Press Release |
Source: Arabian American Development Company |
Arabian American Development Provides Year-End Business Update
Tuesday December 16, 8:30 am ET
Company Closes Out Derivative Positions; Has Sufficient Working Capital to Meet Current Obligations
DALLAS, Dec. 16 /PRNewswire-FirstCall/ -- Arabian American Development Co. (Nasdaq: ARSD - News) today announced several recent corporate actions and business developments including closing out all positions related to its derivative program. On December 11, 2008 the Company neutralized its hedge position, has sufficient working capital to clear remaining obligations, and believes it will maintain sufficient liquidity to operate efficiently. In addition, on November 25, 2008, the Company formally announced that the mining lease transfer was completed, as well as, the transfer of the previously held $11 million note due to the Saudi government.
The Company bought out the remaining crude oil puts which were in place for April to December of 2009. The premium paid on the transaction was $1.8 million. As a result, going forward, it will not be affected by fluctuations in crude prices other than normal physical feedstock cost fluctuations. The derivatives will continue to be shown for financial reporting purposes until they expire throughout 2009 but they will not have any material affect on operations or cash flow going forward except to move from unrealized to realized positions.
The Company has also paid down its line of credit with Bank of America. The Company currently has $5.5 million of availability and expects an additional $4 million to be available for payment as a result of closing out the margin account with its trading partner. This will provide the Company with sufficient cash on hand to cover first quarter financial swaps as they settle. The loss on the first quarter swaps had been fixed in previous months at $5.9 million and will be paid pro rata each month as they mature. In October 2008 the line of credit was raised to $25 million to cover increased liquidity demands the Company was facing from margin calls and the continued degradation of hedge positions. Due to the higher than expected final cost, the Company, in late November refinanced its recent plant expansion from a $10 million, 10 year note to a $14 million note with the same terms and conditions. The proceeds were used to pay down the working capital line. Additionally, cash flow has been strong throughout the third and fourth quarters and has helped provide the liquidity necessary to manage the derivative losses.
The current liquidity position will also allow the Company to pay retirement obligations due its Saudi employees which total approximately $900,000. These obligations will be paid over the next 30 to 60 days as the Company's presence in the Kingdom dwindles, and the assets are transferred to AMAK. On November 25, 2008, the Company announced its agreement to transfer the mining assets to the joint venture under the conditions suggested by the Ministry. The Ministry requested that the $11 million development loan, which has been outstanding since 1984, be transferred to AMAK and paid out of the proceeds of the mine. The payments will come from the Company's share of the proceeds, and the correct accounting treatment is under consideration.
Nick Carter, Executive Vice President and Chief Operating Officer, commented, "We believe closing out the derivative position is a positive final step for the very volatile situation we encountered beginning in the third quarter of 2008. We expect sales for the fourth quarter to be in line with historical trends, and margins to remain good; therefore, we expect cash flow to remain positive through December into early spring 2009 at which time we expect volume to increase. We feel fortunate that we have been able to manage our way through this serious situation by making the best use of strong cash flows from operations and flexibility with our banking partner. For the time being, the negotiations with the large shareholder to provide the "Safety Net" financing will be put on hold as our confidence is growing that we will not need the additional support. We will continue to have discussions with the bank concerning any additional need for working capital in the event prices rise dramatically or our volume climbs as we anticipate. I'm sure our shareholders will be glad to see this chapter closed, as are we, and we look forward to returning our focus to the operations and growth of both the petrochemical and mining segments."
About Arabian American Development Company (ARSD)
Arabian American owns and operates a petrochemical facility located in southeast Texas, just north of Beaumont, specializing in high purity petrochemical solvents and other solvent type manufacturing. The Company is also the original developer and is now a 50% owner of a joint venture in a mining project in the Al-Masane area of Saudi Arabia which is under construction and is scheduled to be in production in 2010. The mine will produce economic quantities of zinc, copper, gold, and silver.
Safe Harbor
Statements in this release that are not historical facts are forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward looking statements are based upon management's belief as well as assumptions made by and information currently available to management. Because such statements are based upon expectations as to future economic performance and are not statements of fact, actual results may differ from those projected. These risks, as well as others, are discussed in greater detail in Arabian American's filings with the Securities and Exchange Commission, including Arabian American's Annual Report on Form 10-K for the year ended December 31, 2007 and the Company's subsequent Quarterly Reports on Form 10-Q.
Company Contact: Nick Carter, Executive Vice President
and Chief Operating Officer
(409) 385-8300
ncarter@southhamptonr.com
Investor Contact: Cameron Donahue
Hayden IR
(651) 653-1854
Cameron@haydenir.com
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Jennifer Heady
Hayden IR
P: 843-399-7576
jennifer@haydenir.com
www.haydenir.com
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