Name
Chief Financial Officer
XYZ Corporation
Address
Dear Chief Financial Officer:
This letter pertains to all registrants who own or operate coal mines and properties, and who are required to file periodic reports with the SEC. We remind you that under Industry Guide 7, reserves are defined as "[t]hat part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination." This guidance must be followed in reporting reserves in your annual reports. We note that some companies are still reporting "reserve base" estimates, which may contain economic and sub-economic coal deposits. Also, some companies may be reporting non-recoverable or geologically inferred coal deposits in their reserve estimates.
In reporting reserves you are limited to the terms "reserve," "proven reserves," and "probable reserves," as defined in Industry Guide 7. Do not use other terms or systems of reporting reserves, such as "geological reserves," "demonstrated reserves," or "reserve base." Also, reserves must be adequately drilled, sampled and characterized such that the size, shape, depth and coal content is established in accordance with industry criteria for proven and probable reserves.
We note that some coal reserve estimators concentrate on the geologic existence of reserves, but pay inadequate attention to the legal, economic and technical limitations that may keep coal from being mined. We have found that some companies have improperly included non-recoverable coal located in mine pillars, and under rivers, railroads, highways, buildings, power lines and other structures in their reported reserves. Occasionally, companies have improperly included non-recoverable coal left in the roof and floor of underground mines. Also, uneconomic small seams, or uneconomic seams of poor quality/unmarketable coal in surface mines have been improperly included. Finally, some companies forget to deduct wash plant losses in their estimates of recoverable coal.
Please ensure that you have taken all legal, economic and technical factors into account, and that you are using only those categories defined in Industry Guide 7 to report your reserves. You may refer to Industry Guide 7 at our website on the Internet at http://www.sec.gov/divisions/corpfin/forms/industry.htm#exguide7 for further clarification.
If you have questions regarding this matter, contact the undersigned at (202)942-1870.
Sincerely,
H. Roger Schwall
Assistant Director
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