Dear Investor,
Since advancing more than 4,000% on more than 685 million shares traded and hitting a recent high of $.075 during the four days between 6/18 and 6/23, Quest Minerals & Mining Corp. (OTCBB: QMNM) has dipped back into the $.005 range. Due to the high volume of important corporate developments transpiring over the past few weeks, I felt it prudent to get on the phone with the company's CEO Eugene Chiaramonte, Jr. this past Friday and get his take on the situation. I'll touch on that in a moment. But first, let's take a peek at the what's been happening at Quest.
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Quest CEO Optimistic Regarding Re-org Proposal
In regards to the major events recently transpiring at Quest:
1. The company's wholly-owned subsidiary Gwenco Inc. recently filed an updated plan for re-organization in accordance with its Chapter 11 bankruptcy proceedings and is awaiting a judge's decision on 9/16.
In addition to achieving profitable production levels, this has been identified by investors, small and large, as one key driver of current and future stock price. I've spoken with many people personally of the firm belief that simply by having its subsidiary proceed out of bankruptcy, Quest would instantly demand a more favorable valuation in the market due to the decreased risk it would create; and
2. Their Pond Creek, KY, coal mine recently re-commenced production after making a number of equipment and infrastructure improvements.
The Quest Guessing Game
Simply put, predicting the stock's daily performance has proven to be one of the biggest guessing games in recent micro-cap history. For example: on 6/20 QMNM gained more than 160% on nearly 161 million shares traded on news that the company was rapidly approaching production at its Pond Creek, KY coal mine. On 8/1 Quest officially entered into full-production and raised production goals at the mine. The stock gained only 22% on just 18 million shares.
Quest CEO Optimistic Regarding Re-org Proposal
Per my conversation with Eugene, the CEO seems pretty confident that his reorganization plan will be accepted by the judge this week. However, a bit of digging online reveals that at least one past creditor has objected to the plan proposed by Quest's wholly-owned subsidiary, Gwenco Inc. Since I did in fact discover the objection subsequent to my conversation with the CEO, unfortunately, I can't provide his take on it. I will however attempt to reach him on Monday and post my finding on the blog.
In regards to the objection, although I'm not a lawyer, I'd guess that having at least one party object to re-org plans is fairly commonplace for a typical bankruptcy proceeding. Everyone wants their money first and in full and that can't be a reality for all unfortunately. I guess the judge will have the final say here and we'll have to wait until Tuesday or Wednesday to learn of the outcome. Let's keep our fingers crossed!
Link to Gwenco Re-org Plan
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Pond Creek Showing Progress. Slowly But Surely
According to Thursday's
PR, the mine shipped 35 trailers of coal holding 42 tons apiece to its wash plant for processing between 9/8 and 9/9 for an average of 700 raw tons of coal per day. The release goes on to state that the company is getting close to completing a turn which will land them on the full face of the mine's coal seam. Furthermore, my conversation with Mr. Chiaramonte on Friday leads me to believe that, pending no further hold-ups, this will be achieved sometime next week and when it does we will be looking at more like 1,000 raw tons per day initially with substantially higher coal acceptance rates.
What would really put my mind at ease would be an updated production report that notes both raw tonnage produced and the reject rate, possibly pertaining to the time period between 9/8 and 10/8. After speaking with Gene, I'm confident that such a document will indeed surface by mid-October.
Recent Objection to Gwenco Re-org Plan
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Reorganization Reports Reflects a Loss for July/Aug
According to Gwenco's recent reorganization proposal, the subsidiary logged total gross profits of $15,810 on $117,808 in sales during July and August. From a bottom line perspective, the operation best become more efficient, quickly.
Gwenco posted a negative net income of $474,403 on sales of $117,808 for the two month period. Hopefully, their reject-rate and daily tonnage output improve as the mining crew approaches the main coal seam. Management believes that it will, so, let's see what future reports reveal. For now, I'm willing to reserve judgment until the company enters into full-production mode at the main seam for at least a few weeks.
Per Ton Sale Price Must Improve
According to Gwenco's contract with White Star Mining, the miner is entitled to $32 per clean ton. $32 per ton divided into the two-month total of $117,808 brings us to a figure of 4,471.6 tons mined. Further, a little back of the napkin math reveals that Gwenco also pays Happy Trucking roughly $6 per ton for transport
$26,716 in 2 month trucking fees/4,471.6 tons of coal = $5.97). A little more simple math shows that Gwenco's average price per ton during July and August was approximately $26.40: (4471.6/32 = $26.40).
So, in essence it costs Gwenco $38 in mining and transportation to sell one ton of coal at $26.40 for a loss of $11.6 per ton. For the sake of today's discussion, let's assume a reject-rate of 70% during the aforementioned 2-month reporting period. That would equate to 14,905.3 raw tons mined. In theory, if Quest can bring its reject rate into the 30% - 50% range and begin producing higher quality coal - which management indicated is a distinct possibility once the main coal seam is accessed - they could turn Pond Creek into a very profitable mine.
White Star Contract
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This coming week will be one of the most important in Quest's existence. If the judge does in fact accept the reorganization plan and allow Gwenco to proceed out of bankruptcy, we should see interest in the stock pick up. We could also see momentum build if the company graces us with an announcement regarding it hitting the main coal seam at Pond Creek, increasing daily output and producing higher quality coal than it has to date.
If you're interested in the company, here's my suggestion: take the time this weekend/early next week to weigh the risks of gaining an ownership position in the stock today versus after the BK decision and potential production update. On one hand, the judge could rule against Quest and operations will be forced to cease. On the other, the good news could incite another explosion in both daily volume and PPS. Now priced at $.005, the risk is rather low at one penny for every two shares purchased. You make the call, folks. Hopefully our analysis and links to important corporate documents help your cause.
Thank you for being a loyal Outcast subscriber. We will continue to provide you valuable services.
Sincerely,
--The Team at Outcast
Good Luck to all, Wingsonthewind
Quest Minerals & Mining Corp. - QMLM
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