Massey Energy CompanyLehman Bros. CEO Power/Energy Conf.
September 4, 2008
2
FORWARD-LOOKING STATEMENTS: certain statements in this presentation are forward-looking as defined by the Private Securities Litigation Reform Act of 1995. Due to known and unknown risks, the company’s actual results may differ materially from its expectations or projections. Factors potentially contributing to such differences are described in further detail at the conclusion of this presentation and in the company’s annual reports on form 10-K and quarterly reports on form 10-Q.
Safe Harbor Statement
3
Key Points
World coal supply remains tightExport opportunities into Atlantic Basin are likely to increasePricing remains strongMassey’s expansion plans are on trackMassey is “Positioned to Win”
Global Energy Overview
5
World Primary Energy Consumption
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Mil.
Ton
nes
Oil
Equi
vale
nt
Coal Oil Nat.Gas
Nuclear Hydro
20002007
• World primary energy consumption increased 2.4% in 2007• Coal was the fastest growing fuel for the fifth consecutive year
Source: BP Statistical Review of World Energy 2008
6
2007 World Primary Energy Consumption
34.3%
26.9%
25.6%
5.2%
3.1% 5.0%
Asia Pacific Europe/Eurasia North AmericaMiddle East Africa Cent./So. America
• Asia Pacific is largest energy consuming regionSource: BP Statistical Review of World Energy 2008
7
World Primary Energy Consumption
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Mil.
Ton
nes
Oil
Equi
vale
nt
Asia Pac
.Eur
./Euras
iaN. A
merica
Mid. Eas
t
Africa
Cent./S
o. Am.
19972007
• Asia Pacific: 54% increase over 10 yrs.Source: BP Statistical Review of World Energy 2008
Global Coal Overview
9
Global Coal Overview
4.5%
3.1%
1.1%
2.4%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%4.0%
4.5%
5.0%
2007 Fuel Growth Comparison
Coal Nat. Gas Oil Total Energy
Source: BP Statistical Review of World Energy 2008
10
Global Coal Overview
2007 Global Coal Consumption: 7,192.8 million tons
China USA India Japan Russia OtherShort Tons, Millions and % Share of TotalSource: Energy Information Admin.
2,892.840%
2,124.929%
1,128.816%
261.04%
206.73%
578.68%
11
Global Coal Overview
Global Coal Consumption 2006-2007 increase: 414 million tons
China India Japan USA Other
314.876%
38.29%16.5
4%9.12%
35.89%
Short Tons, Millions and % Share of TotalSource: Energy Information Admin.
12
Global Coal Overview
12.2%
6.6%4.6%
1.2%
-1.2%
2.0%
-4%
1%
6%
11%
16%
Coal Consumption 2007 Growth Rate
China India Japan USA Russia Other
Source: Energy Information Admin.
13
Global Coal Overview
World Recoverable Coal Reserves (Billion Short Tons)
24.2%
8.7%
10.2%
12.6%
17.3%
26.9%
ReserveShare
998Total World Reserves
242All Other
87Australia/New Zealand
102India
126China
173Russia
268United States
Recoverable TonsRegion/Country
Source: EIA International Energy Outlook 2007
14
China
• Government target of 950 GW generating capacity by 2020
• Would require adding 31 GW generating capacity each year (~89 million tons of coal per year)
• Coal accounts for 70% ofChina’s primary energy
• Coal reserve/production ratio of 45(1)
• Thermal coal imports will more than double by 2015(2)
(1) Source: BP Statistical Review of World Energy(2) Source: Hill & Associates
15
India• Plan to provide power to entire
population by 2012• Would require adding approx. 10
GW generating capacity per year (~28 million tons of coal per year)
• Coal accounts for 69% of electricity generation
• Total coal consumption of 579 million tons in 2007
• Coal demand expected to increase 170% to 300% by 2022(1)
• India has extensive reserves but coal quality is poor
• Coal imports exceed 50 million(2)
tons per year and are increasing
(1) Source: Hill & Associates, India Integrated Energy Policy Committee(2) Energy Information Admin.
16
Russia
• Total power sector includes 440 thermal, nuclear and hydropower plants
• Coal accounts for about 25% of electricity generation
• Government is moving to increase coal use
• An addition of 40-50 GW of coal fired power generation is planned by 2020 (~11 million additional coal tons per year)
• Coal exports totaled 91 million tons in 2006
• 59% of exports shipped to Europe and former Soviet Republics
Source: Energy Information Admin., Eurasia Daily Monitor
17
Australia
• Coal exports totaled 283 million tons in 2007 (66% of total production)
• Largest export destination is Japan (~125 million tons)
• Metallurgical coal accounts for 53% of total coal exports
• 49 million tons exported into the Atlantic Basin
Source: Energy Information Admin., Coal Services Pty Ltd.
18
Atlantic Basin Opportunity
65Atlantic Basin Net Import Demand
10S. Africa exports outside region
35Russian exports outside region
201,8341,814Atlantic Basin Total
(49)4392Central/South America
(8)8188North America (excl. USA)
(80)203283South Africa
(99)438537Eurasia
2561,070814Europe
ImportsRequired
2007 tonsConsumed
2007 tonsProduced
Source: Energy Information Admin., Eurasia Daily Monitor, Reuters UK
(All figures in millions of short tons)
19
United States –CAPP Utility Inventory
Source: Energy Ventures Analysis
Metallurgical Coal
21
Global Steel Production
4.5%31.730.3India
6.1%815.1768.4Total
4.6%9.18.7Oceania
7.9%32.329.9South Korea
3.8%72.169.4Japan
9.4%321.9294.1China
7.2%9.58.9Middle East
0.0%10.710.7Africa
5.7%29.027.4South America
5.6%81.076.7North America
4.5%75.772.4Former USSR
9.8%20.018.0Other Europe
0.9%126.5125.5EU (27)
ChangeJan-Jul2008
Jan-Jul2007
Region
(Metric tonnes, millions)Source: International Iron and Steel Institute
22
Planned New Coke Production
Asia, Eastern EuropeVarious
LouisianaNucor
BrazilThyssen Krupp
Czech RepublicKKCG
1,000Granite City, IllinoisSun Coke Energy
2,100Toledo, OhioFDS Coke
900Middletown, OhioMiddletown Coke Co.
850Haverhill, OhioSun Coke
Est. Coal Consumption
(000 tons)LocationCompany
Source: Energy Ventures Analysis, company news releases
Current Coal Pricing
24
Current Coal Pricing
Actual Sales Agreements May – July 2008
$172.56Average Price FOB Mine:
2009 – 2010Shipment period
7 millionTotal tons sold
AddressingChallenges/Concerns
26
Coal Myths
• Oil impact on Coal• Litigation• Unfunded liabilities don’t count• Commodity /PRB/CAPP penetration• Market Diversity• Area Mineability
27
Challenges and Concerns
• Permitting issues– Judge Chambers
• Litigation
• Labor availability
• Railroad performance
• Terminal Capacity
Challenges create barriers to entry in our market that enhance Massey’s competitive advantage
Expansion Plans
29
Planned Production
3032343638404244464850M
illio
n To
ns
2007A 2008E 2009E 2010E
27% Increase
30
Our New “Admiral Processing”Plant
31
Admiral Processing
32
Rt. 3 New Belt System
33
First Conveyor Tube on UBB Side
34
Hatfield Energy
35
Black Castle EX 5500 Erection Site
36
Black Castle EX5500 – May 19th
37
Black Castle EX5500
38
Komatsu PC 2000
39
Komatsu HD 1500
40
Superior Highwall Miner
41
Superior Highwall Miner
MasseyPositioned to Win
43
Coal Industry Overview – United States
U.S. Coal Production by Region - 2007
13%3,192136,397West (Other than PRB)
24,420
572
3,428
2,311
5,649
9,267
BTUs(Quadrillions)
1,144,731
26,011
131,863
97,942
225,954
526,564Tons (000)
100%Total
2%All Other
14%Northern Appalachia
10%Midwest
23%Central Appalachia
38%Powder River Basin
Percent ofTotal BTUsRegion
Source: EIA International Energy Outlook 2008
44
Coal Industry OverviewEstimated Regional Revenue Share
1.1%
14.0%
22.9%
14.0%
41.6%
6.4%
Est.Share
$9.8$72.00136,397West (Other than PRB)
$30.00
$122.00
$100.00
$129.00
$8.50
Prompt Price(8/28/08)
1,144,731
26,011
131,863
97,942
225,954
526,564
2007Tons (000)
$70.2Total
$0.8All Other
$16.1Northern Appalachia
$9.8Midwest
$29.2Central Appalachia
$4.5Powder River Basin
EstimatedRevenue(Billions)Region
Source: EIA International Energy Outlook 2008, ICAP United, Inc.
45
- Positioned to Win -Production Growth
0
5
10
15
20
25
30
35
40
45
50
Tons
(Mill
ions
)
1990 1993 1996 1999 2002 2005 2008(e)
Produced tons sold more than doubled in 20 yearsForecast
46
- Positioned to Win -CAPP Market Share
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1987 1999 1991 1993 1995 1997 1999 2001 2003 2005 2007
5.7%
17.5%
Market Share has more than tripled in 20 years
Source: Energy Information Admin., Company data
47
- Positioned to Win -CAPP Reserve Share
0.0
2.0
4.0
6.0
8.0
10.0
12.0
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
Tons
(Bill
ions
)
MEE Non-MEE
67.0%*
*Assumptions: Total CAPP production declines 3% annuallyMEE acquires 80m tons annually beginning in ’08MEE production levels at 52m tons after ‘12
37.9%
Actual Forecast
48
- Positioned to Win -Product Diversity
High-VolMet Coal
Low-VolMet Coal
Mid-VolMet Coal
Low SO2Steam Coal
Hi-SO2Steam Coal
Custom BlendIndustrial Coal
Mid-BtuSteam Coal
High-BtuSteam Coal
49
The Atlantic Basin is our natural market
- Positioned to Win -Expanded Market Opportunities
50
- Positioned to Win -Cost Advantages
Better quality reserves
Economies of scale
Highly productive processing plants
Transportation advantages
Belt lines reduce trucking
Diverse transport options
Efficient, well maintained equipment
S1+P2+M3
51
- Positioned to Win -Operating Cash Margin per Ton
$15.94
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q2008
52
- Positioned to Win -Guidance (July 31, 2008)
npnp$650$271CAPEX ($Millions)
npnp$20 -$100
$88.9Other Income($Millions)
np$52.00 –$60.00
$47.00 –$50.00
$43.10Cash Cost per Ton
$115.00 –$132.00
$84.00 –$92.00
$65.00 –$66.00
$51.55Price per Ton
Approx. 5046.0 -48.0
41.5 –43.0
39.9Tons Shipped(Millions)
2010 Forecast
2009 Forecast
2008 Forecast
2007 Actual
53
Disclaimer
FORWARD-LOOKING STATEMENTS: certain statements in this presentation are forward-looking as defined by the private securities litigation reform act of 1995. Such forward-looking statements are based on facts and conditions as they exist at the time such statements are made as well as predictions as to future facts and conditions the accurate prediction of which may be difficult and involve the assessment of events beyond the company’s control. Caution must be exercised in relying on forward-looking statements. Due to known and unknown risks, the company’s actual results may differ materially from its expectations or projections. Factors potentially contributing to such differences include, among others: market demand for coal, electricity and steel which could adversely affect the company’s operating results and cash flows; Future economic or capital market conditions; Deregulation of the electric utility industry; Competition in coal markets; Inherent risks of coal mining beyond the company’s control, including weather and geologic conditions; The company’s ability to expand mining capacity; The company’s production capabilities; The company’s plan and objectives for future operations and expansion or consolidation; Failure to receive anticipated new contracts; Customer cancellations of, or breaches to, existing contracts; Customer delays or defaults in making payments; The company’s ability to manage production costs; The company’s ability to timely obtain necessary supplies and equipment; Thecompany’s ability to attract, train and retain a skilled workforce; Fluctuations in the demand for, price and availability of, coal due to labor and transportation costs and disruptions, governmental policies and regulatory actions, legal and administrative proceedings, settlements, investigations and claims, foreign currency changes and other factors; And greater than expected environmental and safety regulation, costs and liabilities. The forward-looking statements are also based on various operating assumptions regarding, among other things, overhead costs and employment levels that may not be realized. While most risks affect only future costs or revenues anticipated by the company, some risks might relate to accruals that have already been reflected in earnings. The company’s failure to receive payments of accrued amounts could result in a charge against future earnings. Information concerning those factors is available in the company’s annual reports on form 10-K and quarterly reports on form 10-Q.
54
Non-GAAP Information
Average cash cost per ton is calculated as the sum of Cost of produced coal revenue and Selling, general and administrative expense ("SG&A") (excluding DD&A), divided by the number of produced tons sold. Although Average cash cost per ton is not a measure of performance calculated in accordance with GAAP, we believe that it is useful to investors in evaluating us because it is widely used in the coal industry as a measure to evaluate a company's control over its cash costs.
Operating cash margin per ton is calculated as the difference between Produced coal revenue per ton sold (Produced coal revenue divided by Total produced tons sold) and Average cash cost per ton (computed as noted above). Although Operating cash margin per ton is not a measure of performance calculated in accordance with generally accepted accounting principles, management believes that it is useful to an investor in evaluating Massey Energy because it is widely used in the coal industry as a measure to evaluate a company's profitability from produced tons sold.
Other income is calculated as the sum of Purchased coal revenue and Other revenue less Cost of purchased coal revenue and Other expense. Although Other income is not a measure of performance calculated in accordance with GAAP, management believes that it is useful to investors in evaluating Massey Energy because it is a widely used measure of gross income from non- core sources.
These non-GAAP measures should not be considered in isolation or as a substitute for measures of performance calculated in accordance with GAAP. In addition, because these measures are not calculated identically by all companies, the presentation here may not be comparable to other similarly titled measures of other companies. Reconciliations of these non-GAAP measures to the most relevant GAAP measures can be found in the company’s earnings press releases for the relevant periods and on the Company’s website.
Massey Energy CompanyLehman Bros. CEO Power/Energy Conf.
September 4, 2008