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Renato Paladino President
Arch Coal Asia-Pacific Pte. Ltd.
Singapore May 2013
The U.S. as a Source of Met Coal and its Impact on the Market
Forward-Looking Information
Slide 2
This presentation contains “forward-looking statements” – that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties arise from changes in the demand for our coal by the electric generation industry; from legislation and regulations, and other environmental initiatives; from operational, geological, permit, labor and weather-related factors; from fluctuations in the amount of cash we generate from operations; from future integration of acquired businesses; and from numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive or regulatory nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. For a description of some of the risks and uncertainties that may affect our future results, you should see the risk factors described from time to time in the reports we file with the U.S. Securities and Exchange Commission.
Slide 4
Four of the five most populous countries are emerging economies. Three of them are in Asia.
Sources: University of Pennsylvania, ACI *PECs = populous emerging countries (Brazil, China, India and Indonesia)
43%
Share of PECs* in
World Population
Slide 5
Most PECs* have space for further urbanization. Urbanization is correlated to growth of GDP per capita.
Sources: World Bank, University of Pennsylvania, ACI *PECs = populous emerging countries (Brazil, China, India and Indonesia)
43%
Share of PECs* in
World Population
Slide 6
Growth of GDP per capita in PECs* is still at an early stage, favoring an expansion in steel intensity
Sources: World Bank, World Steel Association, University of Pennsylvania, ACI
*PECs = populous emerging countries (Brazil, China, India and Indonesia)
43%
Share of PECs* in
World Population
Two large developing nations are driving much of the change in global met coal markets
Slide 7
China India
• Share of Global Population …………………...20%
• Urban Population Growth by 2035
(million habitants) ...………………...…….....290
• Share of Global Pig Iron Prod. 2012…....59%
• Share of Global Population………………….17%
• Urban Population Growth by 2035
(million habitants)……………..………………..300
• Share of Global Pig Iron Prod. 2012……4%
• About one third of the World’s Population
• About one third of the World’s Urban Population Growth*
• About two thirds of the World’s Pig Iron Production
China +
India
Slide 4 Sources: World Steel Association, IEA * By 2035
Slide 8
The share of urban population in China is expected to exceed 60% by 2030 and 70% by 2050
Sources: World Bank, World Steel Association, University of Pennsylvania, McKinsey, ACI
Slide 9
The share of urban population in India is expected to exceed 40% by 2030 and 50% by 2050
Sources: World Bank, World Steel Association, University of Pennsylvania, McKinsey, ACI
World steel consumption is projected to increase by about +40% between 2012 and 2020
Slide 10
World Steel Production
(in billions of metric tons)
Sources: World Steel Association, Wood Mackenzie, McKinsey, AME, CRU, ACI
2000 2020F
~2.0
1.4
2012
0.8
0.1 0.8
~1.1
Global total
Total of China and India
Slide 11
The trend in seaborne markets is unmistakable … with little reason to believe it will change soon
Sources: ACI, McCloskey, CRU and India Coal Market Watch Data
03 04 05 06 07 08 09 10 11 12
China and India net met coal imports (in millions of metric tons)
19 18
22
32
59
72
83
17
3
106
China + India
China
India
2% 10% 10% 10% 11% 15% 30% 29% 36% 43% China+India / Seaborne
Slide 12
We expect met coal imports to increase based on projected growth in global steel consumption
Latin America
China
30
~200
India
Forecast average growth in imports of met coal to 2020:
Range of growth in millions of metric tons from pre-recession levels
million tonnes*
Europe
15 ~ 20
100 ~
180 20 ~ 50
North Asia 0 ~ 15
5 ~ 15
Sources: ACI, CRU (to 2017) and Wood Mackenzie *Average forecast growth across all major regions for the period
~90%
Slide 13
Australia, USA and Canada’s combined share of global met coal exports will remain in the 70%‒80% range
Canada
USA
Australia
30
~180 million tonnes*
70 ~ 80
Foreseeable growth in exports of met coal by 2020:
Range of growth in millions of metric tons from pre-recession
Russia
Mozambique
Mongolia
5 ~ 15
10 ~ 50
10 ~ 20
40 ~ 45
10 ~ 25
Sources: ACI, CRU (to 2017) and Wood Mackenzie *Average forecast growth across all major regions for the period
levels from major supply regions
Slide 14
Producers will struggle to keep pace with demand ─ making the met coal market tighter in the future
Sources: Wood Mackenzie, ACI
Canada
USA
Australia
30
Challenges for met coal producers
Russia
Mozambique
Mongolia
Infrastructure access, Costs, Taxes, Labor, Community, Water, Permitting, Quality,
Weather, Exchange rate
Infrastructure access, Regulatory, Taxes,
Labor, Water, Electricity, Risk
Infrastructure access, Costs, Taxes, Labor, Community, Quality
Infrastructure access, Taxes, Labor, Risk
Reserve depletion, Local demand,
Infrastructure access and costs, Taxes
Reserve depletion, Infrastructure access, Quality, Costs, Taxes, Labor, Environment,
Water, Risk
Quality, Environment, Infrastructure access,
Regulatory, Taxes, Land use, Labor, Water,
Electricity, Risk
China India
Port capacity, Quality, Distance to
growth markets
Australia is facing growing challenges … that are putting upward pressure on both capital requirements and cash costs
• Existing coal regions in NSW and QLD are maturing
– “The cost of adding production in Australia has risen as much as 100%,” according to Rio Tinto, quoted at Coaltrans Australia
• Capital requirements for new mines, rails and ports have soared
• Production is increasingly moving westward … and underground
• The Aussie dollar has appreciated steadily
• Logistics chains are longer and must be integrated
• New projects are stressing an already overburdened coal chain
• Environmental and land use challenges are intensifying
• New mineral and carbon taxes are now in effect
• Labor costs are escalating in the face of low unemployment and the challenge of attracting people to frontier locations (and underground)
Slide 15
$235
$210 $225
$170
$165
$172
Slide 16
The fall-off in global metallurgical coal prices is spurring a significant supply rationalization
Benchmark Hard Coking Coal Price (in US $ per metric tonne)
Sources: AME, CRV, and ACI
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13
• Supply cuts of up to 35 million tons
annualized have been announced as
benchmark prices fell
– At the 2Q13 benchmark of $172/tonne,
public announcements of mine idlings
and workforce reductions continue
• Earnings announcements suggest
that leading global metallurgical
producers are suffering operating
losses at current prices
• Market observers project one-third
of global metallurgical supply could
be uneconomic at current prices
CURRENT MARKET
• Current global macro uncertainty is impacting the met coal market
• Emerging markets have slowed in the face of economic weakness in the developed world
• Utilization rates at global steel mills stand at 79 percent – well off peak levels
• Met coal prices have slid to unsustainably low levels
Slide 17
Metallurgical coal markets represent a compelling long-term opportunity
Sources: World Steel Association, Wood Mackenzie, ACI and other public sources
LONG-TERM
•World steel consumption is projected to climb +40% by 2020
•World population could top 8 billion by 2030 — with substantial urbanization and growth in middle class of emerging world
• Growing supply constraints should further support market conditions
• Met coal demand is likely to outstrip supply in the long run, mainly in the Asia-Pacific basin
Additional met coal will be needed to balance such deficit
CURRENT MARKET
The U.S. already plays a sizable and increasingly essential role in global metallurgical markets
Slide 19 Sources: Wood Mackenzie, T. Parker Host and ACI
147
64
29
27
17
Australia
U.S.
Canada
Mongolia
Russia
2012 Metallurgical Export Coal Supply
(in millions of metric tons)
Low-Vol Mid-Vol High-Vol
• The U.S. is already an essential source of seaborne metallurgical coal — second only to Australia
• U.S. output of low-vol and mid-vol coals is comparable to Canada
Slide 20
The U.S. has the largest reserves of hard coal* in the world
Sources: BP, ACI *Hard coal = bituminous coal + anthracite
USA
Australia
405 billion tonnes Share of global reserves of hard coal*
(2011)
Russia
Africa
China
Others
India
Eastern Europe & Eurasia
Global total:
27% 15%
12%
14%
9%
5%
8%
10%
IL
KY VA
MD
TN
AL
PA OH
WV 2
4 5
8
6
3
1
7
9
NS/Lamberts (6) 29
DTA (4) 18
CNX Marine (2) 14
Pier IX (5) 13
CSX/Curtis Bay (3) 12
PA (1) 1
Mobile (8) 16
Other AL (9) 5
Charleston (7) 7
East Coast
87 million metric tonnes
Southeast
28 million metric tonnes
Planned U.S. port expansions over the next 5 years or so will allow for increased met coal exports
Sources: NMA, Port Terminal Presentations, ACI
Future projected port capacity at U.S. East and Southeast coasts (in million metric tonnes)
Slide 21
Hot metal production in the U.S. fell during the last decade, freeing more met coal for the export market
Slide 22 Sources: World Steel Association, CRU, ACI
Slide 23
• U.S. coal exports have climbed steadily since 2006, except for a dip following
the global financial crisis.
• We expect this long-term growth trend to continue into the next decade.
Sources: U.S. Department of Commerce, ACI
U.S. met coal exports have increased significantly in recent years – and we expect that trend to continue
2006 2012
21
59 U.S. Seaborne Metallurgical Exports (in millions of metric tonnes)
CAGR: 19%
Expansions of met coal producing capacity in the U.S. require relatively lower CAPEX and OPEX
RELIABILITY • Second largest global supplier in the met coal
export market with an expanding share in the Asian market
• Viewed as a reliable, competitive supplier to the world markets
• Consistent and well-known quality
RELATIVELY LOW CAPEX • Domestic demand is flat, allowing increasing
exports from existing coal production capacity
• Exports growing at higher growth rates than other major export countries in recent years
• Overland infrastructure is well developed
DIVERSIFICATION • Alternative source of met coal to Asia
RELATIVELY STABLE OPEX • The weakened U.S. thermal coal
market has resulted in reduced production, mine closures and workforce reductions. These moves have created opportunities for U.S. metallurgical coal producers including:
− Experienced labor − Contractors − Mine equipment − Railway capacity
• This is a completely different situation from some other countries where most or all of the inputs listed above are in short supply.
Slide 24
Slide 25
Arch’s Leer mine represents an outstanding growth opportunity
• One of the industry’s most promising metallurgical projects
• Mine development is advancing
• Cash costs expected within Arch’s competitive cost range — with anticipated premium high-vol A pricing in domestic and global markets.
• Attractive quality specifications*:
CSR > 60%
G ~ 98
Y ~ 37 mm
V9-V14 ~ 93%
– China: excellent fat coal (highly demanded)
– India: adequate parameters for all major mills
– Japan, Korea, Taiwan, Europe, South America: high CSR, high rank
Leer Mine & Prep Plant
* Indicative results.
Arch’s Metallurgical Coal Production Mix
2020 Target: 14~18 million tons
410
305
205
176
134
123
108
99
98
96
Coal India
Shenhua
Peabody
China Coal
Glen/Xstrata*
Arch
BHP
Anglo
SUEK
Alpha
Arch is among the top coal producers and marketers in the world
Slide 26 Sources: ACI, MSHA, Ventyx, company filings, press articles * Pro forma
Top 10 Global Coal Producers
(2012, in millions of metric tons)
Government affiliated
Arch is one of the largest coal producers globally, and is the third largest private-sector producer based on volume.
Arch is the most diversified U.S. coal producer, and the No. 2 reserve holder in the nation
Operations
extend to
every major
coal supply
basin
Slide 27
5 Billion Metric Tons of Reserves
Western Bituminous
Region
371 million metric tons of
reserves
Illinois Basin
658 million metric tons of
reserves
Powder River Basin
3,002 million metric tons of
reserves
Appalachia
950 390 Met Coal million metric tons of
reserves
Slide 28
Arch’s Met Coal Mines and Port Investments
DTA
Lone Mountain
Pardee
Mt. Laurel
Vindex
Leer Sentinel
Sawmill
Beckley
OH PA
MD
KY
WV
VA
Mt. Laurel
Beckley
Sentinel
DTA (22% owned by Arch)
Arch’s met coal reserves:
390 million tonnes, being:
Curtis Bay, MD
64%: Low Vol + High Vol A
36%: High Vol B & PCI
Leer
Arch expects to play a larger role in the expanding seaborne coal trade
Arch and the U.S. are well positioned to serve the future met markets
• Seaborne demand growth is certain to continue
• China and India will underpin global met coal market expansion
• Traditional supply sources face mounting obstacles
• Rising global cost curve renders U.S. increasingly competitive
– Large reserves
– Relatively low CAPEX and relatively stable OPEX
– Highly reliable supplier
– Cornerstone for Atlantic Basin market
– Compelling source of diversification for Pacific Rim
Slide 29
Thank you very much
Singapore May 2013
Arch Coal, Inc.:
One CityPlace Dr., Suite 300 Saint Louis, MO. 63141 USA Tel: 001-314-994 2700
Arch Coal Asia-Pacific, Pte. Ltd.:
8 Temasek Boulevard, #14-04 14 China World Office 1, room 89 Suntec City Tower 3 Jianguomenwai Avenue, Singapore, 038988 Beijing 100004, China Tel: 0065-6672 7666 Tel: 0086-10- 6563 7888
For more information:
Please email ACAP@archcoal.com or check our website at www.archcoal.com
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