REAMP DiscussionSeptember 25, 2014

Global, National and Illinois Basin Coal Trends

Tom SanzilloDirector of Finance

Global Coal Production 2008-2013

2008 2009 2010 2011 2012 20136.5

7

7.5

8

8.5

9

Coal Production (billion tons)

Coal Production

World’s Largest Producers

China United States India Indonesia Russia Australia Germany Poland0

500

1000

1500

2000

2500

3000

3500

4000

2013 Production

2013 Production

Worlds Largest Consumers

China

United St

ates

India

Venezuela

Russia

German

y

South

Africa

Japan

Australi

a

Poland

0500

10001500200025003000350040004500

2012 Consumption

2012 Consumption

Global Imports/Exports: Global Trade 2012 1.4 billion

2013 Importers (million tons)

ChinaJap

an

South

KoreaIndia

Taiwan

German

y

United Kingd

om0

50100150200250300350

2013 Imports

2012 Exports (million tons)

Indonesia

Australi

aRussi

a

United St

ates

Colombia

South

Africa

050

100150200250300350400450

2012 Exports

2000 2005 2010 2015 2020 2025 2030 20350

1000

2000

3000

4000

5000

6000

New Policies

Current policies

450

ETA/IEEFA

Mill

ion

tonn

es o

f coa

l equ

ival

ent (

Mtc

e)

Major Drivers of Demand Curve• China: Thermal coal demand peaks early in the 2015-2020 period and

declines to below 2010 levels by 2035. China becomes an opportunistic exporter on any thermal coal price strength. This equates to rates of decline up to -0.9% CAGR in 2020-2035. This reflects:

• Continued energy efficiency gains reducing the ratio of electricity to GDP growth;

• Slower GDP growth and a transition towards less energy intensive sectors;• Increased thermal power plant efficiency;• Technology gains, particularly battery storage, solar, on and offshore wind; • Continued electricity supply diversification i.e. more gas, nuclear, wind, solar

and hydro; and• Beyond 2020 offshore wind will then step up as another area of diversification.

– India, Japan, U.S., Korea and Taiwan

UNITED STATES COAL MARKETS

11

Coal’s Share of U.S. Electricity LT Decline

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Coal vs. Natural Gas Percentage of All U.S. Electricity Generation (2002-2013)

Coal Natural Gas

Electric Sector Coal Consumption

2008 2009 2010 2011 2012 2013 20140

200

400

600

800

1000

1200

Chart Title

Coal Consumption Estimate

An ILB Leader Sums Up• “We have the absolute destruction of the American coal industry. If

you think it's coming back, you don't understand the business,” Murray Energy CEO Bob Murray remarked to hundreds of coal industry executives at the Platts 37th Coal Marketing Days. “Or you're smoking dope.”

• Murray further claimed that publicly traded companies like Peabody are being dishonest with their investors for public relations purposes about the future of coal. 

• “You got to be the low-cost producer every day, in every region. Everything else is public relations garbage by public companies that are worried about stock prices,” Murray said.

ILLINOIS BASIN

ILB: Growth Story

• Only major growth story in US Coal markets– Since 2009 – 25% growth, CAPP down 14%– 2012 – 127.5 mtpa; 2013 – 132 mtpa

• Why growth story? – High BTU, high sulfur coal– Scrubbers – more intense emissions goals seen

helping ILB producers, most retirements CAPP– Lower cost of production– Solid Margins

ILB: Fundamentals

• Basic Economics– Prices Received: 2012: $49.20– Costs of Production: $34.93– Margins in: $14.00 to $30.00 range

• Despite erosion in prices in 2013-2014: $44.00 per ton, Basin still growing.

• ILB cost of production rose by 6% per year since 2007, CAPP up over 8% per year.

Investment Taking Place

• Major Companies all expanding operations with new mines in construction and under permit

• Largest Producers– Peabody, Alliance, Foresight, Murray and

Armstrong– Strong cast of smaller players: Knight Hawk (Arch),

Vectren, Hallador

Exports and Potential

• Companies geared up for more exports– Foresight led in 2012 with 7.7 mtpa off based of

16 mtpa. – 2013 and current year price collapse globally,

lower exports – approximately 7 mtpa. • Port of New Orleans – 92% of ILB exports -

multiple terminals and Port of Mobile

Exports and Potential

• Where is market– Americas (Canada, Chile, Mexico)– Europe (France, Great Britain, Germany, Spain)– Asia (China, India and South Korea)

Risks

• Although margins are solid for Foresight and Alliance – Arch, Peabody hurt by price erosion.– How long can they handle low prices

• Soft global markets undermine larger efforts of combining domestic and export mix.

• Old Customers buying more – Duke, TVA, Southern, but in context of overall coal demand decrease.