January 10, 2012 | 21 Pages
Industry Report
MATERIALS (COAL)
Adjusting Our Supply/Demand Model -- Calling for
Lower Thermal Production; Adjusting Estimates for Michael S. Dudas, CFA Satyadeep Jain
ANR, ACI, CNX, JRCC, PCX, BTU, WLT (646) 376-5329 (646) 376-5357
mdudas@sterneagee.com sjain@sterneagee.com
We have adjusted our 2012 supply/demand model, thermal
coal, metallurgical coal pricing assumptions and related earnings and EBITDA forecasts. We have generally left our 2013 assumptions
unchanged as we continue to believe we will see cyclical pricing and earnings recoveries as global electricity and steel demand growth
meets a continued tighter supply dynamic.
Key changes – We call for a 10-15 million reduction in thermal production forecasts out of the U.S. as mining costs and near-term
demand uncertainties force marginal cutbacks. We reduced our demand expectations by eight to ten million tons as low nat gas
pressures at the margin and expect five million less exports – primarily reflecting five million tons more shipped than expected in
2011 and some near-term caution on European thermal demand. However, user inventories will remain unremarkable, falling from
current 150-155 million tons to 135 million tons by year-end 2013. Regarding met coal, we have adjusted our 2012 average
benchmark price to $255 from $270, taking our Q2 estimate to $240 per ton, but indicate sequential improvement. While Chinese
imports have remained strong with record imports in November, early indications are that Australian rains have not dampened
potential shipments. A weaker dollar, positive global steel production and pricing should help U.S. met coal producers.
Given sharp equity underperformance in 2011 – we believe valuations are discounting much lower pricing and volume outcomes than
likely, providing generally favorable risk/reward profiles. Therefore, we continue to suggest adding or introducing positions at current
levels. Improved investor risk tolerance and a more normalized rather than trough product pricing and company earnings levels should
allow for valuations to continue the improvement witnessed during the past few weeks over the next six to twelve months. At current
valuations, we find the group exhibits a favorable risk/reward profile.
Among large cap names, we suggest Consol Energy – strong coal and improving gas asset, and Peabody Energy – leading U.S.
market share and attractive international growth prospects. In the midcap space, we believe Alpha Natural Resources appears
underpriced as the market underestimates its metallurgical, export and base-load thermal profile. James River, a very high beta small-
cap stock provides option value for a thermal recovery while its newly assimilated metallurgical and trading businesses support
growth potential. Upside for Arch Coal, Patriot Coal and Walter Energy may lag given each company’s recent exposure to
production challenges and recent earnings estimate and outlook revisions. Risks to our thesis include reduced electricity generation,
lower oil and gas prices, metallics destocking on a global level, stronger U.S. dollar, export bottlenecks and further regulatory actions
targeted to restrict U.S. coal use.
We have adjusted selected company earnings estimates for 2012 as depicted below. Risks to our targets include lower than expected
realized coal prices, slack electricity generation, aborted global recovery, significant pullback in energy prices and unexpected
operational difficulties.
Current Previous Current Previous Current Estimates Previous Estimates
Ticker Price Rating Rating Target Target 2011 2012 2013 2011 2012 2013
ANR $20.76 BUY BUY $35.00 $35.00 $2.20 $1.50 $3.00 $2.20 $1.75 $3.00
ACI $15.26 Neutral Neutral $25.00 $25.00 $1.25 $2.35 $3.50 $1.25 $2.65 $3.50
CNX $37.69 BUY BUY $60.00 $60.00 $2.88 $3.50 $4.50 $2.93 $3.85 $4.75
JRCC $7.46 BUY BUY $15.00 $15.00 $0.25 -$1.00 $0.00 $0.25 -$0.65 $0.00
PCX $8.54 Neutral Neutral $12.50 $12.50 -$1.00 $0.25 $1.75 -$1.00 $1.00 $1.75
BTU $35.62 BUY BUY $60.00 $60.00 $4.00 $5.00 $6.00 $4.00 $5.50 $6.00
WLT $56.87 Underperform Underperform $90.00 $90.00 $7.40 $7.50 $11.50 $7.40 $9.50 $11.50
Source: Company Reports, Sterne Agee estimates
Important Disclosures regarding Price Target Risks, Valuation Methodology, Regulation Analyst Certification, Investment
Banking, Ratings Definitions, and potential conflicts of interest begin on Page I of the Appendix Section.
800 Shades Creek Parkway Suite 700 Birmingham, AL 35209 ph:205-949-3500
Sterne, Agee & Leach Inc. is Member NYSE, FINRA, SIPC
METALS AND MINING (COAL) January 10, 2012
Discussion -
We are updating our coal supply demand model. U.S. East Coast and Gulf Coast export activity
continues to be strong, despite concerns of a slowdown in China, stronger U.S. dollar, recovery in
Australian exports and sovereign debt concerns in Europe. We are increasing our estimates for
2011 U.S. coal exports by five million tons, but reducing our 2012 estimates by five million tons.
We are maintaining our 2013 export expectations at 110 million tons. Domestic utility coal
consumption has been lower than expected, mainly due to continued sub $4 gas prices, and
regulatory challenges keeping buyers from major contracting commitment. We have now reduced
our annual domestic coal consumption estimates for 2011-13 by 8-10 million tons. Import activity
continues to be tepid. We have reduced our annual coal import expectations for 2011-13 by 2-3
million tons. We are now projecting slightly lower production growth in 2012-13 (vs. our previous
estimates) reflecting rational voluntary producer response in lieu of slightly lower than previously
expected consumption growth. We now expect 2011 year-end utility stockpiles at 150 million tons
(vs. earlier expectation of 148 million tons), but continue to expect 2012 year-end stockpiles at
145 million tons and 2013 year-end stockpiles at 135 million tons.
We have adjusted our 2012 average met coal benchmark realizations to reflect first-half
headwinds leading to a recovery in second-half negotiated pricing.
Figure 1: U.S. Coal Supply-Demand Analysis (Million short tons)
Coal Demand 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E
Electric Power Coal Consumption 1,037.5 1,026.6 1,045.1 1,041.6 936.5 975.6 945.8 951.1 960.1
Other Coal Consumption 88.5 85.7 82.9 79.1 76.3 75.5 75.7 76.0 77.7
Total Coal Consumption 1,126.0 1,112.3 1,128.0 1,120.7 1,012.8 1,051.1 1,021.6 1,027.2 1,037.8
YOY Coal Consumption Change (%) 1.7% -1.2% 1.4% -0.6% -9.6% 3.8% -2.8% 0.5% 1.0%
YOY Coal Consumption Change (Tons) 18.7 (13.7) 15.7 (7.3) (107.9) 38.3 (29.5) 5.6 10.6
Coal Supply
Coal Production 1,131.5 1,162.7 1,146.6 1,171.5 1,074.9 1,085.3 1,089.9 1,100.0 1,118.9
-Coal Exports 49.9 49.6 59.2 81.5 59.1 81.7 105.0 100.0 110.0
+Coal Imports 30.5 36.2 36.3 34.2 22.6 19.4 13.5 14.0 15.0
Net Coal Supply 1,112.0 1,149.3 1,123.8 1,124.2 1,038.5 1,022.9 998.4 1,014.0 1,023.9
YOY Coal Supply (%) 1.9% 3.4% -2.2% 0.0% -7.6% -1.5% -2.4% 1.6% 1.0%
YOY Coal Supply Change (Tons) 20.6 37.3 (25.5) 0.4 (85.7) (15.5) (24.5) 15.6 9.9
Coal Stockpiles
Coal Stocks Electric Power Sector 101.1 141.0 151.2 161.6 190.0 174.9 150.1 145.0 135.0
Coal Stocks Other (Industrial) 8.2 9.4 7.6 8.8 7.6 7.3 7.3 7.2 7.5
Coal Stocks Producers 35.0 36.5 34.0 34.7 47.7 49.8 45.1 42.0 42.6
Total Coal Stockpiles 144.3 186.9 192.8 205.1 245.3 232.1 202.5 194.3 185.1
YOY Coal Stockpile Change (%) -6.3% 29.6% 3.1% 6.4% 19.6% -5.4% -12.7% -4.0% -4.7%
YOY Coal Stockpile Change (Tons) (9.7) 42.6 5.8 12.4 40.2 (13.2) (29.6) (8.2) (9.2)
Source: Energy Information Agency, World Coal Institute, National Mining Association, Sterne Agee estimates
We have updated our regional coal production estimates. Production growth in Illinois Basin
continues to surprise on the upside. Compared to our earlier expectations for 2012, we are now
predicting slightly higher production in Illinois Basin and slightly lower production in Central
Appalachia (CAPP), Powder River Basin (PRB) and Colorado/Utah. For 2013, we continue to
project a 19-20 million tons y/y production increase, driven largely by an increase in PRB and
Illinois Basin production at the expense of Central Appalachian surface thermal mines.
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M ATERIALS (COAL) January 10, 2012
Figure 2: U.S. Coal Production By Region (in million tons)
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E
Northern Appalachia 133.2 129.2 132.1 135.2 144.2 136.8 138.2 128.0 129.6 132.0 133.0 135.0
Central Appalachia 245.3 235.3 230.4 219.6 235.8 219.3 229.6 209.7 194.6 185.0 170.0 165.0
Illinois Basin 87.6 87.7 89.0 89.7 98.3 97.2 100.2 95.5 102.4 114.0 125.0 131.0
Powder River Basin 405.8 412.3 431.5 441.3 474.5 494.8 508.2 464.0 480.5 478.0 490.0 504.0
Others 222.4 207.3 229.1 245.6 209.9 198.6 195.3 175.5 178.2 182.0 181.0 184.0
U.S. Total 1,094.3 1,071.8 1,112.1 1,131.5 1,162.7 1,146.6 1,171.5 1,072.8 1,085.3 1,090.0 1,100.0 1,119.0
Source: Energy Information Agency, Sterne Agee estimates
Cross-State Air Pollution Rule (CSAPR)
The three-judge panel of the U.S. Court of Appeals D.C. Circuit recently granted a request by
power producers and other complainants to delay the deadline for the U.S. Environmental
Protection Agency’s (EPA) Cross-State Air Pollution Rule (CSAPR). As expected, CSAPR SO2
allowance emission prices have dropped since then. We note CAIR emission prices had also
collapsed in 2008 after the federal court found the EPA rule violated the Clean Air Act.
Figure 3: CSAPR SO2 Emission Allowance Prices ($/ton)
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
CSAPR TR SO2 Group1 Vintage 2012 Allowance Active Contract ($/ton)
CSAPR TR SO2 Group2 Vintage 2012 Allowance Active Contract ($/ton)
Source: Bloomberg, Sterne Agee
The grant of stay has created more uncertainty for industry players, with many more unknown
variables. There is a huge range of possibilities. The Court would hear arguments by April 2012,
but could take some time to announce its decision. Based on the merits of the argument, the Court
may either uphold the rule as it is or send it back to EPA for modifications. Even if the Court
upholds the rule, there is a possibility that CSAPR may not be implemented in 2012. The utilities
that were modeling Jan. 2012 implementation for CSAPR in their coal burn forecasts, and were
therefore conservative in their coal purchases, may be caught short of coal due to this grant of stay
on rule. However $3 natural gas could put a cap on the spot activity for eastern thermal coal.
Page 3
M ATERIALS (COAL) January 10, 2012
U.S. Coal Exports
Total U.S. coal exports to countries including Canada reached 89.4 million tons year-to-date in
October 2011, as per data released by U.S. International Trade Commission. Oct YTD exports
annualize to 107 million tons exports for 2011, an increase of 30% over 2010 exports of 82
million tons. Europe remains the most prolific importer of U.S. coals, with YTD imports of 44.8
million tons, annualizing to 54 million tons for 2011, an increase of 40% over 2010. U.S. met coal
exports to countries including Canada reached 58 million tons year-to-date in October, and look
set to reach 70 million tons for 2011.
Figure 4: U.S. Coal Exports
Se q. 2011 %
O c t-1 1 Se p-1 1 inc re as e YT D A nnualize d 2 0 1 0 Inc re as e
M e t C o al E x po rts
Europe 3.1 3.4 -8% 29.1 34.9 29.6 18%
C a na da 0.5 0.3 44% 2.9 3.5 3.5 0%
B ra zil 0.3 0.5 -42% 6.9 8.3 7.9 5%
C hina 0.5 0.5 -6% 3.9 4.6 4.2 11%
India 0.3 - NA 3.1 3.7 2.6 44%
Ja pa n 0.6 0.4 35% 5.6 6.7 3.0 124%
K ore a 0.4 0.2 81% 3.9 4.7 3.0 56%
O the rs 0.3 0.2 39% 2.6 3.1 2.9 9%
T o tal M e t C o al E x po rts 6.0 5.7 6% 57.9 69.5 56.6 23%
Ste am C o al E x po rts
Europe 1.8 1.6 12% 15.7 18.8 8.8 114%
C a na da 0.2 0.3 -17% 2.4 2.9 8.0 -64%
B ra zil - 0.1 -100% 0.3 0.4 0.1 372%
C hina - - NA 0.7 0.8 1.6 -50%
India - 0.1 -100% 0.7 0.8 0.2 323%
Ja pa n 0.2 0.1 68% 0.7 0.8 0.2 276%
K ore a 0.5 0.3 65% 5.0 6.0 2.8 114%
O the rs 0.5 0.6 -27% 6.1 7.3 4.1 77%
T o tal Ste am C o al E x po rts 3.2 3.1 3% 31.5 37.8 25.8 47%
T o tal C o al E x po rts
Europe 5.0 5.0 -2% 44.8 53.7 38.4 40%
C a na da 0.7 0.6 16% 5.3 6.4 11.5 -44%
B ra zil 0.3 0.6 -49% 7.2 8.7 8.0 9%
C hina 0.5 0.5 -6% 4.5 5.4 5.8 -6%
India 0.3 0.1 376% 3.8 4.5 2.8 64%
Ja pa n 0.7 0.5 41% 6.2 7.5 3.2 134%
K ore a 0.9 0.5 72% 8.9 10.7 5.8 84%
O the rs 0.7 0.8 -12% 8.7 10.4 7.0 49%
T o tal C o al E x po rts 9.2 8.8 5% 89.4 107.3 82.4 30%
# D IV /0!
Source: USITC, Sterne Agee
Hampton Roads shows no sign of export slowdown. 2011 U.S. East Coast exports through
Hampton Roads reached 42.3 million tons, exceeding 2010 exports of 32.8 million tons by 10
million tons.
Figure 5: Hampton Roads Coal Exports (Million tons)
y/y Real 2011Capacity
Port Dec-11 2011 2010 increase Capacity Utilization
Lamberts Point, VA 1.4 19.7 15.7 25.4% 24.5 80.6%
Dominion Terminals (DTA), VA 1.2 11.0 10.9 0.4% 14.3 76.9%
Kinder Morgan-Pier IX 1.0 11.6 6.3 85.0% 15.0 77.2%
Total 3.6 42.3 32.9 28.4% 53.8 78.6%
Source: Coal & Energy Price Report, Port Loadings Data, Sterne Agee
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M ATERIALS (COAL) January 10, 2012
Even if exports through the Gulf ports slow down toward the end of the year, we expect 2011 total
U.S. coal exports to comfortably beat 100 million tons mark and meet/exceed our 105 million tons
estimate.
U.S. Thermal Coal Exports to Europe
API2 coal prices have trended down lately, partly a function of stronger U.S. dollar and weaker
Euro currency.
Figure 6: API2 Coal Price Vs US Dollar Index Figure 7: API2 Coal Price Vs Euro
$140 90 $140 $1.50
88
$130 $130 $1.45
86
84 $1.40
US Dollar Index
API2 Coal Price
API2 Coal Price
$120 $120
82
EUR/USD
$1.35
$110 80 $110
78 $1.30
$100 76 $100
$1.25
$90 74 $90 $1.20
72
$80 70 $80 $1.15
API2 Coal Prices US Dollar Index API2 Coal Prices EUR/USD
Source: Bloomberg, Traditional Financial Services, Sterne Agee Source: Bloomberg, Traditional Financial Services, Sterne Agee
At current API2 prices, US CAPP/NAPP coals are out of the money for exports to Europe.
Although thermal coal export activity to Europe has not slowed down yet (Oct. ’11 exports of 1.8
million tons vs. Sept. exports of 1.6 million tons), as utilities continue to honor previously
contracted coals, our industry sources indicate there has been a slowdown lately in new
contracting of coals between U.S. East Coast producers and European utilities. At current API2
coal prices ($110/ton), CAPP coals are out of money by nearly $10/ton, when adjusted for quality
differentials, ocean and rail freights. A resolution, if any, to European debt crisis remains the
biggest catalyst for higher API2 prices and increased thermal coal exports to Europe. Also, in
order to sustain export volumes, the railroads may decide to cut rail rates so as to make U.S. coals
competitive in global markets.
In Exhibit 8, we depict the difference between API2 coal prices and net back to CAPP producers
after adjusting for quality differentials, ocean and rail freights and terminal charges. At $110/ton
API2 prices, the current CAPP coals are nearly $10/ton out of the money in international markets
compared with the $70/ton prices CAPP producers are reporting for domestic deals. CAPP coals,
at current domestic price of $70/ton, would break-even in global steam coal markets at an API2
price of $125/ton. However, if rail companies decide to cut their charges by $10/ton, CAPP coals
would be competitive with API2 coals at near current prices. The dotted line in the exhibit depicts
CAPP-API2 coal parity assuming rail companies reduce their charges by $10/ton.
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M ATERIALS (COAL) January 10, 2012
Figure 8: CAPP Coal Parity with API2 Coal Prices (CAPP coal at $70/ton price)
$40
CAPP Coal In-the-Money/Out-of-Money
$30
$20
$10
($/ton)
$0
$100
$105
$110
$115
$120
$125
$130
$135
140
145
-$10
-$20
-$30 API2 Coal Price ($/ton)
API2-CAPP Coal Parity at Current Rail Rates
API2-CAPP Coal parity at Discounted Rail rates
Source: Bloomberg, BB OTC Composite, Coal & Energy Price Report, Sterne Agee
We have reduced our 2012 U.S. coal export expectations by five million tons, but have maintained
our 2013 expectations. Risks to the upside to our coal export estimates include – Resolution of
European debt crisis, stronger than expected global growth, weaker dollar, stronger than expected
La-Nina, reduced transportation charges by U.S. rails.
Figure 9: U.S. Metallurgical and Steam Coal Exports 1990-2013E
120
100
80
Million Tons
60
40
20
0
2011E
2012E
2013E
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
US Steam Coal Exports US Met Coal Exports
Source: EIA, National Mining Association, Sterne Agee estimates
Page 6
M ATERIALS (COAL) January 10, 2012
Coal Stockpiles
At the end of Oct. 2011, coal stockpiles at utilities stood at 157 million tons, 20 million tons below
Oct. 2010 stockpiles of 176 million tons, and nine million tons below 5-year October average
stockpiles of 167 million tons. Flooding of the Missouri river in mid-2011 caused PRB coal
transportation problems, leaving power plants with considerably lower stockpiles. Utilities have
been studying the impact of Cross-State Air Pollution Rule, and have therefore been conservative
in their coal burn forecast assumptions. We have adjusted our supply demand model. We now
expect 2011 year-end utility stockpiles at 150 million tons (vs. earlier expectation of 148 million
tons), but continue to expect 2012 year-end stockpiles at 145 million tons and 2013 year-end
stockpiles at 135 million tons.
Figure 10: U.S. Coal Inventories 1990-2013E (Year-end December)
250
245
230 232
210
202 201 205
202
198
192 193 194
190 190
186 187 185
182
s 169 169 175
n170
o
T 165 165
n 158 154 162
o
i 152
l
l
i 150 146 154
151 150
M 156
144 145
140 142 141
139 138
136 135
130 127 126
121 122
115
110
111 107
101
99 98
90
70
Coal Stocks, Electric Power Sector Total Coal Stocks
Source: EIA, Sterne Agee estimates
Metallurgical Coal Prices
Anglo American settled Jan-Mar 2012 quarter contracts with South Koran steelmaker POSCO at
$235/t for its premium quality hard-coking coals and at $171/t for its low-volatile PCI coals.
We believe a recovery in global industrial growth from 2H12 onwards and increased Chinese re-
stocking at these attractive coking coal prices should aid coking coal prices in second half of 2012.
While near term head-wings remain for global GDP growth, we expect stronger industrial growth
in the second half of 2012. As the fears of worst-case outcomes dissipate, OECD expects global
confidence to recover gradually beginning second half of 2012. Stronger industrial growth in
second half of 2012 should lead to increased steel production and prices, and increased appetite for
higher priced met coal products.
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M ATERIALS (COAL) January 10, 2012
Figure 11: OECD Economic Outlook
3.0%
2.5%
2.0%
Real GDP Growth
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
US Euro Area Total OECD
Source: OECD, Sterne Agee
Based on the latest manufacturing surveys, momentum heading into 2012 seems to be positive in
most world economies. We expect both developed and developing economies to grow at a faster
rate in the second half of the year. We expect more accommodative monetary and fiscal measures
to help revive growth in the second half of 2012.
Page 8
M ATERIALS (COAL) January 10, 2012
Figure 12: US ISM Manufacturing Index Figure 13: China PMI
50
50
30
Feb-08
Feb-09
Feb-10
Feb-11
May-07
Aug-07
Nov-07
May-08
Aug-08
Nov-08
May-09
Aug-09
Nov-09
May-10
Aug-10
Nov-10
May-11
Aug-11
Nov-11
30
Feb-08
Feb-09
Feb-10
Feb-11
May-07
Aug-07
Nov-07
May-08
Aug-08
Nov-08
May-09
Aug-09
Nov-09
May-10
Aug-10
Nov-10
May-11
Aug-11
Nov-11
US Manufacturing Index
2 per. Mov. Avg. (US Manufacturing Index) China Manufacturing 2 per. Mov. Avg. (China Manufacturing)
Source: ISM, Bloomberg, Sterne Agee Source: China Federation of Logistics & Purchasing, Bloomberg, Sterne Agee
Figure 14: Brazil Manufacturing Index Figure 15: Japan Manufacturing Index
50 50
30 30
Feb-08
Feb-09
Feb-10
Feb-11
Feb-08
Feb-09
Feb-10
Feb-11
May-07
Aug-07
Nov-07
May-08
Aug-08
Nov-08
May-09
Aug-09
Nov-09
May-10
Aug-10
Nov-10
May-11
Aug-11
Nov-11
May-07
Aug-07
Nov-07
May-08
Aug-08
Nov-08
May-09
Aug-09
Nov-09
May-10
Aug-10
Nov-10
May-11
Aug-11
Nov-11
Japan manufacturing 2 per. Mov. Avg. (Japan manufacturing) Brazil Manufacturing 2 per. Mov. Avg. (Brazil Manufacturing)
Source: NTC Economics, Bloomberg, Sterne Agee Source: Markit/Nomura Securities, Bloomberg, Sterne Agee
Figure 16: Mexico Manufacturing Index Figure 17: Europe Manufacturing Index
50
50
30
Nov-07
Feb-08
Nov-08
Feb-09
Nov-09
Feb-10
Nov-10
Feb-11
Nov-11
May-07
Aug-07
May-08
Aug-08
May-09
Aug-09
May-10
Aug-10
May-11
Aug-11
30
Nov-07
Feb-08
Nov-08
Feb-09
Nov-09
Feb-10
Nov-10
Feb-11
Nov-11
May-07
Aug-07
May-08
Aug-08
May-09
Aug-09
May-10
Aug-10
May-11
Aug-11
Europe Manufacturing
Mexico Manufacturing 2 per. Mov. Avg. (Mexico Manufacturing) 2 per. Mov. Avg. (Europe Manufacturing)
Source: IMEF, Bloomberg, Sterne Agee Source: Markit, Bloomberg, Sterne Agee
Page 9
M ATERIALS (COAL) January 10, 2012
Steel, scrap and iron-ore prices recovered in December. A sustained increase in steel prices in
2012 should help met coal price recover from the recent lows.
Figure 18: Steel, Scrap and Iron Ore Prices
$1,200
$1,000
$800
$600
$400
$200
$0
Feb-05
Jun-05
Feb-06
Jun-06
Feb-07
Jun-07
Feb-08
Jun-08
Feb-09
Jun-09
Feb-10
Jun-10
Feb-11
Jun-11
Oct-05
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
U.S. HRC Price ($/Short Ton)
East Asia Heavy Melt Scap Prices (USD/metric tonne)
China Import Indian Iron Ore Fines 63% Fe ($/metric tonne)
Source: Steel Business Briefing, Bloomberg, Sterne Agee
The wildcard remains resolution of European debt crisis. We note that fears of European debt
crisis have made steelmakers wary of building their inventories in the near future. Resolution, if
any, of European debt crisis remains the biggest catalyst for higher European steel demand and
higher met coal prices.
Australian coal production and shipments are increasing, but are still 15-20% shy of the records
achieved in mid 2010. Even if 2012 Australian shipments recover to 2010 highs, we note that
world crude steel production would have likely increased 10% since mid-2010, keeping met coal
markets tight and pricing elevated.
We have adjusted our 2012 average met coal benchmark realizations to reflect first half headwinds
leading to a recovery in second half negotiated pricing.
Figure 19: Benchmark Metallurgical Coal Prices (US Dollar/Metric Tonnes)
1Q 2Q 3Q 4Q Average
2010 $129 $200 $225 $209 $192
2011 $225 $330 $315 $285 $290
2012 $235 $240 $260 $285 $255
2013 $275 $300 $290 $295 $290
Source: EIA, Bloomberg, ABARE, Sterne Agee estimates
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M ATERIALS (COAL) January 10, 2012
Note: Benchmark prices for met coals are listed on a Calendar year basis in Exhibit 10. 1Q represents Jan 1st-Mar 31st quarter
Figure 20: Benchmark Met Coal Price ($/T)
$350
$300
$300 $290 $290
$250
$255
$200
$192
$150
$125
$115
$129
$100
$59 $98
$48
$50
$46
$0
Source: Sterne Agee estimates
Note: Note: Benchmark Met Coal prices from 2002 to 2009 are depicted on a Fiscal year (Apr 1st -Mar 31st) basis. From
2010 onwards, Benchmark met coal prices are depicted on a calendar year basis (Jan 1st - Dec 31st).
Figure 21: U.S. and International Coal Prices
Average Coal Prices Actuals Estimate
2005 2006 2007 2008 2009 2010 2011 2012E 2013E
US Steam Coal ($/Short Ton)
Central Applachian Steam (12,000 btu / 1% SO2) $58.00 $50.00 $45.00 $89.00 $49.00 $62.00 $75.00 $80.00 $90.00
Northern Appalachian Steam (13,000 btu / 3-4% SO2) $49.00 $41.00 $45.00 $105.00 $52.00 $65.00 $75.00 $75.00 $85.00
Illinois Basin $36.00 $36.00 $32.00 $60.00 $43.00 $45.00 $50.00 $50.00 $55.00
8,800 btu Powder River Basin $10.50 $12.00 $10.00 $13.00 $9.00 $13.00 $14.00 $16.50 $18.00
8,400 btu Powder River Basin $8.30 $10.00 $8.20 $10.00 $7.20 $10.00 $11.50 $13.50 $15.50
International Steam Coal ($/Metric Tonne)
API 2 (Rotterdam) $61.00 $65.00 $87.00 $155.00 $70.00 $92.00 $121.00 $130.00 $135.00
API 4 (Richards Bay) N/A N/A $80.00 $121.00 $65.00 $92.00 $117.00 $125.00 $130.00
Newcastle Export Thermal $48.00 $49.00 $67.00 $130.00 $72.00 $100.00 $122.00 $130.00 $135.00
Queensland Met Coal ($/Metric Tonne) $125.00 $110.00 $98.00 $300.00 $129.00 $192.00 $290.00 $255.00 $290.00
Source: EIA, Bloomberg, ABARE, Sterne Agee estimates
Note:
1.Queensland Met Coal prices from 2005 to 2009 are listed on a Fiscal year (Apr 1st -Mar 31st) basis. From 2010 onwards, Queensland
met coal prices are listed on a calendar year basis (Jan 1st- Dec 31st).
2.Our 2012 and 2013 price estimates for US and International Steam Coals represent our target price estimates where as our
Queensland met coal price estimates for 2012-13 are our average price estimates for those years
Page 11
M ATERIALS (COAL) January 10, 2012
China
Chinese coal imports declined in the first half of 2011 as the country worked down its coal
inventories. Coal imports of 6.76 million tonnes in February 2011 were the lowest since March
2009 imports of 5.72 million tonnes. However, since then, China started replenishing stockpiles,
leading to a sharp increase in total coal imports. China has imported more than 15 million tones of
coals for each of the past five months (July-Nov. 2011) now. 2011 coal imports should
comfortably exceed 2010 coal imports of 166 million tonnes. Chinese government cap on coal
prices have been ineffective because they are difficult to enforce. Based on past experiences, we
believe the government would find it difficult to implement the price caps in a fragmented Chinese
coal market.
Figure 22: Chinese Coal Imports
25
Millions
20
Metic Tonnes
15
10
5
0
Source: Customs General Administration, Bloomberg, Sterne Agee
Coal stockpiles at Qinhuangdao port in China have trended down lately, on increased
consumption. A colder than normal winter could lead to rapid drawdown of inventories, and
increased need for imports.
Figure 23: Qinhuangdao Port Thermal Coal Inventory
Page 12
M ATERIALS (COAL) January 10, 2012
950
850
750
650
550
450
350
Qinhuangdao Port Thermal Coal Inventory
Source: Shanghai Steelhome Information, Bloomberg, Sterne Agee
Steel production in China is down more than 17 percent since its peak in May 2011 as tight credit
policies and cooling property markets have led to a reduction in demand for steel and forced down trader
inventories. However, we note that Chinese iron ore imports surged in Nov. 2011 to 64.2 Mt, an increase
of nearly 30% over Oct. 2011. The recent surge in iron ore imports signals possible re-stocking by
Chinese authorities to take advantage of the sharp drop in international iron ore prices.
Figure 24: China Crude Steel Production Figure 25: China Iron Ore Imports
65 70
60 60
Million Metic Tonnes
55 50
Million Tonnes
50 40
45 30
20
40
10
35
0
30
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Jan-07
Apr-07
Jul-07
Jan-08
Apr-08
Jul-08
Jan-09
Apr-09
Jul-09
Jan-10
Apr-10
Jul-10
Jan-11
Apr-11
Jul-11
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Jan-07
Apr-07
Jul-07
Jan-08
Apr-08
Jul-08
Jan-09
Apr-09
Jul-09
Jan-10
Apr-10
Jul-10
Jan-11
Apr-11
Jul-11
China Crude Steel Production China Iron Ore Imports
Source: Bloomberg, Sterne Agee
Source: World Steel Association, Bloomberg, Sterne Agee
Prices at Richards Bay dropped to $105 a ton at the end of December 2011 compared with
$151.00 a ton at Qinhuangdao in China for 6000 kilocalories per kilogram coal grade. Chinese
Page 13
M ATERIALS (COAL) January 10, 2012
utilities and steel mills’ reliance on imports increases when imports become price and quality
competitive relative to domestic Chinese delivered coal prices. Exhibit 26 depicts the relationship
between Chinese coal imports (thermal and met) and difference between domestic Chinese
delivered prices and international prices.
Figure 26: Chinese Net Coal Imports and Difference Between Domestic and International Coal Prices
$60 24
$50
19
$40
$30 14
Million Tonnes
$20 9
$10
$0 4
-$10 -1
-$20
-6
-$30
-$40 -11
Chinese Coal Imports Qinhuangdao-Richards Bay Price Difference
Qinhuangdao-Newcastle Price Difference
Source: China General Administration, McCloskey, Bloomberg, Sterne Agee estimates
India
In India, coal-fired generation during April-November ’11 achieved y/y growth rate of 8.78%. As
per latest Central Electricity Authority report, 46 thermal power stations in India had coal stocks
for less than a week’s consumption, while some had coal stocks for less than a day. We expect
Indian thermal coal imports to increase 20% in 2012, driven by continued expansion of coal-fired
electricity generation capacity and production growth not keeping up with demand growth.
IEA 2011 Medium Term Coal Market Report
IEA recently released its 2011 Medium Term Coal Market Report. Despite all the environmental
concerns and regulations surrounding emissions, IEA projects average coal demand to grow by
600,000 tonnes every day over the next five years.
Page 14
M ATERIALS (COAL) January 10, 2012
Figure 27: IEA’s Projection of Total Global Coal Demand Until 2016
7000
6000
5000
4000
Mtce
3000
2000
1000
0
2009 2010 2012 2014 2016
Other Former USSR OECD America s
OECD Europe OECD Asia Pacific Africa
Asia excluding China China
Source: IEA, Sterne Agee
U.S. Coal Equities Performance
U.S. coal equities have delivered annual returns of more than 30% in seven of the last eleven years
this decade. 2011 went down as one of the worst performing years in recent history, even below
2008. We note that historically, negative equity returns in a given year have been followed by a
sharp rebound in returns the next year.
Figure 28: U.S. Coal Sector Stock Performance since 2001
Source: Factset, Sterne Agee
Note: US Coal Sector for this Chart includes Alpha Natural Resources, Arch Coal, Consol Energy, James River Coal,
Patriot Coal, Peabody Energy and Walter Energy
Page 15
M ATERIALS (COAL) January 10, 2012
U.S. Coal Equity Share Recommendations
Among large cap names, we suggest Consol Energy – strong coal and improving gas asset and
Peabody Energy – leading U.S. market share and attractive international growth prospects. In the
midcap space, we believe Alpha Natural Resources appears underpriced as the market
underestimates its metallurgical, export and base-load thermal profile. James River, a very high-
beta small-cap stock provides option value for a thermal recovery while its newly assimilated
metallurgical and trading businesses support growth potential. Upside for Arch Coal, Patriot
Coal and Walter Energy may lag given each company’s recent exposure to production challenges
and recent earnings estimate and outlook revisions.
Consol Energy – While the market has reset valuations among energy, mining and commodity-
oriented equities, Consol’s asset value has aided performance, in our view. We note the solid
potential of upside to Northern Appalachian margins as scrubbed utilities and international power
companies seek out high heat coals, enhanced met coal margins and volume and added shale
exploitation success. We support our $60 per share price target using asset valuations for its coal
and gas businesses; which reflects a 7.5x multiple to our 2013 EBITDA forecast of $2.2 billion,
which is in line with its historical mid-cycle valuation of 4x-10x. Risks to our thesis include a
larger decline or wider discount applied to its metallurgical coal pricing, continued depressed
natural gas prices and delays in meeting gas asset targets.
Alpha Natural Resources has historically traded at a discount to its coal comparative group on an
EV/EBITDA basis. Relative valuations for coal producers with Powder River Basin exposure have
been high, while metallurgical coal producer valuations have improved over the past few months.
We note the solid potential of upside to Northern Appalachian margins as scrubbed utilities and
international power companies seek out high heat coals, as well as recapitalization and share
repurchase dynamics. We support our $35 per share price target by applying a 5.0x multiple to our
2013 EBITDA forecast of $2.2 billion, which is an 18% discount to its historical mid-cycle
valuation and at the low end of its 4x-10x range, reflecting the integration activity regarding
Massey’s assets.
Arch Coal – In our view, the market tends to assign a premium to coal companies that have assets
in the Powder River Basin versus other eastern coal companies that have no exposure to the west.
The market has reset valuation for Arch Coal while it digests potential met coal pricing and
volume volatility (50% of 2011 estimated profits), timing of ICO purchase and recent operating
difficulties at its highly profitable underground metallurgical coal mine. We note the potential of
upside to PRB margins as emission regulations move forward and expected positive free cash
flow. Also, management’s ability to translate its expected value regarding ICO’s metallurgical
coal assets into more tangible results can provide upside to valuation multiples. We support our
$25 per share price target by applying a 5.0x multiple to our 2013 EBITDA forecast of $1.85
billion, which is a 15% discount to its historical valuation and is near the low end of 4x-10x,
reflecting these uncertainties. We believe in a more risk-tolerant market environment, Arch's
shares should outperform the market. Risk to our target and thesis include a decline in energy
prices, stronger dollar, lower than anticipated global met coal prices and demand, and progress at
integrating recently acquired assets.
James River Coal has historically traded at a deep discount on an EV/EBITDA basis with its coal
comparative group. We believe a discounted valuation for James River was warranted based on its
difficult operational history, negative historic free cash flow generation and relatively small scale
operations. However, we do believe the company has turned things around, generated significant
free cash flows and improved operations. Also, the acquisition of IRP has added metallurgical coal
to JRCC’s product mix and has helped increase scale/diversity of its operations (reducing
variability in earnings due to operational/geology issues). We support our $15 per share price
target by applying a 4.5x multiple to our 2013 EBITDA forecast of $200 million, which is a 30%
discount to its peers and at the low end of its historical valuation of 3x-7x, reflecting size, cost
structure and thermal mix.
Page 16
M ATERIALS (COAL) January 10, 2012
Patriot Coal has historically traded at a discount to its coal comparative group on an EV/EBITDA
basis. We believe a discounted valuation for Patriot Coal was warranted based on its difficult
operational history, negative historical free cash flow generation, relatively small scale operations,
and significant legacy liabilities vis-a-vis its capital base. At current valuation, Patriot Coal
reflects a much lower coal pricing deck than we expect. However, its higher-cost operating profile
and path of current mine operational and met mine expansion execution should keep the shares
near its current levels. We support our $12.50 per share price target by applying a 3.0x multiple to
our 2013 EBITDA forecast of $475 million, which is a 20% discount to its peers and nearer to the
historical valuation of 4x-15x, reflecting size, cost structure and thermal mix.
Peabody Energy has traded at a premium to its competitors over the years. We believe the
company’s scale, global operations, management strength and operational execution drive this
premium valuation. The market tends to give coal companies with assets in the Powder River
Basin a premium versus other eastern coal companies with no exposure to the west. Also,
Australian coal producers generally trade at a significant premium to rest of the global coal
producers. We believe Peabody deserves a premium multiple based on its high-quality assets
(especially Australian seaborne thermal and metallurgical coal), disciplined coal contracting
strategy, and growth initiatives. Peabody’s operations are set to benefit from enhanced PRB, IB
and Global Thermal seaborne pricing and organic coking coal growth out of Australia. We note
the potential of upside to PRB margins as emission regulations move forward, expected strong
positive free cash flow and many moving parts during the next few years. Our $60 price target is
based on an EV/EBITDA multiple of 6.0x our 2013 EBITDA estimate of $3.0 billion.
Walter Energy – Walter’s pure met coal profile and intermittent merger talk will drive beta, but
strategic and asset values support valuation near current levels. We note upside potential to
volumes. We support our $90 per share price target by applying a 5.5x multiple to our 2013
EBITDA forecast of $1.45 million, which is a 15% discount to its historical valuation.
Page 17
M ATERIALS (COAL) January 10, 2012
Global Coal Comps Table
GLOBAL COAL UNIVERSE
Stock Performance Mkt Fwd Price/Earnings Fwd EV/EBITDA
Company Ticker Rating MTD 2011 2010 Cap 2007 2008 2009 2010 2011E 2012E 2013E 2007 2008 2009 2010 2011E 2012E 2013E
Sterne Agee Coal Universe
Alpha Natural Resources ANR BUY 1.6% -66.0% 38.4% $4,563 24.1x 2.0x 14.1x 13.8x 9.4x 13.9x 6.9x 7.9x 0.9x 4.6x 6.6x 5.4x 4.2x 3.2x
Arch Coal ACI NEUTRAL 5.2% -58.6% 57.6% $3,229 18.7x 3.7x 18.0x 13.0x 12.2x 6.5x 4.4x 10.6x 3.1x 7.0x 6.8x 7.3x 4.8x 3.8x
Consol Energy CNX BUY 2.7% -24.7% -2.1% $8,549 23.8x 5.2x 15.8x 16.2x 13.1x 10.8x 8.4x 11.4x 3.3x 7.4x 7.9x 6.6x 6.0x 5.1x
James River Coal JRCC BUY 7.8% -72.7% 37.0% $266 NM 3.4x 6.4x 12.4x 29.5x NM NM 8.0x 2.1x 3.9x 4.8x 4.2x 4.3x 3.2x
Patriot Coal PCX NEUTRAL 0.8% -56.3% 25.3% $780 20.0x 2.2x NM NM NM 34.5x 4.9x 5.6x 1.6x 9.3x 7.0x 6.1x 3.6x 2.1x
Peabody Energy BTU BUY 7.6% -48.2% 41.5% $9,649 22.5x 4.8x 17.5x 13.6x 8.9x 7.1x 5.9x 13.0x 3.7x 9.1x 7.6x 4.9x 4.1x 3.6x
Walter Energy WLT UNDERPERFORM -6.1% -52.6% 69.8% $3,551 12.2x 2.6x 11.4x 11.5x 7.7x 7.6x 4.9x 12.2x 3.4x 6.6x 6.9x 6.1x 5.4x 4.0x
Other Major US Producers
Alliance Resource Partners ARLP NC 6.9% 14.9% 51.6% $2,971 14.2x 4.9x 11.0x 9.2x 10.1x 9.7x 10.0x 4.7x 2.2x 4.9x 4.7x 5.3x 4.9x 4.8x
Cliffs Natural Resources CLF NC 6.1% -20.1% 69.3% $9,463 10.2x 5.6x 16.8x 8.2x 5.2x 5.3x 5.3x 6.7x 3.5x 7.2x 4.8x 4.8x 4.3x 4.2x
Cloud Peak Energy CLD NC 0.1% -16.8% 59.5% $1,178 NM NM 12.4x 10.8x 8.9x 8.8x 7.3x NM NM 5.5x 2.7x 4.4x 4.2x 3.8x
0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x
Canada 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x
Grand Cache GCE-CA NC -0.6% -7.6% 106.1% $951 10.0x 0.8x 10.1x 8.2x 11.7x 6.8x 6.8x 4.3x NM 5.2x 5.4x 6.1x 4.0x 3.9x
Teck Resources TCK NC 4.6% -43.1% 76.8% $21,749 7.8x 2.1x 13.5x 12.0x 8.6x 8.1x 8.1x 4.6x 4.2x 7.2x 6.6x 4.5x 4.3x 4.3x
0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x
Australia 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x
Gloucester Coal GCL-AU NC -2.0% -29.4% 71.3% $1,753 15.4x 3.3x 14.8x 19.7x 22.1x 25.8x 17.2x 9.2x 2.1x 9.5x 10.2x 12.9x 6.9x 5.0x
Macarthur Coal MCC-AU NC -0.3% 25.1% 29.7% $4,946 21.5x 3.7x 21.8x 14.3x 19.2x 17.4x 14.6x 11.5x 2.3x 12.2x 7.9x 14.3x 10.8x 9.2x
New Hope Corporation NHC-AU NC 1.2% 14.0% 17.6% $4,763 23.6x 11.3x 25.2x 20.1x 9.2x 19.3x 18.5x 14.4x 10.1x 7.1x 9.4x 17.6x 9.8x 8.8x
Whitehaven Coal WHC-AU NC 2.0% -21.3% 46.4% $2,732 21.7x 6.7x 35.0x 23.6x 36.7x 18.4x 11.7x 13.1x 3.7x 15.6x 13.6x 19.5x 9.4x 6.3x
0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x
Asia 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x
Banpu Public Co BANPU-TH NC 1.5% -34.1% 52.1% $4,774 14.6x 5.4x 11.9x 11.2x 8.4x 9.2x 8.4x 10.4x 4.3x 9.9x 9.3x 7.2x 6.3x 6.3x
Bumi Resources BUMI-ID NC 8.2% -28.6% 30.1% $5,269 21.8x 2.4x 11.4x 13.3x 12.3x 8.2x 7.1x 9.6x 1.6x 7.0x 6.1x 6.2x 4.9x 4.9x
China Shenhua Energy 1088-HK NC 3.3% 3.5% -14.4% $89,137 29.6x 9.1x 17.7x 12.9x 12.4x 10.9x 9.8x 15.8x 5.5x 10.3x 7.2x 6.7x 6.0x 5.5x
Coal India 533278-IN NC 5.8% -19.5% NM $37,858 NM NM NM 16.3x 13.5x 12.0x 10.8x NM NM NM 10.3x 8.0x 7.0x 5.9x
Yanzhou Coal 1171-HK NC 2.7% -30.1% 38.1% $10,780 16.8x 4.2x 14.3x 11.0x 7.6x 7.1x 6.6x 9.1x 1.5x 10.0x 7.5x 4.7x 4.3x 4.1x
0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x
Global Diversified 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x
Anglo American AAL-GB NC 1.9% -29.2% 19.3% $50,581 12.2x 5.6x 13.7x 9.5x 7.4x 6.8x 6.0x 7.2x 4.2x 7.6x 5.3x 4.3x 4.0x 3.5x
BHP Billiton BHP-AU NC 2.0% -23.9% 19.6% $191,579 11.9x 8.7x 17.6x 11.5x 8.4x 8.9x 8.2x 7.9x 5.0x 9.5x 6.7x 5.6x 5.1x 4.8x
Rio Tinto RIO-AU NC 2.8% -29.4% 30.1% $122,483 15.7x 4.7x 16.9x 9.9x 7.8x 7.6x 7.0x 10.9x 4.7x 9.6x 6.3x 5.1x 4.9x 4.6x
Xstrata XTA-GB NC 2.8% -35.5% 30.2% $46,318 11.0x 2.7x 11.4x 9.6x 8.0x 7.3x 6.2x 6.8x 3.5x 6.3x 5.9x 4.8x 4.4x 3.9x
Average Global Coal Universe 14.6x 4.4x 14.5x 11.6x 10.6x 9.6x 8.2x 8.2x 3.3x 7.3x 6.3x 6.7x 5.0x 4.4x
Source: Factset, Sterne Agee estimates
Page 18
METALS AND MINING (COAL) January 10, 2012
APPENDIX SECTION
IMPORTANT DISCLOSURES:
Price Target Risks & Related Risk Factors:
We arrive at our price targets using historical and projected valuations based on EBITDA and EPS. We highlight
economic, energy pricing, production forecasts, regulatory and overall financial market variability as items that could
drive share prices away from our targets.
Valuation Methodology:
We arrive at our price targets using historical and projected valuations based on EBITDA and EPS.
Regulation Analyst Certification:
I, Michael S. Dudas, CFA, Satyadeep Jain, hereby certify the views expressed in this research report accurately reflect
my personal views about the subject security(ies) or issuer(s). I further certify that no part of my compensation was, is, or
will be, directly or indirectly, related to the specific recommendations or views expressed by me in this report.
Sterne, Agee & Leach, Inc. Disclosure Legend as of January 10, 2012:
Company Applicable Disclosure
Alpha Natural Resources (ANR - NYSE): 1
Arch Coal (ACI - NYSE): 1
Consol Energy (CNX - NYSE): 1
James River Coal Company (JRCC - NYSE): 1
Patriot Coal (PCX - NYSE): 1
Peabody Energy (BTU - NYSE): 1
Walter Energy (WLT - NYSE): 1
Disclosure Legend
1. Sterne, Agee & Leach, Inc. makes a market in the shares of the subject company.
2. Sterne, Agee & Leach, Inc. has, over the past 12 months, managed or co-managed a public securities
offering or provided other investment banking services for the subject company.
3. Sterne, Agee & Leach, Inc. received compensation for products or services other than investment banking
services from the subject company in the past 12 months.
4. The Sterne Agee analyst who has active coverage on this company owns a position in the subject company.
5. Sterne, Agee & Leach, Inc. or its affiliates beneficially own 1% or more of any class of common equity
securities of the subject company.
Sterne Agee & Leach, Inc. expects to receive or intends to seek compensation for investment banking services from the
subject company in the next three months. Sterne, Agee & Leach, Inc.’s research analysts receive compensation that is
based upon various factors, including Sterne, Agee & Leach, Inc.’s total revenues, a portion of which is generated by
investment banking activities.
Definition of Investment Ratings:
BUY: We expect this stock to outperform the industry over the next 12 months.
NEUTRAL: We expect this stock to perform in line with the industry over the next 12 months.
UNDERPERFORM: We expect this stock to underperform the industry over the next 12 months.
RESTRICTED: Restricted list requirements preclude comment.
Ratings Distribution:
Of the securities rated by Sterne, Agee & Leach, Inc., as of September 30, 2011, 51.4% had a BUY rating, 44.4% had a NEUTRAL
rating, 3.2% had a UNDERPERFORM rating, and 0% was RESTRICTED. Within those ratings categories, 3.8% of the securities
rated BUY, 1.1% rated NEUTRAL, 0% rated UNDERPERFORM, and 0% rated RESTRICTED received investment banking services
from Sterne, Agee & Leach, Inc., within the 12 months preceding September 30, 2011.
ADDITIONAL INFORMATION AVAILABLE UPON REQUEST: Contact Robert Hoehn at 1-212-338-4731.
Appendix Section, Page I
METALS AND MINING (COAL) January 10, 2012
Other Disclosures:
Opinions expressed are our present opinions only. This material is based upon information that we consider reliable, but
we do not represent that it is accurate or complete, and it should not be relied upon as such. Sterne, Agee & Leach, Inc.,
its affiliates, or one or more of its officers, employees, or consultants may, at times, have long or short or options
positions in the securities mentioned herein and may act as principal or agent to buy or sell such securities.
Copyright © 2011 Sterne, Agee & Leach, Inc. All Rights Reserved.
Sterne, Agee & Leach, Inc. disclosure price charts are updated within the first fifteen days of each new calendar quarter
per FINRA regulations. Price charts for companies initiated upon in the current quarter, and rating and target price
changes occurring in the current quarter, will not be displayed until the following quarter.
Price Chart(s):
To receive price charts or other disclosures on the companies mentioned in this report, please contact
Sterne, Agee & Leach, Inc. toll-free at (800) 240-1438 or (205) 949-3689.
Appendix Section, Page II
STERNE, AGEE & LEACH, INC.
Founded in 1901, Sterne Agee has been providing investors like you with high-quality investment opportunities for
over a century. During the early years, our founders prominently established themselves in the financial securities
industry in the southeastern United States. Today, we have expanded to serve all regions of the country. Sterne,
Agee is headquartered in Birmingham, Alabama with offices in 22 states. Sterne Agee is one of the largest independent firms in the
country. Sterne, Agee & Leach, Inc. is a division of Sterne Agee Group, Inc., which also includes The Trust Company of Sterne, Agee
& Leach, Inc.; Sterne Agee Asset Management, Inc.; Sterne Agee Clearing, Inc.; and Sterne Agee Financial Services, Inc.—
www.sterneagee.com
EQUITY CAPITAL MARKETS
Ryan Medo Managing Dir., Eq. Cap. Mkts. (205) 949-3623 William McIlroy Director, Equity Products (212) 338-4781
Paul Garner Associate (212) 338-4799
INSTITUTIONAL SALES INSTITUTIONAL TRADING
Steve Pokorny Head of Institutional Sales (214) 702-4020 JT Cacciabaudo Head of Trading (212) 763-8288
EQUITY RESEARCH
Robert Hoehn Director of Research (212) 338-4731
CONSUMER FINANCIAL SERVICES (CONT.)
Apparel Retailing & Toys Mortgage Finance & Specialty Finance
Margaret Whitfield SVP, Sr. Analyst (973) 519-1019 Henry J. Coffey, Jr., CFA Mng. Dir. (615) 760-1472
Tom Nikic, CFA Analyst (212) 338-4784 Jason Weaver Analyst (615) 760-1475
Calvin Hotrum Associate (615) 760-1476
Educational Services / Interactive Entertainment
Arvind Bhatia, CFA Mng. Dir. (214) 702-4001 Property/Casualty Insurance
Brett Strauser Analyst (214) 702-4009 Dan Farrell Mng. Dir. (212) 338-4782
Nitin Chhabra, FCAS Analyst (212) 338-4779
Footwear & Apparel
Sam Poser Mng. Dir. (212) 763-8226 GLOBAL INDUSTRIAL INFRASTRUCTURE (GII)
Kenneth M. Stumphauzer, CFA Sr. Analyst (212) 763-8287 ACME &Latin America
Jessica Bornn Associate (212) 338-4721 Ben Elias, CFA SVP, Sr. Analyst (212) 338-4706
Leisure & Entertainment Ali-Ahmad Faghri Associate (646) 376-5304
David Bain Mng. Dir. (949) 721-6651 Aerospace
Sherry Yin Associate (949) 721-6651 Peter Arment Mng. Dir. (646) 376-5336
Josh W. Sullivan Analyst (646) 376-5337
Restaurants
Lynne Collier Mng. Dir. (214) 702-4045
Philip May Analyst (214) 702-4004 Coal, Metals & Mining, Engineering & Construction
Michael S. Dudas, CFA Mng. Dir. (646) 376-5329
ENERGY Satyadeep Jain Analyst (646) 376-5357
Patrick Uotila, CPA Analyst (646) 376-5358
Exploration & Production
Michael J. McAllister Mng. Dir. (212) 338-4783
HEALTHCARE
Tim Rezvan, CFA Analyst (212) 338-4736
Ryan Mueller Associate (212) 338-4732 PHARMACEUTICAL SERVICES
Greg T. Bolan Mng. Dir. (615) 760-1469
Oilfield Services & Equipment
Stephen D. Gengaro Mng. Dir. (646) 376-5331 TECHNOLOGY
Grant Fox Associate (212) 338-4723 Data Networking and Storage
Alex Kurtz Mng. Dir (415) 402-6015
FINANCIAL SERVICES Amelia Harris Analyst (415) 402-6018
Asset Management
Jason Weyeneth, CFA SVP, Sr. Analyst (212) 763-8293 Financial Technology
Charles Warren Analyst (646) 376-5309 Greg Smith Mng. Dir (818) 615-2029
Jennifer Dugan Analyst (415) 402-6051
Banks & Thrifts
Matthew Kelley Mng. Dir. (207) 699-5800 Hardware, Mobile Devices, IT Supply Chain
Mike I. Shafir SVP, Sr. Analyst (212) 763-8239 Shaw Wu SVP, Sr. Analyst (415) 362-7431
Matthew Breese Analyst (207) 699-5800
LED Supply Chain
Brett Rabatin, CFA SVP, Sr. Analyst (877) 457-8625
Andrew Huang Mng. Dir. (415) 362-6143
Kenneth James Analyst (615) 760-1474
John Shen Associate (415) 402-6052
Nathan Race Associate (615) 760-1477
Peyton Green Mng. Dir. (877) 492-2663 Semiconductors
Zachary Wollam Analyst (615) 760-1468 Vijay Rakesh Mng. Dir. (312) 525-8431
Todd L. Hagerman Mng. Dir. (212) 338-4744 Mark Kelley Analyst (312) 525-8430
Robert Greene Analyst (212) 763-8296
TRANSPORTATION, SERVICES & EQUIPMENT
Life Insurance Jeffrey A. Kauffman Mng. Dir. (212) 338-4765
John M. Nadel Mng. Dir. (212) 338-4717 Sal Vitale VP, Analyst (212) 338-4766
Kanchana Pinnapureddy Associate (212) 338-4767
Email Address for Sterne Agee Employees: first initial + last name@sterneagee.com (e.g., jsmith@sterneagee.com)