EastCoal Inc. (TSX VENTURE:ECX)(AIM:ECX) ("EastCoal" or the "Company") announces
its unaudited interim condensed consolidated financial statements for the three
months ended March 31, 2013. These are provided in two sections below:
1. Management Discussion and Analysis of East Coal; and
2. Unaudited interim condensed consolidated financial statements for the
three months ended March 31, 2013.
For further information please visit: www.eastcoal.ca.
About EastCoal Inc.
This press release contains projections and forward-looking information that
involve various risks and uncertainties regarding future events. Such
forward-looking information can include without limitation statements based on
current expectations involving a number of risks and uncertainties and are not
guarantees of future performance. There are numerous risks and uncertainties
that could cause actual results to differ materially from those expressed in the
forward looking information. These and all subsequent written and oral
forward-looking information are based on estimates and opinions on the dates
they are made and are expressly qualified in their entirety by this notice.
Except as required by law, the Company assumes no obligation to update
forward-looking information should circumstances or management's estimates or
opinions change.
Management Discussion and Analysis
For the Three Months Ended March 31, 2013
This Management Discussion and Analysis ("MD&A") of EastCoal Inc. (the "Company"
or "EastCoal") provides analysis of the Company's financial results for the
three months ended March 31, 2013 and should be read in conjunction with the
accompanying unaudited interim condensed consolidated financial statements and
notes thereto for the three months ended March 31, 2013 and the Company's Annual
Information Form ("AIF") all of which are available on SEDAR at www.sedar.com.
The MD&A is current as at May 29, 2013, the date of preparation.
The March 31, 2013 financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") applicable to the
preparation of interim financial statements. All amounts are expressed in
Canadian dollars, unless otherwise stated.
Certain statements made may constitute forward-looking statements. Such
statements involve a number of known and unknown risks, uncertainties and other
factors. Actual results, performance and achievements may be materially
different from those expressed or implied by these forward-looking statements.
1 Highlights
-- Verticalnaya development was halted during the course of the quarter due
to the working capital challenges reported to the market on February 8,
2013 and March 12, 2013;
-- Geological challenges forced the discontinuation of the long wall at the
Menzhinsky underground mine whilst technical challenges at the wash
plant continued throughout the quarter;
-- On May 22, 2013 the Company's board of directors ("Board") resolved to
place Inter-Invest Coal LLC ("Inter-Invest) into administration and/or
liquidation, thereby crystalizing the Company's losses from the
Menzhinsky Mine and wash plant. During this process, the Company will
work with the relevant administrators and other stakeholders to inter
alia seek an orderly disposal process of the assets or possible third
party investment in an attempt to satisfy claims against Inter-Invest.
This will allow the Company to focus on its primary asset, Verticalnaya;
and
-- EastCoal is presently in the final stages of completing an equity
fundraising, principally with institutional investors and expects, very
shortly, to be able make a further announcement in this regard. The
Board is confident that the completion of that fundraising will provide
the longer term financial solution required by the Company.
2 Business Overview
EastCoal Inc. is quoted on the TSX Venture Exchange ("TSX-V" or the "Exchange")
and quoted on AIM under the symbol "ECX". The Company has one major asset, the
Verticalnaya Mining Complex ("Verticalnaya") in South Eastern Ukraine.
Verticalnaya comprises two operations; the existing H8 Deep Mine ("Verticalnaya
Mine") and the Verticalnaya North Project ("VNP"), a newly developed incline
mine just north of the Verticalnaya Mine. In October 2010, following a period of
planning, permitting, and detailed improvements, the Company commenced
construction of the VNP as a source of early coal production. To date, 2.5
kilometers of drift development has been completed at VNP. These drifts access
the shallower H11 and H11B coal seams.
First production from VNP is expected by Q3, 2013. Target production from the
both the Verticalnaya Mine and the VNP is circa 2.5 million tonnes per annum
("Mtpa") in aggregate of high quality anthracite for domestic and export
markets.
In 2011, the Company, after commencing to de-water the lower levels of the
Verticalnaya Mine, began rehabilitating previously flooded roadways. The
roadways are generally in good condition, requiring only minor repair in some
sections. As the water level is lowered, the Company will re-establish a
ventilation circuit and repair the current conveyor route that will eventually
transport coal by high-speed conveyor from the deep H8 seam to surface.
From the outset, the Company has required the introduction and maintenance of
safety procedures in line with best global industry practice. International
safety consultants have visited the Ukraine operations and their recommendations
have been and are being implemented. Safety standards are being received
favorably by the workforce. Verticalnaya Mine and VNP are categorized as
non-gassy, with low explosive risk.
In September 2011, the Company entered into an option agreement to acquire a
100% interest in Inter-Invest from Aponet Enterprises ("Aponet"). In December
2011, the option was exercised and on April 11, 2012 the Company signed a Share
Purchase Agreement (the "Share Purchase Agreement") with Aponet for the sale and
purchase of 100% of the charter capital of Inter-Invest. By acquiring
Inter-Invest, the Company indirectly acquired 100% interest in the Menzhinsky
Coal Mine in Ukraine ("Menzhinsky Mine"). The transaction closed on May 31, 2012
after receiving approval of the Anti-Monopoly Committee of Ukraine and final
approval of the transaction from the TSX-V.
In October 2012 the construction of the new wash plant at the Menzhinsky Mine
was completed. In mid-December 2012 the plant was temporarily shut down for two
to three weeks during the winter due to bad weather. In early January,
management decided to keep the wash plant closed for a further six to eight week
period due to continued bad weather. The shutdown was used to address certain
challenges identified during the start up period that resulted in disappointing
levels of throughput.
During the first quarter of 2013 production at the Menzhinsky Mine was not at
the level or quality anticipated due to the deterioration at the end of the
current long wall. As a consequence some production had to be rewashed before
delivery to the Company's main customer.
The geological challenges experienced at the Menzhinsky underground mine
continued into March and, as a result, the Board ordered the immediate
discontinuation of the current longwall, two months earlier than originally
planned. The above situation created serious working capital challenges as
Menzhinsky mine continued to incur significant losses and the wash plant had not
only failed to perform even close to design capacity, but it was also taking up
significant cash and management resources. In order to address this situation,
the Board resolved to refocus its efforts and resources on Verticalnaya. The key
contributing factors to this decision were:
-- Verticalnaya comprises the majority of the Group's assets;
-- The Verticalnaya North Mine has the potential for significant ramp up if
mechanised long walls are deployed, unlocking material value for the
Group; and
-- It is management's opinion that the coal would be of export quality.
On May 22, 2013 the Board resolved to place Inter-Invest (which operates the
Menzhinsky mine and owns the wash plant) into administration and/or liquidation
and to work with the relevant administrators and other stakeholders to inter
alia seek an orderly disposal process of the assets or possible third party
investment in an attempt to satisfy claims against Inter-Invest.
2.1 The vision
The Company's vision is to become a leading producer of high quality coal in the
Ukraine.
Verticalnaya, with large resources, good location and an existing management,
workforce and infrastructure, provides an exceptionally attractive development
opportunity and cornerstone project for the future execution of the Company's
vision.
The Company, deploying a strong and experienced team to develop value from
Verticalnaya, is the leader of western investment into the Donbass coal basin -
an area which has been identified as having tremendous potential.
2.2 Management Changes
In March 2013, the Company appointed Mr. Vernon (JR) King as Chief Operating
Officer. Mr King. has 35 years' experience in the mining industry and has held
several senior positions in the industry, including President of the Kentucky
Division of Alpha Natural Resources. He holds a Mining Engineering Degree from
Bryson University in the United States. Mr. King replaced Mr. Colin Stocks who
retired from the Company in March 2013.
Mr. George Lawton, previous CFO and Company Secretary, left the Company in April
2013. Mr. Jonker was appointed acting CFO in his stead.
In addition to his role as General Counsel, Mr. Hendrik Dietrichsen was
appointed Company Secretary in April 2013. Mr. Dietrichsen has more than 30
years' experience as a legal practitioner and advising at senior management and
board level within private and public listed companies. He has also held various
positions at board level.
2.3 Verticalnaya
2.3.1 Introduction
Verticalnaya comprises two operations, the Verticalnaya Mine accessing the lower
level H8 seam and VNP, an incline mine in development accessing the upper level
H11 and H11B seams. Production from VNP is expected in Q3 2013.
At VNP, the Company has completed the portals and in excess of 2,500 meters of
drift and roadway development and commenced the drivage of the two surface
drifts to access the H11 and H11B seams where the first coal production will
take place. A full description of the mine and its operations is contained in
the Competent Person Report (the "Verticalnaya CPR"), prepared by IMC Group
Consulting Ltd. ("IMC Group") of the United Kingdom in November 2012, which is
set out at Section A of Part III of the AIM Admission Document which can be
found on SEDAR (www.sedar.com) and the Company website at www.eastcoal.ca.
In addition, in April 2011 and amended in June 2012, the Company filed a NI
43-101 technical report prepared by IMC Group. This report may be viewed on
SEDAR and the Company website at www.eastcoal.ca.
2.3.2 Location
Verticalnaya is located in the Donbass region. A number of settlements lie in
the vicinity including the towns of Lunacharsk, Leninskiy, Volodarsk, Ustinovka
and the villages of Malomedvezhje and Fedorovka; the latter is located only 1.5
kilometers from the mine.
EastCoal has been issued a mining license which allows the Company to extract
coal from seams H11, H11B, H10B, H8 and H8B within the license area. This
license is valid for 20 years from the date of issue and expires on the July 19,
2027.
EastCoal leases a land area totaling 23.73 Ha on which the main mine and process
facilities, rail and road infrastructure and waste storage areas are located.
The site leased for the VNP mine access and surface facilities occupies a
slightly elevated position approximately 1.5 kilometers north-west of the main
Verticalnaya Mine site.
2.3.3 Infrastructure
The shaft mine industrial surface covers some 10.4 Ha including 3.0 Ha of
approach roads. Located in a rural area it has electrical power supply, mains
water, mains sewage, and good access roads already established.
The VNP mine and surface facilities are easily accessible by road from the main
Verticalnaya site and located nearby is a rail line with facilities for wagon
loading. A new 6 kV power supply has been installed from the main Verticalnaya
mine surface sub-station to the VNP site.
The Verticalnaya Mine has two shafts. The materials shaft was installed and has
been operational for the transportation of men and material since 1975. The
sinking of the second shaft was completed just prior to the mine closure in 1998
and was not fully equipped or commissioned.
2.3.4 Mine History
Mining operations began initially during 1912 when coal was accessed from its
outcrop point on the surface via inclined drifts locally known as "number 10
mine". In 1975, mainly for ventilation purposes, a vertical shaft was sunk down
to the then lower workings at the -600 meters horizon, approximately 845 meters
below surface. This shaft was then used for the transportation of men and
materials. Also installed within the same shaft is a second winding facility
designed to wind out waste rock from development drivage.
Several phases of exploration drilling have been completed by the ministry since
1930, the most extensive phase being during the 1970s when over 200 cored
boreholes were drilled in the area of the Verticalnaya and adjacent mines.
As the mine working progressed even deeper to -1,000 meters level, approximately
1,245 meters below surface, the government provided capital investment for the
sinking of a second shaft for improved ventilation and also to be utilized for
the winding of material (Skip shaft). The main objective of the new shaft was to
replace the long string of conveyor belts installed along the length of the
existing inclined drifts.
In 1998, due to a lack of the investment required to complete the new
infrastructure and maintain the mine's equipment, the managers of the
Verticalnaya mine were unable to achieve the mine's coal output target. The
Verticalnaya mine was considered unprofitable and closed and passed to the UDKR.
UDKR is responsible for the liquidation of closed mines and the management of
those mines on a care and maintenance basis to enable them to act as water
pumping stations to protect adjacent operating mines from increased water
inflows from the closed mines.
EastCoal has leased the Verticalnaya mine until 26 may 2029 from the State
Property fund. During the period when the mine was operational, no coal was
mined in the areas of the H11B and H10B seams. The H8 seam was mined until the
closure of the mine in 1998.
2.3.5 Resources and Reserves
The independent estimate of measured resources and Indicated resources contained
in the Verticalnaya CPR carried out by IMC Group indicates that Verticalnaya has
5.6Mt of Proved reserves and 21.3Mt of Probable reserves. The coal in Seam H8
can only be reported as Probable reserves as the mine plan is dependent upon the
pumping out of the mine water currently preventing access to the virgin areas of
the coal seam.
The report states that reserves and resources, under JORC (2004) standards as of
September 1, 2012, are as follows:
----------------------------------------------------------------------------
Proven Probable Measured Indicated Total
Reserves Reserves Resources Resources Resources
Seam MT MT MT MT MT
----------------------------------------------------------------------------
H11 5.6 2.0 41.6 3.0 44.6
----------------------------------------------------------------------------
H8 - 19.3 15.7 30.6 46.3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total 5.6 21.3 57.3 33.6 90.9
----------------------------------------------------------------------------
(MT = millions of tonnes)
Reserves are quoted after allowing for all mining losses. Resources are quoted
as in-situ totals, with no allowance for either mining or geological losses and
are inclusive of reserves. The coal seams are contained in strong competent
strata, predominantly siltstone and sandstone.
2.3.6 Mineralization, quality and coal seams
The coal deposits are of anthracite grade having volatile matter content of less
than 8 per cent. on a dry, ash free basis. Moisture content of the coal is
between 1.5 per cent. and 3 per cent. The calorific value of the coal is
typically around 33.4mJ/kg. Ash contents are variable but average 15 per cent.
to 20 per cent. on a dry basis.
The Verticalnaya CPR states that the coal from Verticalnaya has the following
characteristics:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Coal Ash Sulphur Volatiles CV
Seam %d %d %daf MJ/kg
--------------------------------------------------------------------
Min Max Av Min Max Av Min Max Av Min Max Av
----------------------------------------------------------------------------
----------------------------------------------------------------------------
H11B 2.1 40.0 15.4 0.8 4.2 1.9 1.3 7.1 2.8 32.05 33.89 33.05
----------------------------------------------------------------------------
H11 3.2 34.3 19.1 0.8 2.7 1.4 1.5 5.4 2.6 32.55 34.02 33.42
----------------------------------------------------------------------------
H8 4.3 39.3 15.6 0.8 7.3 2.8 1.7 5.8 3.5 33.22 34.31 34.31
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The coal seam structure, thickness and quality are well defined by the
exploration programs undertaken and the mining history of the area confirms the
quality of coal being mined.
EastCoal intends to begin working coal from the H11 seam and resume working coal
from the H8 seam. The H11 seam is approximately 320 - 350 meters above the H8
seam, separated by predominantly competent sandstone and siltstone strata.
The H11 and H11B seams are split seams occurring throughout the mine area with
only a relatively small area where the splits combine to form a single seam H11.
This single seam area occurs close to the central faulted area and has a
thickness from 1.24 to 1.46 meters with an average of 1.34 meters.
In the majority of the mine area the upper split of the seam H11B is of
exploitable thickness, being 0.60 meters or thicker.
There are coal resources below the -1000 meter level in H8 seam but these can
only be exploited after the water level has been pumped down. The H8 seam below
the -1000 m level has an average thickness of 1.15 meters. To the west of the
faulted area and the abandoned workings, the H8 seam becomes thinner being
predominantly less than 0.60 meters thick and is of no current economic
interest.
2.3.7 Mine development plan
To the north of the main mine site H11 coal seam outcrops, and access into the
seam will be via two inclined drifts which are being driven from a point near to
the outcrop. The site of the portals is some 1.5 kilometers to the north of the
main mine curtilage and is called the VNP. The first 560 meters of the two
drifts is now complete, and access into the first longwall to the east of the
drifts (east one longwall) has been developed. To date, more than 2,500 meters
of roadway development has been completed.
To produce "early coal", 4,000 tonnes of coal will be mined at VNP on a manual
basis for a period of three months from the East 1 block, increasing to 11,000
tonnes per month by applying conventional mining methods and local manufactured
equipment.
As the inclined drifts are extended and more working places opened up additional
developments can be introduced and retreat longwall production established.
Retreat longwall mining is accepted globally as being significantly more
productive than advance longwall, and this has also been demonstrated at
Verticalnaya in the past. Typically the output from three advance longwalls can
be achieved with two retreat longwalls.
The mining sequence plan at VNP has East1 as the first advancing face followed
by West1.
East1 will set off with conventional props and bars which will initially
constrain the output to around one strip of coal per shift. West1 will also
utilize the same equipment and will therefore also be limited to around one
strip per shift due to the laborious task of advancing the face supports. The
opportunity does exist to significantly increase early production from the mine
through the use of mechanized long wall sets, subject to the availability of
finance.
The inclination of the coal seam is 18 degrees therefore, all longwall gate
roadways will be driven along the strike maintaining the longwall face on full
dip.
The thicker section of the seam h11 is irregular in shape with some minor
associated faulting. Therefore some of the longwalls planned will operate in
both h11B and h11 as they work across particular blocks of Coal reserves.
Therefore the longwall equipment specified will be a ranging drum shearer
cutting machine, together with heavy duty hydraulic roof support. The height
range of the roof supports being 0.8 to 1.6 meters to accommodate the variable
coal seam sections.
H8 coal seam will be accessed and operated via the existing Verticalnaya Mine
shafts. The skip shaft will not be used for coal winding but will be equipped
for the winding of men and materials down to the lower horizon at 1,250 meters.
A cross measure drift will be driven to intersect the H11 seam being developed
from VNP before continuing on to the H8 seam. This is to establish a mineral
clearance system from both H8 and H11 seams to the surface VNP site.
Using a conveyor belt for coal clearance compared to skip winding provides the
following advantages.
-- higher production capacity, not restricted by maximum skip capacities;
-- longer periods of operation per day, skip and shaft maintenance requires
an average of 4 hours per day;
-- Coal from the two seams can be kept separate if required for process and
marketing purposes; and
-- Provision of a walk-able outlet as a second means of egress.
By utilizing a conveyor belt for coal clearance, the equipping of the skip shaft
for the winding of men and materials from the lower 1,245 meter horizon can be
delayed until revenues are being generated.
One of the first operations at the Verticalnaya Mine will be to pump out the
water from the flooded area and examine the roadways of the previously developed
area of the H8 seam. It is calculated that this activity will take approximately
one year to establish an efficient mine water pumping system and pump out the
water. To date some 120 meters of flooded roadway have been recovered, showing
little or no signs of deterioration associated with being submersed under water
for a long period of time. Therefore, it is anticipated that the roadway
conditions will not have deteriorated significantly and the repair of the main
materials and conveyor drifts will not be significant.
The original conveyor roadway above the water line, from -845 to -137 meters
horizons, will be recovered and repaired during the same one year period that
water pumping is undertaken. New permanent conveyor belts and associated
equipment will be installed as repairs progresses.
Having recovered and re-instated the conveyor belts and materials system down to
the Coal reserves below the 1,250 meters horizon, development of the Coal
reserves below that point can commence.
Two main lateral drivages, conveyor and materials, will be driven into the new
reserve block and longwall panels developed on each side. The overall plan is to
operate two longwalls simultaneously in the H8 seam to generate a continuous rom
production of 1.7mtpa.
2.3.8 Environment, Health and Safety
From the outset, EastCoal has set out to introduce safety procedures across its
operations that are in line with best global industry practice. International
safety consultants have visited EastCoal's operations in Ukraine and their
recommendations are being implemented. The Company's focus on ensuring high
safety standards are adhered to across its Ukraine operations and is being
received favorably by its workforce.
The Company has all environmental documentation that is required for it to
operate the Verticalnaya mine and an environmental management committee has been
established by the Company for the routine management of environmental operating
issues, permitting and licensing.
The estimated mass emissions to air of dust and combustion gases are relatively
small. The Verticalnaya mine's anthracite is non-gassy, with low explosive risk.
The mitigation measures proposed, together with establishment of sanitary
protection zones, are designed so that ambient Ukrainian air quality standards
are complied with.
The systems proposed to minimize the impact of mine and waste water discharge
are appropriate and consistent with international best practice. According to
the EIA the surface waters in the Donbass region are already influenced by
discharges from communities, mining and other industries and any further impact
from the Verticalnaya mine is not likely to be significant.
Waste rock from the mine and tailings from the coal preparation plant will be
stored on a site already used for dumping low hazard mine waste. This is good
practice and avoids the need to use and disturb greenfield areas.
The social impact is assessed as positive on the basis of providing direct
employment for approximately 1,200 people from the local communities, in
addition to the related economic benefits for the region.
The site for the VNP mine access and surface facilities is on land designated
for industrial use. Grassland in the immediate vicinity of the VNP site shows
evidence of disturbance by previous activities, is not privately owned and is
not presently used.
On the basis of the environmental assessment, the potential for significant
environmental impact of the VNP is considered low to moderate.
Water discharged from the VNP will be treated to an acceptable standard for
reuse or discharge to the local river.
2.3.9 Anticipated Production
The Company's current mine plan and associated cash flows has been reviewed by
the Competent Person. The production that this plan anticipates is as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Seam 2013 2014 2015 2016 2017 2018 2019 2020 2021
---------------------------------------------------------------
Mt
----------------------------------------------------------------------------
----------------------------------------------------------------------------
H11 0.08 0.20 0.34 0.34 0.61 0.68 0.78 0.83 0.82
----------------------------------------------------------------------------
H8 - - - - - 0.30 1.51 1.53 1.47
----------------------------------------------------------------------------
Total - - - - - 0.98 2.29 2.36 2.29
----------------------------------------------------------------------------
Seam 2022 2023 2024 2025 2026 2027 2028 2029 2030
---------------------------------------------------------------
Mt
----------------------------------------------------------------------------
----------------------------------------------------------------------------
H11 0.83 0.85 - - - - - - -
----------------------------------------------------------------------------
H8 1.51 1.48 1.49 1.60 2.06 1.89 1.56 0.72 -
----------------------------------------------------------------------------
Total 2.34 2.33 1.49 1.60 2.06 1.89 1.56 0.72 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In the course of reviewing the plan, (and as set out on Page 57 et seq of the
Verticalnaya CPR the Competent Person considered the current mine plan, the
forecast selling price, production, operating and capital expenditures and other
key assumptions and concluded that the base case net present value of the
project (assuming a 10 per cent. discount rate) is US$358.8 million.
A price of US$100/sales tonne has been used in the technical economic model. The
operating cost per tonne, including depreciation, used in the life of plan was
US$46.74. The Competent Person considers the production plans and budgets to be
attainable with good management and that the costs used were reasonable and the
method used for estimation was logical.
2.4 Menzhinsky
On May 31, 2012 the Company acquired 100% of the charter capital of
Inter-Invest, the company that operated the Menzhinsky coal mine. In October
2012 the construction of the new wash plant at the Menzhinsky Mine was
completed.
In mid-December 2012 the plant was temporarily shut down for two to three weeks
during the winter due to bad weather. In early January 2013, management decided
to keep the wash plant closed for a further six to eight week period to address
certain challenges identified during the start up period that resulted in
disappointing levels of throughput.
During the first quarter of 2013 production at the Menzhinsky Mine was not at
the level or quality anticipated due to the deterioration at the end of the
current long wall. As a consequence some production had to be rewashed before
delivery to the Company's main customer.
The geological challenges experienced at the Menzhinsky underground mine
continued into March 2013 and, as a result, the Board ordered the immediate
discontinuation of the current longwall, two months earlier than originally
planned. The above situation created serious working capital challenges as
Menzhinsky mine continued to incur significant losses and the wash plant had not
only failed to perform even close to design capacity, but it was also taking up
significant cash and management resources.
As a result of the significant and continued challenges experienced at the mine
and the wash plant and the capital required to bring the operation back to
profitability, the Company investigated various ways to extract value from the
operations. Having exhausted all of its options, the Board of Directors resolved
on 22 May 2013 to place Inter-Invest into administration and/or liquidation as
discussed above.
2.5 Results of Operations
----------------------------------------------------------------------------
For the three months
ended
----------------------------------------------------------------------------
In thousands of Canadian dollars unless otherwise March 31, March 31,
noted 2013 2012
----------------------------------------------------------------------------
Financial Highlights
Revenue $ 661 $ -
Cost of sales (2,965) -
----------------------
Gross loss (2,304) -
Other (expenses) income (17,428) (304)
Net interest (expense) income (175) 39
----------------------
Loss for the period before tax $ (19,907) $ (265)
----------------------
----------------------
Production (tonnes)
Coking coal 7,457 -
Sales (tonnes)
Coking coal 6,968 -
Per sales tonne
Coal price realized $ 95 $ -
----------------------------------------------------------------------------
All of the above revenue and cost of sales relate to the Menzhinsky Mine.
2.6 Operating mine - Menzhinsky Coal Mine, Ukraine
----------------------------------------------------------------------------
Inventory Saleable Inventory
opening coal closing
balance produced Coal sold Other balance
Month Tonnes Tonnes Tonnes Tonnes Tonnes
----------------------------------------------------------------------------
Q1 2013 310 7,457 (6,968) (772) 27
----------------------------------------------------------------------------
Note: Inventory closing balance excludes 817 tonnes ROM coal
All of the above inventory relates to the Menzhinsky operations.
2.7 Development mine - Verticalnaya
The development of VNP continues as expected, although there were delays in the
development as a result of the working capital challenges experienced during the
quarter.
First coal production is now expected to be in the first half of Q3, 2013. For
safety reasons, it has been decided to provide the two drifts with full concrete
support into solid strata.
Development costs to date at Verticalnaya are as follows:
----------------------------------------------------------------------------
March 31, December 31,
2013 2012
----------------------------------------------------------------------------
Verticalnaya Coal Mine, Ukraine
Mineral property
Balance, beginning of period $ 16,417 $ 16,816
Mine license (4) (15)
Change due to foreign exchange rate
fluctuations 459 (384)
----------------------------
Balance, end of period $ 16,872 $ 16,417
----------------------------
Deferred costs
Balance, beginning of period $ 31,579 $ 17,507
Lease and operating costs 2,395 13,307
Interest and accretion expense on
convertible debt 97 1,160
Change due to foreign exchange rate
fluctuations 872 (395)
----------------------------
Balance, end of period $ 34,943 $ 31,579
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Verticalnaya Coal Mine, Ukraine - Balance, end
of period $ 51,815 $ 47,996
----------------------------------------------------------------------------
2.8 Other expenses
----------------------------------------------------------------------------
In thousands of Canadian dollars unless otherwise
noted 2013 2012
----------------------------------------------------------------------------
General and administrative expenses (1,857) (604)
Impairment of assets (17,947) -
Gain (loss) on revaluation of derivative
liability - 339
Gain on settlement of debt 2,376 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
$ (17,428) $ (265)
----------------------------------------------------------------------------
General and administrative expenses increased in the three months ended March
31, 2013 over the same period in 2012 predominantly as a result of expenses from
the Menzhinsky Mine, and legal and consulting fees associated with the dual
listing of the Company on both the TSX-V and the AIM.
The impairment charge of $17,947,180 in the three month period ended March 31,
2013 relates to the write down of assets owned by the Company's wholly owned
subsidiary, Inter-Invest, which owns the Menzhinsky Mine and wash plant.
The gain on settlement of debt of $2,375,644 relates to the Aponet Debenture as
the shares issued were valued at $1,043,478 in order to settle a liability of
$3,419,122.
The asset value of Inter-Invest was impaired to a net asset value of nil to
reflect the Board's view that the Company will not be able to gain any surplus
value from the administration and/or liquidation process, nor will any of the
Inter-Invest liabilities revert to the EastCoal Group.
2.9 Interest
----------------------------------------------------------------------------
In thousands of Canadian dollars unless otherwise
noted 2013 2012
----------------------------------------------------------------------------
Interest income $ 9 $ 34
Interest expense (184) (34)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net interest (expense) income $ (175) $ -
----------------------------------------------------------------------------
For the three months ended March 31, 2013 the Company earned $9,338 of interest
on its excess cash deposits compared to $33,571 for the same period in the prior
year. The decrease in interest earned was due to a decrease in the balance of
cash held.
For the three months ended March 31, 2013 the Company incurred $183,846 of
financing costs compared to $33,489 for the same period in the prior year.
2.10 Trends
Outlays at the Company's Ukraine mine project increased substantially during
2011 and 2012 and will continue to trend upwards as construction proceeds at VNP
during 2013. Costs are expected to be mitigated by the mine going into
production during Q3, 2013.
The Company is examining possible additions to its coal assets in Ukraine and is
investigating other operating mines and greenfield projects.
As discussed above and in the technical reports filed by the Company, the
development of the Ukraine coal mining interests is expected to have a material
effect upon the Company's revenues, income from continuing operations,
profitability and financial situation. Reported historical financial information
will not be indicative of future operating results or financial condition.
3 Selected Annual Information
No cash dividends have been declared or paid since the date of incorporation and
the Company has no present intention of paying dividends on its common shares.
The Company anticipates that all available funds will be invested to finance the
growth of its business.
----------------------------------------------------------------------------
Fiscal Year / $000's except per share amounts 2012 2011 2010
----------------------------------------------------------------------------
Net Sales $ 3,988 Nil Nil
Comprehensive (loss) income $ (6,686) $ 1,370 $ 3,841
Basic and diluted income (loss) per share $ (0.02) $ (0.01) $ (0.04)
Total Assets $ 93,322 $53,003 $31,088
Total Long-term liabilities $ 12,475 $ - $ 3,591
Cash dividends per share, common N/A N/A N/A
----------------------------------------------------------------------------
4 Summary of Quarterly Results
Selected financial information for each of the eight most recently completed
quarters are as follows:
----------------------------------------------------------------------------
$000's except 2013 2012 2011
per share
----------------------------------------------------------------------------
Amounts Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
----------------------------------------------------------------------------
Net Sales 661 1,463 1,702 823 Nil Nil Nil Nil
Comprehensive
(loss)
income (16,361) (1,053) (5,469) 230 (404) (728) 2,643 640
Basic and
diluted
income
(loss) per
share $ (0.05) $ (0.01) $ (0.01) $0.00 $0.00 $(0.01) $ 0.01 $ 0.01
----------------------------------------------------------------------------
5 Risks and uncertainties
Risks and uncertainties are discussed in detail in the Company's AIF and AIM
Admission Document. The Company's activities, programs and ability to raise
finance are driven by market and technical factors. While the Company considers
that the business outlook is good based on market trends and the operating plans
that have been developed, there are significant uncertainties and market
perceptions can be highly variable. Factors affecting the Company's risk profile
and business outlook currently include the under-noted.
5.1.1 The business cycle, global demand and commodity prices
The pace of the economic recovery in the US and the resolution of the debt
problems in Europe cannot be forecast with confidence. A long term demographic
shift in commodity usage continues and increases reliance on newly developing
economies. High growth rates being recorded by China, India and a number of
other countries are currently positive for commodity prices, but to be highly
variable.
In addition to Ukraine, demand for coal for the steel and other industries of
growth countries such as Turkey and India may be important for the Company in
future. While the rates of growth in various areas will vary, the Company
expects that global demand for coal, and more particularly anthracite, will be
strong for a period of years. There may be an increase in anthracite usage for
PCI for steel blast furnaces and as a replacement for expensive coke in other
uses. The Company believes it has based its projections conservatively as
compared to current markets and trends; however, fluctuations in market demand
and prices and periodical economic downturns must be expected over time.
5.1.2 Ukraine country risk
Political stability in Ukraine improved following elections in 2010 that ended
differences between the offices of the Prime Minister and President. Efforts are
being made to resolve differences with the European Union on the one hand and
with Russia on the other hand.
The Ukraine Hryvnia ("UAH") is maintaining a close but not fixed relationship
with the US dollar, in the range of approximately 8.0 UAH to one US dollar. The
Canadian dollar, however, continues to fluctuate against the US currency.
Appreciation of the Canadian currency versus the UAH favorably impacts capital
and operating costs to be expended in US or Ukraine currency, while any
weakening of the Canadian dollar has the opposite effect.
The Company is exposed to risks associated with currency fluctuations and
inflationary and other changes in costs being incurred in Ukraine. To date, such
changes have not had a major impact.
5.2 Conflicts of interest
Certain officers and directors of the Company are officers and/or directors of,
or are associated with, other natural resource companies that acquire interests
in mineral properties. Such associations may give rise to conflicts of interest
from time to time. The directors are required by law, however, to act honestly
and in good faith with a view to the best interests of the Company and its
shareholders and to disclose any personal interest which they may have in any
material transaction which is proposed to be entered into with the Company and
to abstain from voting as a director for the approval of any such transaction.
5.3 Limited operating history: losses
In common with most other exploration and development stage companies, the
Company has experienced losses in all years of its operations. There can be no
assurance that the Company will operate profitably in the future, if at all. As
at March 31, 2013, the Company's deficit was $40,838,550.
5.4 Price fluctuations: share price volatility
Over the past year, securities markets worldwide have experienced high price and
volume volatility. The price of the Company's shares has fluctuated similarly.
It is not possible to forecast future volatility and fluctuations in price based
on past experience of the Company's shares.
6 Liquidity and Capital Resources
The Company is focused on Verticalnaya located in the Donbass Region of Ukraine.
Verticalnaya is an advanced anthracite coal project in the construction phase.
Recovery of the carrying value of the Verticalnaya assets depends on the
attainment of profitable production on time and within budget, its profitable
disposition or the introduction of a joint venture partner.
The Company also owns the Menzhinsky Mine and wash plant, but due to operational
failure and ongoing technical challenges the Board of Directors resolved on May
22, 2013 to place Inter-Invest, the wholly owned subsidiary that owns the
Menzhinsky operations, into administration and/or liquidation.
The Company has experienced recurring operating losses and has accumulated a
deficit of $40,838,550 at March 31, 2013. For the period ended March 31, 2013
the Company incurred a loss of $18,054,609 and used cash in operating activities
totaling $4,430,592. The Company had cash and cash equivalents and short-term
investments of $1,228,367 and a working capital deficit of $7,782,265 at March
31, 2013. Working capital is defined as current assets less current liabilities
and provides a measure of the Company's ability to settle liabilities that are
due within one year with assets that are also expected to be converted into cash
within one year. The Company is presently in the final stages of completing an
equity fundraising, principally with institutional investors and expects, very
shortly, to be able make a further announcement in this regard. The Board is
confident that the completion of that fundraising, combined with the closure of
the Menzhinsky operations, is expected to provide the Company with sufficient
working capital for a 12 month period.
To date the Company's primary source of funding has been the issuance of equity
securities for cash, primarily through private placements to sophisticated
investors and institutions. The Company has issued common shares in each of the
past few years, pursuant to private placement financings and the exercise of
warrants or stock options. There can be no assurance that equity financings in
the future will be timely and in the amounts necessary to fund the Company's
activities. There are many conditions beyond the Company's control which have a
direct bearing on the level of investor interest in the purchase of Company
securities.
The Company's continued operations are dependent upon the Verticalnaya mine
being brought into production on budget and on time. The Company does not have
any financing facilities in place and would be dependent on its ability to raise
additional funding in the event of significant delays or cost overruns at
Verticalnaya. Although the directors are confident that the Company will be able
to secure future additional funding as required, there are no assurances that
the Company will be successful in achieving these goals. The consolidated
financial statements do not include adjustments to the amounts and
classifications of assets and liabilities that might be necessary should the
Company be unable to continue as a going concern. These adjustments may be
material.
Debt financing has not been used to fund the Company's property acquisitions and
exploration activities, apart from the convertible debentures. The Company
expects to make arrangements for debt financing in future. The Company does not
have "standby" credit facilities, or off-balance sheet arrangements and it does
not use hedges or other financial derivatives.
At March 31, 2013, the Company held cash and cash equivalents of $228,367 (2012
- $807,987; while short term investments in Guaranteed Investment Certificates
were $1,000,000 (2011 - $3,450,000).
7 Off-Balance Sheet Arrangements
The Company does not utilize off-balance sheet arrangements.
8 Transactions with Related Parties
During the three months ended March 31, the Company paid or accrued:
----------------------------------------------------------------------------
In thousands of Canadian dollars unless otherwise
noted 2013 2012
----------------------------------------------------------------------------
Directors fees 25,000 25,000
Consulting fees to directors and officers - expensed 118,525 42,060
Consulting fees to directors and officers -
capitalized - 18,042
Office rent paid to a company with a director in
common - 6,000
Office rent paid to a director 15,000 2,550
----------------------------------------------------------------------------
Included in accounts payable and accrued liabilities is a total of $101,439
(December 31, 2012 - $78,383) due to related parties for office costs,
directors' fees, and consulting fees and expenses. The amounts due to related
parties are unsecured, non-interest bearing and have no specific terms of
repayment.
9 Critical Accounting Estimates and accounting policies
The preparation of financial statements in conformity with IFRS requires
management to make estimates and assumptions which affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and expenses
for the periods reported. The Company's accounting policies are described in
Note 3 to the December 31, 2012 audited consolidated financial statements. The
policies that the Company believes are most critical to assist with
understanding and evaluating its reported financial results are described below.
The Company's accounting policies relating to business combinations, revenue,
inventory, investment in mineral properties and the translation of foreign
currencies are critical accounting policies that are subject to estimates and
assumptions regarding future activities.
9.1 Business Combinations
The fair value of identifiable assets acquired and liabilities assumed and the
resulting goodwill, if any, requires that management make estimates based on the
information provided by the acquiree. Changes to the provisional values of
assets acquired and liabilities assumed, deferred income taxes and resulting
goodwill, if any, will be retrospectively adjusted when the final measurements
are determined (within one year of acquisition date).
9.2 Revenue
Sales of coal are recognized when title transfers and the rights and obligations
of ownership pass to the customer, which occurs upon delivery, and the price is
reasonably determinable.
9.3 Inventory
Coal and coal stockpile inventories are valued at the lower of average cost and
net realizable value. Coal stockpiles include materials previously processed and
discarded as waste, which have been determined to contain coal. Coal inventories
include coal located at the mine or in transit. Coal stockpiles not expected to
be processed in the next twelve months, are included in non-current inventory.
Coal inventory costs include all direct costs incurred in production including
direct labor and materials, freight, depreciation and amortization, and directly
attributable overhead costs. Coal stockpiles are valued at fair value at
acquisition and are depleted on a units of production basis.
When inventories have been written down to net realizable value, a new
assessment of net realizable value is made in each subsequent period. If the
circumstances that caused the write-down no longer exist, the amount of the
write-down is reversed.
Consumables are stated at the lower of cost and net realizable value. Cost is
determined using the first-in, first out ("FIFO") method. Net realizable value
is the estimated selling price less applicable selling expenses. Cost includes
acquisition, freight, and other directly attributable costs.
9.4 Mineral Properties
The Company records its interests in mineral properties and areas of geological
interest at cost less option payments received and other recoveries. All direct
and indirect costs relating to the acquisition of these interests are
capitalized on the basis of specific claim blocks or areas of geological
interest until the properties to which they relate are placed into production,
sold, abandoned or management has determined there to be an impairment. These
costs will be amortized over the proven reserves available on the related
property following commencement of production. The amounts shown for mineral
properties represent costs incurred to date and are not intended to reflect
present or future values.
Mineral properties which are sold before that property reaches the production
stage will have all revenues from the sale of the property credited against the
cost of the property. Properties which have reached the production stage will
have a gain or loss calculated based on the portion of that property sold.
The Company defers all exploration expenses relating to mineral properties and
areas of geological interest until the properties to which they relate are
placed into production, sold, abandoned or management has determined there to be
an impairment. These costs will be amortized over the reserves available on the
related property following commencement of production.
Management's estimates of recoverability of the Company's investment in various
projects have been based on current conditions. However, it is reasonably
possible that changes could occur in the near term which could adversely affect
management's estimates and may result in material future write-downs of
capitalized property carrying values.
9.5 Translation of foreign currencies
The interim consolidated financial statements are presented in Canadian dollars,
which is the Company's presentation currency. The Company's subsidiaries'
functional currency under IFRS is now the Ukraine Hryvnia. Monetary assets and
liabilities are translated into Canadian dollars at period-end exchange rates,
non-monetary items are translated at historic rates, and revenues and expenses
are translated at the average rate of the period (as this is considered a
reasonable approximation to actual rates). Gains or losses from translation are
recognized in the Consolidated Statements of Loss, Comprehensive Loss and
Deficit.
When the settlement of a monetary item receivable from or payable to a foreign
operation is neither planned nor likely in the foreseeable future, foreign
exchange gains and losses arising from the item are considered to form part of
the net investment in a foreign operation and are recognized in other
comprehensive income.
When an entity disposes of its entire interest in a foreign operation, or loses
control, joint control, or significant influence over a foreign operation, the
foreign currency gains or losses accumulated in other comprehensive income
related to the foreign operation are recognized in profit or loss. If an entity
disposes of part of an interest in a foreign operation which remains a
subsidiary, a proportionate amount of foreign currency gains or losses
accumulated in other comprehensive income related to the subsidiary are
reallocated between controlling and non-controlling interests.
10 Outstanding Share data as at May 29, 2013:
a) Authorized and issued share capital:
----------------------------------------------------------------------------
Class Par Value Authorized Issued Number
----------------------------------------------------------------------------
Common No par value Unlimited 343,048,493
----------------------------------------------------------------------------
b) Summary of warrants outstanding:
----------------------------------------------------------------------------
Security Number Exercise Price Expiry Date
----------------------------------------------------------------------------
Warrants 4,000,000 0.70 May 31, 2014
----------------------------------------------------------------------------
Warrants 2,916,000 0.35 May 31, 2015
----------------------------------------------------------------------------
Warrants 48,600,000 0.55 May 31, 2015
----------------------------------------------------------------------------
----------------------------------------------------------------------------
55,516,000
----------------------------------------------------------------------------
c) Summary of options outstanding:
----------------------------------------------------------------------------
Security Number Exercise Price Expiry Date
----------------------------------------------------------------------------
Options 1,500,000 0.50 June 24, 2013
Options 1,975,000 0.30 September 15, 2014
Options 1,200,000 0.30 July 27, 2015
Options 750,000 0.70 February 4, 2016
Options 750,000 0.70 March 14, 2016
Options 750,000 0.70 July 6, 2016
Options 150,000 0.65 January 19, 2017
Options 3,500,000 0.41 May 31, 2017
----------------------------------------------------------------------------
----------------------------------------------------------------------------
10,575,000
----------------------------------------------------------------------------
11 Subsequent Events
11.1 Private Placement
The Company is presently in the final stages of completing an equity
fundraising, principally with institutional investors and expects, very shortly,
to be able make a further announcement in this regard. The Board is confident
that the completion of that fundraising will provide the longer term financial
solution required by the Company.
11.2 Insolvency of Inter-Invest Coal LLC
On May 22, 2013, after considering and exhausting all of its options with
respect to Menzhinsky Mine and wash plant, the Board resolved to place
Inter-Invest into administration and/or liquidation. This process will be
carried out in accordance with the Law of Ukraine No. 2343 - XII dated 14 May
1992 "On Restoring of Debtor's Solvency or Declaring the Debtor Bankrupt", or
such other legislation in force at such time.
12 Internal Control and Disclosure Controls Over Financial Reporting:
On November 23, 2007, the British Columbia Securities Commission exempted
Venture Issuers, such as the Company, from certifying disclosure controls and
procedures, as well as internal controls over financial reporting as of December
31, 2007 and thereafter. The Company is now required to file basic certificates.
The Company makes no assessment relating to establishment and maintenance of
disclosure controls and procedures as defined under National Instrument 52-109
as at December 31, 2012.
13 Other Information:
For additional disclosures concerning the Company's general and administrative
expenses and mineral properties, please refer to the audited consolidated annual
financial statements for the year ended December 31, 2012, which are available
on the Company's website at www.eastcoal.ca or on SEDAR at www.sedar.com.
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2013
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(all tabular amounts in thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2013 2012
----------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents $ 228 $ 4,773
Short term investments (Note 5) 1,000 5,000
Trade and other receivables (Note 6) 592 1,300
Inventory (Note 4) 1,099 1,769
Prepaid expenses 334 481
---------------------------
Total current assets 3,253 13,323
Non-current assets
Mineral properties (Note 7) 56,268 57,618
Non-current inventory (Note 4) 2,342 4,992
Property, plant and equipment (Note 8) 8,932 12,115
Goodwill (Note 9) - 4,940
Intangibles 284 327
Reclamation bond 7 7
---------------------------
TOTAL ASSETS $ 71,086 $ 93,322
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES
Current
Trade and other payables (Note 12) $ 7,228 $ 8,211
Pension liabilities 625 619
Borrowings (Note 10) 3,182 5,298
---------------------------
11,035 14,128
Non-current liabilities
Asset retirement obligations 620 588
Borrowings (Note 10) 1,947 4,801
Deferred tax 2,364 4,114
Pension liabilities 3,097 2,972
---------------------------
TOTAL LIABILITIES 19,063 26,603
---------------------------
EQUITY
Share capital (Note 11) 82,687 81,626
Contributed surplus 9,968 9,364
Accumulated other comprehensive loss 206 (1,487)
Deficit (40,838) (22,784)
---------------------------
TOTAL EQUITY 52,023 66,719
---------------------------
TOTAL LIABILITIES AND EQUITY $ 71,086 $ 93,322
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate information and going concern (Note 1)
On behalf of the Board:
John Byrne Director, Abraham Jonker Director
The accompanying notes are an integral part of these financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF LOSS - For the periods ended
March 31
(all tabular amounts in thousands of Canadian dollars, except per share
figures)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2013 2012
----------------------------------------------------------------------------
Revenue $ 661 $ -
Cost of sales (2,965) -
-----------------------------
Gross loss (2,304) -
-----------------------------
General and administrative expenses (Note 3) (1,857) (604)
Impairment of assets (Note 9) (17,947) -
Gain on revaluation of derivative liability - 339
Gain on settlement of debt (Note 10) 2,376 -
-----------------------------
(17,428) (265)
-----------------------------
Interest income 9 34
Finance expense (184) (34)
-----------------------------
Net interest (expense) income (175) -
-----------------------------
Loss for the period before income tax (19,907) (265)
Income tax recovery (expense) 1,853 -
-----------------------------
Loss for the period $ (18,054) $ (265)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net loss per common share
Basic and diluted $ (0.05) $ (0.00)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average number of common shares
outstanding
Basic and diluted 329,325,743 195,163,839
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - For the
periods ended March 31
(all tabular amounts in thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2013 2012
----------------------------------------------------------------------------
Loss for the period $ (18,054) $ (265)
Other comprehensive income (loss)
Cumulative translation adjustment 1,693 (139)
-----------------------------
Other comprehensive income (loss) for the
period 1,693 (139)
-----------------------------
Comprehensive loss for the period $ (16,361) $ (404)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - For the
periods ended March 31, 2013 & 2012
(all tabular amounts in thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated
Number other
of Share Contributed comprehensive Total
shares capital surplus income Deficit Equity
----------------------------------------------------------------------------
Balance -
January 1,
2012 195,164 $57,577 $ 2,792 $ (153) $(17,432) $ 42,784
Net loss for
the period - - - - (265) (265)
Other
comprehensive
income - - - (139) - (139)
--------------------------------------------------------------
- - - (139) (265) (404)
--------------------------------------------------------------
Employee share
options
granted - - 27 - - 27
--------------------------------------------------------------
Balance -
March 31,
2012 195,164 $57,577 $ 2,819 $ (292) $(17,697) $ 42,407
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance -
January 1,
2013 325,569 $81,626 $ 9,364 $ (1,487) $(22,784) $ 66,719
Net loss for
the period - - - - (18,054) (18,054)
Other
comprehensive
income - - - 1,693 - 1,693
--------------------------------------------------------------
- - - 1,693 (18,054) (16,361)
--------------------------------------------------------------
Issue of
shares 17,479 1,061 - - - 1,061
Issue of
convertible
debt - - 604 - - 604
--------------------------------------------------------------
Balance -
March 31,
2013 343,048 $82,687 $ 9,968 $ 206 $(40,838) $ 52,023
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - For the periods
ended March 31
(all tabular amounts in thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2013 2012
----------------------------------------------------------------------------
OPERATING ACTIVITIES
Loss for the period $ (18,054) $ (265)
Add items not affecting cash
Depletion, depreciation and amortisation 81 5
Impairment charge 17,947
Share-based compensation - 27
Gain on revaluation of derivative
liability - (339)
Gain on settlement of debt (2,376) -
Deferred income tax recovery (1,853) -
Accretion expense 218 10
Unrealized foreign exchange (gains) losses 52 (41)
-----------------------------
(3,985) (603)
Changes in non-cash working capital balances
related to operations
Trade and other receivables 297 (477)
Prepaid expenses 152 33
Inventories (130) 42
Trade and other payables (765) 144
-----------------------------
Cash used in by operating activities (4,431) (861)
-----------------------------
INVESTING ACTIVITIES
Mineral properties (2,484) (3,605)
Property, plant and equipment (368) (582)
Intangibles - (48)
Business combination - (1,303)
Reclamation bonds - 2
Short term investments 4,000 4,550
-----------------------------
Cash used in investing activities 1,148 (986)
-----------------------------
FINANCING ACTIVITIES
Repayment of debt (1,283) -
-----------------------------
Cash generated by financing activities (1,283) -
-----------------------------
Net increase (decrease) in cash for the period (4,566) (1,847)
Cash and cash equivalents, beginning of period 4,773 2,655
Exchange gains/(losses) on cash and cash
equivalents 21 -
-----------------------------
Cash and cash equivalents, end of period $ 228 $ 808
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplemental cash flow information - Note 13
The accompanying notes are an integral part of these financial statements
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the periods ended March 31, 2013 and 2012
(all tabular amounts in thousands of Canadian dollars except per share figures
and unless otherwise noted)
1 Corporate information and going concern
EastCoal Inc. (the "Company") was incorporated on December 15, 1986 under the
laws of the Province of British Columbia, CANADA. Its principal business
activity is the acquisition and development of mineral properties and its
registered address is 20th floor, 250 Howe Street, Vancouver, British Columbia,
CANADA, V6C 3R8 and its head office is located at Suite 130, 889 Harbourside
Drive, North Vancouver, British Columbia, CANADA, V7P 3S1.
The Company is focused on the Verticalnaya Mine located in the Donbass Region of
Ukraine. The Verticalnaya Mine is an advanced anthracite coal project in the
construction phase. Recovery of the carrying value of the Verticalnaya assets
depends on the attainment of profitable production on time and within budget,
its profitable disposition or the introduction of a joint venture partner. The
Company also owns the Menzhinsky Mine and wash plant, but due to operational
failure and ongoing technical challenges the Board of Directors resolved on May
22, 2013 to place Inter-Invest LLC ("Inter-Invest"), the wholly owned subsidiary
that owns the Menzhinsky operations, into administration and/or liquidation.
The Company has experienced recurring operating losses and has accumulated a
deficit of $40,838,550 at March 31, 2013. For the period ended March 31, 2013
the Company incurred a loss of $18,054,609 and used cash in operating activities
totaling $4,430,592. The Company had cash and cash equivalents and short-term
investments of $1,228,367 and a working capital deficit of $7,782,265 at March
31, 2013. Working capital is defined as current assets less current liabilities
and provides a measure of the Company's ability to settle liabilities that are
due within one year with assets that are also expected to be converted into cash
within one year. The Company is presently in the final stages of completing an
equity fundraising, principally with institutional investors and expects, very
shortly, to be able make a further announcement in this regard. The Board is
confident that the completion of that fundraising, combined with the closure of
the Menzhinsky operations, is expected to provide the Company with sufficient
working capital for a 12 month period.
The Company's continued operations are dependent upon the Verticalnaya mine
being brought into production on budget and on time. The Company does not have
any financing facilities in place and would be dependent on its ability to raise
additional funding in the event of significant delays or cost overruns at
Verticalnaya. Although the directors believe that the Company should be able to
secure the current equity fundraising as well as future additional fundraising
as required, there are no assurances that the Company will be successful in
achieving these goals. These consolidated financial statements do not include
adjustments to the amounts and classifications of assets and liabilities that
might be necessary should the Company be unable to continue as a going concern.
These adjustments may be material.
2 Basis of presentation
These interim condensed consolidated financial statements have been prepared in
accordance with IAS 34, Interim Financial Reporting ("IAS 34") and follow the
same accounting policies and methods of application as contained in the annual
financial statements for the year ended December 31, 2012 with the exception of
those outlined below. Accordingly, they should be read in conjunction with the
Company's most recent annual financial statements. These interim condensed
consolidated financial statements were approved by the Board of Directors on May
27, 2013.
2.1 New IFRS Pronouncements
The accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Company's annual consolidated financial statements for the
year ended December 31, 2012, except for the adoption of new standards and
interpretations effective as of January 1, 2013.
IFRS 7, "Financial instruments: Disclosure" has been amended to require
additional disclosure on offsetting of financial assets and financial
liabilities.
IFRS 13, "Fair Value Measurement" sets out in a single IFRS a framework for
measuring fair value. IFRS 13 defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. This definition
of fair value emphasizes that fair value is a market-based measurement, not an
entity-specific measurement. In addition, IFRS 13 also requires specific
disclosures about fair value measurement.
Amendments to IAS 19, "Employee Benefits" outlines the accounting requirements
for employee benefits, including short-term benefits (e.g. wages and salaries,
annual leave), post-employment benefits such as retirement benefits, other
long-term benefits (e.g. long service leave) and termination benefits.
There was no material impact on the consolidated financial statements from the
adoption of any of these accounting pronouncements.
Several other new standards and amendments apply for the first time in 2013.
However, they do not impact the annual consolidated financial statements of the
Company or the interim condensed consolidated financial statements of the
Company.
3 Expenses by Nature
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, March 31,
2013 2012
----------------------------------------------------------------------------
Employee benefit expense $ 1,762 $ 52
Consulting and professional fees 1,032 323
Materials 1,028 -
Depreciation, amortisation and depletion 140 5
Mine lease payments 205 -
Other 655 224
-------------------------
Total cost of sales, general and administrative
expenses $ 4,822 $ 604
-------------------------
-------------------------
4 Inventory
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2013 2012
----------------------------------------------------------------------------
Consumables and spares $ 1,012 $ 856
Coal stockpile 789 832
Coal inventory 81 81
Impairment (Note 9) (783) -
----------------------------
1,099 1,769
Non-current coal stockpile 5,196 4,992
Impairment (Note 9) (2,854) -
----------------------------
$ 3,441 $ 6,761
----------------------------
----------------------------
The cost of inventories recognized as an expense and included in cost of sales
amounted to $2,965,520 (2012 - $nil).
5 Short term investments
At March 31, 2013, the Company's short term investments consist of a guaranteed
investment certificate, which is redeemable, in whole or in part, at any time,
as detailed in the table below.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expiry Date Interest rate At Mar 31, 2013 At Dec 31, 2012
----------------------------------------------------------------------------
December 27,
2013 Prime rate less 1.95% 1,000 5,000
----------------------------------------------------------------------------
$ 1,000 $ 5,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Prime rate above refers to the prime lending rate for Canadian dollar loans
to borrowers in Canada offered by the Company's Canadian bank.
6 Trade and other receivables
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2013 2012
----------------------------------------------------------------------------
Trade receivables $ 292 $ 792
Other receivables 867 508
Impairment (Note 9) (567) -
----------------------------
$ 592 $ 1,300
----------------------------
----------------------------
As of March 31, 2013, trade receivables relate entirely to sales of coal to the
Company's sole customer, MetInvest Holding LLC.
7 Mineral properties
7.1 Verticalnaya Coal Mine, Ukraine
Detailed costs to date:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2013 2012
----------------------------------------------------------------------------
Verticalnaya Coal Mine, Ukraine
Mineral property
Balance, beginning of period $ 16,417 $ 16,816
Mine license (4) (15)
Change due to foreign exchange rate
fluctuations 459 (384)
-----------------------------
Balance, end of period $ 16,872 $ 16,417
-----------------------------
Capitalized costs
Balance, beginning of period $ 31,579 $ 17,507
Lease and other costs 2,395 13,307
Interest and accretion expense on
convertible debt 97 1,160
Change due to foreign exchange rate
fluctuations 872 (395)
-----------------------------
Balance, end of period $ 34,943 $ 31,579
-----------------------------
Verticalnaya Coal Mine, Ukraine - Balance, end
of period $ 51,815 $ 47,996
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Verticalnaya Coal Mine is an anthracite coal mine located on the Eastern
side of Ukraine. The Company acquired the rights to Verticalnaya in 2009.
7.2 Menzhinsky Coal Mine, Ukraine
Detailed costs to date:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2013 2012
----------------------------------------------------------------------------
Menzhinsky Coal Mine, Ukraine
Mineral property
Balance, beginning of period $ 9,622 $ -
Acquisition through business
combination - 9,953
Depletion (7) (31)
Change due to foreign exchange rate
fluctuations 265 (300)
Impairment charge (Note 9) (5,427) -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Menzhinsky Coal Mine, Ukraine - Balance,
end of period $ 4,453 $ 9,622
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Menzhinsky Coal Mine is an underground metallurgical coal mine also located
on the Eastern side of Ukraine. The Company impaired the carrying value of the
mine in the period ended March 31, 2013 to bring it down to its recoverable
amount. Details are disclosed in Note 9.
8 Property, plant and equipment
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Assets under
Buildings Equipment Vehicles construction Total
-------------------------------------------------------
Year ended December
31, 2012
At January 1, 2012 $ 1,132 $ 2,064 $ 256 $ 1,322 $ 4,774
Additions 99 $ 1,437 - 3,332 4,868
Business combination 987 1,318 31 1,320 3,656
Commissioned - 3,746 - (3,746) -
Disposals - (3) - - (3)
Depreciation (118) (947) (39) - (1,104)
Change due to foreign
exchange rate
fluctuations (43) (11) (4) (18) (76)
----------------------------------------------------------------------------
At December 31, 2012 $ 2,057 $ 7,604 $ 244 $ 2,210 $12,115
----------------------------------------------------------------------------
At December 31, 2012
Cost 2,616 9,470 487 2,210 14,783
Accumulated
depreciation (559) (1,866) (243) - (2,668)
----------------------------------------------------------------------------
Net book value $ 2,057 $ 7,604 $ 244 $ 2,210 $12,115
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Period ended March
31, 2013
At January 1, 2013 $ 2,057 $ 7,604 $ 244 $ 2,210 $12,115
Additions - 253 - 114 367
Commissioned - - - - -
Disposals - (287) - - (287)
Depreciation (34) (187) (12) - (233)
Change due to foreign
exchange rate
fluctuations 57 209 7 61 334
Impairment (Note 9) (642) (1,298) (121) (1,303) (3,364)
----------------------------------------------------------------------------
At March 31, 2013 $ 1,438 $ 6,294 $ 118 $ 1,082 $ 8,932
----------------------------------------------------------------------------
At March 31, 2013
Cost 2,689 9,692 500 2,385 15,266
Accumulated
depreciation (609) (2,100) (261) - (2,970)
Impairment (Note 9) (642) (1,298) (121) (1,303) (3,364)
----------------------------------------------------------------------------
Net book value $ 1,438 $ 6,294 $ 118 $ 1,082 $ 8,932
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Of the depreciation of $232,871 (2012 - $118,768) for the period ended March 31,
2013, $66,210 (2012 - $nil) was charged to the statement of loss as part of Cost
of Sales, $2,504 (2012 - $218) was charged to the statement of loss as part of
Depreciation, and $164,157 (2012 - $118,550) was capitalized to mineral
properties.
9 Impairment
On May 22, 2013 the Board of directions resolved to place Inter-Invest, the
wholly owned subsidiary of EastCoal Inc., that owns and operated the Menzhinsky
Mine and wash plant, into administration and/or liquidation. The reason for the
board decision was the continued geological and technical challenges at these
operations and the resulting operating losses that the Company could no longer
afford. As a result, the asset value of Inter-Invest was impaired to a net asset
value of nil to reflect the Board's view that the Company will not be able to
gain any surplus value from the administration and/or liquidation process, nor
will any of the Inter-Invest liabilities revert to other EastCoal Group
companies.
The impairment charge applied to the assets of Inter-Invest in the three month
period ended March 31, 2013 was $17,947,180 and was allocated to the assets of
Inter-Invest as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Inter-Invest
----------------------------------------------------------------------------
Period ended March 31, 2013
Goodwill $ 5,076
Trade and other receivables 567
Inventories 783
Mineral properties 5,427
Non-current inventory 2,854
Property, plant and equipment 3,364
Intangibles 40
----------------------------------------------------------------------------
Impairment recognized at March 31, 2013 $ 18,111
Change due to foreign exchange rate fluctuations (164)
----------------------------------------------------------------------------
Impairment Charge $ 17,947
----------------------------------------------------------------------------
----------------------------------------------------------------------------
10 Borrowings
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2013 2012
----------------------------------------------------------------------------
Current
Convertible debentures $ - $ 2,196
Other loans 3,182 3,102
---------------------------
$ 3,182 $ 5,298
---------------------------
---------------------------
Non-current
Convertible debentures $ 977 $ 3,334
Other loans 970 1,467
---------------------------
$ 1,947 $ 4,801
---------------------------
---------------------------
10.1 Convertible debentures
10.1.1 Surrey Dynamics
On November 26, 2009, the Company acquired a 49% interest in East Coal Company
from Surrey Dynamics Limited ("Surrey Dynamics") of the United Kingdom.
Consideration paid was 5,000,000 common shares and an unsecured, three year,
convertible US$3,000,000 debenture ("Original Debenture"), maturing on 26
November 2012 ("Original Maturity Date").
The debenture could be converted at any time during the term into 8.0 million
common shares of the Company at a conversion price of US$0.3739. The principal
amount bore interest at the rate of 2% over the three month USD Libor rate per
annum, payable quarterly.
As the debenture was considered to be a compound financial instrument, the
principal amount was allocated between liability and equity components. The
equity component was determined to be a derivative liability as the conversion
price of the loan is denominated in a currency other than the Company's
functional currency. The fair value of the equity component was initially valued
at issuance at $2,476,000 using the Black-Scholes option pricing model assuming
a risk free rate of 1.88%, expected life of 3 years, volatility of 183.66% and
share price of US$0.35. The debt component was initially valued at $702,500 and
was accreted up to the principal balance over the term of the debenture using
the effective interest method.
On November 26, 2012, by way of a Supplemental Indenture (the "Supplemental
Indenture"), the Company and Surrey Dynamics amended the Original Debenture to
extend the Original Maturity Date to December 17, 2012 at which point the
Company would repay US$1,500,000 and enter into a new debenture for US$1,500,000
plus outstanding accrued interest on the Original Debenture (the "New
Debenture"). Further on December 14, 2012, the Company paid US$800,000, plus a
financing charge of $50,000, to Surrey Dynamics and agreed to extend the
Original Maturity Date to January 3, 2013, at which point the Company made
further payment of US$700,000 to Surrey Dynamics.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Debt Derivative
Convertible debenture component liability Total
----------------------------------------------------------------------------
Balance at January 1, 2012 $ 1,949 $ 1,146 $ 3,095
Interest accreted 1,102 - 1,102
Interest capitalised 17 - 17
Principal repayment (800) - (800)
Gain on revaluation - (1,146) (1,146)
Foreign exchange change upon
conversion of USD (72) - (72)
--------------------------------------------
Balance at December 31, 2012 $ 2,196 $ - $ 2,196
Interest capitalised - - -
Principal repayment (689) - (689)
Conversion to New Debenture (1,499) - (1,499)
Foreign exchange change upon
conversion of USD (8) - (8)
--------------------------------------------
Balance at March 31, 2013 $ - $ - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
On January 3, 2013, following the repayment of US$700,000 to Surrey Dynamics,
the Company and Surrey Dynamics rolled over the outstanding balance of the
Original Debenture (US$1,517,174) into a new convertible debenture for a term of
2 years, an interest rate of 10%, and a conversion price of $0.23 per share
("New Debenture"). The remaining terms of the New Debenture are the same as the
Original Debenture.
Under the terms of the convertible debenture, the Company may elect to prepay it
prior to its maturity upon provision of 90 days written notice to the holder.
Should the Company choose to issue prepayment of the debenture, Surrey Dynamics
has the right to elect to (a) receive payment in cash of the principal amount
and all unpaid accrued interest or (b) convert the principal and all unpaid
accrued interest into common shares of the Company at a conversion price of
$0.23 per share.
As the New Debenture is considered to be a compound financial instrument, the
principal amount has been allocated between liability and equity components. The
fair value of the equity component was valued at issuance at $614,817 using the
Black-Scholes option pricing model assuming a risk free rate of 1.19%, expected
life of 2 years, volatility of 80.25% and share price of $0.22. The debt
component was initially valued at $902,357 and will accrete up to the principal
balance over the term of the debenture using the effective interest method.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Convertible debenture Amount
----------------------------------------------------------------------------
Proceeds on issuance of debenture 902
Interest accreted 59
Foreign exchange change upon conversion of USD 16
-------------------------
Balance at March 31, 2013 $ 977
----------------------------------------------------------------------------
----------------------------------------------------------------------------
10.1.2 Aponet
On May 31, 2012, the Company acquired a 100% interest in Inter-Invest Coal LLC
("Inter-Invest") from Aponet Enterprises Limited ("Aponet") of Cyprus.
Consideration paid was 4,000,000 common shares, $2 million cash, options to
purchase 4,000,000 common shares of the Company at a price of $0.70 and an
unsecured, four-year, convertible $4,000,000 debenture. The debenture may be
converted at any time during the term into 6,153,846 common shares of the
Company at a conversion price of $0.65. The principal amount bears interest at
the rate of 2% over the three month USD Libor rate per annum, payable quarterly.
As the debenture is considered to be a compound financial instrument, the
principal amount has been allocated between liability and equity components. The
debt component was initially valued at $3,091,684 and will accrete up to the
principal balance over the term of the debenture using the effective interest
method. The fair value of the equity component was valued at issuance at
$908,316 using the Black-Scholes option pricing model assuming a risk free rate
of 1.34%, expected life of 4 years, volatility of 73.22% and share price of
$0.36.
On March 11, 2013 the Company and Aponet agreed to amend the conversion price of
the convertible debenture in Note 10.1 from $0.65 to $0.23 per share and to
convert the debenture into 17,391,305 common shares, effective March 12, 2013.
The market price on the date of conversion was $0.06 and this resulted in a gain
on settlement of $2,375,644. Accordingly, no liability remained at March 31,
2013.
Convertible debenture Amount
----------------------------------------------------------------------------
Proceeds on issuance of debenture 3,092
Interest accreted 327
Conversion to equity (3,419)
--------------------------
Balance at March 31, 2013 $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
10.2 Other loans
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2013 2012
----------------------------------------------------------------------------
Inter-Invest loan $ 3,952 $ 4,369
Directors' loan 200 200
---------------------------
$ 4,152 $ 4,569
---------------------------
---------------------------
10.2.1 Inter-Invest loan
At acquisition, Inter-Invest had certain liabilities owing to a Ukrainian
financial institution. The loan is unsecured, repayable in quarterly instalments
of US$583,333 and bears no interest.
As long as Inter-Invest continues to meet its repayment obligations, the last
payment is due on September 30, 2014. In the event that Inter-Invest does not
pay the loan instalments up to September 30, 2014, an additional US$4,213,376
will become due and payable by Inter-Invest.
10.2.2 Directors' Loan
On November 28, 2012 three of the Company's directors agreed to provide bridging
finance to the Company for general working capital. The loan amounted to
$600,000 with a term of 12 months. The loan bore an interest rate of 12.0% per
annum compounded annually and payable at the time that the principal becomes due
and payable.
In order to secure the performance of the Company's obligations to the lenders
under the loan agreement, the Company executed GSAs, pursuant to which the
Company granted to the lenders security interests in all present and future
undertaking and property, both real and personal located in the province of
British Columbia, of the Company, as described in the GSA.
On December 31, 2012, $400,000 plus accrued interest of $4,077 was repaid to two
of the directors. As at March 31, 2013, $200,000 of the $600,000 loan was
payable and is included in borrowings.
11 Share capital
11.1 Share issue
On January 3, 2013, the Company issued 88,271 common shares priced at $.193675
per share as full settlement for $17,095.89 of accrued interest due pursuant to
the terms of a $2,000,000 loan provided by Salida Capital LP to the Company.
11.2 Conversion of Convertible Debt
On March 12, 2013, the Company reached an agreement with Aponet Enterprises
Limited to amend the $0.65 conversion price of its US$4 million debenture,
issued as part of the acquisition of Inter Invest, to CDN$0.23, and to convert
the debenture into 17,391,305 common shares of EastCoal Inc. effective on that
date. The closing market price of the company's shares on the day of the
conversion was $0.06.
11.3 Warrants
At March 31, 2013 and December 31, 2012 the following share purchase warrants
were outstanding:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expiry Date Exercise Price March 31, 2013 December 31, 2012
----------------------------------------------------------------------------
May 31, 2014 $ 0.70 4,000,000 4,000,000
May 31, 2015 $ 0.35 2,916,000 2,916,000
May 31, 2015 $ 0.55 48,600,000 48,600,000
----------------------------------------------------------------------------
55,516,000 55,516,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
11.4 Stock options
The Company has established a stock option plan (the "Plan") to provide
incentives to employees, directors, officers, and consultants to carry out the
business of the Company. The Board of Directors may grant up to a total of
25,009,244 options, not to exceed 20% of the issued and outstanding capital
stock to employees, directors, officers, and consultants. The maximum term of
any option is ten years. The exercise price of an option is fixed at the time of
grant and is not less than the closing price on the TSX-V on the last trading
day preceding the grant date, less any discounts permitted by the TSX-V.
At March 31, 2013, a total of 10,075,000 options had been granted to directors,
officers, employees and consultants under the Plan, and were outstanding as
summarized below:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, 2013 December 31, 2012
------------------------------------------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
----------------------------------------------------------------------------
Opening balance 10,075,000 $ 0.45 7,225,000 $ 0.48
Granted - - 3,650,000 0.42
Exercised - - - -
Expired - - (300,000) 0.75
------------------------------------------------------
Ending balance 10,075,000 $ 0.45 10,075,000 $ 0.45
----------------------------------------------------------------------------
Options exercisable 10,075,000 $ 0.45 10,075,000 $ 0.45
----------------------------------------------------------------------------
----------------------------------------------------------------------------
All stock options have exercise prices that are higher or equal to market prices
at the date of grant.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Number Number
Expiry Date Outstanding Exercisable
----------------------------------------------------------------------------
June 24, 2013 1,500,000 1,500,000
September 15, 2014 1,975,000 1,975,000
July 27, 2015 1,200,000 1,200,000
February 4, 2016 750,000 750,000
March 14, 2016 750,000 750,000
July 6, 2016 750,000 750,000
January 19, 2017 150,000 150,000
May 31, 2017 3,500,000 3,500,000
----------------------------------------------------------------------------
10,575,000 10,575,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
12 Related party transactions
During the period ended March 31, 2013, the Company paid $15,000 (2012 - $8,550)
for office costs, of which $nil (2012 - $6,000) was paid to a company with a
director in common and $15,000 (2012 - $2,550) was paid to a director.
Consulting fees totalling $118,525 (2012 - $60,102) to directors and officers of
the Company, of which $nil (2012 - $18,042) was capitalized to the Verticalnaya
mine project and $118,525 (2012 - $42,060) was expensed.
Included in accounts payable and accrued liabilities is a total of $101,439
(March 31, 2012 - $78,383) due to related parties for office costs, directors'
fees, and consulting fees and expenses. The amounts due to related parties are
unsecured, non-interest bearing and have no specific terms of repayment.
13 Supplemental cash flow information
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the three months ended
March 31, March 31,
2013 2012
----------------------------------------------------------------------------
Cash paid during the period for:
Interest paid $ 42 $ 20
Interest received 1 20
Income taxes paid - -
Non-cash financing and investing activities:
Share-based compensation included in
mine/deferred costs - -
Mine/deferred costs included in accounts
payable - 125
Share issuance costs included in accounts
payable - -
14 Segmented information
The Company's Verticalnaya and Menzhinsky mines are operated as separate
business units and are considered to be distinct operating segments based on
geographic location. The Company's identifiable property, plant and equipment
are located primarily in Ukraine. Geographic information is as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the three months ended
March 31, March 31,
2013 2012
----------------------------------------------------------------------------
Revenue
Menzhinsky $ 661 $ -
(Loss) income for the period
Verticalnaya $ (38) (16)
Menzhinsky (18,745) -
Corporate 729 (249)
-----------------------------
(18,054) (265)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2013 2012
----------------------------------------------------------------------------
Mineral properties
Verticalnaya $ 51,815 $ 47,996
Menzhinsky 4,453 9,622
---------------------------
56,268 57,618
---------------------------
---------------------------
Coal Stockpile - Menzhinsky (long term) $ 2,342 $ 4,992
Property, plant & equipment
Verticalnaya $ 6,160 $ 5,886
Menzhinsky 2,760 6,222
Corporate 12 7
---------------------------
8,932 12,115
---------------------------
---------------------------
Intangibles
Verticalnaya $ 5 $ 6
Menzhinsky 32 70
Corporate 247 251
---------------------------
284 327
---------------------------
---------------------------
Goodwill - Menzhinsky $ - $ 4,940
Reclamation bond - Corporate $ 7 $ 7
Current assets
Verticalnaya $ 654 $ 1,309
Menzhinsky 1,237 2,933
Corporate 1,362 9,081
---------------------------
3,253 13,323
---------------------------
---------------------------
Total assets
Verticalnaya $ 58,634 $ 55,198
Menzhinsky 10,824 28,778
Corporate 1,628 9,346
---------------------------
71,086 93,322
---------------------------
---------------------------
Total liabilities
Verticalnaya $ 5,698 $ 5,962
Menzhinsky $ 10,824 $ 12,242
Corporate 2,541 8,399
---------------------------
$ 19,063 $ 26,603
----------------------------------------------------------------------------
----------------------------------------------------------------------------
15 Subsequent Events
15.1 Private Placement
The Company is presently in the final stages of completing an equity
fundraising, principally with institutional investors and expects, very shortly,
to be able make a further announcement in this regard. The Board is confident
that the completion of this fundraising should provide the longer term financial
solution required by the Company.
15.2 Insolvency of Inter-Invest Coal LLC
On May 22, 2013, after considering and exhausting all of its options with
respect to Menzhinsky Mine and wash plant, the Board resolved to place
Inter-Invest into administration and/or liquidation. This process will be
carried out in accordance with the Law of Ukraine No. 2343 - XII dated 14 May
1992 "On Restoring of Debtor's Solvency or Declaring the Debtor Bankrupt", or
such other legislation in force at such time.
FOR FURTHER INFORMATION PLEASE CONTACT:
EastCoal Inc.
Abraham Jonker
President
+1 (604) 681-8069
www.eastcoal.ca
Cenkos Securities plc
Ken Fleming/Alan Stewart/Derrick Lee
+44 (0) 131 220 6939
Tavistock Communications
Jos Simson/Emily Fenton/Mike Bartlett
+44 (0) 207 920 3150
Eastcoal (TSXV:ECX)
Gráfico Histórico do Ativo
De Mai 2024 até Jun 2024
Eastcoal (TSXV:ECX)
Gráfico Histórico do Ativo
De Jun 2023 até Jun 2024
