CALGARY, Nov. 14 /CNW/ - Birch Mountain Resources Ltd. ("Birch Mountain" or the "Company") (BMD: TSX and AMEX) today reported financial results for the third quarter ended September 30, 2007, and these are available on the Company's website at www.birchmountain.com, and are filed at www.sedar.com and at www.sec.gov.
Message from the President
The directors and management believe that the underlying value of the Company is not adequately reflected in the Company's current share price. Birch Mountain recently announced it is exploring strategic alternatives to enhance shareholder value. To assist in these activities, the Board of Directors established a special committee of independent directors who engaged RBC Capital Markets ("RBC") as financial advisor for this process.
RBC's mandate includes providing financial analysis and advice on business alternatives including a joint venture, merger, sale of the company or other corporate transaction. Over the past eight weeks, we have had numerous meetings and discussions and substantial progress has been made. Additional details will be communicated when they become available.
Our immediate priority is to obtain short to medium-term financing, while exploring alternatives that will ensure the long-term viability of our business.
Shifting attention to the third quarter, the management team is highly disappointed with our financial results. As communicated in August, orders had begun to fall-off in July as construction work in the oil sands declined rapidly. We observed a general slowdown in the supply of aggregates to site preparation and infrastructure projects in the region. Sales for the third quarter were significantly below our expectations, with indicated and expected orders not materializing. We believe there were several factors influencing reduced orders including increased labour uncertainty, the Alberta royalty review, escalating construction costs for oil sands developers, and oil sands companies finding and using aggregate resources in overburden, which was anticipated in the 2006 Technical Report.
In response to these changing market conditions, we initiated the first steps to reducing our cash burn. This included laying off approximately 35% of our employees, reducing quarry expenses, minimizing discretionary spending and a voluntary pay reduction by senior management and the Board.
The dilemma we faced was that there were still several inquiries for large quantities that we were discussing with our customers. To secure potential orders, we had to be able to deliver large tonnages of aggregate through the height of the construction season.
Because large orders did not materialize, additional steps have been taken in the fourth quarter to further reduce the cash burn and adjust our operations for the winter months. Included in these cutbacks is a further reduction of 40% in quarry and Calgary office personnel, an overall workforce reduction of 65% since June 30th, and a reduction of more than 50% in quarry rental equipment.
We have retained a core group of skilled and knowledgeable people and the quarry is open allowing us to meet our customers' needs. Based on discussions with customers, we believe that sales will materialize for 2008.
The priorities as we go forward into winter are to maximize our marketing and sales efforts to secure orders for 2008 and to continue the work to advance the Hammerstone Project application through to regulatory approval.
We have made progress in business discussions relating to the South Haul Road (SHR) with the developers of the proposed East Athabasca Highway. The SHR will be a key link in the transportation corridor to existing and developing oil sands projects and will position us for future sales.
We should not lose sight of the valuable asset that we all own. We continue to control over 780,000 acres of mineral lands and have approximately 1 billion tonnes in limestone reserves for our use over the next 50 to 60 years.
Third Quarter Ended September 30, 2007
Sales revenues for the third quarter were $521,956 and for the nine months ended September 30, 2007 were $6.2 million. Sales prices obtained for aggregate products are consistent with the prices in the 2006 Technical Report. Sales tonnages dropped significantly in the third quarter compared to the second quarter.
Interest expenses remained high as the result of increased debt levels. Indirect quarry costs also remain high as the Company continues with early operations. Administrative expenses were significantly reduced in the third quarter of 2007 compared to the second quarter, as the Company implemented cost control initiatives. Professional fees decreased by approximately $350,000 because projects were deferred, a hiring freeze was instituted and no stock option compensation expenses were incurred. Shareholder services and marketing costs decreased by approximately $115,000 and office costs decreased approximately $20,000.
Salaries and benefits were reduced by approximately $100,000 as senior executives took a voluntary pay reduction of 30% and directors gave up their quarterly compensation. As part of organizational restructuring, Russ Gerrish, has moved from the position of Vice President Operations & Engineering to focus on technical sales. Hansine Ullberg, Vice President Finance and CFO, has resigned her position and will continue in the accounting function until a replacement is named. Doug Annable has resigned as an independent director. The Company thanks Doug, Russ and Hansine for their valued contributions.
The Company is currently in breach of certain financial covenants under its senior secured credit facility, on which $12.5 million is outstanding. The Company has obtained waivers of these covenant violations for the past two months and is working with the lender to resolve this issue. The lender could provide notice for the debt to be repaid immediately and, at a time when the Company does not have the financial resources for repayment, could exercise their security interests over the assets of the Company.
Financial Statements (unaudited)
Summarized unaudited consolidated financial statements as at and for the three months and nine months ended September 30, 2007 are included in the tables below. Readers are encouraged to review the full set of unaudited consolidated financial statements that are available on the Company's website at www.birchmountain.com, and are filed at www.sedar.com and www.sec.gov.
Forward Looking Statements: This news release contains certain forward-looking statements. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization, resources and reserves, exploration and development plans and results, anticipated capital expenditures and financing thereof, anticipated outcomes and timing of regulatory applications and approvals and the future plans and objectives of Birch Mountain are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Certain amounts in the financial statements are based on estimates using the best currently available information and assumptions of management. Important factors that could cause actual results to differ materially from Birch Mountain's expectations are disclosed elsewhere in documents that are available to the public at www.sedar.com and www.sec.gov.
Table 1: Consolidated Balance Sheets
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Birch Mountain Resources Ltd.
Consolidated Balance Sheets
Canadian Dollars UNAUDITED
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As At September 30, December 31,
2007 2006
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Assets
Current
Cash and cash equivalents 1,762,703 1,345,483
Accounts receivable 864,804 2,202,698
Inventory 4,905,623 5,703,196
Prepaids and deposits 688,447 7,995,965
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8,221,577 17,247,342
Long term prepaids 137,294 137,294
Restricted cash 3,000,000 4,250,000
Property, plant and equipment 21,829,869 18,729,682
Mineral properties 52,387,685 44,608,237
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Total Assets 85,576,425 84,972,555
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Liabilities
Current
Bank loan 12,185,658 -
Accounts payable and accrued liabilities 7,280,310 4,113,610
Current portion of long term debt 1,049,425 1,580,858
Deferred revenue 50,306 50,306
Deferred lease inducement 70,631 -
Other current liabilities 2,411,425 2,437,781
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23,047,755 8,182,555
Long term debt 5,212,252 6,911,321
Asset retirement obligation 313,766 1,100,000
Convertible debentures 29,393,449 28,537,087
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57,967,222 44,730,963
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Shareholders' equity
Share capital 49,606,496 47,489,830
Contributed surplus 12,094,583 10,236,663
Deficit (34,091,876) (17,484,901)
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27,609,203 40,241,592
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Total Liabilities and Shareholders' Equity 85,576,425 84,972,555
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Table 2: Consolidated Income Statements
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Birch Mountain Resources Ltd.
Consolidated Statements of Loss, Comprehensive Loss and Deficit
Canadian Dollars
UNAUDITED
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3 Months 3 Months 9 Months 9 Months
Ended Ended Ended Ended
Sept 30, Sept 30, Sept 30, Sept 30,
2007 2006 2007 2006
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Revenue 520,954 795,812 6,190,011 883,641
Cost of goods sold 461,193 708,844 4,951,771 787,948
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Gross profit 59,761 86,968 1,238,240 95,693
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Expenses
Amortization and
depletion 336,454 122,760 774,843 170,805
Interest, bank
charges, foreign
exchange (gain)/loss
and accretion of
debenture discount 1,128,058 (704) 3,096,100 2,191
Mineral exploration
costs 175,647 393,750 434,036 868,704
Office 170,889 109,495 484,312 353,440
Professional fees 248,962 378,312 1,156,679 746,309
Indirect quarry
costs 3,995,944 709,866 8,391,107 1,307,383
Salaries, wages
and benefits 468,794 263,770 1,210,880 775,719
Shareholder
services and
marketing 149,443 185,872 741,080 787,228
Stock-based
compensation 475,587 916,146 1,671,028 2,128,944
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7,149,778 3,079,267 17,960,065 7,140,723
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Loss before other
income (7,090,017) (2,992,299) (16,721,825) (7,045,030)
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Interest and other
income 22,797 69,369 114,850 449,526
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Net loss and
comprehensive loss
for the period (7,067,220) (2,922,930) (16,606,975) (6,595,504)
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Deficit, beginning
of period (27,024,656) (10,963,201) (17,484,901) (7,290,627)
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Deficit, end of
period (34,091,876) (13,886,131) (34,091,876) (13,886,131)
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Loss per share
Basic and diluted (0.09) (0.04) (0.20) (0.08)
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Table 3: Consolidated Statement of Cash Flows
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Birch Mountain Resources Ltd.
Consolidated Statements of Cash Flows
Canadian Dollars UNAUDITED
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3 Months 3 Months 9 Months 9 Months
Ended Ended Ended Ended
Sept 30, Sept 30, Sept 30, Sept 30,
2007 2006 2007 2006
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OPERATING ACTIVITIES
Net loss (7,067,220) (2,922,930) (16,606,975) (6,595,504)
Adjustments for
non-cash items:
Depletion and
accretion on
mineral properties 148,750 - 230,687 -
Amortization of
capital assets 187,704 122,760 544,156 170,805
Accretion of
unamortized
financing costs 133,065 - 314,337 -
Accretion of
unamortized
debenture
discount 291,566 - 856,362 -
Stock-based
compensation 480,466 916,146 1,981,323 2,128,944
Changes in non-cash
working capital
balances:
Accounts
receivable 1,629,057 (1,291,220) 1,337,894 (1,589,645)
Inventory (251,209) (1,352,359) 1,097,573 (2,841,122)
Prepaids and
deposits 213,845 (4,146,448) 1,744,313 (4,404,579)
Accounts payable
and accrued
liabilities 2,195,886 (480,483) 8,748,218 1,106,819
Deferred lease
inducement 70,631 - 70,631 -
Other current
liabilities - - (26,356) (875,750)
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Cash provided by
(used in) operating
activities (1,967,459) (9,154,534) 292,163 (12,900,032)
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FINANCING ACTIVITIES
Issue of common
shares for cash 900,425 7,500 1,573,888 388,487
Proceeds from bank
loan, net of debt
issue costs 3,985,000 10,000,000 11,853,000 10,000,000
Proceeds from
long-term debt 67,380 - 67,380 -
Proceeds from
shareholder loan - 1,100,000 - 1,100,000
Repayment of
long-term debt (248,312) - (2,297,882) -
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Cash provided by
financing
activities 4,704,493 11,196,386 11,107,500 11,488,487
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INVESTING ACTIVITIES
Mineral properties (1,324,090) (3,181,607) (8,676,986) (17,984,649)
Restricted cash - - 1,250,000 (2,250,000)
Acquisition of
property, plant
and equipment (829,073) (5,436,208) (3,644,343) (6,380,045)
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Cash used in
investing
activities (2,153,163) (8,617,815) (11,071,329) (26,614,694)
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Increase (decrease)
in cash and cash
equivalents 583,871 (6,664,849) 417,220 (28,026,239)
Cash and cash
equivalents,
beginning of
period 1,178,832 10,961,213 1,345,483 32,322,603
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Cash and cash
equivalents, end
of period 1,762,703 4,296,364 1,762,703 4,296,364
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%SEDAR: 00003909E