NEW YORK, Aug. 14, 2014 /PRNewswire/ -- MFC Industrial Ltd. ("MFC" or the "Company") (NYSE: MIL) announces its results for the three and six months ended June 30, 2014 and provides an update on its recent corporate developments. The Company's financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). (All references to dollar amounts are in United States dollars unless otherwise stated.)   

MFC is a materially different company than it was just six months ago.  In March, we acquired F.J. Elsner ("Elsner") and, in April, we acquired FESIL AS Group ("FESIL").  These two additions substantially increased our trading revenues through geographic and product expansion, increasing the scale of our global commodity supply chain business.  Even though the integration of these two companies is going well, we are not satisfied with our results and believe that our company, once fully integrated, will be able to capitalize on the many opportunities ahead of us. 

Revenues for the second quarter of 2014 reached $397.3 million, versus $231.4 million in the first quarter of 2014, which represented an increase of 72%. For the first six months of 2014, revenues reached $628.7 million, compared to $376.2 million in the same period of 2013, representing an increase of 67%.   

Net income for the second quarter of 2014 reached $7.1 million, versus $5.8 million in the first quarter of 2014. For the first half of the year, net income reached $12.9 million, versus $15.3 million in the same period of 2013.

EBITDA (earnings before interest, taxes, depreciation, depletion and amortization) for the six months ended June 30, 2014 was $39.5 million, compared to $39.7 million in the same period of 2013. (EBITDA is not a financial performance indicator under International Financial Reporting Standards ("IFRS"), has significant limitations as an analytical tool and should not be considered in isolation or as a substitute for our results as reported under IFRS. See page 4 of this news release for a reconciliation of our net income to EBITDA).

Our balance sheet continues to be strong with conservative leverage and equity of $714.6 million.  However, our cash position declined during the quarter due to the acquisition of FESIL and a significant pay-down of certain short-term borrowings. Excluding this pay-down of short-term borrowings, our cash flow from operations was $16.9 million during the quarter.

FINANCIAL

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

LIQUIDITY

As at June 30, 2014, we had cash and cash equivalents, short-term deposits and securities of $185.8 million. We monitor our capital on the basis of our net debt-to-equity ratio and long-term debt-to-equity ratio.

LONG-TERM DEBT

The long-term debt-to-equity ratio is calculated as long-term debt divided by shareholders' equity.

CREDIT FACILITIES

We maintain various kinds of credit lines and facilities with banks. Most of these facilities are short-term and are used for day-to-day business and structured financing activities in commodities. The amounts drawn under such facilities fluctuate with the type and level of transactions being undertaken.

As at June 30, 2014, we had credit facilities aggregating $800.2 million, comprised of: (i) unsecured revolving credit facilities aggregating $416.4 million from banks; (ii) revolving credit facilities aggregating $83.5 million from banks for structured solutions, a special trade financing where the margin is negotiable when the facility is used; (iii) a non-recourse factoring arrangement with a bank for up to $199.2 million for our commodities activities. We may factor our commodity receivable accounts upon invoicing at the inter-bank rate plus a margin; (iv) a foreign exchange credit facility of $63.1 million with a bank; and (v) secured revolving credit facilities aggregating $38.0 million. All of these facilities are either renewable on a yearly basis or usable until further notice.

RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2014

Total revenues for the six months ended June 30, 2014 increased 67% to $628.7 million, compared to $376.2 million in first six months of 2013. Revenues were up for the first six months of 2014 primarily due to the inclusion of our two new acquisitions, Elsner and FESIL and increases in natural gas prices.

Net income for the six months ended June 30, 2014 decreased to $12.9 million, or $0.21 per share on a diluted basis, from $15.3 million, or $0.24 per share on a diluted basis. Net income for the six months, was down primarily due to:

• receiving substantially less royalty payments from the Scully Mine, due to the idling of the mine; and
• income from operations being affected by one-time expenses including relocation, legal, employment and restructuring expenses.

The income statement for the six months ended June 30, 2014 includes non-cash amortization, depletion and depreciation expenses of approximately $11.4 million, representing approximately $0.18 per share on a diluted basis. Depletion and depreciation are non-cash expenses and represent the amortization of the historical cost of our natural gas assets and other assets over their economic life. They are income statement expenses but are added back in the cash flow statement.

EBITDA BREAKDOWN

EBITDA is defined as earnings before interest, taxes, depreciation, depletion and amortization. Management uses EBITDA as a measurement of its own operating results. Management considers it to be a meaningful supplement to net income as a performance measurement primarily because we incur significant depreciation and depletion, and EBITDA generally represents cash flow from operations.  

The following table reconciles our EBITDA to net income for each of the six months ended June 30, 2014 and 2013.

RESULTS BY OPERATING SEGMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2014

Revenues for our commodities and resources business were $605.5 million for the six months ended June 30, 2014, compared to $360.6 million for the same period in 2013. Included are the gross revenues generated by our iron ore royalty interest which, for the six months ended June 30, 2014, were approximately $3.0 million, compared to $7.9 million in 2013.

Revenues from our merchant banking business were $9.4 million for the six months ended June 30, 2014, compared to $6.2 million for the same period in 2013.

All other revenues, which encompass our corporate and other operations, were $13.8 million for the six months ended June 30, 2014, compared to $9.4 million for the same period in 2013.

Costs of sales increased to $554.8 million during the first six months of 2014 from $313.6 million for the same period in 2013.

Selling, general and administrative expenses increased to $44.0 million for the six months ended June 30, 2014 from $33.3 million for the same period in 2013. 

Our total revenues by operating segment for each of the six months ended June 30, 2014 and 2013 are broken out in the table below:

Our net income from operations for each of the six months ended June 30, 2014 and 2013 is broken out below:

UPDATE ON OUR NATURAL GAS & MIDSTREAM FACILITIES

We have been determined to expand these operations as they present an opportunity for growth through value-added projects, the consolidation of regional gas production, low-risk participation in additional drilling and exploitation of other assets. 

The following table sets out our average natural gas and other hydrocarbons sales prices, operating costs, royalty amounts, transportation costs and total production for the six months ended June 30, 2014:

We are continuing to evaluate midstream opportunities at our existing facilities and plan to identify and expand these through re-purposing existing assets or by investing in new projects. These projects include:

• We broke ground on the 16.5 MW power plant project at our midstream processing facility, which is on schedule for final commissioning in the first quarter of 2015. Upon completion, the project will supply our processing plant's electrical needs, with excess power being sold into the grid at prices based on the Alberta Electricity System Operator's rates. 
• We are currently in the process of increasing our northern plant's capacity through a debottlenecking project to increase processing revenue from other third party production, including volumes pursuant to our participation agreement. Under the participation agreement:
  • Our partner is committed to spending a minimum of CDN$50 million to drill at least three new wells per year for a total of 12 net wells (to a minimum of 800 horizontal meters each) during the initial three-year term.
  • Our partner will pay 100% of the drilling and completion costs of each well at its own sole risk.
  • After a well is drilled and there is continuous production, we can elect to participate for up to a 30% working interest in each well on a look-back basis by paying 25% of its actual costs; or we can elect to receive a 10% gross royalty on future production instead.
  • As of June 30, 2014 our partner had completed two wells. The second well was placed into production on July 12, 2014. Subsequent to the quarter end, our partner spudded its third well on July 9, 2014. It is expected that the third well will be completed in the third quarter 2014.
  • Our partner has agreed to deliver gas to MFC's gas plant for processing under the arrangement.
• We are continuing to review the potential to consolidate additional processing volumes from third parties at our southern processing plant, which is part of one of the largest gas gathering systems in Southern Alberta.

HEDGING NATURAL GAS DERIVATIVES

In the second quarter of 2014, Alberta natural gas prices averaged approximately 30% higher than the comparative period of 2013 and approximately 2% lower than the first quarter of 2014. Strong demand for natural gas, stemming from a colder-than-normal winter, negatively impacted storage inventories, resulting in a sharp price increase in the first quarter of 2014.  During the second quarter of 2014, natural gas storage inventories remained below five year averages and prices remained strongly above the comparable period in 2013, while slightly declining from the previous quarter. From time to time, we may enter into hedging transactions to manage pricing risks for our commodities. 

In December 2013, to hedge the volatility and the organically long nature of our natural gas subsidiary, we entered into a hedge position of long-term NYMEX natural gas futures with a notional value of approximately $50 million. In January and February, as natural gas prices continued to rise, we increased our position using shorter-duration derivatives. 

As of June 30, 2014, we had a hedge portfolio of approximately $87.5 million of NYMEX natural gas futures with maturities ranging from August 2014 to March 2015 at an average weighted price of $4.39.  In July, we began to cover a material portion of our position as natural gas prices declined.  As of August 12, 2014, we were hedged approximately $30.5 million of NYMEX natural gas futures with maturities ranging from October 2014 to March 2015 at an average weighted price of $4.48. 

UPDATE ON OUR RECENT ACQUSITIONS

FESIL AS Group

Our acquisition of the FESIL closed on April 1, 2014. FESIL is a vertically integrated commodity supply chain company with a production facility in Norway, sales companies in Germany, Luxembourg, Spain, the United States and China, and an interest in quartz quarries in Spain. 

Headquartered in Trondheim, Norway, FESIL is one of the leading producers of ferrosilicon, an essential alloy in the production of steel, stainless steel and cast iron. 

FESIL's melting plant is located in Norway, and produces a range of ferrosilicon products including granulated and refined qualities (high and semi-high purity), which makes up the bulk of its production. Annual capacity of the plant is approximately 80,000 tons of ferrosilicon and 23,000 tons of microsilica. The facility is certified according to ISO 9001 and ISO 14001 and complies with Norway's strict environmental and operational requirements.

Approximately 60% of FESIL's ferrosilicon production is sold directly through its own sales offices to customers, which include some of the world's leading steelworks, aluminum/iron foundries and chemical groups. The sales offices also sell a number of complementary commodities including ferroalloys, metals, minerals, and specialty products. FESIL is a strategic acquisition that will add geographic reach, a diverse product portfolio, an established brand name, a well-respected management team and excellent employees to our global commodity supply-chain platform. 

F.J. Elsner Group

In March 2014, MFC acquired a 100% interest in Elsner, a global commodity supply chain company focused on steel and related products which was founded in 1864 with its head office in Vienna, Austria. Elsner's offerings include a full range of steel products including slabs, booms, billets, hot rolled steel plates, hot and cold rolled coils and sheets, reinforcing bars, galvanized material, pipes, tubes and merchant bars.

Elsner has longstanding relationships with many steel mills in Eastern and Southern Europe as well as China, the Baltic States and the Commonwealth of Independent States. We believe that China will play a larger role in our business going forward.

The integration of Elsner into MFC is nearly complete. Elsner provides MFC with a solid customer base, an excellent product portfolio and an extremely well-respected management team, which is already enhancing our global supply chain platform.

2014 CASH DIVIDEND  

In March 2014, MFC announced its 2014 annual cash dividend in the amount of $0.24 per common share, payable in quarterly installments by the Company.

The first two payments of $0.06 per common share each were paid on April 22 and August 8, 2014 to our shareholders. The remaining quarterly dividend payments in 2014 are expected to be made as follows:

• third payment of $0.06 will be made in September; and
• final payment of $0.06 will be made in November.

CORPORATE TAXATION

We are a company that strives to be fiscally responsible. The corporate income tax paid in cash was approximately $1.8 million for the six month ended June 30, 2014.

COMMENTS

CEO Gerardo Cortina, commented: "In the coming months, we will focus on our working capital and will seek to monetize current assets to the extent possible.  In addition, we are actively looking into different alternatives to more prudently match our assets and liabilities.  We are comfortable with our cash position, but it is a top priority of management to have our cash and cash equivalents brought in line with our historical levels.

We continue to have opportunities across our subsidiaries.  At MFC Energy, we are pursuing a variety of potential investments in our midstream assets, prospects for low-risk participation in additional drilling and exploitation of other assets.  Within our commodity supply chain business, we are integrating our new acquisitions and focusing on revenue synergies through geographic, customer and product cross-selling. 

On the Scully Mine, we continue discussions with stakeholders with a goal of rationalizing this asset.

Mr. Cortina concluded, "We have the people.  We have the assets. We have substantial liquidity and long-standing relationships with supportive financial institutions and customers.  We have challenges, but we believe we have the right people in place to make sure those challenges are opportunities. Now it's time to execute."

Shareholders are encouraged to read our entire unaudited financial statements and management's discussion and analysis for the three months ended June 30, 2014, which were filed with the U.S. Securities and Exchange Commission on Form 6-K and Canadian securities regulators today, for a greater understanding of the Company.

Today at 10:00 a.m. EDT (7:00 a.m. PDT), a conference call will be held to review MFC's announcement and results. This call will be broadcast live over the Internet at www.mfcindustrial.com.  An online archive will be available immediately following the call and will continue for seven days. You may also listen to the audio replay by phone by dialing: 1 (888) 286 8010, using conference number 64225963 and international callers dial: 1 (617) 801 6888.

About MFC Industrial Ltd.

MFC is a global commodity supply chain company and is active in a broad spectrum of activities related to the integrated combination of commodities and resources interests. We also provide logistics, financial and risk management services to producers and consumers of commodities. To obtain further information on the Company, please visit our website at: http://www.mfcindustrial.com.

Disclaimer for Forward-Looking Information

This document contains statements which are, or may be deemed to be, "forward-looking statements" which are prospective in nature, including, without limitation, statements regarding our future plans, including in respect of partnerships and joint ventures respecting our processing facilities and related expansion projects, implementation of current strategies and our plans for our projects and royalty interest. Forward-looking statements are not based on historical facts, but rather on current expectations and projections about future events, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of forward-looking words such as "plans", "expects" or "does not expect", "is expected", "scheduled", "estimates", "forecasts", "projects",  "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "should", "would", "might" or "will" be taken, occur or be achieved. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, revenues, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause our actual results, revenues, performance or achievements to differ materially from our expectations include, among other things:(i) periodic fluctuations in financial results as a result of the nature of our business; (ii) commodities price volatility; (iii) economic and market conditions; (iv) competition in our business segments; (v) decisions and activities of operators of our resource interests or any revisions to their current plans and projections, which could be made without notice to us; (vi) the availability of commodities for our commodities and resources operations; (vii) the availability of suitable acquisition or merger or other proprietary investment candidates and the availability of financing necessary to complete such acquisitions or development plans; (viii) our ability to realize the anticipated benefits of our acquisitions; (ix) additional risks and uncertainties resulting from strategic investments, acquisitions or joint ventures; (x) counterparty risks related to our trading activities; (xi) unanticipated grade, geological, metallurgical, processing or other problems experienced by the operators of our resource interests (xii) delays in obtaining requisite environmental and other permits or project approvals; (xiii) potential title and litigation risks inherent with the acquisition of distressed assets; (xiv) risks related to exploration, development and construction of a previously shut-down mine project, including the suitability and integrity of historic mine structures; (xv) the availability of services and supplies; (xvi) operating hazards; and (xvii) other factors beyond our control. Such forward-looking statements should therefore be construed in light of such factors. Other than in accordance with its legal or regulatory obligations, the Company is not under any obligation and the Company expressly disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  Additional information about these and other assumptions, risks and uncertainties are set out in our Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission and our Management's Discussion and Analysis for the year ended December 31, 2013, filed with the Canadian securities regulators.

SOURCE MFC Industrial Ltd.