As of Minecraft beta version 1.2, mined coal is no longer the only means of lighting furnaces and creating torches.
You can now create charcoal in a furnace, which acts exactly like coal and uses the same graphic (but does not stack with coal).
To create charcoal without coal, you need a furnace, wood (harvested directly from a tree) and at least one wooden plank. Burn the wood using the wooden plank as fuel and you will gain one charcoal per wood. One wooden plank fuels the creation of six charcoal.
Once you have charcoal, you can use that to convert the rest of your wood. You can use coal in the same way. One coal or charcoal will smelt 8 items.
This obviously makes a major difference to Surviving Minecraft, as you no longer need to find a coal seam to make torches in order to survive the night.