A Chinese overview

1. A Chinese overview Andrew Horn Hunter Carbon Consultants Pte Ltd andrew@huntercarbon.com Carbon Forum , Thailand 12-14 November 2012

2. DISCLAIMER The views expressed here contain information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. Any forward looking information in this presentation has been prepared on the basis of a number of assumptions which may prove to be incorrect. This presentation should not be relied upon as a recommendation or forecast by Hunter Carbon Consultants Pte Ltd. Nothing in this release should be construed as either an offer to sell or a solicitation of an offer to buy or sell shares in any jurisdiction.

3. Agenda • China Supply and Demand • Logistics and Infrastructure • The Economic Consideration • Conclusion

4. Key Assumption Base Case

5. Electricity Demand Forecast Installed Capacity by Fuel Types Installed Capacity Forecast Share of Installed Capacity 6.6% cagr +438 GW • Installed capacity continues to grow at a rate of 6.6% pa from 2012 – 2017 • Coal will remain a major energy sources for electricity generation with the average annual growth of 7.1% or increase 308 GW during 2012 – 2017 • Nuclear and natural gas will be the highest growth with the average annual growth rates of 28.2% and 11.6% respectively, but share of installed capacity will remain low. Source : Wood Mackenzie and Marketing, Sales and Logistics Analyst, Banpu PCL

6. Thermal Coal Consumption by Market Sector Power generation industry consumes the largest amount of thermal coal, accounting for 58% of thermal coal demand in 2012 CAGR 2012 - 2017 6.4% cagr Non-Power Sector 3.9% Power Sector 8.1% Source : Wood Mackenzie and Marketing, Sales and Logistics Analyst, Banpu PCL

7. Metallurgical Coal Demand Metallurgical Coal Demand Crude Steel Production Forecast 3.7% cagr • Wood Mackenzie forecasts total crude steel production for 2012 to reach 713 Mt , up 4% YoY and will rise to 944 in 2017 in line with hot metal production • Hot metal demand in 2012 is estimated to be 654 Mt and will grow to 850 Mt in 2017 • Metallurgical coal demand is expected to grow an average 3.7% per annum during 2012 – 2017 • China closed inefficient, small blast furnaces over the pass few years and plan to close all blast furnaces with volume under 400 cubic meters by 2015. • Growth in hot metal production is expected to come from larger blast furnaces which require higher-quality coking coal Source : Wood Mackenzie and Marketing, Sales and Logistics Analyst, Banpu PCL

8. Coal Production Coal production by province 4.7% cagr • Despite economic slowdown, China will continue expanding its production with the growth rate 4.7% during 2012 - 2017 Source : Wood Mackenzie and Marketing, Sales and Logistics Analyst, Banpu PCL

9. Thermal Coal Supply / Demand Balance Source : Wood Mackenzie and Marketing, Sales and Logistics Analyst, Banpu PCL

10. Coal Production Coal production by market Coal production by coal type Coal production by company type Coal production by mine type Source : Wood Mackenzie and Marketing, Sales and Logistics Analyst, Banpu PCL

11. China Coal Balance China still requires coal import both of thermal coal and metallurgical coal through 2017 to meet with its requirement Source : Wood Mackenzie and Marketing, Sales and Logistics Analyst, Banpu PCL

12. Coal Consumption Issue • In short to mid term, coal demand in China will be affected by seasonality factors such as hydropower generation, rail and port infrastructure capacity, and the price arbitrage opportunities to determine the competitiveness of imports relative to domestic thermal coal • In longer term, electricity generation and crude steel production should remain robust, driven by the requirements of infrastructure and urbanisation, especially in the non-coastal provinces

13. Coal Production Issues • Total coal production in China is expected to reach 3.8 billion tonnes in 2012 (thermal 3.2 bt and met coal 0.6 bt) • Approximately 600 Mt of coal will end up in the domestic seaborne coastal market in 2012 and 11 Mt exported. • Despite economic slowdown, China will continue expanding its production during the 12th 5 year plan to add 500 Mt of production by 2015 • China faces numerous challenges in fulfilling domestic demand • Existing mines become deeper, hence, costs are rising • Quality is declining • New reserves are increasing distant • Require huge transportation in moving coal longer distances to demand center

14. Agenda • China Supply and Demand • Logistics and Infrastructure • The Economic Consideration • Conclusion

15. Estimated 2012 thermal coal supplydemand balance by province (Mt) • Inner Mongolia, Shanxi and Shaanxi are the three largest coal production provinces which account around 60% of total coal production in 2012. • Demand center located in the eastern and southern region

16. Map of China’s Coal-fired Power Plants • The main demand centers are found along the coast in the southern provinces of China • These demand centers are usually more developed and more electricity intensive. • Electricity generated in these regions is predominantly by coal-fired power plants. • As coal resources are scarce in these regions, most of coal demand will have to be met by domestic supply from the north or from imports. • Government plan to develop large coal-fired power plants in the western provinces which contain huge reserves of low-rank coal, and transmit coal-by-wire using ultra high voltage transmission lines (1,000 kV).

17. Estimated 2012 coking coal supply demand balance by province (Mt) • Coking coal demand and supply provinces are largely located in northern China • Shanxi is the main key domestic supplier of coking coal • Chinese steel mills begin to improve efficiency and focus on high-end steel products. • Reduce reliance on merchant coke plant • In longer term, build new coke capacity in Southeast China provinces and close merchant coke capacity in Shanxi • Increase seaborne import of high quality coking coal

18. Metallurgical Coal Production and Import Metallurgical coal imports by coal type Domestic metallurgical coal production 2.5% cagr 15% cagr • Domestic supply is expected to grow 2.5% per annum and will not be able to keep pace with demand especially high-quality coking coal which reserves are depleting. • New steel mills are expected to focus in the coastal region in Southern China to take advantage of imported coal • Metallurgical coal import is expected to grow quickly to fill the supply / demand gap especially from Mongolia. • Total metallurgical coal imports are forecasted to rise from 52 Mt in 2012 to 106 Mt in 2017 with the annual growth rate 15% Source : Wood Mackenzie and Marketing, Sales and Logistics Analyst, Banpu PCL

19. China is building and expanding a number of rail lines that lead to eastern ports Tongliao Xilinhot Chifeng Zhangjiakou Xinghe 11 Jining Hohhot 9 Jinzhou 2 2A 1 1A Huludao Baotou Linhe 1B Datong Ordos Zhunger QHD Existing rail line Existing line with expansion New rail project Coal origin Transportation hub Ports 2 Caofeidian Shenmubei Shuozhou Tianjin 2 2A Yinchuan Huanghua port 3 3A 2 Yulin Shijiazhuang Taiyuan Zhongwei 4 Linxian 4A Suide Liulin 8 Jinan 7 5A 5 10 8A Changzhi Qingdao Handan 10 Houma Huangling Jiaozuo Rizhao Rizhao 6 Yueshan Lianyungang Zhengzhou Xi’an Nanjing An’kang 19

20. Northern rails and ports will increase capacity significantly from 2015 onwards. At least rail should be +400 mt and port +250 mt. • Dongsheng – Ji’An line (prelim plan) • 1837 km, phase I commission in 2017 with capacity 100 mtpa. • Can be expanded to 200 mtpa Lignite +100mt Thermal +150 mt Huludao +50mt Caofeidian +100mt Shanxi Thermal + 170 mt Huanghua+150mt Henan Anhui Shaanxi Hubei Rizhao +100mt Jiangxi Hunan Met coal +100 mt Fujian Guangxi Guangdong 20

21. Infrastructure China port loading capacity and throughput forecast Source : Wood Mackenzie

22. Infrastructure Rail capacity • In 2011, about 1.8 bt of coal was transported by rail, accounting for half of total coal production • Only a few rail lines are coal dedicated lines. • Rail capacity is expected to increase at an average annual pace of 282 Mtpa until 2017 • At least half of the increase will be utilized for coal transportation • In longer-term, rail capacity expansion might delay as Ministry of Railways already burdened with high debt levels. • If no delay, rail capacity will enough to accommodate domestic coal transport through 2017 Source : Wood Mackenzie

23. Infrastructure Issues • China’s National Development and Reform Commission has aimed to increase rail transportation capacity of coal to 3 billion tonnes by 2015 • Only few rail lines are coal dedicated lines. • Central government is currently supporting and providing finance to Ministry of Railways (MoR), so rail expansion is unlikely to delay in short term. • In longer-term, MoR has to consider equity divestment to rise capital or the option of the joint venture with private sectors such as large mining or power companies.

24. Agenda • China Supply and Demand • The Effects of Logistics and Infrastructure • The Economic Consideration • Conclusion

25. Coastal seaborne thermal cash cost curve 2012 (FOB vessel) Exchange Rate: 6.284 CNY/US$ 100 80 US$ / tonne 60 40 20 • Wood Mackenzie estimates average thermal cash cost for coastal coal supply in 2012 US$69.55/tonne FOB vessel. • Average FOB vessel cash cost by coal type: • Anthracite - US$ 90.69 / tonne @ Average NAR 6,500 kcal/kg • Bituminous - US$ 68.87/ tonne @ Average NAR 5,632 kcal/kg • Sub-bituminous - US$ 66.15/ tonne @ Average NAR 5,349 kcal/kg • Lignite - US$ 48.17/ tonne @ Average NAR 3,650 kcal/kg

26. Agenda • China Supply and Demand • The Effects of Logistics and Infrastructure • The Economic Consideration • Conclusion

27. Political Landscape on Coal Demand and Supply Issues from the 12th 5-year plan (2011-2015) for coal industry • Comment: • China coal demand 3.9bn tons in 2015 base on coal having CV 7,000 kcal/kg NAR. • Quality of domestic coal supply tends to decline, means higher tonnage required • China has not much alternative of energy supply sources. Shale gas is unlikely to have significant impact before 2020 as require high investment and high risk.

28. Continue be net importer… despite slow growth • Despite lower economic growth view, China production still not cover its demand. • Coal supply to domestic seaborne coastal and export market mainly come from 4 provinces:- Inner Mongolia, Shanxi, Shaanxi and Shandong • Many mines from these provinces are high cost mines which difficult to compete with imported coal in southern China in a declined price environment and may be forced to close the mines. • Imported quantity will depend on landed cost at end-users compare to domestic supply

29. Hunter Carbon Consultants Conclusion Cont. • China’s coal consumption will continue to grow despite economic slowdown and more environmental concerns • Coal is the only one reliable energy source for China and will remain the highest share in energy mix in long term • Coal production will not able to meet demand in long term and require import to fill the gap • This is no logistic constraints through 2017 as loading and unloading port capacity are out pace demand. The only concerned is the delay of rail projects. • Domestic coal quality trends to decline which means China will require larger transportation system to move more coal • China will continue be net coal importer through 2017 with tonnage import likely to increase year by year.

30. Acknowledgements: A special thank you to Phil Gasteen and the team at Banpu, namely Sinpetch Tussiri, for all the help in creating this presentation.

31. Hunter Carbon Consultants Pte Ltdandrew@huntercarbon.com+6585119495