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Microcap & Penny Stocks : MTEI - Mountain Energy - No BASHING Allowed -- Ignore unavailable to you. Want to Upgrade?

To: Thomas C. White who wrote (4384)	7/1/1998 3:43:00 PM
From: eric deaver	Read Replies (3) \| Respond to of 11684

Tom, Thanks for your response. After reading your post, it occurred to me that given MTEI's approach to things, they may actually have a way of producing this coal at the margins cited. Here is my thought - (remember, I am just a geologist not an accountant). Let's say we are correct and as you say: "$16 - $17 is probably a good figure for a "cost delta" -- that is, the additional direct variable cost incurred for extraction and transportation of an additional ton of coal." Off topic a little and for clarification - since we are talking about mine prices we should not be considering transportation fees in this equation, IMO. Anyway, you say the the equipment depreciation is the big ticket for the likes of Arch. Well Arch mines its own coal and so must own and depreciate its own equipment. This is the same trap major oil has fallen into. I just got off the phone w/ the WV Mining and Reclamation Association (btw, they said the figures I cited are probably in the ball park). I was asking them about contract mining. He said that as a property owner, I would take a reserve study to several contract mining companies and bid them against each other for extraction. Seems to me, this would be the way to go. Outsource the mining and stay away from the euipment inventory problems plaguing the likes of Arch, Amax, Peabody and others who are doing their own mining. This is definitely what oil corporations are doing - they outsource everything as I can attest to (I am an independent contractor under contract to one of them). This is what they do with landmen, with drilling services, with oil field services and on. Additionally, the WV Mining association guy seemed to indicate that there would be no shortage of mining contractors to bid this work. Seems to me the way it should be approached to maximize our resource value. Of course it will be difficult in this scenario to use Arch as a model in that the finances are totally different. BTW, This discussion is generally mute for two reasons: Both Stagg and WV Mining Assoc. said it is extrememly difficult to come up with an extraction price without a reserve study. A lot depends upon the amount of overburden to be removed. Once again we must wait on Stagg before we KNOW for sure - that's why its a penny stock. But most importantly, MTEI is a coal, gas & oil production company and Stagg is delineating all reserves. My prediction (again based on my understanding of WV) is that we will easily surpass the $1.43 / share minimum asset value referenced by Blitz when all is said & done. To me its common sense. FWIW, Eric

To: Thomas C. White who wrote (4384)	7/1/1998 9:40:00 PM
From: eric deaver	Read Replies (2) \| Respond to of 11684

<<Where I would take issue is on calculation of COGS. $16 - $17 is probably a good figure for a "cost delta" -- that is, the additional direct variable cost incurred for extraction and transportation of an additional ton of coal. But I am willing to bet that it does not include equipment depreciation, which in the case of Arch and Zeigler calculations is included (basically, the components included in their calculations are direct mining costs including routine reclamation; depreciation; amortization of leases and other direct land costs; direct transportation; but not SG&A). In the extraction business, this has to be included in COGS, because it's a very capital intensive business. >> Tom, thanks for continuing this discussion. I personally find it very useful. I was rereading what you were saying above. If what I'm reading is true, the calculation by Arch and Zeigler include transportation. Also you say the $16 - 17 would be a good cost delta figure including transportation. When we are looking at margins, we have been comparing our costs to mine prices. Take a look at this link: eia.doe.gov At the last several lines in the table. Look like WV coal END USER prices are more like $30 - $33 / ton. Wouldn't this be the more appropriate number to use and doesn't it then make the $10 / ton margin doable? Finally honest question (not that my others were not honest :)) I was confused by this statement: <<Basically, you probably need more or less around $.75 to $1 of net (depreciated) equipment for every $1 of coal sold per year (so, for example, if you are shipping $100 million of coal a year, you probably will end up having to have around net $75 - 100 million of plant and equipment). >> Are you saying I have to take a one dollar per year depreciation charge on my equipment for each dollar of coal I sold per year? Maybe I am reading this wrong. Thanks, Eric