All financial figures contained herein are expressed in U.S. dollars unless otherwise noted. These documents will be posted on the Company’s website at www.pacificcoal.ca and under the Company’s profile at www.sedar.com.

Hernan Martinez, Executive Chairman, commented: "In the second quarter of 2014, we were able to maintain year to date general and administrative expenses below forecasted amounts and further ramp up south pit production at La Caypa. We are also currently negotiating a joint venture at Cerro Largo that is expected to provide the Company with a steady cash flow. We aim to further develop the south pit at La Caypa to maximize its coal production and strengthen our focus on core assets by disposing off the remaining interest in the Barranquilla port."

Q2 2014 Highlights

Coal production: The Company produced 284,262 tonnes of coal in the second quarter of 2014, representing an increase of 3% from the first quarter of 2014 (276,744 tonnes). The operational stripping ratio at the Company’s Cerro Largo mine of 10.42:1 in the second quarter of 2014 represented a decrease of 6% from the first quarter of 2014 (11.06:1).

Revenues: Coal revenues for the second quarter of 2014 were $21.9 million – 229,276 tonnes of coal sold at an average realized price of $95.39 per tonne, consistent with $95.67 per tonne in the first quarter of 2014.

Earnings from operations: Loss from operations for the second quarter of 2014 was $6.6 million, compared to earnings of $1.2 million in the first quarter of 2014 and $0.4 million in the second quarter of 2013. This can be primarily attributed to production issues noted at the La Caypa mine during the quarter.

Adjusted EBITDA and operating margin: Adjusted EBITDA for the second quarter of 2014 was a loss of $4.9 million. The total operating loss for the second quarter of 2014 on a per tonne sold basis was $14.91.

Bond Issuance: In July 2014, the Company completed a private debt offering for aggregate gross proceeds of $6.5 million. The note expires in 2015 and is guaranteed by a July 2015 payment relating to the 2013 Barranquilla port concession sale agreements.

Operation of La Caypa mine: After commencing in late 2013, operations in the south pit continued in the first half of 2014 as the Company produced 197,106 tonnes from the pit as of June 30, 2014 (174,603 in the second quarter). The Company also capitalized stripping costs of $6.2 million during the first half of the year as production at the south pit continues to ramp-up.

General and administrative ("G&A") expenses: The Company recorded $1.4 million in G&A expenses, excluding DD&A, in the three months ended June 30, 2014, compared to $1.6 million in the same period of 2013, a reduction of 13%. G&A expenses in the first half of 2014 were also 5% lower than the $2.8 million forecasted. The Company anticipates a quarterly G&A run rate of $1.4 million for the remainder of 2014.

Operational Update

La Caypa mine

Production of Coal
(metric tonnes) Waste
(bcm)(1) Stripping Ratio

Open-pit operations(2) 191,975 3,026,723 15.77:1
South pit development – 609,841 N/A
Total 191,975 3,636,564 18.94:1
(1) Bank cubic meters
(2) 174,603 tonnes from La Caypa’s south pit and 17,372 tonnes from the north pit.
Production from the La Caypa mine was 196,644 tonnes in the second quarter of 2014 (open-pit operations of 191,975 tonnes and underground operations of 4,669 tonnes), achieving 73% of its planned production, a decrease of 39% of the tonnes produced in the second quarter of 2013 (320,436 tonnes) and 18% less than the tonnes produced in the first quarter of 2014 (241,151 tonnes).

Missing the production forecast and the decrease from prior periods can be attributed to adverse geological conditions in the section produced from in the second quarter of 2014. The issue is outside of the Company’s control and primarily a result of naturally occurring burning of the coal mantles in addition to the mantles being affected by the presence of a geological fault.

The Company is forecasting thermal coal from La Caypa in 2014 of approximately 928,000 tonnes (open pit production of 920,000 tonnes and underground production of 8,000 tonnes), representing an 8% production decrease from 2013. The Company had initially forecasted production of an additional 135,000 tonnes from open pit production in 2014, but as a result of the lower than originally estimated tonnes produced in the second quarter, the forecast has been reduced.

Cerro Largo mine

In the second quarter of 2014, the Company produced 87,618 tonnes from the Cerro Largo mine, more than two times the 35,593 tonnes produced in the first quarter of 2014. The second quarter of 2014 production also represented a 12% increase from the second quarter of 2013 (78,429 tonnes), although it only represented 64% of planned production for the quarter.

The company that operated the Cerro Largo mine from March to mid-July 2014 began operating after limited production in the first two months of 2014. This resulted in reduced production in the first quarter. The Company produced well below planned production for the second quarter of 2014 because the forecast was made under the assumption that the transition to third party operation (after own operation in the second half of 2013) would be finalized before the end of 2013, when in actuality the third party operator had just started production and was in the process of bringing new equipment to the mine to ramp up operations as of the second quarter of 2014.

Production targets for 2014 at Cerro Largo are 0.3 million tonnes, an approximately 14% increase over the tonnes produced in 2013. The Company had originally estimated production in 2014 to be 0.5 million tonnes, but the results of the first half of 2014 and production stoppages as a result of the ongoing negotiations with a new operator reduced the annual plan.

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