AWSR in Production - Analyst Blog

Ian Gilson, CFA

America West Resources (AWSR.OB $1.60)  owns a coal mine in Central Utah, about 120 miles southeast of Salt Lake City. The mine has been under development for some time and now the company has moved into a full production mode.

During a recent conference call the company discussed the current operating outlook.

America West now has two continuous miners that are working at close to their optimum output and the company expects to mine coal at 180,000 tons a quarter. The mines uses a room and pillar mode where the pillars support the roof in the mine tunnels and coal is extracted from the rooms. When all the coal in the rooms in a given area of the mine has been removed the equipment is used to mine out the pillars.

 Using one miner to develop new areas of the mine and the second one to mine the coal from the pillars the company can keep the cost of production per ton at or below the level of the first quarter, which was $23 a ton. The first miner has been fully refurbished and the second one is nearly new.

    A third miner is expected to be running in the second half of this year. This should bring production to over one million tons per year. The next phase would be to add a long-wall miner, which can produce from 3 million to 6 million tons a year or 900,000 tons a quarter. With three continuous miners and one long-wall miner the cost per ton could be as much as 40% below the current level.

With a total of four miners the life of the current mine would be about three years. The company is in the process of applying for mining permits in adjacent land, which is owned by the US Government.

The company expects to reach break-even cash flow during the current (second) quarter, but we do not think it will be positive for all of the quarter. We do expect an operating profit for the fourth quarter of 2011. Our earlier estimates had assumed a long-wall miner in operation for the second quarter of 2012 but we have     changed this to the first quarter of 2013. We have adjusted our estimates to reflect this.

During April 2011, the company issued a total of 540,000 shares of the Company's Common Stock for $540,000. The current share count is close to 40 million.

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