Operations

Lipari engages in coal production by locating, assembling, leasing, assessing, permitting and developing coal properties in the Central Appalachian region and has reviewed coal reserves located throughout the Eastern United States. After obtaining permits from the appropriate state or federal organization that oversees mining operations, and posting reclamation bonds, Lipari mines its properties for coal and then sells the coal primarily to utility companies pursuant to long-term contracts on a per ton basis at previously negotiated rates or at spot rates to customers not under contact.

Mining Operations

The B & W properties are located within the Eastern Kentucky Coal Field, which is characterized by gently dipping (typically less than 2%) beds of Pennsylvanian Age. In a physiographic sense, the B & W properties are located in the Cumberland Plateau Physiographic Province.

Coals within the B & W properties occur in the Pennsylvanian Age Princess, Four Corners, Hyden, and Pikeville Formations of the Breathitt Group, and in the underlying Grundy Formation. The marine Stoney Fork Member lies at the base of the Princess Formation, the marine Magoffin Member separates the Four Corners Formation from the Hyden Formation, and the Kendrick Shale Member marks the boundary between the Hyden and Pikeville Formations. The Betsie Shale Member at the base of the Pikeville Formation separates the Pikeville from the Grundy Formation. Stratigraphic units within the B & W properties usually dip less than 1% to the north – northwest with minor changes in direction and steepness throughout the area. No faults have been mapped within the B & W properties.


Surface Mines

Chavies Mine. The Company conducts surface, contour and auger operations at this mine which is located in Leslie and Perry County, Kentucky and has estimated reserves of 5 million tons and resources of 11 million tons. This mine has been a historic producer of coal with the initial mining operations having been commenced.

Owls Nest Mine. The Company conducts surface and contour mining operations at this mine which is located in Leslie County, Kentucky and has estimated reserves of 2.3 million tons and resources of 7 million tons.

Aces Branch. The Company conducts surface and contour mining operations at this mine which is located in Leslie County, Kentucky and has estimated reserves of 1.3 million tons and resources of 1.8 million tons.

Bingham. The Company conducts surface, contour and auger mining operations at this mine which is located in Clay County, Kentucky and has estimated reserves of 885,000 tons with resources in excess of 2.2 million tons.

High Wall Mining & Auger Mining

Barger Branch.  The Company is developing highwall mining and contour mining operations at this mine which is located in Clay County, Kentucky and has estimated reserves of 600,000 tons. Operations are expected to commence by end of Q1, 2012.

Accessibility, Climate, Local Resources, Infrastructure and Physiography

The B & W properties are located in south-eastern Kentucky in a moderate climate zone. Temperatures are defined by season, falling to about 22°F in the winter, rising to 86°F in the summer, and ranging between 35°F to about 80°F during the spring and fall. This climate allows for year round operation.

The resource area lies in the plateau region of the Eastern Kentucky Coal Field physiographic region of the Cumberland Plateau Physiographic Province. The terrain is characterized by valleys and ridges. Elevations range from 700 feet (ft.) in the valleys to over 1,800ft on the ridgelines. Vegetation is primarily forest growth throughout the area.

The estimated 2008 population of Clay County, Kentucky was 23,930 with an average of 50.8 persons per square mile. Manchester is the county seat, and B & W headquarters are located there, along with the preparation plant, rail load-out tipple and associated facilities. Leslie County had a projected 2008 population of 11,639, translating to 28.8 persons per square mile. The county seat is Hyden, which is approximately 25 miles east of Manchester. Owsley County, with an estimated 2008 population of 4,634 equating to an average of 23.4 persons per square mile, has its county seat in Booneville, which is about 25 miles northeast of Manchester. The estimated 2008 population of Perry County was 29,241 with an average of 85.5 persons per square mile. Hazard is the county seat and is located just over 30 miles east/northeast of Manchester. The resource properties are somewhat scattered throughout the four counties, with some being fairly remote and situated near several smaller towns and communities while others are close to the larger towns of Hazard, Manchester, and Hyden.

A network of primary, secondary, and unimproved roads extend throughout the report area. The Hal Rogers Parkway is the major highway running east-west and connecting Manchester and Hazard. It also connects Manchester to London, which is 20 miles further to the west, at which point it intersects with Interstate Highway 75 running north-south through Kentucky. Other principal roads include U.S. Route 421, which runs northwest to southeast from Berea through Manchester and Hyden down to Harlan, and Kentucky State Routes 11, 15, 66, 80, 406, and 1482 throughout the four-county area.

Railroad access is available on the west side of the resource area through CSX at B & W’s load-out facility at Manchester, with service through Barboursville in the Jellico-Middlesboro/Harlan Rate District. Rail access also exists on the east/northeast side of the resource area through CSX in the Hazard/Elkhorn Rate District. However, B & W currently has no agreement in place to utilize any of the existing load-out facilities along this line as previous attempts to negotiate with the owners of these facilities have been unsuccessful. Small local airports are located near Manchester and Hazard and a larger regional airport is situated just south of London, while commercial passenger and cargo services are available in Lexington approximately 80 miles northwest of Manchester. With relatively convenient access to Interstate 75 through the Parkway, several trucking companies provide hauling services to Manchester.

Electrical service is provided in the general area by Louisville Gas & Electric/Kentucky Utilities and Jackson Energy. Natural gas is available in the Manchester area through the City of Manchester. Public water supply is also available through the City of Manchester in Manchester, and by Kentucky American Water Company throughout much of the region. Adequate natural water supply is available for sustaining B & W’s operations; an abandoned underground mine, which B & W has permitted, provides an ample fresh water supply and reservoir for the tipple and preparation plant operations.

Sales and Marketing

Lipari’s marketing and sales efforts are based in its corporate office in London, Kentucky, and are led by its Executive Vice-President and its Vice President of Sales. Lipari’s sales efforts are primarily focused on increasing its customer base of electric utilities mostly in the Southeast region of the United States. Lipari’s contracts require it to deliver coal on a year-round basis. When appropriate and on a limited basis, Lipari has engaged the services of third party sales representative firms. For Sales and Marketing questions, contact Bill Tallent, VP Sales, at 606-599-8227.

Lipari’s Business Development efforts are also based in its London, KY offices and are led by its Vice President of Business Development, teamed with its Engineering group. For questions regarding business development opportunities, contact Michael Rafter, VP of Business Development, at 606-599-8227.

Leasing

B & W controls surface rights covering their current mining operations. They employ land management personnel with extensive experience and local contacts in this area, and are continually acquiring mineral and surface rights for potential future mining operations.

For Leasing and Land Management information, contact Clyde Baker, Senior Land Agent, or Greg Caldwell, Senior Leasing Agent, at 606-599-8227.

Facilities & Permitting

Preparation Plants

Currently, Lipari owns and operates one preparation plant in Manchester, Kentucky. The facility has an operating jig plant, and has not experienced any material down time other than for normal and customary repairs and maintenance.

Maintenance and Paint Facilities

Located in London, Kentucky, Lipari owns and operates state of the art cleaning, painting and maintenance facilities. These facilities are utilized to reduce the direct cost associated with maintenance on our equipment fleet.

Transportation

Substantially all of Lipari’s coal is transported to customers by rail and Lipari currently owns one active railroad loading facility in Manchester, Kentucky on the CSX rail system.

Coal Processing

Lipari has a Jeffrey-Jig wash plant with black and white separations with a volume of 250 clean tons per hour. Lipari replaced all piping, elevators, drivers, belts and sheet metal in 2010. The preparation plant is located in Manchester, Kentucky.

Permitting

Mining companies must obtain numerous permits from federal, state and local authorities that impose strict environmental and safety regulations on their operations. These provisions include requirements for coal prospecting, mine plan development, topsoil removal, storage and replacement, selective handling of overburden materials, mine pit backfilling and grading, protection of the hydrologic balance, subsidence control for underground mines, surface drainage control, mine drainage and mine discharge control and treatment, and vegetation.

Lipari must obtain permits from applicable state regulatory authorities before Lipari begins mining reserves. The mining permit application process is initiated by collecting baseline data to adequately characterize the pre-mine environmental condition of the permit area. This work includes surveys and/or assessments of the following: cultural and historical resources; geology; soils; vegetation; aquatic organisms; wildlife; potential for threatened, endangered or other special status species; surface and ground water hydrology; climatology; riverine and riparian habitat; and wetlands. In conducting this work, Lipari collects geologic data to define and model the soil and rock structures and coal that will be mined. Lipari develops mine and reclamation plans by utilizing this geologic data and incorporating elements of the environmental data. The mine and reclamation plans incorporate the provisions of SMCRA, state programs and the complementary environmental programs that impact coal mining. Also included in the permit application are documents defining ownership and agreements pertaining to coal, minerals, oil and gas, water rights, rights of way, and surface land along with documents required of the Office of Surface Mining's Applicant Violator System.

Once a permit application is prepared and submitted to the regulatory agency, it goes through a completeness review, technical review and public notice and comment period prior to approval. SMCRAmine permits can take over a year to prepare, depending on the size and complexity of the mine, and often require six months to two years for approval. Regulatory authorities have considerable discretion in the timing of permit issuance and the public has the right to comment on and otherwise engage in the permitting process, including through intervention in the courts. In addition, it is not uncommon for a permit to be delayed as a result of litigation related to the specific permit or another related company’s permit.

The properties are the subject of numerous permits for surface and underground mining, for coal preparation and related facilities, and for haul roads and other incidental permits necessary for mining to occur. Permits generally require that the permittee post a performance bond in an amount established by the regulatory program to provide assurance that any disturbance or liability created during the course of mining operations is properly restored to an approved post-mining land use and that all regulations and requirements of the permits are fully satisfied before the bond is returned to the permittee. Significant penalties exist for any permittee who fails to meet the obligations of the permits including cessation of mining operations, which can lead to potential forfeiture of the bond. Any company, and its directors, owners and officers, that are subject to bond forfeiture can be denied future permits under the program.

For Engineering questions, contact Woodson Asher, at 606-599-8227