Oxford Resource Partners, LP (OXF)

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Oxford Resource Partners, LP (OXF)

Q4 2012 Earnings Conference Call

April 1, 2013 10:00 a.m. ET

Executives

Karen Van Horn – Investor Relations

Charles C. Ungurean – President, Chief Executive Officer and Director

Gregory J. Honish – Senior Vice President, Operations

Bradley W. Harris – Senior Vice President, Chief Financial Officer and Treasurer

Analysts

Jim Rollyson - Raymond James

Sam Dubinsky - Wells Fargo Securities

Presentation

Operator

Good day ladies and gentlemen, and welcome to the Fourth Quarter 2012 Oxford Resource Partners, LP Earnings Conference Call. My name is Janetta and I will be your operator for today. At this time all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

And I would now like to turn the call over to Ms. Karen Van Horn, Investor Relations Representative. Please go ahead.

Karen Van Horn

Thanks, Janetta. Good morning, and welcome everyone to our fourth quarter and full year 2012 earnings conference call. We appreciate your continued interest in Oxford Resource Partners. I’m Karen Van Horn, Investor Relations Representative with Oxford.

Participating on the call today are Oxford’s President and CEO, Chuck Ungurean; Oxford’s Senior Vice President of Operations, Greg Honish; and Oxford’s Senior Vice President and CFO, Brad Harris.

Oxford released its 2012 fourth quarter and full year results earlier this morning. On today’s call, we will be discussing our operations and financial results for both periods. Following our prepared remarks, we will open the call up to questions.

Please be aware that some of our remarks may include statements that are not historical in nature and that may involve expectations, plans and objectives regarding future operations. These remarks are forward-looking statements and are subject to the cautionary language regarding forward-looking statements contained in our press release. Additionally, we will be discussing Adjusted EBITDA, which is a non-GAAP financial measure. The definitions of Adjusted EBITDA and a reconciliation thereof to net loss, a comparable GAAP financial measure, are included in a table presented near the end of our press release. Our press release has been posted on our website oxfordresources.com and furnished to the SEC in our Form 8-K filing.

With that, I would like to turn the call over to Chuck for some opening remarks. Chuck?

Charles Ungurean

Thanks Karen and thanks everyone for joining us today. As you saw on our earnings release this morning and as we’ve discussed on previous calls, 2012 was a challenging year for Oxford and the entire coal industry. While coal market conditions continue to be challenging, our customer relationships remain very strong. We’re 98% committed in price for 2013 and for 2014 our projected sales are 79% netted and 47% priced.

When stronger demand returns to our market, we have the ability to increase production with little incremental cost. In the meantime, we are focused on maximizing the cash margin on every ton we produce. The wind down of our Illinois Basin operations has allowed us to transfer excess equipment to our Northern App mines, which has reduced our CapEx spending. We expect to complete the wind down of our Illinois Basin operations by the end of the year. We continue focusing on selling the remaining excess Illinois Basin equipment with any sales proceeds further enhancing our liquidity.

As we stated in our press release, we are in active negotiations with our lender group on refinancing of our credit facility. Brad will address that with his remarks. We have achieved increases in our per-ton coal revenue throughout 2012 and anticipate further per-ton increases this year. I can report that 2013 is off to a solid start, with first quarter performance expected to show improvement over fourth quarter.

Now I’ll turn the call over to Greg to provide an update on our mining operations. Greg?

Gregory Honish

I’m going to report on our progress in four key areas; safety, operations, reserve acquisitions and permitting, starting with safety. Our MSHA reportable incidents rate for the fourth quarter and for all of 2012 was better than the national average for surface mines and facilities. 12 of our 18 mines and all four of our coal processing facilities completed 2012 with zero reportable accidents. Employee safety remains our highest priority and we’re proud of our record.

Moving on to operations. We strived to our high-wall miners operating as much of the time as possible because they represent our most cost effective means of producing coal. Fourth quarter production costs were thus negatively impacted by the move of one of our high-wall miners into the recently opened [Shugard] mine in October.

And regarding high-wall miner moves, in 2013 we transitioned one high-wall miner into an adjacent area mine during January and we will be moving the other minor to a new mine location late in the second or early in the third quarter. As previously communicated, we significantly scaled back production in our Illinois basin operations and are currently operating only one mine in support of one coal supply contract. We expect to produce approximately 240,000 tons from the Illinois Basin mining complex in 2013. And as Chuck mentioned, we expect to finish production and idle this complex by the end of this year.

Turning to reserve acquisitions. Consistent with our strategy to replace the tons that we mine, we acquired 7.2 million tons during 2012. This is roughly 105% of our 2012 production. Of this total, 6.9 million tons required for our Northern App operations. The remaining 0.3 million tons were required in the Illinois basin early in 2012 before the restructuring considerations arose. These acquisitions coupled with mine plant enhancements resulted in a 1.5 million ton increase year over year in our Northern App surface reserve base.

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