Industry Updates Aug 5 2015

Coal Operations, Global (BI COALG)
Themes > Chapter: U.S. Coal Industry Pain Set to Continue >> Exhibit 1 of 19
More Pain Ahead for U.S. Coal Industry Even After 2015 Carnage
Analysts: Andrew Cosgrove & William Foiles
Aug 4, 2015
There's more suffering ahead Key Points (5 of 19):
for U.S. coal miners, even after * Coal Plants Closing This Year Are Concentrated in the Rust Belt
what's shaping up as a dreadful * Can Powder River Basin Coal Margins Get Any Thinner? Maybe
2015, mostly driven by power- So
* Foresight Shows There's Still Money to Be Made Mining U.S.
plant closings and low natural gas
Coal
and seaborne coal prices. These * Illinois Basin Coal Set to Duel Powder River Tons in Home State
factors will speed up a slow-motion, * U.S. Coal Miners' Output Falls Most in 6 Years, Led by Peabody
industrywide restructuring process
as the Obama administration
toughens emissions rules. Cost
curves throughout the U.S. will
flatten as uneconomic mines are
shut down, while margins on the
surviving capacity will remain
depressed as long-term contracts
end and indexed pricing stays low.
Coal Operations Team
Bloomberg Intelligence
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Coal-to-Gas Switching Model Shows How Uneconomic Coal May Be

Analysts: William Foiles & Andrew Cosgrove
Aug 6, 2015
Surging supply and rising storage
Coal-to-Natural Gas Switching Model
levels are suppressing natural gas
prices, encouraging some utilities
to consider switching to gas from
coal. The Bloomberg Intelligence
Coal-to-Natural Gas Model helps
to determine whether making that
change would be economical for a
variety of coal grades and regional
gas terminals. The model also
calculates the transport distance
from any coal mine to a receiving
power plant to help make a final
assessment for multiple combined-
cycle turbine efficiencies.
Coal Operations Team For interactive exhibit on Bloomberg, run:
Bloomberg Intelligence MMDL 228782966<GO>

Another 100-Million-Ton Demand Loss on the Horizon for U.S. Coal

Aug 5, 2015
U.S. thermal coal demand may
U.S. Thermal Coal to Drop By 100 Million Tons
fall by an additional 100 million
tons during the next five years,
similar to the decline that's expected
in 2015 alone because of power
plant shutdowns and coal-to-
gas switching. U.S. thermal coal
production may finish the year
at about 825 million tons, a drop
of almost 10%. As more power
plants close over the next few
years, production and demand
will fall to about 700 million tons,
leaving it 30% off the highs seen in
2011 when production and output
peaked.

Power Plants Spawn 18 Million Ton Headache for Powder River Coal
Aug 4, 2015
If U.S. coal-fired power plant
Lost Coal Demand from Power Plant Closures
closings proceed as scheduled,
Powder River Basin coal mines
will lose 18.7 million tons of
demand in 2015 alone, with another
14.1 million tons lost next year.
Appalachian mines stand to suffer
the biggest blow in 2017, when
demand will fall by 7.5 million tons.
Powder River Basin mines face the
largest losses as a percentage of
total output, with the combined 44.4
million tons of possible lost demand
through 2018 representing 10.1% of
2014 production.

Clean Power Plan Takes a Big Swing at Coal Power: Policy Watch
Analysts: Rob Barnett & Cheryl Wilson
Jul 24, 2015
RULE SUMMARY: The Rule Name:
Environmental Protection Agency's * Clean Power Plan
Clean Power Plan, scheduled for Upcoming Action:
* Publication of Final Rule, 3Q15
summer release, seeks to reshape
Industry Impact:
the way electricity is produced in the * Electric utilities, coal producers, renewable energy project
U.S. The rule is expected to favor developers, natural gas E&P
renewable energy and cleaner- Representative Companies Impacted:
burning natural-gas electricity at the * Revenue Threat: CONSOL, Alliance Resource Partners, Peabody
expense of coal, which is shrinking Energy
as a share of electric generation * Revenue Opportunity: NextEra Energy, NRG Energy,
ConocoPhillips, Chesapeake
and may drop to 30% by 2030.
Requirements may not take effect
until 2020 or later. States will be
tasked with implementing the EPA's
plan, leaving plenty of time for
interpreting the rule.

EPA Mostly Sticks to Clean Power Plan While Allowing Delay

Analysts: Rob Barnett & Bernard Chen
Aug 3, 2015
The Environmental Protection Key Points:
Agency's final Clean Power Plan * Clean Power Plan Summary
mostly resembles the agency's * Clean Power Plan by the Numbers
proposal from June 2014. But * Clean Power Plan: Legal and Scientific Basis
instead of taking effect in 2020, the
rule's requirements kick in starting
in 2022. The final rule still favors the
increased use of natural gas and
renewable electricity at the expense
of coal, yet energy-efficiency targets
were cut from the final version of the
rule. Although the rule is considered
final, Congress, future presidents
or legal challenges could end up
reshaping the regulation.

Coal Plants Closing This Year Are Concentrated in the Rust Belt
Aug 4, 2015
A map of scheduled coal-fired
Map of Upcoming Coal Power Plant Closures
power plant closings shows that a
large portion will occur in Rust Belt
states such as Ohio and Indiana in
2015-16, where the average age
of all coal-burning generators is 47
years vs. 35 in western states. The
affected power plants largely source
their coal from Kentucky, where they
purchased 9.2 million tons in 2014,
and West Virginia, the source of 3
million tons last year, Bloomberg
Intelligence analysis shows.

Bloomberg Intelligence HTTP 4348619<GO>

Appalachia Coal Cost Curve Flattening, Margin Risk Ahead

Aug 5, 2015
The Appalachia coal cost curve will
Margins on 2016 Appalachian Tons to Compress
continue to flatten out as high-cost
mines are shut due to what's being
seen as permanent reductions in
demand while margins compress as
lower price realizations start to affect
performance. As a result, prices for
the coal will also reset at a lower
level going forward. New contracts
signed for 2016 may start to come in
below $50/ton as Eastern Rail and
Nymex calendar average prices for
next year are currently trading at
$48 and $45 per ton, respectively.


2016 Outlooks for Illinois Basin Coal Miners Are Not Congruent
Aug 5, 2015
Even though Illinois Basin
Illinois Basin Operating Metrics
producers have some of the most
profitable mining operations in
the U.S., pressure is mounting.
Alliance's basin-leading price
realizations may have the most
room to fall given their premium
versus peers. The company's 2016
guidance suggests that margin
compression looms. Hallador's
pricing is expected to drop as 2016
volumes have been priced at $43.12
a ton. Foresight is only expecting
realizations to fall 80 cents to $1
next year as it currently has 70% of
next year's tons contracted.
Bloomberg Intelligence BI COALG COMT |2-2-Q-5289|Q12|#5289|USD|R557<GO>

Can Powder River Basin Coal Margins Get Any Thinner? Maybe So
Aug 4, 2015
Powder River Basin coal margins
Will PRB Margins Shrink?
could get squeezed even further
as long-term contracts reprice at
lower levels throughout the rest
of 2015 and into 2016 and 2017.
Peabody Energy may have the most
to lose on a relative basis. given
that it has the highest percentage
of PRB output repricing in the next
year or two. Furthermore, Peabody's
coal margin per ton is 45% higher
than the peer average, a figure that
has been largely driven by higher
realized pricing from long-term
contracts.

Foresight Shows There's Still Money to Be Made Mining U.S. Coal

Aug 4, 2015
Some U.S. coal producers are
All-In Operating Margins %
still making money, even given
the industry's myriad challenges.
Foresight Energy tops the list,
with all-in operating cost per ton
margins topping 40%, followed
by CONSOL's Pennsylvania
operations and Alliance 's Illinois
Basin mines. The companies boast
higher margins mostly because they
own highly productive mines that
position them on the low end of the
cost curve. Whether margins are
sustainable will depend not only on
competition from regional gas but
also nearby basins.
Bloomberg Intelligence BI COALG COMT |2-2-Q-5289|Q12|#5289|USD|R1580<GO>

Southeast Is Illinois Basin Hunting Grounds for PRB Coal

Aug 5, 2015
Alabama, Georgia, Tennessee,
Coal Deliveries from ILB & PRB Mines
Arkansas and Louisiana may be the
states Foresight Energy alluded to
on its 2Q earnings call where Illinois
Basin coal could take as much as
50 million tons of market share from
Powder River Basin producers.
While Foresight has already won
share from PRB output in the
region, the battle could intensify as
contracts expire. As utilities increase
focus on keeping transportation
costs low, Illinois Basin coal may
begin to take a bigger share of spot-
based tonnage purchases from the
region.

Illinois Basin Coal Set to Duel Powder River Tons in Home State
Aug 4, 2015
Illinois Basin coal producers may
Illinois State Power Plant Coal Demand
be preparing for a battle for market
share in their home state with output
from Wyoming and Montana's
Powder River Basin. Illinois Basin
miners supplied only 13.5% of
domestic power plant coal demand
in 2014, while the rest came from
the PRB. Foresight Energy has said
that 8 million to 15 million tons, or
20% of potential share gains from
PRB coal, may come in Illinois.
Peabody Energy may be most at
risk, given that 69% of Illinois coal
receipts came from the company's
PRB mines.

Illinois Basin May Grab Share From PRB as Contracts Roll Over
Aug 4, 2015
A flurry of long-term contracts
PRB Coal Tons Rolling Off Contract in Illinois
expiring through 2017 may allow
Illinois Basin coal to take market
share from Powder River Basin
mines. Peabody has contracts for
9.5 million tons ending this year and
is exposed to another 11 million tons
through 2017. Arch faces the end
of contracts on 3.9 million tons this
year. While contract rollovers remain
a risk, power-plant retirements that
could affect 15.4 million tons from
the North Antelope mine and 11
million from Black Thunder through
2020 may pose a greater threat.
Bloomberg Intelligence MMDL 225562676<GO>

Illinois Basin Coal Miners Steal Market Share From Applachia

Aug 4, 2015
Appalachian coal has lost market
Illinois Basin Gains Share as Appalachia Loses
share consistently during the past
six years, with the portion of U.S.
output coming from the region
falling to 30.2% in 2Q15 from 37.2%
in 2Q09. Appalachia's 42 million
tons in quarterly production losses
topped those of all other regions
combined. The Illinois Basin was the
only region that grew in the period,
gaining in both absolute terms, to
21.9 million tons from 18 million
tons, as well as in relative terms,
to 10.5% of U.S. production from
6.9%.

U.S. Coal Miners' Output Falls Most in 6 Years, Led by Peabody

Jul 30, 2015
U.S. coal producers had their
Finalized 2Q Coal Production
worst quarter in at least six years,
as output among publicly traded
domestic miners tracked by
Bloomberg Intelligence fell 12.75%
from a year earlier to a combined
130.5 million tons. The companies
were hindered by unexpected mine
closures, inclement weather and
lackluster demand. The largest
contributer to the decline in absolute
terms was Peabody, whose output
fell by almost 7.3 metric tons.
Hallador's 36% drop compared with
a year earlier was the largest on a
relative basis.

U.S. Coal Miners' Output May Drop Further After 2Q Declines

Jul 24, 2015
The outlook for U.S. coal miners
U.S. Coal Miners Face Falling Output
worsened in 2Q as production fell
sequentially for every company that
had all mines reporting, according
to MSHA. Foresight Energy led
declines at 29%, as output at its
Deer Run Mine plunged 97% due
to high carbon monoxide levels.
Hallador's output fell 36% and Cloud
Peak's 23% from a year earlier.
Coal miners may be squeezed
further as low natural gas prices
and environmental regulations favor
competing fuel sources.


Central Appalachia Is the Real Problem for East Coast U.S. Coal
Aug 4, 2015
While coal production on the U.S.
CAPP Market Share Sinks as Appalachia Flounders
East Coast has fallen on hard
times, data shows that the declining
profitability and output of Central
Appalachia mines are the root of
the problem. The subregion's output
has fallen by 41.7% since 2Q09,
while its market share has dwindled
to 35.8% from 50%. All of Central
Appalachia's market share loss
has been captured by Northern
Appalachia, but with production
down by 8 million tons since 2Q09,
the latter subregion is by no means
better off.

Derelict, Idled Appalachian Coal Mines Mount as Prices Plunge

Aug 4, 2015
More Appalachian coal mines
2014 Appalachia Output by Current Mine Status
are going dormant, with listings
other than "active" continuing to
climb at U.S. regulatory agencies
as prices and demand fall. Mines
with 36.7 million tons of combined
2014 output have been moved out
of active status into non-producing
categories this year. The mines,
which together represented 12.3%
of 2014 Appalachian production,
likely won't be the last to shutter
as banks and investors grow
increasingly reluctant to extend
capital to cash-burning operations.

Industry Updates Aug 5 2015

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Coal Operations, Global (BI COALG)

Coal-to-Gas Switching Model Shows How Uneconomic Coal May Be

Another 100-Million-Ton Demand Loss on the Horizon for U.S. Coal

EPA Mostly Sticks to Clean Power Plan While Allowing Delay

Coal Operations Team For interactive exhibit on Bloomberg, run:

Appalachia Coal Cost Curve Flattening, Margin Risk Ahead

Coal Operations Team

Foresight Shows There's Still Money to Be Made Mining U.S. Coal

Southeast Is Illinois Basin Hunting Grounds for PRB Coal

Illinois Basin Coal Miners Steal Market Share From Applachia

U.S. Coal Miners' Output Falls Most in 6 Years, Led by Peabody

U.S. Coal Miners' Output May Drop Further After 2Q Declines

Coal Operations Team

Derelict, Idled Appalachian Coal Mines Mount as Prices Plunge

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