Consolidated Energy Inc. (CEIW)
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along with the contribution of their coal and gas reserves, is expecting their Clean Coal
technology to contribute to the financial health of the company and to the mission of
being able to use our most abundant natural resource more environmentally responsible
Board Director of TruServ 1994-1996
Board Director of ServiStar
CEOCFOinterviews: Mr. Guthrie, will you give us a background on Consolidated Energy?
Mr. Guthrie: Consolidated Energy has a mission of contributing to the energy that is used by this country as well as the rest of the world, in an environmentally responsible manner. We currently mine coal and have been actively pursuing a technology that would clean coal and make the vast amount of low-rank coal reserves, cleaner burning and more easily combusted in an environmentally sound manner.
CEOCFOinterviews: Are you still involved in doing that?
Mr. Guthrie: We are very much involved in the pursuit and further development of a clean coal technology. We have a found technology that we find to be very promising and we have plans to merge with the company that owns the technology.
CEOCFOinterviews: Are you doing mining?
Mr. Guthrie: Yes we are!
CEOCFOinterviews: Where and how?
Mr. Guthrie: We are currently mining in Eastern Kentucky where we have one underground mine, which is currently in operation. We spent the last six months developing that mine and putting in the infrastructure, developing and setting up for large production activity. We have just started the actual mining activity in the last thirty days; even though we have produced coal over the last six months, most of that production has been a result of mine development. In the last thirty days we have positioned the mine for actual coal production. We expect in the next quarter, to be set up with a complete inventory of equipment that will allow us to affectively mine this seam of coal.
CEOCFOinterviews: Will you tell us about the coal industry in general?
Mr. Guthrie: Coal is Americas most abundant resource and the worlds most abundant resource. Unfortunately, in the past, a lot of coal was used irresponsibly in that they allowed harmful emissions to be expelled into the atmosphere. Over the last several decades, the coal burning industry has been much more responsible in controlling the contaminants that are released when coal is burned. Unfortunately, I think the coal industry has bruised its relationship with society by some things that were done in the past. However, for our future, because it is a vast resource and because we dont want to be dependent on foreign energy as we are today, we need to reevaluate coal as a natural resource of choice and become more focused on how we can use that resource while maintaining a balance of protecting our environment. This will help insure that our countrys economy is not held hostage by others.
CEOCFOinterviews: Coal as an alternative form of energy does not have much publicity; how do you get this into the mainstream?
Mr. Guthrie: We can talk about it like were are doing now and make an effort to educate the consumers of energy. Fifty-one percent of all our electricity is produced from coal. Even though we dont hear about it, it silently supports all activity in this country by producing fifty-one percent of the electrical energy. What that means is that if we could increase that to 75%, which would be a large increase, that vast amount of energy that we could derive from our own resources, could contribute favorably to our balance of trade since we would not be spending forty dollars + - for millions of barrels of oil. We can currently buy domestically produced coal at forty dollars a ton. It requires 3 barrels of oil to produce the same amount of electricity as one ton of coal. Using coal will allow us to be much more economically healthy as a country. Contributing to the coal industry will allowing us to use our own national resources to produce energy and will help our country become more financially stable.
CEOCFOinterviews: You chose to develop a coalmine in Eastern Kentucky, how did you fund that development and where is the production going now?
Mr. Guthrie: We selected Eastern Kentucky because the central Appalachia area has been a rich contributor to coal in the past and there are several coal reserves that are still available there. As new mining techniques and mining equipment have become available, coal that was not easily accessible twenty years ago is now readily accessible. The coal market has improved drastically this year of 2004 and it looks like the coal market will continue to be strong at least for the next five years. CEI, about a year-and-a-half ago, evaluated how the components that make up the coal market were aligning themselves in such a way that the coal market would strengthen. Fortunately for us, we weighed these components correctly. We have seen coal which sold for twenty-two dollars + - a ton a year ago; recently sell for over forty dollars a ton. We anticipate that the coal market will continue to strengthen. Knowing that quality coal reserves were located in the Appalachian area is what drove CEI into Eastern Kentucky. Anticipating a strong coal market for the future and seeing that coal usage was going to increase, CEI engaged several consultants that have a considerable amount of coal expertise in this particular region. This strategy is proving to be a viable choice.
CEOCFOinterviews: How do you fund the development?
Mr. Guthrie: The up-front costs are expensive. We have covered some of the initial costs by selling debentures; we have also acquired some private investment which is where most of the resources have come.
CEOCFOinterviews: When getting ready to go into full-scale production, what changes at that point?
Mr. Guthrie: Where we have had to cover start-up and development costs; where we have operated at a financial deficit for the first nine months of our activity in the Appalachian area; where we are currently selling coal at a margin above what it costs to produce the coal; it suggests that when we get into full-scale production, we will be able to produce enough volume to quickly cover the deficit that we have created during our mine start-up phase. Our goal would be the end of 2004 or early 2005 to be enjoying positive cash flow.
CEOCFOinterviews: Are there any challenges now or are you at the point where you are playing it out in the timing?
Mr. Guthrie: I think there are always challenges but fortunately when you look at issues that could cause our coal venture to fail, most have been removed; for example, look at the coal market. The coal market can allow a mining operation to produce a profit when coal per ton is selling in the mid to upper twenties; the coal market now is in the forties and fifties. This allows for a large margin per ton and CEI has plenty of tons to mine. We have not only the active underground mine but several surface mines, which have permits pending and that should complete the permit process and allow us to begin production on those surface permits later this year. The quality of coal that is involved under those pending permits, is a much higher quality coal than what we are producing from the underground operation. There are always hurdles because coal mining is hard work, but at this point, with the demand and price for coal, we find that the challenges we have are not the large challenges of the market but just operational challenges. We are confident that with our experience we are more than capable of dealing with those.
CEOCFOinterviews: Will you tell us about the gas and oil?
Mr. Guthrie: We have just initiated our gas exploration with private investment. We have solicited and are willing to sell operational percentages of those gas wells. We have drilled the first three of a fifteen-well program. Two of those wells have been able to tap into gas reserves. We are making plans to facilitate gathering lines so that we can gather the gas and distribute to a main line. We are on our initial phase but so far things look very promising.
CEOCFOinterviews: Please tell us more about your Clean Coal technology and what it is going to do for Consolidated Energy.
Mr. Guthrie: The Clean Coal technology is a patented process whereby you take a low ranked coal which is not as clean as coal coming from the central Appalachia area and process this coal through our clean coal process. During the process we gasify and dispel the elements that are not conducive to the atmosphere. We capture and distill these expelled, potentially hazardous gases into a liquid. The resulting coal that exits the process has had a tremendous amount of those unfavorable elements removed from the coal. For example, we remove much of the organic sulfur and as much as 96% of the mercury that is inherent in the raw coal. When we provide to the end user our finished product these unfavorable, potentially-hazardous elements have been removed.
CEOCFOinterviews: What will you be doing when you have this in-house?
Mr. Guthrie: We see the future of CEI as licensing our clean coal technology. We have had several inquiries from other countries that are aggressively looking for a way to use their own coal reserves; China is one of those countries who possess large vast coal reserves but a majority of their reserves are low-ranked coal. If you were to burn these low rank coals in their raw-mined state, they would produces a tremendous amount of pollution. If we can process this low rank with the CEI process, coal prior to combustion, thus eliminating a majority of those the elements that contribute to that pollution, we can provide them with a clean coal. This clean coal, when used by the power producer, is not going to expel the environmental hazards that the raw, unprocessed coal would have expelled. CEI anticipates a day when power produced from coal will be the fuel of choice
CEOCFOinterviews: Are you looking for additional acquisitions?
Mr. Guthrie: We have expanded our coal reserves by way of acquisitions and anticipate that we will continue to do that. There may be some complimentary technologies out there that may be used along side of and or in addition to; or maybe in a series with our current Clean Coal technology and we would look for a merger, acquisition or some type of a partnership if we could acquire such a complimentary technology. We are actively seeking to supplement our technology and our coal reserves.
CEOCFOinterviews: How do you make sure you are giving both areas your full attention?
Mr. Guthrie: That is a great question and one that I have to ask quite often. Management must be sure that we are not using resources; human resources being the most critical resource, at a critical rate. One of the things that we have done to insure that adequate council is available for each area, is on an as needed basis, we will employ consultants. We have good on-site management at the mine site, which allows other management to stay focused on the Clean Coal technology. We see our future largely engaged in the Clean Coal technology and the licensing of that technology.
CEOCFOinterviews: Will the rest be funded?
Mr. Guthrie: That is the plan!
CEOCFOinterviews: Sounds like a good plan.
Mr. Guthrie: The market has been very favorable to us as it relates to coal marketing. We are satisfied that this area will contribute quite healthily to the organization. We expect coal production to be a large profit-center in and of itself. It is expected that the gas exploration and production will also be a successful contributor to the bottom line.
seems like you have a personal interest in this area of your business.
CEOCFOinterviews: There are many people that have ideas of how to burn fuel cleanly, how do you get it to the point of knowing it works and to getting it used?
Mr. Guthrie: That is the largest hurdle, to get the decision-makers to see that we have a very cost-effective and viable alternative to using the current post combustion environmental controls. One of the ways in which we address this is we have contracted with a company known as SAIC, [Science Application International Corporation]. SAIC it is a global company, which has over 40,000 engineers and offices in over 130 countries. Through that relationship, we believe we have a good opportunity to get this technology introduced to the decision-makers that can have it implemented in a number of countries in addition to our own.
CEOCFOinterviews: You seem to have the confidence that people will be available and things will fall into place as you move forward!
Mr. Guthrie: Our philosophy is to maintain a small core of day-to-day management and then to go out and hire on an as needed basis the expertise that the company requires. This allows our core management to focus on insuring that things do fall into place, without having to build and maintain a large overhead.
CEOCFOinterviews: Why should potential investors be interested?
Mr. Guthrie: If investors look at the energy market, they will quickly see that there is a short and quite possibly, a long-term opportunity for success related to natural gas and coal. Investors can look at the natural gas market over the last several years and see that the natural gas market is strong and will continue to be strong for quite some time. Both of these fuels are going to be stable financial contributors for Consolidated Energy Inc. The licensing of our Clean Coal technology, if you look at the amount of coal that is used globally, and the amount of coal that is in need of a clean coal process, can contribute a staggering amount to the companys profitability. When CEI is able to license the use of the clean coal technology on a small percentage of the billions upon billions of tons of low rank coal used annually, CEI will realize a substantial annual profit contribution.
CEOCFOinterviews: What should people know that they dont realize about Consolidated Energy?
Mr. Guthrie: They should know about the commitment of the core management to ensure the success of the company. When you observe a sporting event, the reasons some guys cross the finish line first is because they have the desire to do what it takes to cross the finish line first. When I look at the people that are contributing to Consolidated Energy, they are the type of individuals that are committed to doing what ever it takes to cross the finish line first. That element is one that cannot be reduced to a formula or reduced to writing; it is an attribute that can only be determined by observing the individual under fire. CEI has individuals that have performed under fire.
CEOCFOinterviews: In closing, what thought would you like readers to take from this interview?
Mr. Guthrie: We see that the coal market has close to tripled in its strength over the last several quarters and by all indications, it appears that the coal market will continue to strengthen for the foreseeable future. At minimum the current market should remain stable. It should be noted that to be in energy today is taking advantage of the opportunity to be in the right place at the right time.
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