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most of the project area. It shows a slight eastward thinning, probably due to the <br />decrease in coarse clastics and the increase in compactable fine sediments. <br />LEWIS SHALE <br />The Lewis Shale conformably overlies the Cliff House sandstone and consists <br />of dark gray to black homogeneous clay shale with scattered concretions of dense <br />argillaceous limestone and with a few thin seams of bentonite in the upper part. The <br />formation is reported to be about 1,825 feet thick with the basal contact being very <br />sharp with black flaky clay-shale resting on gray mudstone or sandy shale of the <br />Cliff House sandstone. <br />The geologic structure of the Hesperus area is characterized by gentle <br />southward dips ranging from seven to two degrees away from the structurally high <br />La Plata Mountains to the north. It is probable that a small amount of faulting is <br />present in the vicinity of the town of Hesperus. A fault with a displacement of 33 <br />feet has been reported in the Monarch mine about one mile northeast of Hesperus. <br />Results of exploration drilling conducted in the area have not revealed significant <br />faulting. <br />GEOLOGY DESCRIPTION UNDERGROUND MINING <br />SURFACE GEOLOGY <br />Only the upper two members of the Mesa Verde Group are exposed on the <br />property. The Mine is located on the south side of Hay Gulch with entries driven <br />into the coal bearing Menefee Formation. The Cliff House Formation caps the higher <br />ground on both sides of the gulch. <br />COAL GEOLOGY <br />Two coal seams are exposed on the property of which only the upper seam has <br />been developed. The upper seam has a thickness varying between 50 - 74 inches. <br />The coal seam is overlain by a few inches of inter-bedded sandstone and coal which <br />are overlain in turn by massive sandstone which stands well. <br />The lower seam is well exposed to the northwest of the property at the <br />Burnwell Mine. This seam has an average observed thickness of 4.0 feet and has <br />reportedly been drilled on the King I Mine property. This seam lies approximately 80 <br />feet below the upper seam, with inter-bedded sandstone and shale between the <br />seams. <br />Bedding at the property dips 3° in asouth-southwesterly direction. <br />r <br />COAL QUALITY <br />The coal of the King I Mine upper seam is low ash, low sulfur, and bituminous <br />coal with a 5.0 free swelling index (blending metallurgical coal). An average analysis <br />of 109 samples as received follows: <br />Volatile Fixed <br />Moisture Matter Carbon Ash BTU Sulfur <br />4.7% 38.0% 52.66% 8.41% 12,878 0.81% <br />National King Coal, LLC King I Mine <br />Section 2.04.6 <br />Page 3 February, 2007 <br />