A major contributor to the world energy supply, coal represents over 23% of the world’s primary energy consumption according to the World Coal Institute. The primary use for coal is to fuel electric power generation. In 2004, coal-fired plants generated 50% of the electricity produced in the United States, according to the EIA, a statistical agency of the U.S. Department of Energy. The United States produces over one-fifth of the world’s coal and is the second largest coal producer in the world, exceeded only by China. Other leading coal producers include India, Australia and South Africa. The United States is the largest holder of coal reserves in the world, with over 250 years supply at current production rates. According to the EIA, 98% of coal consumed in the United States in 2003 was from domestic production sources. Coal produced in the United States is also exported, primarily from east coast terminals.

Coal has long been favored as an electricity generating fuel by regulated utilities because of its basic economic advantage. The largest cost component in electricity generation is fuel. According to the National Mining Association, coal is by far the cheapest source of power fuel per million Btu, averaging less than one-third the price of both petroleum and natural gas. According to the EIA, for a new coal-fired plant built today, fuel costs would represent about one-half of total operating costs, whereas the share for a new natural-gas-fired plant would be almost 90%. Coal used as fuel to generate electricity is commonly referred to as “steam coal.”

The EIA projects that generators of electricity will increase their demand for coal as demand for electricity increases. Because coal-fired generation is used in most cases to meet base load requirements, coal consumption has generally grown at the pace of electricity demand growth. Demand for electricity has historically grown in proportion to U.S. economic growth as measured by gross domestic product. According to the EIA, coal use for electricity generation is expected to increase on average by 1.6% per year from 2003 to 2025.

Northern and Central Appalachian mining facilities are strategically located across West Virginia, Kentucky, Maryland, Pennsylvania and Virginia and are used to produce and ship coal to its customers located primarily in the eastern half of the United States. All of the Company’s Northern and Central Appalachia mining operations are union free.

The Company’s mines in Central Appalachia produced 9.7 million tons of coal in 2004 and its mines in Northern Appalachia produced 2.8 million tons of coal in 2004. The coal produced in 2004 was, on average, 12,207 Btu/lb, 1.2% sulfur and 12.4% ash by content. This year the Company estimates that its mines in Central Appalachia region will produce approximately 10.5 million tons. This year the Company estimates that its mines in the Northern Appalachian region will produce approximately 4.5 million tons.

This high Btu, low sulfur coal is very marketable to major utility customers throughout the eastern United States. Shipments to electric utilities, accounted for approximately 78% of the coal shipped by these mines in 2004, compared to 80% of shipments in 2003. The mines located in Central Appalachia ship the majority of their coal by the Norfolk Southern and CSX rail lines, although production may also be delivered by truck or barge, depending on the customer.

In addition to the coal the Company mines, from time to time it also opportunistically secures coal purchase agreements with other coal producers to take advantage of differences in market prices.

In its highwall mining business, the Company operates or leases six systems using its patented ADDCAR highwall mining system and intend to build additional ADDCAR systems as required. The ADDCAR highwall mining system is an innovative and efficient mining system. The system is often deployed at reserves that cannot be economically mined by other methods.

Freight and handling revenues increased $2.5 million to $6.2 million for the nine months ended September 30, 2005 compared to the same period in 2004.

Other revenue decreased in the nine months ended September 30, 2005 by $4.9 million, or 22%, to $17.8 million, as compared to the nine months ended September 30, 2004.

In the nine months ended September 30, 2005, cost of coal sales increased $50.6 million, or 17%, to $357.1 million compared to $306.4 million in the comparable period of the prior year.

Freight and handling costs increased $2.5 million to $6.2 million for the nine months ended September 30, 2005 compared to the same period in 2004.