NORTH AMERICAN

COAL PRODUCTION

AND IMPLICATIONS FOR THE

RUSSIAN COAL MARKET

W.G. (Bill) Meister

8th Russian and CIS Coal Summit

15-16 May 2013

Moscow

Presentation Outline

Brief Introduction to Golder

Recent Trends in North American Steam

and Coking Coal Production

Export Opportunities for N Am Coal

Major New N Am Export Coal Projects

Status of N Am Export Ports

Presentation will NOT address demand

for coal – only production side issues

Golder’s Russia & CIS Experience

Golder’s St. Louis office (formerly Marston) has

completed a wide range of recent projects in

Russia, CIS and eastern Europe.

Conceptual underground and surface mine design in Kuzbass utilzing

Western technology in cooperation with SPb Giproshakt

Annual reserve audits of coal, iron ore, limestone and nickel mines for

filing with stock exchange

Due diligence investigations of possible mine and undeveloped reserve

acquisitions

Safety audits of operating underground coal mines

Investigation of application of room & pillar mining

Pre-feasibility study of potential surface and underground coking coal

operation in eastern Siberia

Golder’s Technical Expertise

Geology/Resource Verification

Hydrogeology and Surface Hydrology

Geotechnical/Rock Mechanics/Ground

Control/Slope Stability

Environmental Impact Assessments

Mine Planning/CAPEX & OPEX Forecasting

Transportation Logistics/Infrastructure

Market Analysis

North American Coal Market Drivers

Total domestic demand is down significantly

Ontario has closed its coal-fired power plants

Cheap natural gas has recently resulted in displacement of coal

as base load generation in U.S.

Nearly all new coal-fired power plants have been cancelled and

retirements of old plants accelerated by new air regulations

Coking coal demand has fallen significantly, now holding steady

at 20 – 25 Mtpy

Costs of producing coal have increased significantly in recent years

2007-2008 saw dramatic increases in labor and supply costs

New safety regulations have decreased productivity

New environmental regulations hampering permitting

North American Coal Market Drivers

Result: Domestic prices have fallen to “record” lows

Cash margins on spot sales will not sustain production

Many producers are facing bankruptcy and other financial woes

Exports are the only bright spot

Total U.S. coal exports in 2012 set an all time record of 125 Mt

Nearly 70 Mt of coking coal from Appalachia; could grow 20-30 Mtpy

Approximately 55 Mt of thermal coal

Appalachia primarily to Europe 20 Mt; not much growth

Illinois Basin primarily to Europe 15 Mt; could increase +20 Mtpy

Powder River Basin to Asia around 15 Mt; could grow 50-100 Mtpy

Canadian exports in 2012 nearly 35 Mt

Approximately 30 Mt of coking coal; could increase 20 Mtpy

Around 5 Mt of thermal but might grow 10-15 Mtpy by 2019

Major U.S. Coal Basins (not including Alaska)

81% of total U.S. Production

Powder

River

Basin

Western

Bituminous

Illinois

Basin

Appalachia

Coking

Coalfields

42%

5%

23%

11% Coking

Coalfields

Recent Historical US Thermal Coal Production

May 15, 2013 8

Western Canadian Coalfields

Coking Coalfields

0

5

10

15

20

25

30

35

40

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Millio

n M

etr

ic T

on

nes

Recent Historical Canadian Coal Exports

May 15, 2013 10

Inland Transportation Comparison

Powder River Basin Thermal

• Around 400 Mtpy of current surface mine production

• Major Producers: Peabody, Arch, Cloud Peak

• Others: Alpha, Kiewit, Westmoreland, Ambre

• Potential production of >500 Mtpy

• From existing mines: +50 Mtpy

• From new mines: +50 Mtpy

• Cloud Peak (Youngs Creek Mine Pending)

• Peabody Energy (School Creek Mine pending)

• Arch Coal (Otter Creek Mine pending)

• Ambre Energy hopes to expand production

• Signal Peak: 14 Mtpy longwall mine

Powder River Basin Thermal

4550 to 4800 kcal/kg NAR

Low sulfur, low ash, high moisture content brown coal

Sodium ranges up to 8%

• Low stripping ratio + large mines = low cost

Most productive mines in the world

• Railroad access important to transportation:

• All mines BNSF; southern mines UP

• Port availability key to export potential

• Affects both railroad and ocean freight cost

• Only coals through Vancouver or new ports

competitive to Asia

Ocean Routes to West Korea/China

4660 nm

5110 nm

6830 nm

7020 nm

2530 nm 4735 nm

6000 nm

10,000 nm

1000 nm

North American Pacific Ports

Status Port Exisitng/Initial Potential Maximum

Capacity Capacity

Existing Westshore 29 to 33 Mtpy

Neptune 6.5 to 12 Mtpy

Ridley Island 12 to 18 Mtpy 25 Mtpy 2014/60 Mpty by ???

Other small ports 1 Mtpy 3 Mtpy by 2015

Stockton 1 Mtpy

Long Beach 2 Mtpy

50 to 67 Mtpy 77 Mtpy 2015

Proposed Ambre Morrow Pacific 3.5 Mtpy by 2015 8 Mtpy

SSA/Peabody Gateway Pacific 24 Mtpy by 2017/18 48 Mtpy

Ambre/Arch Millenium Bulk 25 Mtpy by 2016/17 44 Mtpy

KM Port Westward 15 Mtpy by 2016/17

Guaymos, Mexico 1 Mtpy by 2013 +3 Mtpy

Lazaro Cardenas, Mexico 3 Mtpy by 2013 6 Mtpy

Approximate 2012 Pacific Coast Exports:

30 Mt Canadian coking

4 Mt Canadian thermal

20 Mt US PRB thermal

2 Mt US Western bituminous

Canadian Bituminous Thermal

Current Average 6000 NAR kcal/kg

Very low sulfur, low to medium ash, medium moisture

• Largest mines are in Alberta

• Quinsam & Raven are deep mines on Vancouver Island

• Only 5 Mtpy of thermal production currently

• Development plans for +20 Mtpy by 2020 from surface

mines with future underground longwall potential

Major Producers

• Sherrit’s Coal Valley and Obed Mountain

• Coalspur (in development) 10 Mtpy of 5300-5800 kcal/kg

Canadian Bituminous Coking

Very good quality hard coking coals and PCI

Low and mid-volatile content

• Production dominated by Teck: ~ 25 Mtpy

• Resuming production from Quintette: additional 3 Mtpy

• Others: Anglo, Walter Energy, Grand Cache: ~ 5 Mtpy

• Potential New Production could add ~ 20 Mtpy

• Anglo & Walter Energy

• Glencor/Xsrata

• Canadian Dehua and affiliates

• Cardero

• Shipped through Vancouver & Ridley Island

Western U.S. Bituminous Thermal

Average 5860 NAR kcal/kg

Low sulfur, low ash, low moisture content

Quality and transport distance can vary at each mine

• 45+/- Mtpy of non-captive production; but limited reserves

• Predominantly underground longwall mines

• 3 Mtpy exported through California to Asia

• Unlikely to grow significantly

Major Producers

• Arch Coal

• Peabody Energy • Oxbow

• Murray Energy

Illinois Basin Thermal

5700 to 5800 NAR kcal/kg

High sulfur, medium ash, somewhat high moisture

Quality can vary dramatically at each mine

• Nearly 100 Mtpy of production (rebounding)

• Predominantly underground longwall mines

• Shipped by rail or barge to New Orleans for export

• ~ 15 Mt exported in 2012 primarily to Europe

• Expanded Panama Canal may result in more coal to

Asia

Major Producers

• Peabody Energy

• Foresight Energy • Alliance Resource Partners

• White Oak Resources

Appalachian Bituminous Thermal

5700 to 5800 NAR kcal/kg

Low to high sulfur, low to medium ash, low moisture

Quality can vary dramatically at each mine

• Production has dropped from 230 to under 150 Mtpy

• Permitting problems and reserve depletion = higher $

• Predominantly small surface & underground mines

• Shipped by rail to East Coast ports for export or by

barge to New Orleans

Major Producers

• Alpha Natural Resources

• CONSOL Energy • Alliance Resource Partners

• Murray Energy

Appalachian Bituminous Coking

High quality low & high-volatile hard coking coals

Northern Appalachia has higher sulfur and ash

• Production has increased, especially high-volatile

• Permitting problems and reserve depletion = higher $

• A few large, one-product mines but mostly blended from

numerous small surface & underground mines

• Exports shipped by rail to East Coast ports or by barge

to New Orleans then around the world

Major Producers

• Alpha Natural Resources

• CONSOL Energy • Cliffs Natural Resources

• Walter Energy

Conclusions: Ignoring Demand

If Asian demand materializes, US and Canadian Coking

Coal exports could grow from 100 Mt to 150 Mtpy range

Panama Canal expansion may help reduce ocean freight

Western Canadian Bituminous Coal is competitive with

Indonesian and Australian coal delivered to eastern Asia.

Production will expand from 5 to nearly 20 Mtpy by 2019 with

development of Coalspur, expansion by Sherritt, and Raven

Powder River Basin Sub-bituminous Coal shipped thru

Vancouver is also competitive into eastern Asia.

Future export growth dependent on new US Pacific coast ports:

Theoretically could grow 100 Mtpy

Optimistic range closer to 25 – 50 Mtpy

Conclusions: Ignoring Demand

Production from new Illinois Basin low-cost longwall mines

could easily outstrip domestic demand so exports may be

only alternative but will depend on:

Continued market for high sulfur coal in Europe

Expansion of Panama Canal will improve competitiveness to Asia

but high sulfur and medium heating content will constrain growth

Increasing mining costs and decreasing production will

constrain export growth of Appalachian thermal coal

Although the higher quality Appalachian coal can offer advantages

to blend up lower quality coal

Net result should allow for steady exports in 20 Mtpy range for

future

Thank You.

Golder looks forward to

serving your needs.

Offices in: St. Petersburg and

around the world

www.golder.com

In SPb: Alex_Gordine@Golder.com 812-579-9972

In the US: Bill_Meister@Golder.com 1-314-984-8800

Thank you!