Denver Coal Club

Denver Coal Club

The Powder River Basin: It’s Current Status and Prospects

Burnham Coal, LLC March 21, 2013


Disclaimer

“It’s tough making predictions, especially about the future.” - Yogi Berra, variations by Casey Stengel, Mark Twain, et. al. “predicting the future is easy. It's trying to figure out what's going on now that's hard.”Fritz R. S. Dressler


Powder River Basin Mine Location Map


MMT1978 MT 26.4

WY 34.7Total 61.1

2008 MT 44.4WY 451.7Total 496.1

2012 MT 36.4WY 388.4Total 424.8

For the first time since 1978, PRB producers are experiencing a prolonged decline in production


Don’t expect increased production in 2013


Long term planned and potential production capacity has not decreased


Existing mines and projects

2008 2012 Planned Potential Peak Year NoteAlpha Belle Ayr 28.7 24.2 30.0 20.0 28.7 2008 Eagle Butte 20.4 22.5 25.0 30.0 25.4 2011Ambre Energy (pending closure of Cloud Peak's 50% interest) Decker 6.9 2.8 3.0 16.0 10.0 2002Arch Black Thunder 130.7 93.1 135.0 150.0 130.7 2008 2008 combines BT & JR production Coal Creek 11.5 7.6 12.0 16.0 11.5 2008 Otter Creek 20.0 40.0Black Hills Wyodak 6.0 4.2 8.0 8.0 6.0 2009Cloud Peak Antelope 35.8 34.3 37.0 42.0 37.1 2011 Cordero Rojo 40.0 39.2 42.0 42.0 40.5 2007 Spring Creek 17.9 17.2 22.0 34.0 19.3 2010 Potential includes Youngs CreekKiewit Buckskin 26.1 18.1 25.0 36.0 26.1 2008Peabody Caballo 31.2 16.8 24.0 35.0 32.8 2006 NARM 97.6 107.6 150.0 160.0 109.1 2011 Includes School Creek reserves Rawhide 18.4 14.7 18.0 25.0 18.4 2008Signal Peak Bull Mountain 0.2 5.7 9.0 9.0 5.7 2012Westmoreland Absaloka 6.4 2.7 11.0 13.0 7.7 2007 Rosebud (Colstrip) 13.1 8.0 12.0 14.0 13.1 2008Western Fuels Dry Fork 5.3 6.0 8.0 15.0 6.0 2012

Total 496.2 424.7 591.0 705.0 528.1

MMTPY

Australian interest in U.S. coal (the grass is always greener):

Ambre Energy buys 50% interest in Decker and Black Butte mines – acquisition of the remaining 50% of Decker is Pending

Australian-American Many Stars project in MontanaCounty Coal ltd., wants to develop two coal mines in the PRBContinental Coal Ltd. Is in discussions with the Crow Nation to acquire a large

coal deposit in Montana.


Current cost related trends



Productivity began falling in 2001

42.0 TPMH

28.3 TPMH


Ratios are climbing


Reserves are getting more expensive


Thoughts on companies and mines

Where will the coal go?



Domestic markets are not expected to improve


Are exports the answer?

Forecasts – everybody agrees that the demand is there.But let’s look at history.



Los Angeles Export Terminal (LAXT)

0

1,000

2,000

3,000

4,000

5,000

6,000

1970 1975 1980 1985 1990 1995 2000 2005 2010

Tons

(000

)

ExportsSource: Utah Geological Survey, Utah Energy and Minerals Statistics

Utah exports jump from 0.5 Mt in 1987 to 3.0 Mt in 1993.

Work starts on LAXT in 1993.

Utah exports peak at 5.3 Mt in 1996.

Port opens in 1997.

LAXT closes due to lack of business in 2002.


U.S. Coal Export History

0

20

40

60

80

100

120

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Mill

ion

Tons

TOTAL EXPORTS

Source: EIA

0

20

40

60

80

100

120

2002

2004

2006

2008

2010

Mill

ion

Tons

EXPORTS BY COAL TYPE

Anthracite Metallurgical Sub Bituminous Other Bituminous Lignite

Source: EIA


Historically, the U.S. has been the swing supplier


U.S. producers have an transportation disadvantage from mine to port.


West Coast Transportation Routes

Origin City/Port Carriers Rail Barge TotalSouthern PRB Westshore BNSF 1,330 0 1,330Southern PRB Ridley BNSF/CN 2,430 0 2,430Southern PRB Gateway BNSF 1,300 0 1,300Southern PRB Millennium BNSF 1,320 0 1,320Southern PRB Millennium/Port Morrow BNSF 1,125 175 1,300

Somerset Mines Stockton UP 980 0 980Price Mines Stockton UP 770 0 770

Somerset Mines Long Beach UP 860 0 860Price Mines Long Beach UP/BNSF 680 0 680Southern PRB Long Beach BNSF or UP 1,783 0 1,783

Somerset Mines Millennium UP 1,166 0 1,166Price Mines Millennium UP 924 0 924

West Coast Transportation Distances


Great Lakes - Gulf Coast Transportation Routes

Origin City/Port Carriers Rail Barge TotalSouthern PRB Superior/Quebec City BNSF/Lake Vessel 1,140 1,500 2,640

Southern PRB St. Louis/Devant BNSF or UP/Barge 1,100 1,100 2,200Southern PRB Burnside BNSF or UP 1,620 0 1,620

Somerset Mines Houston UP 1,455 0 1,455Yampa Valley Houston UP 1,205 0 1,205New Elk Corpus Christi BNSF 1,015 0 1,015

Great Lakes - Gulf Coast Transportation Distances


And a transportation disadvantage from port to customer.


The U.S. has a seaborne disadvantage to Asia

India East Coast India West Coast ChinaLoading Port Dhamra Adani/Mundra Beilun/Boshan Comments

Roberts Bank/Westshore 8,675 9,852 5,056 Direct

New Orleans 11,287 9,327 13,939 Via: Suez Chanel avoiding piracyNew Orleans 13,505 NA 9,954 Via Panama CanalNew Orleans 12,668 11,906 14,777 Via Good Hope cape

Newcastle 5,781 6,420 4,445 Direct

Indonesia 2,751 3,873 1,960 Direct

(Distances in Nautical miles)

Shipping Distances


Burnham Coal, LLC

Port Capacity and Proposed Expansions (Mt)

2011 2015 CommentsWest Coast 6 80 Majority of the build-up is in proposed portsGulf Coast 30 140 Majority of the build-up is in existing portsEast Coast 60 115 All of the build-up is in existing portsGreat Lakes 6 15 All of the build-up is in existing ports

March 21, 2013

Environmental opposition to ports:

“EPA wants full review of Oregon coal-export project”“Oregon governor wants study of coal-export impacts”“Port of St. Helens eyed for coal terminal, Columbia Riverkeeper mounts no

campaign”“RFK Jr. calls coal ‘corrupting’ at Portland rally”


Environmental opposition is not limited to ports:

“Federal coal sales in Powder River Basin draw suit”“Montana agency challenged over coal mine permits”“Backers of Tongue River Railroad told to resubmit application”

“Seattle City Council Votes Unanimously (and Symbolically) Against Coal”“City of Helena Oks coal-train letter to Amy Corps“Missoula City Council supports study of coal trains’ effects”“Spokane wants more study of coal trains”“At chamber’s request, county commissioners back coal development”

(Yellowstone County, MT)


Final question


Source: Peabody 8-K, May 17, 2012


Final thought


“There is nothing stable in human affairs: therefore, avoid undue elation in prosperity and undue depression in adversity.” - Socrates


Contact Information:Bob BurnhamBurnham Coal, LLC16357 W. 76th AveArvada, CO [email protected]


Documents

Denver Coal Club