BETHESDA MINING COMPANY Background: Bethesda Mining is a midsized coal mining company with 20 mines loca Pennsylvania, West Virginia, and Kentucky. ted in Ohio, company operates deep mines as well as strip mines. Most of the coal m ned is sold under specially n hard hit by environmental regulations. contract, with excess production sold on the spot market. The coal mining industry, e Recently, however, a combination of increased demand for coal and new pollution reduction technologies has led to an improved market demand for high sulfur coal. Bethesda has just been approached by Mid-Ohio Electric Company with a request to su for its electric generators for the next four years. Bethesda Mining does not have excess capacity at its existing mines to guarantee the contract. opening a strip mine in Ohio pply coal enough The company is considering Based on a recenta if it sold the land today. Strip mining is a process where the layers of topsoil above a coal vein are removed and the exposed coal is removed. Some time ago, the company would simply remove the coal and leave the land in an unusable condition. Changes in mining regulations now force a company to reclaim the land; that is, when the mining is completed, the land must be restored to near its original condition. The land can then be used for other purposes. As they are currently operating at full capacity, Bethesda will need to purchase additional equipment, which will cost $49 million. The equipment will be depreciated on a seven year MACRS schedule. The contract only runs for four years. At that time the coal from the site will be entirely mined. The company feels that the equipment can be sold for 60 percent of its initial purchase price. However, Bethesda plans to open another strip mine at that time and will use the equipment at the new mine. The contract calls for the delivery of S00,000 tons of coal per year at a price of $70 per ton. Bethesda Mining feels that coal production will be 750,000 830,000 tons, and 720,000 tons, respectively, over the next four years. The e will be sold in the spot market at an average of $64 per ton, Variable costs a ton and fixed investment of 5 percent of ales. xcess production mount to $29 per costs are $4.2 million per year. The mine will require a net working capital the land at termination of the mining. This will ccur in Year s. The company uses an the company plans to donate the The NWC will be built up in the year prior to the sales. Bethesda will be responsible for rec for reclamation of all the company's strip mines. It is estimated the cost of 11Page reclamation will be $3.9 million. After the land is reclainm