COMMITMENTS AND CONTINGENCIES

3 Months Ended

Jan. 31, 2012

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

10.              COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Permit Matters

The Company completed the conversion to natural gas from coal in November 2011.  The Company also completed an amendment to the existing air emissions permit allowing the conversion from coal to natural gas. The Company is now seeking the final amendments to its air emissions permit related to the natural gas conversion pending regulatory approvals in form acceptable to the Company, and may incur additional costs in connection with the permit amendment, as well as improvements to its plant as part of the natural gas conversion and to ensure compliance with its permit and planned amendments.

Coal Contract Termination Dispute

Following conversion by the Company from coal to natural gas as its primary fuel, and specifically in late October 2011, the Company received correspondence from its coal supplier, Northern Coal Transportation Company, claiming that there was a “shortfall” in the Company’s coal purchases.  The correspondence further claimed that the Company is indebted to Northern Coal for approximately $929,000 for this shortfall.  The Company responded in December 2011 and contested both the claim that there was any shortfall in coal purchases, as well as the calculation of any claimed shortfall.  In this response, the Company also sought documentary verification of the claim by Northern Coal.  In January 2012, the Company received additional correspondence from Northern Coal claiming the Company now owed approximately $1,800,000.  The Company has not received the requested information or documentary support from Northern Coal.  The Company commenced a declaratory judgment action against Northern Coal in Minnesota District Court in Jackson County, Minnesota on March 6, 2012 seeking a declaratory judgment that the Company properly adjusted its coal purchase requirements under its coal supply contract with Northern Coal, has not breached its coal supply contract with Northern Coal, and that Northern Coal  failed its duty to mitigate any claimed damages.  Northern Coal filed  a breach of contract lawsuit against the Company in Colorado District Court in Broomfield County, Colorado on March 8, 2012, claiming breach of contract and contract related damages.  The Company intends to contest the breach of contract claim and pursue  the declaratory judgment vigorously.  On March 12, 2012, the Company and Northern Coal agreed to a stand-down period until March 23, 2012.  An estimate of possible loss in this dispute cannot be made.  The Company has not recorded an accrual for any possible liability  in this dispute.

Forward Contracts

The Company has natural gas agreements with a minimum commitment of approximately 1.9 million MMBTU per year until October 31, 2014.