Trends in U.S. Coal MiningTrends in U.S. Coal MiningA Special Presentation for the Mining ElectricalA Special Presentation for the Mining Electrical

Maintenance & Safety AssociationMaintenance & Safety Association(September 10, 2009)(September 10, 2009)

Steve FiscorSteve FiscorEditorEditor--inin--ChiefChief

E&MJ and Coal AgeE&MJ and Coal AgeMining Media InternationalMining Media International

E&MJE&MJ——The Leading Trade JournalThe Leading Trade Journalfor Mining and Mineral Processing Professionalfor Mining and Mineral Processing Professional

►► Market leaders based on three criteria: Market leaders based on three criteria: editorial quality, readership, and editorial quality, readership, and advertising revenue;advertising revenue;

►► We formed Mining Media International We formed Mining Media International in 2003 and purchased E&MJ and Coal in 2003 and purchased E&MJ and Coal Age;Age;

►► MMI has the most impressive editorial MMI has the most impressive editorial staff;staff;

►► ReaderReadership: E&MJ more than 20,000 ship: E&MJ more than 20,000 and Coal Age more than 15,000;and Coal Age more than 15,000;

►► Advertising revenues pay for the Advertising revenues pay for the production costs;production costs;

►► E&MJ Readers are mostly mining E&MJ Readers are mostly mining executives, engineers, metallurgists, and executives, engineers, metallurgists, and geologists.geologists.

Coal AgeCoal Age——The Magazine for Coal MiningThe Magazine for Coal Miningand Processing Professionalsand Processing Professionals

►► Coal Age readers are executives, Coal Age readers are executives, mining engineers, and mine and mining engineers, and mine and prep plant managers;prep plant managers;

►► MMI has a full set of mining MMI has a full set of mining directories to support the titles;directories to support the titles;

►► In addition to promoting a number In addition to promoting a number of expositions (Expomin, MINExpo, of expositions (Expomin, MINExpo, Bauma, etc.), MMI also has Bauma, etc.), MMI also has technical trade shows: Haulage & technical trade shows: Haulage & Loading and Longwall USA;Loading and Longwall USA;

►► Ancillary products (Lobos and C&D Ancillary products (Lobos and C&D World).World).

Mining Media InternationalMining Media International

Topics to Cover Topics to Cover

►►Notable Historic EventsNotable Historic Events►►More recent DevelopmentsMore recent Developments►►Affordable ElectricityAffordable Electricity►►Mine SafetyMine Safety►►Coal MarketsCoal Markets►►Environmental IssuesEnvironmental Issues►►What to ExpectWhat to Expect

Notable Historic TrendsNotable Historic Trends►► The Clean Air Act Amendments of 1990 create a huge shift to lowThe Clean Air Act Amendments of 1990 create a huge shift to low--sulfur sulfur

coals;coals;►► Utilities in the Midwest switch fuels, the decline of the IllinoUtilities in the Midwest switch fuels, the decline of the Illinois Basin begins;is Basin begins;►► Oil companies begin to exit the coal business;Oil companies begin to exit the coal business;►► For the first time, many coal companies begin to list publicly;For the first time, many coal companies begin to list publicly;►► Throughout the 1990s a market glut holds prices down and names sThroughout the 1990s a market glut holds prices down and names start to tart to

disappear;disappear;►► Safety statistics industrySafety statistics industry--wide begin to improve;wide begin to improve;►► Surface mining equipment grows (haul trucks outgrow shovels), Surface mining equipment grows (haul trucks outgrow shovels),

productivity increase; productivity increase; ►► The economy gains steam under the Clinton Administration and demThe economy gains steam under the Clinton Administration and demand and

improves;improves;►► Al Gore brings the climate debate to the U.S. coal business;Al Gore brings the climate debate to the U.S. coal business;►► EPA enforces additional regulations (New Source Review, NOx, merEPA enforces additional regulations (New Source Review, NOx, mercury, cury,

etc.) etc.) ►► Environmental activism begins to take root in the East under theEnvironmental activism begins to take root in the East under the Bush Bush

Administration; andAdministration; and►► A series of mine tragedies brings unwanted attention and increasA series of mine tragedies brings unwanted attention and increased ed

regulation;regulation;

More Recent DevelopmentsMore Recent Developments

►► U.S. Supreme Court decision (Massachusetts vs. EPA, 2007) defineU.S. Supreme Court decision (Massachusetts vs. EPA, 2007) defines CO2 as an s CO2 as an

unregulated pollutant;unregulated pollutant;

►► The economy dips into recession and takes power demand along witThe economy dips into recession and takes power demand along with it.;h it.;

►► Democrats take control of Washington;Democrats take control of Washington;

►► Obama appoints new leadership at EPAObama appoints new leadership at EPA

►► EPA questions mountaintop mining permits;EPA questions mountaintop mining permits;

►► The WaxmanThe Waxman--Markey bill (cap and trade) legislation narrowly advances to theMarkey bill (cap and trade) legislation narrowly advances to the

Senate; andSenate; and

►► New leadership at MSHANew leadership at MSHA

Why coal? Why not use electricity?Why coal? Why not use electricity?

Fuel Sources for Electric Power

Coal (53%)Nuclear (21%)Natural Gas (16%)Hydro (7%)Other (3%)

Coal provides affordable electricityCoal provides affordable electricity

SurfaceSurfaceMiningMining

Moving Overburden with DraglinesMoving Overburden with Draglines

TruckTruck--Shovel LoadingShovel Loading

Ultra Class Haul TrucksUltra Class Haul Trucks

Overland Conveyor SystemsOverland Conveyor Systems

Mine SafetyMine Safety

►► Mine safety is at the forefront of everyoneMine safety is at the forefront of everyone’’s mind;s mind;

►► It seems fatalities are on the rise, but itIt seems fatalities are on the rise, but it’’s coincidence, karma, and media hype;s coincidence, karma, and media hype;

►► The reality is that mining is safer today than many other industThe reality is that mining is safer today than many other industries;ries;

►► Most mining companies have worked hard to instill a culture of sMost mining companies have worked hard to instill a culture of safety;afety;

►► Ever since Quecreek, the public expects to see miners rescued anEver since Quecreek, the public expects to see miners rescued and that was d that was

the exception;the exception;

►► The government recently enacted the MINER Act, which will make tThe government recently enacted the MINER Act, which will make the mines he mines

safer, indirectly;safer, indirectly;

Coal Mine Safety TrendsCoal Mine Safety Trends

Media SensationalismMedia Sensationalism

Recent Mine Safety StatisticsRecent Mine Safety Statistics

Production & ReservesProduction & Reserves

Top U.S. Coal ProducersTop U.S. Coal Producers

20012001 20052005 20082008Peabody EnergyPeabody Energy 182182 Peabody EnergyPeabody Energy 194194 Peabody EnergyPeabody Energy 192192Arch CoalArch Coal 113113 Arch CoalArch Coal 149149 RTEARTEA 138138KennecottKennecott 106106 KennecottKennecott 130130 Arch CoalArch Coal 128128CONSOL EnergyCONSOL Energy 6868 CONSOL EnergyCONSOL Energy 6868 Foundation CoalFoundation Coal 7272RAG AmericanRAG American 6363 Foundation CoalFoundation Coal 6161 CONSOL EnergyCONSOL Energy 6565AEI ResourcesAEI Resources 4848 Massey EnergyMassey Energy 4242 Massey EnergyMassey Energy 3939Massey EnergyMassey Energy 4141 North AmericanNorth American 3434 Kiewit MiningKiewit Mining 3838Triton CoalTriton Coal 3333 Kiewit MiningKiewit Mining 3131 North AmericanNorth American 3434North AmericanNorth American 3232 WestmorelandWestmoreland 2929 WestmorelandWestmoreland 3030TXU MiningTXU Mining 2626 TXU MiningTXU Mining 2424 Murray EnergyMurray Energy 2727

Alpha Natural Resources has acquired Foundation Coal;

Rio Tinto Energy America (RTEA) announced an IPO as Cloud Peak Energy; and

FTC Approves Arch Coal’s Jacobs Ranch acquisition;

US. Coal Supply & DemandUS. Coal Supply & DemandProduction & Consumption

950

1000

1050

1100

1150

1200

2000

2001

2002

2003

2004

2005

2006

2007

2008

Year

Mill

ions

of t

ons

ProductionConsumption

US. Coal Supply & DemandUS. Coal Supply & DemandCoal Stocks at Utilities

0

50

100

150

200

2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

Mill

ions

of t

ons

Stocks

US. Coal Supply & DemandUS. Coal Supply & Demand

ProductionProduction ConsumptionConsumption StocksStocks20002000 1,0711,071 1,0821,082 10710720012001 1,1161,116 1,0501,050 13713720022002 1,0941,094 1,0631,063 14214220032003 1,0701,070 1,0911,091 12212220042004 1,1111,111 1,1071,107 10710720052005 1,1321,132 1,1261,126 10110120062006 1,1631,163 1,1121,112 14014020072007 1,1471,147 1,1291,129 15115120082008 1,1721,172 1,1221,122 163163(Millions of tons)(Millions of tons)

Current U.S. Coal ProductionCurrent U.S. Coal Production

Average Weekly Spot PricesAverage Weekly Spot Prices

U.S. Coal PricesU.S. Coal Prices

Spot Prices for Coal ($/ton)Spot Prices for Coal ($/ton)

Dec 05Dec 05 Dec 06Dec 06 Dec 07Dec 07 Dec 08Dec 08 Aug 09Aug 09

Northern AppalachiaNorthern Appalachia $44.00$44.00 $43.00$43.00 $55.25$55.25 $101.50$101.50 $46.00$46.00

Central AppalachiaCentral Appalachia $59.00$59.00 $47.25$47.25 $57.70$57.70 $81.55$81.55 $52.30$52.30

Illinois BasinIllinois Basin $36.00$36.00 $33.00$33.00 $33.50$33.50 $78.00$78.00 $41.50$41.50

Powder River BasinPowder River Basin $16.48$16.48 $9.90$9.90 $11.50$11.50 $13.00$13.00 $8.75$8.75

Western BituminousWestern Bituminous $37.00$37.00 $36.00$36.00 $24.00$24.00 $73.00$73.00 $45.00$45.00

Source: EIA/Platts Coal Outlook Weekly Price SurveySource: EIA/Platts Coal Outlook Weekly Price Survey

U.S. Coal MarketsU.S. Coal Markets► Basic supply-demand fundamentals, stocks are high and

spot prices are low, but they have not reached record lows;

► Exports to Europe (quality and weak-dollar pricing) created a shift in the marketplace last year, but tapered off with the economic slump;

► Domestic coal consumption is a function of the economy and population growth; and

► The U.S. will continue to produce and consume about 1 billion tons per year;

The Coal Market SoftensThe Coal Market Softens

►► Coal Age predicts a 2.3% decline in coal production (January, 20Coal Age predicts a 2.3% decline in coal production (January, 2009);09);

►► ““Demand for domestic coal will decline by 9% this year, which wouDemand for domestic coal will decline by 9% this year, which would be the ld be the

largest decline in tonnage since 1954,largest decline in tonnage since 1954,””----JoyGlobal Second Quarter 2009 JoyGlobal Second Quarter 2009

Outlook (May 2009);Outlook (May 2009);

►► Consumer stock inventories ended the year with the largest volumConsumer stock inventories ended the year with the largest volume of coal in e of coal in

stockpiles since 1987 at 163.1 million tons, marking a 7.8% stocstockpiles since 1987 at 163.1 million tons, marking a 7.8% stock build in k build in

2008.2008.——National Mining Association (May 09) National Mining Association (May 09)

►► ““The industry has already responded with announced cutbacks of 66The industry has already responded with announced cutbacks of 66 to 84 to 84

million tons for 2009. Another 50 million tons needs to be cut imillion tons for 2009. Another 50 million tons needs to be cut in order to n order to

achieve some measure of equilibrium.achieve some measure of equilibrium.””----Wood Mackenzie, July 22, 2009Wood Mackenzie, July 22, 2009

Environmental ConcernsEnvironmental Concerns

The Future for CoalThe Future for Coal--FiredFiredPower GenerationPower Generation

►► Reducing the carbon footprint: conservation, less carbon intensiReducing the carbon footprint: conservation, less carbon intensive fuel sources, carbon ve fuel sources, carbon

capture and sequestration (CCS), capture and sequestration (CCS),

►► DoE is evaluating near zero emission technology (FutureGen) and DoE is evaluating near zero emission technology (FutureGen) and CCS techniques;CCS techniques;

►► Currently integrated gas combined cycle (IGCC) power plants offeCurrently integrated gas combined cycle (IGCC) power plants offer the best means to r the best means to

strip and sequester CO2;strip and sequester CO2;

►► The U.S has 1,100 pulverized coal units;The U.S has 1,100 pulverized coal units;

►► Worldwide six IGCC coal units are operating, two of them are locWorldwide six IGCC coal units are operating, two of them are located in the U.S. ated in the U.S.

(Wabash River in Indiana and Tampa Electric(Wabash River in Indiana and Tampa Electric’’s Polk County station);s Polk County station);

►► FutureGenFutureGen----politics and dwindling support;politics and dwindling support;

►► Gasification is easy, sequestering is difficult;Gasification is easy, sequestering is difficult;

►► Enhanced oil recoveryEnhanced oil recovery——U.S. has 11 years of capacity; andU.S. has 11 years of capacity; and

►► Saline aquifers represent 1,000 years of capacity.Saline aquifers represent 1,000 years of capacity.

The Amount of CCS is StaggeringThe Amount of CCS is Staggering

Cap & TradeCap & Trade

►► American Clean Energy and Security Act (H.R. 2454), otherwise knAmerican Clean Energy and Security Act (H.R. 2454), otherwise known as the Waxmanown as the Waxman--

Markey bill;Markey bill;

►► ItIt’’s a carbon tax that will generate $646 billion during the next 1s a carbon tax that will generate $646 billion during the next 10 years;0 years;

►► Utilities will pass the costs along to consumers: families and bUtilities will pass the costs along to consumers: families and businesses;usinesses;

►► Green initiatives are a luxury;Green initiatives are a luxury;

►► Indiana Governor Mitch Daniels summed it up best in a recent Indiana Governor Mitch Daniels summed it up best in a recent Wall St. JournalWall St. Journal editorial. editorial.

In it, he referred to the WaxmanIn it, he referred to the Waxman--Markey as a tax on Midwestern states to pay for failed Markey as a tax on Midwestern states to pay for failed

social programs in California and New England;social programs in California and New England;

►► Sadly, the legislation has little to do with helping the environSadly, the legislation has little to do with helping the environment; andment; and

►► More people will perish from high energy costs than rising oceanMore people will perish from high energy costs than rising ocean levels.levels.

Green ShootsGreen Shoots

►► ““We believe that the trough of the current coal market cycle has We believe that the trough of the current coal market cycle has been reached, been reached,

and anticipate better industry supply and demand balance and impand anticipate better industry supply and demand balance and improving roving

company financial performance in the second half of the year.company financial performance in the second half of the year.””----Arch Coal CEO Arch Coal CEO

Steve Leer, July 24, 2009;Steve Leer, July 24, 2009;

►► Longer term, approximately 17,000 megawatts of coal plants are uLonger term, approximately 17,000 megawatts of coal plants are under nder

construction in 19 states, representing 70 million tons of annuaconstruction in 19 states, representing 70 million tons of annual coal demand, l coal demand,

the majority of which would be served by the Powder River and Ilthe majority of which would be served by the Powder River and Illinois linois

basins.basins.””——Peabody Energy, Second Quarter Earnings Report, July 21, 2009;Peabody Energy, Second Quarter Earnings Report, July 21, 2009;

ConclusionsConclusions

►► The market is down (6%The market is down (6%--10%), but not down as far as other industries (automotive, 10%), but not down as far as other industries (automotive,

construction, etc.)construction, etc.)

►► Unless export markets revive, coal markets will remain soft throUnless export markets revive, coal markets will remain soft through 2011;ugh 2011;

►► We will still mine and burn 1 billion tons of coal;We will still mine and burn 1 billion tons of coal;

►► Mine operators will have to deal with increased safety and envirMine operators will have to deal with increased safety and environmental regulations;onmental regulations;

►► Central Appalachia will probably suffer the most;Central Appalachia will probably suffer the most;

►► Mine operators will conserve cash, reduce operating costs, and oMine operators will conserve cash, reduce operating costs, and opt to extend the pt to extend the

lives of equipment;lives of equipment;

►► Utilities will have to deal with increased environmental regulatUtilities will have to deal with increased environmental regulation;ion;

►► The Obama Administration has earmarked money for CCS research;The Obama Administration has earmarked money for CCS research;

►► Hopefully common sense will prevail and the U.S. will invest in Hopefully common sense will prevail and the U.S. will invest in low cost energy low cost energy

infrastructure that relies on coal for future generations.infrastructure that relies on coal for future generations.

Questions?Questions?

Steve FiscorSteve FiscorEditorEditor--inin--ChiefChief

E&MJ and Coal Age, Mining Media InternationalE&MJ and Coal Age, Mining Media International13555 Central Parkway, Suite 40113555 Central Parkway, Suite 401

Jacksonville, FL 32225Jacksonville, FL 32225Tel: 904Tel: 904--721721--29252925

sfiscor@miningsfiscor@mining--media.commedia.com