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March 13, 2013
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One-On-One: Jim Booth discusses how he turned a part-time mining job into Booth Energy Group

‘Hard work, serious commitment is best recipe for success’

By Ed Lane

James H. Booth is president of Booth Energy, a Kentucky-based conglomerate coal group. Booth began his career in coal mining operations while still a student at Morehead State University and partnered to start his first contract mining operation in 1975. He has since added numerous mining operations in Eastern Kentucky and West Virginia that supply electric companies throughout the eastern United States.

Jim Booth is president of Booth Energy.

Jim Booth is president of Booth Energy.

Booth also has developed an extensive network of retail operations and real estate holdings over the years. He was recently elected chairman of the Kentucky Chamber of Commerce, is past chairman of the Morehead State University Board of Regents and has served on the boards of the University of Pikeville and the Big Sandy Industrial Authority Board, among others.

Ed Lane: You grew up in Beauty, Ky., in Martin County and now live in Inez, the county seat. You attended Warfield High and Morehead State University, graduating in 1971. To pay your way through college, you worked part-time at Wolf Creek Collieries as a miner, and after graduation worked there full-time in management four more years. In 1975, you and partners Roy F. Collier and Leonard Runyons started Thelma Coal Co. as a contractor for Island Creek Coal Co. Because of good management practices, your first mining investment was very successful and helped launch your firm’s growth. Reflecting on your last four decades, how would you describe the success you, your partners and business associates have created?

James Booth: I’ve been very fortunate. Each of my partners was able to bring something to our first group. Leonard was the executive type, really close to retirement; Roy is 20 years my senior and an electrician repairman; and I had been the mine foreman of a fairly large mine. Roy’s and my skills were the main ingredients it took to make the mine successful. I managed production and the men; Roy kept the mining equipment operating. At our first mine, we paid $1 per ton to lease the equipment that was owned by Island Creek Coal Co. When we started in 1975, the equipment was 1960 vintage. Leonard’s experience helped us develop a good relationship with our employees and to find experienced and qualified men for the work. We made a great team.

EL: You operated smart, kept your equipment in good repair and managed your workforce. Were you paid by production?

JB: Yes, we were paid per ton by Island Creek to deliver the coal to their preparation plant. Soon, we became the production leaders in this group because our team was so strong. We mined it out in about four years and moved to another operation. Roy and I became partners in the next new mines, and Leonard retired. Going forward, we decided to diversify into retail and bought a building supply business. Through operating it, we started building our own rental properties and signed a lease with the U.S. Post Office.

EL: Was your plan to reinvest the profits you were making from mining?

JB: We were not making a lot of profit when we first started. We were being successful in mining and handling a lot of money, but the federal tax rate was 70 percent and we were really struggling to accumulate cash or profits. I paid $1 million in income tax when I was 27 years old (I started when I was 25). Until Ronald Reagan became president and adjusted the federal income tax system, we were not really growing. By 1984, I could really see the effect of not having to pay such a high tax rate. Our profits were accumulating, so we built our first Fast Lane Convenience Store; the company now has about 30 locations.

EL: Was most of your business contract mining, or did you purchase mineral rights?

JB: It was all contract mining with Island Creek, Mapco and United Coal. Our mining business was successful and making profit. In 1987, we had the opportunity to sign a lease with Ashland Coal, which became Arch Coal, and ended up with a property in Johnson County. We built a preparation plant and started marketing, selling and trucking our own coal.

EL: Over the years you have developed a conglomerate coal group known as Booth Energy Group. Recently your company and River Trading Co. entered into a 25-year, $7 billion contract to sell coal to India’s Abhijeet Group. How is this deal progressing?

JB: I am not comfortable with the export relationship at this point in time. I do believe that we will export more coal to India, but we’re also looking at other opportunities. In 2012, my company sold about 6 million tons of coal. Typically, in prior years, Booth Energy mined 8 million tons annually. Because of regulations and permit issues, we will likely mine less coal in 2013 than we did last year.

When the price of coal skyrocketed, it was bad for the mining industry because it caused our labor market to shrink and reduced the availability of equipment and supplies. Everything got more expensive, and costs went up really fast. — Jim Booth

Our costs have gone up and our tons per man-hour have decreased due to regulations and permitting. On the surface-mining side, we are trucking our overburden because now we don’t put material in hollow fills. In prior years when I was mining 8 million tons, my tons per man hour was significantly higher than it now is. My cost prior to 2000 was about $25 a ton; my cost today is $70 a ton. When the price of coal skyrocketed, it was bad for the mining industry because it caused our labor market to shrink and reduced the availability of equipment and supplies. Everything got more expensive, and costs went up really fast.

Now that price and demand for coal is shrinking, our mines are getting substantial competition from the Illinois Basin. It is difficult for mines in the Central Appalachian region to achieve prices and costs that are competitive. If I sold a spot ton of coal today it would average about $65. I do have some mines that have lower costs than $65. What drives up averages is the higher cost of surface mining. Most people think the cost of surface mining is lower, but typically underground mining is less expensive.

EL: Logistically how will coal be delivered to India, and is the buyer responsible for the shipping costs from a certain location or U.S. port?

JB: We have already shipped coal to India using two different methods. We own a barge-loading facility on the Big Sandy River at the Wayne County River Terminal. We load coal on a barge and ship it to New Orleans, where it’s transloaded onto a vessel. If by rail, we typically ship on the Norfolk Southern Railroad to Lamberts Point in Norfolk, Va., which is the facility that transloads to ships.

EL: Are shipping costs and the cost per ton of coal adjusted over the 25-year contract?

JB: That is correct. Typically, in our deal with India we receive a FOB (freight on board) price at our loading point. A barge handles 1,600 tons; there is usually one tug. Then when it goes to the vessel, (loads) will either be as small as 60,000 tons or as large as 100,000 tons.

EL: How many layers of governmental approvals were required to finalize the export deal?

JB: So far, the coal buyer has handled the bureaucracy. The Abhijeet Corp. is actually a U.S. company located in New Jersey. They have handled the transportation permits and the entire export/import situation.

EL: A recent newspaper article indicated the cost per exported ton is $65, but you are actually selling it for $45 a ton.

JB: That’s not accurate. The concept from the very beginning was to negotiate the price on each shipment. So we are typically selling coal at market rates.

EL: What are positive and negative issues of this long-term export sales agreement?

JB: I have made sure Booth Energy didn’t get obligated in any way that could be detrimental to the company. It’s an expanding opportunity that I will use in the best interest of my company as long as it is a reasonable and profitable strategy.

EL: State coal severance taxes collected in the first half of FY13 (July 1-Dec. 31, 2012) are down about 25 percent. What factors are depressing coal sales?

JB: The market is depressed by at least 25 percent, and it could be as much as 33 1/3 percent. My logic for that estimate is that we’ve lost about a third of our coal miners in the Central Appalachian Kentucky region. There are 5,000 fewer coal miners today than there were last year. Last year, Kentucky had 18,000 miners; there are now 13,000. West Kentucky coal basin employment remained stable, so all the employees lost in the Central Appalachian region were in Eastern Kentucky.

EL: Does job loss have to do with the grade of coal?

JB: No. It’s all about cost. What happened is, the Obama administration intentionally – publicly, no secrets – has targeted the Central Appalachian region on which to enforce more stringent regulations. Eastern Kentucky and all of West Virginia, Pennsylvania, Tennessee and Virginia have seen tremendous regulation enforcement and more issues with permitting. The Illinois basin has benefitted from not having strict enforcement like that affecting the Central Appalachian region. The cost of mining coal in the Illinois Basin is about $30 a ton, and the cost of mining coal in our region is about $70 a ton.

What has really changed the market demand for Illinois Basin coal versus Central Appalachian coal is the fact that scrubbers have been put on coal power-generating plants, so there’s really no serious advantage now for a utility to need low-sulfur Central Appalachian coal. Now they can use the 3 percent and 4 percent sulfur coal that comes out of the Illinois Basin. In fact, there may be an advantage to have sulfur in the coal when using the scrubber.

EL: Having actually worked as a coal miner, could you address mine safety enhancements initiated over the last two decades to help protect miners?

JB: When I started (around 1975), the conventional mining method utilized cutting machines to undercut the coal; drilling and explosives were used to blast the coal. This is the underground process. Shortly after I started, the continuous miner (a revolving-head cutter that extracts coal from a seam face) was introduced. The machine replaced men and provided a dust-scrubbing system called a wet-bit scrubber. A big fan system with water flowing through pulls the dust through the scrubber, and when the air exits the other end the dust is diluted. Coal dust is what causes black lung disease. We’ve made huge strides in reducing the dust levels in coal mines. The mine inspectors are doing a better job, and we do have strict enforcement. The fact that inspectors are regularly in a mine is a good thing.

When I first started, roof bolters didn’t have an automatic temporary roof support system (ATRS). The guy was just out on his own and set jacks by hand. Today, everything is automatic. With a push of a button an ATRS goes up against the roof, and it will hold any rock. You very rarely hear about coal miners getting hurt anymore. It used to be much more unsafe.

Technology has improved and miners have wireless communications underground. Our coal miners carry a cell phone, and they can talk and communicate with the surface. We know where every miner is at all times from the office to the outside. There’s been vast safety improvement. Improvements have something to do with the cost. Safety enhancements are the most significant part of the increase in operational costs.

EL: How do emergency shelters work?

JB: Within 1,000 feet of mine sections in which miners are active, a shelter is provided that would support 20 miners for 96 hours with food, water, oxygen and medical supplies. Mines have primary and secondary escape exits. Self-contained self-reserves (SCSR) are stored every 5,700 feet along each rescueway for use by miners in an emergency. The distance between the SCSRs is closer if the height of the mine opening does not permit miners to walk erect. We provide shelter in all underground mines; it doesn’t matter if it’s a large or small mine.

EL: Does your firm have full-time safety management?

JB: Yes, there is always safety management on a site. At Booth Energy, I have a safety director, and he has people who report to him. His inspectors go to and inspect each mine. We try to continually inspect to make sure we don’t have operating violations. We have rescue teams located within an hour drive of any mine. Our teams are well trained, do regular practices and enter competitions.

EL: What type of safety training exercises are available?

JB: Kentucky Employers’ Mutual Insurance safety competitions have been really good for Kentucky. The safety meets are almost like a sports event, and everybody gets excited about the competition. The men get awards if they perform well. They are given a task and that is how they are judged. The competition is a good thing because, in the end, if we have a disaster we’re well prepared.

EL: What is your opinion about surface mining?

JB: Surface mining has been good for my community. Where I live, there is no flat land naturally. Because of surface mining, Martin County has an airport, an industrial park and a federal prison, and some wildlife – elk and wild turkey – with great hunting in the area where it never was available before. Under today’s rules, miners are not creating flat land because we’re not allowed to fill in the heads of the hollow. That has stopped us from making flat land, and that’s a negative. The people who are against mountain top removal have not been able to see its economic importance for the region. It is very important that we are able to create usable land for the future.

EL: At a time when business conditions are lethargic, as a successful entrepreneur, what advice would you give to young business people who are coming into the work force?

JB: It is really important to evaluate the market on which you are concentrating. Know that you cannot be too aggressive and start whatever business you’re focused on without doing at least a crude market study. I’ve seen failures because an idea was not thoroughly evaluated to make sure it had the potential to be successful. If you are thinking about anything that is in sales, manufacturing or in a service, you need to make sure you are a good team builder and you can provide financial and experience support. Looking back at the things I’ve done, I’ve made lots of mistakes, but I’ve generally had a targeted market in which I wanted to invest.

It’s good to focus on or target your career interest. Timing is critical. There are times – regardless of how badly you want something to work or how hard you work – when the odds are against you; you might not be able to make an idea work. But I do know that hard work and serious commitment is the best recipe for success. I’ve always said that it doesn’t matter what you do if you do it the very best you can. Do your best, and the likelihood of success increases.

EL: Have you ever made a major blunder in business?

JB: I’ve definitely been involved in some losing coal mining propositions. It ends up that the cost per ton to extract the coal is too high. In general, I’ve usually managed to survive during the bad times by diversification. By having strong retail units (Fast Lane Convenience Stores), even when times that the coal industry got tough I was able to raise capital and invest in new ventures.

EL: You have been a strong supporter of Morehead State University and serve on its board of trustees.

JB: I’m still on the MSU board, but I term out this year. I’ve served two terms, and my 12th year ends in June. I’ve served the four-year maximum allowed for board chairmen. I was also fortunate to chair the selection committee that hired (current MSU President) Dr. Wayne Andrews. He was a great hire.

EL: Do your companies provide educational benefits and special training for their employees?

JB: Booth Energy typically provides 15 scholarships to graduating seniors from Sheldon Clark High School in Martin County, and I have an educational company – the United States Achievement Academy in Lexington – that has contributed over $1 million in scholarships to honor students since 2001.

EL: You are the current chair of the Kentucky Chamber of Commerce. The chamber has been promoting the “leaky bucket” campaign, which highlights major financial weaknesses in the state’s fiscal policies. Could you comment on the state’s pension and retirement fund, which is estimated to be underfunded by $33 billion?

JB: I am very concerned. Pension and healthcare underfunding is a serious problem. Our governor and legislators realize that. I also served on the Blue Ribbon Tax Commission that the governor established and is chaired by Lt. Gov. Jerry Abramson. In my opinion, Lt. Gov. Abramson was an effective leader of the commission. Through its work, the commission is recommending ways to generate more revenue to invest in education. The commission was not interested in growing government.

EL: Are you in favor of a local-option sales tax for cities and counties?

JB: I am as long as the legislation is term-limited.

EL: A well-known quote states, “Behind every successful man is a great woman.” How has your wife Linda helped in your business and civic endeavors?

JB: Linda and I will have been married 45 years this June. Coincidentally, I was born in Beauty, Ky., and Linda was born in Lovely, Ky. We have nine grandkids. She is the best “Nana” and wife in the world. There are a lot of times when I’m working away from home, and she has been able to keep everything on task. She has been a full-time mom and housewife. Now she also is an interior decorator. She is really talented, and she often helps design the lobbies in our hotels. In fact, one of my partners bought a 12,000-s.f. house and Linda actually designed the trusses on the roof and decorated the entire house. She’s a very strong Christian lady and is really the rock in our family.

Ed Lane is CEO of The Lane Report.

Ed Lane is CEO of The Lane Report.

Ed Lane (edlane@lanereport.com) is chief executive officer of Lane Consultants, Inc. and publisher of The Lane Report.

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Lane Report Cover February 2013 In This Issue
Kentucky pension shortfall a potential bankruptcy bomb
State pension participants, politicians, taxpayers have compound interest in fixing system
Features

One-On-One: Newly elected Senate president says state pensions system shortfall is correctable over time
Ed Lane talks with Sen. Bob Stivers about issues affecting Kentucky

State embracing federal healthcare reform
Kentucky’s medical community has been busy implementing healthcare act since its 2009 passage

Technology adds up for CPAs
Increasingly, accounting firms find productivity gains with latest digital products and services

Commentary: Negative impact of the alarming $16.4 trillion U.S. debt growing every day
Each American’s share of the U.S. debt now totals $52,000

Fast Lane — February 2013
A compilation of economic news from across Kentucky

Corporate Moves – February 2013
New leadership for Kentucky businesses

On the boards — February 2013
Kentuckians named to organizational leadership roles

Accounting outlook: Slow growth, reform and tax change will keep CPAs busy
Leaders of Kentucky’s major accounting firms talk about what they expect in 2013 for their firms and Kentucky as a whole

Business law: The gavel had impact in 2012
Upholding of Affordable Care Act was most significant court case of the year for Kentucky businesses

Legal outlook: Slow, steady growth
Multiple sectors of Ky. economy beginning to recover from post-recession bottom

Providers predict a very big year for healthcare
2013 is expected to be fraught with ‘budget dilemmas and tough choices’ for the healthcare industry

The Largest Law Firms in Kentucky
By number of attorneys employed in Kentucky offices as of February 2013

Gotta love Louisville
City’s array of attractions is numerous, diverse … and celebrated

House approves pension reform bill and funding measure
Funding would potentially come from Club Keno and iLottery games

Governor says he’s prepared to call special session to deal with pension reform
Senate, House disagree about how to dig out of $30 billion hole

Venture capital: Start-up funding seeds sprouting
Club know-how growing thanks to neighborly attitudes and Kentucky Innovation Network support

Banking outlook: Economic signs grow increasingly optimistic
Banks and financial advisers see slow, steady improvement in 2013

Kentucky communities need same tools as competitors in other states
Alliance of mayors, judge/executives supports local-option sales tax

One-On-One: Jim Booth discusses how he turned a part-time mining job into Booth Energy Group
‘Hard work, serious commitment is best recipe for success’

Departments

Exploring Kentucky

Fast Lane

Features

Interstate Lane

One-On-One

Opinion

The Lane List