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In fact and contrary to the above representations in the OM,
the S-J partnerships obtained coal mining leases on only 400
acres of property. Significantly, with regard to the remaining
10,600 acres, mining leases were not available because in 1976,
at the time the S-J partnerships were promoted and sold, a
Federal moratorium was in place on the issuance of mining leases
for coal reserves owned by the Federal Government.
Attached to the OM was a feasibility study in which
estimates of probable coal reserves on the property were made and
in which it was again suggested that leases to mine the coal
reserves on the property could be readily obtained.
In the feasibility study, additional misrepresentations were
made with regard to the market price of coal, the estimated
amount of coal reserves on the property, and the sulphur content
of coal reserves on the property. The author of the feasibility
study was not a geologist, as represented in the OM, and he had
no special qualifications to prepare the feasibility study.
In the OM, it was represented that advanced royalties that
the S-J partnerships agreed to pay were negotiated at arm's
length between unrelated parties and that such advanced royalties
would give rise to large net operating losses for the S-J
partnerships and its limited partners.
Stated advanced royalty obligations of the S-J partnerships
under the lease agreement were in fact not negotiated at arm's
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