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Executives

Janine Orf - Investor Relations

Rick Whiting - President and Chief Executive Officer

Mark Schroeder - Senior Vice President and Chief Financial Officer

Analysts

Jeremy Sussman - Natixis Bleichroeder

Shaneer Grashooney - UBS

Mark Liinamaa - Morgan Stanley

Luther Lu - FBR Capital Markets

Brian Gamble - Simmons & Company

Paul Forward - Stifel Nicolaus

Meredith Bandy - BMO Capital Markets

Mark Caruso - Millennium Partners

Sunil Jagwani - Caterpillar

(Lawrence Jellon) - Barclay’s Capital

Jacob Muller - AM Capital

(Wes Gunts) - Morgan Stanley

Leigh Goehring - Chilton Investment Company

J.D. Kritser - Steelhead Partners

Franklin Ross - Lynch Foundation

Michael Dallas - Jefferies

Wayne Atwell - Pontis Capital Management

David Epstein - Advent

Jacob Muller - AM Capital

Michael Lukacs - Appaloosa

Patriot Coal Corporation (PCX) Q4 2008 Earnings Call February 10, 2009 ET

Operator

Ladies and Gentlemen, thank you for standing by and welcome to the Patriot Coal fourth quarter, 2008 earnings conference call. (Operator’s instructions) I’ll turn the conference now to Ms. Janine Orf. Please go ahead.

Janine Orf

Thank you. Good morning and thank you for joining Patriot’s fourth quarter, 2008 earnings call. I am Janine Orf, Director of Investor Relations for Patriot Coal. With me are Rick Whiting, CEO of Patriot, and Mark Schroeder, our Senior Vice President and CFO.

On this call, we will be discussing our operations, our outlook for coal markets, and our results for the 2008 fourth quarter. As a reminder, forward-looking statements should be considered along with the risk factors that we note at the end of our press release, as well as in our form 10K, 10Q, F4 and 8K reports. Finally, we will be referring to non-GAAP financial measures which are reconciled in our earnings release and available at our website patriotcoal.com.

Now I’d like to turn the call over to Rick Whiting, Patriot’s Chief Executive Officer. Rick?

Rick Whiting

Thanks, Janine. Good morning everyone, thank you for joining us this morning. When we spoke last time with you about three months ago, we were beginning to see signs of turbulence in the coal markets. Now, after only a short period of time, the world economies and coal markets that are integral to those economies appear much different. Since our last call, the global recession has fully taken hold, changing the world economic outlook. And we also have a new administration in the White House changing the political outlook.

In these unprecedented times we closely monitor the economic drivers that affect our business, both globally and domestically, primarily through frequent interactions with our customers and our suppliers. Given that information, we quickly turned to our own business and variables that are under our control, to make decisions and take actions that match these circumstances.

At Patriot, about three-fourths of our production is thermal coal shipped to Eastern U.S. Utilities. In the utility market there is a general consensus that industrial demand for power will be lower as a result of the recession. In fact in the month of December, total U.S. industrial production declined to 7.8% versus a year ago, according to a report last month by the Federal Reserve.

Industrial production represents about a third of total power usage, and we believe this decline could negatively impact electricity generation by about 2%. However on a short-term basis, coal burning has been buoyed to some degree by an extremely cold winter in most sections of the country.

On the metallurgical side, steel producers reacted decisively to the general economic downturn in the fourth quarter, by sequentially shutting down production capacity, which bottomed out at less than 45% utilization. Reports we’re reviewing indicate that steel production in the fourth quarter was reduced more than the drop in steel demand, resulting in a significant reduction in steel inventories.

As we look at the steel market today, we’re starting to see some signs of strength through some increases in production, and some modest price increases. We believe a turnaround in this market will most likely result from economic stimulus packages here in the U.S. and in other large global economies. And based on the rapid response of steel customers to the downturn, we believe there could also be a rather quick recovery, once the stimulus plans are underway.

With all these unprecedented swings were occurring in the coal markets, in a very short period of time we completed our acquisition of Magnum Coal and we made significant progress in realizing synergies and integrating the two companies. The merger with Magnum was a key milestone for Patriot. It’s significantly broadened our operating capabilities, our coal reserve base, our talent pool, and our overall potential for future success.

When we saw circumstances in our markets changing early in the fourth quarter, we reacted quickly to the changed landscape by altering our production plans and optimizing our mining complexes. We initially shut down the Jupiter facility and reduced our capital spending in the fourth quarter. As the economic situation continued to deteriorate later in the fourth quarter, we implemented a specific management action plan. That included key decisions to close higher cost mines, cut capital expenditures, transfer equipment to more productive locations, reduce the prices we pay for materials and supplies, and fill open positions with displaced miners from our idled operations.

Every operating decision we make is driven by mining cost, mining predictability, coal quality, and profit margins. We will only mine coal where we can make reasonable margins and an acceptable return on our investment.

Included as part of our action plan was our announcement three weeks ago that we will idle our higher cost Remington operations, which produced about 1 million tons in 2008. At the same time, we decided to idle our Black Oak metallurgical mine, which was scheduled to produce approximately 1 million tons in 2009.

With current weak demand in the metallurgical market, we will suspend this premium, high volatile coal mine, until the net market brings higher prices and more certainty. The Black Oak decision in turn, allowed us to also eliminate a daily shift at our Rock Lick (ph) preparation plant where that coal is processed.

But our action plan is not just about mine closures. Also as part of the plan, we will continue to develop two properties which we expect to be low-cost thermal coal sources. One, the Hill Fork mine is a West Virginia surface mine for which we have already received all necessary permits. This coal will be process through existing infrastructure at the Hobet (ph) complex. Hill Fork is expected to produce up to 800,000 tons annually, with output commencing this month. Production this year of ’09 is expected to be about 600,000 tons in total.

Our second major development project, the Blue Creek Complex will include two underground mines and a preparation plant in West Virginia, with expected annual production of about 1.8 million tons of thermal coal, and this could commence as early of April of this year.

We expect this operation will also produce about 600,000 tons in 2009. Blue Creek includes an extensive reserve base of 80 million tons, and is expected to have good seam thickness and favorable clean tons per foot of advance. As a reminder, both Hill Fork and Blue Creek came to Patriot through the Magnum acquisition.

So far, I’ve discussed the steps we are taking on the production and cost sides of the equation. Our action plan gives more than equal attention to the customer and revenue aspects of our business by scrutinizing every coal supply agreement and actively pursuing all avenues to improve our pricing and our margins.

The coal industry continues to face new regulations and more aggressive enforcement surrounding both environmental and mining statutes. With this more costly regulatory landscape, we are aggressively seeking customer reimbursement under applicable coal supply agreements. We are also actively working to restructure certain below-market legacy coal supply agreements, which place an unreasonable burden on Patriot.

Restructuring of legacy contracts is an area where our management team has considerable experience and background, and we expect to see benefits in various forms from these initiatives.

Intense focus on revenue optimization and control of spending in any form are our highest priorities, other than the safety of our workers, and that’s at every level of the company. We continue to make meaningful progress on all of these fronts.

Regarding environmental matters, consistent with our corporate mission to be a good steward of the environment, last week, we settled claims under the clean water act, relating to our mining activities in West Virginia. The claims related to former Magnum properties, and we entered in to good faith negotiations with the U.S. EPA and the West Virginia Department of Environmental Protection soon after announcing the acquisition of Magnum.

This is consistent with our company philosophy to maintain a constructive dialogue with federal and state regulatory authorities. We are pleased with the outcome and are happy that these issues are now behind us.

Finally, my remarks would not be complete without mentioning mine safety. Our accident incidence rate for 2008 was the lowest in company history. Our best-in-class national champion mine rescue teams also won a number of first-place awards at state mine rescue contests during the year.

These contests serve to support our strong program of emergency preparedness at our coal mines. We are proud of these awards and the commitment of our employees, they have shown to prepare and earn these awards.

Now let me turn the call over to our Chief Financial Office, Mark Schroeder, to discuss the fourth quarter’s results. Mark?

Mark Schroeder

Thanks, Rick. Let me begin with an update on our federal and Panther Long Walls. As we continue to work through the Sandstone intrusion at both Long Wall mines, fourth quarter production and therefore EBITDA suffered. Although we discussed this expectation on our last call, nonetheless the result is very disappointing.

Federal’s run-rate in the fourth quarter was down 20% from the third quarter, and over 30% lower than a normalized run-rate. The Sandstone intrusion in the current panel improved late in the quarter, but then a rock binder in the coal scene, which we anticipated, led to lower recovery.

Although improved, the fourth quarter rock binder condition continued into January. We are now substantially through the binder, and February production to-date has improved over 20% as compared to the January daily level. And drilling data and experience from prior panels indicate that mining for the rest of the current panel should reflect normal mining conditions and recoveries.

Importantly, we have adjusted the mining plan on the next panel to minimize the impact of the difficult geology. As for Panther; Panther’s run-rate in the fourth quarter was similar to the third quarter, both quarters were less than 50% of normal. The Sandstone intrusion in the current panel limited production in the fourth quarter, and continued to take a toll on the Long Wall equipment.

Late in the fourth quarter, we upgraded the sheerer on the Long Wall. This has improved the equipment reliability and consistency at the mine, but the Sandstone intrusion is still limiting production. However, with the sheerer upgrade and other improvements to the equipment, January production increased by over 25% as compared to the fourth quarter level.

And February production to-date has accrued about 15% as compared to the January daily level. Our drilling and development work point to good mining conditions by early March. And as with federal, we have adjusted the mining plan on the next panel to minimize the impact of difficult geology.

With that as a background, let’s discuss Patriot’s financial results for the quarter, and I’ll start with a supplemental data portion of our earnings release.

In the fourth quarter of 2008, Patriot sold 9.4 million tons and posted revenues of $541 million, compared to sales of 5.1 million tons and revenues of $250 million for the fourth quarter of 2007. Sales volume increased 4.3 million tons compared to the year ago quarter, primarily as a result of central lap thermal coal sales from the acquired Magnum mines.

The 2008 fourth quarter sales include 2 million tons of metallurgical coal. Now this amount was down nearly 400,000 from our projections as we entered the quarter, due to customer deferrals and cancellations in the fourth quarter, brought about by the decline in steel production.

Segment EBITDA per ton was $3.50 in the 2008 fourth quarter, compared to $2.51 in the prior year period. Increased revenue per ton was largely offset by higher per ton costs. Although improved over the prior year, this per ton EBITDA level is not acceptable. We believe implementation of the action plan Rick discussed will lead to improved EBITDA in coming quarters.

Segment EBITDA for Appalachia was $3.92 per ton for the 2008 fourth quarter, compared to $3.88 in the prior year. Average selling prices in this segment was up $1.55, but this improvement was largely offset by the impact of the lower production at federal and Panther during the quarter. Cost per ton were also higher year-over-year in the 2008 fourth quarter, as a result of a higher material and supply contract miner and purchase coal cost.

As compared to the 2008 third quarter, segment EBITDA for Appalachia was $1.17 lower in the fourth quarter, primarily as a result of a less favorable mix of customer shipments. Our Appalachian cost per ton decreased down $2.09 in the fourth quarter, compared to the third quarter, primarily as a result of lower materials and supplies, and that’s driven by decreased diesel fuel and steel related costs.

The Illinois Basin segment EBITDA increased to $1.98 per ton in the 2008 fourth quarter, compared to $.38 a year ago. The higher EBITDA was a result of a $4.43 higher realized average selling price compared to the prior year, partially offset by higher labor and purchase coal costs.

Compared to the third quarter, EBITDA in this segment improved $1.39 as we saw the benefits of decreased steel related and commodity costs in the fourth quarter, after experiencing increases for most of the year.

Our capital expenditures totaled $47.3 million in the 2008 fourth quarter, primarily related to development of lower cost mines, upgrading the Long Wall sheer at Panther, replacement equipment and government required safety related expenditures. The capital expenditures totaled $121.4 million for the full year.

In the first half of 2008 when markets were robust, we expanded our capital plans to bring more production online. And if you recall leave times to auger key underground and surface equipment ranged from 9 to 15 months.

During the fourth quarter as the markets declined, we worked with our suppliers to defer and cancel many of these orders. And we have since redeployed capital equipment from idle facilities to lower cost mines in lieu of spending new capital.

Turning to the income statement portion of the release, EBITDA for the quarter was negative 11.8 million. Volumes at Federal and Panther were approximately 800,000 tons lower than normal.

These two operations combined sold only 1 million tons in the fourth quarter. Additionally, Federal was down a little more than 150,000 tons in the fourth quarter compared to the third quarter. And as you know, since operating costs include a high, fixed cost component, lower production has a direct impact on our EBITDA .

Metallurgical volumes in the fourth quarter were impacted by sudden and unexpected customer deferrals and cancelations brought about by the decline in steel production. Additionally, the 2008 fourth quarter included certain costs incurred as we prepare to idle several mining facilities as Rick noted.

In accordance with U.S. GAAP, this quarter included approximately $128 million for purchase price accounting adjustments from shipments related to Magnum’s below market sales and purchase contracts. The sales contract accretion is valued as of the acquisition date and not marked to market in subsequent periods, based on changes in coal pricing.

We anticipate the accretion to increase net income by approximately $300 million in 2009. Purchase accounting related to the Magnum acquisition, although preliminary, has been substantially completed.

Regarding our underlying cost structure, last quarter we began to implement a program to hedge our 30 to 35 million gallons of annual diesel fuel. And at this time, we have hedged approximately 70% of our 2009 expected usage, and 30% of 2010 expected usage, at an average per barrel of oil around $65.00, which equates to approximately $2.50 per gallon.

And steel related prices decline during the quarter, this should result in continued lower costs for roof bolts and other steel related materials and supplies in 2009, relative to the higher cost that peaked in mid 2008.

So in total, we expect our 2009 cost per ton to be in the range of $56.00 to $59.00 for the Appalachia segment, and $35.00 to $37.00 for the Illinois Basin segment. We expect a cost structure in our Appalachia segment to benefit from the idling of a higher cost mines, and for more predictable production from the Federal and Panther Long Walls.

Our depreciation, depletion, and amortization of $43.6 million in the 2008 fourth quarter includes the purchase accounting impact of the Magnum transaction. Interest expense increase $4.5 million this quarter, compared to the prior year amount, primarily related to interest and amortized debt fees related to our convertible debt and the credit facility and cost related to the existing letters of credit.

We recognize no income taxes in the 2008 fourth quarter as a result of our net taxable position. As you are aware, the sales contract accretion has no tax impact. According to the balance sheet, we had $245 million of total debt of December 31. As you recall in May, we completed a $200 million, three and a quarter percent coupon rate convertible debt offering that matures in 2013.

We have approximately three years remaining under our $500 million credit facility. As of December 31, we had $23 million in borrowings and $351 in letters of credit against this facility, leaving the remaining borrowing capacity of $126 million.

While we moved quickly to defer and cancel capital equipment orders in the fourth quarter, our capital spending in the 2009 first quarter will nonetheless be at a slightly higher level as it will reflect cash outlays for equipment committed earlier in 2008. So 2009 capital expenditures are expected to be in the $100 to $125 million for the full year. Which is significantly lower than historical averages for our combined 35 to 40 million ton operation.

Capital expenditures for 2009 are expected to be highest in the first quarter, as I just mentioned, then decline in the remaining quarters. Thus at the end of the 2009 first quarter, Patriot expects to have borrowings between $75 and $100 million under our credit facility, primarily as a result of taking delivery on previously committed capital equipment. And this amount coupled with estimated letters of credit of $330 to $340 million would leave unused borrowing capacity of $60 to $95 million at the end of the 2009 first quarter.

Taking into account our reduced capital plans and the reconfiguring of our central lap of mining complexes, looking forward for 2009, we anticipate sales volume in the range of 36 to 38 million tons. Now this is down for the 41 to 44 million tons as we discussed back in the summer. As mentioned, we have titled several facilities and have slowed or deferred the ramp-up of several other projects.

Patriot is largely contracted for 2009. In today’s press release, we have provided the average price per ton for contracted business in 2009 and 2010 by segment and by thermal versus metallurgical coal.

As of December 31, 2008, based on our expected total 2009 production volumes, they remained un-priced up to 2 millions of met and up to 1 million tons of thermal coal. Of expected 2010 volumes, up to 7 million tons of met, and up to 12 million tons of thermal remained un-priced at December 31st. Expected un-priced volumes reflect updated production estimates based on the current market environment.

So in closing, as we look to 2009, our action plans focused on improving our operations and results. We are tightening our spending and closely watching our capital dollars. We were building flexibility into our mine portfolio as we integrate Magnum and pursue the transformation of Patriot into a more competitive, long-term coal supplier. We look forward to seeing the benefits of our strategic initiatives.

So this concludes our prepared remarks. Rick and I will be happy to take your questions. So, John, I will now turn the call over to you.

Question-and-Answer Session

Operator

Thank you. (Operator instructions)

First go to line of Jeremy Sussman with Natixis. Please go ahead.

Jeremy Sussman - Natixis Bleichroeder

All right, good morning.

Rick Whiting

Good morning, Jeremy, how are you?

Jeremy Sussman - Natixis Bleichroeder

Good, thanks. I wanted to get into your costs a little bit. Obviously, in Appalachia the cost per ton came down about $2.00, which was nice to see. So now you're less than $59.00 per ton. First, what would that have been on a more normalized level of production?

And, then secondly assuming they would have obviously come down with a more normalized level of production given the lower energy and raw material costs you mentioned being hedged, I think, 70% at $65.00 oil, I guess trying to figure out where you're guidance of 56 to 59 for Appalachia comes in because I guess I would think that given where you're at in the more normalized level of production, costs would actually be coming down a bit this year.

Mark Schroeder

Jeremy, this is Mark. The 56 to 59 tries to play out what we think will happen with raw materials and you mentioned diesel fuel and the steel related with the other one. So, it plays that into effect. The fourth quarter number was just under $59.00. I tell you the other piece that’s really hurting us and continues to hurt us is the impact from MSHA on the production level, the safety-related costs that we have. We continue to spend a lot of dollars in that area and I see that continuing as we go into 2009.

So, you know, there’s cost improvements from things like the commodities, but we get hurt on the production side from MSHA. We continue to get hurt on environmental. As I’m sure you know on the surface mines, we have some selenium impact that will impact us in 2009 moreso than it did in 2008.

So, I guess I would say that the combination of higher MSHA-related costs that impact the productivity and the production levels, the safety-related costs, the environmental-related costs are offsetting the improvements that we see on the commodity side and specifically diesel and steel.

Jeremy Sussman - Natixis Bleichroeder

Okay. And, the cost per ton guidance, does that include past mining obligations or no?

Mark Schroeder

It does not. The past mining obligations are separate from that.

Jeremy Sussman - Natixis Bleichroeder

And, is this a good run rate to use this quarter?

Mark Schroeder

The fourth quarter had about 35 million. Going forward, that number will increase probably closer to 40 million or so on a quarterly basis. The discount rate that we have for 2009 is lower than where we were in 2008. And, that will impact us by somewhere around $5 million on a quarterly basis.

Jeremy Sussman - Natixis Bleichroeder

Okay. And, then just maybe can you elaborate a little bit on the restructuring of the below-market supply contracts? You mentioned that you had some history there, I guess. So maybe what’s – just talk a little bit about the potential magnitude we could be thinking about and maybe what’s the likelihood of something actually impacting 2009 numbers other than what you've already given us on the hedge side obviously?

Rick Whiting

Well, you have to look at them on a case-by-case basis like anything else, but we have probably at least 8 or 9 million tons of what I’ll consider substantially below water coal supply agreements. And, if you think about the – if you could even mark them back to a traded market level, it’d probably be somewhere between $80 and $100 million of below market. So, what it says, it’s a pretty big number and any meaningful inroads into that based on restructuring, absolute price increases or changing the timing under agreements of some of the lower priced tons, moving them more into the future and getting some higher price business in the early parts of the next couple of years.

There are various ways we can find value. Sometimes you can change coal qualities, change origins, take some value out of the transportation system, the transportation mode. So, there a combination and what we have found is that when we are in this situation and come forth with a bona fide need and a bona fide business approach to finding mutual ground that customers engage with us. And, so what I’m saying is there against that backdrop of $80 to $100 million, I believe it could be tens of millions of dollars of benefit that could be upside for us if we could execute on that objective.

Jeremy Sussman - Natixis Bleichroeder

As soon as 2009?

Rick Whiting

I would think some of it would start bleeding into 2009, yes, that would be the goal.

Jeremy Sussman - Natixis Bleichroeder

Great. Well, thanks for all your color as always.

Mark Schroeder

Thanks, Jeremy.

Operator

The next question is from the line of Shaneer Grashooney with UBS. Please go ahead.

Shaneer Grashooney - UBS

Hi, good morning. Just a couple of quick questions here. The tons that were contracted for metallurgical coal at the end of the third quarter versus what you reported today. Obviously that changed a little bit.

I was wondering if you could sort of give us a little bit of color about that. Are those tons no longer contracted completely? Are you in negotiations? Is there potential lawsuits coming and so forth? Just wondering if you can sort of give us some color with respect to the fact that the tons contracted changed so dramatically for both ’09 and 2010?

Rick Whiting

Largely, there was more than one transaction, but there was one very large transaction that got retooled following the meltdown and our customer came to us. It’s a customer that we’ve had a very strong alliance with over a long period of time, we work very closely with them.

Like all of our customers, we live and die by their destiny as well. So, we engage with them to look at ways that we could modify the earlier handshake and find mutual ground that would be acceptable for us and also acceptable for them so that their business could prosper going forward. It ultimately resulted in tonnage changes, mix of quality changes. It resulted in price changes frankly.

And, we had gone from a structure of more of a collared approach in future years to more of just a traditional absolute price renegotiation each year. So, when you look at out years ’10 and beyond then some of the unpriced volumes would go up or the priced amount would have gone down for that reason. Also factored in too when you look at our total numbers of course bringing in the Black Oak not running this year, that would also come into play from a priced/unpriced base.

But, basically the largest changes surrounded one of our major steel customers and a restructuring of the agreement. I will confess to you, it took a very large number out of our projected earnings for 2009.

Shaneer Grashooney - UBS

All right. And, I guess my second question is if you can give us a little bit of color with respect to your covenants and how close you’ll be this year or how close you’ll project you’ll be to those covenants, given the revised production guidance and changes in pricing from a contracted basis and so forth.

Mark Schroeder

The quick answer is the position that we are at the end of the first quarter that I mentioned in the release and in my discussion is probably the worst quarter we’ll have. I think, from then we’ll improve as we go through the rest of the year. So that is the tightest part.

We are in compliance with all our covenants. I expect to be in compliance with our covenants going forward. And, the number that I mentioned, the 60 to 95 million of availability at the end of the first quarter is a number that we expect to achieve. And, moving forward as we go through 2009, I’m expecting that number to increase.

Shaneer Grashooney - UBS

Okay. But, at this point right now, you see no reason to negotiate for any covenant waivers or anything with the lenders?

Mark Schroeder

No, we are in compliance with our covenants I expect to continue to be in compliance with our covenants. So, no not at all.

Shaneer Grashooney - UBS

Okay, great. Thank you very much, guys.

Operator

Our next question is from the line of Mark Liinamaa with Morgan Stanley. Please go ahead.

Mark Liinamaa - Morgan Stanley

Good morning. In your comments, you mentioned that EBITDA margins were still at an unacceptable rate. Historically, we’ve thought about this thing as about a $4.00 to $5.00 per ton margin business? Can you talk about what your expectations are, what would be acceptable returns?

Mark Schroeder

We need to get into double digits. You know, we’re at a number now that is not something we want to be at, it’s not something that we plan on being at. We need to get into double digits on our margins. So, as we think through our action plan, as we think what we’re trying to do, it’s with a target out there initially of getting to double digits.

Mark Liinamaa - Morgan Stanley

Would you be able to put some sort of timeframe on what kind of pace you think you can get there?

Mark Schroeder

I’d like to say we’ll be there in 2009. Probably it will not happen in ’09. It’s probably more like two years out. But, I think there’s a way we can get there before too long. Now, Rick mentioned before, we have about 9 million tons of underwater business out there.

We need some help with some of that underwater business. Now on the bright side, about 3 million of that rolls off in 2009. So, that gets us down to a lower number as we go into ’10. But, that’s still a big playground for us and we need some help in that area to get us to that double digit number.

Mark Liinamaa - Morgan Stanley

How much do you think you might have to give to get that break from a counter party?

Mark Schroeder

I’m sure what you mean, what do you have to give? I think it’s a –

Mark Liinamaa - Morgan Stanley

Are they just going to say, “Well, it’s cheap, so we’re going to remark to market”? Clearly, they’re going to want something.

Mark Schroeder

Yeah, I think what we can do is work with them on the commitments as we move forward in out years, work with them on where we’re sourcing the coal from, which mines. Try to work with them to help in their blending and make sure we’re getting the right product to them and help in some of the areas where they may not have the right product now or want to change a little bit of where they’re getting their product from.

Rick Whiting

It all has to come down with transportation and quality, timing of shipments, of course the volumes. There are a lot of levers that both sides can look at to find mutual ground.

Mark Liinamaa - Morgan Stanley

Great. Thanks very much, guys.

Operator

And, next we’ll go to the line of Luther Lu with FBR Capital Markets. Please go ahead.

Luther Lu - FBR Capital Markets

Good morning Rick and Mark. I was wondering if you guys can walk me through a little bit about the working capital? I notice that the accounts receivable came down from 220 million-ish to about 160? But, the account payables stayed pretty high? Does this account payable include the capital equipment that you are about to purchase?

Mark Schroeder

Yeah, exactly right, Luther. Any of the equipment that came in in the fourth quarter and a good chunk of it came in late in the fourth quarter was sitting in the payables at the end of the year and that is part of the reason that I mentioned where we’ll be with the debt level as we get into 2009. So, on the payable side, it’s a little bit higher, mainly led by the capital expenditures.

On the receivable side, we spent a lot of time in that area. I guess we always have. But, we continue to spend a lot of time in that area and look at payment terms, look at how long it is before the customer is paying us.

And, we work with the customers to try to get to a blend there that makes the most sense. So, we do focus a lot on our receivables. We have very clean receivables. We have basically nothing outside of the current. But, that’s an area that we spend a lot of time on working that area.

Luther Lu - FBR Capital Markets

Another question is besides the met coal contract change, I also noticed that for 2010, the Illinois Basin realization price also went down by $2.00 per ton. What happened there?

Rick Whiting

That was tied onto some earlier assumptions on escalations that would come through those coal supply agreements and with the downturn that has taken place on commodity costs, on input costs, the way those would run the indexes in those contracts, we made a different assumption now which we’re seeing the benefit in our costs.

The whole idea is it would cover us on our increased costs. We’re not assuming the cost increase embedded so it doesn’t roll through the indexes in the contracts. So that’s just an assumption change, Luther, on that point.

Luther Lu - FBR Capital Markets

How quickly can you give us some guidance on SG&A income, expense, things like that?

Mark Schroeder

Sure. On the SG&A level, I would I guess the guidance I’d give you is it would be a little bit lower going forward than the fourth quarter. The fourth quarter was about 13.3 million if I recall. That did include some costs related to the integration of the IT area, the Magnum Patriot IT area. So going forward I expect the 13.3 to be down a little bit, Luther, probably more in the 11 million range or so.

I don't know what other things. DD&A is an example, DD&A for the fourth quarter was in the $44 million range. I would expect that number to go up probably about 4 or 5 million as I look to 2009 on a quarterly basis. It has to do some with just the mix that has the purchase accounting in it and it also has to do with some of the mix of where we’re shipping coal from in 2009 versus 2008.

I mentioned PMO before. About 35 million was the Q4 number. I would expect that to be more like a 40 million number on a quarterly basis. And, I think I mentioned the discount rate reducing in 2009 versus 2008.

Luther Lu - FBR Capital Markets

$6.7 million of interest income in the fourth quarter? Do you expect to see that trend continue?

Mark Schroeder

Yeah, we did record some black lung excise tax in the fourth quarter, about $3.3 million of interest income related to that. So, the 6 million number, 6.8 million number is higher than our normal by about 3 million, a little over 3 million. So a normal rate would be closer to 3 ½ or so, Luther.

Operator

Mr. Lu, any further questions?

Mark Schroeder

Let’s go on to the next one, John. He might have dropped off.

Operator

And, we’ll go to Brian Gamble with Simmons and Company. Please go ahead.

Brian Gamble - Simmons & Company

Good morning, guys. Given what you've talked about for your capital expenditures, expectations for capital expenditures for ’09, we’re talking through the delivers for Q1, it doesn’t seem like there’s all that much left for the remaining three quarters.

My concerns is that given issues that you've had with long hauls and whatnot that just the maintenance CapEx side is taking a little bit of a bath because of your need to keep liquidity high and keep expenses low. Are you having to sacrifice anything? Do you see a potential need for more capital just on the maintenance side as we roll into ’09?

Mark Schroeder

The easy answer is no. I guess, I’ll give you a little more color. The thing that really helped us, Brian, is we were able to take equipment from some of the idle mines and move them to our other mines. So net-net, I feel very comfortable where we are on our capital spending numbers for 2009. Would I like to spend more money? Yes.

I have constant conversations with the operations side and they have a wish list out there, but I will say that I feel very comfortable with the maintenance capital that we have. Again, helped a lot by moving equipment, rolling stock from some of our idle facilities into other facilities.

Brian Gamble - Simmons & Company

How much equipment do you think you were able to move from mine to mine on any type of dollar basis or pieces of equipment?

Mark Schroeder

Ballpark number at least 50 million. You know, that has – and I mentioned rolling stock. It certainly is that so it’s continuous miners and shuttle cars, etc., but it’s also belting. It’s just the belt lines that we have. Some of the belting that we’ve taken out of some mines that either we’ve shut off a section or decided to do something less than what we were doing in the mine. We can use the belt terminals. We can use the belting itself and move it from one mine to another.

Brian Gamble - Simmons & Company

And, then, secondly, you talked a little bit about the restructuring of the contracts. Are you in current discussions on those? Or are those things that you are kind of putting on your list of to do items as we roll through Q1?

Rick Whiting

We put them on our to do list about four months ago and we’re fully engaged on many fronts already.

Brian Gamble - Simmons & Company

Sounds good. I appreciate it, guys.

Operator

And, next line of Paul Forward with Stifel Nicolaus. Please go ahead.

Paul Forward - Stifel Nicolaus

Thanks, good morning. You’d mentioned covenants earlier. I just wanted to maybe ask is there one that stands out as the most important one when you go through 2009 and might be a little bit tighter than other covenants that you've got? Any specific detail you might be able to give us would be great.

Mark Schroeder

I guess from the banking side, I’d say they’re all important. I would say the two that are mathematical type covenants that you’ll probably think more of than others is leverage and interest cover. Leverage is 2.75X. The interest cover is 4.0X. As I mentioned in a previous question, we are in compliance and I expect to continue in compliance. And, both of those should be in good shape.

Paul Forward - Stifel Nicolaus

Okay, great. And, on Federal and Panther, Federal did 3.1 million tons last year, Panther did 2.3 I believe. What can we expect from these two mines both in 2009 and maybe a future run rate once you've worked through some of these sandstone issues?

Mark Schroeder

I’ll just get to real kind of rounded numbers. I look at Federal as being a 4 million ton a year. So a million a quarter, give or take a little bit, but a million a quarter. I look for Panther to be a 3 million. So 750,000 a quarter. So, I’m looking for those combined operations to be in the 1.7-1.8 per quarter level.

Paul Forward - Stifel Nicolaus

And, you anticipate that you can get back to that level say by the second quarter of this year for both mines? Or, is that a little bit too soon to expect that you’d work through all the issues by then.

Mark Schroeder

I think we can get there in the second quarter. Now, absent long wall moves and we do have a long wall move scheduled at Federal in the second quarter, not at Panther in the second quarter. But, those mines should get there. The mining, the drilling that we’ve done, the prior experience that we’ve done on prior panels would suggest that we can get to those levels.

We have gone through the sandstone intrusion. It’s a tough mining area. But as we complete both panels at Federal and at Panther, we expect to be in good conditions or normalized conditions. And, then as we go into the next panels at both of those operations, we’re doing work arounds to get through the tough mining conditions.

Rick Whiting

We’re going to have a major upgrade on the - an additional upgrade. We changed the sheer out at Panther in December. And, we make our next move in Q3 at Panther. We’ll have a new stage loader, new armored face conveyer, and a lot of other components that have a lot of wear and tear on them from some of the tougher mining. And, frankly, they’ve been in there a lot of years.

So we have another step function reliability and more robust equipment that’s going to kick in probably in a July timeframe when we make that next move at Panther that takes us to another level of improvement, coupled with the fact as Mark said we’ve decided to get out of the mining rock business and just set up mine plans that stay out of these more difficult zones. So, Panther in particular should be much better.

And, at Federal, the latest couple of months has been not so much advance rates as it’s been this thick binder or parting in the middle of the seam that while we get our advanced rates, we have lower recovery. Where typically the recovery at the Federal can be 75 or 80%, it’s been down as low as 50%. And, literally, as we speak, just the last few days, we’re getting to the outer limits of that band, that area with the higher parting.

And all drilling, all development work on both sites, headgate, tailgate, and the previous panels adjacent says that it should be normal geology for the rest of this panel at Federal, which runs up through I guess it’s into May. Mark said second quarter. I think the move is in May at Federal.

So, we’re classic coal miners. It’s always going to be better to later, but I can tell you that the drilling and the experience in adjacent panels and the better mine plans for more reasonable results, better results going forward all are coming our direction and we expect higher performance starting as early as March, but certainly by the time we get into the second quarter.

Paul Forward - Stifel Nicolaus

Okay. Thank you. And, on the surface mining side with the big surface mines you picked up from Magnum, can you give us maybe an update on if there is a worst case Section 404 permit impact as you evaluate the permitting environment 2009-2010? Or, do you think that the potential loss if any of volumes might be if the ruling comes down to your disadvantage?

Rick Whiting

We have one permit we’re waiting on at Hobet that could start creeping in to be an issue in ’09 if it’s for another dragline area. But, we’ve hedged ourself with that. That’s one of the primary reasons frankly in this market that we went ahead with Hillfork (ph) as a hedge against that.

But, we have some mitigation plans, going to be some longer hauls and could have some minimal impact. Most of the real impact of any further permit delays or a change of the rules in a dramatic fashion would start kicking in probably about second quarter of 2010.

Obviously, that’s again we’re looking at very ways to keep our production levels up, serve our customers and be positioned when this market turns around. That’s one of the reasons we went ahead with Bluecreek frankly. It’s a good recovery. It’s high tons per foot of advance as I mentioned in the formal remarks. And, underground is our ultimate hedge across the whole spectrum, but particularly down at Hobet. They’re a very large underground reserve base there.

Now, in saying all that, we’re looking at it as a backup plan. We have no reason to believe that we won’t be able to continue mining surface mine, mine out these reserves. We have people in place. We have the equipment there. We go by the rules. I think worst case is a change of the rules - and I’ve said this repeatedly - but that will come into the way we’re able to mine, the way we’re able to move the material. It may require some modification.

But, I just can't believe that the government will make decisions that will erase low cost fuel that’s the backbone of low cost electricity at a time when our country is in the economic straits that it is. We have a lot of very smart people in government, including our new president, Mr. Obama, and a lot of smart people surrounding him.

When they dig into this and start looking at what really matters and what drives the results of this country, they will see that low cost electricity coming from low cost coal mined in Appalachia and the Midwest and the Far West are key drivers. I believe they will find the right balance. And, I believe the citizens of this country will insist that they do.

Paul Forward - Stifel Nicolaus

Okay. Well, thank you.

Operator

Our next question is from the line of Meredith Bandy with BMO Capital Markets. Please go ahead.

Meredith Bandy - BMO Capital Markets

You mentioned that in Q4 part of your disappointment on the margins in Appalachia was a product mix related, I think, and I was wondering if you could talk more about that and also how it would relate to what you already have priced in 2009? For example, is this a product mix between met and thermal? Is this different qualities of met? You know, what is the mixture you're seeing?

Mark Schroeder

I was alluding to the mix really in the met side itself. The different mix within met, not all of the higher priced, higher grade product. A little bit more of the lower priced, lower grade product getting in the fourth quarter, or shipping in the fourth quarter.

Meredith Bandy - BMO Capital Markets

And, was that just a timing thing or are you really seeing that the demand is falling off for the higher quality or …

Mark Schroeder

It was more a timing. It was more a timing what was actually occurring in the fourth quarter with some of the steel producers shutting down. It really just had to do with the mix of customers, the mix of product that was out there. I don't think it was indicative of any one item other than just how the stars aligned or how the mix entered the fourth quarter versus the third.

Meredith Bandy - BMO Capital Markets

Okay, great. Thank you very much.

Operator

And, next we’ll go to the line of Mark Caruso with Millennium Partners. Please go ahead.

Mark Caruso - Millennium Partners

Good morning, guys. I was wondering if we could get an update. I think Mark had said in the last quarter you guys were 50% hedged at $70.00 oil for diesel and I just didn’t know if there was any change to that?

Mark Schroeder

We’re at about - we're 70% hedged in 2009. The barrel price was about 65 if you rank them all together. And, that equates to about a $2.50 per gallon price to us at the mine.

Mark Caruso - Millennium Partners

Okay.

Mark Schroeder

50% hedged for 2009. About 30% for 2010.

Mark Caruso - Millennium Partners

Okay, gotcha. And, then just going back on the liquidity front, so I guess at this point you feel that that’s adequate cushion? Because I know you said it gets tight on the covenant. I just didn’t know if you felt that having 60 to 95 is enough cushion? God forbid, something - the market doesn’t open back up or not or where you run into some sort of mining issues. Is that adequate cushion there for you guys?

Mark Schroeder

You know, I think it is. Well, I know it is. I guess, would I like to have 500 million available? You know, the answer is naturally yes. But as I look to our plans in 2009, as I look to what we’re doing in these specific management actions, and I look to our capital needs as we go into 2009, I think the 60 to 95 million is adequate. I think it will grow as we go through ’09, but to answer your question, yes, I think it is adequate.

Mark Caruso - Millennium Partners

Gotcha, okay, thank you.

Operator

And, next we’ll go to the line of Sunil Jagwani with Caterpillar. Please go ahead.

Sunil Jagwani - Caterpillar

Yeah, hi, good morning. I just, you know, I’m a little surprised to see that you guys have not pulled production more seeing that you still have, you know, 2 million of met and 1 million steam in ’09 and a lot more open in 2010. And, I’m basing that just looking at your guidance for cash costs and seeing the central app (ph) closed below 60, that’s close to zero you picked out before we even take into account SG&A and the legacy obligations. So, why are we not shutting down additional mines or pulling production a little bit faster than what’s been announced.

Rick Whiting

First of all, let me tackle the met side. When we say it’s unpriced and for almost all of those tons will be going to the same place that they went last year and the year before that and they’re currently going to. So that’s just more keeping our business base with these US and the unsold portion is more on the global companies.

We naturally have the option if when we get into these price negotiations over the next I’ll say two to three months, if we don't like the answer to that and we don't like the price levels, we clearly have the ability to dial back sections within mines or additional complete mines if we don't like the numbers.

So that’s an option to us depending on what price we see. But, those tons are moving to customers. They’ve been going there for many years, sometimes for decades and just to walk away from existing business - it’s not like we’re chasing trying to find a new customer around the world.

It would be what I would call rollover repeat business with simply a price renegotiation and we’ll be looking at that. And, our expectation for prices with our cost structure on these unpriced tons is that they will be a favorable margin and they will be a strong cash flow and there’s every reason to continue those relationships.

Sunil Jagwani - Caterpillar

And, just to add color to that say for 2009 assuming that your cost structure is still in the mid to high 50’s for central app, unless prices bounce back from what the indications are currently, how much time do we need to materially alter plans to say scale back production?

Rick Whiting

Well, we can scale back - we have two things within our grasp in terms of the Hillfork and Bluecreek, we can slow down the buildup of those. We can toggle - that's why I said as early as - we said in our release I believe or in the remarks, as early as April on Bluecreek if the service mine permits are coming through and the market doesn’t present itself at the right price, we will shut down - we will back off on how quickly we bring up Bluecreek or Hillfork. Or, we’ll look at the cost.

If we’re ready to go, we may go forward with those and back out something else. We’ll always look at our cost structure like a dispatch on the power curve. Whatever’s the highest cost will go away.

Sunil Jagwani - Caterpillar

I just have two very quick questions. You guys had, you know, obviously you mentioned earlier that you've had to reduce some existing contracts both in price and volume. Why – was the option available to enforce those legally? And, if so, you know, why is that not an option given the amount of value that’s being given away.

Rick Whiting

That would be a grey area. One could take a strong very aggressive position and perhaps come out with a different answer. But, the Patriot tradition for all of these operations has always been long-term customer relationships. There have been times in the past and frankly there are some times now where we’re having to go forth to customers and ask for some modification to terms and conditions given our circumstances.

We’ve found one very important customers in that circumstance and we made the decision, all factors considered, including considering litigation, that the best answer for the long-term, the medium-term and even the current period was to reconcile and go forward and still come away with what I believe was a very positive transaction, a very profitable transaction for our company.

Sunil Jagwani - Caterpillar

Okay. And, is there any precedent of the customers ever giving anything back to you guys? I mean, I know you guys acquired some older priced contracts when you acquired Magnum. And, I don't obviously have the details, but there were obviously some that were priced below market. Is there any precedent of you guys recovering prices to the upside in your favor?

Rick Whiting

Yes. Both on the met side and on the thermal side. And, the deal I’ve been talking - that deal I’m talking about in fact we had some price increases early on some prior terms and going into 2010, we had some price increases on business we had done two or three years ago as part of a package.

Sunil Jagwani - Caterpillar

I see. And, my last quick question is the 160 million run rate that you mentioned for the legacy obligations, how does that compare to the actual cash outlay that you had in say 2008?

Mark Schroeder

Yes, it’s a little bit lower, not a large number but somewhere in the 20 million or so, 25 million lower than the P&L expenses.

Sunil Jagwani - Caterpillar

For the entire year, right?

Mark Schroeder

Yes, sir.

Sunil Jagwani - Caterpillar

Okay, understood. Thank you.

Operator

And, next we go to the line of Lawrence Jellon (ph) with Barclay’s Capital. Please go ahead.

Lawrence Jellon - Barclay’s Capital

Good morning. My question was actually just around the pension cash, to confirm your last comments were around ’09, not ’08, is that correct?

Mark Schroeder

My comments were around ’09 yes. We actually don't have any pension. That was legacy liabilities that would be the retiree health care, the worker’s comp, and the reclamation obligation.

Lawrence Jellon - Barclay’s Capital

I apologize. So, on (inaudible) have been other items in ’09, you expect roughly 160 running through expense on the income statement and roughly 140 million of cash contributions so you should pick up 20 million in working capital, is that correct?

Mark Schroeder

That’s correct, yes.

Lawrence Jellon - Barclay’s Capital

Okay. And, then finally on cash interest expense, is it fair to assume roughly 15 to 20 million of cash interest in ’09?

Mark Schroeder

Yes, it is. That’s a good number. We have the convert out there, which is $200 million, three and a quarter, two payments to make a year. If you add that plus the costs on the LC’s, plus the costs on the revolving borrowings, that’s a good run rate.

Lawrence Jellon - Barclay’s Capital

Okay. Thanks very much.

Mark Schroeder

Sure. Thank you.

Operator

And, we’ll go to the line of Jacob Muller with AM Capital. Please go ahead.

Jacob Muller - AM Capital

Good afternoon. When you look at your new production guidance on the met side, what is the quality mix of that production?

Mark Schroeder

The quality is similar to where we were in the past. We have, I guess we kind of look at it as A-plus, A and B grade. And, that’s probably about where we still are today as we were in the past with the same blips and I would say it’s kind of a third, a third, a third, between A+ grade, A grade and then B grade.

Jacob Muller - AM Capital

And, with the recent movement in the steel markets, obviously the spread probably between the pricing of those kind of products is wide and could you give a little color on that please?

Mark Schroeder

Based on the spread on the pricing?

Rick Whiting

Spread between which and which? I’m sorry.

Jacob Muller - AM Capital

No, you know, when the market got real tight, most of the pricing gravitated toward the higher pricing but I’m sure right now where it’s all looser, you're probably seeing a bigger difference between the grades. So, what are you guys seeing as far as that difference right now?

Rick Whiting

Well, naturally, the lower grades will still gravitate more back toward the steam coal levels and you also get into decisions as far as which market you sell into based on the recovery, because typically you have to wash to a lower ash for the met coal than you do the steam coal. So, we’ll take that into consideration.

But, naturally the lower grade ones are the first ones to get the pressure, you know, the quality adjusted basis. Typically, the stronger coals like our Harris coal and the Wells product tend to hold up reasonably well, kind of stay in the high end of the range, and tend to be more derived from the international pricing.

There probably will be some disconnect from prior year when the numbers were at very high levels and it was more about a quality and transportation basis differential dictating that. As the prices have come down, we’ll come back more to a cost return on investment type of a model and expectation I think on the U.S. met coals, at least for the export product if you think about participating in a global market.

And, of course, there are a lot of rumors. There’s quite a minimal amount of action so far on the ’09 fiscal year business in the international. So, a lot remains to be seen.

But, in our projects and our assumptions and the mines we decided to run, we’ve been I think pretty conservative in our expectations on that. But, more aggressive on what we’re trying to achieve on that.

Jacob Muller - AM Capital

The talk right now is probably the low 100’s for higher-quality coal right now. Would your expectation be centering around those kind of numbers?

Rick Whiting

You know, I heard a number the other day talking about maybe 150 to 175 metric type number for the range of international benchmark type numbers. If you were to take even a low end of that say a high vol at 150 depending on what the freight is, you come back down to probably at least $110 a short ton at the mine for I’ll call it the grade A and A-minus type coals. So, I have every reason to believe we can – we’ll be working real hard to make sure it has three digits for sure and perhaps on up into the 100-120 range.

Jacob Muller - AM Capital

Okay. Turning to one other thing, back to the - not to overdo this – when you're looking back at the cancelled contract, which is the 1.8 million tons I believe that you guys mentioned in the previous queue, is that now committed but unpriced? Or, is that just totally gone?

Rick Whiting

I think it’s a combination of tons we took out of the production plan and some of it’s moved to unpriced. Mark, if I’m off base –

Mark Schroeder

If your question has to do with where we have shown the number, I guess I would say there is some tonnage in 2010 and out years that is committed but unpriced. Previously, we had it in the priced category.

Rick Whiting

I was thinking of ’09 when I answered it. But, 2010, definitely some just moved to the unpriced, but it will still be there and it will still be going to the same place.

Jacob Muller - AM Capital

And, that would just be indexed to whatever the prevailing number was in the market?

Rick Whiting

It’ll just be a face to face negotiation both parties considering all the information available to them. It’ll be an outright price negotiation.

Jacob Muller - AM Capital

Okay. Thank you very much.

Operator

And, we’ll go to the line of Wes Gunts (ph) with Morgan Stanley. Please go ahead.

Wes Gunts - Morgan Stanley

Good afternoon, gentlemen. Could you quickly remind us what the combined Patriot and Magnum trailing four quarters pro forma EBITDA was as it pertains to your debt covenants?

Mark Schroeder

I don't have that number off hand with me right now. I guess I will say that the calculation of EBITDA for purposes of debt covenant is very specific in a credit agreement. It is a different calculation than EBITDA in what we release here.

And, actually what we release is a GAAP number so it picks up Magnum from July 23rd on. So the pro forma number I don't have in front of me for the 12 months. But, I will say that that number is calculated for our debt covenant purposes in a very specific definition different from EBITDA for financial reporting purposes.

Wes Gunts - Morgan Stanley

Maybe we can pick that up offline. Second question, if Federal and Panther produced at 2008 levels for all of 2009 on average, how would that affect your estimate for Appalachian costs?

Mark Schroeder

It would certainly hurt. How much of a hurt, you know, I mentioned before that we’re looking for Federal to do in the 4 million range and Panther to do in the 3 million range. So, that’s 7 million tons. Panther did not do near that level in 2008, nor did Federal. So, if they have similar years in ’09 as they did in ’08, several dollars per ton of an increase to the numbers I threw out as our range.

But, again, we think we have done the right things with the mine planning at both of those mines. We think we are past the sandstone intrusions. We’ve made some upgrades to the equipment. We have every reason to believe that Federal and Panther are both going to operate very well as we get into 2009.

Rick Whiting

And, they are our lowest cost per ton operations even at lower production levels, they’re still low cost per ton relative to some of the CM production.

Wes Gunts - Morgan Stanley

It’d be nice to see those turn around. All right, the last question, how much coal that you previously expected to sell into the met market will you sell as thermal in ’09 or will you expect to sell as thermal in ’09 and do you have any kind of estimate as to what that might be for total us and globally?

Mark Schroeder

We have some of that coal that has gone from met to steam to thermal, but what we have tried to do in the case of Black Oak as an example is take some of the met production offline.

So, instead of having the same met number and having that cross over into thermal, we’ve tried to take the met out of the market. So, I would say there is some that’s going to cross over from met to steam, but more of it is going to come from the met production coming down and therefore not displacing but just eliminating those tons.

Rick Whiting

I’ll top off and say that Harris will stay 100% met grade-A plus. Wells will stay 100% met grade-A, solid grade-A coal. The ones that would have more potential probably is Panther in ’07 I don't think sold a single pound of coal as met coal, and we had several hundred thousand tons move out as met coal in ’08 as we were starting to move in and do the merger with Magnum.

So, I think probably the most likely one that would start easing back is Panther, some level of that. But, we never were very aggressive in our assumption that that was going to be an ongoing. It was always considered to be upside. So, we didn’t have any major setback in our planning and our thinking on Panther. Some of that could slide. There was some international business that’s probably going to dry up that Panther was serving and is still serving for a few more months.

Wes Gunts – Morgan Stanley

Any guess as to what that displacement number might be for the US?

Rick Whiting

As far as total met?

Wes Gunts – Morgan Stanley

Yeah.

Rick Whiting

I’ve look at a lot of numbers recently. I guess, I think it could be - total for the whole country could be north of 5 million tons, 5-6-7 million tons. It’d be a pretty meaningful number.

Wes Gunts – Morgan Stanley

Thank you very much, guys.

Operator

And, we have a question from Luther Lu, FBR Capital Markets. Please go ahead.

Luther Lu - FBR Capital Markets

Some follow up questions. Rick, for the year unspoken met coal for this year, can you speak a little bit on the quality?

Rick Whiting

Yeah, I can probably give you a little bit of insight into that. The lion’s share of it, a pretty big chunk of it is, well, Mark, you had answered that earlier. A pretty big chunk of it is Wells and then some of it is Kanawha Eagle and some of it’s Panther. So, it’s some of each, but the good news is that a large portion of it is our higher grade Wells coal.

Luther Lu - FBR Capital Markets

For the 2010 unpriced met coal, you know, the ones that you had the contract and now without a contract, are they unpriced but with a color or totally unpriced?

Mark Schroeder

They’re totally unpriced, and they still are contracted tons, but we consider them as unpriced in that the price is determined on the annual basis. So, they are not collared. They are completely negotiated prices, but they are identified to going to a certain customer. So, we – different nomenclature here, but we talk about them as being committed but unpriced. So in the schedule we presented, they would show in the unpriced column.

Luther Lu - FBR Capital Markets

Finally, on the Panther and the Federal number two mines, giving the missing production, are you guys - have you guys incorporated either rollover accounts into the price average that’s given in the press release?

Mark Schroeder

Yes, we have. There is some of that that’s included yes.

Luther Lu - FBR Capital Markets

Thank you.

Operator

No further questions in queue. Any closing comments?

Janine Orf

Yes, I’d like to thank you for your interest in Patriot Coal and we look forward to speaking with you again next quarter. Thanks a lot.

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Source: Patriot Coal Corporation Q4 2008 Earnings Call Transcript
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