Export metallurgical coal supply response under future demand and price scenarios.

1. Graham Wailes, MinAxis Pty Ltd
Export metallurgical coal supply response
under future demand and price scenarios
OCTOBER 2009

2. Steel – Price Fall from Sept/Oct 2008 MinAxis
Signals Demand Slide
Hot Rolled Coil Prices
1100
1000 North Europe Dom. Ex Works €/t
900 N. Amer Midwest Domestic FOB US$/st
800 Far East Import CFR/t
700
600
500
400
300
Source: MinAxis
200
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
May-03
May-04
May-05
May-06
May-07
May-08
May-09
OCTOBER 2009

3. H1-2009 Export Metallurgical Coal MinAxis
Production Cut-backs as Demand Collapses
35
SSCC + PCI Lehman Brothers ~40Mtpy
30 Collapse Production Cuts
HCC
H1-09
Import Demand Mt
25
Demand
20
Halved
15
10
5
0
Ju 8
Ju 9
Se 8
D 8
Ja 8
Ap 8
Ap 9
O 8
M 8
N 8
M 9
08
08
Fe 9
M 9
08
09
Au 8
-0
-0
-0
0
-0
-0
-0
0
0
0
r -0
-0
r -0
l-0
g-
p-
n-
n-
n-
b-
n-
b-
ay
ay
ar
ar
ov
ec
ct
Ju
Ja
Fe
M
OCTOBER 2009

4. MinAxis
H1-2009 Export Metallurgical Coal
Production Cut-backs
~25Mtpy reduction in Australian H1-09 export capacity
Others make up balance ~15Mtpy cuts
Capacity
Company Country Announced cut-back
Cut (Mtpy)
BHP Billiton 10.0 Australia 21 Jan09 10-15% reduction H1-09 BMA production
Xstrata Coal 3.5 Australia 16 Dec08 suspends operation at Oaky Creek No.1 mine
Teck Cominco 3.0 Canada 8 Jan09 3Mt prodn cut from 23Mt to 20Mt. Dismisses 1400 workers
Cliffs Natural Res. 3.0 USA Idles Green Ridge No.1, closes Pinnacle for 2 months from Feb09
Consol 3.0 USA Idled Buchanan LV HCC mine in March
Western Canadian 1.7 Canada End Nov08 stops prodn at recently restarted Willow Creek LVPCI
mine. 6 Jan09 Brule cut from 1.3Mtpy to 0.75Mtpy.Serves notice of
closing Wolverine 1.6Mtpy mine subject market conditions.
Peabody Energy 2.0 Australia Lowers Aust 2009 prodn target from 20-22Mt to 18-21Mt
Anglo Coal 1.5 Australia Stops prodn Aquila mine at German Creek complex, and Dawson
mine north pit. In March, dismisses 650 mine workers in Aust.
Patriot Coal Corp. 1.3 USA Idles Black Oak and one other mine
Alpha Natural Res. 1.2 USA 3 Dec08 closes Whitetail mine, adjusts mine prodn Q4-08 down by
0.5Mt, reduces third party contractors, defers expansion small mines
Source: Company reports, MinAxis
OCTOBER 2009

5. MinAxis
H1-2009 Export Metallurgical Coal
Production Cut-backs (cont.)
Capacity
Company Country Announced cut-back
Cut (Mtpy)
Massey Energy 1.2 USA Adjusts mine prodn down from late Q4-08
Macarthur Coal 1.1 Australia 16 Dec08 reduces prodn. at Coppabella and Moorvale LVPCI
mines. Cuts sales target FY08/09 from 5.0Mt to 3.9Mt. Q1-09
sales ratio thermal increases from 10% to 50%
Mechel 1.1 Russia Feb09 operating at 25% capacity. H1-09 coking coal prodn
down by 4.2mt
Radspadskaya 1.0 Russia Jan09 cuts prodn to ~30% of capacity. Cuts investment by two-
thirds
Foundation 0.9 USA Idles 1Mstpy Laurel Creek complex from Feb09
Exxaro 0.8 RSA Grootegeluk mine prodn cut, H1-09 coking coal sales down by
0.8Mt
Rio Tinto 0.5 Australia Jan09 cuts prodn at Kestrel 3.6Mtpy mine by 15% - bulk of
redn in Q1-09
Caledon Res. 0.5 Australia Jan09 halves Metcoal prodn plan from 0.9Mtpy to 0.4Mt
Grande Cache 0.3 Canada 11Feb09 25% prodn cut for 6mos starting Mar09
ICG 0.3 USA 0.3Mtpy LV HCC production deferred
Source: Company reports, MinAxis
OCTOBER 2009

6. H1-2009 Export Metallurgical MinAxis
Coal Project Deferrals included:
Western Canadian Coal’s 1Mtpy Willow Creek mine closed end November
2008 following start up mid-October. WCCC defers expansion at Brule and
Wolverine
Rehabilitation of ArcelorMittal’s Pervomayskaya and Anzherskoye
operations in the Kemerovo, acquired in January 2009, delayed Q1-09
10Mtpy Maruwai Project, Indonesia – June 2009, BHPB Billiton halts
development after US$100m investment. Asset reportedly for sale
BHP Billiton Queensland capacity expansion – 21Mtpy new coking coal
capacity roll-out Queensland, announced August 2008, delayed:
• 5.5Mtpy Caval Ridge project delayed from 2011 to 2013
• 4Mtpy Daunia project, originally earmarked for start up 2009, under
review
• 8Mtpy Stage 3 Goonyella Riverside brownfield expansion delayed
OCTOBER 2009

7. Potential Country Sources of MinAxis
Supply Growth
Canada-established Russia-huge reserves.Elga & other major
port infra. Large projects. Port expansion. Capacity to service, and
reserves. Higher USA-mostly very competitive landed basis Chinese market.
prices required to service Atlantic
service distant markets. Higher
markets such as India Mongolia-landlocked.
prices required to Mostly service China
service distant
Indian market
China-ytd Aug net
coking coal imports
21Mt. Expanding
long-term market
Indonesia-infrastructure constraints
Colombia-growth Central Kalimantan. Limited
potential. Service medium term expansion prospects
Brazil and Atlantic NZ +2Mtpy
markets
Mozambique-large Moatize resource to
be developed. Well placed to service
Indian market. First exports targeted 2011
Australia-major mine project & 2009
OCTOBER
South Africa-Mostly SSCC+HVPCI infra. growth projects. Competitive

8. MinAxis
Country MetCoal Supplier Landed Cost
Competitiveness in Major Growth Markets
China India Brazil South Korea
Mozambique
Decreasing competitiveness
Mongolia USA Russia
South Africa
Australia Australia
Russia Indonesia Colombia
Indonesia
Australia
Canada Canada Canada
Indonesia
Canada USA Mozambique Mozambique
Mozambique
Russia Australia USA
USA
OCTOBER 2009

9. Metallurgical Coal MinAxis
Export Growth Scenarios
Demand Growth Low Base Case High
LT Price Premium HCC
US$/t FOB $110 $125 $150
Real 2009 Terms
Country 2008 2020 2008 2020 2008 2020
Forecast Exports (Million Tonnes)
Australia 135 180 135 186 135 195
Mozambique 0 14 0 14 0 15
Russia 16 25 16 26 16 30
Canada 27 27 27 33 27 35
Mongolia 4 11 4 11 4 12
China 5 3 5 8 5 8
Indonesia 6 7 6 9 6 9
New Zealand 2 4 2 4 2 4
Colombia 2 2 2 4 2 5
Venezuela 2 2 2 3 2 3
Ukraine 0 2 0 2 0 2
South Africa 2 3 2 3 2 3
Poland 1 1 1 1 1 1
United States 39 25 39 30 39 40
Intl. traded figures are seaborne + overland across-border import deliveries
Metcoal estimates include coking and PCI coal. NA = not applicable
Sources incl. Country stats. agencies, IEA, EIA, WSA MinAxis estimates
OCTOBER 2009

10. Metallurgical Coal MinAxis
Export Growth Scenarios (cont.)
MetC Exports Mt (Base Case)
Demand 200
Low Base Case High
Growth 2008
LT Price
180
Prem. HCC 2020
US$/t FOB
$110 $125 $150 160
Real 2009
Incremental Change (Million Tonnes) / CAGR 2008-2020 140
Country Mt CAGR Mt CAGR Mt CAGR Australia
Australia 45 2.5% 52 2.7% 60 3.1% 120
Mozambique 14 NA 14 NA 15 NA
Russia
Canada
9
0
4%
0%
10
6
4%
2%
14
8
6%
2%
100
Mongolia 8 10% 8 10% 8 11%
China -2 -4% 3 5% 3 5%
80 Mozambique
Indonesia 2 2% 3 4% 4 4% USA
New Zealand 2 6% 2 6% 2 6% 60 Canada
Colombia 0 -2% 2 4% 3 6%
Venezuela 1 2% 1 6% 2 6% 40 Russia
Ukraine 1 12% 1 12% 2 14%
Mongolia
South Africa
Poland
1
1
3%
6%
1
1
3%
6%
1
0
2%
3%
20
United States -14 -4% -9 -2% 1 0%
0 Australia USA Canada Russia Indonesia China Czech Mongolia South Africa Colombia Mozambique
OCTOBER 2009

11. Hard Coking Coal MinAxis
Export Growth – Base Case
140
Hard Coking Coal – Demand Growth Base Case
120 2008
LT Price Premium Hard Coking Coal
US125$/t FOB 2020
Real 2009 Terms 100
Country 2008 2020 Increase Mt CAGR
Forecast Exports (Million Tonnes) 80
Australia 84 124 40 3%
Mozambique 0 7 7 na 60
Russia 11 18 7 4%
Canada 24 30 6 2%
Mongolia 0 3 3 20% 40
China 2 4 2 5%
New Zealand 2 4 2 5% 20
Indonesia 0 1 1 na
Colombia 0 1 1 13%
Ukraine 0 1 1 na 0
South Africa 0 1 1 na
Ca A
M ea a
Ne C ia
er
Ru a
lia
e
am nd
Poland 0 1 0 6%
w hin
d
US
qu
ss
th
ra
na
oz la
O
Czech 1 1 0 -1%
bi
st
Au
Z
United States 33 29 -4 -1%
Intl. traded figures are seaborne + overland across-border import deliveries
HCC estimates include semi-hard coking coal. na = not applicable
Sources incl country stats, IEA, WSA, industry sources, MinAxis estimates
OCTOBER 2009

12. Outlook for Emerging and MinAxis
Potential Country Suppliers
Mongolia
Venezuela
Colombia
Mozambique
Indonesia
NZ
South Africa OCTOBER 2009

13. MinAxis
Export Metallurgical Coal Mine Projects
Planned or Underway 2009-2020
Australia – 90Mtpy metallurgical coal capacity
committed or planned 68Mtpy HCC plus 22Mtpy
SSCC+PCI. >220Mtpy additional port capacity 2017
Canada – 13Mtpy (incl. 11Mtpy HCC)
Russia – 30Mtpy + metallurgical coal export
capacity build. Far East port expansion at Vanino
(+15Mtpy), Posiet (+3Mtpy), Vostochny (+2Mtpy)
Mozambique – 16Mtpy HCC capacity by 2015
Ukraine – Lubel HCC mine starts 2014 2Mtpy
increasing to 4Mtpy
Other – Indonesia (MGM, Suparbari +1.5Mtpy
SSCC), (South Africa (+2-5Mtpy CoAL’s Vele,
Makhado projects), NZ (Pike River), Mongolia (Tavan
Tolgoi, Ovot Tolgoi, UHG ), Colombia (Ciafil)
OCTOBER 2009

14. MinAxis
Australian Metallurgical Coal Projects
90Mtpy Potential Capacity Increase
Australian Export Metallurgical Coal – Incremental Capacity Mtpy
Mine Company Start Date MetCoal HCC
Caval Ridge BMA 2013 5.5 4.2
Daunia BMA Under review 4.0 3.2
Goonyella/Riverside exp. BMA Under review 9.5 9.5
Peak Downs BMA Under review 2.5 2.5
Total BMA mines BMA 21.5 19.4
Lake Vermont QCMM 2009 3.9 2.7
Lake Lindsay Anglo 2009 1.4 0.7
Carborough Downs Vale 2009 2.3 0.7
Yarrabee Felix 2010 1.1
Middlemount Macarthur 2010 3.5 2.4
Grosvenor Anglo 2011 4.0 4.0
Dawson Complex Anglo 2011 3.6 3.2
Moranbah South Exxaro 2011 6.0 6.0
Maryborough NEC 2011 0.5 0.5
Source: Company reports, MinAxis
OCTOBER 2009

15. MinAxis
Australian Metallurgical Coal Projects
90Mtpy Potential Capacity Increase (cont.)
Australian Export Metallurgical Coal – Incremental Capacity Mtpy
Mine Company Start Date MetCoal HCC
Kestrel Rio Tinto 2012 2.0 2.0
Millenium Peabody 2012 2.0
Ellensfield Vale 2012 2.5 2.5
Washpool Aquila 2012 1.6 1.6
Eagle Downs Aquila/Vale 2013 6.4 6.4
Wonbindi Cockatoo 2013 2.1
Gujarat NRE Ops. Gujarat 2013 3.3 1.5
Metropolitan Peabody 2014 0.9 0.9
Burton Peabody 2014 2.5 2.5
Denham Peabody 2015 4.0 4.0
Ravensworth North Xstrata 2015 2.1
Belvedere Vale Under review 9.0 6.7
Codrilla Macarthur Under review 1.6
Total Incremental Capacity Mtpy 90 68
Source: Company reports, MinAxis
OCTOBER 2009

16. Australian Port Expansion
220Mtpy capacity increase 2017 MinAxis
Capacity Mtpy Wiggins Island Coal Terminal – Gladstone
600 600
NSW 557
25Mtpy June 2012 50Mtpy 2016 70Mtpy 2020
Qld
500 500
400 400
333
300 300
200 200
100 100
0
08
09
10
11
12
13
14
15
16
17
20
20
20
20
20
20
20
20
20
20
2008 2013 2017
OCTOBER 2009

17. Canadian Metallurgical Coal Projects MinAxis
Potential 18Mtpy Capacity Increase
Canadian Export Metallurgical Coal – Incremental Capacity Mtpy
Mine Company Start Date MetCoal HCC
Willow Creek Western Coal 2010 1.8 0.7
Brule Western Coal 2010 0.7
Perry Creek (Wolverine) Western Coal 2013 1.4 1.4
Fording
Teck Resources 2011 2.0 2.0
Elkview
Quintette Teck Resources 2012 5.0 5.0
Horizon Peace River 2011 2.0 1.7
Trend Peace River Under review 2.0 1.5
Grande Cache Grand Cache Under review 0.5 0.5
Lossan Cline Mining Under review 1.0
Lodgepole Cline Mining Under review 2.0 0.5
Committed 13 11
Total Incremental Capacity Mtpy Under review 5 2
Total 18 13
Source: Company reports, MinAxis
OCTOBER 2009

18. MinAxis
Russia – Export Metallurgical Coal
Mine Expansion Projects
30Mtpy + export production capacity build committed includes:
Mechel – Developing Elga project, stage 1 24Mtpy incl. 8Mtpy metallurgical
coal, mostly HCC. First production 2011. Sept 09 secures US$1.4bn Russian
government guarantees to complete construction of Ulak-Elga rail link to Baikal-
Amur line by Sept 2010.
Raspadskaya – 3.6Mtpy (HCC and SHCC) expansion incl. construction of
Raspadskaya-Koksovaya mine targeted 2010/2011. Koksovaya to produce K and
KO HCC grades
Russian United Industrial Corp – Developing Elegest HCC mine to 12Mtpy
by 2014. Cooperative agreements with Mitsui and Chinese government in support
of Elegest development
JSC Siberian Anthracite – Expanding capacity from 3Mtpy to 10Mtpy at
three O/C anthracite mines in the Gorlovsky coal basin, Novosibirsk region
Langfeld Enterprises (Korea) – Restart Lapichevskaya coking coal mine,
Kemerovo region. Production 1Mtpy by 2010/2011 to be sold to POSCO
OCTOBER 2009

19. MinAxis
Russia – Export Metallurgical Coal
Related Infrastructure Expansion Initiatives
Far East ports
• Vanino – Mechel’s coal terminal, dedicated to Elga and other projects, scheduled
completion 2012 at 12Mtpy, increasing to 15Mtpy by 2015, then ultimately
25Mtpy
• Posiet – Mechel promoting expansion from 2.5Mtpy to 5Mtpy by 2010
• Vostochny – 16Mtpy upgrade and modernization underway
Rail capacity
• Chinese and Russian government investment to upgrade and expand rail capacity
under review
• China’s Inner Mongolia and Russia’s Transbaikal provincial governments jointly
rebuilding of Karymskaya-Zabaikalsk railroad, linking Trans-Siberian railroad with
the Transbaikal- Manchuria border crossing. Completion 2010/2011. Initial 10Mtpy
imports planned
OCTOBER 2009

20. MinAxis
Mozambique – 16Mtpy Export Hard
Coking Coal Capacity by 2015
Vale’s Moatize Project
• Phase 1 first production late 2011, lifting to 18Mtpy incl. 12.7Mtpy HCC by 2015.
Railed 575km to port of Beira via Sena railway
• Rehabilitation Sena railway to 8Mtpy capacity completed Q1-10 at total cost
US$1.3bn. Additional investment required to lift Sena capacity to 18Mtpy
• Phase 2 production transported via future Nacala-Malawi railway line to deep
water port of Nacala, 1000km distant
• Mozambique government recently secured US$500m to build Nacala-Malawi
railway commencing 2015
Riversdale Mining’s Benga Project (35% Tata Steel)
• Stage 1 Saleable production 2Mtpy incl. 1.7Mtpy HCC by Q2-2011. Transport via
Sena/Beira rail corridor. Also reviewing optional barge Zambezi river to Chinde
• Stage 2 – 10.6Mtpy by 2014 incl. 3.3Mtpy HCC. Ultimate HCC capacity 6Mtpy
OCTOBER 2009

21. Other Export Metallurgical Coal MinAxis
Mine Projects
Ukraine
• Lubel Coal Company targeting 2Mtpy HCC production by 2014 at Lubel mine, lifting to 4Mtpy
by 2015
Indonesia
• PT Marunda GrahaMinerals expanding SSCC capacity MGM (+0.3Mtpy) and new Suprabari
mine (+1.5Mtpy)
• 10Mtpy Maruwai Project reportedly up for sale
South Africa
• CoAL’s Vele and Makhado projects planned production 5-7.5Mtpy HCC + SSCC, with 2.5Mtpy
domestic offtake agreement (import replacement) ArcelorMittal
Colombia
• Brazilian steelmaker Ciafil resuming redevelopment of its coking coal mine
USA
• Limited export growth potential. Appalachian growth potential limited. Mountaintop mining
(supplies 6% of US demand) under renewed scrutiny – 79 surface mine projects placed on
hold in September 2009 due environment, health and water quality issues
OCTOBER 2009

22. MinAxis
In Summary
Export Metallurgical Coal Supply
Approximately 160Mtpy planned export metallurgical coal mine capacity
additions identified
Expansion dominated by Australian suppliers. US expansion potential
limited
Chinese support and participation in Russian capacity development –
direct rail links upgraded and expanded
Mozambique major emerging producer – within close proximity to major
import growth market India
Port capacity expansion in step with mine expansion
Potential for rail and other inland transportation infrastructure capacity to
lag mine development, subject to quantum of demand
Marginal producer mine cash costs currently ~US$120/t FOB
OCTOBER 2009