Due to the growing market for sustainable energy, in order to increase the quality of the fuels, pellets are being produced from various materials such as wood and other biomass energy crops, and municipal waste. This paper presents the results from an economic feasibility study for pellet production using blends of two residue materials: coal tailings from coal cleaning and spent mushroom compost (SMC) from mushroom production. Key variables such as the mixture composition, raw material haulage and plant scale were considered and the production costs were compared to coal and biomass energy prices. For both wet materials, the moisture content was the critical parameter that influenced the fuel energy costs. The haulage distance of the raw materials was another factor that can pose a high risk. The results showed that the pellet production from the above two materials can be viable when a less energy-intensive drying process is utilised. Potential market outlets and ways to lower the costs are also discussed in this paper. (c) 2007 Elsevier B.V. All rights reserved.