Mick Cairney - Centennial Coal - Keynote Address - Surviving the downturn: Challenges and opportunities

www.centennialcoal.com.au

14th Annual Longwall Conference - October 2015

Mick Cairney Executive General Manager Operations

Centennial Coal Company Limited

Surviving the downturn: Challenges & Opportunities

Disclaimer

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This presentation has been prepared by Centennial Coal Company Limited (the Company). This presentation may contain informati on (including information derived from publicly available sources) that has not been independently verified by the Company.

Any forward looking information in this presentation has been prepared on the basis of a number of current assumptions which may ultimately prove to be materially incorrect. Therefore actual results, outcomes and achievements may be materially greater or less than estimated . This presentation should not be relied upon as a forecast by the Company.

Neither the Company nor its directors, officers, employees or advisors make any representation or warranty and accordingly no reliance should be placed on the fairness, accuracy, completeness or reliability of the information contained in this presentation. To the maxim um extent permitted by law, the Company its directors, officers, employees or advisors do not accept any liability for any errors, omissions or loss (inc luding because of negligence or otherwise) arising, directly or indirectly, from any use of this presentation or information contained in this presentation.

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This presentation and its content is not intended to be relied upon as advice to investors or potential investors and does no t take into account an individual investor’s investment objectives or financial situation. Investors or potential investors should consider their individual circumstances and consult professional advisors where appropriate.

All financial data is expressed in Australian dollars unless otherwise stated.

95% of Australia’s coal exports come

from the Sydney & Bowen Basins

In NSW, coal contributes:

• 20,000 direct jobs

• 90,000 indirect jobs

• 84% of State electricity

• 22% of NSW goods & services

export revenue

• $1.3 billion in mining royalties

• Many billions to the State

economy in direct purchases

NSW has 18 billion tonnes of

estimated recoverable coal reserves

NSW has flexibility to expand future

coal supplies/infrastructure

Coal is the State’s largest export industry and main

source of electricity

3

World Demand for Electricity

World electricity capacity under

construction or approved Projected electricity generation by fuel

Coal is the world’s fastest growing fuel. It provides 40% of the world’s

electricity, 70% of global steel and much of the world’s cement.

4

World Demand for Electricity

5

Fuel Mix in Our Region

6

Growing Energy Needs

7

Poverty Reduction

COAL21 Fund

• World-first voluntary levy on coal producers

• Facilitating demonstration of low emissions coal technologies

• Targeted co-investment with other stakeholders (Government, electricity

generators, equipment suppliers, other industry investors)

Over A$300m committed to 14 projects

• Low emissions coal technology achievements in Australia: Successfully captured CO2 at Queensland’s Callide coal-fired power plant – the world’s

largest demonstration so far

Successfully sequestered 65,000 tonnes of CO2 in a depleted gas field in Victoria’s

Otway Basin

Now intensifying the search for storage sites in QLD, NSW, VIC and WA

Contributing to the international R&D effort:

- to solve unexpected problems encountered by large scale demonstration projects

- to reduce methane emissions at operating coal mines

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Carbon Emission Reductions

9

HELE Projects at Work

10

Devices need a holiday too - Swiss consumer

awareness raising campaign

A saving of 65 GWh just by turning devices off for four weeks.

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Market Trends

Global Thermal Coal Market: 2015 vs 2014

Indonesia Australia Russia Columbia S.Africa USA India Others Other N.Asia Europe China*

Demand continues to grow with India leading the

growth

-10 Mt

Note: * Steam coal imports only

SUPPLY TRENDS DEMAND TRENDS

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-40 Mt

+2 Mt +4 Mt +2 Mt +3 Mt

-5 Mt

+20 Mt +15 Mt +3 Mt

-40 Mt

-4 Mt

USA : significant domestic demand falls pressure producers as does, strengthened US$

Russia : diverted to more coal to Asia due to lower UK import, still benefit from Rouble depreciation

Indonesia : coal exports fall due low China demand, huge oversupply on LCV

coal, new government policy; use of

domestic currency

Australia : tight HCV coal supply, HA coal

finds alternative buyers in India and Malaysia with larger discount due to

falling Chinese demand. Take-or-pay forces

producers to export more coal

Colombia : night coal railing ban has limited impact to coal export, new port capacity to support export

South Africa : continued political and

social issues; limited rail capacity; uncertain

expansion; high competition in India

market

Thermal market continues to be oversupplied. Premium coals are

trending tighter while off-spec coal is trending to more oversupply

Europe : increased carbon pricing,

gas-switching, increased renewable energy and

coal-fired capacity retirements per IED program will reduce

coal burn

China : oversupply in domestic market despite production cuts by major producers, weak power demand, high hydro and risk of failing trace elements test lower import

India : demand growth still strong and domestic coal sector reforms can not contain import growth in the short-term, infrastructure constraint remains Others : South

America and Turkey drive demand growth

Other Asia : about 15 GW are expected to come online in the next two to three years although some projects are still facing environmental and regulatory challenges

China Thermal Coal Market Review

13 *Note: Does NOT include lignite imports c.50Mtpa

CHINA ANNUALIZED ACTUAL IMPORT 1Q13-2Q15*

CHINA THERMAL COAL IMPORTS/EXPORTS*

CHINA DOMESTIC COAL PRICES

93 103

147 135

96

14 7 5 4 2 2

2010 2011 2012 2013 2014 2015F

Import

Export

Sou rces: Banpu MS&L Estimates

Un it: Mt 152

148 140 159 167 135 116 122 84 86

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

Import

Export

Un it: Mt

200400600800

1,000

Apr-

12

Jun-1

2

Aug-1

2

Oct

-12

Dec-1

2

Feb-1

3

Apr-

13

Jun-1

3

Aug-1

3

Oct

-13

Dec-1

3

Feb-1

4

Apr-

14

Jun-1

4

Aug-1

4

Oct

-14

Dec-1

4

Feb-1

5

Apr-

15

Jun-1

5

> 5,800 kcal/kg> 5,500 kcal/kg> 5,000 kcal/kg

392 343

CHINA

175

428

COMMENTS

Sou rce: www.sxcoal.com/cn 4 August 2015

Chinese domestic coal market continues to

be oversupplied despite production cuts by

major producers

Weak economic performance has led to

weak power demand

Coal imports declined further than expected

- High rainfall increased hydropower and

reduced coal burn in southern and

eastern provinces

- Continued emphasis on pollution control

especially along coastal provinces

- Trace elements testing has added

uncertainty to some imported coal due to

the risk of having coal failing inspections

- Commissioned 7.7 GW of new solar

power in the first half of this year

Un it: RMB/t

India Thermal Coal Market Review

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INDIA THERMAL COAL IMPORTS*

INDIA ANNUALIZED ACTUAL IMPORT 1Q13-2Q15

Sou rces:: Salva Report India, Banpu MS&L Estimates

131

159 135

120 126

163 168

197

171 180

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

Un it: Mt

Un it: Mt

Indian coal industry reform is unlikely to increase output to planned 1 billion tonnes by 2020

Insufficient domestic coal supply will continue with imported coal required to fill the gap

Infrastructure bottlenecks still constrain the rate of import growth

Coal remains the cheapest source of power generation in India, and much higher quality import coal is at price parity with domestic coal in coastal locations

INDIA

Note: *includes lignite grade imports (approximately 25% - 30%)

COMMENTS

68 87

107

136 163

2010 2011 2012 2013 2014 2015F

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Market Trends

Prices are expected to continue to drift

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FOB Newcastle Price Forecast @ 6322 GAR

2011 Average US$121.24/ton



-20.3%

Forward price

as of 12 Jan 2015


2015F Average US$69.13/ton Wood Mackenzie Forecast

Forecast

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Centennial Coal

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• Established in 1989, listed in 1994, Centennial grew to be a S&P/ASX 100 listed company

• Operator of five NSW mines, producing approx. 17 million ROM tonnes per annum

• JORC Compliant Resources & Reserves (100% basis) at 31 Dec 2014:

- Total Resource - 2.03 billion tonnes

- Marketable Reserve - 0.37 billion tonnes

• 2014 Calendar Year Revenues and EBITDA (pre-FX) of A$1,054.0 million and A$211.0 million, respectively

• Major supplier to the NSW Electricity Industry

• Domestic/Export sales mix approx. 60%:40%

• Exports through Port Kembla and Newcastle

• Customers include power stations and industry in Japan, Korea, China, Taiwan and Europe

• In November 2010, became a wholly-owned subsidiary of Banpu Public Company Ltd (“Banpu”), Pan-Asia’s largest independent energy group

Banpu – “The Asian Face of Energy”

Coal Business - 2015

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Gaohe : Longwall Mine

8mtpa , 3 LWs Operating

Hebi : Longwall Mine

1.5 Mtpa

Mandalong : LW 6mtpa

Springvale: LW 5mtpa

Clarence: CM 2.8mtpa

Myuna: CM 2.2mtpa

Airly: CM 1mtpa

Charbon: O/C Rehab

Angus Place: C&M

Newstan: C&M

Mannering C&M

Hebi (40%)

CHINA

Gaohe (45%)

AUSTRALIA

Centennial (100%)

INDONESIA

ITM (65%)

Hunnu (100%)

MONGOLIA

Tsant Uul : coal-to-chemicals pilot plant

completed; trial output

Unst Khudag : further exploration underway

Altai Nuurs : mining awaiting government

approvals

Indominco: 15.0 Mt

Trubaindo: 7.2 Mt

Bharinto; 2.5 Mt

Kitadin Tandung Mayang; 1.8 Mt

Kitadin-Embalut; 1.3Mt

Jorong; 1.3 Mt

Banpu – “The Asian Face of Energy”

CHINA

SLG (30%) (COD 2017)

1,200MW

Luannan (100%) 123MW*

Zhengding (100%) 83MW*

Zouping (70%) 180MW*

Hongsa (40%) (COD 2015) 1,878MW

LAOS

THAILAND

BLCP (50%) 1,434MW

BLCP : 50% 0wned 14,34 MW expansion

plan being prepared

POWER PLANT

POWER PROJECT

Luannan: 100% owned 123MW

Zhengding : 100% owned 139MW by 2015

Zouping: 70% opwned 232MW by 2017

Shanxi Luguang : JV formed, plant design underway

Hongsa:

1,878MW 94% complete

Power Business - 2015

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Focus on optimisation

Productivity and Cost reduction

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Centennial’s Approach

• “First Wave”

– New project exploration stopped

– Newstan on C&M*

– Angus Place on C&M

• “Second Wave”

– Springvale up to 5Mtpa

– Fifth unit at Myuna

– Cost reduction negotiated with supplier

– From >2,000 to <1,500 employees for similar output

• “Third Wave”

– Real-time monitoring of equipment

– Step change productivity

– Implementation PMO**

Time / effort

Operating expenses

Unit : $/t

Process re-engineering Business improvement

(Lean, 6 sigma) Automation and technology

THIRD WAVE

“Re-engineering focus”

Maximise value of existing capital by maximising production, squeezing suppliers, reducing staff, eliminating overlap

SECOND WAVE

“Sweat the assets”

Cancel exploration projects, strip contracts, consultants

Refocus on the basics: safety, production, costs

FIRST WAVE

“Cancel Projects”

*Care & Maintenance

**Preventative Maintenance Optimisation

Step Change Productivity and Cost reduction –

includes a Behavioural Approach

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• Uncertainty

• Ambiguity

• Lack of:

– Input

– Feedback

– Resources

– Reward / Recognition

• System and Organisational Equity

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Reduced workplace

stress

Increased workplace

stress

Increased organisational

commitment

Reduced organisational

commitment

Convergent

Positive workplace

culture

Compliant

Negative workplace

culture

Organisational Commitment Model

Step Change Productivity (SCP)

2014

Develop Productivity Standard

Audit Mine Sites to standard

Commence ‘Roll out’ stage 1 initiatives:

Process Monitoring

Process review + reporting

Cutting Rates

Engineering (support)

Commence CCIM* Projects.

Other SCP initiatives

2015 Complete Stage 1 Roll out.

Draft Centennial Engineering Standards

Audit Mine Sites to SCP standard and Stage 1 initiatives

Commence initiatives on SCP:

Process Mapping

Utilisation

Engineering (cont.)

Continue CCIM Projects

Continue other SCP initiatives

2016+

Mine Site Audits against Stage 2 initiatives

Real-time automated machine monitoring

Continue CCIM Projects

Continue other SCP initiatives and programmes

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Major Initiatives – A Continuous Improvement Process...

* Centennial Coal Improvement Model

The Six Pillars of Step Change Productivity (SCP)

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Process Monitoring

Process Review & Reporting

Process Mapping

Cutting Rate

Utilisation

Engineering for Process

1

2

3

4

5

6

Productivity and Equipment Utilisation

Process Monitoring (Pillar 1)

Key focus areas:

• Monitor all production processes

• Real time process monitoring to surface

• Real time delay reporting automated direct to Pulse

• Standardise display locations

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Data download machine

Productivity stats

and machine

performance

CCIM


Process Review & Reporting (Pillar 2)

Key focus areas:

• Standardise dashboard display of KPIs

• Standardise pre and post-shift handover

• Standardise reporting of KPIs

• Standardise review processes

• Standardise communication of production KPIs

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Process Mapping (Pillar 3)

Key Focus Areas:

• Further develop process mapping systems for all processes at all sites

• Develop internal standards for process mapping to promote work equity across all shifts

• Automate task planning in WMS / Pulse from process map chainage

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Cutting Rates (Pillar 4)

Key Focus Areas:

• All mine sites to monitor, review and report against the same operational KPIs

• Each crew starting a shift will be given the information required to know:

Safety issues at the mine

How they performed on their last shift

The targets and tasks to be completed on the shift

• Review meetings at the end of the shift to validate shift results

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Centennial Dashboard


Utilisation (Pillar 5)

Key Focus Areas:

• Set KPI target for utilisation

• Standardisation of utilisation monitoring, reporting and review

• Review mine operating plan to optimise utilisation efficiency

• Develop a “Tactical” Real Time Monitoring Report for each process to:

Facilitate process review for front line managers post shift

Facilitates real time data analysis in order to identify process inefficiencies

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LW Automation

Background:

• LW equipment at Mandalong and Springvale Mines have full automation capability which was not being fully utilised

• Run of face shearer automation currently in use at both sites

• Automation should help achieve consistent cutting rates, consistent roof and floor horizon, reduction of human exposure to environmental conditions

Key Initiatives:

• Review current/proposed/available cutting cycles

• Update and test software (simulation/complete training)

• Full automation trial on site

• Implement Centennial automation standard across all sites

• Staged implementation of agreed automation 30


CM Automation

Background:

• Autocut largely represents floor and roof horizon control

• Autocuts installed on some machines

• Reduction of safety hazards, improved roof and floor horizon, reduced diesel fleet operating costs

Key Initiatives:

• Enhance current autocut

• Implement automation on remaining machines

• Work with OEMs to develop product

• Investigate automation of roof and rib bolting equipment

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Operations Support Centre

Background:

• All longwalls fully monitored locally (at site)

• Limited monitoring of other key processes

Key Initiatives:

• Establish Operations Support Monitoring Centre

• Pre-empt process and machine needs and opportunities

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Remote Location

Mandalong LW Springvale LW

Real-time data Real-time

feedback Real-time data

Real-time feedback

Productivity –

Significant Labour Productivity Improving

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Productivity (T/Emp/Yr)

2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015

ROM Production (mt) 0.0 0.5 0.7 1.5 0.8 0.7 2.4 2.6 2.9 4.9 5.9 5.8 1.6 1.9 2.2 2.8 3.5 4.4 13.1 15.1 16.6

No of Employees 4 51 68 137 71 46 235 244 248 436 446 433 235 261 281 325 328 384 1,372 1,401 1,460

Productivity (T/Emp/Yr) 0 9,443 10,237 10,908 11,263 15,023 10,043 10,483 11,493 11,212 13,316 13,290 6,960 7,181 7,786 8,473 10,633 11,403 9,572 10,807 11,342

Airly Charbon Clarence Mandalong Myuna Springvale Total (100%)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2015 CEY based on YTD Actuals & Forecast for remainder of the year.

Productivity –

Significant Multi Factor Productivity Improvements

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T/Input $m

2008 2009 2010 2011 2012 2013 2014 2015B

↑195% over 3 years

Multi Factor Productivity = Tonnes per Input Dollar of Labour & Capital Costs (2015 $)

Centennial Mining Cash Costs –

Significant Savings Have Been Achieved

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Total Cost (A$m)

2011 2012 2013 2014 2015B

Labour & Oncosts Stores & Supplies Repairs & Maintenance

General Expenses Opencut/Auger Unit Cost (A$/ROM T)

16%

8%9%

PP&E Depreciation & Amortisation

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PP&E D&A has increased year on year. A large part of this is due to rising equipment

costs and overhauls. Whilst the new equipment has generated some productivity

improvement, it has not been enough to offset the rising cost of equipment.

2007 2008 2009 2010 2011 2012 2013 2014

A$M $ per ROM T

Centennial – Building a Stronger Future…

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Portfolio Optimisation

• Restructure to conserve cash in current weak export coal market

Operational Excellence

• SCP driving sustainable productivity improvements

• Investment in new generation equipment delivering productivity improvements

Logistics Optimisation

• Fully automated rail loading facilities

• Longer trains improving cycle times & unit costs

• Optimising domestic & export logistics to manage rail & port capacity

Customers

• Domestic- export balance maintained

• New domestic contracts

• Optimising sales mix to meet customer needs & improve margins


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Operational Excellence

Re-setting the Process

Optimising Business

Inputs

Strong Supplier Relationships

Industry best practice

First quartile performance compared to relevant peers


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Thank You