Massey Energy Q4 2009 Earnings Call Transcript

123jump.com Staff
04 Mar, 2010
New York City

Revenues fell 23% to $583.9 million & net income fell 49% to $24.4 million or 28 cents a share. Produced tons sold totaled 7.8 million tons compared to 10.2 million in the last year. Average produced coal sales realization of $64.13 per ton was $1.44 per ton higher than in the 4th quarter of 2008.

Massey Energy Co. ((MEE))
Q4 2009 Earnings Call Transcript
February 3, 2010 11:00 a.m. ET

Executives

Roger Hendriksen - Director of Investor Relations
Don L. Blankenship - Chairman and Chief Executive Officer
Baxter F. Phillips - President
Eric B. Tolbert - Vice President and Chief Financial Officer

Analysts

Kuni Chen - Banc of America/Merrill Lynch
Michael Dudas - Jefferies & Company
Curtis Woodworth - Macquarie Capital, Inc.
Brett Levy - Jefferies & Company
Shneur Gershuni - UBS
John Bridges - JP Morgan
Meredith Bandy - BMO Capital Markets
Brian Singer - Goldman Sachs
David Katz - JP Morgan
David Lipschitz - CLSI Capital
Pearce Hammond - Simmons & Company International
Mitesh Thakkar - FBR Capital Markets
Garrett Nelson - Davenport & Company Llc
Justine Fisher - Goldman Sachs
Paul Forward - Stifel Nicolaus & Co., Inc.
Brian Yu - Citigroup

Presentation

Operator

Good morning. And welcome to the Massey Energy Company’s Fourth Quarter 2009 Earnings Conference Call. Today’s call contains copyrighted material. It may not be recorded or rebroadcast without Massey Energy Company’s expert permission. Your participation in call implies consent. Please disconnect if you do agree with these terms.

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

Roger Hendriksen

Thank you, Shannon. Good morning, everyone. Thanks for taking the time to participate in our conference call this morning. We appreciate your continuing interest in Massey Energy. As you know, we distributed our fourth quarter press release after market close last night. If by chance you have not seen it, 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 our Chairman and Chief Executive Officer, Don Blankenship; our President, Baxter Phillips; and Eric Tolbert, who is 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 they’re based on factual -- current factual information and certain assumptions which management currently believes to be 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 2008 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 object obligation to update them.

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

Baxter F. Phillips

Good morning. And thank you for joining us. As we reported, our financial results for revenue per ton and cost per ton were on target with the ranges implied by the guidance we provided at the end of the third quarter. Actually, for the full year, our cost per ton was slightly below the low-end of our cost guidance.

Throughout the year 2009, we were active in making coal reserve acquisitions. Favorable market conditions including opportunities from the bankruptcies of other coal companies allowed us to acquire synergistic properties at good value. After mining 38 million tons of reserves, we still concluded the year with a net increase of 72 million tons bringing our total reserve base to 2.4 billion tons at year end.

Turning your attention to safety, we are extremely proud of our accomplishments in improving the safety of our members in our operations during 2009. We completed the safest year in company history by achieving a non-fatal days lost, NFDL incident rate of 1.67 for the full year 2009. Our company’s previous best rate for a full year was 1.93 achieved in 2008.

Many of our operations worked the entire year without a single lost time accident. We continue to make significant investments of time, personnel and capital to ensure that our mines are as safe as they can be and achieving this record low rate is a reflection of that commitment.

I know many of our operation managers and safety development group members will be listening to this call and I congratulate them on our safety record in 2009 and challenge them to continue this trend in 2010.

Finally, we were pleased to conclude the year with another quarter of positive cash flow. For the full year, we were able to reduce net debt by $99 million, which we consider a significant accomplishment given the market conditions we faced all year.

For a detailed discussion on the financial results of the fourth quarter and the year, I’ll turn the call over to Eric.

Eric B. Tolbert

Thank you, Baxter. For the fourth quarter of 2009, we reported net income of $24.4 million or $0.28 per diluted share, compared to net income of $47.7 million or $0.56 per diluted share in the fourth quarter of 2008.

Produced tons sold totaled 7.8 million tons in the fourth quarter of this year, compared to 10.2 million in the fourth quarter of 2008. Our plan was challenged compared to fourth quarter of 2008 as a result of the weak economy and depressed thermal coal demand. Winter weather conditions, which impacted rail service, port operations and power service, affected our ability to meet our expected shipment volumes.

Our average produced coal sales realization of $64.13 per ton in the fourth quarter was $1.44 per ton higher than in the fourth quarter of 2008. This was driven mostly by price increases for utility and industrial coal and a relative increase in met coal in the proportional product mix.

Average cash costs per ton for the fourth quarter of 2009, was $49.87 per ton, compared to $48.27 per ton in the fourth quarter of 2008. These figures both exclude SG&A costs.

Labor costs, equipment rental costs and the higher fixed cost absorption and lower total volume were the major drivers of the increase in the cash costs. These were partially offset by lower costs for mining supplies, including diesel fuel and equipment repairs.

As the CFO, I’m always pleased when we can increase our cash and reduce our debt. In the fourth quarter we did both. Net debt declined by $30.3 million in the quarter. For the full year, we increased our cash balance by nearly $60 million and reduced our net debt by $98.9 million.

In addition, as we mentioned in the press release, we also retired the remaining $21.9 million of our 6.625% senior’s notes due in November 2010. We did this subsequent to the end of the quarter.

As of December 31, 2009, we had $98.4 million borrowing capacity under our asset backed credit facility. Our total debt at December 31, 2009 was $1.319 billion with total debt-to-book capitalization ratio of 51.2% and total net debt-to-book capitalization ratio of 29.3%.

To wrap up my discussion, let me quickly just go over our revised guidance for 2010 and 2011. For the full year of 2010, we have not changed our outlook range for produced coal shipments. We are still expecting a range of 37 to 41 million tons.

Our full year estimate for average price realization per ton has increased to the range of $67 to $70 per ton. Our expectations for cash costs per ton have increased slightly to a range of $49 to $52 per ton for the full year excluding SG&A.

We are now planning for capital spending of approximately $280 million in 2010. This figure includes the previously announced CapEx for the Rowland property and approximately $70 million for the reconstruction of the Bandmill plant and related infrastructure. The previous CapEx guidance range we gave you was $100 to $200 million excluding the Bandmill reconstruction.

During the fourth quarter, we received an advance payment of approximately $15 million on the insurance claim from the Bandmill plant fire, which approximated the net book value of the plant at the time of the fire. Additional future insurance proceeds related to the loss of the Bandmill plant will be included in other income as they are received.

As for 2011, our guidance range for produced coal shipments remains unchanged at 37 to 44 million tons. We have increased our expectations for average price realization in 2011 to the range of $70 to $76 per ton based on our contracting activity and customer outlook. Our guidance for 2011 cash costs per ton is now a range of $47 to $53 per ton excluding SG&A and we expect CapEx in 2011 to be in the range of $200 to $300 million.

Now, let me turn the call over to Don.

Don L. Blankenship

Thank you. Before we take your questions, let me take a few minutes to share some thoughts. While U.S. industry and coal demand declines in Asia, the combination of population growth, the urgent pursuit of prosperity and the transfer of developed country technology and know how has created an industrial revolution reminiscent of the American industrial age. Coal is fueling over 70% of the energy that is needed to support this growth.

Chinese and Indian economies are growing on the back of coal-fired electric power and coal-fired steel production. In view of the changing markets, we are actively adapting our business strategy and our operations to optimize our opportunities to compete in growing world markets going forward.

We are placing an ever-increasing focus on Asian markets, following my trip to Asia last year, we have identified several potential customers in Asia and we are hopeful of signing contracts for the sale of met coal directly to Chinese companies.

The memorandums of understanding we have in place with Jindal Steel & Power and Bhushan are further examples of our strategy in action. These provide a framework through which we will jointly explore mining and production opportunities overseas.

The development of our high quality, low and mid-volatile metallurgical coal reserve at Rowland is also focused on increasing the competitiveness of our products in the seaborne met coal markets by giving us more low level product that is in high demand in Asia and around the world.

In addition to direct Asian sales, we will likely see increasing opportunities to sell our metallurgical coal into the Atlantic Basin. In the Atlantic Basin, existing blast furnaces are coming back on line. The demand for steel in Brazil increasing and new steel mills are under construction to meet the current and future demands driving increasing met coal demand in our natural market.

As for the domestic market, we remain concerned that the U.S. economy, our industry and our business are being increasingly impacted by policies and regulations that are frequently based on misinformation. We fear that the result will be a continuing accelerating transfer of industrial production and jobs from America to other countries.

Accordingly, we will continue to push for policies that promote the use of coal to fuel industrial growth in the United States. The coal that fueled America’s prosperity in the past and that fuels the current economic growth in the developing world can also be the key to America’s job recovery.

On a positive note, while U.S. steel production remains well below the average of recent years, it has rebounded from the lows of January 2009. Likewise, the domestic coal market is improving.

For all these reasons, we have increased our metallurgical coal sales outlook to a range of 10 to 12 million tons in 2010 and we have begun expanding our metallurgical coal production.

In our last call, we said we had approximately 12 million tons of met coal production capacity. The sections we added in the fourth quarter plus the sections being added in the first quarter represent approximately 1.5 million tons of additional annual met coal production coming online, bringing us closer to full capacity utilization. These new mines should be at capacity production prior to summer vacation.

Bringing the Bandmill plant back online later this year will give us an additional annualized capacity of approximately 1 million metallurgical tons versus 2010. The development of the Rowland property will add up to 1 million tons of annual capacity of high-quality metallurgical coal in 2011. A total of approximately two million tons will be added when the project is completed in the late 2012 timeframe.

All totaled, our annual metallurgical coal production capacity is expected to be approximately 15 million tons by the end of 2012. We currently have contracts and commitments for approximately 10 million tons of met coal in 2010, 6 million tons are sold priced at an average price of approximately $95 per ton, 4 million tons remain unpriced. We believe we have some upside opportunity on the unpriced tons as well as on our unsold capacity as we push for 12 million tons.

The extreme cold weather of the fourth quarter while troublesome for operations did drive utility stockpiles downward, with the lower industrial demand for electricity, however, we believe further reductions in production and utility stockpiles will be required to achieve a sustainable supply and demand balance. The likelihood is that government constrained production and not increased demand will ultimately drive significantly improved coal prices.

We continue to believe domestic thermal coal demand will remain soft for the next several quarters. We have approximately 28 million tons of utility and industrial coal sold under contract for 2010 with confirmed pricing and approximately 1 million ton sold not yet priced.

There is some possibility that we could see resurgence in international demand for our thermal coal as both China and India are increasing their imports at significant rates. One source has estimated that India’s steam coal imports could double to 100 million tons in the next three to four years. This alone would absorb a significant portion of Australian and African export coal that might otherwise end up in the Atlantic Basin.

We are very enthusiastic about our opportunities going forward and we expect to continue generating significant amounts of cash. Our primary use of cash is most likely to be continued acquisitions of coal reserves and assets in Central Appalachia. We will also continue to analyze opportunities outside of Central Appalachia and possibly overseas with international partners where we believe that we can add shareholder value.

This concludes our prepared comments and we’d be happy now to take any questions that you may have.

Question-and-Answer Session

Operator

Thank you. In order to allow everyone an opportunity to ask a question, you request that you limit your initial inquiry to one question and a follow-up. If you would like to ask another question, please feel free to reenter the queue. If you do have a question or comments you may signal us by pressing star one on your telephone keypad at this time. Press star two to cancel. Once again, press star one on your telephone keypad if you would like to ask a question or make a comment or press star two to cancel. We will pause for just a moment to assemble the roster.

Our first question comes from Kuni Chen from Banc of America/Merrill Lynch.

Kuni Chen - Banc of America/Merrill Lynch

Hi. Good morning, everybody.

Don L. Blankenship

Good morning.

Kuni Chen - Banc of America/Merrill Lynch

I guess just first off, looks like you made some good progress on your 2011 commitments during the quarter. What are you seeing and hearing from your customers, are they more anxious to start to lock in supply for that year, if you could just talk about some of the dynamics going on in the thermal market?

Don L. Blankenship

The thermal market, we’ve not seen a lot of activity yet, in fact, there was some internal conversation here today. We expect that we’ll see quite a bit more activity for 2011 thermal coal in the second quarter. So far it’s been pretty quiet, I think everybody is waiting for the weather to settle down and get new projections.

Kuni Chen - Banc of America/Merrill Lynch

Okay. And then as a follow-up, just on the met coal side, of the 10 to 12 million tons for this year. How much of that would you consider crossover tons and then can you also remind us how much you’re targeting for export?

Don L. Blankenship

You know, targeting for export, we let it take care of itself but certainly most of the growth in ‘10 over ‘09 will probably be export, if not all. And I might ought to take that back and say half a million tons might be domestic and the rest of it, it will be mostly export increase.

On the, as far as how we see that market going forward, we see it being more of a change than being the Atlantic Basin. We see a lot more of it being in Asia as I said in the opening comments. So I think that’s where we’ll be headed.

On the crossover tons, it’s always hard to judge the crossover tons because a weak steam market plays a role as well as the hot met market. But I would say that in our numbers there’s probably almost 1 million crossover tons.

Kuni Chen - Banc of America/Merrill Lynch

Great. Thanks.

Don L. Blankenship

Thank you.

Operator

Thank you. Our next question comes from Michael Dudas from Jefferies & Company.

Michael Dudas - Jefferies & Company

Good morning, gentlemen.

Don L. Blankenship

Hi. How are you?

Baxter F. Phillips

Good morning, Mike.

Michael Dudas - Jefferies & Company

Well, thank you. First question, Don, like most all Central Appalachian or eastern coal producers there’s been big pressure downward on productivity. Given your mix of business over the next couple of years, the geology of your mines relative to competitors and the new cap, the capitalization and new capital you’re putting in.

How much expectation do you have internally of an improvement in productivity at Massey over the next two years and is that going to be -- will that drive the difference in shipments from low-end to high-end, your ability to get the productivity and the labor to ship that coal or is it more a function of the market, will they -- will the market want your coal for the price you want to sell it?

Don L. Blankenship

It’s a tough question and complex, but what I would say is there has been for some period of time now tremendous pressure on productivity throughout the Central Appalachian area due to both the environmental regs and the safety regs.

And what we think that does given the better than average mine ability of our coal is it spreads our cost advantage over time and that will continue to happen. It’s always hard to project whether the productivity will be going up at one rate or another or going down or be flat. But certainly Massey’s productivity and costs relative to its competition should necessarily be continually improving because of the large reserves that we have and the more favorable mining.

I think that on the met side, the demand for the product will drive price. On the steam side, I suspect that the regulations will be a major player in the price plus the fact that a lot of the steam coal that is in the market is on the forward curve from ‘08 and therefore, there’s a lot of coal that’s making a profit in 2010 that can’t make a profit in today’s market.

So you’ll see steam coal come off because of the costs versus price curve and you’ll see it come off because of the regulations and therefore, there will be a shortage of steam coal and an excessive demand for met coal.

Michael Dudas - Jefferies & Company

Do you think your labor force currently is in place to meet your internal targets over the next couple of years on a volume side? How does that play out?

Don L. Blankenship

Well, what’s happening, of course, is there’s beginning to be a significant spread in the cost of underground labor and the cost of surface labor and we’ve already responded here this year to the underground labor rates and needs and on the surface mines, we’ve held our rate constant this year.

So we realize that if the Asian met market is as strong as it appears it will be and the world met market and the blast furnaces keep coming back on the states, the deep mine labor is going to be under pressure and we’ve already made a preemptive move to retain our work force and attract whatever else we need.

And on the surface mine side, we’re still waiting to see what the EPA does as to whether the surface miners will be in demand or not and who knows what’s going to happen there. I do think they’ll have to release some permits but I figure the schedule will be slow or the pace will be slow.

Michael Dudas - Jefferies & Company

My follow-up question Don is, how do you -- there’s a lot of expectation of U.S. met coal shipments overseas from many of the, your competitors and yourselves. How do you think your partners in the rail and port logistics are set up to handle such a move? And is that, could that be a limiting factor in the response going forward?

Don L. Blankenship

I think it can be more out there in the ‘12, ‘13, ‘14 timeframe. There’s a lot of expansions going on in Asia that will hit in ‘14 and if you get to the point that it appears you could, your piers could be an issue. Of course, rail is always an issue. You know how we feel about the railroad.

They always cut back to something less than what we need and they’ve done that even now. So they get a 20% drop in demand, they drop their service 30%, so you’re always struggling with that end of it and I doubt that will change. But the piers could come under pressure in two or three years. We’ve made some moves in the last 60 days to extend some of our export capability and also to expand it.

Michael Dudas - Jefferies & Company

Thank you, Don.

Don L. Blankenship

Thank you.

Operator

Thank you. Our next question comes from Curt Woodworth from Macquarie Capital.

Curtis Woodworth - Macquarie Capital, Inc.

Yeah. Hi. Good morning.

Don L. Blankenship

Good morning.

Curtis Woodworth - Macquarie Capital, Inc.

Don, in terms of the 6 million tons of met that you’ve price for this year at 95 bucks. How much of that is domestic customers versus international customers?

Don L. Blankenship

I don’t know that we have that number off the top of our head, but I would say that it’s almost half and half as I think about it. Most of the unsold tons or a lot of the unpriced, unsold tons will be export tons because they’re on an April 1 year and most of the domestic tons are settled because they’re on a calendar year.

Curtis Woodworth - Macquarie Capital, Inc.

Okay. And can you comment on where you see the pricing right now for your high-vol product in the export markets and what is the strategy to ship more that product into Asia? Can you talk about some of the initiatives that you’re looking at right now? Thanks.

Don L. Blankenship

Well, we’re very active in Asia. In fact, Mark Clemens is in Asia today along with our head sales guy, Steve Sears. It seems like we’re spending more and more time there.

The market, on an FOBT basis for a high-vol coal is probably north of 150, it could be in the 160s if it’s a little bit better quality and of course, the mid vols and low vols are $20 to $40 higher than that depending on their quality.

Curtis Woodworth - Macquarie Capital, Inc.

Okay. Thank you.

Don L. Blankenship

Thank you.

Operator

Our next question comes from Brett Levy from Jefferies & Company.

Brett Levy - Jefferies & Company

Hi, guys. And you mentioned that obviously the focus of your M&A was going to be either international or Central App. Can you sort of talk about why not the Illinois Basin or something further west and then I had a follow-on question?

Don L. Blankenship

You know, the Illinois Basin is always a possibility. We’re not saying it’s not. It’s just that we don’t have anything currently that we see available that would meet our criteria whereas we know that there will be Central App properties struggling and would meet our criteria and internationally we know that’s where the volume is going to grow.

I mean, that’s, the world’s at about 7.5 billion tons of coal burn right now and about 900 million is U.S. So 6.6 billion is outside the U.S. and it may grow anywhere from 300 to 600 million tons a year, so it’s more or less where the theater is at, so to speak.

Brett Levy - Jefferies & Company

All right. And then in terms of the amount of met coal you’ve got priced forward and then your strategy. You know, where are you seeing prices for the -- if you wanted to lock in for the balance of 2010 or 2011. You can pick high-vol or low-vol, where do you see those prices and have they finally gotten to a point where you think you’ll lock in a lot more of your capacity?

Don L. Blankenship

Were you asking about steam or metallurgical coal?

Brett Levy - Jefferies & Company

Met coal.

Don L. Blankenship

Again, I always hate talking about met coal in a generic way because it’s -- the animals are so different even between low-vol and high-vol. But low-vol coals are in probably the 180 FOBT mine which means or level which means you’re probably in the 125, 135% at the mine depending on trembling rates and a whole host of other issues, maybe agent fees and all of that. High-vol, as I said earlier, can be $20 to $40 less depending on what quality it is.

Brett Levy - Jefferies & Company

Okay. And at that those levels, are you inclined towards taking a larger position for 2011 of locked in prices?

Don L. Blankenship

We probably are on the generic high-vol, on the (inaudible) type high vols, which are really 31 vol 107 reflectance low ash low sulfur coals with very good pressure numbers, we would want more than the typical high-vol number probably $10 to $15 more and we’re holding out for better numbers on those high qualities. On the generic high vols, we probably would take those numbers as they’re available.

Brett Levy - Jefferies & Company

The last question, in terms of like mining equipment moves and that kind of thing that relates to different quarters and that sort of thing, can you talk about 2010 and any one-time items that we should expect to make the numbers not even across the quarters?

Don L. Blankenship

Well, we hope to finish the Bandmill plant late third quarter. It’s always hard to predict something like that because, again, you’ve got regulators involved and getting everything lined out and moved in and built, so it’s hard to project it that close.

But we don’t have anything coming out of the Bandmill plant in our numbers and if you ask the people that are building it they expect to finish it September timeframe, but other than that not much unless some acquisition opportunity showed up.

Brett Levy - Jefferies & Company

Thanks very much.

Don L. Blankenship

Thank you.

Operator

Thank you. Our next question comes from Shneur Gershuni from UBS.

Shneur Gershuni - UBS

Hi, Don.

Don L. Blankenship

Hi.

Shneur Gershuni - UBS

Just wanted to kind of follow-up to some of your comments about acquisitions about deployments of capital, I think also a follow-up to the previous question. I was wondering if you could sort of expand a little bit in terms of where you would go in, are there any more capital opportunities to go underground on the met side or as an alternative, would you consider share buyback as an alternative to deploy some of the capital that you have on hand?

Don L. Blankenship

Well, I think share buybacks are a possibility. I do think, though, that we’ll find some better than share buyback opportunities given the volatility of the market and the hotness of the met market and the infrastructure and capability that we have in-house.

I think there will be -- there are other opportunities internally. They probably can’t be done in ‘10 maybe not even in ‘11, but we do have reserves that are underground metallurgical coal reserves that are in either exploratory stages or in conceptual design stages. It’s possible we would have another Rowland type opportunity or maybe not as large but similar and there are other properties that we have in our stable of reserves that could be developed.

We’re trying to find the ones that perhaps are more brown fill related or perhaps we think for some reason they can be developed quicker but of course, we’ve got a lot going on. We’re focused on Rowland and Bandmill at the current time.

Shneur Gershuni - UBS

I completely understand that. You gave some good commentary about the Asian markets and the demand and so forth. I was wondering if you could give us a little color about the European markets, if you pay attention to them, what you think of inventories there and whether you think there’s an opportunity for you to sell thermal coal there if things started to recover?

Don L. Blankenship

Well, I think there are inventories on the thermal coal side in Europe have been okay. They’re not under a lot of stress. But I do think that it’s very easy to see that Asia could, in the next year or two or even sooner depending on how well other people produce around the world, that they could, the Asians could suck up all the South African coal and significant part of the Indonesian coal. And therefore, the natural source for coal for Europe would be Colombia and the U.S. and that would drive thermal coal prices fairly quickly.

Again, when you’re talking 140 million tons of Central App thermal coal and you’re talking about a worldwide market in the billions, it doesn’t take much disruption or much change to cause that $100 some millions price to double. We saw that twice in the last decade in 2005 and 2008, I think.

Shneur Gershuni - UBS

Do you think we’re close to seeing the European market and adding a little grease to the fire?

Don L. Blankenship

I think that it depends on how you define close. I think it could happen late this year, early next year, you’ve got so many factors on the exchange rates and so many factors on the economy in Europe and so forth, but I think that you could definitely paint that picture if you were inclined to.

Shneur Gershuni - UBS

Perfect. Thank you very much.

Don L. Blankenship

Thank you.

Operator

Thank you. Our next question comes from John Bridges from JP Morgan.

John Bridges - JP Morgan

Good morning, Don, Baxter.

Don L. Blankenship

Good morning, John.

John Bridges - JP Morgan

Good morning. The bad debt provision was, you’ve not had anything like that that I can remember. Is that and we were being led to believe that the economy was picking up. Is there anything we can conclude from that? Can you give us any indication as to where it’s coming from?

Don L. Blankenship

Well, it’s a one-off situation and it’s not related to coal transactions, it’s related to some other income, which is the reason it was categorized that way.

John Bridges - JP Morgan

Okay. And then your derivative, coal derivative trading, I think, is that realized or is that just a mark-to-market?

Don L. Blankenship

It’s realized as an account that wanted to buy out of the physical contract rather than take delivery.

John Bridges - JP Morgan

Okay. That’s helpful.

Don L. Blankenship

Eric might…

Eric B. Tolbert

Well, it -- John, there remains on our books at the end of the year about a $31.3 million derivative asset that we’ll actually realize the cash on that through 2010.

John Bridges - JP Morgan

Okay. But the 33 that you report is -- 31 of that 33 is only going to be realized next year?

Eric B. Tolbert

Yes.

John Bridges - JP Morgan

Okay. Okay.

Eric B. Tolbert

In terms of cash wise.

Don L. Blankenship

Right.

Eric B. Tolbert

Yes.

Don L. Blankenship

In terms of cash.

John Bridges - JP Morgan

Okay. And maybe finally, the increased coking coal that you report, what would be the mix of the coking coal that you report now, with respect to high-vol, PCI, et cetera level?

Don L. Blankenship

Well, there’s very little PCI in their numbers. I guess, I would say that there’s about 1 million to 1.3 million that’s mid-vol and straight up mid-vol. And then we’re using some about 700,000 tons of low-vol to cause another 2 million tons of mid-vol.

So we’re blending about 1.3 million of high-vol with 700,000 of low vol and making a mid-vol for some accounts, so that makes about 3.2 that are being shipped as mid vols and then the other 8 to 9 million would be high vols.

John Bridges - JP Morgan

Okay. That’s great. Many thanks, guys. Good luck.

Don L. Blankenship

Thank you.

Eric B. Tolbert

Thank you.

Operator

Thank you. Our next question comes from Meredith Bandy from BMO Capital Markets.

Meredith Bandy - BMO Capital Markets

Hi. Good morning. I was just wondering of the long-term capacity -- long-term, what’s your export capacity and how down expect that to be maybe the same or different this year relative to your long-term average?

Don L. Blankenship

The word capacity has been in discussion around here, like when you’re talking about our ability to export the coal if we were producing it and had the market for it, by terming them transporting capacity?

Meredith Bandy - BMO Capital Markets

Right.

Don L. Blankenship

I would say that that number is pretty large. It’s probably 12 million tons, keeping in mind that we can export through the Norfolk Southern, through the CSX, north across the lakes or out of New Orleans, so it’s probably bigger than that. But it’s certainly not an issue at this time.

Meredith Bandy - BMO Capital Markets

Okay. So the mine is really where the bottleneck is, not the export capacity, would you say that’s true or?

Don L. Blankenship

I’d rather say the mine is where the opportunity to increase the volume is.

Meredith Bandy - BMO Capital Markets

We can do that. That’s good. Okay. And then, so what percent of your 2010 do you think is probably going to be exported?

Don L. Blankenship

You got the number there, if you think, Eric?

Eric B. Tolbert

Well, in 2009, we did just shy of about 5 million export, 2008 we did about 6 million export including Canada.

Meredith Bandy - BMO Capital Markets

Okay.

Eric B. Tolbert

So I would expect that in 2010 it will be at the 2008 or higher level.

Don L. Blankenship

Most of the growth will be export, as I said earlier, so you’re probably going to get close to two-thirds.

Meredith Bandy - BMO Capital Markets

Okay.

Don L. Blankenship

Yes.

Meredith Bandy - BMO Capital Markets

Okay. That sounds great. And if I could, also, just ask you if you had any thoughts on the Obama administration’s budget? I guess there’s a lot of talk about the cap and trade not being included in the budget. But then there were some other tax changes for coal producers and how likely do you think that’s going to affect Massey, how would it affect, if any?

Don L. Blankenship

Well, obviously the budget is voluminous and complicated and everybody is still trying to digest it. It does have some language in it that’s bother some on depletion and so forth and it has some, it looks like it has some imported tax on oil, so it’s, to guess what’s going to get through Congress, we have no idea. But obviously there are tax increases in there on a lot of energy and other industries.

Meredith Bandy - BMO Capital Markets

Okay. Thank you.

Don L. Blankenship

Thank you.

Operator

Thank you. Our next question is coming from Brian Singer from Goldman Sachs.

Brian Singer - Goldman Sachs

Thank you. Good morning.

Don L. Blankenship

Good morning, Brian.

Brian Singer - Goldman Sachs

You mentioned the 1 million tons of crossover, crossover tonnage that’s part of the 10 to 12 million in met. Has that been priced or is that part of the unpriced -- unpriced, uncontracted tons?

Don L. Blankenship

Again, it’s a tough question because it’s pretty much fundable. We have price tons that are met coal that is, soft coal in our numbers but because it’s fundable, it’s a hard question to answer.

I guess if I was thinking through the specific business and the specific mines and where it’s going to go, I would say that about 500,000 tons of it is probably price because I can remember a couple of deals that relate to the soft quality coal.

Brian Singer - Goldman Sachs

Great. Thank you on that. And then bigger picture, given your less than positive view on U.S. industrial growth at least as it stands now. Does it make sense for Massey to become more vertically integrated in terms of owning ports and more of the transport side, if you see the export markets being your major source of additional growth?

Don L. Blankenship

I think it could, Massey built two ports in the early ‘80s. But I think the first thing for us to do is make sure we’ve got good long-term relationships and contracts and understanding of the trembling rates and so forth and then the next phase might be to do that but it will be a little while yet.

But I think there’s ample capacity at the terminals that you can secure that prevents you from spending a large amount of capital and placing a large bit in that direction. But certainly over the next couple of three years, that’s a real possibility.

Brian Singer - Goldman Sachs

Thank you. If I could ask one follow-up on that, you mentioned earlier, highlighted earlier the acquisitions that you’ve made especially here in the U.S., bankrupt assets, et cetera.

Is that opportunity still there, have valuations and financial positions improved whereby much more of your focus will end up being on the export markets for acquisitions or international markets for acquisitions?

Don L. Blankenship

I think the opportunities domestically are still there because there is still a lot of production that’s going into inflated prices at inflated costs. So there will be more opportunity, I think, there as some of the high prices roll off.

And all we got to do internationally is we’ve just got to make sure that we choose the right partner and the right location and the demand for the skills is going to be there. The demand for the coal is so large that the demand for the skills and the capability will be available.

Brian Singer - Goldman Sachs

Thank you.

Don L. Blankenship

Thank you.

Operator

Thank you. Our next question is coming from Dave Katz from JP Morgan.

David Katz - JP Morgan

Hi. Using a mid-point of your previous and your current 2010 capital expenditure, it looks like the range has increased by about $130 million. I understand a portion of that represents the Bandmill expenditure. I was just hoping you could break down into a little more detail than that?

Don L. Blankenship

A portion of it is Bandmill and a portion of it is the Rowland, that’s probably 70%, 80% of the whole increase. The rest of it, of course, is the adjustment that we’ve made because we’ve added some surface mines and added some deep mines and reaching for this 12 million tons.

So it’s just, the $30 million is sort of the reality of getting it more detailed and we still think there’s opportunities to negotiate better numbers but most of it is Bandmill and Rowland.

David Katz - JP Morgan

And you had said Bandmill was $70 million, did I hear that correctly?

Don L. Blankenship

I think it’s officially in there at $67 or something.

Eric B. Tolbert

Yes, 67…

Don L. Blankenship

Yeah. Eric. Yeah.

Eric B. Tolbert

Our infrastructure of the project including the plant and the belting and everything else that goes with it.

Don L. Blankenship

Yeah. What we’re doing there is taking the opportunity to put back a better plant than we had. The one we lost was probably 40-year old technology. So the one we’ll have this time which sits in the middle of 100 tons of reserves or so will be state-of-the-art, so we’re building back a very nice plant.

David Katz - JP Morgan

Okay. Then you guys had a big drop in your accounts receivable balances in the last quarter. I was hoping you could talk about that?

Don L. Blankenship

Well, volumes were down was the biggest driver.

Eric B. Tolbert

Right.

Don L. Blankenship

Other…

Eric B. Tolbert

Other than just favorable cash collections at the end of the year from our customers and there wasn’t anything specific in those numbers. Actually, we did have, as I mentioned on the call, $15 million worth of insurance proceeds that were received that in the prior quarter was in the receivable balance. So you had a couple of things in there but it was primarily due to December volumes and overall good collections.

Don L. Blankenship

Yeah. And there may be a small amount in there where we’ve tightened up days or insisted on payments with customers that might be struggling but nothing huge.

David Katz - JP Morgan

Okay. Thank you.

Operator

Thank you. Our next question comes from David Lipschitz from CLSI.

David Lipschitz - CLSI Capital

Good morning, everyone.

Don L. Blankenship

Good morning, David.

David Lipschitz - CLSI Capital

Quick question of your coal production in the quarter, I know you missed some shipments. Were those all steam or were they met or what were they?

Don L. Blankenship

Well, I think, Eric may have some numbers there. But about 60% of the inventory growth was probably met coal even though it only represents 20% of the volume or something like that.

The biggest problem we had, we had a much larger inventory at the peers than we would like to have due to the delays on the weather and then we had -- also had a lot of coal at our met mines on route 3. So I think we had about a 500,000-ton increase and about 60% was met coal.

Eric B. Tolbert

Yeah. That’s about right, Don.

Baxter F. Phillips

We had some vessel loadings that carried all the way into the end of December into January.

Eric B. Tolbert

Yeah.

David Lipschitz - CLSI Capital

Okay. And, also, just in terms of where are you now in terms of your run rate for met coal? Are you pretty much running at a, excuse me, 10 million-ton run rate right now, you would say or higher?

Don L. Blankenship

Well, the last three or four weeks we’ve been struggling with running anything. But we are running, we are set up to run and budgeted to run and that’s the pace we expect to be at before we add these mines that are coming on. So, we’re probably at 10 million going to 11.5 or something shortly. But we are, we’ve had very tough weather as you know in January and we will start catching up here I hope.

David Lipschitz - CLSI Capital

And then just finally, in terms of the 15 million-ton number you talked about? Is that included in the Appalachian fuels production and things like that?

Don L. Blankenship

Yes. It includes all the metallurgical coal that we think we would market as metallurgical coal, extremely hard market, we used to sell 160%, 170% softer coal as met coal, we haven’t been able to do that for years. But we of course note that console has been doing some of that.

So there is always, it just depends on where the market goes in ‘10 and somewhat in ‘11. We don’t have that much opportunity but if people are going to coke 2% sulfur coal, we can produce more of that too.

David Lipschitz - CLSI Capital

Okay. Thank you.

Don L. Blankenship

Thank you.

Operator

Thank you. Our next question is coming from Pearce Hammond from Simmons & Company.

Pearce Hammond - Simmons & Company International

Thank you. Don if BHP is successful in giving a quarterly met coal settle. How will that impact the way in which you settle with customers, will you still try to do an annual settlement or will you migrate to quarterly?

Don L. Blankenship

Well, I mean, BHP is big in the market, so they have a lot of influence on that. We’re not in favor of quarterly pricing because we think it makes it very hard in a capital intensive business to plan and so forth.

But certainly, we’re part of the market and we’re a significant part of the market but the Australians moving into Asia are much, they’re the dogs so to speak. So we’ll follow that. I think if you’re going to do quarterly pricing, it would be good to have some collars on it because you don’t want to go to $300 and then go to $80 and back to $300 only to average $200 and some.

So we’re not real excited about it purely open but we will do it if it becomes the norm. We, in our conversation with our customers, they’re not excited about it either.

Pearce Hammond - Simmons & Company International

Do you think you can get some market share gain for customers that don’t want to sign the quarterly agreement?

Don L. Blankenship

I think we’re going to be able to sell all the coal that we can produce metallurgical, so I probably couldn’t attribute more market share to that type of approach in ‘10 or ‘11, but certainly as the years go forward, if I think we could. I mean, I think, if we were trying to get to 18 million tons or something that the customers prefer more stability in the price so they can work off of that.

Pearce Hammond - Simmons & Company International

Great. And then my final question is what is your expectation or what are you hearing on utilities switching away from Central App coal to Illinois Basin coal?

Don L. Blankenship

I mean, there’s been a lot of that. I think the Illinois Basin coal, that it’s true what some say, it’s built a wall on moving the PRB coal to the east because the Illinois Basin coal is as good a cost Btu wise or kilowatt hour as the Powder River Basin. Now they have discovers the advantage is sort of gone.

So I think Illinois coal will be a factor in that way and it will also, the ones that are brought on scrubbers will be able to use Illinois coal instead of Central App coal. But most of that has already happened.

Pearce Hammond - Simmons & Company International

If you did see some big switchovers, would that free up some coal to move to the met market that was a thermal coal?

Don L. Blankenship

I think the met coal prices trump the steam anyway. So I don’t know if it’s a matter of freeing up more coal. We, a lot of our coal does not have metallurgical quality. Generally speaking, the coal you produced in East Kentucky, for example, has very little metallurgical quality and it has no opportunity to go to the met market and that’s true of some of our other coals and that’s what’s determining where it goes to as opposed to free enough steam coal because somebody displaces that volume.

Pearce Hammond - Simmons & Company International

Thank you.

Don L. Blankenship

Thank you.

Operator

Thank you. Our next question comes from Mitesh Thakkar from FBR Capital Markets.

Mitesh Thakkar - FBR Capital Markets

Yeah. Hi, guys.

Don]

Hi.

Mitesh Thakkar - FBR Capital Markets

Real quick question on, your inventory on hand. How much coal inventory do you have on hand and how much of that is steam and how much is met?

Don L. Blankenship

We have way too much on hand. Eric, you want to touch…

Eric B. Tolbert

Yes.

Don L. Blankenship

I think, I saw an inventory number about $180 million.

Eric B. Tolbert

Yes. Overall in terms of at our mines, at our customers, on consignment, our peers and so on, we have, I think the number is right at 4 million tons and we have a report also that we prepare daily that has coal inventory to load at our groups and so on of about 2 million tons.

So we have a fairly substantial amount, I don’t think I have an exact number breakdown between met and steam, but I’d probably say just offhand it might be 30% met and the rest steam.

Mitesh Thakkar - FBR Capital Markets

Okay. And just on the export market which we talked about. Can you, do you have a view on how much exports in terms of steam and met would U.S. have growth in 2010 overall?

Don L. Blankenship

How much export met growth 2010 over 2009?

Mitesh Thakkar - FBR Capital Markets

Yeah.

Don L. Blankenship

I don’t think anybody knows yet, I think it would be a guess because we don’t know how much China is going to do and all that. But, if I had to guess, I’d probably guess 8 or 10 million tons.

Mitesh Thakkar - FBR Capital Markets

8 to 10 million tons.

Don L. Blankenship

Maybe more, it’s, I haven’t really thought through that number because you’ve got, obviously you’ve got some Pittsburgh 8 Coal moving export met as well. So it’s not Central App, but the numbers are very meaningful as a percent of Central App met coal production.

Mitesh Thakkar - FBR Capital Markets

Okay. And just a follow-up on the -- on your export number. How much of that is sold to, say, India or your joint venture partner?

Don L. Blankenship

I don’t know if we want to get that specific or not. If it’s all right, I will probably skip giving specific numbers on specific customers.

Mitesh Thakkar - FBR Capital Markets

No problem. Just totally about -- totally to India as a country. Can you specify that?

Don L. Blankenship

I would say that that number will approach in 2010, 2 million tons.

Mitesh Thakkar - FBR Capital Markets

2 million tons. Sounds good. Thank you. Thank you very much.

Operator

Thank you. Our next question comes from Garrett Nelson from Davenport & Company.

Garrett Nelson - Davenport & Company Llc

Good morning, everyone.

Don L. Blankenship

Good morning, Garrett.

Garrett Nelson - Davenport & Company Llc

In late ‘07, early ‘08, prior to the global economic downturn, you announced a major organic expansion plan. Would you consider resuming that expansion plan at least to some extent if economic and market conditions are appropriate?

Don L. Blankenship

I think the answer would be, yes. That’s the one reason we don’t like quarterly pricing. We believe strongly in the generic things out there, but to the extent that we can either have minority investors in a project or long-term contracts and so forth, we would.

As you know, we struggled mainly with the labor shortage that came out of that effort and we spent a lot of that capital only to have the volumes get mitigated by the productivity that we talked about earlier. But, and we’re probably the only coal company in Central App that could do that in a big way, so we would do it under the right circumstances.

Garrett Nelson - Davenport & Company Llc

Okay. I guess, what I’m asking is, what’s your growth strategy going forward? Is it more organic or are you continuing to grow through smaller bolt-on acquisitions?

Don L. Blankenship

It’s always hard to answer because it’s opportunistic in a situation if somebody comes along and they offer us a piece of property that’s in bankruptcy for $0.20 on the dollar that already has a permitted impoundment and prep plant and the high price of business, I mean, we’d certainly take it. We just don’t know how many of those opportunities will surface.

So it’s hard to say we’re going to do more of one or more of the other. But we are continuing to do geological work, permitting work, surface control efforts and looking at properties that are either in bankruptcy or in trouble or that are brought to us by others, so we’re doing all of that but I don’t know that I can forecast which we’ll do more of.

Garrett Nelson - Davenport & Company Llc

Sure. All right. Thanks a lot.

Don L. Blankenship

Thank you.

Operator

Thank you. Our next question comes from Justine Fisher from Goldman Sachs.

Justine Fisher - Goldman Sachs

Good morning.

Don L. Blankenship

Good morning.

Eric B. Tolbert

Good morning, Justine.

Justine Fisher - Goldman Sachs

So the first question I had was it looked as though, it seemed as though when you said in the beginning that you were -- that you built some inventories because you had trouble with the weather, et cetera. I thought it was going to be on the steam side because the shipments were so low. But you guys indicated that it was actually more on the met side that you built more inventory?

So with 1.9 million tons of met sales, it seems as if you actually produced 2.3 or 2.4 million tons of met, but that implies on the steam side you guys didn’t produce more than 5.5 million tons or even 5 million tons. So is that the run rate for steam that we should look for in 2010 because I would have thought we would have seen the catch up in sales on the steam side in the first quarter if that was what you couldn’t ship.

Don L. Blankenship

Okay. Let me see if I can unwind that where I can figure it out. But on the steam side, you’re right that we didn’t produce a lot of steam coal in the fourth quarter. If you remember, we took several surface mines down and so forth, and we spoke earlier about this derivative or buy out thing which took out some volume. And we are running as you -- and you described properly the met production and the met inventory and where we are on the met side.

So we’ve had a lot of thermal customers wanting deferrals and wanting delays and we’ve had probably more trouble with private cars getting back from domestic thermal customers. So your description of it is accurate, I believe, except that we will turn the steam tons back on as they are needed or as the cars start to cycle.

Justine Fisher - Goldman Sachs

So but are you guys thinking still kind of mid 5 million tons a quarter for steam next year?

Don L. Blankenship

Well, we’re thinking more like 6, but we’ve got to cycle the cars and not have the deferrals that we had in the second half of ‘09.

Justine Fisher - Goldman Sachs

Okay. And then the second question is regarding your cost guidance. So it seems as though the average cost for ‘09, which was, I think, $50 -- between $50.40 and $50.50, that still falls within your guidance range for 2010. But I would have thought that with a much higher percentage of met in the mix the costs would go up because I know those are higher cost mines.

So is this because of the productivity initiative that you guys spoke about in response to I think it was the first question on the call or what’s keeping the overall costs down even though the met mix is much higher?

Don L. Blankenship

Well, there’s two or three things, a couple of which aren’t good. We had a buy forward on diesel fuel in ‘09 that hurt us quite a bit. We did well on our diesel hedging in ‘07 and ‘08, but we didn’t do so well in ‘09, so we’re going to get a break on diesel fuel and some other things.

In addition, as I think, I described in the last call, we sort of got hit in the side with all these new regs and tracking devices and shelters and seals and all of that. So we lost a lot of productive days in 2009 because of the situation that we were in trying to get adjusted. We don’t expect as much of that this year.

And, of course, at the end of the day, it’s just when you build up the numbers from the bottom like we do, it’s the number that comes out of the computer with all the assumptions that are driven into it and it seems to make sense to us.

Justine Fisher - Goldman Sachs

And then finally, open market repurchases of your 6.875% funds, I know you bought some debt during the quarter. Is that something you would look to do on an incremental basis in 2010?

Don L. Blankenship

Opportunistically we would, I don’t think we’re going to be out there looking for people to sell us bonds, but people that call us occasionally we might do some of that. The problem we’ve got, of course, which you all are well aware of is that we have a lot of cash that doesn’t draw a lot of interest income and yet we like having a lot of cash because it causes us to be opportunistic and we’re still not 100% sure where the financial markets are. So it’s sort of a tradeoff, but occasionally when someone brings debt to us and it’s properly discounted we seriously consider it.

Justine Fisher - Goldman Sachs

Okay. Thanks a lot. I appreciate it.

Don L. Blankenship

Thank you.

Eric B. Tolbert

Thank you, Justine.

Operator

Thank you. Our next question comes from Paul Forward from Stifel Nicolaus.

Paul Forward - Stifel Nicolaus & Co., Inc.

Good morning.

Don L. Blankenship

Hi, Paul.

Eric B. Tolbert

Hi, Paul.

Paul Forward - Stifel Nicolaus & Co., Inc.

On the first quarter, it sounds like you’re continuing to have some issues, everybody is having issues with the coal deliveries. You have 7.8 million-ton level that you actually shipped in the fourth quarter and your guidance, if you take the mid-point, is about 9.7 million-tons per quarter in 2010 for coal shipments.

I was just wondering if you’re seeing, can you confidently say that you’ll get sequential improvement on volumes in the first quarter or is that something that’s really going to be second through fourth quarters when you’ll be able to hit that rate of 10 million-tons a quarter or so?

Don L. Blankenship

Well, it’s interesting, as you know, we’ve had a lot of issues, not so much on our end in January as cars with frozen coal in them and all that. But we’ve had more coal leave the mines in the fourth quarter than showed up on the front page because we built inventories on the peers, we built inventories in consignment and in Canada, we built inventory in other places, so we’ve produced more coal and to some extent that will come back.

We’ll have less consignment inventory at the end of the first quarter than the first and hopefully we’ll have less coal on the ground at the peers. But it’s, you can get flopped around 700,000-tons just on a few boats and off Norfolk Southern CXS or New Orleans, so it’s a hard number to predict with that range of accuracy.

Paul Forward - Stifel Nicolaus & Co., Inc.

Would you anticipate, though, that, I mean, the first quarter is the weakest quarter of the year on volumes or is it just too difficult to predict later on what might happen?

Don L. Blankenship

Well, I would say the first quarter and the fourth quarter will be the two weakest quarters and the second and third will be the two stronger quarters. But we can’t really judge that whether the first or the fourth will be the roughest.

That vacation around Thanksgiving and Christmas and the weather and all that makes the fourth quarter tough. So but, it’s just hard to judge it that fine. But we think we’re going to be okay in the first quarter with the guidance that’s out there.

Paul Forward - Stifel Nicolaus & Co., Inc.

All right. And maybe lastly, you had mentioned crossover business earlier. Can you give us a rough figure of what level in 2010 steam coal would have to rise to in order to, I guess, keep that coal in the steam markets and not have what’s available just bleeding off into the high-vol met markets?

Don L. Blankenship

It probably takes mid-70s, for it to -- if it is crossover coal.

Paul Forward - Stifel Nicolaus & Co., Inc.

All right. Thanks very much.

Don L. Blankenship

Thank you.

Operator

Thank you. Our next question comes from Brian Yu from Citigroup.

Brian Yu - Citigroup

Great. Thank you. Don, I think early you mentioned that for 2010 your price met is $95. Do you have similar figures for ‘11 and ‘12 or maybe I just missed it?

Don L. Blankenship

We haven’t got a lot of met coal sold in ‘11 and ‘12, so, I don’t know that the number would be meaningful. Eric is looking to see, but there’s not a lot of sold and priced ‘11 and ‘12 met tons.

Brian Yu - Citigroup

I think you had at 1.6 million priced and sold in ‘11 and I was trying to back into a thermal number and that would help us?

Don L. Blankenship

It looks like the 1.6 million tons you’re talking about is about $110.

Brian Yu - Citigroup

Okay. And then for ‘12, is that a number that you have?

Don L. Blankenship

Yeah. I don’t think that we’ve got much coal at all sold in ‘12, a few hundred thousand tons and it’s probably $180, $190, but it’s not a lot of it.

Brian Yu - Citigroup

Okay.

Don L. Blankenship

(Inaudible) and also, yeah.

Brian Yu - Citigroup

Got it. And then with the crossover tons, I believe one of your comparisons said that’s pretty much marketing and there’s no incremental costs, would that hold true for your crossover tons too?

Don L. Blankenship

The only additional cost you have on your crossover ton is you may lose yield. A lot of times you’re shipping, by way of an example, an 8 ash coal that’s yielding at 44% recovery and if you cut it to a 7 ash coal, it may yield 40% recovery, so you may lose $7 in coal to refuse and then, of course, your sales related factor. But that would be, I don’t know, not maybe the average but that’s the only thing that happens to you is you cut gravity to get ash down to make it metallurgical and then you lose yield.

Brian Yu - Citigroup

Right. Thank you.

Don L. Blankenship

Thank you.

Operator

Thank you. Our next question is a follow-up from John Bridges from JP Morgan.

Don L. Blankenship

Hi, John.

John Bridges - JP Morgan

Hi, Don. Yeah. I just wanted to follow up on your comment on the console sale of the high ash coal. I’m trying to come to terms with what this means for the steel industry. As you say, this is a long time since this has been done. I just wondered what your thoughts were on the implications?

Don L. Blankenship

Yeah. Actually, more surprised by the sulfur than the ash, but the, I guess you would have to say that you think it indicates an acute shortage of high quality met coal out of Australia or Central App when you see those coals because the, it all depends on what kind of steel you’re ultimately trying to make.

Sulfur is an impurity that if not removed either in the mining process or through the limestones and other ways, at either the coke oven or steel mill ends up making it lesser quality steel, which is highly a lot more technical than I can be. But it just indicates that someone’s able to use it and that there’s a shortage of quality metallurgical coal.

John Bridges - JP Morgan

Yeah. I’m just thinking that surely there must be a cost for getting that sulfur out of the melt and perhaps these levels than it wouldn’t be worth while for the steel makers to investigate that? Does that make sense?

Don L. Blankenship

It can, it depends on what they they’re making. You can read books that tell you that the Titanic sank because of high sulfur coal that made the metal weak. It depends on what you’re making. I mean, if you’re making something that will build a 140 floor building or all of that is a factor and I don’t know where these coals are going or what they’re being used for.

John Bridges - JP Morgan

Thanks for the warning. I’ll stay off the cruise ships.

Don L. Blankenship

Thank you very much.

Operator

Thank you. Once again, if you do have a question, please press star one at this time. Our next question is a follow-up from Mitesh Thakkar from FBR Capital Markets.

Mitesh Thakkar - FBR Capital Markets

Hi, guys. Just wanted to check with you. How much of the committed met ton is not priced in 2010?

Don L. Blankenship

Eric is going to go ahead and look rather than guess but a lot.

Eric B. Tolbert

Yeah. Of the committed that’s essentially unpriced we have about 4.8 million met committed unpriced.

Mitesh Thakkar - FBR Capital Markets

Yeah. And how much of that is met?

Eric B. Tolbert

That is the met.

Don L. Blankenship

All of it.

Mitesh Thakkar - FBR Capital Markets

All met. Okay. All right.

Don L. Blankens