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.~ <br />-~' ~. <br />The Honorable Richard D. Lamm <br />April 15, 1981 ,. <br />'. <br />Page 9 <br />cash costs of mining during the next two years, nor would there have <br />been any available cash flow to replace much needed mining equipment <br />or service the high interest borrowings that are required in today's <br />money market. As a result, representatives of Kerr and UE agreed to <br />cancel the contract on April 13, 1981. <br />With the loss of the UE contract, I:err was forced to terminate 500,000 <br />tons of coal deliveries per year, or 698 of its previously contracted <br />shipping level of 720,000 tons per year. As of this writing, Kerr's <br />remaining three customers have been purchasing coal at a combined <br />annual rate of 235,000 tons. Two of these customers, Corn Products <br />of Pekin, Illinois, ("CPC") and the Department of Utilities of Fremont, <br />Nebraska, ("Fremont") purchase 221,000 tons per year. Both of these <br />customers have indicated that they will not accept the full amount <br />of the regulatory, reclamation and royalty increases associated with <br />mining the Federal Lease. If that proves to be the case, Kerr will <br />have no alternative but to terminate shipments to those customers and <br />then make further employee cutbacks so that the operation is scaled <br />back to nothing more than fulfilling existing reclamation obligations. <br />Since coal market prices in the Midwest are sufficiently below those <br />needed by Kerr, it is reasonable to expect that both CPC and Fremont <br />will seek alternative sources at lower prices. <br />At the present time, Kerr is left with: (1) A major and continuing <br />land reclamation obligation; (2) an unrecovered investment of more <br />than $800,000 in the Federal Lease; (3) used mining equipment that <br />must be replaced; (4) high mining costs stemming from regulatory, <br />reclamation and federal royalty impacts; and (5) a market that is not <br />prepared to accept coal at prices that will provide some reasonable <br />margin of profit. In spite of this "gloomy" picture, we at Kerr <br />maintain some level of optimism and further, we are committed to <br />making some order out of chaos if we can accomplish the following: <br />1. Technical Revision to the Existing Mine Plan, Due to the ]:oss <br />of our most significant customer, our engineering staff is now working <br />night and day to determine whether we can redesign our mining and land <br />reclamation plan in an effort to reduce the presently anticipated costs <br />of operating the Federal Lease, <br />As soon as our revised mining and reclamation plan is complete, we <br />will be filing our applications for a Technical Revision with MI,RD and <br />the OSM and, as in the past, we will be requesting urgent treatment <br />for approval with the objective of arriving at a more cost-effective <br />mining and reclamation plan that is more compatible with today's soft <br />coal market. Since we will be facing an emergency situation, we will <br />.most assuredly be hearing the regulatory agencies reiterate their old <br />