Investment Startup Contract by xvc17347

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									BTU Virtual Mine:
Global Trading &
Brokerage
2010 Analyst and
Investor Forum
June 17, 2010


Paul Demzik
President
Peabody COALTRADE

                    1
Realizing the Intangible…
Trading & Brokerage Benefits
Accelerating Decision-Making, Optimizing Sourcing to Drive Earnings

 ● Collecting and disseminating real-time,
   transactional market intelligence
     – Drives quality marketing and
       capital decisions
 ● Optimizing Peabody’s assets and supply
   agreements
     – Hedging asset tonnage
     – Blending third-party products with
       Peabody coals
     – Alternate sourcing of current
       agreements, “freeing-up”
       Peabody production for higher
       value opportunities
 ● Managing market risks through trade market sales
 ● Providing access to broader spectrum of products to meet customer needs
 ● Differentiating Peabody from U.S. and international competitors
                                                                             2
Volume Grows with Global Expansion

Trading Organization Volume

                              250
                                                              2006 – 2009
                                                              36% CAGR
Traded Volume (in Millions)




                              200


                              150


                              100


                              50


                               0
                                2001   2002   2003   2004   2005   2006   2007   2008   2009

                                                                                               3
Delivering Strong Trading/Brokerage
Results from “Virtual Coal Mine”
EBITDA $100 to $200 Million; 5% – 15% of EBITDA

                                  Trading & Brokerage                            Objectives
                     $250
                                        EBITDA
                                                                                 ● To be leading global trader of
                                                                     Singapore
                                                                     Jakarta       coal and related products and
                     $200                                                          services, optimizing Peabody’s
                                                                                   global production platform
EBITDA in Millions




                                                                                     ● Currently 15% – 20% of
                     $150                                    Non-                      U.S. market, 7% – 10%
                                               London
                                                             U.S.                      of world
                                               Beijing
                     $100
                                                                                 ● To create a sustainable
                                                                                   domestic and international
                                                                                   trading and brokerage
                            St. Louis
                            Newcastle                                              business representing 5% –
                      $50
                                                                                   15% of Peabody’s EBITDA
                                                             U.S.                ● To obtain real-time market
                       $0                                                          intelligence
                        2003    2004    2005   2006   2007    2008      2009

                                                                                                                    4
Trading Organization
Leverages Global Market Intelligence
60 Professionals on 5 Continents Trading 24/7
                                                 COALTRADE                            COALTRADE
                                                 International Ltd.:                  International Ltd.:

                                                 London       7                       Beijing     3




COALTRADE – U.S.:                                             Future Offices
St. Louis    18                                               India
Big Sandy     5
Charleston    2
   TOTAL     25                                                        COALTRADE
                           COALTRADE
                           International Ltd.:                         International Ltd.:

                           Caracas     1                               Singapore      3
                                                                       Jakarta        2


                                                                                    COALTRADE Australia:
                                                                                    Newcastle         11
 Operations                                                                         Brisbane           8
 Trading & Local Offices                                                              Sales/Mkt       19
 Countries Served
 Ports
 Coal Exports
 Domestic Sales                                                                                             5
Peabody’s Distinct Advantage…
Active in All Coal, Freight Markets


Physical and Financial Products:
● PRB and Eastern products
  (PRB 8800, NYMEX, CSX)
● Atlantic products (API#2, API#4,
  Baltic Cape Index Route 4,
  Time Charters)
● Pacific products (NEWC Index,
  Time Charters)
● Global physical coal (USA, Russia, Colombia, South
  Africa, Venezuela, Indonesia, Australia, China)

                                                       6
Peabody’s Distinct Advantage…
Active in All Coal, Freight Markets

Transaction relationships include:
 ● Brokers (GFI, TFS, Evolution, ICAP)
 ● Exchanges (ICE, NYMEX, LCH)
 ● Electronic Trade Platforms
   (globalCOAL)
 ● Direct relationships (utilities,
   producers, traders, financial
   institutions)
Transactions governed by:
 ● Master Agreements
 ● International Swap Dealer
   Association Agreements (ISDA)
 ● Standardized physical agreements

                                         7
 Pacific Market Summary:
 2011 Thermal Coal Delivered to China

                                                                                                                   Russia
                                                                                                            CIF    $112.59
                                                                                                            Trans. $14.27
                                                                                                            Netback $98.32
                                                                                                            Market $90.00


                                                                                              China
                                                                                            Guangzhou
   USA                                                                                        $84.44
 PRB West                                                                                     Cal ‘11
CIF     $85.38
Trans. $64.94
Netback $20.44
                                                       Colombia
Market $14.23
                                                   CIF    $112.59                                Indonesia
                                                   Trans. $28.11                              CIF     $93.83                              Australia
                                                   Netback $84.48                             Trans. $20.91                           CIF    $112.59
                                                   Market $84.75                              Netback $72.92                          Trans. $16.76
                                                                                              Market $61.10                           Netback $95.84
                                                                                                                                      Market $99.25

  Notes: Values based on index prices as of June 3, 2010. Values are 2011, $/tonne basis, Guangzhou is a 4,500 NAR basis and pre VAT price
  CIF prices are adjusted to natural quality in the origination basins PRB 4,550 NAR, Colombia, Australia and Russia 6,000 NAR and Indonesia 5,000 NAR   8
 Pacific Market Summary:
 2011 Thermal Coal Delivered to ARA

                                                      USA                                                      Russia
                                                      CAPP                                               CIF     $98.50
                                               CIF    $105.89                                            Trans. $10.88
                                               Trans. $39.23                                             Netback $87.62
                                               Netback $66.66                                            Market $90.00
                                               Market $76.31


                                                                                        API #2 (CIF)
                                                                                          $98.50
    USA                                                                                   Cal ‘11
  PRB Gulf
CIF     $74.70
Trans. $61.06
Netback $13.64
                                                       Colombia
Market $14.23
                                                   CIF     $98.50
                                                   Trans. $13.19                               Richards Bay                              Australia
                                                   Netback $81.81                             CIF     $98.50                         CIF     $98.50
                                                   Market $84.75                              Trans. $12.03                          Trans. $24.26
                                                                                              Netback $86.48                         Netback $74.24
                                                                                              Market $95.25                          Market $99.25

  Notes: Values based on index prices as of June 3, 2010. Values are 2011, $/tonne basis, API #2 is a 6,000 NAR basis
  CIF prices are adjusted to natural quality in the origination basins PRB 4,550 NAR; CAPP 6,450 NAR; Colombia, Richards Bay, Australia, & Russia 6,000 NAR   9
A Diversified Portfolio
Across Industries and Regions
Peabody COALTRADE Counterparty Diversity

                               Industry Mix                                      Regional Mix
                              March 31, 2010                                    March 31, 2010



                                 Trading  Coal
              Steel                                                                          Western
                                 Houses Producers
               11%                                                                           Europe
                                   11%     14%
                                                                                              15%
       Other                                                                                        Asia
        4%                                                                                          11%
     Freight                                                                 United States
       2%                                        Electric                         66%
                                                 Utilities                                                 Australia
   Financial                                       50%                                                       7%
  Institutions
       8%                                                                                             Other
                                                                                                       1%




Note: Other Asia consists of India, Japan, Taiwan, South Korea and Russia.                                             10
Trading Portfolio is Short-Dated,
Rapidly Converting to Cash
Peabody’s COALTRADE Portfolio Maturity

                           Total Portfolio Maturity
                 $350


                 $300                                 ● Short-term portfolio
                                                        with maturities by:
                 $250
                                                             2010: 28%
                 $200
                                                             2011: 76%
 $ in Millions




                 $150                                        2012: 97%
                 $100
                                                             2013: 100%

                  $50


                   $0
                    2010        2011         2012     2013       2014

Values as of May 2010.                                                         11
Best-Practice Risk Management
Practices Govern Trading Activities
Trading is “Ring Fenced” by Independent Control Structure

                                                 Trading Governed by
                                                    Enterprise Risk
                  Oversight &                         Management
                  Compliance                       Committee (ERMC)

    Analysis &                                   ERMC comprised of:
                                    Credit
    Reporting
                                   Process         ● Credit
     Process
                                                     Subcommittee
                  Trading
                                                   ● Trading Technical
                                                     Subcommittee
    Settlements                   Confirmation
     Process                        Process        ● Commodity Risk
                                                     Subcommittee
                  Accounting                       ● Treasury Risk
                 Reconciliation
                                                     Subcommittee
                                                                         12
Case Study: Blending Market Intel,
Freight, Asset and Trading
               Part I                            Part II
1. Shifted export thermal coal   1. Second transaction possible
   to an Australian steel mill      based on:
   (PCI Application)                ● “Freed-up” rail/port capacity
2. Realized higher sales               can be used for additional
   price. Value created:               export sales
   $20M EBITDA                      ● China market knowledge
3. Export port/rail capacity        ● Freight opportunity for
   freed up for another                smaller-size vessels optimizing
   potential transaction               NCIG capacity
   (~600,000 tonnes)             2. Acquired third-party coal to upgrade
                                    mine’s thermal coal to semi-soft met
                                    coal for sale into China
                                 3. Value created: $45M EBITDA

        Total Value Created = $65 Million in EBITDA
                                                                       13
Case Study: Structured Transaction
Risk “Heat” Map

   Geology             Coal Quality          Engineering            Operation/Cost
    Concession
    Concession                                                        Initial Investment //
                                                                       Initial Investment
                           Quality
                            Quality            Mining Ratio
                                               Mining Ratio              Startup Capital
                                                                         Startup Capital
    Delineation
    Delineation           Verification
                          Verification
     Geologic                                                          Working Capital
                                                                       Working Capital
     Geologic                                Saleable Production
                                             Saleable Production
     Structure
     Structure                                     by Year
                                                   by Year
                          Core Hole
                           Core Hole                                   Contract Mining
                                                                       Contract Mining
    Concession
    Concession            Verification
                          Verification       Mine Plan by Area,
                                              Mine Plan by Area,
      Rights                                 Year, Seam, Quality       Production Cost
                                                                       Production Cost
      Rights                                 Year, Seam, Quality



Transportation         Counterparty              Market                Financial
                        Complexity of Deal
                        Complexity of Deal
   Trucking Cost
   Trucking Cost           Structure
                            Structure
                                             Non-performance
                                             Non-performance             Investment
                                                                          Investment
   Road Royalty //
   Road Royalty        Counterparty (CP) 1
                       Counterparty (CP) 1
    Usage Fee                                      Risk
                                                   Risk                    Recovery
                                                                           Recovery
     Usage Fee               Credit
                             Credit
 Saleable Production
 Saleable Production    CP1 Reputation,
                        CP1 Reputation,
       by Year
       by Year            Experience
                          Experience
   Road Quality //
   Road Quality         CP2 Reputation,
                        CP2 Reputation,                                 Investment
                          Experience
                                              Replacement Cost
                                              Replacement Cost           Investment
     Upgrade
     Upgrade              Experience           (Price Volatility)
                                               (Price Volatility)      Capitalization
                                                                       Capitalization
   Barging to Jetty
   Barging to Jetty        CP2 Credit
                           CP2 Credit
                                                                                              14
Peabody COALTRADE Is…

● A significant earnings contributor to the corporation
● A portal to real-time, market intelligence
● An integrated global trading business, optimizing
  Peabody’s global production platform
● A well-managed business, with best-in-class risk
  management to govern trading
● Focused on developing a sustainable global trading
  business
   – Expanding the international platform in the high-growth markets
     of India and China
   – Building sustainable export businesses, including large volume
     term PRB exports
   – Securing a position in Indonesia
     to serve Asian markets
                                                                       15
BTU Virtual Mine:
Global Trading &
Brokerage
2010 Analyst and
Investor Forum
June 17, 2010


Paul Demzik
President
Peabody COALTRADE

                    16

								
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