The coal reserves reported herein are typically high-volatile bituminous coals with the exception of the Kittanning A, B, C, D and Eagle horizons, which exhibit some mid-volatile characteristics. The primary coal-bearing formations on these properties are Carboniferous in age, being in the Pennsylvanian system, which includes the base of the Conemaugh Formation; the Allegheny Formation; the Kanawha Formation; and the New River Formation. The average mineable seam thickness for coal horizons in these formations ranges from 2.5 to 6.0 feet, with the exception of the Peerless seam at Leaseco where the minimum is 2.25 feet. Within the subject properties coal zones can locally exceed 9.8 feet where individual coal beds merge to form a single mineable unit. Structurally, the strata on the subject Property exhibit a regional northeast southwest strike and a regional northwestward dip of approximately one to four percent, averaging about three percent and are flat-lying. The seams are generally continuous and non-complex but may vary in thickness and even locally be absent. Furthermore, the seams are unaffected by tectonic deformation.

The Gauley Eagle underground mine also employs the room-and-pillar mining method to produce a semi-soft coking coal, which can be used in the steelmaking process or as a premium low-sulfur thermal coal.

Surface mine operations will continue to be conducted with a mobile equipment spread that uncovers coal from contour and point removal reserve areas. Surface mine production from selected coal seam splits is expected to be of satisfactory quality to allow direct shipment from the mining pits to customers. The effective recovery assigned to the surface mines is approximately 75 percent.

Major equipment includes a Hitachi Model 1900 hydraulic excavator (16-cubic yard capacity), three Caterpillar Model 777D off-highway trucks (100-ton capacity), two Drilltek Model 50-series overburden drills, and two Caterpillar D11R tractors.

Surface production totals 9.3 million tons at an average overburden to coal ratio of 12.6. Underground mining operations at Leaseco began with the development of the King Coal No. 1 Mine (Silo Mains Mine) in April 2006 with a contract mine operator.

The mines are expected to be developed with continuous miners using the room and pillar mining method. Recovery of coal pillars is not anticipated. If attempted, pillar recovery is expected to result in little, if any, change in productivity but may contribute to higher resource recovery and lower operating cost resulting from lower roof support cost. Principal production equipment on each production section includes a continuous miner, roof bolter, three shuttle cars, scoop, feeder breaker and transformer. Coal will be transported from the production section to the surface by conveyor belts. Access to all of the mines is by drift entries into the coal seam outcrop, which eliminates the need for costly shafts and slopes.

Nominal flow-sheet capacity of the coal preparation plant is 900 raw tons per hour. Leaseco reports that the actual capacity is about 700 tons per hour. Deep mine production is stored in the 20,000 ton raw coal silo to await delivery to the plant. Surface mine production is delivered to the plant via a feeder-breaker. Currently feed rates range from about 500 to 600 tons per hour. Raw coal is screened and washed in separate circuits as coarse (6-inch x 3/8-inch), intermediate (3/8-inch x 28 mesh), and fine-size coal (28 mesh x 150 mesh).

Coarse raw coal is washed in a heavy medium vessel. The clean coal is drained and rinsed across an 8- x 16-foot screen. Coarse refuse is drained and rinsed across a 5- x 8-foot primary screen and a 6- x 12-foot secondary screen.

Intermediate raw coal is washed in heavy medium cyclones after crossing de-sliming screens. Clean coal is rinsed on a 8- x 16-foot screen and dewatered in EB40 centrifugal dryers. Intermediate refuse is drained and rinsed across two 6- x 16-foot refuse screens.

Fine raw coal is washed with spiral separators. Fine coal recovered from the separators is dewatered with a 36- x 72-inch screen bowl centrifuge. Fine refuse reports to the static thickener.

Ultra-fine material reports to the static thickener and ultimately to the refuse disposal facility. Froth flotation cells were part of the original coal plant washing circuitry. While the cells are not part of the current washing circuit, they can be re-introduced to the circuit at a later date if testing shows that ultra-fine coal recovery is economical. The original plant circuit employed a thermal dryer for product drying. The thermal dryer has been decommissioned and plans have been developed to remove the dryer.