Okay, a few questions re the coal business.
1. Margins. You seem to be assigning a "net value" of $10 per ton of coal. "Worst case scenario is 10,000,000 tons, which translates into about $100,000,000.00 or $1.43 per share so far..." I assume that this is derived from the May 28 MTEI release as follows: "This low sulfur, low ash content, high BTU, clean burning currently sells for $25-$28 per ton. With cost of mining and transportation estimated at $11-$15 per ton, this will show a $10 per ton conservative net profit..."
Two of the largest suppliers of coal in the USA are Arch Coal (ACI) and Zeigler (ZEI). These are both public companies, and are basically "pure plays" on coal.
Looking at the most recent quarterly statements, for Q1 98, Arch produced coal mining revenues of $298,964,000, versus coal mining costs of $270,905,000. Equated into per-ton data, this is revenue of $25.12 per ton of coal (almost entirely Clean Air Act "Compliant" low sulfur), with costs of $22.76 per ton. This equates to a gross margin of $2.36 per ton, or 9.3 percent. Note, this EXCLUDES other costs, such as general and admin expenses, interest on debt, exploration expenses, and so on. This is basically just "cost of good sold" data.
For Zeigler, Q1 98, they produced coal mining revenues of $154,595,000, against coal mining costs of $134,955,000, with a total margin of 12.7 percent. Again, this EXCLUDES other costs. ZEI does not specify its total tons of coal shipped, so it's not possible to break out these numbers by ton.
I'm curious as to where MTEI derives a projected production cost of $11 - $15 per ton, and thus a gross margin in the vicinity of (worst case) 40 percent, when the largest and, I would think, most efficient, capital intensive companies can't seem to do better than 12 - 13 percent at best. And that's only the gross margins. The net margins are much lower, once the other costs of running the business are added.
2. Reserves vs. production. The coal business is basically a "demand" based business, not a supply based business. Basically, only enough coal is produced to satisfy the demand of a limited number of customers (primarily electrical utilities), for the USA this is roughly one billion tons a year. There are additional users such as steel mills, but these customers use limited amounts of very high quality specialized "metallurgical" coal (these are priced up to maybe about $50 per ton, as opposed to the market price of about $25 a ton for "thermal" coal to large customers).
Nobody's production is based upon the total reserves they hold. It's based upon the customers they are able to secure, generally on long-term supply contracts which lock up almost all the production. Companies often have to close specific mines when they lose supply contract bids, even if they can produce from that mine at an economical price, because they simply can't sell it, even if they offer to discount it. The buyers are locked into supply contracts, they've already agreed to buy a certain quantity at a certain price, and they don't need to buy more just because someone has it available at a lower cost than they're paying. This is basically why you don't see much of a "spot" market for coal, unlike the situation with oil.
To illustrate, Raleigh County WV shows USGS estimated "recoverable reserves" of about 1.745 billion tons of coal. Against that, 1995 production was only about 10.2 million tons. The situation in Lincoln County is even more interesting. Lincoln shows estimated recoverable reserves of about 1.055 billion tons, whereas total production in 1995 was only 5,185 tons out of a single shaft mine. So, if there's all this availability of recoverable reserves, why aren't they mining it faster? Especially in the case of Lincoln, which basically had no production? Probably for two reasons: (1) in many cases, it's not economical to produce, even though it's theoretically "recoverable" (this may explain why Lincoln has almost no production); (2) there's no need for more than they're producing.
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