1Copyright 2002 Global Insight, Inc.

Global CoalServices

Prepared by:Dan Watkins

1 February 2005

2Copyright 2002 Global Insight, Inc.

Build a Better Strategic Plan

Understand Coal Prices, Risks, and CompetitionPlan Future Freight RequirementsAnalyze the Impact of New Environmental PoliciesAnticipate Structural Changes within the IndustryReceive an Independent Value-at-Risk Benchmark

3Copyright 2002 Global Insight, Inc.

Drawing Upon our Strengths

4Copyright 2002 Global Insight, Inc.

Global Coal Services

5Copyright 2002 Global Insight, Inc.

Coal Trade Services

Global Coal Market QuarterlyA detailed quarterly assessment of coal market fundamentals, providing:

• An in-depth analysis of recent coal and freight spot price developments• A look at key factors driving short-term market dynamics and how they relate to

underlying long-term trends• Quarterly FOB, freight and CIF price forecasts out to 2007• Comparison of forecasts versus TFS and Global Coal forward curves

6Copyright 2002 Global Insight, Inc.

Coal Trade Services

Global Steam Coal Trade and Price ReviewA comprehensive long-term view of coal market fundamentals, including:

• 20-year forecasts of coal demand across 40 countries• Base case and alternative scenario forecasts• Projections of coal supply costs from all existing and potential major coal exporters• Detailed analysis of future risks to the forecasts and the impact of structural changes

on the industry

7Copyright 2002 Global Insight, Inc.

Coal Trade Services

Global Coal Monthly MonitorsThis email service tracks FOB and freight prices for South Africa, Colombia, and Australia covering a rolling two year period. Subscribers also receive Global Insight’s custom index which is comprised of a basket of coals made up of 60% South African, 30% Colombian, and 10% Australian.ConferencesEach year, Global Insight's Coal Industry Perspective conference provides an opportunity to hear our views of the market and to exchange view with a broad range of industry peers.

Custom PresentationsGlobal Insight's international team of coal experts are available to answer questions regarding the industry or deliver customized presentations on the industry.

8Copyright 2002 Global Insight, Inc.

Country Coverage

9Copyright 2002 Global Insight, Inc.

Building a Better Forecast

Coal Price Forecasting Methodology

Supply Chain Approach : We analyze each component of the supply chain separately in order to create a more robust top-line number

Netherlands Germany

Mine Cost Return + ProfitRail & Port Ocean FreightPort & Barge

Price

(indicative data)

Delivered price

CIF ARA price

FOB price

10Copyright 2002 Global Insight, Inc.

11Copyright 2002 Global Insight, Inc.

ARA CIF Coal Price

Real coal prices have been on the decline for some time due to productivity gains and exchange rate movements

. 0

10

20

30

40

50

60

70

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2003 US$/tce

C&F ARA EU Historical Global Insight Forecast C&F ARALinear ( C&F ARA EU Historical )

Historical Trend Line

16 year average (1987 - 2002) = 52.58

Global Insight predicted a large market inflection point for 2004

12Copyright 2002 Global Insight, Inc.

Mine-mouth Cost Analysis

Geology, exchange rates, and productivity all contribute to relative cost differences. In China, people substitute for technology, making coal production more expensive.

0

5

10

15

20

25

30

35

40

0 10 20 30 40 50 60 70 80 90 100Production in Million tonnes

China

AustraliaIndonesia

Colombia South Africa

Poland

Russia

Coal Production Costs

Costs

We produce coal supply curves for all price setting countries

13Copyright 2002 Global Insight, Inc.

Mine Cost / Port & Rail CostProduction Costs in Australia

Productivity gains reduce the wage cost element

Other mine costs become a higher percentage of mine cost

Port and haulage account for almost 50% of total cost

Royalty assumed flat in nominal terms

0

10

20

30

40

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Mine Wages Other Mine CostsR & R Charge HaulagePort & Rail Royalty

14Copyright 2002 Global Insight, Inc.

How the Market Works A Review of 2003

In this price setting international ocean sea freight rates play a significant role. In 2003 & into 2004 market failed to operate correctly due to high freight.

AtlanticDemand

205

26/10

45/8

66 512

1592

736

74

14

Pacific Demand 273

South Africa sets the price in the Atlantic in the first instant but price is capped by competition from the Pacific.

Australia is the price driver in the Pacific and so ultimately becomes the World price driver.

15Copyright 2002 Global Insight, Inc.

Producer Return and ProfitDemand for Coal in Power Generation - by type in 2002

Coal in the fuel mix for powergeneration varies from around 50% in the U.S.A. to less than 10% in France

0%10%20%30%40%50%60%70%80%90%

100%

USA JP DE UK FR IT SP NL

Nuclear Coal Lignite Gas Oil Renewables

16Copyright 2002 Global Insight, Inc.

Producer Return and ProfitMedium-term supply/demand balances

17Copyright 2002 Global Insight, Inc.

The 5 major producers do not have as high a share of production on a global basis as is often thought

Producer Power – Shares 2000 & 2003

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2003 2000 2003 2000 2003 2000 2003 2000 2003South Africa Australia Colombia Venezuela Indonesia

Anglo Coal BHP Billiton Glencore Rio Tinto Xstrata

18Copyright 2002 Global Insight, Inc.

Producer Return and ProfitProducer Market Power in 2003

0

5

10

15

20

25

30

35

40

45

Fob Fob Fob Fob Fob Fob Fob Fob Fob Fob Fob FobAustralia South Africa Colombia

US$/tbasis6000nar

Fob Cash Cost Capital Cost Contract Prices 2003High Spot Price 2003 Low Spot Price 2003

19Copyright 2002 Global Insight, Inc.

Exceptional conditions in 2003-04 caused the freight market to break out of the long term US$ 7+/- 25% band

Freight trends – S. Africa to ARA

Average Annual voyage Rates - RBCT to ARA

0

5

10

15

20

25

30

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

US$/t

RBCT- ARA 1990-2003 Average 1990-2003

Average 1990-2003 plus 25% Average 1990-2003 minus 25%

Average Jan-May 2004 High - January 2004

20Copyright 2002 Global Insight, Inc.

Ocean FreightChina’s Contribution to a Strong Market

China Bulk Imports/Exports

Coal Exp

Ore Imports

Steel Imp

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

220,000

240,000

260,000

280,000

300,0001

99

0

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

Mil

lio

n T

on

nes

Coal Exp Ore Imports Steel Imp Coal Import CSP

21Copyright 2002 Global Insight, Inc.

Freight Market – Fleet Additions

Bulk Carrier Scheduled Newbuildings

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

10-40 Handysize 40-60 Handymax 60-80 Panamax +80 Capesize

Mil

lio

n D

wt

For Delivery 2004 DwtFor Delivery 2005 DwtFor Delivery 2006 DwtFor Delivery 2007 DwtFor Delivery 2008+ Dwt

22Copyright 2002 Global Insight, Inc.

For Additional Information,

Dan WatkinsXXX-XXX-XXXX

dan.watkins@globalinsight.com