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Mining for Value
Valuation assignment also requires litigation and reorganization expertise.
Gleason & Associates was retained by counsel for the sole proprietor of a bankrupt coal mine to determine the company's value so the owner could evaluate acquisition offers initially emerging as a result of an increase in fuel prices. In addition to coal reserves, the company's assets included hundreds of acres of undeveloped real estate, potentially lucrative (though unquantifiable) natural gas deposits and a "gob pile," a mountain of coal refuse that was either an asset or a liability, depending on the buyer.
Because the mine had been closed as a result of Chapter 7 proceedings several years ago, the engagement required us to account for the company's considerable assets and outstanding liabilities under multiple scenarios. To determine the amount of revenue and cash flow the mine could generate, we leveraged our previous knowledge and experience in the coal industry to perform additional research. Based on this information and an engineering study that had evaluated the mine's coal reserves, we developed a series of cash flow models that considered the cost of reopening the mine and mining the coal, the amount of coal available for mining over the next 10 to 12 years, and the potential fluctuating value of coal on the open market under various scenarios. Similar models determined the potential value of the gob pile.
Our analyses enabled the owner to understand the potential value of the company's assets to various buyers. We also helped him to evaluate the financial terms of offers that included future payments as well as up-front cash, culminating in the successful negotiation of a letter of intent with a prospective purchaser of the mine.
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