Kentucky Energy (fka QMIN)

[mm107]

Glad to see your optimisim Pedro =]

I do like having you here to keep things even, even though i hate hearing the bad new you bring sometimes lol

BUT, this was posted on HOTSTOCKMARKET.com. not sure if anyone has seen them yet....

http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_Q/threadview?m=tm&bn=75055&tid=5753&mid=5753&tof=1&rt=2&frt=2&off=1
POST from the guy who took vids/pics of the mine...

LINK to a pics
http://public.fotki.com/qsplurge/qmnm-mine-visit/mine01.html


MORE POSTS FROM HIM COPY PASTE FROM HIS ANSWERS/REPLIES
Visited on 07/04/2008.
They have very recently put a fresh coat of KY blue paint on pretty much everything. But it still clearly resembles the pictures in the photo gallery on the questminingdotnet site.

If anyone else wants to visit and is worried about finding the mine, I still don’t know the exact address but it was easy to find. It is five minutes up Hwy 292 from Hwy 119 in South Williamson, KY. Just mapquest South Williamson, KY. From Hwy119 in South Williamson head north on Hwy 292. It is right on Hwy 292 about 100 yards south of Slater Branch Road.

My wife and I visited the mine on the 4th and talked to Bobby, the Whitestar supervisor. When we arrived he was on the front end loader moving some rock around that is due to be moved out of the way early this week. He was very personable and stopped what he was doing and answered all of my questions. He then said feel free to look around, go in the office and look at the maps. I snapped a few pictures and headed to the office. His son was putting a fresh coat of paint inside the office and shortly after we went in, Bobby met us there and explained the maps to us. They expect to begin bringing coal up later this week. But they are at a bend, or turn, in the mine. He showed us on the map. They need to make a slight left-hand turn to continue on the seam. They can get a little coal before doing that. But they will need to remove a little more rock in the turn so that they can line their equipment for the next run. He said that is no big deal compared to what has been done already. Once they get lined up for the next angle they can really rock-n-roll.

So far, they have had to remove a lot of rock to get where they are currently. This area had bolts and rebar in it from previous mining contractors. The metal in the roof made it extremely difficult and is hard on their equipment. They have had seven down days over the past month due to equipment failures caused from digging into the metal. Bobby was working on the 4th and over the holiday weekend to try and get back on schedule. He is very dedicated to the cause.

Bobby says there are a few things on his wish list. Number one is a conveyor belt upgrade. He says the existing 2700 foot long belt is workable but it is a little small for the job ahead. It will need to be upgraded at a cost of roughly $150K. He also wants to burn the existing site office down and replace it. The current office is an old mobile home but it gets the job done.

He also mentioned why the mine has been shut down until recently. Previously the mine was red taped by the feds as mining regulations were tightened. Under the economic conditions at the time it was not feasible to do the mine upgrades to continue mining. I believe that I read in someone’s post who had talked to Eugene about a safe room needing to be built. Bobby says that a lot of time, work and money have been invested in this mine recently.

This brings up an issue that has been questioned previously in this forum, working capital and where is it coming from. Bobby shed a little light on that. There has been a third party investor that has provided some of the working capital to date. He mentioned a name Tarun who I believe is the same Tarun Mendiratta who is mentioned in the Gwenco BK filing. The following is an excerpt from the BK filing. “National City Bank obtained a judgment lien against Gwenco and its assets. On July 19, 2006, National City Bank sold its right, title, and interest in and to the various judgments, judgment liens, security interests, and lines of credit, all of which are based on the notes issued to National City Bank of Kentucky, to the third party investor, Tarun Mendiratta, who is a principal in Interstellar Holdings. The third party investor has agreed to forbear on further collection, enforcement, and foreclosure with respect to this indebtedness until further notice. In connection therewith, Gwenco granted the investor a royalty on fifty percent of Gwenco's gross profits generated from coal mining at Gwenco's leased mine.”

IMO… This National City Bank situation and the embezzlement/check-kiting by the former CFO of Quest, Fred Runyon and former CEO, William Wheeler is a major reason why Gwenco is in BK now. This may be why the company’s money dried up and they were no longer able to service their debt. It appears that Mr Chairamonte was able to stay above this situation and gain independent control of the company after this. But the company was successfully sued by the bank and the FDIC. Apparently this situation was settled and Tarun Mendiratta covered Gwenco’s financial liability in the matter in return for a share of the company’s future profits.

If you have not yet read the BK filing you should. The following link has been posted in other previous threads in this forum: "viewer <dot> zoho <dot> com"/docs/fdN8v
It is a long read of lawyer-speak that explains Gwenco’s (Quest’s) current financial position and their immediate business plan to bring it out of BK. It lists all of their current relevant assets, debts owed and pending litigation against the company.

I mentioned my opinion to Bobby that the Pond Creek project is a do-or-die for Gwenco and Quest. If they cannot produce enough revenue to bring it out of BK they will be forced to liquidate. He did not deny it but added that he and several people close to him own Quest stock and want to see more than .02. He also acknowledged the recent run to .07 and subsequent dump. They are still holding. He mentioned the next phase after Pond Creek if it is a success. It is the Lower Cedar Grove seam that is right above the Pond Creek seam. I saw the mine opening to Lower Cedar Grove and saw it on the mining maps.

The BK spells out what must happen for Gwenco to come out of BK and QMNM to stay in business. From the BK filing:

“The following chart represents the estimated cost of operations for Gwenco:
[All costs are per ton]
Mining Cost White Star Mining LLC (includes labor and supplies) $32.00
Trucking and handling $5.00
Reclamation & Maintenance $0.10
Insurance GL and Equip $0.15
Estimated maximum royalties (8%) $6.96
Electric $0.70
Belt & Structure / Infrastructure $3.00
Admin / Bk / Accountant / Lawyer $2.00
Federal Black lung $1.10
Ky Severence $3.91
OSM $0.15
Engineering $0.50
Operating reserve $2.43
Total Cost $58.00

Any sales price of approximately $70.00 or above per clean ton provides the means for performing the plan. Current market prices suggest sales prices of at least $70.00 or more for the Pond Creek Seam coal per ton for the foreseeable future.”

Quest currently has an 8 mil contract in place to sell coal to Logan & Kanawha Co through December. Bobby mentioned a 7000 ton per month contract at $80 per ton. He added that this company has been in contact to buy more coal over the 7000 ton per month figure at possibly $110 per ton. Quest’s current estimate from Pond Creek at full production is 1200 to 1500 per month, spelled out in the BK filing. They appear to have a good shot at clearing the BK.

A big concern that I have as a shareholder is the current number of outstanding shares and the way that it has increased recently. Compare the quarterly SEC filings over the past year and you will see what I am talking about. I am somewhat worried about further dilution if more shares are issued or converted.

Hash all of this out everyone. Let us know what you think, good or bad.
I am long on QMNM and still acquiring on the dips as I can free up cash.
I won’t take a guess at what level it might reach in the coming weeks and months or over the longer term. But I do believe it is worth significantly more than the current level. It should gain nicely and hold after the first Q report with significant production figures.