Corsa Coal Corp. Management s Discussion and Analysis March 31, 2015

Transcription

1 2015

2 The purpose of the Corsa Coal Corp. ( Corsa ) ( MD&A ) for the three months ended 2015 is to provide a narrative explanation of Corsa s operating and financial results for the period, Corsa s financial condition at the end of the period and Corsa s future prospects. This MD&A is dated as of June 1, 2015 and is intended to be read in conjunction with the unaudited condensed interim consolidated financial statements for the three months ended 2015 and 2014 and the related notes thereto and the audited consolidated financial statements of Corsa for the years ended and as at December 31, 2014 and 2013 and the related notes thereto. References in this MD&A to First Quarter 2015 means the three months ended 2015 and to First Quarter 2014 means the three months ended 2014, unless otherwise noted. The condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standards 34 Interim Financial Reporting ( IAS 34 ) as issued by the International Accounting Standards Board ( IASB ). Unless otherwise indicated, all dollar amounts in this MD&A are expressed in United States dollars and all ton amounts are short tons (2,000 pounds per ton). Please refer to Forward- Looking Statements. Profile Corsa is one of the leading United States suppliers of premium quality metallurgical coal, an essential ingredient in the production of steel and high quality thermal and industrial coal used by transportationadvantaged customers in the Southeast region of the United States. Corsa s core business is supplying metallurgical coal with the highest safety, yield, and strength characteristics to domestic steel producers while being a strategic source of supply in the Atlantic and Pacific basin markets. As of the date of this MD&A, Corsa produces coal from five mines, operates three preparation plants, and has approximately 523 employees. Corsa is listed on the TSX Venture Exchange ( TSX-V ) under the symbol CSO. The coal operations are conducted through the Northern Appalachia Division ( NAPP ) and the Central Appalachia Division ( CAPP ). NAPP is based in Somerset, Pennsylvania, U.S.A. and is primarily focused on metallurgical coal production in the states of Pennsylvania and Maryland. Corsa markets and sells its NAPP coal to customers in North America, Europe, South America, and Asia. See Operations NAPP below. CAPP is based in Knoxville, Tennessee, U.S.A. and is focused on thermal and industrial coal production and sales in the Southern Appalachia coal region of the United States. See Operations CAPP below. First Quarter 2015 Highlights Despite a very challenging coal pricing environment, Corsa achieved positive Adjusted EBITDA (1) at its Northern Appalachia and Central Appalachia Divisions. NAPP productivity improvement initiatives and cost containment efforts have been successful with the cash production cost per ton sold (1) for metallurgical coal decreasing 32% from the three months ended December 31, 2014 (2). See Operating Results - NAPP below. Corsa s operations continue to achieve industry leading safety performance, with violation per inspection day (VPID) rates that are 40% lower than the national average, as well as a significant reduction in the total number of reportable accidents versus previous quarters. In February 2015, Corsa restructured its senior management team by appointing Peter Merritts to the role of President NAPP. Key Operating Metrics o NAPP metallurgical coal sales of 159,000 tons. See Operating Results - NAPP below. o NAPP realized price per ton sold (1) for metallurgical coal of $87. See Operating Results - NAPP below. o NAPP cash production cost per ton sold (1) for metallurgical coal of $65. 1

3 o CAPP thermal coal sales of 200,000 tons. See Operating Results - CAPP below. o CAPP realized price per ton sold (1) for thermal coal of $67. See Operating Results - CAPP below. o CAPP cash production cost per ton sold (1) for thermal coal of $62. See Operating Results - CAPP below. (1) This is a non-gaap financial measure. See Non-GAAP Financial Measures below. (2) See Non-GAAP Financial Measures in Corsa s for the year ended December 31, Coal Pricing Trends and Outlook NAPP Current metallurgical coal prices remain at depressed levels where a substantial amount of global production is uneconomic. This situation arose as a result of global producers committing to multi-billion dollar projects in a significantly higher price environment. Large scale mines often take three or more years from final investment decision to first production. New supply came online over 2013 and 2014, a period where demand growth softened. This supply growth is expected to mitigate in 2015 as the pipeline of growth projects is exhausted and prices are insufficient to incentivize new production. Corsa expects that over time, the fundamentals of the metallurgical coal market will rebalance as supply growth ends and production cutbacks are implemented. Seaborne benchmark contract prices for the highest quality metallurgical coal decreased to $ per metric ton in the second quarter of calendar 2015, reflecting a year-over-year decrease of approximately 9% and a decline of 6% from the first quarter of calendar Adjusting for inflation, the second quarter price is the lowest benchmark settlement since Unfavorable foreign exchange movements, low dry-bulk chartering rates, and softening oil prices have added downward pressure on demand for U.S. metallurgical coal. Corsa estimates that greater than half of the U.S. production for domestic and export markets is unprofitable. Since on average, Central Appalachian metallurgical coal producers have higher cost structures, the great majority of the at-risk production is weighted towards that region with Northern Appalachian production making up the smallest portion of the at-risk production. Recent announcements of U.S. domestic steel production cutbacks have decreased the overall domestic metallurgical coal demand. However, this decrease has been mitigated in part by a corresponding increase in metallurgical coal demand in the transportation-advantaged region for Northern Appalachia producers, including Corsa. Many of the steel producers strongest coke plants are located in this region. As metallurgical coal production is rationalized in places like China, Western Canada, Australia and the United States, Corsa expects the seaborne metallurgical coal fundamentals to normalize. Corsa expects that this rebalancing will occur first in the domestic U.S. market as the combination of financially distressed producers and high cost mines will create additional mine closures. Corsa s short rail distance and multiple options to access the Baltimore export terminals solidify Corsa s ability to take advantage of any recoveries in seaborne pricing. Metallurgical coal sales in 2015 are expected to be in the range of 725,000 to 775,000 tons. As of the date of this MD&A, approximately 81% of these sales are committed at the midpoint of the range. Actual sales will depend on customer demand and market conditions. Vessel nominations for export sales are determined by customers and concluded on a month-by-month basis. 2

4 CAPP Current Southeastern U.S. utility market thermal coal spot pricing declined 25% over the course of As a result, much of the Central Appalachia coal production is uneconomic. Corsa expects utility coal demand for Central Appalachia production to decrease in Conversely, industrial thermal demand grew 4% year over year for 2015 and Corsa expects industrial demand to grow in The CAPP mineral reserve base exclusively consists of high BTU and high carbon content coal. These unique qualities, combined with advantaged logistics, set CAPP apart from other producers and create a niche in the utility and industrial marketplace. As a result, despite thermal supply outpacing demand in 2015, CAPP has been successful in maintaining a high level of contracted sales for the future. CAPP will continue to target the industrial market segment as it transitions from a utility supplier to an industrial supplier during The planned opening of the Cooper Ridge mine will position CAPP to service the industrial specialty coal markets. These specialty markets are well suited for CAPP s coal qualities and relatively protected from natural gas prices and historically reflect higher pricing than the thermal markets. The CAPP coal sales for 2015 are expected to be in the range of 775,000 to 825,000 tons. As of the date of this MD&A, approximately 92% of these sales are committed at the midpoint of the range. Actual sales will depend on customer demand and market conditions. CAPP also has sales contracts in place for 500,000 tons in

5 Financial and Operations Summary Corsa Coal Corp. For the three months ended Increase (decrease) (1) $ or Tons % Revenue (000 s) $ 31,366 $ 19,844 $ 11,522 58% Cost of sales (000 s) $ 52,651 $ 20,905 $ 31, % Corporate and administrative expense (000 s) $ 4,139 $ 1,926 $ 2, % Net and comprehensive loss for the period (000 s) $ 26,233 $ 573 $ 25,660 4,478% Adjusted EBITDA (2) (000 s) $ (299) $ 756 $ (1,055) (140%) Cash provided by (used in) operating activities (000 s) $ 3,651 $ (7,489) $ 11,140 $ 149% Coal sold - tons NAPP 159,000 45, , % CAPP 200, ,000 (22,000) (10%) Total 359, ,000 92,000 34% Realized price per ton sold (2) NAPP $ 87 $ 87 $ - - CAPP $ 67 $ 68 $ (1) (1%) Cash production cost per ton sold (2) NAPP $ 65 $ 85 $ (20) (24%) CAPP $ 62 $ 56 $ 6 11% Cash margin per ton sold (2) NAPP $ 22 $ 2 $ 20 1,000% CAPP $ 5 $ 12 $ (7) (58%) Adjusted EBITDA (2) NAPP (000 s) $ 339 $ (553) $ 892 $ 161% CAPP (000 s) 357 1,987 (1,630) (82%) Corporate (000 s) (995) (678) (317) (47%) Total (000 s) $ (299) $ 756 $ (1,055) $ (140%) (1) The results of PBS are not included as it was acquired on August 19, See PBS Transaction below. (2) This is a non-gaap financial measure. See Non-GAAP Financial Measures below. 4

6 For a discussion of the changes from First Quarter 2014 to First Quarter 2015, please see Financial Results and Operating Results below. Guidance Corsa is maintaining guidance for the year ended December 31, 2015, as per Corsa s Management s Discussion and Analysis for the year ended December 31, 2014, which is as follows: Total sales of 1,670,000 to 1,810,000 tons. NAPP Division sales of 895,000 to 985,000 tons, including metallurgical coal sales guidance of 725,000 to 775,000 tons and thermal coal sales guidance of 170,000 to 210,000 tons. See Coal Pricing Trends and Outlook NAPP Division above. CAPP Division sales of 775,000 to 825,000 tons of thermal coal. See Coal Pricing Trends and Outlook CAPP Division above. NAPP Division cash production cost per ton sold (1) for metallurgical coal of $67 to $72. NAPP Division cash production cost per ton sold (1) for thermal coal of $30 to $35. CAPP Division cash production cost per ton sold (1) for thermal coal of $57 to $62. (1) This is a non-gaap financial measure. See Non-GAAP Financial Measures below. PBS Transaction On August 19, 2014, Corsa completed the purchase of all of the outstanding shares of PBS Coals Limited ( PBS ) from a wholly-owned subsidiary of OAO Severstal. The primary purpose of the acquisition was to continue Corsa s growth strategy focusing on low-volatile metallurgical coal and to secure additional infrastructure, operating capacity and reserves of low-volatile metallurgical coal. The PBS operations are located adjacent to Corsa s existing NAPP operations. Based in Somerset County, Pennsylvania, PBS commenced production in 1963 and was acquired by OAO Severstal in Its operations at August 19, 2014 included thirteen developed mines (three of which were active) and two preparation plants with access to both the CSX and NS rail lines. PBS is located 60 miles from Pittsburgh and 170 miles from the Port of Baltimore and its coal brands are well recognized by long-standing domestic and international customers. Corsa is combining the PBS operations into the NAPP operations to take advantage of a newly created, centrally located management team and infrastructure that will result in significant cost savings for the combined entity. Given the varying chemical characteristics of the coal assets of the NAPP Division, Corsa will also be able to take advantage of coal blending opportunities to further differentiate and tailor its low-volatile metallurgical coal product to customer s specifications. Additional integration efforts are taking place to reduce operating costs, increase utilization of existing infrastructure, upgrade equipment, and adjust mine planning to the larger portfolio of mines. Full details of the PBS Transaction are included in Corsa s Management Discussion and Analysis for the year ended December 31, Corsa filed a technical report compliant with National Instrument Standards of Disclosure for Mineral Projects ( NI ) for the acquired operations of PBS on October 14, 2014 and a business acquisition report in respect of the PBS Transaction on November 3, Both filings are available under Corsa s profile on 5

7 NAPP Operations NAPP produces and sells low volatile metallurgical coal used for the production of coke from its mines in the Northern Appalachia coal region of the United States. The coal mined is sold to international and domestic steel producers, as well as other coal companies for blending, via railroad, trucking and barge. In addition to the mines currently in production, NAPP has a significant pipeline of projects which it anticipates developing pending the recovery of metallurgical coal prices. NAPP is centrally located in and around Somerset, Pennsylvania, approximately 60 miles from Pittsburgh, Pennsylvania, and operates in Pennsylvania and Maryland. NAPP ships coal to customers by rail, truck and barge. The preparation plants have access to both CSX and NS rail lines and can access the Eastern Seaboard ports such as the Port of Baltimore which is 170 miles away. The location of NAPP is also consistent with Corsa s strategy to provide a competitively lower delivered cost to key customers, including steel mills around Pittsburgh, the Great Lakes regions and Canada. Mines NAPP currently operates the Casselman Mine, an underground mine utilizing the room and pillar mining method; the Quecreek Mine, an underground mine utilizing the room and pillar mining method; the Ash Mine, a surface mine utilizing contour and high wall mining methods; the Rhoads Mine, a surface mine utilizing contour mining methods and the Semelsberger Mine, a surface mine utilizing contour mining methods. The Casselman Mine is located in Garrett County, Maryland and all of the other mines are located in Somerset County, Pennsylvania. The Quecreek Mine was temporarily idled on March 12, 2015 in order to manage existing inventory levels and to maximize the future value of the reserve base. Production at the Quecreek Mine resumed on May 19, In early January 2015, both the Kimberly Run Mine, an underground mine, and the Barbara B Project, an underground development project, both located in Somerset County, Pennsylvania were idled. The Kimberly Run Mine was nearing the exhaustion of its economic reserve life and was NAPP s highest cost per ton underground operation in The Barbara B Project was being developed for future commercial production. Certain personnel and equipment from these mines were transferred to the Casselman and Quecreek Mines, which are NAPP s lowest cost per ton underground operations. The Kimberly Run Mine has been permanently closed and will be sealed in Reclamation will commence after the mine is sealed. Preparation plants NAPP currently operates two preparation plants and has one preparation plant that is temporarily idled. The raw metallurgical coal produced from the mines is trucked to the preparation plants where it is processed or washed using conventional coal processing techniques and stored for shipping. All plants have load out facilities adjacent to a rail line. Coal is usually shipped by rail; however, it can also be shipped by truck. All of the preparation plants are located in Somerset County, Pennsylvania. The Cambria Plant has an operating capacity of 325 tons of raw coal per hour, storage capacity for 120,000 tons of clean coal and 180,000 tons of raw coal and load out facilities adjacent to a CSX rail line. The Shade Creek Plant has an operating capacity of 450 tons of raw coal per hour, storage capacity for 120,000 tons of clean coal and 125,000 tons of raw coal and load out facilities adjacent to a NS line. The Rockwood Plant has an operating capacity of 325 tons of raw coal per hour and load out facilities adjacent to a CSX rail line. The Rockwood Plant was temporarily idled on May 1, 2015 in order to consolidate clean coal production at the Cambria and Shade Creek Plants. 6

8 Projects NAPP has several significant projects which are in various stages of permitting and development. Name Type of mine Status Barbara B Project Underground Permitted Horning D Project Underground Permitted A Seam Project Underground Permitted Acosta Deep Project Underground Permitted Keyser Project Underground Not-permitted Acosta 4 Project Surface Permitted Rhoads Project Surface Permitted CAPP Operations CAPP produces and sells high British Thermal Unit ( BTU ), low and mid sulfur thermal coal used in power, industrial and specialty applications from its mines in the Southern Appalachia coal region of the United States. The coal mined is sold to domestic electric utilities and industrial customers and transported by rail and truck. In addition to the mines currently in production, CAPP also has a significant pipeline of thermal, speciality and industrial coal development projects which it anticipates developing. CAPP is based in Knoxville, Tennessee and has operations in Tennessee and Kentucky. Mines CAPP currently operates the Double Mountain Deep Mine, an underground mine utilizing the room and pillar mining method, the Clear Fork Mine, a surface mine utilizing contour and high wall mining methods and the Straight Creek Mine, a surface mine utilizing contour and auger mining methods. All mines are located in Clairborne County, Tennessee. Preparation Plant CAPP currently operates one preparation plant. The thermal coal produced from the underground mine is trucked to the preparation plant where it is processed or washed using conventional coal processing techniques and stored for shipping. The plant is located, in Claiborne County, Tennessee. The plant has an operating capacity of 350 tons of raw coal per hour and load out facilities adjacent to a NS rail line with dual NS and CSX load out capability. Coal is usually shipped by rail; however, it can also be shipped by truck. All CAPP operating mines are within 7 miles of the preparation plant. 7

9 Projects CAPP has several significant projects which are in various stages of permitting and development. Name Type of mine Status Cooper Ridge Deep Project Underground Permitted Cumberland Gap Deep Project Underground Not permitted Rich Gap Mason Deep Project Underground Not permitted Cooper Ridge Surface Project Surface / high wall Not permitted Operating Results NAPP For the three months ended (1) Metallurgical coal sold - tons 159,000 45,000 Realized price per ton sold (2) $ 87 $ 87 Cash production cost per ton sold (2) Cash margin per ton sold $ 22 $ 2 (1) The results of PBS are not included as it was acquired on August 19, See PBS Transaction above. (2) This is a non-gaap financial measure. See Non-GAAP Financial Measures below. In First Quarter 2015, NAPP operated three underground mines (the Casselman, Kimberly Run and Quecreek Mines), three surface mines (the Ash, Rhoads and Semelsberger Mines) and three preparation plants (the Cambria, Shade Creek and Rockwood Plants). In First Quarter 2014, NAPP operated one underground mine (the Casselman Mine) and two surface mines (the Ankeny and Semelsberger Mines). The metallurgical coal sold increased by 114,000 tons due to record production from the Casselman Mine and the inclusion of PBS operations in First Quarter The realized price per ton sold did not change from First Quarter 2014 to First Quarter 2015 due to a more favorable domestic and export sales mix, offset by an overall decrease in sales price. See Non-GAAP Financial Measures. The cash production cost per ton sold decreased by $20 from First Quarter 2014 to First Quarter 2015 due to Corsa s recent investment in mining equipment, improved geologic conditions, and the outstanding efforts of Corsa s employees. Production at the Casselman Mine improved 40% from the three months ended December 31, 2014 to First Quarter 2015 and 192% from First Quarter 2014 to First Quarter

10 The Quecreek Mine s production tons per employee hour improved 33% from the three months ended December 31, 2014 to First Quarter See Non-GAAP Financial Measures. Corsa expects ongoing productivity improvements to continue to lower its mining cost structure. As previously announced, Corsa idled two of its higher cost mines in the first quarter and shifted resources to the most productive mines. In conjunction with these actions, Corsa also implemented a reduction in workforce in January. These moves led to higher idle mine costs for the quarter as well as higher severance expenses for the quarter. Corsa plans to continue to review its assets and infrastructure over the course of the year to lower operating costs and be in a position to respond to changing market conditions. CAPP For the three months dd Thermal and industrial coal sold - tons 200, ,000 Realized price per ton sold (1) $ 67 $ 68 Cash production cost per ton sold (1) Cash margin per ton sold (1) $ 5 $ 12 (1) This is a non-gaap financial measure. See Non-GAAP Financial Measures below. In First Quarter 2015, CAPP operated one underground mine (the Double Mountain Deep Mine) and two surface mines (the Clear Fork and Straight Creek Mines). See CAPP Operations above. In First Quarter 2014, CAPP operated one underground mine (the Double Mountain Deep Mine) and two surface mines (the Back Creek and Straight Creek Mines). The thermal and industrial coal sold decreased by 22,000 tons due to adverse weather conditions that delayed shipments. The realized price per ton sold decreased by $1 from First Quarter 2014 to First Quarter 2015 due to the declining market pricing for thermal coal. See Non-GAAP Financial Measures. The cash production cost per ton sold increased by $6 from First Quarter 2014 to First Quarter 2015 due to the reduced coal seam heights in the areas mined at the Double Mountain Deep Mine, as well as adverse weather conditions negatively impacting company-operated surface operations. See Non-GAAP Financial Measures below. 9

11 Financial Results Consolidated For the three months ended (1) (000's) (000's) Revenue $ 31,366 $ 19,844 Cost of sales (52,651) (20,905) Gross margin (21,285) (1,061) Corporate and administrative expense (4,139) (1,926) Loss from operations (25,424) (2,987) Net finance (expense) income (545) 950 Loss before tax (25,969) (2,037) Current income tax expense (recovery) 185 (9) Deferred income tax recovery (recovery) 79 (1,455) 264 (1,464) Net and comprehensive loss $ (26,233) $ (573) Adjusted EBITDA (2) $ (299) $ 756 (1) The results of PBS are not included as it was acquired on August 19, See PBS Transaction above. (2) This is a non-gaap financial measure. See Non-GAAP Financial Measures below. For a discussion of the changes from First Quarter 2014 to First Quarter 2015, please see below. Operating Segments Corsa s three distinct operating segments are NAPP, CAPP and Corporate. The financial results of the operating segments are as follows: 10

12 NAPP For the three months ended (1) (000's) (000's) Revenue $ 17,976 $ 4,706 Cost of sales (29,206) (6,672) Gross margin (11,230) (1,966) Corporate and administrative expense (1,876) (621) Loss from operations (13,106) (2,587) Net finance expense (721) (284) Net and comprehensive loss $ (13,827) $ (2,871) Adjusted EBITDA (2) $ 339 $ (553) (1) The results of PBS are not included as it was acquired on August 19, See PBS Transaction above. (2) This is a non-gaap financial measure. See Non-GAAP Financial Measures below. Revenue Revenue, consisting of metallurgical coal sales and tolling and other revenue, increased by $13,270,000 from First Quarter 2014 to First Quarter 2015 as tons sold increased from 45,000 to 159,000 and tolling and other revenue was earned in First Quarter The tolling and other revenue was from the preparation plants included in the PBS transaction. Cost of sales Cost of sales consists of the following: For the three months ended (000's) (000's) Mining and processing costs $ 11,076 $ 3,438 Purchased coal costs Royalties expense 1, Amortization expense 6,745 1,632 Transportation costs from preparation plant to customer 1, Idle mine expense 1,289 - Change in estimate of reclamation provision for non-operating properties 1, Impairment of mineral properties 3,633 5 Write-off of prepaid royalties 1,290 - Other costs $ 29,206 $ 6,672

13 Mining and processing costs increased by $7,638,000 primarily due to the increase in tons sold from 45,000 to 159,000 and the costs related to the tolling and other revenue that was earned in First Quarter Purchase coal costs increased by $291,000 primarily due to the inclusion of PBS operations in First Quarter Royalties expense increased by $949,000 due to the increase in tons sold. Amortization expense increased by $5,113,000 primarily due to the inclusion of PBS operations in First Quarter Transportation costs from preparation plant to customer increased by $956,000 primarily due to the inclusion of PBS operations in First Quarter Idle mine expense increased by $1,289,000 as the number of idle mines increased as a result of the PBS Transaction. Corsa plans to reduce the number of idle mines in the remainder of 2015 and expects a corresponding decrease in idle mine expense. The change in estimate of reclamation provision for non-operating properties increased by $1,317,000 as the number of non-operating properties increased as a result of the PBS Transaction. The increase was primarily due to the increase in the water treatment obligation for non-operating properties that resulted from changes in assumptions used to calculate the liability. Impairment of mineral properties increased by $3,628,000 as the leases for those properties were terminated. Write-off of advance royalties increased by $1,290,000 primarily due to the write-off of the prepaid royalties on terminated mineral leases, none of which were material to current and future mining operations. Corporate and administrative expense Corporate and administrative expense related to the NAPP Division increased by $1,255,000 primarily due to the inclusion of PBS in First Quarter As Corsa continues to integrate the PBS operations into the NAPP operations and achieve expected cost efficiencies, corporate and administrative expense will decrease over the remainder of Net finance expense Net finance expense primarily consists of bond premium expenses, interest expenses, interest and other income and reclamation provision accretion expense. From First Quarter 2014 to First Quarter 2015, the increase of $437,000 was primarily due the increase in bond premium expenses for the PBS operations in First Quarter Net and comprehensive loss Net and comprehensive loss increased by $10,956,000 from First Quarter 2014 to First Quarter 2015 as a result of factors impacting the items described above. Adjusted EBITDA Adjusted EBITDA increased by $892,000 from negative $553,000 in First Quarter 2014 to positive $339,000 in First Quarter 2015 primarily due to the increase in revenue being greater than the increase in cost of sales after adjustment for the items used to calculate Adjusted EBITDA and the increase in corporate and administrative expense. See Non-GAAP Financial Measures below. 12

14 CAPP For the three months (000's) (000's) Revenue $ 13,390 $ 15,138 Cost of sales (23,445) (14,233) Gross margin (10,055) 905 Corporate and administrative expense (377) (334) (Loss) income from operations (10,432) 571 Net finance expense (119) (144) Net and comprehensive loss $ (10,551) $ 427 Adjusted EBITDA (1) $ 357 $ 1,987 (1) This is a non-gaap financial measure. See Non-GAAP Financial Measures below. Revenue Revenue, consisting of thermal coal sales, decreased by $1,748,000 from First Quarter 2014 to First Quarter 2015 as a result of the decreases in tons sold and in realized price per ton sold (1). Sales of thermal coal were 200,000 tons in First Quarter 2015 compared with 222,000 tons in First Quarter Cost of sales Cost of sales consists of the following: For the three months ended (000's) (000's) Mining and processing costs $ 10,526 $ 9,957 Purchased coal costs Royalties expense 1,056 1,509 Amortization expense 1,802 1,400 Idle mine expense Change in estimate of reclamation provision for non-operating properties (65) - Impairment of mineral properties 9,052 - Write-off of prepaid royaltie Other costs - 16 $ 23,445 $ 14,233 Mining and processing costs increased by $569,000 due to reduced seam heights at the Double Mountain Deep Mine. Purchase coal costs decreased by $183,000 as lower purchases were made in First Quarter 13

15 2015. Royalties expense decreased by $453,000 due to the decrease in tons sold. Amortization expense increased by $402,000 primarily due to new equipment acquired in late Impairment of mineral properties was $9,052,000 in First Quarter 2015, which resulted from an analysis of the recoverable amount of CAPP s assets following a strategic review of CAPP performed by management. Corporate and administrative expense Corporate and administrative expense related to the CAPP Division increased by $43,000 from First Quarter 2014 to First Quarter Net finance expense Net finance expense primarily consists of bond premium expenses, interest expenses, interest and other income and reclamation provision accretion expense. The decrease was $25,000 from First Quarter 2014 to First Quarter Net and comprehensive (loss) income Net and comprehensive (loss) income changed by $10,978,000 from an income of $427,000 in First Quarter 2014 to a net loss of $10,551,000 in First Quarter 2015 as a result of factors impacting the items described above. Adjusted EBITDA Adjusted EBITDA decreased by $1,630,000 from First Quarter 2014 to First Quarter 2015 primarily due to the increase in cost of sales after adjustment for the items used to calculate Adjusted EBITDA and the increase in corporate and administrative expense being greater than the increase in revenue. See Non- GAAP Financial Measures below. 14

16 Corporate Division For the three months (000's) (000's) Revenues $ - $ - Cost of sales - - Gross margin - - Corporate and administrative expense (1,886) (971) Loss from operations (1,886) (971) Net finance income 295 1,378 (Loss) income before tax (1,591) 407 Current income tax expense (recovery) 185 (9) Deferred income tax recovery (recovery) 79 (1,455) 264 (1,464) Net and comprehensive loss $ (1,855) $ 1,871 Adjusted EBITDA (1) $ (995) $ (678) (1) This is a non-gaap financial measure. See Non-GAAP Financial Measures below. Corporate and administrative expense Corporate and administrative expense includes corporate office expenses and stock-based compensation expense. The increase of $915,000 from First Quarter 2014 to First Quarter 2015 was due to the increases in corporate office expense of $317,000 and stock-based compensation expense of $598,000. The corporate office expense increased due to the additional staff that were hired as a result of the PBS Transaction and the stock-based compensation expense increased as more stock options were outstanding. Net finance income Net finance income primarily consists of the change in value of Redeemable Units (as defined below), the change in value of warrant financial liability, accretion on loan payable, interest expense and interest and other income. From First Quarter 2014 to First Quarter 2015, the decrease was $1,083,000. The change in value of Redeemable Units was $1,393,000 in First Quarter 2014 and there was no comparable amount in First Quarter 2015 as the redeemable unit classification changed from liability to equity in The change in value of the warrant financial liability was $1,171,000 in First Quarter 2015 and there was no comparable amount in First Quarter 2014 as the warrants were issued in August Interest expense increased by $624,000 due to a $25 million loan that was arranged in August Current income tax expense (recovery) The current tax expense (recovery) changed from a recovery of $9,000 in First Quarter 2014 to an expense of $185,000 in First Quarter

17 Deferred income tax expense (recovery) Corsa Coal Corp. Deferred income tax expense (recovery) changed from a recovery of $1,455,000 in First Quarter 2014 to an expense of $79,000 in First Quarter Net and comprehensive (loss) income Net and comprehensive (loss) income changed by $3,726,000 from an income of $1,871,000 in First Quarter 2014 to a net loss of $1,855,000 in First Quarter 2015 as a result of factors impacting the items described above. Adjusted EBITDA Adjusted EBITDA decreased from negative $678,000 in First Quarter 2014 to negative $995,000 in First Quarter 2015 due to the increase in corporate office expense of $317,000. See Non-GAAP Financial Measures below. Financial Condition As at 2015 (000's) As at December 31, 2014 (000's) Current assets $ 52,350 $ 65,471 Non-current assets 282, ,483 Total assets $ 335,344 $ 363,954 Current liabilities 45,182 49,044 Non-current liabilities 120, ,514 Total liabilities $ 165,290 $ 168,558 Total equity $ 170,054 $ 195,396 Current assets decreased by $13,121,000 from December 31, 2014 to Decreases in cash of $2,492,000, amounts receivable of $12,351,000, and prepaid expenses of $337,000 were offset by an increase in inventories of $2,059,000. Cash decreased as cash provided by operating activities of $3,651,000 was offset by cash used in investing and financing activities of $6,143,000. See Cash Flows below. The decrease in accounts receivable resulted from the lower level of sales in First Quarter 2015 compared with the three months ended December 31, Inventories increased as coal was stockpiled in March 2015 for deliveries in early April The decrease in non-current assets of $15,489,000 from December 31, 2014 to 2015 was due to the decreases in restricted cash of $310,000, advance royalties and other assets of $880,000, and property, plant and equipment of $14,220,000. The decrease in advance royalties and other assets was due to the write-off of certain prepaid royalties, none of which were material to current and future mining operations. The decrease in property, plant and equipment resulted from amortization of $8,547,000, write-off of mineral properties of $12,685,000 and disposals at cost of $845,000 being greater than the 16

18 cost of additions and capitalized development costs of $6,103,000 and the accumulated amortization of disposals of $709,000. The decrease in current liabilities of $3,862,000 from December 31, 2014 to 2015 was primarily due to the decreases in accounts payable of $3,500,000 and the current portion of finance lease obligations of $385,000. Accounts payable decreased due to lower coal production in First Quarter 2015 compared to the three months ended December 31, The current portion of finance lease obligations decreased as certain finance lease obligations will terminate in The increase in non-current liabilities of $594,000 from December 31, 2014 to 2015 was primarily due to primarily due to the increases in loan payable of $876,000, and reclamation provision of $1,650,000 offset by decreases in notes payable of $329,000, finance lease obligations of $393,000 and warrant financial liability of $1,171,000. Loan payable increased due to accrued interest and accretion expense. Warrant financial liability decreased as a result of adjustment to fair value. The net increase in reclamation provision was due to the change in estimate of reclamation and accretion expense being offset by reclamation costs incurred. Notes payable and finance lease obligations decreased as certain notes payable and finance lease obligations will terminate in Total equity decreased by $25,342,000 from December 31, 2014 to 2015 as retained earnings (deficit) decreased by $23,780,000, and non-controlling interest decreased by $2,453,000 and contributed surplus increased by $891,000. Liquidity and Capital Resources As at 2015 (000's) As at December 31, 2014 (000's) Cash $ 11,433 $ 13,925 Working capital $ 7,168 $ 16,427 Line of credit available $ 2,178 $ 4,390 Debt Notes payable $ 4,053 $ 4,418 Finance lease obligations 8,462 9,240 Loan payable 21,669 20,793 $ 34,184 $ 34,451 Cash Cash decreased by $2,492,000 from December 31, 2014 to See Cash Flows below. 17

19 Working capital The net decrease in working capital of $9,259,000 from December 31, 2014 to 2015 resulted from the decreases in cash of $2,492,000, amounts receivable of $12,351,000, and prepaid expenses of $337,000 and the increase in other liabilities of $92,000 offset by the increase in inventories of $2,059,000 and the decreases in accounts payable of $3,500,000, current portion of notes payable of $36,000, current portion of finance lease obligations of $385,000, and current portion of reclamation provision of $33,000. Line of credit available Corsa s CAPP has a credit facility with an undrawn line of credit. The borrowing base is determined by the level of accounts receivable and coal inventories at CAPP. Debt Debt decreased by $267,000 from December 31, 2014 to 2015 as decreases in notes payable of $365,000, and finance lease obligations of $778,000 were offset by an increase in loan payable of $876,000. Cash flows Operating activities In First Quarter 2015, the cash provided by operating activities was $3,651,000 compared with cash used of $7,489,000 in First Quarter 2014, a change of $11,140,000. Adjusting the net and comprehensive loss for First Quarter 2015 and First Quarter 2014 for the items not affecting cash resulted in cash used of $1,332,000 compared with cash provided of $360,000 in First Quarter The cash spent on reclamation activities was $1,395,000 in First Quarter 2015 compared with $521,000 in First Quarter 2014 due to the increase in properties under reclamation that resulted from the PBS Transaction. The changes in non-cash working capital balances related to operations in First Quarter 2015 provided cash of $6,378,000 compared with cash used of $7,328,000 in First Quarter In First Quarter 2015, cash was provided from the decreases in accounts receivable of $9,702,000 and prepaid expense and other of $337,000 offset by the increase in inventories of $2,058,000 and the decrease in accounts payable of $1,603,000. In First Quarter 2014, cash was used from the increase in accounts receivable of $3,442,000, prepaid expense and other of $376,000, inventories of $2,249,000 and accounts payable of $1,261,000. Investing activities The cash used in investing activities in First Quarter 2015 was $4,957,000 compared with cash provided of $918,000 in First Quarter 2014, a change of $5,875,000. Restricted cash provided cash of $310,000 in First Quarter 2015 compared with $2,317,000 in First Quarter Advance royalties and other assets used cash of $410,000 in First Quarter 2015 compared with cash provided of $169,000 in First Quarter Property, plant and equipment additions used cash of $5,153,000 in First Quarter 2015 compared with $1,568,000 in First Quarter Financing activities In First Quarter 2015, cash used in financing activities was $1,186,000 compared with $1,512,000 in First Quarter 2014, a decrease of $326,000. Repayment of notes payable in First Quarter 2015 used cash of 18

20 $409,000 compared with $363,000 in First Quarter Repayment of finance lease obligations in First Quarter 2015 used cash of $777,000 compared with $1,129,000 in First Quarter Tax distributions paid used cash of $20,000 in First Quarter 2014 and there was no comparable amount in First Quarter Capital expenditures The equipment and development added to property, plant and equipment for three months ended March 31, 2015 were as follows: (000's) Maintenance capital expenditures Deep mines $ 2,603 Surface mines 524 Plant 99 3,226 Growth capital expenditures Deep mines 2,038 Surface mines 657 Plant 182 2,877 $ 6,103 Corsa s future spending on property, plant and equipment at its operations will be dependent upon market conditions, achieving acceptable rates of return on investment and financing availability. In 2015, Corsa anticipates that it will upgrade the capital equipment currently utilized at the PBS operations which will be funded from cash on hand as well as finance leases, where determined appropriate by Corsa. The timing of development of Corsa s coal properties will be dependent on market conditions. Debt Covenants Corsa has certain covenants it is required to meet under its finance lease obligations and certain notes payable. Certain measures included in the covenant calculations are not readily identifiable from Corsa s consolidated income statement or consolidated balance sheet. These measures are considered to be Non- GAAP financial measures and as such, a further description of the covenant calculations is included below. Corsa was in compliance with all covenants as at CAPP note payable The covenants required to be met are described below for the noted agreement. Such measurements are made on the non-consolidated results of Kopper Glo Mining, LLC. Maintain a Minimum Free Cash Flow Coverage Ratio (1) greater than 1.20 (measured quarterly) Maintain a Lease Adjusted Cash Flow Leverage Ratio (2) less than 3.50 (measured quarterly) 19

21 Maintain a Lease Adjusted Balance Sheet Leverage Ratio (3) not to exceed: Fiscal year to 1.00 Fiscal year to 1.00 Fiscal year 2014 and thereafter 4.50 to 1.00 (measured annually at December 31 of each year) (1) Minimum Free Cash Flow Coverage Ratio is measured as: EBITDA-Maintenance Capital Prior Year Current Maturities of Long Term Debt + Interest Expense + Tax Expense (2) Lease Adjusted Cash Flow Leverage Ratio is measured as: Funded External Debt + 5 times Annual Lease Payments EBITDA + Annual Operating Lease Payments Maintenance Capital (3) Lease Adjusted Balance Sheet Leverage Ratio is measured as: NAPP finance lease Total Liabilities + 5 times Annual Operating Lease Payments Net Worth Mineral Reserves Mine Development The covenants required to be met are described below for the noted agreement. Such measurements are made on the consolidated results of Wilson Creek Energy, LLC, excluding Kopper Glo Mining, LLC. - Debt service coverage ratio (1) must exceed 1.25 : 1.0 (tested quarterly) - Debt to tangible net worth (2) must not exceed 2.0 : 1.0 (required to be maintained at all times) (1) Debt Service Coverage Ratio is measured as: Adjusted net income Total payments made on financed debt + off-balance sheet obligations + interest expense (2) Debt to Tangible Net Worth is measured as: Total Assets Total Liabilities Outstanding balance of all financed debt + off-balance sheet obligations + interest expense Adjusted net income is defined as Net income + Non-cash expenditures + Rent expense + Interest expense. Financed debt includes notes payable, finance leases and other institutional debt. 20

22 Contractual obligations Corsa has the following contractual obligations: Payments due by period Carrying value as at Less than 1 to 4 to After Total 1 year 3 years 5 years years Accounts payable and accruals $ 19,923 $ 19,923 $ 19,923 $ - $ - $ - Notes payable 4,053 4,220 2,650 1, Finance lease obligations 8,462 8,946 4,049 4, Loan payable 21,669 25, ,000 - Other liabilities 9,335 10,000 7, ,000 Funding to reclamation bonds - 1,500 1, Water treatment trust funding - 20,340 3,390 6,780 6,780 3,390 Purchase commitments on capital equipment - 9,109 9, Operating leases and other obligations - 4,224 2,771 1, Total $ 63,442 $ 103,262 $ 50,392 $ 14,282 $ 32,198 $ 6,390 Non-GAAP Financial Measures This MD&A reports certain financial measures, not recognized under International Financial Reporting Standards ( IFRS or GAAP ), as used by management and readers of this MD&A to evaluate the historical performance of Corsa. Since certain non-gaap financial measures may not have a standardized meaning and may not be comparable to similar measures presented by other companies, the non-gaap financial measures are clearly defined, quantified and reconciled with their nearest GAAP measure. The financial measures referred to this MD&A, namely EBITDA (earnings before deductions for interest, taxes, depreciation and amortization); Adjusted EBITDA (EBITDA adjusted for change in estimate of reclamation provisions, gain (loss) on sale of assets and other costs, stock-based compensation and finance expense net of interest expense); realized price per ton sold (net coal sales divided by tons of coal sold); cash production cost per ton sold (cash production costs of sales divided by tons of coal sold) and cash margin per ton sold (difference between realized price per ton sold and cash production cost per ton sold) are not measures recognized by GAAP. Management uses EBITDA; Adjusted EBITDA; realized price per ton sold, cash production cost per ton sold and cash margin per ton sold as internal measurements of operating performance for Corsa s mining and processing operations. Management believes these non-gaap measures provide useful information for investors as they provide information in addition to the GAAP measures to assist in their evaluation of the operating performance of Corsa. 21

23 EBITDA and Adjusted EBITDA Corsa Coal Corp. The calculation and reconciliation of non-gaap EBITDA and non-gaap Adjusted EDITDA to Net and comprehensive loss, the nearest GAAP measure, is as follows: Consolidated For the three months ended (1) (000 s) (000 s) Net and comprehensive loss $ (26,233) $ (573) Add (Deduct): Amortization expense 8,547 3,032 Interest expense Income tax expense (recovery) 264 (1,464) EBITDA (16,659) 1,139 Add (Deduct): Change in estimate of reclamation provisions for non-operating properties 1, Impairment of mineral properties 12,685 5 Write-off of advance royalties and other assets 1,290 - Stock based compensation Net finance (income) expense 545 (950) Interest expense (763) (144) Other costs Adjusted EBITDA $ (299) $

24 NAPP For the three months ended (1) (000 s) (000 s) Net and comprehensive loss $ (13,827) $ (2,871) Add (Deduct): Amortization expense 6,745 1,632 Interest expense EBITDA (6,982) (1,157) Add (Deduct): Change in estimate of reclamation provisions for non-operating properties 1, Impairment of mineral properties 3,633 5 Write-off of advance royalties and other assets 1,290 - Net finance expense Interest expense (100) (82) Other costs Adjusted EBITDA $ 339 $ (553) 23

25 CAPP For the three months ended (000 s) (000 s) Net and comprehensive (loss) income $ (10,551) $ 427 Add (Deduct): Amortization expense 1,802 1,400 Interest expense EBITDA (8,710) 1,889 Add (Deduct): Change in estimate of reclamation provisions for non-operating properties (65) - Impairment of mineral properties 9,052 - Net finance expense Interest expense (39) (62) Other costs - 16 Adjusted EBITDA $ 357 $ 1,987 Corporate For the three months ended (000 s) (000 s) Net and comprehensive (loss) income $ (1,855) $ 1,871 Add (Deduct): Interest expense Income tax expense (recovery) 264 (1,464) EBITDA (967) 407 Add (Deduct): Stock based compensation Net finance income (295) (1,378) Interest expense (624) - Adjusted EBITDA $ (995) $ (678) 24

26 Realized price per ton sold The calculation and reconciliation of net coal sales to revenue, the nearest GAAP measure, and the calculation of realized price per ton sold (net coal sales divided by the tons sold) is as follows: Consolidated For the three months ended (1) Revenue $ 31,366,000 $ 19,844,000 Add (Deduct): Tolling and other revenue (2,313,000) - Transportation costs from preparation plant to customer (1,752,000) (796,000) Net coal sales (at preparation plant) $ 27,301,000 $ 19,048,000 Coal sold - tons 359, ,000 Realized price per ton sold (at preparation plant) $ 76 $ 71 NAPP For the three months ended (1) Revenue $ 17,976,000 $ 4,706,000 Add (Deduct): Tolling and other revenue (2,313,000) - Transportation costs from preparation plant to customer (1,752,000) (796,000) Net metallurgical coal sales (at preparation plant) $ 13,911,000 $ 3,910,000 Metallurgical coal sold - tons 159,000 45,000 Realized price per ton sold (at preparation plant) $ 87 $ 87 25

27 CAPP For the three months ended Revenue $ 13,390,000 $ 15,138,000 Add (Deduct): Tolling and other revenue - - Transportation costs from preparation plant to customer - - Net thermal and industrial coal sales (at preparation plant) $ 13,390,000 $ 15,138,000 Thermal coal and industrial coal sold - tons 200, ,000 Realized price per ton sold (at preparation plant) $ 67 $ 68 26

28 Cash production cost per ton sold Corsa Coal Corp. The calculation and reconciliation of cash production cost of sales to cost of sales, the nearest GAAP measure, and the calculation of cash production cost per ton sold (cash production cost of sales divided by the tons of coal sold) is as follows: Consolidated For the three months ended (1) Cost of sales $ 52,651,000 20,905,000 Add (Deduct): Amortization expense (8,547,000) (3,032,000) Transportation costs from preparation plant to customer (1,752,000) (796,000) Change in estimate of reclamation provision for non-operating properties (1,624,000) (372,000) Impairment of mineral properties (12,685,000) (5,000) Write-off of advance royalties and other assets (1,290,000) - Idle mines expense (1,566,000) (371,000) Other costs (88,000) (41,000) Tolling and other revenue (2,313,000) - Cash production cost of sales (at preparation plant) $ 22,786,000 $ 16,288,000 Coal sold - tons 359, ,000 Cash production cost per ton sold (at preparation plant) $ 63 $ 61 27