Massey Energy Co. Q1 2008 Earnings Call Transcript

Apr.25.08 | About: Alpha Appalachia (MEE)

Massey Energy Co. (NYSE:MEE)

Q1 FY08 Earnings Call

April 25, 2008, 11:00 AM ET

Executives

Roger Hendriksen - Director of IR

Baxter F. Phillips Jr. - EVP and Chief Administrative Officer

Eric B. Tolbert - VP and CFO

Don L. Blankenship - Chairman, CEO and President

Analysts

Brett Levy - Jefferies & Co.

Jim Rollyson - Raymond James

Michael Dudas - Bear Stearns

John Bridges - JP Morgan

John Hill - Citigroup

Luther Lu - FBR Capital Markets

George Ross - Strategy Energy Partner

Pearce Hammond - Simmons & Co.

Justine Fisher - Goldman Sachs

Paul Forward - Stifel Nicolaus

Laurence Jollon - Lehman Brothers

Jeff Marcus - Barclays Capital

Robert Pollock - Citadel

Mark Russo - Millennium Partners

Operator

Good morning and welcome to Massey Energy Company's First Quarter 2008 Earnings Conference Call. Today's call contains copyrighted material. It may not be recorded or rebroadcast without Massey Energy Company's express permission. Your participation in our call implies consent. Please disconnect if you do not agree with these terms.

Roger Hendriksen, Massey's Energy Director of Investor Relations, will now provide opening remarks. Please go ahead, Mr. Hendriksen.

Roger Hendriksen - Director of Investor Relations

Thank you. Good morning everybody. We are glad to have you during our call this morning. We appreciate your continuing interest in Massey Energy.

As you know, we distributed our first quarter press release after market close last night, and it is posted on our website and has been furnished to the SEC on Form 8-K. The members of our management team who will be speaking with you today are Don Blankenship; Chairman, President, and Chief Executive Officer; Baxter Phillips, Executive Vice President; and Eric Tolbert, Vice President and Chief Financial Officer.

Before we begin, I need to remind you that the statements made in this presentation, which are not historical in nature, are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, and are based on current factual information and certain assumptions which management currently believes to be a reasonable.

Financial and operational results for future periods may differ materially from current management projections as a result of factors outside of the company's control. Information concerning those factors is available on the company's 2006 annual report on Form 10-K and other periodic filings with the SEC. In providing projections and other forward-looking statements, the company does not make and specifically disclaims any undertaking or obligation to update them.

With the formalities now out of the way, I'll turn the call over to Baxter Phillips.

Baxter F. Phillips Jr. - Executive Vice President and Chief Administrative Officer

Thank you Roger. Good morning and thank you for joining us. After a record setting 2007, we are pleased to have continued momentum in the first quarter of 2008. the intense work on our expansion volumes continued during the quarter with many significant accomplishments. At the same time, we delivered solid financial results that exceeded expectations.

Operationally production was down slightly compared to last year, much as we expected and mentioned in our last conference call. This was primarily due to moving two longwalls to new panels, relocating and rehabilitating a large electric shovel which should be operational again next week, and continuing work on expansion projects.

First quarter tons shipped were also down slightly compare to last year as availability of railcars was very tight particular on the CSX. In terms of the progress on our expansion plans, we started nine new mines during the first quarter, and added significant equipment or otherwise expanded four existing operations. In total our expansion plan has us opening one new mine on average, approximately every 17 days in 2008.

We expect the increased production from these mines to be evident in the second quarter and beyond. Overall, we had a solid first quarter. Our expansion projects are on track and we continue to work very hard to position ourselves to maximize the opportunities in a very strong global coal market.

Now, I'll turn the call over to Eric for a discussion on the financial details of our first quarter.

Eric B. Tolbert - Vice President and Chief Financial Officer

Thank you Baxter. For the first quarter of 2008, we reported net income of $41.9 million, or $0.52 per diluted share compared to net income of $32.6 million or $0.40 per diluted share reported in the first quarter of 2007. Produced tons sold totaled 9.6 million tons in the first quarter of 2008, slightly lower than a 9.9 million tons shipped in the first quarter of 2007, but in line with shipments in the fourth quarter.

Year-over-year decline in volume was primarily from lower steam coal shipments. Our average produced coal sales realization of $56.36 per ton in the first quarter is $4.10 per ton higher than in the first quarter of 2007. Prices were higher in all product categories, but the increase is significant from metallurgical coal, which was $6.95 per ton, higher than a year ago.

Average cash cost per ton for the first quarter of 2008 was $45.62 per ton, compared to $42.36 per ton reported in the first quarter of 2007. The quarter's cash costs per ton impacted by higher diesel fuel and explosive costs, higher labor costs, higher sales related costs due to the increase in average selling price, and the impact of the moving of the longwalls and electric shovel. The reversal of our anticipated $4.2 million black lung excise tax refund also negatively impacted cash costs.

Other income a pre-tax non-cash gain of $13.3 million from a coal reserves exchange transaction completed during the quarter. The income tax rate for the first quarter was 21%, however the rate was impacted by approximately $1 million in the interest received on tax refund. However for modeling purposes, we estimate the full year book tax rate should be approximately 23%, our cash tax rate is expected to be 14% or lower for 2008.

We project 2008 produced coal shipments of 41.5 to 43 million tons, with an average realization in the range of $61 to $63 per ton. We estimate our average cash costs per ton for the full year 2008 will be in the range of $45 to $47.50. We also expect other income of $20 million to a $100 million for the full year 2008.

Our projected cash generation should enable us to fund nearly all of our 2008, maintenance and expansion capital expenditures, which are estimated at $550 million out of our operating cash flow. Available liquidity improved to $489.6 million at the end of the first quarter 2008, compared to $479.3 million at December 31st, 2007, and $383 million a year ago. Available liquidity in March 31st, 2008, includes $391 million in cash and $98.6 million available under our asset-based revolving credit facility.

Our total debt at March 31st, 2008, was essentially unchanged from year-end 2007. Our total debt-to- book capitalization ratio improved further to 56.8% at March 31st, compared to 58.5% at December 31st, 2007, and 60.1% a year ago.

On March 31st, 2008, the restricted payments basket calculation our 6.625% senior notes were up to approximately $56 million in share purchases. Cash capital expending was a $123.5 million for the first quarter of 2008 compared to $59.9 million in first quarter of 2007, and increase is related to the implementation and continuing our expansion plans. Depreciation depletion and amortization was $60.2 million for the first quarter of 2008, compared to $62.1 million in the first quarter of 2007, and DD&A is expected to total between $255 million and $270 million in 2008.

Now let me turn the call over to Don.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thanks Eric. Good morning. Before we take your questions, let me take a few minutes to share my thoughts on the first quarter, our progress and our outlook for 2008. As Baxter said, we are pleased with our results of the quarter given all the expansion work that was an ongoing at the same time. On particular note, was our cash balance continue to increase just about $124 million in the capital expending, and our longwall and electric shovel being out for essentially the full quarter.

We remain positive about processing for metallurgical coal and it represents a significant opportunity for us. We still have about 6 million tons of unsold and un-priced met coal for 2009 and 2010, to 12 million net tons available for 2010.

With continued global demand for steel, the start up of several new coal [ph] projects in North and South America and the scarcity of quality met coal reserves, met prices will likely remain robust over the next several years. Central Appalachia steam coal prices have remained strong throughout the quarter at times exceeding $90 per ton. At the same time, inventory levels at utilities in the Eastern US have begun to decline rapidly. If inventories fall below normal levels this summer, as some analysts have projected, we could see a strong demand from domestic and foreign buyers eastern steam coal later this year.

The diversity of our products and our access to multiple shipping options position us well to take advantage of a wide variety of opportunities. We continually seek to use these advantages to optimize the selling price of our coals. The availability of qualified labor is always a concern when coal prices increase significantly. In order to meet our expand goals we need to add a significant number of miners this year.

So far, we have been able to retain in higher additional experienced miners, and we are retaining our current members at rates [ph], favorable to last year. Our annualized underground voluntary turnover rate in the first quarter of 2008 was 14.8% compared to 21.4% last year.

We also believe that the tight capital markets and other significant barrier to entry sets us a new safety regulations have limited new mine start-ups by small operators. Consequently the labor market does not yet as volatile as it had been at previous times. As we move through the year, we expect to mitigate significant cost pressure with the moves of the two longwalls and the start-up of the electric shovel at republic and more favorable ratios. This will help to offset higher costs for diesel fuel, explosives and other supplies.

With that results so far and our expectations for growth, we are very optimistic about 2008 and expected to be significantly above the previous most profitable year in our history.

In summary, we've begun to see the very positive impacts of Massey's 20 plus years strategy to be the premier supplier of coal from Central Appalachia. Our position to win strategies of acquiring and holding a large percentage of Central Appalachian's team and metallurgical coal reserves and then putting in place the best infrastructure and most modern technologies have placed us in our current position. This position will allow us to take advantage of the high cash margins that are achievable only in Central Appalachian where reserves and coal supply are limited and where mineability can be greatly disparate from mine to mine and from company to company. The high quality and diversity of central Appalachian coal allows competitive participation and nearly every type of coal market anywhere in the world.

For these reasons we believe that the value of our reserves will ultimately improve to be greater than those of any other North American mining company. These reserves combined with our cost structure, market position and managed infrastructure, balance sheet and highly skilled work force represent a tremendous investment of opportunity in a world of continuously increasing energy demand.

This concludes our prepared segments. We'd happy now to answer any questions that you may have.

Question And Answer

Operator

Thank you. In order to allow everyone an opportunity to ask a question. We request that you limit your initial enquiry to one question and follow-up. If you would like to ask another question please feel free to re-enter the queue. [Operator Instructions]. Your first question comes from Bret Levy from Jefferies and Company Bank. Mr. Brett Levy your line is open.

Brett Levy - Jefferies & Co.

Thank you. Good quarter guys.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thank you.

Brett Levy - Jefferies & Co.

So we have been hearing on some other calls that there's been some renegotiations being opened up with some of the contractual volumes, is that starting to become more wide spread are you starting to go back to some of your customers and say, listen this wasn't the price analysis and is going to be a little bit higher?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Of course we don't know what's going on industry wide but that would not surprise me particularly among operators that maybe a little bit weaker were the industry black Diamond bankruptcy, because if individual smaller companies or ever middle sized companies haven't had industrial diesel fuel... that's certainly a tremendous cost pressure and it would not surprise me that some of that's taken place and we may in fact seek to do that in some cases.

Brett Levy - Jefferies & Co.

Got it and then you guys had previously said that you are going to seek to and I believe it was up to triple your med coal reserves given with state of the capital markets, are you guys still out there aggressively hunting for opportunities. Or are you are taking a bit of a breather?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Well we, I would say that we are more in a development stage where we are trying to develop for several 100 million tons of that and utility coal that we have. Although, we are always keeping our eyes open for opportunities and we maybe able to renovate to make a small acquisition or two but for the most part we are going to be in a development mode.

Brett Levy - Jefferies & Co.

Okay. I think they said only two question. I am going to get back in the queue.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thanks.

Operator

: Next question comes from Jim Rollyson from Raymond James. Mr. Rollyson your line is open.

Jim Rollyson - Raymond James

Good morning everyone Don, you guys... when put out your updated guidance back before Howard Wheel, you gave pretty detailed updates on some of the different mine progress for the new projects and it seems like a lot of the stuff was coming starting up either in the quarter or certainly in the second quarter. Can you maybe just kind of detail, how you see this playing out in terms of stepping up from 9.6 million tons to kind of get up to the at least for the year the run rate is this kind of a steady progression throughout the year or do you kind of have a big step up that seems to be coming in second quarter and then moving up from there or just kind of some sense of that might play out?

Don L. Blankenship - Chairman, Chief Executive Officer and President

I think the, the biggest things that happened in the second quarter over the first will be that the walls which probably only ran a couple of 100,000 tons in the first quarter or probably run closer to 6, so we'll pick up some without regard to the development but with regard to have in the walls running instead of idle. That would only get a month or so in the second quarter from the shovels. So it should be about 100,000 tons out of good over first quarter or so. If you say we'll get 500 that aren't really related to expansion but rather related to those three operating units running and other than that the expansion of ramp up fairly evenly follow most of it will be done by the end of the third quarter. The impacts on production will be fairly evenly spread.

Jim Rollyson - Raymond James

Great really helpful. And then this is a follow-up, obviously you guys are responding with your plans to expand production and including the pricing environment kind of suggest that you should. What are you seeing out of your competitors and I guess most notably on the smaller private companies, do you think those guys are going to respond this time like they have in the past or do you think the regulatory and capital constraints will keep them at bay or some what?

Don L. Blankenship - Chairman, Chief Executive Officer and President

I think they are significantly more constrained by a combination of the regulatory and the financial markets the reserve holdings. So I think they are more constrained and I think a lot of... when they try to monetize their assets in the market, because some of us has been around national... we've seen it go up and down, so there will be some monetizing take place and I would expect perhaps people that need coal may look to reinvest in the coal industry. We went through a period of time, where the utilities and the steel companies and even some industrial companies owned reserves and suspect to see some of the small operators look to that as a way to monetize their assets.

Jim Rollyson - Raymond James

Great, thanks. Good quarter.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thank you.

Operator

Next question comes from the line of Michael Dudas from Bear Stearns. Mr. Dudas, your line is open.

Michael Dudas - Bear Stearns

Good morning, gentlemen.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Good morning, Mike.

Eric B. Tolbert - Vice President and Chief Financial Officer

Hi Mike.

Michael Dudas - Bear Stearns

Don, following up on Jim's last question, you highlight safety legislation, geology, lack of capital relative to the investment in Central Appalachia, do you sense that might alleviate some as we move into the later half of the year, once maybe Chambers gets put forth and the higher prices attract more capital? And is that something that could impact your hiring progress throughout '08 into '09 given your expansion plan?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Yes, I would say that in my broad view of where they are having a lot of detail is it won't be so bad the remainder of '08 that with a couple of those significant properties on the market and with the recent deal there, treasure body [ph] there will be capital available from new owners to have lots of capital. And of course I have no will to predict the capital markets, but I think that people with money may make equity investments and then the combination of that and the higher prices could put more pressure and push Chambers, could free up some activity, but I don't look for much to happen until '09 because it will be take people a while to get their act together.

Michael Dudas - Bear Stearns

And the success of your turnover rates this past quarter I assume is being highlighted by your new plan with a three year plan with some of the more senior underground workers. Can you any reflect on how successful that has been related to what you had thought, is that something in the market place that other company should find or trying to match or is it something that is very more specific to what Massey can offer?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Well, I think to my knowledge, we are the only company that is still in this as far as to guarantee the payment for three years whether we need him or not. I don't know whether other companies would follow suit on that or not, but I do think that coal miners and communities where we operate know that we have the financial strength to back up that promise. So I think it provides an advantage as well as I think that the type of mine that we most commonly do, which is about drainage mining and or I would say, [indiscernible] which is more attractive to coal miners than in seems the low drainage with more gas particularly in lot of the events of '05-'06 so I think we have several reasons to believe that we could be the importer of choice in addition to the wage rates and the bonuses and of course get back to we've been around for 97 years, so we are expecting it to be very competitive on the labor market, but we still are conscious and watching what the labor market does over the next few quarters.

Michael Dudas - Bear Stearns

Don, one just quick follow-up, do you expect any significant news announcement relative to your Indian joint venture in 2008?

Don L. Blankenship - Chairman, Chief Executive Officer and President

I don't know that expect is the right word, but I would say that those discussions are ongoing. We've talked to them and met with them a number of times and the meetings continue, but I wouldn't want to raise the toast so whether we will or I will have an announcement, we are having lot of discussion.

Michael Dudas - Bear Stearns

Thank you, Don.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thank you.

Operator

Okay. Your next question comes from the line of John Bridges from J.P. Morgan. Mr. Bridges, your line is open.

John Bridges - JP Morgan

Hi Don, Thanks to everybody. I just wondered you mentioned in your reports the some of the difficulties you're having with the railcars. Given the talk of significant further ground in exports, do you see railcars are constraint, how much of a challenge do you see this bigger export to be with the rails?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Major would be... to answer in a word, I think that the export volumes and the demand particularly on Central App have caught the railroads off guard and without adequate cars. I am told and they have committed to us that they are adding cars, leasing cars, doing everything they can to provide the service that we need in addition that we have began to look for cars that we can lease or buy or sell. So I think that it will get better as the year develops, but I do think that the export volumes have shown a real curve into that side of the business.

John Bridges - JP Morgan

Androughly how long do you think is going to be before you can see further growth in exports then?

Don L. Blankenship - Chairman, Chief Executive Officer and President

I think it will be late this year at best. I think what's happening around now of course, the utilities, domestic utilities are losing inventory on probably losing inventory partially as a result of cars going to exports instead of going domestic and as their inventories get lower will still make more noise and the cars will have to go that direction, so it will be a while before exports can be serviced at a significantly higher level because New Orleans and [indiscernible] are all backed up too. So I will give it 6 to 9 months.

John Bridges - JP Morgan

Okay. And there is a follow-up. With a very significantly higher met coal prices in prospect, just wondering if there are any sort of price related cost that we should be taking notice of that could in the past have been relative insignificant that might pop up.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Big thing of course is, if you sell them $90 coal and it goes to 200, you lose about $11 over to severance tax and royalty even at Massey, many of our competitors that number would much higher, $3 or $ 4 higher. Other than that and just the pressure not directly related to the price, but the pressure that there is real volume and expansion and the things we talked to earlier about new investments, people trying to start a coal mines and of course impacts the vendors, the demand for the vendor's products and their strength is their negotiating position and also impacts the labor market. So all of those things are moving in the same time, labor, pressure on what we buy and of course the situation with the sales related direct coal.

John Bridges - JP Morgan

Do you have much production from contractors, independent contractors?

Don L. Blankenship - Chairman, Chief Executive Officer and President

No, when... I guess before we were public, 15, 10-15 years ago, we worked under the one-third, one-third policy versus the third contractor, a third trying to broker in market the purchase coal and a third in-house production. But that's changed the strategy over the years to be an almost 100% internally produced coal, because making commitments to customers and be independent on contractors can be a risky business in this market, so we've kept almost all of our production internal.

John Bridges - JP Morgan

Okay. Let's see, well done Dom, thanks a lot.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thank you.

Operator

: Your next question come from the line of John Hill from Citigroup. Mr. Hill, your line is open

John Hill - Citigroup

Great, thanks and thanks for a very detailed call as always. Don, just wondering what you could give us your familiar run down on perception of kind of term business, pricing for term business for your various product categories. There has been a fair bit of talk about divergence between some of the OTC prices and such and air conditioners in the real world?

Don L. Blankenship - Chairman, Chief Executive Officer and President

It's so complicated or at least so hard to understand, I don't know if I can be very helpful there. But I know I would guess that if you want... speaking of a few anecdotal things, if you had a chance to sell $210, $220 met coal and wanted it to be a two year deals too, one year deal, you probably have to discount it $20 to $30 a ton to do that. Customers always like the security of supplier without the commitment of price, so you are always negotiating off and lot of times, it ends up being the collar where if you can agree on a two or three year price, because both of you are unsure what the market is going, you will do $180 or $200 in collar to $10, $15 in one year 10 or 15 the following years, where those numbers used to be $5 collars to probably going to be $15 collars. And as far as the OTC market, there has been a lot of financial trades here recently that very high numbers where I think people got collared short and couldn't deliver the coal and they didn't have much choice but to do a financial transaction which sometimes on the board can get confused with a physical transaction and people think that coal is actually moving at their price when it is actually somebody that's having the cash out of deal with that they can't complete. So I would say that sale forward is $10 after an 010 and less in '08 when you get into prompt because people get caught on the financial side, your CDs $105, $110 transactions that again, is mostly some body trying to financially retire a commitment. I don't know if that's the response to that, I hope it did.

John Hill - Citigroup

Oh, it's a great color, thank you very much. And then just as a matter of housekeeping I suppose, guidance for the year, the other income line 20 to 100 obviously it's transaction on unpredictable and may turn, wouldn't expect you guys, tell us what exactly you are up to, but that is a big band and how should we think about that?

Don L. Blankenship - Chairman, Chief Executive Officer and President

It sort of fits the discussion we just had, we are very transparent as you know and we have soft coking coal that may be in the steam coal market, we don't know exactly what opportunities we are going to have and if we financially retire a commitment, if would hit other income for example, we bought back at loss steam coke commitment to shape it on a met coal side. It would hit that line. So we have allowed for quite a bit of that if we elect to do them.

John Hill - Citigroup

Do you have significant book gains that are yet to be realized?

Don L. Blankenship - Chairman, Chief Executive Officer and President

No, what we have is situations, where we have soft coking coal that is committed in the steam coal market, that we might elect to buy other than and placed it. So soft coking coal in the met market, but we are just keeping that possibility open in our other income line.

John Hill - Citigroup

Very good, Thank you

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thank you.

Operator

A question comes from the line of Luther Lu from FBR Capital Market.

Luther Lu - FBR Capital Markets

Good morning.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Good morning.

Luther Lu - FBR Capital Markets

Hey Don, in your press release you mentioned that you have 6 million tons of metallurgical coal and 3 million that can be either/or. In this market, why not you say that you have 9 million tons of metallurgical coal?

Don L. Blankenship - Chairman, Chief Executive Officer and President

think because that coal would be marginal soft coking coal and we've seen steam coal prices of 110 on prompt delivery at times and we are not sure whether PCI, which is pulverized coal injection met market will be and it's not as simple as price. There is a lot of yield impact. So it's not something that we will be explained too much on a conference call which is significant difference in the yield on a [indiscernible] met coal versus the 13 or 14 steam coal where you are using that soft coking coal to blend it, the qualities of surface mining coal would otherwise have to be washed so.

Luther Lu - FBR Capital Markets

Okay, they wash it so.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Yes, basically some of that... sometimes the value of the soft coking coal is greater and blending up surface mine coal and shipment direct versus having to wash the surface mine coal and make it marketable and sell under soft met coal, so it's a little bit more complex and depressed.

Luther Lu - FBR Capital Markets

Okay. Got you. And earlier you mentioned that the Massey could go back and renegotiate some of the '09 steam coal contract that signed in first quarter 2007. If you want to do that, how would you go by doing that?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Well, I didn't say that we were, I think I responded in to a question of whether that was happening in the industry and suggested that we might do some of them. But there can be anything from averaging, utilities will be nervous about '010 delivery or whatever so you might have a little '09 number and be able to average that, it can be like I said the steam met switch which worth more to you either buy out of it or bifurcate it into two years in order to sell in the met side, may be you can give them something in return for allowing you to do that. But it can take so many different forms, I wouldn't really know how to describe them all to you, but we are very active in the analysis and the communication on those issues and it's one reason that you saw the average '08 price move up and then our projections and the '09 price to be such a wide... too wide numbers and that we are working very hard to find every opportunity that we can to do those types of things.

Luther Lu - FBR Capital Markets

Yeah, I was talking to Roger last night and wish Massey could tighten some of those numbers, is a wide range for sure. On the cost side, can you give us a hedge position for diesel, explosive and steel and so and so forth?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Well, we look at our diesel sort of on an annual basis and we hedge fairly well this year and equipment diesel we bought about 70% of our needs, 290 a gallon, so we are probably $0.80 a gallon below the current market which is helping us a lot. Of course we are still out there with about 14 million gallon or 1 million plus a month on the open market, that's 370 plus range.

On explosives, we sort of let our natural gas wells fluke with the gas market to mitigate the cost of the explosive which primarily traps the natural gas prices. So by having 300 gas wells that we produce and sell into the market, our other income line in that regard, very well mitigates the explosive range.

We have fairly good contracts on most of our steel products and tires and so forth out through '09 and on the equipment although we are struggling with the iron ore/magnetite right now would be our biggest vulnerability.

Luther Lu - FBR Capital Markets

Okay. And just one more thing, this morning according to a coal energy report the fourth circuit court in Richmond delayed the hearing on the Chambers issue till September, do you know any... the reason behind that?

Don L. Blankenship - Chairman, Chief Executive Officer and President

I don't think I know as what you saw perfectly probably which was that they had some scheduling conflict at the court. I don't know if they had a case that took place and some times court will get hit with some let's say, election related or whatever and they got to resolve some because the time schedule and they change their docket. But, I don't know the entire workings of why the court did it, but we are told it will be September now.

Luther Lu - FBR Capital Markets

Okay, thank you very much.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thank you.

Operator

Your next come from the line of George Ross, from Strategic Energy, Mr. Ross your line is open.

George Ross - Strategy Energy Partner

Good morning, Don, congratulations on a good quarter. Most of my questions have been answered, but I had one... two quick ones. One was with regards to the railcars. Have you seen or do you anticipate any of the utilities in that market as well and have you seen any price pressures for the cars or do you see... anticipate any of that going forward as well?

Don L. Blankenship - Chairman, Chief Executive Officer and President

I think the answer would be yes to both of those. I think that we clearly are having more trouble servicing accounts that are on railroad system cars than we are servicing accounts that are on private cars, so I think as the inventories reach normal or below normal, there will be increasing pressure for people that are reliant on system cars to acquire their own cars. And we have some situations where we are responsible for freight, so we're already that pressure. And we are responsible for freight, rail shortages might not constitute fortune here or that argument is weakened. So we are trying to protect ourselves in that regard and I am sure that others will as well.

George Ross - Strategy Energy Partner

Oh, that's great. And just another one more quick follow up. There is some forecast out there, guys saying that there is going to be an additional 30 million to 40 million tons of met coal demand from the global steel producers. Do you guys agree with that number and do you think that the marketplace can facilitate that?

Don L. Blankenship - Chairman, Chief Executive Officer and President

I think that we agree that the... there will enough coke ovens constructed to require the 30 million to 40 million tons. We're not very good at going on downstream and seeing whether the demand for steel and the blast furnace to support all that are there, but I am sure that steel companies wouldn't be bringing online the coal ovens to use that much met coal as they haven't cleared up rest of the stream. So I will assume that's accurate and as well we believe that the high freight rates and at least the current weak dollar advantages us in a manner to push some of the Australian coal out of the Atlantic basin. So we see two or there regions at least to believe that there is legs to the metallurgical market, and we intend to invest heavily during 2008.

George Ross - Strategy Energy Partner

Oh that's great Thank you very much

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thank you

Operator

Next question comes form the line of Pearce Hammond from Simmons & Co. Your line is open.

Pearce Hammond - Simmons & Co.

Congratulation on a great quarter, Don.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thank you.

Pearce Hammond - Simmons & Co.

Don, if my calculations are correct, based on current prices for Central App on the NYMEX, the ARA, and shipping, it appears... the Central App steam prices are too high for spot export the steam coal. Are you seeing the same thing?

Don L. Blankenship - Chairman, Chief Executive Officer and President

No. Our math says that recent Australian steam coal process would support $90 FOB mine cap prices on a quality equal basis, but that changes everyday. So I don't know when you get into $9,200, $9500 prices typically you are looking at 12 five coals with complaint software and then perhaps the utility that needing the coal real bad or some financial buyout. But I don't see a great disparity between the open market FOB mine Central App prices and the world market in comparison to the Australian FOBT prices.

Pearce Hammond - Simmons & Co.

And following up a little bit on John Hill's question earlier, the recent strength that we had seen in the NYMEX, do you think it's a bit more related to somebody trying to cover some short position?

Don L. Blankenship - Chairman, Chief Executive Officer and President

I think that there had been some financial trades for that purpose, but at the same time I don't think that the NYMEX prices are greatly off the FOB mine price compare to Australian deliveries or particularly South African deliveries in the year. So I think when you look at the vessel freights on the high season look at the dollar and look at all the other factors that steam coal prices on the NYMEX are not significantly off the delivered price in Europe and other sources of their coal.

Pearce Hammond - Simmons & Co.

And then on the M&A front you have obviously done a transaction in the past in the Illinois Basin, would you be interested in doing more in the Illinois Basin and does chlorine concern you?

Don L. Blankenship - Chairman, Chief Executive Officer and President

I mean I think that like with coating [ph] coal and lot of other coals the technical aspects of the things like chlorine and expansion characteristics and so forth gets lessened as the reality of the shortage sets in. So, chlorine basically relates to how long the borders [ph] will run. They won't run at all without coal. So I think that there can be too much focus on that some times, and then there is ways to mitigate the chlorine impact as well. So, in answer, I think that the users of coal around world at 6.5 billion ton base will have to make some adjustments as far as in Illinois Basin investment is always possible. But we are looking at new business margins in Central App of $30 to $100 a ton. So I believe we will be quite busy with 200% and 100% returns until this thing cools down some. So we will be very much focused on internal expansion or Central App.

Pearce Hammond - Simmons & Co.

Thank you, Don.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thank you

Operator

Next question comes from Justine Fisher from Goldman Sachs.

Justine Fisher - Goldman Sachs

Good morning.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Good morning.

Justine Fisher - Goldman Sachs

The first question that I have is on the coal export front, and I am just trying to reconcile your comments about the availability of railcars and what that should do to exports over the next six to nine months with comment from other coal producers, and we have heard people put about an 80 million ton number on exports this year. But I am wondering if you would think to that number includes the railcar situation that you have been talking about, and what can explain the disparity that we have heard between you and the others where you said that that's an issue, and then other companies don't seem to be talking about a shortage of railcars.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Well, I think that the companies that aren't talking about the shortage of railcars must be on all private cars, because fairly there is a shortage of system cars, railroad cars for the domestic market. I mean the export market is probably getting preference over the domestic market, since domestic utilities have been high so forth. I was only commenting that as the domestic Central App customers utilities get lower, there will be more pressure for them to get to service that they have not been getting in the first six months. But we built an inventory from about 400,000 ready to load to about a million and a quarter tons ready to load from last in the last year to end of first quarter. And it was almost entirely related to lack system railcars.

Justine Fisher - Goldman Sachs

So, would you say that that 80 million export number doesn't take into account the need to potentially diverse some cars back to the domestic market this year?

Don L. Blankenship - Chairman, Chief Executive Officer and President

The way I would try to characterize it is the ability of the industry rail, coal, and barge to do the 80 million export has made possible by shorting to domestic market, and has been allowed because the domestic utility inventories have been high. And that's the region you see the drop in domestic inventories, at least partially. And I think that the railroads are rushing as are others to bring on and so forth to be able to sustain the volume in the second half without a continuation of an inventory problem.

Justine Fisher - Goldman Sachs

Okay. And then on your new mine development plans, I was quite surprised to hear the one new mine every seventeen days I think you mentioned in the opening remarks. I am wondering if there are any issues in obtaining equipment and the resources to develop those mines because that's kind of trend that we have heard industry wide about the lead times for new mines just because a shortage of equipments, tires etcetera, just more generally.

Don L. Blankenship - Chairman, Chief Executive Officer and President

I've said publicly that we have made three big decisions last year about this time two of which were good. One of them of was hold back our met coal and one of them was to order a lot of equipments and expansion program. And one of them was to sell steam coal. And obviously I got two out of three right but

Justine Fisher - Goldman Sachs

Not a bad hit, right?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Yes. I have got lots of equipment. We have lots of equipment being delivered. We have a line of equipment that set up that takes up beyond these currently announced expansion plans and we have no equipment issues. We do that some underpriced steam coal business that we are anxious to get shipped out.

Justine Fisher - Goldman Sachs

And as far as that steam coal goes, I know that you couldn't give a lot more clarity as far as the price guidance, just because you may or you may not be able to renegotiate some contracts. Is there any way to just to give us even a percentage of the magnitude of the price increase that may come from steam versus met? I mean could it be like a $2 average steam coal price increase, or might we look for more than that or is it tough to say that, that's fine?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Yes, I don't think I can say. Of course, we can't really predict how... what our ability will be to renegotiate some of the contracts. We do know that the met prices are about a $100 over the steam prices. So to the extent that we are able to negotiate out of that or reduce or buy out of the steam coal contracts, it gives us some volume, but everything has a limit. So I mean if you move too many tons in that direction, you can actually negatively impact the met coal market.

Justine Fisher - Goldman Sachs

Okay. And then could you talk about the impact, if at all, that you are seeing from the merger of Patriot and Magnum. I mean obviously Massey has been 100 pound. I can't remember, how much away... the 100 pound grow in Central App for a long time, and now Patriot and Magnum seem to have create a company of a more comparable size. Are you seeing any impact on your sales negotiations et cetera from the creation of another company of that size?

Don L. Blankenship - Chairman, Chief Executive Officer and President

No, I mean it's actually not completed yet. But we will we look forward to have a more consolidation of that type, I believe that we will compare well in that regard. But we haven't seen any impact yet and really wouldn't expect any meaningful impact.

Justine Fisher - Goldman Sachs

And then last quick question. On the bond side, we have seen our financial resources recently take their bonds, and I know that your 6.625 are relatively low coupon but they are callable in November, are there any other callable opportunity [ph], maybe kind of the callable. Do you guys have any plans to do anything with those bonds?

Don L. Blankenship - Chairman, Chief Executive Officer and President

We don't have any issue with them until 2010, and with the capital market they are we don't intend to do anything in that regard at least as we it right now.

Justine Fisher - Goldman Sachs

Okay. Thank you very much.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thank you.

Operator

Next question comes from the line of Wayne Cooperman [ph] from Cobalt Capital.

Unidentified Analyst

Hey Don, how are you doing?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Fine. How are you?

Unidentified Company Representative

Hey Wayne.

Unidentified Analyst

I got kind of a broad question and then hopefully you can give me as much detail as possible. But you guys threw out 50 million tons for '010, and I wonder if you could do little bit more detail on the walk, how do you get form where you're now to 50 million? How much is from your existing mines verses new mines? How much is surface is underground? Do you have all the permit and could you throw out any clue [ph], if you get there what the cost structure might look like versus where we are today. And I am just also I guess curious how much kind of wiggle room you have left yourself soft when you thrown out that number.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Until you have much wiggle room, wouldn't have any lift result.

Unidentified Analyst

Right what I mean, of them kind of hoping you wouldn't throw out 50 unless you have a very high degree of probability of getting there because obviously in the Central App, the whole industry guys seem to always fall short of their targets.

Don L. Blankenship - Chairman, Chief Executive Officer and President

That's very tough. We obviously do have some wiggle room for that reason which usually is needed due to the unforeseen circumstances. But we would probably, at least by the second quarter would have 46 plus million tons of that in motion obviously. And we would need to get up another from mines turns that aren't running yet as sort of directional.

Unidentified Analyst

I assume those are... you have permits for those already.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Yes, we have all the permits. We have the equipment either in hand or in secured, all of that would be delivered before Christmas probably and the challenge of course is labor.

Unidentified Analyst

Right.

Don L. Blankenship - Chairman, Chief Executive Officer and President

We would probably need through...

Unidentified Analyst

I heard Merrill Lynch is laying off a lot of people.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Yeah. And we probably 300 or 400 but I am sure that there would be some training required. But, I think that the people thing will be the single biggest challenge. We do have some room 4 million or so or maybe expansion. Although if we really have trouble to tell on exactly on how some of these mines are still maturing will actually perform. Most of what we will bring on after the second quarter will be under ground mines with some focus of course on metallurgical coal. And the cost structure, after their material will be about the same as the cost structure demands were currently operating. I think in particular when you put in the impact of the cost saving capital that we are spending in '08 and the types of mines that we are putting in at the distribution or the production won't be the factor on the cost although initial fuel and labor breaks and so forth will be.

Unidentified Analyst

So should we just look for kind of normal inflationary cost per ton increases over the next couple of years?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Yes. If you mean the normal it will be... could be significant in this kind of the price to market. But it would be inflation in the labor stand and the martial set as well as the sales related impact on the price as opposed to the mineability of the mines that we will start up.

Unidentified Analyst

I got you. Because obviously if you'd came anywhere close to do 50 million tons that the price you said with cost structure are not materially different from today. The earnings are slightly mind boggling?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Yes, that's been our biggest problem with the projections as when we put down what the market is in and put down the call and load in the inflation so forth. You get numbers that are so large that you will feel uncomfortable project them.

Unidentified Analyst

But yes, are you still projecting? So I guess you still feel relatively comfortable?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Well project the volumes of tons and project the wide ranges of process but

Unidentified Analyst

Alright.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Keep in mind that our 2010 process for example of our not $220 met tons and we so, couple of million tons at $230 met coal since the last conference call.

Unidentified Analyst

In 2010?

Don L. Blankenship - Chairman, Chief Executive Officer and President

In '08 and '09.

Unidentified Analyst

Right.

Don L. Blankenship - Chairman, Chief Executive Officer and President

We are not projecting those kind of prices in 10. If we did, I don't know that $2 billion of EBITDA. So we've got more moderate numbers in there that we think represent the market that is sustainable.

Unidentified Analyst

Can you sell 2010 met coal today?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Finally you could. If you discounted it significantly.

Unidentified Analyst

Right. Got it. Kind of as long it got in founders restricted cash what is that, is it always restricted or can you ever use it?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Its cash that's posted to secure bonds or secure some times, if you have a lawsuit that's been awarded someone, it's put aside and yes it can free that for example the $50 million on Harman that was restricted freed up when the case was ruling in their favor. So some of it came and some of it related to reclamation with not unless we restructured a reclamation bonding or something or whatever.

Unidentified Analyst

Alright thanks a lot.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thank you.

Operator

Next question comes from Paul Forward from Stifel Nicolaus.

Paul Forward - Stifel Nicolaus

Thanks, good morning.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Good morning.

Paul Forward - Stifel Nicolaus

Just maybe another follow-up on the cost you had 45-62 per ton of cash cost this quarter. And your range is 45% to 47.5%, I guess when you look at, when you project that out through second to fourth quarter, so are you going to be getting volume benefit, but then you are going to... as you said of more of a concentration and underground mine production. What do you think, what bad events have to happen for you to get up to the top of that range? Thank you.

Don L. Blankenship - Chairman, Chief Executive Officer and President

The good event helps to Massey if we end up $67 average price as we sell more $250 met coal so you can't get... you do get the impact of the 10% on the price other than that it would be no issues with productivity because of the labor force being rolled on. It could be continued escalation in the cost like natural gas prices going higher. And naturally as it was noted earlier we are trying to leave enough cushion in there as we don't miss it. So between the if you get at the mid point, it wouldn't take much in terms of labor productivity and/or escalations on [indiscernible] iron ore and so forth is rather to the 46... 50, 46, 75 range.

Paul Forward - Stifel Nicolaus

Okay and that sounds good and maybe one just follow-up on that you've got mid point of your pricing guidance from '08, '09 goes up $7.5 per ton. I guess you got plus $0.75 then on the royalties and severance taxes but just a kind of follow-up on some of the other questions here. Is there a level of cost inflation that you would look at it later on and say is really be disappointed and you have 7.5% pricing dollars and then let's say $3 of cost inflation, $4 of cost inflation Ate up half of that pricing, there is really a level of which you'd say, I'd be really disappointed if we were about that level on cash cost per ton.

Don L. Blankenship - Chairman, Chief Executive Officer and President

There are... I think that you guys are probably better equipped to predict coal prices and natural gas prices and exchange rates and all things that have to be predicted than we are but and we would hope that our cost would stay in the train we're expanding the 6%-7% increase range. Particularly in line of the operations that we are brining on this should be operationally strong and again the cost saving capital that we are spending I would probably be disappointed if it went up by more than 7% or so.

Paul Forward - Stifel Nicolaus

Okay, thanks. And maybe lastly you built a lot cash $391 million now. Is there a strategy with that going forward because cash federation ought to be getting better over time and so our strategy achieved. We think about as far as bringing some of that back to the shareholders?

Don L. Blankenship - Chairman, Chief Executive Officer and President

I think that least for now given the capital markets and given the opportunities that are after that we should go through our budget process this summer and early fall with an eye out towards how they invest a lot of money in '09 and '010. We currently would only have identified in 300 to 350 million '09 CapEx but we need to take a really hard look rush out the markets dealing and look at other opportunities to expand in internally before we look for a return because if we can continue to get 50% returns, I think that's what the shareholders would prefer. So I don't... I think I can answer your question until we go through the detailed planning of the summer and recall and until we see more of what the marketplace looks like. During that time frame, I don't think that we know, exactly what the best use of that cash is.

Paul Forward - Stifel Nicolaus

Okay thank you very much.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thank you.

Operator

Your next question comes from Laurence Jollon from Lehman Brothers.

Laurence Jollon - Lehman Brothers

Good morning. You generated some nice cash, in the quarter. We obviously don't have a detailed cash flow statement. I guess one, can you give us an operating cash flow number and then two, can you comment on some of the drivers there. I don't know if you sold some assets which increased your cash balance and I wonder if there is some one time working capital items.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Eric will go through that with you. Other than getting a tax refund it was a pretty normal quarter in that regard but Eric is getting prepared to give some color on the detail.

Eric B. Tolbert - Vice President and Chief Financial Officer

Yes, just in general. When we... our preliminary cash flow statement in terms of what we publish in our 10-Q. Cash flow without our operating activities is about $137 million. So in total, majority of that came from operating earnings. We had some positive working capital, although both are receivables and our payable balances went up. So, just in general I think majority of it was created by operating cash. In terms of our operating cash generation.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Bottom line is our working capital changed. There is a schedule here somewhere about just maybe $10 million or so and so it's essentially it was just straight up, generate cash and spend CapEx.

Laurence Jollon - Lehman Brothers

Yes. Very helpful, thank you.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Okay.

Operator

Our next question comes from Jeff Marcus from Barclays Capital.

Jeff Marcus - Barclays Capital

Hi, guys. Thanks for taking my call, I just had a quick question regard to 2009 met coal, you said you have about 6 million tons of met coal unsold and unpriced so I just curious if you can potentially give a range where you think the price realization would come in on this?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Within $150 and $250 a ton level.

Jeff Marcus - Barclays Capital

Okay. And then --

Don L. Blankenship - Chairman, Chief Executive Officer and President

That kind of range, I don't know.

Jeff Marcus - Barclays Capital

Yes. Well, separately, a lot of question answered and then obviously I know someone asked about 2010, you're currently not looking to price contracts going out that far you just expecting to sell met coal I guess on a one year going forward basis?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Well, we don't really sit down or say, we are not going to sell in '010 we are going to sell in '010, we sit down across table from many buyers and negotiation, of course they are the buyer and the customer, has a lot of influence and a lot of power and we try to sell them what they want and listen to their views and then we just make a judgment on whether we would rather have a higher price for a year or a slightly less for two years or three years or collared so they are all individual negotiations and they all have their peculiarities. For example, just to give you a flavor for some of the things that run through our mind, we think that domestic met and European met customers are pretty much our customers and we want to be in frame of mind with them about long-term and et cetera et cetera. When you are going in terms of Japan or India, these are not your natural markets, so you are trying to be helpful, but you worry more about term there because you don't want to sell a bunch of coal Asia, and not service your Atlantic basin customers and then when the Asians get their Australian coal and the Europeans are angry at you. So there is a lot of thought process that goes into that and each customer in each region has a different level of negotiation or different type of negotiation

Jeff Marcus - Barclays Capital

All right, that's all, thanks you very much.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thank you.

Operator

Next question comes from Robert Pollock from Citadel.

Robert Pollock - Citadel

Hi Don, how are you?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Fine, how are you?

Robert Pollock - Citadel

Good. Just a follow up I guess to last question, you mentioned the range of $150 to $250, presumably that that's going to be predicated largely on where we see the coking coal price negotiations set out next year, I would imagine given the burning debate over how much was due to the decline and supply we saw on Australia versus the effect that the world needs another 30 million, 40 million tons of coking coal a year. I guess my question is just how do we think about the way this plays out in terms of committee those 6 million tons. Should we expect you each quarter throughout this year to commit more tons or we see this tons uncommitted, sold at the back half of the year when we start to get a feeling like fourth quarter, where that met might take place heading into next year?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Obviously, it's not possible to answer that accurately, but I would say that our philosophy is little bit different than some. If you knows our philosophy is to being a incumbent, to be a good supplier and to sell customers coal when they want to buy it based on the markets because if we are the incumbent supplier in '09 and '010 and then we are highly likely to be supplier in '011 and that's... it served us well. Because if we ran our volumes and our mines up and down with the market, it would be impossible to operate them and give the employment, security and the things that make us a sound sustainable value. So we will sell coal... in answer to your question, each quarter and throughout the year and we're not want to on hold the coal back and trying to off-sell it of the last moment because we are not trying to--

Robert Pollock - Citadel

Right. So still maybe... ask the question differently, just as the customer base is not necessarily waiting to see whether the negotiation is next year, they hope they get a decline, but is going to be willing to sign tons up through out this year, we should see sort of sequential commitment to your tons.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thank you. We will see likely again forecast is difficult, but I think it is likely you will see a sequential placement at the times, and I think that the as the Pacific Rim recovers from the production problems in the South Africa and Australia that we will still see a greater desire for diversity in the Asian markets, in other words the Asian markets and those customers got into a lot of trouble with the limitation on their supply and I think that we will find a natural long-term niche there in order for them to protect them so it is a little bit some problems like a flood in Australia.

Robert Pollock - Citadel

Okay. Thank you very much.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thank you.

Operator

Your last question comes from Chris Shelton from Millennium Partners.

Mark Russo - Millennium Partners

Hi guys, it is actually Mark Russo. How are you?

Don L. Blankenship - Chairman, Chief Executive Officer and President

Fine. How are you?

Mark Russo - Millennium Partners

Don, I just want to circle back on, Luther brought up this, the valley field question and it's more of a high level question and I want to get your thoughts, how do you see that playing out because I believe you guys and a few others had some permits that were issued by the court ahead of this delay and I want to see what do you think about that and secondly, how you think this will play out? Now as this gets stands on the September date, will that force utilities and others who may have been holding out since this is a shoulder season to maybe move up the conversations of contracting 2009 and 2010 volumes?

Don L. Blankenship - Chairman, Chief Executive Officer and President

I think that the delay in and of itself won't be horribly significant because it's a matter of four or six months in adverse opinion would create some havoc in the market. It will create some and I think in that situation as a supplier of course we are constantly working to have alternative plans in place. So, as I said one time when we first saw the chambers decision but knocked us out of 9 million tons. We are continually working that impact down to point that it would not be significant in '09 enough figure that others producers are as well. So the short answer is I wouldn't expect the delay to be meaningful and adverse would be pretty significant on the industry. But Massey at least is trying to position ourselves to deal with that without a loss of volume should that occurs sort of an insurance policy.

Mark Russo - Millennium Partners

And as far as conversations with the potential buyers, does that cause them to speed up the conversations just we won't have a decision until September?

Don L. Blankenship - Chairman, Chief Executive Officer and President

I think all of them are different, but I think that the chambers saying it is one or several elements this export situation is driving. They are thinking more than chambers, if we are going to export 80 million or 90 million tons of coal and significant of those volumes are going to be Central App's steam coal, that is what they are really watching, because if the export steam coal market stays as strong in '09 and '010 as it has been in '08, the utilities won't have the cushion of high inventories that had coming into this year and that's what will accelerate their buying pattern. Chambers is a factor but not as big as the export market. It sort of gets overshadowed.

Mark Russo - Millennium Partners

And do you think the core at this point will all but cease to give out any additional permits.

Don L. Blankenship - Chairman, Chief Executive Officer and President

I don't think so, although, it's... the decisions are always so open to interpretation and vague and so forth, it's hard to tell, what the core will do and/or what the producers will do so. I mean when you read this decisions they are usually not addressing many of the things that the mining has to deal with, because they don't really know the mining and you got non-mining people running decision about mining permits. So I don't know really what to say about it's acceptance. I think we will all be glad when it gets behind the slate [ph] to share and bring some certainty. But I don't think at this stage it's having a big impact on the market or the customers' buying pattern to at least the delay enough [ph].

Mark Russo - Millennium Partners

That's great. I appreciate it. Thanks again.

Don L. Blankenship - Chairman, Chief Executive Officer and President

Thank you.

Operator

And there are no more questions. Now I will turn the program back to Mr. Hendriksen.

Roger Hendriksen - Director of Investor Relations

Okay. Thanks everybody for joining our call. We appreciate your questions, and your continuing interest in Massey Energy, and we will speak again soon. Thanks.

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