May 27, 2009 Phone Conversation

Mike Sorcher

M A Associates (913-663-0100)

msorcher@matdf.com

We are the largest seller and pur chaser of TDF in the country.

One thing about our company is that we have a pr etty broad view of this business; we pioneered the development of tire-derived fuel. A lot of the information at the RMA is from us.

Basically, in general, the tires are picked up by state-permitted tire collection companies. Those tire collection companies pick up the tires and will sometimes grade off the good, usable ones (sold). They get paid a $/tire. The tire retailer’s paying to get rid of the tire (separate from the tax imposed by the state). Half that price is freight in getting it to the processi ng facility, and the tire collector pays the processor. Lots of companies that mediate. Take it to a cement plant or a tire processing facility. That plant de rives its revenues need the tipping fees at their front door to survive; need to call out the good usable tires; ta ke the scrap rims and sell those; take out the inner tubes of the larger tires and pull them out and sell them; process the material and sell the material either as a civil engi neering product or TDF or crumb rubber (3/4 inch minus) and sell that material. The finer you go, you have to be processing fine enough to sell your scrap steel. All those revenue sources minus your costs, if you’re missing any one of those things, the business goes down the tubes.

So you directly purchase the TDF? Our business is we go to these processors and bu y their fuel. We tell them the specification we want and barge it to our customers (paper a nd pulp, utility, co-gener ation facilities). These facilities use this material, we deliver it to them, we provide them with portable metering systems to meter the fuel into their fuel hand ling system, and we kind of hold their hand. Assist with environmental and operation issues.

Do you have a sense of the range of market price for TDF? Most of the people that collect ar e also processors. But they also deal with some flow from the guy with the pickup truck. So you’re the one who decides how much it costs. Range of market price can range from the customer destination ($20 to 100 a ton). Depending on quality needed, amount of transportation to get it there, and the competing fuels that we’re replacing. Displacing primarily coal. In general. Sometimes, and some times oil or natural gas. But typically, coal. Power plant.

Do you see a trend in terms of which plants /kilns want the TDF to be wire free?

The trend is to take the TDF with wire removed. When you talk about utilities, the only ones that burn TDF are either cyclone boilers (NOX issues) or CFBs. The utilities that are burning tires have concluded that they do have to put the catalytic converter on for NOX emission control.

And it’s been determined that the steel does not a ffect the catalyst. It ca n affect feeding system, affect operational difficulties in ash handling.2 We know every single end user in the country.

Utilities that might have a CFB boiler there are ve ry few of them but they will also need higher quality material. Couple of them that have trave ling grates. It’s very boi ler-specific, every boiler

is different. Overall the trend is to remove the trend. W ith certain ones, can operate with steel.

So you see a trend with cement kilns taking TDF with a higher metal content? Well, cement kilns take whole ti res. But the newer cement kilns can’t take whole tires. They need a smaller chip, and can handle it with stee l. But as soon as you star t processing to that 2 inch minus size, you get a lot more money going to the industrial utility ma rket versus going to cement kilns. Well, I’ll remove that steel since I’ m processing to that size anyways, I can remove the steel and sell to higher prices.

Overall, since 2000, you’ve seen the industrial mark et and utility/co-gen market make a push for alternative fuels but tires are very easy thing for them to go to. From a permitting/EPA standpoint. There’s been this drive towards alt. fuels. TDF is at the top of the list for pulp and paper/co-gen industry. It’s an easy fuel for th em to use if we provide the metering systems. Sulfur content is either less than or equal to their coal. And it’s displacing a fossil fuel. Sometimes the boilers operate more efficiently and can burn more wood waste with the TDF all

in one boiler.

So what would be the standard percentage of metal removed? In making the quality fuel 2 inch plus 90%+ wire free. In doing that, you have a reject. Up to 60% is rejected on the magnets. And then t hose magnets go to anothe r processing line that reprocesses it down to crumb rubber. Mulc h market, artificial turf markets.

Do you know what facilities would be good to talk to? ABC Tire LLC is no good – they are not a typical facility. Liberty Atlanta is a good facility to talk to

Columbus McKinnon --> Rick Collier or Charlie Estefan 800.848.1071. Their machines are used and SSI are used. One if hook and shear (SS I) and Columbus McKinnon is a block that sits

on a rotar and there’s 50 of these things. Hook and shear is a 2 in ch wide knife that goes around rotar and has points that shred. 2 differe nt types of processing equipment.

When you start going to crumb rubbe you go to high speed machines. 3⁄4 inch and smaller

systems.

Buy it from tire processors. Deliv ery price minus transportation cost plus profit margin for our company. Proper numbers anywhere from $30-90 a ton. General range that you would sell to burners. $50-60 would be a good delivered. Most of the users are Texas to Minnesota and on east. Very few TDF users, industr ial utility boile rs in the rocky mountain region. West Coast and

northwest.

It’s strange that I only hear about your firm ye sterday, and yet it seems like you are at the top of

the list?3 We’re very quiet about what we do and do not want to be talked about that much. We are the largest marketer of TDF in th e country. We want to be pret ty quiet about what we do. I talked to a couple of companies who seem to directly contract w ith end-users, but the rest said they go through a broker. Any energy product in this country (oil, natural gas, coal, wood wa ste) are sold through brokers, through companies that ultimately deliver the produc t. There’s a lot of l ogistics in getting the fuel to market. We are a broker, so to speak, but we are a logistics company, we manage and assist our customers to make sure they’re ma king the right quality product and handle the logistics of transporting the material (barging or trucking) and we wo rk with our customers operationally and provide metering systems to f eed this material into their systems.

What does this metering system look like? Metering system = it’s a hopper (a bin) with screw augers at the bottom of it that are variable speed controlled that discharge the material onto a nother transfer screw that raises it into the air so that it drops it onto their coal belt.

What are the challenges that your firm faces in this market? Biggest challenge that the industry faces is a couple-fold: (1) making sure the states enforce the waste tir e laws. The tires go with permitted collectors to a permitted processing facility. There has to be funds available to enforce the state regulations on the books. Challenge for the industry, not for us. Funding is always lacking at the enforcement side. (2) Markets. Developing markets a nd that is always a challenge for any industry but that is a challenge for this one. Finally at the point where TDF has been grow ing quite a bit over the last 4-5 years. People are looking for alte rnative fuels. And when one customer comes on they’ll use 30,000 tons a year = 3,000,000 tires = 5.5 million processed tires to meet that 3,000,000 tires. 40-50% reject rate. Some peopl e can use that reject. Septic systems. (3) What do you do with the reject? Not so much what you do with the good stuff you make.

Some systems you’ll have 50% reject rate versus 15% rate. Can fluctuate. The trend in general is to reject higher quantities and th en take that reject and re-proce ss it. Especially when scrap steel prices were higher. People over the last few years have made investments to do that. Sell the higher qualtity TDF and sell the steel. And sell the crumb rubber. But you have a lot more processing cost. TDF typically has to be 90% plus. 90-95% typically needs to be removed, but

some markets can handle 25-50% and still use it.

It’s an acceptable fuel, they’re dealt with it, they’re comfortabl e with it. So it’s an acceptable fuel. And in today’s industrial environment, th e only reason the industry uses TDF is because it

saves money. Crumb rubber market is holding steady and holding back a bit.

state of texas RMA looking in to potential scenario.