Statement_of_Work.docx

BUREAU of LAND MANAGEMENT

COAL ENERGY

Fair Market Value Analysis

Greens Hollow LBA UTU-84102

CONTRACT SPECIFICATIONS – SCOPE of WORK

1.00 General Information

Project Description Summary

Objective:

In accordance with BLM guidance and standards, obtain an independent third-party detailed and summary written and illustrative analysis of the pre-sale Fair Market Value estimate (FMV) for the proposed Greens Hollow LBA UTU-84102. The Consultant will provide BLM a chain of title regarding individuals using Proprietary and Confidential information and the information they controlled to prepare the analysis. The analysis will be completed in accordance with the Section 8.00 Information Security Agreement.

Background:

For many years, coal has been produced in Utah providing a valuable energy resource and a nearly steady stream of royalties to the Federal Government, the State of Utah, and others. A broad range of information is available from public and internal sources unique to consulting firms. Also, geologic data, coal energy markets, and operational information have been acquired by the Bureau of Land Management (BLM), both publicly available and collected by and unique to the BLM.

Recent GAO and IG audits have highlighted the importance of preparing proper and accurate assessments of FMV for the Lease by Application (LBA) process. The FMV provides the basis for establishing the minimum acceptable bid for a coal lease. The Office of Valuation Services (OVS) Division of Mineral Evaluations (DME) provides a necessary review and recommendations for all LBA FMV determinations.

2.00 Scope of Services

The Consultant shall furnish all supplies, tools, equipment, personnel, travel, and all other items, except those to be furnished by the government, and shall complete all requirements of this contract, including the performance of the professional services listed. All data, assessments, findings, conclusions, recommendations, reports, and other items are to be kept strictly CONFIDENTIAL[footnoteRef:2]. All work to be in compliance with BLM directives and guidance and subject to BLM and DME review standards[footnoteRef:3]. All work to be reviewed with DME in addition to BLM. [2: See Section 8.00 Information Security Agreement] [3: Including BLM Manual M-3073 Release 3-350 located at: https://drive.google.com/viewerng/viewer?url=http://www.blm.gov/style/medialib/blm/wo/Information_Resources_Management/policy/blm_manual.Par.1149.File.dat/MS3073.pdf and BLM Handbook M-3073 Release 3-351:

https://drive.google.com/viewerng/viewer?url=http://www.blm.gov/style/medialib/blm/wo/Information_Resources_Management/policy/blm_handbook.Par.58766.File.dat/H-3073-1.pdf]

3.00 Evaluation Report – Project Scope of Work

The evaluation report will include:

1. Comparable Sales Approach

a. Review the existing BLM FMV report.

b. Review and compile the past 10 years of all comparable coal reserve sales. This should include Federal, State, and Private sales. The compiled sales can be both competitive and non-competitive. The Consultant should include as much detail from each sale as needed to perform steps c), d), and e) below.

c. Rank the compiled list of comparable sales (if any), as to which sales should be used and adjusted/ remain unadjusted for a sales comparison approach to the Greens Hollow LBA UTU-84102.

d. If the consultant identifies any comparable sales as appropriate for the sales comparison approach, the Consultant will recommend the validity of those comparable sales, and provide justification for the recommendation to BLM and DME. BLM and DME will then advise what comparable sales, if any, the consultant will adjust for the comparable sales approach.

e. After appropriate sales are identified by the BLM, the Consultant will follow guidance in BLM Handbook H-3073-1 for a comparable sales analysis and adjustment. This will include how the Consultant made the adjustments to comparable sales and justification by which methodologies and assumptions adjustments are made.

2. Income Approach Cash Flow Analysis

a. The Consultant will prepare an Income Approach cash flow analysis, conducted in both content and form, compliant with BLM Handbook H-3073-1.

b. Data and analysis sufficient to evaluate Income Approach(s) have been requested that characterizes “without” and a “with” scenarios. Both the without and with scenarios should display the total net present value (NPV) of project cashflows, as calculated at the end of all coal-mining activities. The constant coal price case future coal price assumption for both the without and the with scenarios should be that the minemouth-weighted-average coal price currently received by the Sufco Mine will continue, on an inflation-adjusted basis, until the end of all Sufco Mine coal operations.

c. The without scenario should be a discounted cashflow (DCF) model, starting with the current operational conditions on the ground at the present time, that details the annual revenues and cost expenditures derived from production only of the remaining coal reserves of the existing Sufco Mine, as currently planned. The model should assume that the existing Sufco Mine will close and perform all of the normal and required post-closure activities.

d. The with scenario should also be a DCF model that starts with the current operational conditions on the ground and recoverable coal reserves at the present time at the existing Sufco Mine. However, in contrast to the without scenario, the with scenario should assume that the rights to produce coal from the Greens Hollow LBA UTU-84102 coal tract have already been obtained (without paying any bonus bid or other compensation). The with scenario should be set up so that production of coal from the Greens Hollow LBA UTU is arranged in a logical and defensible progression that would be expected to at least come close to maximizing the total net present value of profits from the combined production of all Sufco Mine coal operations. The with scenario should continue tracking annual costs and revenues until the last coal production and mine-related closure activities would logically occur from any and all of the coal-bearing tracts.

e. The cash flow analysis is to include the data source for each item and the basis for the source, provided, however, that the source or basis for the source for data identified as proprietary or confidential by the Proponent or by the Consultant does not have to be revealed or identified by source to the public but must be sufficiently described to assure the resulting analysis is valid and current. Published sources of data may be used to substantiate the proprietary of confidential data to assure the analysis is valid and current.

f. The revenue analysis must include an assessment of current and probable domestic and export market conditions for the life of the cash flow assessment. Consultant shall provide a coal price forecast based on a report that can be from a 3rd party recognized and qualified in such work.

g. Numerical monetary (date of proposed lease sale as provided by BLM in US $’s) values to be presented in spreadsheet detailed and summary form, along with summary narratives, suitable to determine cash flows for the projected life of the Sufco Mine with and with-out the Greens Hollow LBA UTU-84102.

h. The cash flow assessment will be prepared for both a (1) project tax analysis and (2) corporate tax analysis; where in (1) all tax losses are carried forward until they can be applied to a positive cashflow, and (2) where all tax losses can be applied in the year they are generated to other company projects assuming the successful bidder has positive cashflows to apply against the tax losses.

Analysis will include a sensitivity and risk analysis including but not limited to:

a) Current relevant coal price projected forward for the duration of the project (in real terms), i.e. “constant current price”,

b) Constant coal price that would result in an NPV of 0 (i.e., with an IRR of 10% and a discount rate of 10%). i.e. the “breakeven price”,

c) Risk analysis of capital and operating costs, and

d) Risk analysis of probable projected actual recovered tonnage and quality.

i. A pre-sale Fair Market Value Evaluation Report (detailed below), including supporting calculations, data source documentation, and spreadsheets will be delivered to the BLM electronically securely hand-delivered or via an encrypted and password protected media in Microsoft Word and Excel compatible formats.

The Fair Market Value (FMV) Evaluation Report must include the Consultant’s most defensible single-number estimate of Fair Market Value for the Greens Hollow LBA. The Consultant should include a detailed discussion of the assumptions, with/without models, and model results, as expressed as NPV cashflows from the income-approach models, that have a bearing on the Consultant’s FMV discussion and conclusions.

j. As part of the FMV report, provide an assessment of the probability the Greens Hollow LBA UTU-84102 lease sale will result in more than one bidder and the Consultant’s opinion of the probability of more than one bidder. Provide the Consultant’s opinion of the effect of a competitive lease sale on the bids received.

k. Provide an executive level summary of all findings and evaluations (please see 6.00 - 2. Below). Summary to include a single-number NPV estimate of an FMV and include all model run assumptions and results that directly support that number, for all cases run.

4.00 Coal Fair Market Value Evaluation Report – Procedures and Standards

1. The Consultant shall prepare a Self-Contained pre-sale Fair Market Value Evaluation Report in accordance with currently acceptable coal engineering, financial, and management practices. The outline and content of the Evaluation Report will follow guidance within BLM Handbook H-3073-1 for Coal Evaluation.

2. Mining Engineers, personnel experienced as industry managers, and other such personnel well experienced with this type of work shall conduct the evaluation.

3. BLM to provide to Consultant:

a. FMV packet that BLM prepared initially to include:

b. Comparables evaluation

c. Market study

d. BLM Mine plan / recoverable reserve estimates

e. Other materials

4. The Consultant shall consider existing information from any ethically appropriate source.

5. Upon completion of necessary inspections, investigations, studies and analyses, the Consultant shall prepare, furnish, and deliver to the BLM two reproducible copies of the draft evaluation report along with a complete electronic copy in Microsoft WORD or another BLM acceptable format. Supplemental calculations and spreadsheets will be delivered in digital Microsoft Excel compatible format, or another format acceptable to BLM.

6. After review by DME and BLM, the Consultant will correct, amend, and update the Report and create a FINAL version. Upon notification of acceptance of the report, the Consultant shall deliver to BLM the FINAL pre-sale Fair Market Value Evaluation report, including the copy labeled as original, four labeled (numbered) additional copies of the report, and a copy of the evaluation report and supporting information in electronic form(s) as specified by BLM.

7. In addition to the Final Evaluation Report, the Consultant will assemble and present a PowerPoint presentation, with written text as necessary, which includes summary engineering, financial, assumptions, drawings, and maps used in the pre-sale Fair Market Value Evaluation Report. All and each PowerPoint “slide” to be clearly labeled “CONFIDENTIAL.”

8. Deletion or alteration of any of the portions of the report prescribed herein is permissible with confirmed written approval of the BLM.

9. All materials provided by BLM will be returned and the Consultant will retain no copies (except for items available to the public). Any derivative materials and/or work products will also be returned to BLM and not retained unless individually approved in writing by BLM to be retained.

11. The evaluation draft will be concluded within 4 weeks of the initial meeting with BLM – DME following contract award, assuming all requested data is provided within three days of the initial meeting. BLM can approve altering the schedule.

12. The Consultant will provide a weekly verbal and email summary status report of the project status to date.

13. Contract payments will be made as frequently as monthly with the final payment withheld until the BLM acceptance of both the final report and the internal presentation to BLM.

14. The Consultant will deliver or send all report materials to and make the presentation to BLM at the BLM Utah State office in Salt Lake City, Utah.

15. The Consultant may obtain technical assistance or information from one or more independent, third party sub-contractors subject to Project Manager approval.

16. Proponent can provide materials, data and information directly to the BLM and BLM will review the information provided then forward information to the Consultant. The Proponent will identify and mark all such materials, data and information as Proprietary/Confidential Information as appropriate. Proponent’s materials, data and information shall not be reproduced by Consultant or be transmitted by Consultant to any third party. All materials provided by Proponent to aide in the preparation of the work shall be returned to the BLM upon completion of the work and the Consultant shall retain no copies. Any derivative materials and/or work products, including computer spreadsheets and background work, will also be returned to BLM and not retained unless individually approved in writing by Proponent to be retained. All data, analysis, findings, software files, and reports provided by Proponent to BLM will be treated by BLM and the Consultant to be confidential and proprietary and shall not be made public in any way.

17. A disclosure statement will be executed by the Consultant, the Consultant's professional personnel, and the Consultant's sub-contractor(s) stating that the Consultant, the Consultant's professional personnel and the Consultant's sub-contractor(s) have no financial interest in the outcome of the analysis.

18. The Consultant, the Consultant's professional personnel, and the Consultant's sub-contractor(s) shall provide a clear proprietary and confidential data chain of title document that contains each individual’s name, date the data was received and from whom it was received, date the data and all work products were returned and to who as an appendix to the Final Report.

19. The Consultant will not directly or indirectly provide to the LBA Proponent any materials, data and information produced by Consultant or transmitted by Consultant or any third party that is used to determine the pre-sale Fair Market Value.

20. Section 8.00 Information Security Agreement must be signed by both parties and executed prior to the start of work by the consultant.

5.00 Timelines

1. The DRAFT Evaluation Report will be completed by the Consultant within 4 weeks of the initial meeting with BLM. BLM and DME will review the DRAFT Evaluation Report and will return comments and edits to the Consultant. The Consultant will then prepare and deliver the FINAL Evaluation Report and presentation approximately 3 weeks after BLM approval of DRAFT evaluation report. Any change(s) to the timeline is to be proposed to and approved by the BLM.

2. The final payment to be withheld until the BLM acceptance of both the final report and the presentation to BLM.

5.00 Federal Data

The Bureau of Land Management (BLM) will allow the Consultant to review relevant information in its possession. All data provided by BLM will be treated as strictly confidential unless BLM notifies the Consultant in writing that it is public data.

All materials provided by BLM will be returned and the Consultant will retain no copies. Any derivative materials and/or work products, including computer spreadsheets and background work, will also be returned and not retained unless individually approved in writing by BLM to be retained. All data, analysis, findings, software files, and reports will be provided to BLM and treated by the Consultant to be CONFIDENTIAL and PROPRIETARY.

6.00 Overall Technical Specifications

1. Narrative Coal Fair Market Value Evaluation Report The report shall, in form and substance, conform to recognized professional evaluation principles and practices and follow guidance listed in BLM Handbook H-3073-1. The report shall present adequate factual data to support each assumption or conclusion in sufficient detail to permit an intelligent review.

The report will include clear illustrations for use in explaining the results to industry or members of the public (such as summary 3-D and plan view geologic and mine plan maps).

2. Proprietary Information

All sections of the report that contain, or contain references to, confidential or proprietary information whether from BLM or Proponent shall be separable from the executive summary report so that they can be removed from the report. The executive summary report should be written in such a way, that removal of confidential or proprietary information will not affect the veracity and readability of the report and in a form that can allow BLM to publish to the public the executive summary after a successful lease sale. All confidential or proprietary material must be clearly marked as such.

3. Format

The Final Report(s) shall be printed and bound in a durable cover with a label on the face thereof identifying the subject property and the cover and all pages shall be marked CONFIDENTIAL and PROPRIETARY. The paper for the report test shall be a good grade bond primarily of 8½ x 11 inch size, maps will be folded and in jackets. All pages shall be numbered, including the exhibits, and each important heading shall be shown in a table of contents. In addition to the paper copies, the FINAL pre-sale Fair Market Value Report, supporting calculations and all spreadsheets will be delivered to the BLM electronically in Microsoft Word and Excel compatible formats or BLM acceptable format.

4. Outline and Contents

The report outline will be reviewed and approved by BLM prior to proceeding.

The Consultant will provide the draft and final report outlines and reports for review and approval by BLM prior to proceeding.

7.00 Deliverables

The following are the deliverables from the Consultant:

1. Proposed time schedule for the project using Microsoft Project or equivalent to complete the project within 4 weeks from the time of the initial meeting. Written approval of the schedule by BLM will be required prior to start of the project. All work by the Consultant is projected to be concluded by December 31, 2015.

2. Monthly accounting of the project (in Microsoft Project) showing:

a. planned progress schedule

b. progress to-date and any delay justifications

3. Draft and final evaluation report outlines for BLM review and approval.

4. All maps, figures, drawings, and reports will be certified by a Utah registered Professional Mining Engineer and, as applicable, by a Utah registered Professional Geologist.

5. Draft (two reproducible copies) for DME and BLM review and comment. Final report to be provided in paper form (four reproducible copies) and in an electronic format, including numerical spreadsheets and other numerical formats, as prescribed by BLM. Electronic format version to include all figures.

6. The draft and final reports will also be summarized and presented orally to BLM representatives in Microsoft PowerPoint format and the presentation provided in electronic form. The presentation will be made at the BLM Utah State Office in Salt Lake City, Utah.

Page 1 of 3 SOW and InfoSec Agreement for Greens Hollow LBA UTU-84102 FMV Determination April 30, 2015

8.00 Information Security Agreement

Information Requested (Specify): Proponent, BLM, and DME Data and Recommendations Regarding -GREENS HOLLOW LBA UTU-84102

For Use Until (Specify): Completion of the FMV evaluation or Dec 31, 2015, whichever is first.

Specify Need To Know:

The _______________ is providing consulting services to BLM-DME to determine the pre-sale Fair Market Value for the Greens Hollow LBA UTU-84102. To provide this service, ___________ will require certain data and recommendations from BLM and DME.

The information recipient/Secondary Office of Control (1) agrees to provide for secure storage and transmittal of this Proprietary/Confidential Information and information derived therefrom according to the same or more secure standards that are presently used by BLM[footnoteRef:4], (2) agrees not to transmit or otherwise divulge these information or derivative information to any other party, (3) agrees to return the Proprietary/Confidential Information and all copies, tracings, or other reproductions thereof to the Office of Control at the end of the requested period, and (4) is aware that penalties for unauthorized disclosure provided in Section 1905 of Title 18 United States Code, apply to these data and/or information. [4: An outline of these standards is available upon request, see BLM Manual Sections 1273, REL. 1-377, U.S. Department of the Interior (DOI) FOIA; Records and Testimony regulations (43 CFR Part 2), and BLM manuals MS-1220 (Records and Information Management) and MS-1278 (External Access to BLM Information). All records relating to the FMV determinations for coal lease and lease modification tracts, including information gathered from the public and applicants, the BLM’s geologic, engineering, economic and valuation analyses, reports, and associated data, will be safeguarded against disclosure, if appropriate, and managed in accordance with DOI regulations and manuals. ]

The information recipient/Secondary Office of Control has established a need-to-know and agrees to abide by all restrictions on Proprietary/Confidential Information use. The information requested above is being transmitted to the information recipient/Secondary Office of Control: