- Coal Reserve Evaluation
- Strategic Planning for Existing Companies
- Financial Models (Corporate Level)
- Operation Models (Corporate and mine)
- Acquisitions of Companies or Reserves
- Sales Transaction Strategy and Documentation
- Mineral Leasing Strategy and Documentation
- Procurement Oversight/Verification
- Expert Witness and Legal Strategy EV Evaluation
- US Government Data Analysis
Coal Reserve Evaluation
Blue Energy is highly experienced with the review of in-situ geophysical information for the purpose of forecasting production costs, building financial models, and assessing marketability. Relating core hole information to optimal beneficiation practices, washing recovery, and coal quality - a particularly challenging and risky task in reserve assessment - is a core competence. We have provided oversight and direction to major engineering companies in reserve diligence efforts, then performed economic overview and valuations of such reserves. Blue Energy does not perform "SEC eligible" reserve tables, but "common sense" reserve estimates based upon our CAAP financial experience with reserve "mineability". Any reserve estimate provided by Blue Energy, with respect to reserve quantities, will be far less than those derived by engineering companies, who are generally motivated to maximize tonnages. Our reserve study review will generally provide a "second look" with respect to primary risks affecting financial performance; or alternatively, our effort will seek to distinguish whether a specific reserve is a "risk" or an "opportunity".
Strategic Planning for Existing Companies
Business plan development, primarily for operating coal companies, using market data to identify investment opportunities, optimize mine development, and strategically deploy capital. We perform this task regularly for a midsized CAAP producer. Due to the coal industry's highly cyclic nature, organization and mine staffing problems, including major reorganizations and staff reduction/combination, is an often overlooked necessity. Economic evaluation of legal situations, which may or may not involve litigation. Strategic plans, or evaluation of existing plans, are fundamental to the development of "greenfield" or "brownfield" coal projects.
Financial Models (Corporate Level)
Company specific financial models prepared using SEC Edgar or other available resources. This type analysis has been coal industry specific or otherwise, but generally with the intent of testing stock market valuations against inherent value using external metrics, then iterative value testing by varying assumptions. Coal company modeling has generally been client driven, whereas non-coal models have been investment portfolio driven in the "value investing" segment. Examples of such models: CBD REIT relative valuation versus peers; middle market BDC industry; numerous public coal companies; medical testing company; CTL (coal to liquids) refinery and financial value drivers; recapitalization potential of retail grocer.
Operation Models (Corporate and mine)
Competence and experience include both CAAP underground and surface mine planning, including equipment appropriateness for CAAP surface and underground mines; production and cost forecasting; and coal seam beneficiation strategies. Large data base of eastern US coal seam qualities including most major metallurgical coal seams. Can prepare blending and beneficiation models for steam and metallurgical applications, including CSR prediction. It is our observation, that most senior coal industry executives do not understand coal washing/blending, nor its impact on ultimate operational economics.
Acquisitions of Companies or Reserves
Because of the highly cyclic nature of the CAAP coal industry, "timing is everything"; yet, there is tremendous value creation "upside" if proper opportunity identification techniques and discipline is employed. The most important elements, fundamental to distinguishing whether the candidate is an opportunity or a risk, is the relationship between: (A) coal quality of the reserves; (B) expected long term market valuation of the subject coal quality; and, (C) anticipated costs and risks of extraction. Blue Energy's primary experience has involved investigating numerous potential transactions, both steam and metallurgical, throughout Central Appalachia, and to a lesser extent in the ILB and Arkansas basins. The "risk to opportunity" ratio for potential acquisitions generally exceeds 10 to 1, depending on cycle timing, and prospective clients need be mindful of that. As a "Monday morning quarterback" we have performed financial critique on numerous large CAAP acquisitions (almost none of which were successful). Individual reserve acquisition and development appears to have the highest success rate.
Sales Transaction Strategy and Documentation
Blue Energy is highly experienced with advising and negotiation of US domestic utility and international export transactions, both purchase and sale. These purchase/sale transactions have ranged from multi-year and several hundred million in valuation, to single vessel or single unit train transactions. Applications have ranged from metallurgical, steam, and industrial. On large multi-year sales agreements, we have structured such agreements using BLS index adjustments, so that clients need not engage in commodity hedging activities. We are highly experiences in long term sales portfolio strategies for CAAP production (however, this would likely be the most conflicted area of our core competences). Documentation templates are available for all types of transactions.
Mineral Leasing Strategy and Documentation
Blue Energy has played significant documentation roles in mineral leasing transactions, both advising land owners and miner/developers. We have available a variety of document templates suitable for use in these type transactions. However, and more importantly, the strategy for the lessor/lessee is fundamental to designing the document. Our view of the structure of the mineral lease is from the business perspective and may require a legal review/support, depending on the scope and nature of the lease. We have numerous legal contacts in Kentucky, Virginia, and West Virginia, and can provide recommendations on counsel.
This situation in the CAAP coal industry, unfortunately, is a common occurrence, and often mismanaged from an administrative standpoint. Mr. Helms, serving as the CEO of the "debtor in possession", reorganized a medium sized public CAAP coal producer in 20 months during the 1990's with the focus being: (1) minimize administrative cost; (2) maximum recovery for all stakeholders; and (3) expedite the process. With counsel oversight, all administration functions of the Chapter 11 bankruptcy, including the drafting of the Plan, were performed "in-house" by the staff of the debtor. The outcome of this Chapter 11 case was highly unusual, in that the former shareholders retained a 30% interest, unsecured creditors recovered 200%+ on their claims, and secured creditors were fully repaid. In addition, Mr. Helms has significant third party experience in the bankruptcy venue, both reorganizing assets and the purchase/sale therefrom.
While Blue Energy's primary coal transactional experience has been on the "sell side", our entire staff has had significant experience in coal procurement. This experience has included "balancing transactions" for the sales portfolio of a medium sized CAAP producer, including the documentation thereof. Additionally, we have performed purchase and purchase oversight for metallurgical export transactions. These include CSR compatibility blending, purchase documentation, logistics planning, and associated oversight. Moreover, our experience with operational modeling and reserve evaluation makes Blue Energy uniquely qualified for utility coal procurement supplier verification and contract due diligence. Fundamental to all purchase activity is counterparty selection and quality oversight.
Expert Witness and Legal Strategy EV Evaluation
Expert Witness and Legal Strategy: Blue Energy's principal has been engaged as an expert witness for multiple CAAP (and ILB) lawsuits, both that have been settled and gone to trial/arbitration. We view lawsuits as business transactions that require planning and direction; otherwise, these efforts become out of control and expensive legal distractions. Blue Energy can provide outcome "expected value" modeling when working with the clients counsel; however, first having counsel and the client construct an "action plan and budget" is fundamental to this analysis. These probabilistic exercises can be important in assessing the strategy and direction of the case.
US Government Data Analysis
Using FERC coal transaction data and/or MSHA productivity data, we have provided competitive analysis of the relative performance of coal sales efforts and productivity of individual corporate entities versus competitors. When supplemented with SEC Edgar financial information, these type "competitor analysis" can provide insight into overall corporate performance.