December 2010

All relevant disclosures and certifications begin on Page 35 of this booklet.

Table of Contents:

Conclusions
The Basics

Metallurgical Coal Fundamentals

China
Brazil and India
United States
New Sources Driven by China
Columbia

U.S. Coal Equities

Pricing
Imports and Exports
Supply and Demand

Growth Drivers

Metallurgical Coal
Steel Making

Met Coal Exposure in our Universe

Overview of our Group
Organic Growth and M&A Activity

Appendix

Page 2

Conclusions

Growth in developing nations such as China, India and Brazil should keep market fundamentals supporting robust
pricing

Growing sources of met supply

2010 global met coal exports are anticipated to surpass 2008 levels
While Australia will likely remain the 800 pound gorilla of the export market, other sources are evolving given the
market dynamics
The United States, Indonesia, Mongolia, Mozambique and Columbia will ultimately add volume

U.S. met exports changing dynamics

Demand continues to outweigh supply, causing China to remain a net importer of coal
China is on pace to surpass Japan and become the largest met importer in the next several years
Indian imports are expected to reach 55 mm tonnes by 2015, ~140% increase over 2009 imports
Brazilian imports are forecasted to double by 2015
Forecasted GDP growth in China and India is over 8% per year for the next 5-years, driving demand for met coal

+40% of 2009 U.S. met exports were delivered to the Atlantic Basin
The U.S. is forecasted to ship just under 10% of 2010 tonnage to China
We are forecasting another +10% growth rate in 2011 met production for the HW coal universe

Look for industry M&A to continue

Domestic and international players in the coal space will likely continue to pursue acquisitions
We could see more steel producers come to the table seeking to secure supply and reduce exposure to volatile pricing

Page 3

The Basics

What is Metallurgical Met Coal?

Metallurgical coal overview

Metallurgical coal is a type of high quality coal used to make coke, which is then consumed in the steel making
process.
The two key ingredients in steel production are iron ore and coke.
Coke is made by heating a blend of met coals (a blend of 2 or more is usually required) to ~2,000 oF in the absence of
oxygen in a coke oven. This process drives off most of the volatile matter and the remaining product is coke.
Coke is then used to smelt iron ore (also known as converting the iron ore into molten iron) in blast furnaces to
produce steel.

Met characteristics required for coke making

High calorific value (>6,900 kcal/kg) and carbon content high energy content known as a high Btu content typically
greater than 13,000 btu/lb
High caking properties ability to melt, expand/swell and re-solidify when heated
Low volatile matter refers to the coal components that become gaseous when heated to certain temperatures
Too much volatile material in coal results in less carbon and reduces the volume of coke produced
Low volatile coal contains more carbon but too much can result in coke oven damage
Low impurity levels meaning low sulfur, ash and moisture contents

Source: Mining Journal

Page 5

Categories of Met Coal

Three main categories of met coal

All can be broken down into various grades

Hard coking coal (or low volatility coal)

Forms the highest strength coke product and has the lowest volatile matter (+18%)
Depending on the market landscape, this product is typically priced at a premium to the other categories

Semi-soft coking coal (or mid and high volatility coal)

Produces a lesser quality coke product but is typically blended with hard coking coal
Within the industry, and more specifically the investment community, the high-vol coals are commonly broken
down into different levels of grade A and grade B products
High-vol met averages ~35% volatile matter

PCI coal
Historically PCI coals have not been considered a coking coal, however with the changing market dynamics, it is
becoming more common to blend PCI with higher quality met coals to make coke
PCI coal is injected into the blast furnace to replace and/or substitute for coke due to its high heat value

Page 6

The Steel Making Process

Two main routes are used to produce steel

Every tonne of steel made using the BOF

method requires 0.6 tonnes of
metallurgical (or coking) coal.

With 1.2b tons of steel production in

2009, that would imply ~500 mm tonnes
of met coal used to produce steel.

Source: World Coal Association

PCI coal can either 1) be

blended with higher quality met
coals to make coke, or 2)
injected directly into the blast
furnace as a coke replacement

Basic Oxygen Furnace (BOF) - The more

common of the two processes,
producing nearly 70% of the worlds
steel. The BOF method uses coke in
the blast furnace phase. The coke and
iron ore are heated in the blast furnace
to form molten iron (or hot metal),
which is then injected with very pure
oxygen in the basic oxygen furnace to
create steel.
Electric Arc Furnace (EAF) - A process
that uses recycled steel, avoiding the
need for raw materials and thus coal.
The recycled steel scrap is melted and
converted into high quality steel.

Page 7

Met Coal will Maintain a Crucial Role

W o rld Steel Pro ductio n: BOF vs. EAF

1000
900

s teel produ c tion ( Mt)

800
700
600

500
400
300
200

100

BOF

20
08

20
06

20
04

20
02

20
00

19
98

19
96

19
94

19
92

19
90

EAF

C hinese Steel Pro ductio n: BOF vs. EAF

600
500

s teel produ c tion ( Mt)

The BOF process of steel making appears

on track to maintain its market share.
With the exception of India, most new
planned capacity additions will be BOF.
Developing countries do not have a large
supply of scrap steel, which is needed
under the EAF method.
Developed nations like the U.S. are
expected to grow capacity using the EAF
method. However, the EAF additions will
be vastly out weighed by the developing
worlds BOF additions.
For example, China does not have an
abundant supply of scrap steel, and thus
will grow through the BOF method.

400
300
200

+90% of steel produced in China uses

the BOF route.
Industry projections show Chinese steel
production growing to ~900 mm tonnes
by 2020 (from +550 mm tonnes in
2009), but with the percentage of EAF
used only growing from ~10% to 15%.

100

Source: First River & Worldsteel

BOF

EAF

20
08

20
06

20
04

20
02

20
00

19
98

19
96

19
94

19
92

19
90

Page 8

Met Coal Fundamentals

Met Coal Pricing

M et C oal Pricing, F OB Australia

$350

Met pricing overview

$300

US$/t

$250
$200
$150

$100
$50

4Q
'1
1E

3Q
'1
1E

2Q
'1
1E

1Q
'1
1

20
10

20
09

20
08

20
07

20
06

20
05

$0

Source: Platts & Howard Weil, Inc.

Steel & M et C oal Pricing

$140

$1,000

$120
$800

$100

$600

$80
$60

$400

$40
$200

$20

$0

$0

HRC steel price

Source: EIA & Bloomberg

M et - Avg M on t h l y E xport Val u e

( $/t )

$160

Ja
n0
Ju 1
l-0
Ja 1
n0
Ju 2
l-0
Ja 2
n0
Ju 3
l-0
Ja 3
n0
Ju 4
l-0
Ja 4
n0
Ju 5
l-0
Ja 5
n0
Ju 6
l-0
Ja 6
n0
Ju 7
l-0
Ja 7
n0
Ju 8
l-0
Ja 8
n0
Ju 9
l-0
Ja 9
n10

H RC St eel P ri c e ( $/t )

$1,200

Due to the different types of metallurgical coal

and the various grades, pricing can sometimes
be a hard number to nail down. There can be
anywhere from a $20 to $50/ton swing in the
various categories or grades of met coal.
Met pricing has historically been almost a blackbox in terms of forward looking data. Today, the
benchmark FOBT price is set by BHP ahead of
the next quarter.
The most recent benchmark of $225/t suggests
a U.S. net to the mine price in the $175/st
range. The peak benchmark in 2008 was set
north of $300/t.

Steel vs. met pricing

Somewhat surprisingly given the link in the two

products, met and steel pricing only shows a
relative correlation, meaning the historical R2 is
not high.
Since the economic down-turn in 2008, the
correlation has lessened.
Steel prices saw a much steeper decline during
the first half of 2009 and are still far off the
highs seen in 2008.
Met prices on the other hand have rebounded
nicely and are testing pre-recession levels.

met coal price

Page 10

Met Coal Imports on the Rise

Top M etallurgical C oal Im porters

China is changing the global export market

300

250

Mt

200
150
100

50

India is currently the third largest importer

of met coal at 23 mm tonnes in 2009 and
anticipates growth of 20% to 28 mm
tonnes in the current year.

0
2000

2001
Japan

2002

2003

China

India

Source: IEA & Howard Weil, Inc.

2004
Korea

2005
U.K

2006
Germany

2007
Taiwan

2008

2009 2010E

Other

China became a major importer of met

coal in 2009, jumping met imports
400% over the prior year.
2010 Chinese met imports are
expected to reach 50 mm tonnes,
another 45% increase over 2009
levels.
A far fetched outlet for U.S. exports in
theory became a realistic market in
2010. U.S. met shipments to China are
expected to reach ~4 mm tonnes in
2010 (annualizing the 1H10).

With the anticipation that India will

become the second largest steel
producer over the next five years, met
imports into the country are forecasted
to sky rocket.

Japan is the largest importer of met coal,

maintaining a fairly constant level of 60
mm tonnes over the last 10 years.

The IEA is forecasting met trade will reach

280 mm tonnes by 2015, a 40% increase
over 2009 levels
Page 11

Met Coal Exports Change Paths

M etallurgical C oal Ex ports

Australia is the 800 pound gorilla

300

250

Looking back over the last 10 years,

Australia has dominated the globe, with
over 50% of the met coal export market.
2010 exports will likely exceed 140 mm
tonnes.

Mt

200

Met coal exports are anticipated to surpass

2008 levels this year

U.S. met producers are seeing an impact

150
100

50

0
2000

2001

2002

Australia

2003
US

2004

Canada

2005
Russia

2006

2007

Indonesia

2008

2009 2010E

Other

U.S. met exports are expected to reach 50

mm tonnes in 10, nearly a 70% increase
over levels seen 10 years ago, and up 30%
over 2008 exports.
U.S. coals are no longer only being exported
to the Atlantic Basin.
A number of U.S. producers shipped met
tonnage to Asia in 2010 and anticipate
continued business in 2011 and beyond.

Source: IEA & Howard Weil, Inc.

Trends to note:

Indonesia has become a new source of

supply, especially to China.
Poland and China, historically making up
more than 50% of the other category of
met exporting countries, export very little
met today.
Page 12

Met Coal Supply and Demand

Top suppliers and consumers of met coal

According to the IEA, +790 mm tonnes of met coal were produced in 2009, with China, Australia, Russia and the U.S.
rounding out the top four largest suppliers.

China, India, Japan and Russia were the highest consuming nations for met coal in 2009.

Standouts of note in the top producing and consuming countries

China Demand for met coal outweighed supply by nearly 10% in 2009 and continues to grow

Australia Second largest producer behind China, at +130 mm tonnes in 09. Very low consuming continent of +3.5 mm
tonnes

Japan Third largest consuming country with minimal supply

India Similar to China, demand is outweighing supply (+70%) and consumption is on the rise

Russia
55,911
7%

2 0 0 9 M et C oal Production

2 0 0 9 M et C o al C o nsum ptio n

(in Mt)

(in Mt)

Other
25,419
3%

Australia
130,600
17%

Canada
22,980
3%
United States
46,559
6%

China
412,389
56%

Source: IEA

Indonesia
29,481
4%

Russia
46,126
7%

Ukraine
21,269
3%

Other
17,084
2%

Germany
15,447
2%

Japan
52,244
8%

Korea
20,107
3%

United States
14,042
2%

India
55,454
8%

India
32,192
4%
China
445,657
65%

Page 13

Growth Drivers

China is on Pace to Become Largest Met Importer

C hinese M et C oal Supply & Dem and

500

Chinese met
consumption was
nearly 10% higher
than production in
09.

(Mt)

450
400
350
300

20
09

20
08

20
06

20
05

20
07

consumption

Additionally, China has closed a material

number of coal mines in an effort to improve
safety and increase efficiency.

Fundamentals suggest that Chinese coal

imports are here to stay

C hinese M et Trade

50
45

40
35
25
20

Chinese met imports in 2009 were +34

mm tonnes, up +400% over 2008.
2010 Chinese met imports appear to be
in the ~50 mm tonnes range, nearly a
50% increase over the prior year.
Industry experts are forecasting China will
become the largest seaborne met coal
importer by 2013 or 2014, surpassing
Japan, which has averaged ~60 mm
tonnes over the last 10-years.

15
10
5

Source: IEA

Exports

Imports

20
10
E

20
09

20
08

20
07

20
06

20
05

20
04

20
03

20
02

20
01

0
20
00

(Mt)

30

Industrial production was up 18.5% in

2009 over 2008, and the most recent
quarterly data (3Q10) rose 13% y/y.

250

production

Growing Chinese economy is supporting a

rapid shift in industrial production

Page 15

Growing Demand in Brazil and India

In di a & Brazi l -- M et Coal Im port s

Indias forecasted growth in steel production

suggests continued growth in met imports

60
50

Mt

40
30
20
10

0
2009

2010E

2011E

2012E
India

Brazil

2013E

2014E

2015E

Brazil has room to improve demand

Source: IEA, Massey Energy & Howard Weil, Inc.

India is currently the fifth largest producer

of steel, producing ~57 mm tonnes in 09.
The country anticipates becoming the
second largest producer in the next five
years.
Met coal makes up less than 10% of the
countrys total coal production, and of that,
most is lower quality met. To meet
demand, India has emerged as one of the
top three importers of met coal (since we
started tracking data in 2000).
Indian imports are forecasted to nearly
double in the next 3 years and reach +55
mm tonnes by 2015.

With imports of only 12.5 mm tonnes tons

in 2009, Brazil is anticipating doubling that
by 2015

India and Brazil lag behind the U.S. and China

in terms of steel use

India currently uses 47.8 kg/capita and

Brazil is at 93.1 kg/capita compared to the
U.S. (186.9 kg/capita) and China (405.2
kg/capita).

Page 16

U.S. Met Coal Exports

U.S. M et Ex ports - Annual

4 .0

50.0

3.8

40.0

3.0

30.0

2.3

20.0

1.5

10.0

0 .9 8

0.8

0.0

0.0
2005

2006

2007

Exports (ex-Asia)

Source: Bloomberg & Howard Weil, Inc.

2008
To Asia

2009
To China

2010E

4.5

U.S. m et ex ports to C hina (m m st)

Total U.S. m et ex ports (m m st)

60.0

Historical U.S. export market

The European Union (Atlantic Basin) has been

the natural destination of U.S. met exports. In
2009, Europe imported +14 mm tonnes (or
+40%) of U.S. met coal.

China is a developing market for U.S. exports

The U.S. began exporting coal to China in late

2009, ending the year at just under 1 mm tons
of met coal.
Annualizing the first half of 2010, the U.S. is on
track to export ~4 mm tons of met coal to China
for the year.
Given the changing market dynamics, Asian
volumes are on the rise. According to
Bloomberg, the most recent quarter (2Q10)
shows that +25% of U.S. met exports went to
Asia, up from 15% for the same period a year
ago.

Page 17

New Sources of Met Coal Driven by China

Growing Exports

United States Appalachia:

Met capacity out of NAPP is expected to grow over the next several years, primarily driven by cross-over tons entering
the met market.
NAPP producers are forecasting +10 mm tons of new capacity by 2015 (see pg. 26). Both Pittsburg #8 seam and
CAPP coal will likely see additional cross-over tons make headway into the met market.
Indonesia:
Indonesian met exports have increased by 175% from 2005 to 2009, to nearly 30 mm tonnes, with ~3.5 mm tonnes
going to China. Infrastructure development is being explored in order to help facilitate additional growth.
Mongolia:
Mongolia exported ~7 mm tons of met coal to China in 2009 and anticipates that number reaching between 10-12
mm tons by 2011.
Mozambique:
Mozambique, is making strides to become a player in the met coal export market.
Mozambique is a minimal exporter of met coal due to lacking infrastructure, but industry experts are forecasting
exports to approach 10 mm tonnes over the next 5 years.
Bigger infrastructure projects such as the proposed Nacala deepwater port (located on the northern coast of
Mozambique) could help met exports move closer to 25 mm tonnes by 2025.

Page 18

Vast Coal Resources in Columbia

C olum bian C oal Production

180

Met coal reserves are essentially untapped

18

160
140

Significant reserves with limited production

Lack of capital investment into mine
development and infrastructure

M M t on s

120
100
80
60

4
145

1.3

1.6
70

44

60

74

50

2001

2003

2005

2007

2009

40
20

Steam Coal

Proposed development of the Andean Region

following the study and project completed by
mining consultant, John T. Boyd

2011E

2013E 2015E

2017E

2019E

Met Coal

Andean Region in Columbia produced ~6.5

mm tons in 09, 8% of the countrys total
volume.
The Region has estimated met resources of 23 b tons that meet international quality
standards.
The Columbian Government has recently
awarded nearly 20% of mining concessions to
the coal industry. The dollars will focus on the
Andean region.

While plans are underway for transportation

expansion and port infrastructure, funding still
remains an issue.

Andean
Region

Source: Colmetcoal Ltd.

Page 19

U.S. Coal Equities

Our Universe with Met Coal Exposure

Domestic Powerhouses

Alpha Natural Resources (ANR - MO - $53.61)

Largest domestic met coal supplier

ANR produces all qualities of met coal Including low, mid and high-vol, and some cross-over coals
ANRs ultimate production capacity is likely in the mid-teens, with forecasted 2011 volumes of 11.5-13.5 mm tons
The companys total export capacity is approximately 15 mm tons, with expected met exports of 60-70% of 2011 volumes
6.5 mm tons of annual capacity through the DTA terminal in Newport News, VA
5 mm tons of annual capacity through NFS Lamberts Point terminal in Norfolk, VA
Remaining capacity through the Chesapeake Bay piers, GOM/New Orleans and the Great Lakes
ANR has less than 25% of 2011 volumes contracted at an average price of $139/ton

Massey Energy (MEE - MO - $51.81)

Low, mid and high-vol met producer

An estimated 1.3 billion tons of met quality reserves
MEEs estimated ultimate production capacity approaches 20 mm tons by 2015. Forecasted 2011 volumes are 10-14 mm
tons
The companys current sales expectations are broken down roughly as follows:
Low and mid vol 20% of volumes
High-vol A product 30% of volumes, B product 30% of volumes and C product 20% of volumes
MEEs current export capacity is 8-10 mm tons and is expected to reach the mid-teens by early 2012 as additional capacity
is added out of New Orleans
MEE has approximately 4mm tons priced in 2011, weighted between the high-vol A and high-vol B product

Page 21

Our Universe with Met Coal Exposure

Peabody Energy (BTU - MP - $61.96)

Australian met producer

BTU produces various qualities of met coal, including a PCI product:
High quality hard coking coal (low-vol products) forecasted at 30-35% of volumes
Hard coking coal (mid-vol products) forecasted at 20-25% of volumes
Semi-hard coking coal (high-vol products) forecasted at 15-25% of volumes
PCI coals make up the remaining 15-25%
BTUs ultimate production capacity is likely in the mid-teens to upper-teens, with forecasted sales volumes of 12-15 mm
tons by 2014-2015
The companys export capacity is sufficient in the near-term with capacity expansion plans to coincide with incremental
volume adds
7.5 mm tons of annual capacity out of the Dalrymple Bay terminal in Queensland
Capacity out of the Port of Kembla
BTU has essentially all of 2011 sales volumes of 9-10 mm tons open to contract

CONSOL Energy (CNX - MP - $44.23)

Low-vol and cross-over met producer

CNX produces low-vol met out of its Buchanan mine and cross-over coals from its Pittsburgh #8 seam production
CNXs ultimate production capacity is 5 mm tons of low-vol out of Buchanan and cross-over tons from Bailey, Enlow Fork
and Blacksville. Total 2011 forecasted sales volumes are 4.5 mm tons of low-vol and 2.5 mm tons of high-vol (similar to
2010)
The companys export capacity is currently in the mid to high teens
12 mm tons of annual capacity out of their Baltimore terminal
4-5 mm tons of annual capacity out of NFSs Lamberts Point terminal in Norfolk, VA
2 mm tons of CSX terminal capacity in Baltimore
CNX has contracted 1.2 mm tons of low-vol at an average price of $151/ton

Page 22

Our Universe with Met Coal Exposure

High-Vol Producers

Patriot Coal (PCX - MO - $17.51)

High-vol producer
PCX produces both grade A and B high-vol met as well as PCI/ cross-over coal
PCXs ultimate production capacity is north of 10 mm tons, forecasting 2011 volumes of 8 mm tons
Expected to export between 70-80% of 2011 met sales with ample export capacity
PCX has ~30% of 2011 met volumes contracted at an average price of ~$120/ton

Arch Coal (ACI - MO - $33.48)

High-vol producer
ACI produces met quality coals classified in the high-vol B met and PCI categories
ACIs ultimate production capacity is approximately 8 mm tons. We are forecasting 2011 volumes of 7 mm tons
Production volumes at Mountain Laurel, which are being sold into the met or PCI markets, could make up 5 mm
tons of ultimate capacity
Met volumes are a small piece of the production pie (3.5% of 2010E) but a needle mover to the top line

ACI has ~2.5 mm tons of 2011 PCI and met tonnage contracted at triple-digit net to mine pricing

Page 23

Our Universe with Met Exposure

Met Coal Production (mm tons)
2008

2009

2010E

ACI

4.4

2.0

5.7

7.0

185%

ANR

11.9

8.1

12.1

12.7

49%

5%

BTU

8.3

6.9

9.5

10.5

38%

11%

CNX

3.4

2.1

7.4

7.2

252%

-3%

MEE

9.9

7.4

8.4

11.4

14%

35%

PCX

6.0

5.5

7.0

7.6

27%

8%

7 .3

5 .3

8 .4

9 .4

56%

12%

Group Avg.

2 0 1 1 E '1 0 vs. '0 9 '1 1 vs. '1 0

22%

Met Contract Positions

2010
C om pany

2011
Price

Price

ACI

96.5%

$111.36

33.3%

$105.00

ANR

94.0%

$114.25

23.0%

$138.82

BTU

94.7%

$151.43

4.8%

$185.00

CNX

100.0%

$123.12

16.7%

$151.00

MEE

100.0%

$105.00

35.1%

$128.00

PCX

91.4%

$110.75

35.5%

$119.00

Based on Howard Weil estimates

Source: Companies & Howard Weil, Inc.

Average annual met production for our universe this year is expected to increase +55% over 2009, and increase another +10%
in 2011.
Peabody has the largest open position for 2011, and thus the greatest leverage to an increase in met pricing. As for the
domestic producers, ANR currently has the greatest exposure to a run-up in pricing with less than 25% of met production
contracted for 2011.
Page 24

Organic Growth in Appalachia

U.S. public companies announced expansions out of Appalachia

C om pany/ Project

Location

Ultim ate M et Production

Reserves

C apital C ost

F irst

C apacity (m m tons/yr)

(m m tons)

($ m m )

Production

Alpha N atural Resources (AN R)

Deep Mine #41

CAPP

1.7-1.8

65

$45-$50

1H'11

Barrett Mine - Amfire

NAPP

0.3-0.4

$10

2011

Cresson - Amfire

NAPP

0.6-0.75

25

$15-$20

2013

Freeport - PA Services

NAPP

2.0

68

$350

2015

NAPP

5.0

CAPP

5.0

416

n/a

current

Rocklick

CAPP

0.5

27

$20

4Q'10 - 1Q'11

Kanawha Eagle

CAPP

1.2

90

$30

SAPP

9.5

78

$175

current

NAPP

1.8

40-50

$300

late 2012

Total C entral Appalachia

8 .5

598

Total N orthern Appalachia

9 .8

142

C ON SOL Energy (C N X)
BMX - Pittsburgh 8 Seam

2013-14

M assey Energy (M EE)

Cumberland
Patriot C oal (PC X)

W alter Energy (W LT)

Mine No. 7 Expansion
International C oal Group (IC O)
Tygart #1 Mine

Source: Coal Producers & Howard Weil, Inc.

Page 25

Recent M&A Activity

Buyer

Acquired

Location

C om pletion
Date

Price
Reserves
(USD m m ) (m m tons) $ Paid/ton

Arcelor Mittal

Mid-Vol Coal Group

CAPP

Jun-08

$491

85

$5.78

Arcelor Mittal

Concept Group

CAPP

Aug-08

$166

57

$2.91

OAO Severstall

PBS Coal

NAPP

Nov-08

$698

133

$5.25

Metinvest

United Coal

CAPP

Apr-09

n/a

160

n/a

Mechel OAO

Bluestone

CAPP

May-09

$800

223.8

$3.57

Massey Energy

Cumberland Resources

CAPP

Apr-10

$960

416

$2.31

Essar Minerals

Trinity Coal

CAPP

May-10

$600

200

$3.00

Cliffs

INR Energy

CAPP

Aug-10

$757

119

$6.36

Walter Energy *

Western Coal

Canada

TBD

$3,200

189.5

$16.89

Low/ mid-vol
deals with
international
acquirers
High vol deals
with U.S. and
international
acquirers

*Acquisition expected to close by 2Q11.

Source: Companies & Howard Weil, Inc.

More potential M&A activity:

New Elk Mine (Cline) in Colorado

New Vision Energy mines in Eastern Kentucky
Consol Energys Amonate, Elk Creek & Itmann properties in southern WV
Drummonds (large private) Colombian operation

Page 26

Appendix

Global Met Coal Supply and Demand

Global Met Coal Supply-Demand Model (mm tonnes)
2 0 0 6 vs. 2 0 0 7 vs. 2 0 0 8 vs. 2 0 0 9 vs. 2 0 1 0 vs.
Supply-Production
China
Australia
Russia
United States
Other
Total Supply
Dem and-C onsum ption
China
India
Japan
Russia
Other
Total Dem and

2005
280.6
128.3
55.5
46.4
140.6
6 5 1 .5

2006
339.0
124.0
54.0
44.6
154.6
7 1 6 .2

2007
379.1
142.6
57.4
47.3
161.0
7 8 7 .5

2008
385.0
140.1
54.4
57.4
156.9
7 9 3 .8

2009
412.4
130.6
55.9
46.6
148.3
7 9 3 .8

2010E
387.6
146.3
54.2
55.9
155.8
7 9 9 .8

2005
20.8%
-3.4%
-2.7%
-4.0%
10.0%
9 .9 %

2006
11.8%
15.0%
6.3%
6.1%
4.1%
1 0 .0 %

2007
1.5%
-1.8%
-5.3%
21.3%
-2.5%
0 .8 %

2008
7.1%
-6.8%
2.8%
-18.8%
-5.5%
0 .0 %

2009
-6.0%
12.0%
-3.0%
20.0%
5.0%
0 .8 %

282.4
39.0
56.5
45.0
203.9
6 2 6 .9

339.6
41.1
57.7
44.6
207.8
6 9 0 .8

381.1
46.0
58.2
46.5
212.6
7 4 4 .5

387.5
46.5
57.4
42.2
208.1
7 4 1 .7

445.7
55.5
52.2
46.1
161.9
7 6 1 .3

485.8
63.8
53.8
47.0
165.1
8 1 5 .5

20.3%
5.2%
2.0%
-0.8%
1.9%
1 0 .2 %

12.2%
12.0%
0.9%
4.3%
2.3%
7 .8 %

1.7%
1.2%
-1.4%
-9.3%
-2.1%
-0 .4 %

15.0%
19.1%
-9.0%
9.3%
-22.2%
2 .6 %

9.0%
15.0%
3.0%
2.0%
2.0%
7 .1 %

24.6

25.4

43.0

52.0

32.5

Surplus (Deficit)

(15.7)

Source: IEA, Howard Weil, Inc.

Page 28

U.S. Total Coal Supply and Demand

Domestic Coal Supply-Demand Model (mm tonnes)
2 0 0 6 vs. 2 0 0 7 vs. 2 0 0 8 vs. 2 0 0 9 vs. 2 0 1 0 vs.
Supply-Production
Steam
Metallurgical
Brown
Total Production
Imports
Total Supply

2005
916.0
46.4
76.2
1 ,0 3 8 .6
27.6
1 ,0 6 6 .2

2006
946.9
44.6
76.4
1 ,0 6 7 .9
32.9
1 ,1 0 0 .8

2007
934.4
47.3
71.3
1 ,0 5 3 .0
33.0
1 ,0 8 6 .0

2008
949.9
57.4
68.7
1 ,0 7 5 .9
31.0
1 ,1 0 6 .9

2009
872.2
46.6
65.8
9 8 4 .5
20.5
1 ,0 0 5 .0

2010E
876.5
55.9
63.8
9 9 6 .2
19.3
1 ,0 1 5 .5

2005
3.4%
-4.0%
0.4%
2.8%
19.0%
3 .2 %

2006
-1.3%
6.1%
-6.7%
-1.4%
0.3%
-1 .3 %

2007
1.7%
21.3%
-3.7%
2.2%
-5.9%
1 .9 %

2008
-8.2%
-18.8%
-4.2%
-8.5%
-33.8%
-9 .2 %

2009
0.5%
20.0%
-3.0%
1.2%
-6.0%
1 .0 %

Dem and-C onsum ption

Steam
Metallurgical
Brown
Total C onsum ption
Exports
Total Dem and

932.7
20.9
76.1
1 ,0 2 9 .7
45.3
1 ,0 7 5 .0

920.4
20.9
75.8
1 ,0 1 7 .1
45.0
1 ,0 6 2 .1

934.6
20.5
71.9
1 ,0 2 7 .0
53.7
1 ,0 8 0 .7

931.3
20.0
70.4
1 ,0 2 1 .8
74.0
1 ,0 9 5 .7

842.2
14.0
64.6
9 2 0 .8
53.6
9 7 4 .4

896.9
14.3
64.9
9 7 6 .2
75.1
1 ,0 5 1 .2

-1.3%
0.0%
-0.5%
-1.2%
-0.6%
-1 .2 %

1.5%
-1.8%
-5.2%
1.0%
19.2%
1 .7 %

-0.4%
-2.6%
-2.0%
-0.5%
37.8%
1 .4 %

-9.6%
-29.8%
-8.4%
-9.9%
-27.5%
-1 1 .1 %

6.5%
2.0%
0.5%
6.0%
40.0%
7 .9 %

38.7

5.3

11.2

30.6

Surplus (Deficit)

(8.8)

(35.7)

Source: IEA, Howard Weil, Inc.

Page 29

Largest Steel Producing Countries

2009 World Steel Production
(in Mt)

South Korea
48.6
5%

Germany
32.7
3%

Ukraine
29.8
3%

Brazil
26.5
3%

Turkey
25.3
3%

India
56.6
6%
U.S.
58.1
6%

Russia
59.9
6%

Japan
87.5
9%

China
567.8
56%

Source: Jindal Steel & Power Ltd.

Page 30

International Steel Production on the Rise

International (ex. China) vs . Chines e Steel Production
80,000
70,000
60,000

35,000

50,000

25,000

5,000

No
v

Ju
n-

-0
4
Ap
r05
Se
p05
Fe
b06
Ju
l -0
6
De
c0
M 6
ay
-0
7
O
ct
-0
7
M
ar
-0
8
Au
g08
Ja
n09
Ju
n09
No
v09
Ap
r10
Se
p10

30,000

04

15,000

40,000

China (kt)

45,000

Ja
n0

I nternatio nal (kt)

55,000

International

China

Source: Bloomberg

Page 31

Steel Plant Utilization

Steel Plant C apacity Utiliz ation
100%
90%
80%

75%

70%
67%

60%
58%

50%
40%
30%

34%

U.S. Steel Plant Capacity

1Q
2Q
3Q
4Q
Y ear

U.S. Steel Utiliz ation

2008
2009
2 0 1 0 TD
89.5%
42.3%
68.6%
89.0%
45.2%
72.9%
87.4%
55.3%
71.0%
53.5%
62.2%
67.8%
7 9 .8 %
5 1 .3 %
7 0 .1 %

Ju
l-1
0
Se
p10

Ju
l-0
9
Se
p09
No
v09
Ja
n10
M
ar
-1
0
M
ay
-1
0

Ju
l-0
8
Se
p08
No
v08
Ja
n09
M
ar
-0
9
M
ay
-0
9

Ja
n08
M
ar
-0
8
M
ay
-0
8

20%

Global Steel Plant Capacity

Global Steel Utiliz ation

2008
2009
2 0 1 0 TD
86.2%
64.7%
78.7%
86.4%
68.0%
81.6%
80.3%
74.9%
74.3%
63.2%
75.2%
75.4%
7 9 .0 %
7 0 .7 %
7 7 .5 %

Source: Bloomberg

Page 32

Freight Rates from North America to Europe

Panam ax C oal F reight Rates
$120

US$/t on n e

$100
$80
$60
$40
$20

Ja

n0
M 5
ay
-0
Se 5
p05
Ja
n0
M 6
ay
-0
Se 6
p06
Ja
n0
M 7
ay
-0
7
Se
p07
Ja
n0
M 8
ay
-0
Se 8
p08
Ja
n0
M 9
ay
-0
9
Se
p09
Ja
n1
M 0
ay
-1
0
Se
p10

$0

Hampton Roads to Rotterdam

Mississippi River to Rotterdam

Roberts Bank to Rotterdam

Source: Bloomberg

Todays freight rates are relatively low compared to historical levels. Rates for all three ports shipping
coal out of the U.S. to Rotterdam are currently ~30% below the last 5-yr average

Hampton Roads to Rotterdam Nov. 2010 average of $14.30/t

Mississippi River to Rotterdam Nov. 2010 average of $18.45/t
Roberts Bank to Rotterdam Nov. 2010 average of $26.87/t

Weaker freight prices help with the competiveness of U.S. exported coal
Page 33

Freight Rates Continued

C apesiz e C oal F reight Rates
$90
$80
US$/t on n e

$70
$60
$50
$40
$30
$20
$10

Ja

n05
ay
-0
Se 5
p0
Ja 5
nM 06
ay
-0
Se 6
p0
Ja 6
n0
M 7
ay
-0
Se 7
p0
Ja 7
n0
M 8
ay
-0
Se 8
p0
Ja 8
n0
M 9
ay
-0
Se 9
p0
Ja 9
nM 10
ay
-1
Se 0
p10

$0

Queensland to Rotterdam

Roberts Bank to China

Source: Bloomberg

Freight rates for coal shipping out of Australia and Canada are low compared to the 5-year
average activity. Queensland to Rotterdam is down 40% and Roberts Bank to China down +45%
off the respective 5-yr averages

Page 34

Analyst Certification
We, Abigail Mayo and Holly Stewart, certify that the views expressed in this research report accurately reflect our personal views about the subject
securities or issuers; and we, Abigail Mayo and Holly Stewart, certify that no part of our compensation was, is, or will be directly or indirectly related to the
specific recommendation or views contained in this research report.

Important Disclosures
This report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, the financial instruments
discussed in this report may not be suitable for all investors and investors must make their own investment decisions based upon their specific investment objectives
and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider Howard Weils research and/or ratings as only a single
factor in making their investment decisions. Past performance of the financial instruments recommended in this report should not be taken as an indication or guarantee
of future results.
Howard Weil Incorporated is a multidisciplined financial services firm that regularly intends to seek investment banking business with companies covered in its research
reports, and thereby seeks to receive compensation from these companies for services including, but not limited to, acting as an underwriter in an offering or financial
advisor in a merger or acquisition, or serving as a placement agent for private transactions. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report.

Guide to Howard Weils Equity Research Rating System

Howard Weil analysts use a relative rating system in which they determine a rating for stocks in Howard Weils Coal Producer sector by a stocks return potential relative
to the S&P 500. For purposes of the disclosures required by FINRA rules, Focus List Stock and Market Outperform equate to Buy, Market Perform equates to Hold and
Market Underperform equates to Sell. Coverage universe, research and current price targets are available at www.howardweil.com, or contact your Howard Weil
representative.

Stock Rating System

Focus List Stock (FS): Represents analysts best ideas in the Market Outperform category; expected to significantly outperform the S&P 500 over the next 6 - 12
months.
Market Outperform (MO): Expected to outperform the S&P 500 over the next 12 months.
Market Perform (MP): Returns expected to be in line with the S&P 500 over the next 12 months.

Market Underperform (MU): Returns expected to be below the S&P 500 over the next 12 months.
Rating Suspended (RS): Howard Weil Incorporated Research has suspended the investment rating and price target, if any, for this stock, because of a reassignment
of analyst(s) covering this sector. The previous investment rating and price target, if any, are no longer in effect for this stock at this time and should not be relied upon.
As of 9/30/2010, Howard Weil has 108 companies in its coverage universe. Of the 108 securities under Howard Weils coverage universe, 107 carry a recommendation.
The percentages referenced below are based upon the 107-rated securities in the Howard Weil coverage universe.
58% have been assigned a Focus List (FS) or Market Outperform (MO) rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating.
Within the last 12 months, 11% of companies with this rating are investment banking clients of the Firm.
42% have been assigned a Market Perform (MP) rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating. Within the last 12
months, 11% of companies with this rating are investment banking clients of the Firm.
0% have been assigned a Market Underperform (MU) rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating. Within the last 12
months, 0% of companies with this rating are investment banking clients of the Firm.

Page 35

Valuation / Risk Factors

Valuation Method Used to Determine Price Target: Our current price targets for the Coal Producers are based on several different valuation techniques, including a
multiple of EV/EBITDA, a multiple of P/E, and an Net asset value (NAV) calculation. The NAV is determined by taking a discounted cash flow (DCF) of the companys
coal reserves (assigned, proved and probable).
Risk Factors Which May Impede the Achievement of the Price Target: (1) Industry fundamentals with respect to customer demand or product/service pricing could
change and adversely impact expected revenues and earnings; (2) issues relating to major competitor or market shares or new product expectations could change
investor attitudes toward the sector or the stock; (3) Unforeseen developments with respect to the management, financial condition or accounting polices or practices
could alter the prospective valuation; or (4) external factors that affect the U.S. economy, interest rates, the U.S. dollar or major segments of the economy could alter
investor confidence and investment prospects.

Oil and Gas Prices and OPEC: Financial and operating performance for companies in the Energy industry are affected by absolute and relative changes in oil and gas
prices, which are influenced by a multitude of regional, national and global factors. As such, future stock price performance may also be influenced by such factors
associated with changes to fiscal and royalty regimes in countries where it operates, or might operate, the potential for geopolitical upheaval (given its global presence)
and may face various technical and operational risks associated with the products and services it provides. Agreements among OPEC members, including production
limitations, may also affect worldwide commodity prices and financial and operational performance for companies in the Energy industry.

Analysts Compensation
The equity research analyst(s) responsible for the preparation of this report, receive compensation based upon various factors, including effectiveness of research
recommendations, client feedback, competitive factors and overall firm revenues, which may include revenues from, among other business units, Institutional Equities
and Investment Banking.

Additional Disclaimers and Disclosures

The information contained herein has been prepared from sources believed reliable, but is not guaranteed by us and is not a complete summary or statement of all
available data, nor is it considered an offer to buy or sell any securities referred to herein. No investments or services mentioned are available in the European
Economic Area to private customers or to anyone in Canada other than a Designated Institution.
Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual
investors. Employees of Howard Weil Incorporated or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ
from the opinions expressed within.
This email may be considered advertising under federal law. If you decide not to receive Howard Weil products and services, updates, and information via email, please
reply to howardweil@howardweil.com and ask to be removed.
Additional information is available upon request
10/2010 Howard Weil Incorporated
Member FINRA Member SIPC
1100 Poydras Street, Suite 3500, New Orleans, LA 70163
1.800.322.3005

Page 36