platt's coal properties & investments presentation by tim alch from behre dolbear on march...

Platt’s 21st Annual Coal

Properties & Investment Conference

The Coal Business from a

Global Capital Markets Perspective

-------- Tim Alch

V.P & Senior Minerals Business Analyst

Behre Dolbear & Company (USA), Inc.

New York, New York

+1.845.480.1434

BEHRE DOLBEAR founded 1911 MINERALS INDUSTRY ADVISORS

From a Lender’s, Investor’s and Owner’s

View – Perspective is Important

• Who is driving business

• What else has changed

• What capital looks for

• Prepare for the best/worst

• Be realistic


Who is Driving the Bus(iness)?

• This is a Decade of the Emerging Market Consumer

People want and May get what ‘we’ enjoy.

• Urbanization and rising middle class continues to

drive energy and coal consumption, esp. in China

• In the next 20 years, the US may be out spent by a

rising ‘middle class’ in China (330M) and elsewhere

• GDP growth in China, Asia, Latin America, etc. will

likely exceed growth in the OECD nations

• Struggling to keep pace will be commodity supply

chain logistics including coal, fueling price volatility

• Growth may exceed current expectations


Asia is Where Most People Live and

Emerging Markets Grow Faster

Source: The Economist


More Consumers, More Money & Minerals Consumed


China Now Consumes as Much

Coal as the Rest of World (Source: USA EiA)

• China’s coal use grew by 325 million tons in 2011, equal to 87% of the

374 mt global increase in coal use. Of the 2.9 billion tons of global coal

demand growth since 2000, China accounted for 2.3 bt (82%) (US EIA)


China’s Share of Global Copper, Steel, Iron

Ore, Etc. Consumption Also Exploded

Source: UBS


Behre Dolbear Recent Coal Related Engagements (Some Detail About Behre Dolbear’s Work is Shown at Back)

• Australia

• Botswana

• Brazil

• Canada

• China

• Colombia

• Germany

• India

• Indonesia

• Mexico

• Mongolia

• Mozambique

• New Zealand

• Nigeria

• Philippines

• Russia

• USA

• Vietnam


China and Other Emerging

Markets are Expanding • China’s GDP is growing at ±8% pa and

adding power gen capacity equal to UK’s

capacity in each of past/next 10± years

• China is largest consumer of minerals

• China shifts from export led to consumer

based economy as other emerging market

nations expand resource intense sectors

consuming resources, energy, coal, etc.


China’s Recent Population Growth is Hard to Fathom


China is Urbanizing & Powering On

• In each year for the next 15 years, China will move

20 million people into cities, consuming more resources


China Produces Half Global Steel Source: http://designbuildsource.com.au


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

$ P

er T

on

ne N

ick

el

$ P

er T

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ne

(Co

pp

er, L

ead

, Z

inc,

Alu

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)

Nominal Industrial Metal Average Prices

1970 - 2012

Aluminum Copper Lead Zinc Nickel

The BIC’s Growth in the Past 10 Years

Broke a Long Period of Flat Pricing

Data Source: USGS and LME

Capital

Destruction

Capital

Creation

Capital

Destruction ?


Coal is Different

• 96% of coal is used by PowerGen & Steel

• Two KPIs of modern economic growth

• Not as fungible as precious & base metals

• Demand patterns are more predictable

• Markets and end users are more

specifically defined

• Transport can be (a near) dominant factor


China’s Power is Fueled by Coal

• China had an estimated total installed electricity generating capacity of 1,073 GW in 2011. The largest

in the world and increased by 9+% from 2010 and doubled from 519 GW in 2005

• Installed capacity may double again by 2030 to meet rising demand, particularly from main

urban areas in the East and South of the country (FACTS Global Energy) with gas-fired capacity too

http://www.eia.gov/countries/analysisbriefs/China/images/2010 china electricity by type.gif


Robust, Tempered Coal Outlook

• Continuing modernization in Developing World is driving energy, metals at greater rates

• Estimates vary e.g. 300 GW of new coal fired plants may come online requiring about 900 mt of new supply – equal to US output now

• Declining ore grade, fewer large deposits, high capital costs, Best Practices, larger Gov ‘takes’, changing political winds etc. curtail investments and reduced capex throughout mining sector

• Thus, production may struggle to meet future demands and lead to sporadic price spikes


Coal is Forecast to Fuel a Large Share of

Future Total Global Electricity Generation EIA AEO2013 Reference

http://www.eia.gov/forecasts/aeo/er/images/figure_12es-lg.png


Future Growth of Global Electricity Production Will

Be in the Non OECD and Be Coal Fueled


A Rising Standard of Living is

Often Measured by Electricity & Steel BBC News 20 February 2013 Last updated at 05:53 ET

Bulgaria government to resign, PM Boiko Borisov says

• The government's resignation follows nationwide

protests against high electricity prices • Bulgaria's government has announced it is resigning after nationwide

protests against high electricity prices and austerity measures, Prime

Minister Boiko Borisov has said. The PM said he had decided to go after

protesters against rising electricity prices clashed with police in Sofia……

________________________________________________________

• There are weekly rolling ‘Black Outs’ in 1/3 of India

• Brief widespread outages after recent storms in USA

• In today’s world, People without Power is Not Good


In the Top Ten Commodities by Global

Projects in 2011: Gold 1; Coal 7 • Investors, lenders and speculators have been attracted to the

precious metals markets: Is the world investing enough in coal?

Source: Intierra


Closer to Home: What Has Changed

• USA crude oil production increased by 790,000

bbl/d from 2011 to 2012, the largest increase in

annual output since the beginning of U.S.

commercial crude oil production in 1859

• U.S. EIA expects U.S. crude oil production to

continue rising over the next two years

• Fuel Switching to Nat Gas by Generators drove

coal share to ~36% in Sept/Oct 2012

• Greater efficiency and slow GDP growth have

impacted U.S. power consumption


Share of Total US Generation by Coal was Hit by

Natural Gas (Source: US EIA Short-Term Energy Outlook Feb 2013)

18.8% 20.1% 21.6% 21.4% 23.3% 23.9% 24.7% 30.3% 28.2% 27.6%

49.6% 49.0% 48.5% 48.2% 44.4% 44.8% 42.3% 37.4% 39.1% 39.1%

Forecast

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

U.S. Electricity Generation by Fuel, All Sectors thousand megawatthours per day

Coal

Natural gas

Petroleum

Nuclear

Hydropower

Renewables

Other sources


Coal Prices in USA Basins are Down in 2012 and Off from 2008 Highs (US EIA Feb 2013)


Be Realistic about Near Term Coal Use – Impact of

Nat Gas Can Not Be Underestimated U.S Coal Consumption Forecast by U.S. EIA – Feb 2013

http://www.eia.gov/forecasts/steo/report/coal.cfm


Higher Rail Costs Challenge USA Coal

Operators = Another Not So Favorable Trend

• From 2001 to 2010 average cost of railing coal to power plants rose by almost 50% in USA

• Railroad transport accounts for more than 70% of U.S. coal destined to generators

• So rail rates impact cost of coal delivered to power plants – often borne by producers


© 2011 Behre Dolbear Group Inc. All Rights Reserved

What Capital is Looking for –

More Hard Work Will/Can/May Help

• Offset higher capital, operating costs

• Other than higher prices – What can offset

higher costs?

• Hard Work, Implementing Best Practices,

Process Improvements, New Markets, etc.

• Dig in and focus on doing best possible

• There is no panecea – especially with low

Natural Gas prices


Coal Production Costs are Rising

• Transport logistics are big factor

• Quality, grade and usage are related

• Rising costs reflect mining method: Surface coal in the Powder River Basin cost

is (±US$6.00+ per ton)

Underground coal in Alabama cost is (±US$45.00+ per ton)

• Competition is fierce


US Coal Exports Are Trending Higher (US$ Billions)

• Exports to Asia have grown, though not without challenges


Can New Export Terminals on West Coast help Boost

U.S. Coal Exports to 200 mtpa = Black Gold

Source: U.S. EIA, Short-Term Energy Outlook, U.S. Census data. Note: Data for 2012 are through August. Export share by

coal type assumes a continuation of current volumes. October STEO forecast used in chart. The steam coal 95% growth

estimate assumes the STEO forecast with current year-to-date steam/met export ratio.


Export Markets = USA’s Coal Hope

• China’s efforts to consolidate and improve its coal

industry is a massive undertaking

• China will continue to rely upon coal imports to fuel its

power generating sector for many years to come

• Likewise, as India modernizes and expands its coal-

fueled generating capacity – it too requires significant

imported coal for blending and primary fuel

• India’s metals, steel industry is forecast to be another

large consumer of metallurgical coal


Coal Trade Has Its Challenges

• There continues to be a shortage of skilled laborers

and experienced professionals

• The U.S. needs to resolve export logistics to compete

and aggressively expand into seaborne markets

• Others face logistical, transport, etc. hurdles

• Environmental, permiting and social concerns defer

investment and development of new capacity

• Increased government take and NGOs slow expansion



Global Growth and Fear –

Suggest Coal Acquisitions

• Global paradigm shifts as Middle Class and Urbanization drives resource demand

• Minerals markets subject to price spikes may provide sufficient investment returns to attract capital from some investors

• Stability and security of fuel supply is key

• Valuations of USA coal on a long term basis – may now be attractive


Some See the Value in Coal –

M&A Targeted Coal in 2012 (US$B) (Source E&Y)

21.4

17.9

14.2 13.4

7.3

5.3 4.0 3.9 3.6

2.3

10.6

0

5

10

15

20

25

$ B

illio

ns

2012 M&A Activity by Target Commodity


China’s Outbound Acquisitions Have

Grown (US$ Billions and Volume)


China’s Coal Deals Rank #2 After Gold

Source: Ernst and Young



M&A Drivers in Coal

• Coal share valuations over corrected in 2H12

• Low profits force sale of low margin, downstream assets

• Significant cross-border investment and M&A likely

• Majors and Strategic investors with strong balance

sheets may opportunistically acquire key assets

• Increased price volatility and resource nationalism,

including higher government taxes and royalties may

contribute to stability of supply and quality concerns

• Risk management is very important to acquirers

• There are less undeveloped attractive assets in

developed countries


Consolidation Likely to Continue

• Valuations are less expensive than greenfield

investment

• Consolidation to form Super and Larger Majors is likely

• Strategic M&A may buoy coal assets and share prices

• SOEs, SWFs e.g. Japan, Korea, India may continue to

acquire strategic metals and coal resources, etc.

• Fewer companies control larger share of minerals –

giving some producers greater market leverage


Where are Assets are On Value Curve - and Cost Curve Source: BMO


Getting and Keeping Business

• Quality Control is essential & challenging

• Consistent quality product is key

• Bid realistic achievable coal specs

• Respond to customer problems

• Focus on What you are Best at: Remind

all stakeholders, What that is



Capital Ideas for 1H2013

• Equity markets in 2012 were turbulent and hit lows

• Banks, investors, and operators are risk adverse

• Alternative, strategic interests, private equity, SWFs,

SOEs are opportunistically stepping into resources

• This trend may / will likely continue in 2013

• Management, stakeholders, employees, partners, and

customers should be realistic about options

• Now is not the best time to over reach

• Thank you



Behre Dolbear’s Coal Services

• Specializes in executive level consultancy to financial institutions, independent investors, large and small coal producers, coal consumers, and government agencies.

• Our technical advisories address full spectrum of engineering and operating activities, including exploration, resource and reserve definition and review, mine design, project development, coal preparation, production and operations planning, sales, transportation, coal characterization, and coal utilization.

• Our business advisories address project justification and finance, capital budgets, operating costs, organizational structures, and planning for profit optimization.

• We also support legal and accounting firms and insurance companies with litigation and arbitration assistance, business interruption valuations, and expert opinion statements.



The Behre Dolbear Group

• Behre Dolbear has 12 offices in 8 countries and completed 210+ jobs in 55+ countries in each of the last 5 years using our global network of 125+ professionals in all major mining markets

• We perform studies and advise a wide range of entities in the mining, banking, investment, financial, legal and accounting sectors, and government agencies around the world

• Our experience spans technical, operating, and financial issues in the base, precious and ferrous metals, coal, uranium, fertilizer and industrial minerals, gemstones, and construction materials

THANK YOU Tim Alch

V.P. & Senior Minerals Business Analyst Behre Dolbear & Company (USA), Inc. 100 Park Avenue, New York City 10017

+1.845.480.1434 [email protected]

mailto:[email protected]


The Behre Dolbear Group


Appendix

• Characteristics of Scoping, Pre Feasibility

and Full Scale Feasibility Studies


Characteristics of Scoping, Pre-Feasibility, and

Full-Scale Feasibility Studies – A1

Potential Areas of Investigation

for Proposed Mining Projects

PROPERTY INFORMATION

Location, topography and climate

Land ownership and royalties

Property history

Current status

GEOLOGY AND RESOURCES

Geological description

Mineralogy

Drilling, sampling and assaying

Evaluation techniques

Mineral resource estimate

MINING

Ore reserve estimate

Mining method and plans

Mining equipment

Material handing

Material handling equipment

Historical and forecast production

Consumables

Mining capital estimates

Mining operating cost estimates

PROCESSING

Ore sampling and testwork

Processing method

Other required processes

Process equipment

Historical and forecast production

Consumables

Processing capital estimates

Processing operating cost estimates

INFRASTRUCTURE

Industrial infrastructure facilities

Social infrastructure facilities

Utilities, power, water

Infrastructure capital estimates

Infrastructure operating cost estimates

MANAGEMENT AND LABOR

Management organization requirements

Labor requirements

PRODUCTS, MARKETS AND SALES

Products

Markets

Prices

Sales

ENVIRONMENTAL AND PERMITTING

Permit list

Environmental impact

Compliance costs

Compliance cost timing

Reclamation expenses

FINANCIAL ISSUES

Taxes

Royalties

Fees

Licenses

DEVELOPMENT COSTS AND SCHEDULE

Development cost estimate

Development schedule

Development methodology

POLITICAL & SOCIAL CONSIDERATIONS

Economic benefits and costs

Government considerations

Other issues

PROJECT ECONOMICS

Economic parameters

Discount rate determination

Cash flows

Investor returns

Debt analysis

Sensitivities



Full-Scale Feasibility Studies – A2 (continued)

CATEGORY CONCEPTUAL

STUDY/SCOPING STUDY PRE-FEASIBILITY STUDY FEASIBILITY STUDY

INTRODUCTION

Location, Topography, and Climate

Site location map

Ownership and Royalties

Claims list

Claims map

Current Status and History

Historical chronology

Information on past production, if any

•Yes

•No

No

No

No

•Yes

•No

Yes

No

No

•Yes

•Yes

Yes

Yes

Yes

GEOLOGY AND RESOURCES

Geological Description

Geological map

Geological cross-sections

Drilling, Sampling, and Assaying

Parameters

Drill hole location map

Sampling/assaying flow diagram and assessment

Assay check assessment and graph

Mineral Resource Estimate

Resource methodology determination and approach

Geologic model limits

Lithology/tonnage factors/code

Cumulative frequency of samples verses grade

Variograms

Resource Estimate

Yes

No

Yes

Yes

No

No

Yes

Yes

No

No

No

Industry Standards (NI 43-

101, JORC, etc.)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes


101, JORC, etc.)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes


101, JORC, etc.)




CATEGORY CONCEPTUAL

STUDY/SCOPING STUDY

PRE-FEASIBILITY

STUDY FEASIBILITY STUDY

MINING

Ore Reserve Estimate

Reserve and resource calculation parameters

Cutoff grade equations

Reserve and resource estimate

Mining Method and Plans

Mining parameters

Hydrology/geotechnical parameters

Mining equipment list

Consumables list

Material handling systems

Material handling equipment

Personnel list

Surface mining

Final pit and dump outlines

Incremental pit and dump outlines

Underground mining

General mine development

Mining approach (stoping, cut and fill, etc.)

Production Schedule

Historical production, if any

Annual ore and waste tonnage and grade

Mining Capital and Operating Cost Estimates

Mining operating cost estimates

Mining capital cost estimates

Assumed Values

No

Industry Standards

Yes, minimal engineering basis

No

No

No

No

No

No

No

Yes, simple outline

No

Yes, general outline

Yes, general approach

Yes

Yes, division of total

Yes, factored ±45%

Yes, factored ±45%

Test-Based Values

Yes

Industry Standards

Yes, some geotechnical data

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes, ±30%

Yes, from engineering

manuals ±30%

Test-Based Values

Yes

Industry Standards

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes, ±15%

Yes, from vendor quotes and

take-offs ±15%




CATEGORY CONCEPTUAL


PROCESSING

Ore Sampling and Test Work

Test work data

Processing Methods and Plans

Processing methods

Processing parameters

Equipment list

Consumables list

Personnel list

Material balance

Flow diagram

Site plan

General arrangement drawings

Production Schedule

Historical production, if any

Annual production tonnage and grade

Off-site Processing Cost Estimates

Concentration charges

Smelting and refining charges

Other charges

Material handling and transport

Insurance and sales charges

Processing Capital and Operating Cost Estimates

Processing operating cost estimates

Processing capital cost estimates

No, assumed values

Yes, general approach

Yes, minimal engineering

No

No

No

No

No

Yes, simple block diagram

No

No

Yes

Yes, division of total

No

No

No

No

Yes, factored ±45%

Yes, factored ±45%

No, preliminary data

Yes

Yes

Yes

No

Yes

Yes

Yes

Yes

No

Yes

Yes

Yes, preliminary estimate




No

Yes, ±30%


manuals ±30%

No, preliminary data

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes, quote

Yes, quote

Yes, quote

Yes, quote

Yes, quote

Yes, ±15%

Yes, from vendor quotes and

take-offs ±15%




CATEGORY CONCEPTUAL


INFRASTRUCTURE

Industrial Infrastructure Facilities

Facilities list

Power and water parameters

Full site plan

Social Infrastructure Facilities

Facilities list

Housing

Schools

Hospitals

Other

Infrastructure Capital and Operating Cost Estimates

Consumables list

Personnel list

Infrastructure operating cost estimates

Infrastructure capital cost estimates

Yes, with minimum detail

Yes, preliminary

No

Yes, with minimum detail

No

No

No

No

No

No

Yes, factored ±45%

Yes, factored ±45%

Yes

Yes

Yes

Yes

Yes, preliminary

Yes, preliminary

Yes, preliminary

Yes, preliminary

Yes

Yes

Yes, ±30%


manuals ±30%

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes, ±15%

Yes, from vendor quotes &

take-offs ±15%

MANAGEMENT, LABOR & ADMINISTRATION

Personnel

Personnel lists

Training requirements

Personnel Capital & Operating Cost Estimates

Consumables list

Personnel operating cost estimates

Personnel capital cost

No

No

No

Yes, factored ±45%

Yes, factored ±45%

Yes

Yes

No

Yes, ±30%

Yes, ±30%

Yes

Yes

•Yes

Yes, ±15%

Yes, ±15%




CATEGORY

CONCEPTUAL

STUDY/SCOPING STUDY

PRE-FEASIBILITY STUDY FEASIBILITY STUDY

MARKETS, PRODUCTS AND SALES

Markets, Products and Sales

Products

Volume

Prices

Sales organization

Sales Related Capital and Operating Cost Estimates

Personnel list

Consumables list

Sales related operating cost estimates

Sales related capital cost estimates

Yes, preliminary

Yes, preliminary

Yes, preliminary

No

No

No

Yes, factored ±45%

Yes, factored ±45%

Yes

Yes

Yes

Yes, preliminary

Yes

No

Yes, ±30%

Yes, ±30%

Yes

Yes

Yes

Yes, preliminary

Yes

No

Yes, ±15%

•Yes, ±15%

ENVIRONMENTAL AND PERMITTING

Environmental

Permit list

Environmental Impacts

Environmental Compliance Cost Estimates

Personnel list

Environmental related operating cost estimates

Environmental related capital cost estimates

No

Yes, preliminary

No

Yes, factored ±45%

Yes, factored ±45%

Yes

Yes

Yes

Yes, ±30%

Yes, ±30%

Yes

Yes

Yes

Yes, ±15%

Yes, ±15%




CATEGORY CONCEPTUAL


DEVELOPMENT SCHEDULE AND COSTS

Development Schedule

Development methodology

Development schedule

Development Costs

Personnel list

Development related operating cost estimates

Development related capital cost estimates

•Yes, preliminary

Yes, preliminary

No

No

No

•Yes

Yes

Yes

Yes, ±30%

Yes, ±30%

•Yes

Yes

Yes

Yes, ±15%

Yes, from vendor quotes &

take-offs ±15%

PROJECT ECONOMICS

Financial Issues

Taxes

Royalties

Fees

Licenses

Economic Issues

Economic parameters

Discount rate determination

Cash flows

Investor returns

Debt analysis

1.Sensitivities

Yes, preliminary

Yes, preliminary

Yes, preliminary

Yes, preliminary

Yes, preliminary

Yes, preliminary

Yes, preliminary

Yes, preliminary

No

No

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No

Yes, preliminary

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes




CATEGORY CONCEPTUAL


SUMMARY AND RECOMMENDATIONS

Operational Parameters

Title and ownership

Geology

Ore reserves

Mining and processing rates

Development period and mine life

Metal/mineral recoveries

Sales

Operating cost estimates

Capital cost estimates

Financial Parameters

Cash Flows

NPV, IRR, and ROI

Mostly assumed and factored

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Some engineering basis

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Some engineering basis

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

platt's coal properties & investments presentation by tim alch from behre dolbear on march...

Economy & Finance

minerals industry advisors

coal business

coal consumption

years china

economist behre dolbear

ubs behre dolbear

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gw of new coal firedplants