Coal Marketing Days

The New World Economy and the Global Met Coal Market
Don Blankenship Chairman & Chief Executive Officer Massey Energy Company
September 28, 2010
September 2010

The New World Economy

Living 21st century global industrial revolution Emerging nations economic growth China 2010 milestones: No. 1 energy consumer, No. 2 economy Global urbanization and electrification driving steel demand The met coal outlook, supported by global growth, remains fundamentally strong and intact
September 2010

U.S. Economy Regcession or Regpression

Has shown resilience; leading the developed economies Positives: demographics, manufacturing, steel production Worrisome: unemployment, deficit, government actions Still looking for direction: equities, housing, consumer confidence
September 2010

The BRIC Effect

The BRIC block, 43% of world population, is leading the way in economic recovery
10.0

Annual GDP Growth (%)

5.0

0.0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Brazil
-5.0

Russia World

India

China

-10.0

2010E GDP growth: BRIC avg. 7.7%; emerging economies 7.0%; world 3.0%; developed economies 2.3%
September 2010

Recessions and Coal Trade

Coal trade has rebounded after recessions; we are seeing it again From 1985 to 2012 seaborne met coal trade is expected to double
300 280 260 240 Tonnes (Mt) 220 200 180 160 140 120 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 Seaborne Met Coal Trade

Note: red line indicates recessionary period

September 2010

Selected Demographics: The Big 3

China: GDP/capita $5,383 (global rank: 102), Human development index (HDI) 0.772 (global rank: 92) As GDP/capita and middle class grow more steel is needed; 210 mm people living in poverty India: GDP/capita $2,753 (rank: 128), HDI 0.612 (rank: 134) Roughly the same population as China and lower GDP/capita; 470 mm people living in poverty U.S.: GDP/capita $45,592 (rank: 9), HDI 0.956 (rank: 13) Mature economy with trend of growing population
Note: poverty defined as living with less than $1.25/day
September 2010

The Foundation
Coal will continue to be fuel of choice driven by electricity generation, and industrialization, mainly in developing countries
World Coal Consumption (BTU)

Coals Trifecta Plentiful

Quadrillion BTU

200

Broad reserves distribution Lowest cost energy

150

Total World

100

Emerging

2008-2035: 81% Growth

50

Developed
2008-2035: 1% Growth

0 1980

1990

2000

2010

2020

2030

September 2010

The Foundation
Coal is correlated with economic development and better quality of life Increased demand for steel products Globally 40% of electricity comes from coal; this will grow
78 4,400 4,000

4,200 T o t a l E le c t ric it y P ro d u c t io n - T W h

U.S.: 49% Electricity Generation from Coal

T o t a l E le c t ric it y P ro d u c t io n - T W h L if e E x p e c t a n c y (Y e a rs ) 77

3,500 3,000

China: 81% of Electricity Generation from Coal

74 73

875

775 72 71 T o t a l E le c t ric it y P ro d u c t io n - T W h

India: 68% of Electricity Generation from Coal

66

64

L if e E x p e c t a c y (Y e a rs )

4,000

2,500 70 2,000 69 1,500 68 1,000 Total Elec. Generation (TWh) 500 Life Expectancy (years) 66 67

3,800

575

60

3,600 Total Elec. Generation (TWh) 3,400 Life Expectancy (years)

76

475

58

375

Total Elec. Generation (TWh) 56 Life Expectancy (years)

3,200 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

75

0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

65

275 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
September 2010

54

L if e E x p e c t a c y (Y e a rs )

675

62

Global Steel Production

Steel production rebounded in 2010; we are expecting +12% YoY The global economic downturn was a temporary hurdle to steel production; some were not impacted
2009 vs. 2008 World ex. China: -21% China: +13%
1,400

1,300

Emerging 42%

Developed 58%

2000

1,329

1,360

M nM tric T n illio e os

1,200

1,220

1,100
Emerging 64% Developed 36%

1,000

2010

900

800 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E

September 2010

Global Steel Production

Basic oxygen furnace (BOF) to remain primary method BOF has gained ground over electric arc furnace (EAF): 71% of worlds steel is produced via BOF up from 54% in 1980
Crude Ste e l Production by Proce ss
100 Other 90 Other Other EAF 80 EAF 70 EAF 60 Process (%) EAF Other

Chinas thirst for met coal 92% of steel produced is by BOF route Others by BOF route: US: 40% EU: 56% Japan: 78% India: 39%

50

40 BOF 30 BOF 20 BOF BOF

10

0 1980 1990 2000 2009

September 2010

10

U.S. Steel Production - by Process

Signs of a developed economy: since 2000, BOF production in U.S. has decreased from 53% to 40% of total production
60 1998 BOF 54 million tons (55%) 2008 EAF 53 million tons (58%)

55 Steel Production by Process (million metric ton

50

45 1998 EAF 45 million tons (45%)

40

BOF

EAF
2008 BOF 38 million tons (42%)

35

30

25

20 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

September 2010

11

China Steel Production

China has ~46% of global crude steel production might change once Indias steel consumption reaches Chinese levels
900

World ex. China

800

54% of world production

85% of world production

700

Million Metric Tons

600

500

46% of world production

400

300

China 15% of world production

200

100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E

September 2010

12

Auto Manufacturing
Vehicle production 2009: China 13.7 mm units vs. North America 8.8 mm units
18 16
Vh e icle P d ctio (m n u its) ro u n illio n

North America

Japan

Germany

India

China

14 12 10 8 6 4 2 0
2000 2008 2009 2010E

In China, 128 people out of every 1,000 own a car, whereas in the U.S. its 765 out of every 1,000
China needs additional 840 mm vehicles to reach same level as U.S.
September 2010

13

Global Met Coal Trade Flows

Exporter Importer

Russia Canada Europe Mongolia Japan Korea Taiwan

USA China India

Brazil Mozambique

Indonesia Australia

In 2009, China went shopping for seaborne met coal importing 36 mm tons up from 7 mm tons in 2008
September 2010

14

Global Met Coal Trade

Met Coal Imports (Mt) Europe Japan China Korea India Brazil Other World Imports 2008 73 66 7 20 24 16 28 234 2009 41 66 36 16 23 13 26 221 2010E 46 73 45 18 27 14 29 252

The Year of the Tiger is keeping China hungry for raw materials Met coal trade was affected the by recession, but has bounced back 2010 met coal trade surpassed prerecession levels
September 2010

Met Coal Exports (Mt) Australia Canada U.S. Russia Other World Exports

2008 137 26 39 13 19 234

2009 131 22 34 11 23 221

2010E 148 22 47 17 17 252

Note: metric units

15

Coal Freight Rates

Lower freight rates will continue to support seaborne coal trade
Hampton Roads and Queensland, both to ARA, now +$40/tonne lower vs. 2008 highs
$73.00

Capesize Freight Rates to ARA

$63.00

$53.00

$ ne /to n

$43.00

$33.00

$23.00

$13.00

$3.00 1 -0 ar M

2 2 1 -0 -0 -0 ct ay ec O M D

3 4 4 -0 -0 -0 ul eb ep J F S

5 5 -0 -0 pr ov A N

7 6 7 8 -0 -0 -0 -0 ar ug un an J J A M

Hampton Roads-ARA

Queensland-ARA

9 9 8 -0 -0 -0 ct ay ec O M D

0 -1 ul J

September 2010

16

Steel and Raw Material Prices

Steel and met coal prices are not yet at 2008 levels but are rising due to strong demand and personal income growth around the world
350 900 800 700 600 200 500 400 300 100 200 50 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E H C($ n e R /to n )

300 H rd C kin C a Iro O ($ n e a o g o l, n re /to n )

Hard Coking Coal Iron Ore HRC

250

150

A new mechanism: quarterly pricing

Note: HRC refers to hot rolled coiled steel
September 2010

17

Global Met Coal Demand

By 2011, global met trade is forecast to reach 284 Mt with Asia leading the way in import demand growth
300

Top 7 Seaborne Met Coal Importers

Germany Taiwan

250 Seaborne Imports - Million Tons

Brazil Korea

200 Germany Taiwan Brazil 150 Korea India 100 China China India

The Top 7 importers account for ~80% of seaborne imports Seaborne trade represents ~90% of total met coal trade

50 Japan 0 2008 2009 2010 2011 2012

Japan

2015
September 2010

18

Japan Met Coal Demand

The old coal trade dynamic is still Japan (main importer) and Australia (main supplier) - the latter will hold, but Japan will soon cede No. 1 spot
90

Japan

China

80

70 Seaborne M C Im et oal ports (M t)

60

Japan is forecast to maintain met coal import levels of 75 Mt/yr Historically, Australia has supplied ~65% imports; Canada 15%

50

40

30

20

10

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

September 2010

19

Chinese Met Coal Demand

Chinas economic growth is driving up met coal demand while internal production not keeping up with demand is driving import growth
100

80

Landborne Met Coal Imports Seaborne Met Coal Imports

60

Mt
40 20 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

China likely to become largest importer of met coal in 2-3 years and largest seaborne importer in 4-5 years
September 2010

20

Europe Met Coal Demand

Europe was hit especially hard by global recession
Met Coal Supply to Europe (Mt) 80

European Met Coal Imports

70

Met coal imports (and economy) are forecast to regain some strength Growing Asian demand will favor U.S. coals into Europe
2010 U.S. met coals are forecast to be half of European imports

60

50

40

30

20

10

0 2000 2005 2008 2009

Australia

U.S.

Canada

Russia

Other
September 2010

21

Europe Recession Cause and Effect

In Europe, the recession took toll on electricity generation; coal was largely affected Was Asia taking coals away from Europe or was it the European economic downturn pushing seaborne coals to the East?

Note: Main European Countries refers to selected countries that make up ~70% of European GDP

September 2010

22

India Met Coal Demand

Indian met coal imports are forecast to double to 56 Mt in the next 3-4 years At 47.8 kg/capita India still lags other large developing nations and U.S. in use of steel - Brazil: 93.1 kg/capita; U.S.: 186.9 kg/capita; China: 405.2 kg/capita
60
India Met Coal Demand

50

40

M t

30

20

10

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

September 2010

23

Brazil Met Coal Demand

In 2009, the main market for U.S. met coals was Brazil; should also hold for 2010 Asian growth and the downturn facilitated U.S. exports to the Atlantic Basin
25

Brazil Met Coal Imports

20

Brazilian Met Coal Import Sources 2009

Other 16%

15 Mt 10

U.S 53% Australia 31%

0 2009 2010 2011 2012 2013 2014 2015 2016

Infrastructure needs: World Cup 2014 , Olympics 2016

September 2010

24

Africa Will Eventually Follow

Africa remains underdeveloped
1 bn people (14% of world) 2.3% of world GDP 50% of people in Sub-Saharan Africa live on less than $1/day Apparent use of steel: 26 kg/capita

Africa could consume 400 mm tons/yr of steel when it reaches Chinese per capita steel consumption levels

September 2010

25

Seaborne Supply
Although Australia is geographically well positioned, demand for coals from U.S., Canada, Russia and others is propelled by unstoppable global urbanization
Seaborne Met Coal Supply Supply
160 140 120 Seaborne Exports (M t) 100 80 60 40 20 0 2000 2005 2008 2009 2010E 2011E

Russia

Canada

U.S.

Australia

Chinese production cannot keep up with demand for met coal; this will also open up market for landborne Mongolian coals
September 2010

26

Met Coal Supply - Mongolia

Chinas increasing coal demand is driving Mongolian met coal production Transportation hurdles remain
8 Met C oal Ex ports (M t) 6 12 Mongolian Met Coal Exports 10

0 2003

2004

2005

2006

2007

2008

2009

2010

2011

Mongolia met coal exports to China are relatively new, ~7.0 Mt in 2009 From 2003 to 2011 total China met coal imports are expected to grow from 2.6 Mt to 54 Mt
September 2010

27

Indonesia and Mozambique

Indonesia
Met coal exports currently 3.5 Mt/yr By 2016, met exports could reach 10 Mt/yr; needs infrastructure developments to reach forecast exports BHP/Adaro JV could accelerate export growth Pacific Basin oriented

Mozambique
Production of met coal expected in 2012, infrastructure could delay until 2015 or later
By 2015, met coal exports could reach 10 Mt

Coal projects under development Vales Moatize; Riversdales Benga and Zambeze Close to India

September 2010

28

Met Coal Supply - Australia

Australia will maintain position as dominant global met coal supplier ~60% of global seaborne met coal trade Might give up some Atlantic Basin reach
Aussie Met Coal Exports by Basin
160

Atlantic
140 120 100

Pacific

M t

80 60 40 20 0 2000 2005 2008 2009 2010 2011 2012 2014

September 2010

29

Met Coal Supply - U.S.

The Atlantic Basin is still natural home for U.S. met coal exports; however, global growth also attracts U.S. met coals to India and Far East
20 18 16 14 12
M t

U.S. Met Coal Exports

10 8 6 4 2 0

European Union North America

Other Europe
2005 2008

Africa
2009

South & Central America

2010E

Asia

2000

September 2010

30

Industry Consolidation
Economic downturn benefited stronger producers; strengthening market position and expanding global footprint BRICs searching the world for minerals of all kinds Recent coal properties acquisitions have been global, with focus on met coal reserves Massey acquisition of Cumberland Essar acquisition of Trinity Coal Wuhan investment in Riversdale Peabody bid for Macarthur
September 2010

31

Industry Consolidation
Unlike its cousin iron ore, coal production and seaborne exports are fragmented Top three met coal producers have ~30% of seaborne met coal trade Top three iron ore producers control ~70% of seaborne trade

September 2010

32

Massey - Reserve Base

2.8 bn total reserves
3,000

1.3 bn tons of met coal reserves believed to be largest in the U.S.

2010: 216 mm met coal tons added
Steam Met

2,500
R e s e r v e s ( m i l l i o n s o f to n s )

2,000

1,500

1,000

1.3 Billion Tons 1.5 Billion Tons

500

87

89

91

93

95

97

99

01

03

05

07 20

19

19

19

19

19

19

19

20

20

20

Increased reserves by 3.5x last 23-yrs

Note: reserve base mix post-acquisition of Cumberland Resources, which closed 4/19/10
September 2010

20

09

33

Massey - Growth
Top 10 producers account for ~20% of global steelmaking coal production
2009 world met coal production: ~800 Mt
Walter Peabody Westfarmers Massey Alpha Rio Tinto Mechel Evraz Raspadskaya Mitsui Xstrata Anglo American Teck Mitsubishi BHP 0 5 10 15 20 25 30 35

2009

2008

Massey 18 Mt

Met Coal Production (mm tonnes)

Notes: metric units; major global met coal miners ex. Chinese producers

September 2010

34

Summary
The world bounced back with BRICs in 2010 Developed economies showing positive signs: U.S. holding its ground, Japan benefiting from growing neighbors Industrialization and strong per capita GDP growth will drive demand for steel products and raw materials Chinese growth and met coal appetite creates tightness Dont take eyes off India, Brazil, Africa, others
September 2010

35

Credits
IMF JPMorgan International Energy Agency Wood Mackenzie United Nations WSJ Energy Information Administration World Bank CDC Bloomberg Goldman Sachs Wards Auto ABARE SSY Steel Business Briefing UBS Energy Resources Public and company filings Massey Analysis World Steel Association National Mining Association McCloskey
September 2010

36

Disclaimer
FORWARD-LOOKING STATEMENTS: certain statements in this presentation are forward-looking as defined by the private securities litigation reform act of 1995. Such forward-looking statements are based on facts and conditions as they exist at the time such statements are made as well as predictions as to future facts and conditions the accurate prediction of which may be difficult and involve the assessment of events beyond the companys control. Caution must be exercised in relying on forward-looking statements. Due to known and unknown risks, the companys actual results may differ materially from its expectations or projections. Factors potentially contributing to such differences include, among others: market demand for coal, electricity and steel which could adversely affect the companys operating results and cash flows; Future economic or capital market conditions; Deregulation of the electric utility industry; Competition in coal markets; Inherent risks of coal mining beyond the companys control, including weather and geologic conditions; The companys ability to expand mining capacity; The companys production capabilities; The companys plan and objectives for future operations and expansion or consolidation; Failure to receive anticipated new contracts; Customer cancellations of, or breaches to, existing contracts; Customer delays or defaults in making payments; The companys ability to manage production costs; The companys ability to timely obtain necessary supplies and equipment; The companys ability to attract, train and retain a skilled workforce; Fluctuations in the demand for, price and availability of, coal due to labor and transportation costs and disruptions, governmental policies and regulatory actions, legal and administrative proceedings, settlements, investigations and claims, foreign currency changes and other factors; And greater than expected environmental and safety regulation, costs and liabilities. The forward-looking statements are also based on various operating assumptions regarding, among other things, overhead costs and employment levels that may not be realized. While most risks affect only future costs or revenues anticipated by the company, some risks might relate to accruals that have already been reflected in earnings. The companys failure to receive payments of accrued amounts could result in a charge against future earnings. Information concerning those factors is available in the companys annual reports on form 10-K and quarterly reports on form 10-Q.

September 2010

37