Q1 2013 capital expenditures on new equipment, capital repairs and mineral property development totalled $2.5 million, compared to $5.4 million in Q1 2012 and $1.6 million in the previous quarter. During Q1, the Company invested $1.3 million in new mine development (including engineering, permitting, pond building, road construction and general site preparation) primarily at Old Union 2, Knight and Posey Mill 2. The Company capitalized major repairs to existing equipment in the amount of $1.2 million. The Company did not purchase any new equipment in the first quarter. All capital expenditures were financed out of cash flow with the exception of $395,000 of major repairs, which were financed as part of equipment manufacturer credit programs.
Q1 2013 capital expenditures were significantly lower than the comparable prior period as in 2012 the Company was investing significantly in order to position itself for growth in 2013. Also, additional expenditures were incurred in 2012 at the Powhatan mine as a result of a repositioning of the mine and the introduction of a new management team.
In Q1 2013, the Company generated negative free cash flow from operations (EBTIDA less capital expenditures) of $0.6 million. At March 31, 2013 the Company had cash on hand of $1.6 million, compared to $2.4 million at December 31, 2012. In addition, the Company has undrawn operating lines of credit of approximately $2 million, undrawn capital equipment facilities of $1 million and restricted cash of $392,000.
During Q1, the Company's working capital position declined. At March 31, 2013, the Company had a working capital deficiency of $7.7 million compared to a deficiency of $4.8 million at December 31, 2012. This deficiency includes the $1.1 million principal portion of a debenture due August 31, 2013 as well as a $1.1 million current liability related to the Company's reclamation liability. In respect of the reclamation liability, the current portion represents the Company's planned expenditure program as opposed to its current regulatory or contractual requirements, which are less.
The Company believes it has sufficient cash reserves, capital and operating line credit access and other available cash sources (e.g. restricted cash, surplus equipment, which it intends to auction in Q2 2013) to finance the final development of its new mine complement. Once complete, the Company anticipates generating significant free cash flow from its new mines (from additional coal sales and reduced mine development capital spending requirements) to finance its obligations as they come due.
The Company's most recent 43-101 report (dated May 2011) identified 6 million tons of reserves covering Bear Creek, Posey Mill, Old Union, Old Union 2 and Gooden Creek. The report does not cover Knight, Powhatan and the Company's other lease holdings. The Company intends to obtain an updated 43-101 report during 2013.
The Company is in an important period of transition as it repositions its mine portfolio from a 40,000 to 60,000 ton per month run rate to an operating platform capable of producing 60,000 to 80,000 tons a month and beyond. As of the date of this MD&A, the Company has completed the mine build out of all 3 pits at Old Union 2 and the Knight mine and has substantially completed the build out of Posey Mill 2. Full scale commercial production at all 3 pits of Old Union 2 and the Knight mine is in place. Full scale production at all of the mines is anticipated before the end of Q2 2013.
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