Peabody Energy Corporation · NYSE:BTU
Peabody Energy — Investor Presentation (August 2008)
45 slides from Peabody Energy's investor presentation, Aug 5, 2008
Slide 1: Peabody Energy Analyst Breakfast
Peabody Energy Analyst Breakfast August 6, 2008
Slide 2: Statement on Forward-Looking Information
Statement on Forward-Looking Information Some of the following information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, and is intended to come within the safe-harbor protection
Slide 3: BTU Management
Peabody Energy Analyst Breakfast Rick Navarre Mike Crews Vic Svec Christina Morrow President and Chief Commercial Officer Executive Vice President and Chief Financial Officer Senior Vice President - Investor Relations and Corporate Communications Director - Investor Relations BTU Management
Slide 4: Topics
Peabody Energy Analyst Breakfast TOPICS Global Markets and BTU Position U.S. Markets and BTU Position Long-Term Market Trends / Drivers Focus Areas and Outlook
Slide 5: BTU: The Only Global Pure-Play Coal Investment
BTU: The Only Global Pure-Play Coal Investment Global coal demand exceeding supply both near term and long term Global coal prices strong and rising BTU: Major global leverage with higher volumes and repricing contracts World demand drives U.S. exports, Illinois Basin and PRB BTU: Major PRB and Illi
Slide 6: Global Markets and Peabody's Position
GLOBAL MARKETS AND PEABODY'S POSITION
Slide 7: Coal Continues to be Fastest Growing Fuel
Compound Annual Growth Rate 0.6% 1.7% 2.9% 2.9% 5.1% Coal Continues to be Fastest Growing Fuel Global Coal Demand Grows 1.5+ Billion Tons in 6 Years Source: BP Statistical Review of World Energy, June 2008. Coal Natural Gas Hydro Oil Nuclear 2002 - 2004 35.15 19.02 18.93 10.53 3.51 35% 2001 - 2007 C
Slide 8: New Coal Plants to Increase Global Coal Consumption by ~1 Billion Tons
New Coal Plants to Increase Global Coal Consumption by ~1 Billion Tons China 101 354 India 80 280 Other Asia 46 160 Russia/FSU 28 98 U.S. 16 60 Europe 10 35 Africa 6 21 South America 6 21 Middle East 1 4 TOTAL 294 1,033 Nearly 300 GW of New Coal Plants Under Construction Country Plants (GW) Coal Gro
Slide 9: Key Nations Retain More Coal for Domestic Use
Key Nations Retain More Coal for Domestic Use and Strain Seaborne Markets INDONESIA Government likely to mandate that some coal stay home; 2008 exports stall after years of double-digit growth SOUTH AFRICA 45 million ton rebuild needed; "Short 100 million tons by 2017"; More coal to India and domest
Slide 10: China's Export Withdrawal Creates Structural Shift in Seaborne Markets
China's Export Withdrawal Creates Structural Shift in Seaborne Markets 2003 2004 2005 2006 2007 2008 Thermal Coal 72 68 46 25 2 0.01 Metallurgical Coal 11 0 0 0 0 0 Ongoing supply problems will limit exports Second-half 2008 exports licenses still not issued Imports may be made exempt from 13% VAT t
Slide 11: Top Coal Exporting Nations Not Keeping Pace With Growing Demand
Top Coal Exporting Nations Not Keeping Pace With Growing Demand Source: Barlow Jonker, Peabody Analysis. Venezuela Poland Kazakhstan Canada Vietnam China U.S. Colombia South Africa Russia Indonesia Australia 2002 - 2004 7 10 24 25 29 50 51 65 68 98 161 251 Indonesia S. Africa Russia Colombia China U
Slide 12: Structural Changes to Global Coal Markets Long Term in Nature
Structural Changes to Global Coal Markets Long Term in Nature Major growth in energy, coal use by emerging nations Global build-out of power plants Cost of competing fuels Peak oil concerns Weak dollar and inflation hedge Exporting nations requiring more coal for domestic use Deeper / thinning geolo
Slide 13: Global Coal Markets Interconnected
Global Coal Markets Interconnected; Slack Quickly Taken from All Markets Central Appalachia (CAPP NYMEX) and Powder River Basin (PRB 8800) prices for calendar 2009 delivery. Newcastle and API4 (South Africa coal for delivery to Europe) pricing for prompt delivery. Updated July 25, 2008.
Slide 14: Peabody's Met Coal Leverage
2008 2009 2010 East 3 3 10.5 West 5.5 6.5 BTU Advantage: 10+ MTPA of Australia Met Coal Previously Priced Recently Priced Recently Priced Unpriced Unpriced Peabody's Met Coal Leverage 2007 Benchmark $98 $300 2008 Benchmark $ / Metric Ton High-Quality Hard Coking Coal Prices PLACEHOLDER PCI & Semi-So
Slide 15: 10+ Million Tons of Australia Met Coal Capacity
BTU Advantage: 10+ Million Tons of Australia Met Coal Capacity Millennium Mine interest acquired; ramping up to 3 MTPA Exploring North Goonyella / Eaglefield expansion Metropolitan Mine expanding long term to 2.5 MTPA Added rail / port throughput in 2010 with Goonyella- Abbot Point Expansion Conarco
Slide 16: Growing Volumes of Australia Export Thermal Coal
2008 2009 2010 Previously Priced 6 2.5 1 Recently Priced 2.5 1.5 0 Unpriced 6 12 1/1/2007 1Q07 2Q07 3Q07 4Q07 4/1/2008 7/21/2008 East 51.95 53.93 70.03 78 89.75 125 180 BTU Advantage: Large, Growing Volumes of Australia Export Thermal Coal Previously Priced Recently Priced Recently Priced Unpriced U
Slide 17: Expanded Australia Thermal Coal Capacity
Wilpinjong Wambo North Wambo Wilkie Creek Chain Valley Brisbane Newcastle NCIG Queensland New South Wales BTU Advantage: Expanded Australia Thermal Coal Capacity Higher capacity through North Wambo and expanded prep plant Expanding Wilpinjong Mine to 9+ MTPA over time Major owner of new NCIG termina
Slide 18: Australia Coal Chain Logistics Likely to Remain Constrained
18 Australia Coal Chain Logistics Likely to Remain Constrained Peabody Proactively Pursuing Additional Export Capability 2008+ Improvements Queensland DBCT's phase 1 expansion project complete, phases 2 & 3 due early 2009 Abbot Point's initial 25 million tonne expansion approved; Peabody applying fo
Slide 19: Peabody Australia Capacity Potential
2007 2008 RESERVES POTENTIAL Queensland N. Goonyella / Eaglefield 2.4 2.5 - 3.0 45 To 4 - 6 MT Burton 3.2 2.5 - 3.0 33 To 4 MT Millennium 1.0 1.0 - 1.5 23 To 3.5 MT Wilkie Creek 2.4 2.3 - 2.6 344 To 3+ MT 9.0 9 - 10 New South Wales Wilpinjong 5.1 6.5 - 7.0 190 To 9 - 11 MT Wambo Complex 4.7 4.5 - 5.
Slide 20: Leading Global Coal Trading Operations
Peabody Advantage: Leading Global Coal Trading Operations Operations Trading & Local Offices Countries Served Ports BTU Clean Coal Projects Coal Exports Domestic Sales St. Louis London Beijing Sydney
Slide 21: Global Platform Offers Growing and Diverse Earnings
BTU Advantage: Global Platform Offers Growing and Diverse Earnings 1st Qtr 2nd Qtr 1 99 2003 2003 and 2007 reflect actual results from continuing operations. International EBITDA Share Grows to 50% in 2008 1st Qtr 2nd Qtr 50 50 2008 United States International 1st Qtr 2nd Qtr 21 79 2007 $422 Million
Slide 22: U.S. Markets and Peabody's Position
U.S. MARKETS AND PEABODY'S POSITION
Slide 23: U.S. Exports Expected to Grow to 110 Million Tons in 2009
2006 2007 2008 2009 Export 49300 59300 87600 109600 Import 36000 36400 32000 31000 U.S. Exports Expected to Grow to 110 Million Tons in 2009 U.S. net exports growing >50 million tons between 2007 and 2009 U.S. inventories near or below targeted levels in all regions Peabody transactions: 7.4 million
Slide 24: U.S. Ports Can Export Prior to Expansions
U.S. Ports Can Export to 125 MTPA Prior to Expansions The U.S. Also Exports 20 MTPA By Land Most Unused Capacity is on the Gulf Coast
Slide 25: International Markets Create Major Parity Price Opportunities
Recent API 2 (South Africa to Europe): $195 / tonne Implied Price at East Coast Port: $158 / ton Equivalent or "Parity Price" vs. Current Market (FOB Mine): Central Appalachia: $129 Parity v. $131 Market Northern Appalachia: $134 Parity v. $117 Market Backfill Equivalent vs. Current Market (FOB Mine
Slide 26: Coal Prices Still Have Significant Headroom in Europe
26 Cal'09 gas and average MTD Cal'09 coal prices as of July 25, 2008. Source: Intercontinental Exchange (www.theice.com) Coal Prices Still Have Significant Headroom in Europe European Fuel Comparisons at Reference Costs
Slide 27: U.S. Utility Coal Inventories Likely Below Average
U.S. Utility Coal Inventories Likely Below Average For Remainder of 2008 June 30 Stockpiles 52 Days in 2007 vs. 43 Days in 2008 2008
Slide 28: Peabody's Volumes Largely Reprice Every 3.5 Years
2007 2008 2009 2010 7.25 14 18.25 22.75 BTU Advantage: Peabody's Volumes Largely Reprice Every 3.5 Years OTC PRB 8800 Prices PRB moving as slack taken out of other markets Historically lags other regions 2010 published PRB prices >3x 2007 levels Peabody's total unpriced U.S. volumes: 2009: 35 - 40 m
Slide 29: Repricing Illinois Basin Contracts at Higher Levels
BTU Advantage: Repricing Illinois Basin Contracts at Higher Levels Spot prices double YTD in 2008 Benchmarks move from $30s to $60s / $70s Peabody: 32 MTPA of Illinois Basin production 3.7 billion tons of reserves Peabody in late-stage evaluation of new mine development
Slide 30: Natural Gas Prices Provide Significant Upside for Coal
Natural Gas Prices Provides Significant Upside for Coal Current Coal Prices Competitive at $6.60 - $7.90 Natural Gas Cal'09 pricing based on average MTD indices as of July 25, 2008.
Slide 31: Long-Term Coal Market Trends / Drivers
LONG-TERM COAL MARKET TRENDS / DRIVERS
Slide 32: Future World Coal Demand Growth Likely Greater Than the Past
Future World Coal Demand Growth Likely to Be Greater Than the Past Total Coal Use Emerging Economies Mature Market Economies Transitional Economies Source: EIA International Energy Outlook 2008. Billion Short Tons 1980 2000 2010 2020 2030 1990 72% Growth in World Coal Consumption (Versus 48% 1980 -
Slide 33: U.S. Coal Use Expected to Accelerate
U.S. Coal Use Expected to Accelerate Over Next Several Decades Million Kilowatt Hours Coal Nuclear Natural Gas Renewables Petroleum U.S. Electric Power Generation by Fuel Type Source: Energy Information Administration, Annual Energy Outlook 2008.
Slide 34: Demand Drivers for U.S. Coal Continue to Grow
Demand Drivers for U.S. Coal Continue to Grow Existing Coal Plants Running at 73% Capacity Factor 150 - 200 MTPA Growth 16 GW Coal Plants Under Construction 60 MTPA Growth Planned Coal Plants 25+ MTPA Growth CTL / CTG Long-Term Growth Net Exports +75 MTPA Growth U.S. Consumption Strong Near-, Mid- a
Slide 35: Fluid U.S. Political and Regulatory Climate
Fluid U.S. Political and Regulatory Climate Makes "Investment Certainty" Elusive Clean Air Interstate Rule U.S. appeals court rejection calls into question scrubber installation, SO2 pricing, small plant retirements CO2 Public rulemaking notice (ANPR) observes that Clean Air Act is ill-suited for gr
Slide 36: A Leader in Btu Conversion and Clean Coal Solutions
Peabody: A Leader in Btu Conversion and Clean Coal Solutions BTU is the only non-Chinese equity partner in GreenGen, China's centerpiece coal / climate initiative BTU partnering with ConocoPhillips on new coal-to- natural gas facility in Kentucky BTU has investment in GreatPoint Energy to develop co
Slide 37: Focus Areas and Outlook
Peabody FOCUS AREAS AND OUTLOOK A
Slide 38: Cost Containment Actions Enable Margin Expansion
Cost Containment Actions Enable Margin Expansion in Strong Markets Process Improvement Projects New Mine Efficiencies Newer surface mines (Wilpinjong, El Segundo) lower cost than existing mines Major Cost and Productivity Initiatives Safety Record 1.52 rate YTD Commodity Management Use of consumptio
Slide 39: Global Pipeline of Growth Opportunities
BTU Advantage: Global Pipeline of Growth Opportunities Cost / Quality Acquisitions / Exploration Organic Growth Caballo Truck/ Shovel NARM Dragline NARM Conveyor NARM Blending & Loadout Wambo Prep Plant Millennium Remaining 15% Startup Wilpinjong Startup Millennium North Wambo U/G Twentymile Prep Pl
Slide 40: Commodity and Currency Hedging Saves ~$70 Million
Commodity and Currency Hedging Saves Peabody ~$70 Million in First Half Diesel, explosives and steel add $225 million to cost structure in 2008 Diesel hedge position: 2008: 60% $92.35 / barrel 2009: 50% $98.86 / barrel 2010: 30% $105.19 / barrel Explosives hedge position (natural gas): 2008: 55% $7.
Slide 41: Outlook: Good Second Half on Higher Volumes
Outlook: Good Second Half on Higher Volumes, Stable Costs, Rising Revenues Sales Volume 2008 sales of 240 - 260 million tons; sold out 2008 Australia sales of 22 - 24 million tons 21 million tons in 2007; 11 YTD 2008 2008 U.S. production 197 - 217 million tons 192 million tons in 2007; 97 YTD 2008 C
Slide 42: Outlook: Record 2008 EBITDA and EPS
Outlook: Record 2008 EBITDA and EPS; Stable Sustaining Capital Investments EBITDA $1.6 - $1.8 billion for 2008 $450 - $550 million for third quarter 2008 EPS $2.50 - $3.00 for 2008 $0.80 - $1.05 for third quarter 2008 Capital Investments 2008: $350 - $400 million Sustaining capital $1.00 - $1.50 per
Slide 43: Value Conversion as We Narrow the Energy Valuation Gap
Source: Company filings and reports. Market capitalization as of July 24, 2008. BTU Advantage: Value Conversion as We Narrow the Energy Valuation Gap Market Capitalization on Btu-Equivalent Basis Peabody ConocoPhillips Anadarko Chevron Apache BP ExxonMobil Shell Market Capitalization $ per mm Btu
Slide 44: The New BTU: Near-Doubling of 2008 Earnings
2003 2004 2005 2006 2007 2008 EBITDA 422 496 709 909 963 1800 EBITDA (in Millions) Reflects results from continuing operations (unaudited). 2008 targets per July 23, 2008 earnings release. The New BTU: Near-Doubling of 2008 Earnings and Growth Beyond $422 2008 Target $1,600- $1,800 Excellent leverag
Slide 45: Peabody Energy Analyst Breakfast
Peabody Energy Analyst Breakfast August 6, 2008