Note: The following is not a verbatim transcript of the Zoning Hearing Board meeting; it is simply one person’s summary of the major points made by those involved in the hearing process.  For that reason, quotation marks are not used unless a direct quote was recorded.  For information about obtaining an official ZHB transcript, contact the New Hanover Township office.

January 15, 2003

This meeting opened with an interesting new revelation. Mr. Harris opened by asking for an amendment to the initial application because, even though the quarry, as proposed by Gibraltar Rock is a violation of the current New Hanover ordinances, even though there is not yet any Zoning approval for the current property, even though the DEP has not approved it, with presumption and plain contempt for the process thus far and the individuals and organizations involved, the Silvi's have acquired two more properties in the “light industrially” zoned area of the township adjacent to the current property and north of Hoffmansville road. As such Mr. Harris began the meeting with a request to officially amend the application and several exhibits. Mr. Robert Brant, the township solicitor, objected to this move and stated that “this quarry keeps growing and growing and growing.” Mr. Brant said that if the property were bought to insure a buffer area then that might help Gibraltar’s case, however, as became immediately apparent in the exchange, Gibraltar Rock bought property zoned “light industrial,” where mining is against the township ordinances, with the presumption and expectation to quarry it. Mr. Brant wanted to know how many more properties would be inserted in the final days of the hearings since these are not the first to be added but Mr. Harris assured the township that it will not get any bigger.

The meeting the proceeded with the riveting testimony of the Economic Geologist, Mr. Alan Stagg. Mr. Stagg was asked about the new properties and indicated that he had added them to his economic impact study. Mr. Stagg pointed out that they have no effect on his previous evaluation of the township’s plan since they are zoned “light industrial,” and would therefore not be allowed to be mined under that plan. With the new property included in the plan under Gibraltar’s plan they would be able to get more stone using the additional properties. In this new location alone Mr. Stagg reported that they could quarry 500 feet (or 10, 50-foot levels). This would allow a shift in Gibraltar development plan that MIGHT include a move of phase one to be on the north side of Hoffmansville road and would include these new properties. The problem would be the transportation of stone to the south side of the road, which would be where the asphalt refinery and cement plant, would be located. The options laid out for this development include trucking it, or building a tunnel underneath Hoffmansbille road with a conveyor belt. In the latter case the primary crusher would be located on the north side of the road and then the stone would be moved to the secondary and tertiary crushers on the south side of Hoffmansville road.

At this point Mr. Stagg began to enumerate the changes he made to Gibraltar’s economic plan. He explained that capital expenditures would change due to the construction of the tunnel and conveyer. Overburden removal would be easier initially due to the nature of the geology on the north side of Hoffmansville. According to Mr. Stagg, Gibraltar’s overall rate of return on the project would vary from about 2.9% to over 5% for the various Gibraltar development plans. Mr. Stagg explained that the rates of return he was discussing were the “project rate of return” on all of the expenditures and over the life of the project.

Mr. Stagg continued to thrill audiences with some of the details of the rate of return calculations and how he derived them from his cash flow analysis in appendix B of his report. In explaining this exhibit (A67) he showed what the projected cash flows for each of the 40 years of the plan would be. He explained that in the earlier years of the project the expenditures would be much greater than the revenues resulting in annual losses for Gibraltar. In his analysis he showed that he does not expect Gibraltar to loose money every year until the 10^th year of the project. In the 10^th year he expects Gibraltar to have its first year where annual expenditures are less than that year’s revenue. Mr. Stagg explained that Gibraltar would still not be “profitable” since they still would not have made enough money to cover the losses of the first nine years. It is not until the 19^th year of the project that Gibraltar would actually be able to cover its losses of the first years and over the life of the project a rate of return of 4.58% would be possible.

Mr. Stagg said that these types of rates of return were typical of capital intensive businesses. Mr. Stagg pointed out, however, that the township case does not allow Gibraltar to become profitable before it runs out of resources and therefore doesn’t allow, at all, for a positive rate of return over the life of the project.

Mr. Stagg proceeded to explain exhibit A66, which was the same analysis with inflation factored in. He showed that with this new model under the quarry’s plan Gibraltar Rock’s project rate of return would be about 6.5%. Mr. Stagg concluded that even using this technique the Township plan didn’t allow for profitability.

Next, Mr. Brant cross-examined Mr. Stagg. During Mr. Brant’s cross-examination we learned that this was not the first time that properties have been added to the application. Mr. Stagg indicated that his new report, the one that included the additional properties, would contain the purchase price of the land. During this line of questioning it was established that neither Mr. Stagg, nor anyone in his company, had actually examined the new properties in question.

Next, the line of questioning and testimony moved to the aptly named borings and boring holes used for the analysis. While the point was obscured initially, it was revealed that no borings from the new properties were used in the report or its expansion, but the information was extrapolated from the only boring that existed for the north side of Hoffmansville road.

It was also established that Mr. Stagg’s involvement with the property was subsequent to the application filing with New Hanover Township. Having established that the Silvi’s challenge to the township at the onset of the application procedure was that the township ordinances wouldn’t allow for profitability, Mr. Brant pushed Mr. Stagg as to what he knew about their position when he was hired. By the end of this line of questioning Mr. Brant had shown not only that Mr. Stagg was hired IN ORDER TO FIND that the quarry would not be profitable under the township plan but that this was known by Mr. Stagg at some point during his on-going employment.

Following this there was discussion about how common it was in Mr. Stagg’s practice to represent individuals that have already purchase land and know what the desired economic report outcome should be at the outset of the investigation. Mr. Stagg admitted to being employed by others that had similarly bought property BEFORE having an economic study done.

The line of questioning then continued with revelations from Mr. Stagg about how much on site work was actually done, how sparse the boring holes used to make the judgments were and how heavily were the reports of others under the employ of Gibraltar Rock relied upon. Mr. Stagg said that he visited the site a whopping two times and relied almost exclusively on the geologic and hydrologic reports of Mr. Walter Satterthwaite. He said that his market potential analysis used “publicly available data” provided by government agencies (like the census bureau, etc). However, it was revealed that Gibraltar also supplied the data about competition, the market, operating costs, etc; most of the critical economic data that used in the economic evaluation of the viability of the projects under the various plans.

Mr. Stagg admitted that he was not given access to the Silvi Group’s financial data for verification. Not even to it’s tax, only to some historical cost numbers. Mr. Stagg had to admit that the viability of a company would certainly affect an economic report in such things as its ability to borrow money. He said that he took a Silvi Group official’s word for the interest rate on any loans (which they told him would be 7%) and admitted that he did no verification of this number.

On independent verification of the geologic or hydrologic data, Mr. Stagg had one or two discussions with Walter Satterthwaite and one of his geologists (whose name escaped him at the time of this testimony) over the telephone and that he did no other independent verification of the data provided.

This lead to a detailed discussion of drill holes and how they are used in an economic geologist’s report. Again, Mr. Stagg was forced to admit that he didn’t analyze the core samples himself but relied upon logs of boring holes and the report’s of Mr. Satterthwaite. Mr. Stagg did say that the 2001 cores were retained and that Stagg has SEEN them (and can therefore verify at least their existence).

Mr. Stagg then displayed his knowledge of the drilling maps used in the report by failing to indicate what the various markings on the map meant and claiming he didn’t remember. Mr. Stagg explained that there is no general system for marking drill holes and that it’s enough to know that they are drill hole identifiers which correlate map locations and drill hole records.

During this line of questioning Mr. Stagg said that he thought the 163+/- acres of ground could be adequately covered by the total of 7 core holes that were taken. Mr. Stagg didn’t think that these would be sufficient in themselves but taken with the other (non-core) drilling records that it is sufficient. Mr. Stagg explained that “core” holes are where a cross section of the ground is taken up and its strata observed and studied while other drill holes or “rotary” holes were places where the samples were taken that resulted, not in intact cores, but in ground up material, and records and logs were made, but the reference material is not kept. In response to being asked if this was an appropriate drilling density, Mr. Stagg replied that there is no way of saying what is sufficient drilling density. Although he did claim that the stone in this area is fairly monolithic. Mr. Stagg concluded after all of this by stating that he was comfortable with the adequacy of the reference data.

January 16, 2003

The meeting began with Mr. Bob Brant, attorney for the township continuing his cross-examination of Mr. Alan K. Stagg, expert witness on “Economic Geology” and President/CEO of Stagg Resource Consultants.  Brant had begun his cross-examination on Wednesday night.

Brant questioned Stagg regarding the rock that was extracted from the holes dug on the proposed site. Stagg said that he was not able to analyze all of the rock.

Brant next questioned Stagg on the validity of his economic assessment. He asked if Stagg had examined all 41 of the other quarries in SE PA.  Stagg said he identified and received production data from these other sites. From this data he developed the location map. He admitted that he had not physically visited any of the sites---all of his data came from telephone conversations on from the Internet---but no site visits.

Brant asked him how many sites (of the 41) had plants on them. He responded only one had a plant but 19 had quarries. Brant asked him if it was unusual that none of the sites identified had all three types of operations (quarry/stone crushing, asphalt production, and concrete production) on them. Stagg admitted that it was.

Mr. Francis Recchuiti (representing a local resident) was next to cross-examine Stagg.

Recchuiti spent a lot of his time questioning Stagg’s credentials. He began by asking him how many college/university credits Stagg had toward advanced degrees (masters, doctorate). Stagg said “none”. Recchuiti then asked him when the courses he did have were obtained and he said between 1979 and 1981.  When Recchuiti asked if he had any publications in societies or scholarly journals he responded that he did not. Recchuiti next asked him if he had a degree in accounting, since he is being presented to the board as an economic expert. Stagg said he did not have an accounting degree---actually he did not even have any accounting classes in college or any courses after college in accounting. Stagg admitted that he is not an expert in cost accounting, but that he had knowledge of it.

Recchuiti’s next line of questioning was on his experience. Recchuiti asked him if his general work experience has been in coalmines. He said it was.

Recchuiti then asked him if it was his testimony that if the township did not give an exception to the existing zoning, that the land is not economically feasible to quarry. He said that without the exception it is not.  Recchuiti then asked him, “if you knew before you did you study, that the site (as zoned) would not be economically feasible, would you have advised John and Larry Silvi (Gibraltar Rock, Inc. owners) to purchase it”. He said, “I wouldn’t have enough data”. He never really answered the question.

Recchuiti next asked about the reasonable rate of investment on a quarry like this and Stagg said between 4-6%.  When Recchuiti asked if he would have presented the same forecast for a publicly traded company (versus a private company like the Silvi Brothers), he said he would.

When Recchuiti asked him if he used union or non-union wages to compute the data he said non-union.

Recchuiti asked what would happen to profitability or rate of return if there weren’t multiple plants on the land. Stagg replied that it would go down.  Recchuiti asked if it was necessary to run an integrated facility to be profitable and Stagg replied “no”.

Dave Davis, attorney for the Paradise Watchdogs and the community began his cross-examination of Stagg.

Davis asked the average sale price per ton of stone and Stagg replied that it was $6.50/ton. Stagg also said that this business is price and sales driven.

Davis next asked Stagg where his site-specific information came from. Stagg mentioned a number of people on Silvi’s staff, including John Silvi himself. Stagg said that they provided him with cost information, permit information, acquisition costs, processing costs, and costs for equipment. Stagg said that most of the information came in telephone calls not much was in writing, except a few emails. Davis asked him id he questioned any of the information. He said that for some of the costs he asked other people, but that in his opinion the costs were “true and accurate”.

When Davis asked how much time he spent working for Silvi he said he didn’t know. He bid a lump sum and Silvi is paying him on three installments: completion of the study, beginning of his testimony, end of his testimony.  Davis asked Stagg if he spent more time than he billed and he said yes. Davis asked if this was because of a bad estimate. Stagg said he routinely underbids, that he knows he will work more than his bid---that in effect he will lose money---because he says that’s the nature of the business (to lose money?)

Davis next asked about the competition he used in his economic study. Davis asked if Stagg knew the current production, current capacity, or current reserves for the 41 competitors. Stagg said he couldn’t recall. Davis said, “is it your testimony that existing Pennsylvania and Montgomery County production (of concrete, crushed stone, and asphalt) can’t meet present and future needs---and Stagg replied, “No”.

When Davis asked if Stagg knew if any of the existing 41 facilities are profitable, Stagg said he did not know. Davis said, “there seems to be a lot of stuff you don’t know”. He then asked how much the competition drives the prices that he used, and that prices are subject to many more variables than Stagg used. He asked Stagg if he knew what competition will be in five years and Stagg replied he did not.

Davis then questioned him about what the Silvis had done so far. Stagg said they had done a hydrologic test and begun permit application. When Davis asked if any application had been made to date, Stagg said no applications have been submitted.

Davis asked who told him that construction would begin January 2004 and he said Uday Patankar (the permit expert working for Silvi). Davis asked if it was realistic. Stagg said probably not, more like 2005 or 2006. Davis then asked if starting later would lower the rate of return, and Stagg said it would.

Davis then questioned Stagg’s numbers by reminding him that he said that some of the stone would be used by other Silvi operations---there is no revenue if you give stone to other Silvi operations. Davis asked if this would effect the revenue projections. Stagg said it would.

The meeting ended.

The next meetings will be March 3, 2003.

See Also:
Summary of the previous meeting (December 12, 2002)