Global, National and Illinois Basin Coal Trends

1. Global, National and Illinois Basin Coal Trends REAMP Discussion September 25, 2014 Tom Sanzillo Director of Finance

2. Global Coal Production 2008-2013

3. World’s Largest Producers

4. Worlds Largest Consumers

5. Global Imports/Exports: Global Trade 2012 1.4 billion 2013 Importers (million tons) 2012 Exports (million tons)

8. Major Drivers of Demand Curve • China: Thermal coal demand peaks early in the 2015-2020 period and declines to below 2010 levels by 2035. China becomes an opportunistic exporter on any thermal coal price strength. This equates to rates of decline up to -0.9% CAGR in 2020-2035. This reflects: • Continued energy efficiency gains reducing the ratio of electricity to GDP growth; • Slower GDP growth and a transition towards less energy intensive sectors; • Increased thermal power plant efficiency; • Technology gains, particularly battery storage, solar, on and offshore wind; • Continued electricity supply diversification i.e. more gas, nuclear, wind, solar and hydro; and • Beyond 2020 offshore wind will then step up as another area of diversification. • India, Japan, U.S., Korea and Taiwan

9. United States Coal Markets

11. Coal’s Share of U.S. Electricity LT Decline

12. Electric Sector Coal Consumption

14. An ILB Leader Sums Up • “We have the absolute destruction of the American coal industry. If you think it's coming back, you don't understand the business,” Murray Energy CEO Bob Murray remarked to hundreds of coal industry executives at the Platts 37th Coal Marketing Days. “Or you're smoking dope.” • Murray further claimed that publicly traded companies like Peabody are being dishonest with their investors for public relations purposes about the future of coal.  • “You got to be the low-cost producer every day, in every region. Everything else is public relations garbage by public companies that are worried about stock prices,” Murray said.

15. Illinois Basin

16. ILB: Growth Story • Only major growth story in US Coal markets • Since 2009 – 25% growth, CAPP down 14% • 2012 – 127.5 mtpa; 2013 – 132 mtpa • Why growth story? • High BTU, high sulfur coal • Scrubbers – more intense emissions goals seen helping ILB producers, most retirements CAPP • Lower cost of production • Solid Margins

17. ILB: Fundamentals • Basic Economics • Prices Received: 2012: $49.20 • Costs of Production: $34.93 • Margins in: $14.00 to $30.00 range • Despite erosion in prices in 2013-2014: $44.00 per ton, Basin still growing. • ILB cost of production rose by 6% per year since 2007, CAPP up over 8% per year.

18. Investment Taking Place • Major Companies all expanding operations with new mines in construction and under permit • Largest Producers • Peabody, Alliance, Foresight, Murray and Armstrong • Strong cast of smaller players: Knight Hawk (Arch), Vectren, Hallador

19. Exports and Potential • Companies geared up for more exports • Foresight led in 2012 with 7.7 mtpa off based of 16 mtpa. • 2013 and current year price collapse globally, lower exports – approximately 7 mtpa. • Port of New Orleans – 92% of ILB exports - multiple terminals and Port of Mobile

20. Exports and Potential • Where is market • Americas (Canada, Chile, Mexico) • Europe (France, Great Britain, Germany, Spain) • Asia (China, India and South Korea)

21. Risks • Although margins are solid for Foresight and Alliance – Arch, Peabody hurt by price erosion. • How long can they handle low prices • Soft global markets undermine larger efforts of combining domestic and export mix. • Old Customers buying more – Duke, TVA, Southern, but in context of overall coal demand decrease.