-exchange rates.
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Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
Foreign-exchange risk
The Company is exposed to foreign exchange fluctuations on its United States dollar denominated thermal export coal sales and certain finance lease obligations. Fluctuations in the CDN/US exchange rate could materially affect the Company’s net earnings. The Company does not currently use derivative instruments to mitigate these currency risks. Based on revenue denominated in U.S. dollars, a strengthening or weakening of $0.01 in the Canadian dollar to the US dollar, with all other variables held constant, would have a $66 unfavorable or favorable impact, respectively, on net earnings. A change in foreign exchange on United States dollar denominated finance lease obligation payments would not materially increase borrowing costs.
Interest rate risk
The Company is exposed to interest rate risk based on its outstanding loans and borrowings and short-term and other investments. A change in interest rates could increase borrowing costs and investment income. Fluctuations in interest rates would not materially affect the Company’s net earnings.
Capital risk management
The Company’s objectives, when managing capital, are to maintain financial liquidity in order to preserve its ability to satisfy financial obligations as they come due and deploy capital to maintain and grow the business.
The Company’s financial strategy is designed to maintain a flexible capital structure consistent with the objectives stated above and to respond to business growth opportunities and changes in economic conditions. In order to maintain or adjust its capital structure, the Company may issue new common shares, repay outstanding debt, issue new debt, refinance existing debt with different characteristics, acquire or dispose of assets, or adjust the amount of cash and short-term investment balances.
The Company is subject to two financial covenants on the credit facility based on the combined financial position of PMRL and CVRI as follows: EBITDA-to-interest expense ratio of not less than 4:1 and total debt-to-EBITDA ratio of no more than 3:1. The Company monitors these covenants on a quarterly basis and is in compliance with them as at and for the 3 months ended March 31, 2014. The Company is also subject to minimum capital requirements as part of its environmental reclamation bonding program with the Alberta provincial government as described in Note 12. Other than these two restrictions, the Company is not subject to any other externally imposed capital requirements.
-26-
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
In the definition of capital, which has not changed from the prior year, the Company includes shareholders’ equity, current and non-current loans and borrowings, related party loans and undrawn credit facilities.
Canadian $ thousands, as at | March 31, 2014 | December 31, 2013 | |||||
Shareholder's equity | $ | (27,578 | ) | $ | (23,181 | ) | |
Loans and borrowings | 299,930 | 299,657 | |||||
Undrawn senior credit facility agreement | 50,000 | 50,343 | |||||
Related party loans | 732,094 | 732,094 | |||||
Undrawn CAT Finance credit facility agreement | 52,432 | 49,210 | |||||
$ | 1,106,878 | $ | 1,108,123 | ||||
21. FINANCIAL INSTRUMENTS
Financial instrument hierarchy
Financial instruments at fair value through profit or loss have been ranked using a three-level hierarchy that reflects the significance of the inputs used in determining fair value. The following table identifies the hierarchy levels and values:
Canadian $ thousands, as at | Hierarchy level | March 31, 2014 | December 31, 2013 | ||||||
Held-for-trading, measured at fair value | |||||||||
Cash equivalents | 1 | $ | 59,770 | $ | 113,563 | ||||
Short-term investments | 1 | 201,545 | 140,659 | ||||||
The followings assets have been ranked Level 1 since their market value is readily observable:
Cash equivalents
These are liquid Canadian Government treasury bills having original maturity dates of three months or less.
Short-term investments
These are liquid Canadian Government treasury bills having original maturity dates greater than three months and less than one year.
-27-
Prairie Mines & Royalty Ltd. and Coal Valley Resources Inc. NOTES TO THE INTERIM CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS For the 3 months ended March 31, 2014 (Unaudited) |
Fair values
As at March 31, 2014, the carrying amounts of cash and cash equivalents, short-term investments, trade accounts receivable, current portion of loans receivable, current portion of other assets, current portion of finance lease receivables, current portion of other liabilities and trade accounts payable and accrued charges are at fair value or approximate fair value due to their immediate or short terms to maturity.
The fair values of non-current loans and borrowings and other liabilities approximate their carrying amount. The fair value of a financial instrument on initial recognition is normally the transaction price, the fair value of the consideration given or received. The fair values of non-current loans receivable and finance lease receivables are estimated based on discounted cash flows. Due to the use of judgment and uncertainties in the determination of the estimated fair values, these values should not be interpreted as being realizable in the immediate term.
-28-