Quest Gains on Full Production News

Quest Mineral and Mining Corp. (OTCBB: QMNM) gained nearly 15% Monday on news that its Pond Creek, KY coal mine has recently achieved full production status and also increased daily output expectations. Currently trading at $.0815, QMNM holds a great deal of upside potential for a number of reasons. Here are a few:

1. Quest is a coal producing company.

Gwenco, QMNM's wholly-owned subsidiary currently leases more than 700 acres of coal mines believed to hold approximately 12,999,000 tons of coal. Furthermore, Gwenco is already extracting enough coal to require the installation of a larger conveyor system that will facilitate the company’s production of between 1,000 - 1,300 raw tons of coal per shift at Pond Creek.

2. Quest plans to monetize a portfolio of coal properties, not just one mine.

QMNM has publicly stated plans to bring a second mine - Cedar Grove, KY - online by the end of 2008. Cedar Grove is located in very close proximity to Pond Creek and is expected to produce roughly identical raw ton output upon achieving full production status; although initial engineering reports indicate that the coal located in Quest’s second mine is of higher quality than that of Pond Creek.

3. Low-Cost, High Potential Play on the Ongoing Coal Boom

As more established competitors including Arch Coal (NYSE: ACI) and Massey Energy (NYSE: MEE) continue to demand a premium from a stock price perspective, Quest represents a very compelling low cost opportunity to capitalize on the ongoing coal boom. Despite the obvious dangers of investing in companies currently in bankruptcy and trading in the penny range, the potential rewards are monumental.

4. QMNM Made a 4,000% Advance from 6/18 to 6/23

Quest recently advanced more than 4,000% in 3 days on total volume of 643,000,000 shares traded. QMNM closed at $.0016 on 6/18 and hit the high point of its recent run at $.075 on 6/23.

5. $8+ million contract in hand.

Quest has a $8M contract in hand with Logan & Kanawha Co., LLC., and recently noted that it had verbally accepted a 10% higher strike price per ton on coal delivered through December of 2008

What's it gonna take to get the stock moving northwards?

Since $.075, QMNM's trading behavior has been erratic at best. Despite tremendously high average daily trading volume for a penny stock trading in the sub $.10 range coupled with a number of stellar corporate announcements, the stock is parked below two cents. In my opinion, if Quest stays on track with recently stated production and rehab goals and quarterly financial reports become available, the stock will begin to receiving a more favorable valuation in comparison to its peers.

Just to give you an idea of what the future could hold for Quest if the company could indeed make good on plans to move out of Chapter 11 and continue bringing lucrative mining properties into production, here's a look at two of its larger competitors in the Appalachian region

Massey Energy Co. (NYSE: MEE)

The Central Appalachian-based coal provider recently reported a stellar second quarter aside from a $245.3 million pre-tax charge related to ongoing litigation with Wheeling-Pittsburgh Steel Company. Some of the highlights include:

• Record coal revenues of $710.3 for a 38% year-over-year gain.
• EBITDA increased 65 percent to $199.0 million excluding ongoing litigation-related charges
• Avg. revenue per produced ton of coal increased 28% y-o-y to $65.78
• Average produced coal revenue per ton increased 28% to $65.78
• Q2 operating cash margin per ton increased 83% to $15.94
• 28% increase in avg. realized prices on coal shipped in Q2 of $65.78 per ton vs. $51.40 per ton in Q2 2007
• 1st half coal revenue of $1.25 billion and net loss of $51.4 million or $0.64 per share

Massey also accompanied its commentary on second quarter operating results with forward looking guidance into the remainder of ’09 and 2010. Important highlights include:

• Building out another 3 to 6 preparation plants and shipping load-outs over the next 2 years;
  
• Expects produced coal shipments of between 46.0 and 48.0 million tons in ’09;

• Anticipated met coal output of between 13.0 to 14.0 million tons;
• Currently in possession of approximately 6 million tons of unsold or un-priced metallurgical quality coal for 2009; and
• 2009 cash costs anticipated in the $52.00 to $60.00 per ton range.

With close to 81 million shares outstanding and a P/E of 51.33, MEE closed 8/4/08 at $65.91. The stock has recently been upgraded by both Davenport and Standard & Poor’s and continues to attract investor interest as energy demand surges.

Arch Coal, Inc. (NYSE: ACI)

The St. Louis Missouri-based company operates 18 mines in 7 states and owns or controls approximately 2.9 billion tons of proven and probable recoverable coal reserves. With properties in states including Colorado, New Mexico, Kentucky, West Virginia, Illinois, Wyoming, and Utah; Arch saw second quarter profits double and now believes that 2008 will be a record year for the company. Here are some of the company’s second quarter highlights:

• Total sales of 34.4 million tons of coal during Q2 vs. 33.3 in Q2 ’07;
• Revenue increase of nearly 30% from $598.7 million in Q2 ’07 to $785.1 million;
• Net income of $113 million, or 78 cents per share vs. $37.6 million, or 26 cents per share;
• Operating margin increase from $3.51 to $20.16;
• Operating margin per ton averaged $4.21 vs. $1.75;
• Average sale per ton of $21.04, vs. $16.42 during Q2 ‘07 and $18.49 in Q1 ’08;
• First half earnings of $194.1M, or $1.34 per share, $66.3M, or 46 cents per share during the 1st half of 2007; and
• First half revenues of $1.48B vs. $1.17B during the 1st half of 2007.

With just over 144 million shares outstanding and a P/E of 23.17, ACI closed 8/4/08 at a price of $48.51. The company currently provides the fuel for about 6 percent of the electricity generated in the United States and hopes to see that number increase over the next two years.

Bullish Outlook on Both Sides of the Fence

With both corporate executives and independent industry analysts alike bullish on the company’s future potential, Arch Coal appears to be extremely well positioned to capitalize on the continued growth of the coal market.

In a recent investor conference call, Arch chairman and CEO Steven Leer, was quoted as saying "We expect 2008 to be a record year for Arch”; and "Our tighter and stronger guidance is indicative of our confidence in the coal market fundamentals and in our ability to capitalize on these strong market trends”. Within the analyst community, Calyon Securities' Gordon Howald recently reiterated his “buy” rating and $100 price target on ACI.