EXHIBIT-99.1
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JP Morgan 2007 Basics & Industrial Conference |
Steve Leer, Chairman and CEO |
New York June 12, 2007 |
Arch Coal, Inc. |
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Forward-looking information |
This presentation contains “forward-looking statements” – that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties arise from changes in the demand for our coal by the domestic electric generation industry; from legislation and regulations relating to the Clean Air Act and other environmental initiatives; from operational, geological, permit, labor and weather-related factors; from fluctuations in the amount of |
cash we generate from operations; from future integration of acquired businesses; and from numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive or regulatory nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. For a description of some of the risks and uncertainties that may affect our future results, you should see the risk factors described from time to time in the reports we file with the Securities and Exchange Commission. |
Slide 2 |
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and the Case for Coal |
Unearthing Value Arch Coal, Inc. |
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Developing nations will increase energy use, putting pressure on global supply |
Electricity Usage Passenger Vehicles per Capita per Capita |
15,000 600 U.S. U.S. |
Italy |
12,000 Australia Australia 450 9,000 U.K. |
S. Korea U.K. |
300 Russia Italy -hours per capita 6,000 kilowatt cars per capita S. Korea 150 Russia 3,000 Malaysia Malaysia Mexico Mexico China 0 |
0 India China |
India |
0 |
0 $ 0000 $ ,000 ,000 ,000,000,0,0102030,000 40,00010203040$ $$ $$ $$ $ GDP per capita (in U.S. $) GDP per capita (in U.S. $) |
Source: United Nations’ Human Development Report 2005, Slide 4 2005 World Development Indicators (World Bank) |
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IEA projects significant continued growth in coal use over the next 25 years |
(millions of tons of oil equivalent)2004 2030 |
6000 |
Fossil fuels (oil, gas & coal) are expected to remain dominant global 5000 energy sources through 2030 Growth in coal demand will be |
4000 primarily driven by consumption in China, India and the U.S. 3000 |
Coal was the fastest-growing fuel source over the last 5 years |
2000 BP Statistical Review of World Energy 2006 1000 |
Oil Coal Nat. Gas Nuclear Hydro Biomass |
Slide 5 Source: International Energy Agency’s World Energy Outlook 2006 |
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Coal’s advantage: abundant, secure and widely dispersed |
billions of tons of oil equivalent Based on current production levels 300 and proven reserves, coal should outlast gas supplies and oil reserves 200 by more than 2x and 4x, respectively |
100 |
0Europe |
Russia |
North America |
Middle East |
Chi |
na |
India Africa Other Asia Central and South Pacific America |
Oil Natural Gas Coal |
Slide 6 Source: Bank of America, BP Statistical Review and Blackwell Energy Research |
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Coal is a vital part of America’s energy future |
U.S. Energy Reserves U.S. Petroleum Supply U.S. Fuel Prices(in trillion Btu) (million bbls per day) ($/mm Btu, at 6/1/07) |
$11.83 |
Domestic $9.68 Coal: 95% |
Imp40%rots:60 |
%$0.54 PRB 8800 Nat. Gas Crude Oil Coal Natural Gas Oil Non-OPEC OPEC DomesticFOB mine Wellhead (4Q07) (Dec. 2007) |
Slide 7 |
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Source: EIA, Platts and NYMEX |
EIA expects coal supply to continue shifting from East to West |
Long-Term Coal Production Forecast |
(in million tons, per EIA) |
1,200 Powder River Basin will continue to supply most 1,000 growth over next 5 years 800 Illinois should play a 600 larger role in future 400 Western coal is expected to grow market share to 200 more than 60% by 2030 despite scrubber |
technolog |
y coming online |
2006 2010 2020 2030 West Interior Appalachia |
Slide 8 Source: EIA and ACI |
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Current Trends |
Arch Coal, Inc. |
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Bullish market drivers are helping to strengthen coal markets in 2007 |
$12$ 800 |
1Q07 |
SO2credits |
$600 |
-4.5mm $8 Supply |
$400 |
Henry Hub $4 |
Demand +5.4mm Ju’06 A’06 O’06 Ja’07 Ju’07 $200 $0$ 0 |
Electric generation up 3.5% YTD Higher natural gas prices Production cuts/supply pressures (CAPP)Increasing SO2allowance prices |
Strong seaborne markets New coal plants on the horizon Increased met / export opportunities |
Slide 10 Source: ACI, EIA. MSHA, Coal Daily, NYMEX |
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Construction is now underway on more than 10 GW of new coal-fueled capacity |
WPS Weston #4 (Wisc.) Cleco Rodemacher #3 (La.) OPP Nebraska City #2 (Neb.) 500 MW / June 2008 600 MW / June 2008 663 MW / May 2009 T.S. Power Boulder Valley (Nev.) Dallman IV (Illinois) Elm Road Generating (Wis.) 200 MW / Jan. 2010 250 MW / Jan. 2010 600 MW / July 2009 Slide 11 Source: ACI |
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Arch’s PRB operations may prove advantageous for sourcing new coal plants |
Under Construction Advanced Development Early Development 10.4 10.0 21.4 GWGWGW PRBCAPP WBIT PRBCAPPIllinois PRBCAPP Illinois IllinoisNAPP LigniteOtherNAPPLignite 3 Total coal demand 3 Total coal demand of 3 Total coal demand of of 40 million tons34 million tons79 million tons 3 Powder River Basin 3 Powder River Basin 3 Powder River Basin expected to capture expected to capture expected to capture 35 million tons 12 million tons 34 million tons |
Net new coal-fueled generating capacity announcements total close to 80 GW |
Slide 12 Source: Platts and ACI |
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While future prospects are bright, near-term challenges persist |
ArgusCoal DailyPricing $70 |
Signs of a turn? |
$60 |
`CAPP prices starting |
to rise |
$50 |
CAPP |
$40 `WBIT prices fallen from peakWBITbut remain relatively strong |
$30 |
$20 `PRB prices have |
“ticked” up $10 PRB |
$0 May generator stockpile levels |
80 1/3/2000 1/3/2003 1/3/2006(in days of supply) |
70 |
Stockpile levels at generators |
60 |
`Current estimate is above the505-year average |
40 `Levels are relatively high |
30 |
heading into summer season |
20 |
97 98 99 00 01 02 03 04 05 06 07E |
Slide 13 Source: ACI, EIA and Coal Daily |
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Climate concerns also present a challenge, yet support for clean-coal technologies is growing |
“The Strategic Energy Fund wou |
ld provide $3.5B in incentives and grants to speed |
the development of more clean coal plants acro |
ss the country ...” |
Senator Hillary Clinton ( |
D-NY) |
“...we’ll need to invest more in the clean technology that will allow us to burn more coal, our country’s most abundant fossil fuel.” |
Senator Barack Obama (D-IL) |
Nancy Pelosi, Speaker of the House (D-CA, 8thDistrict) |
“We have a coal industry in our country that cannot be ignored. We want technology to be the answer ... My view is that we must move in a very strong, forceful and generous way in investing in the research for sequestration...” |
Slide 14 Source: Google, Congressional websites |
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Over the long-term, clean-coal technologies can create new markets for coal |
A plug-in hybrid is one Coal can be converted Gasification can reduce entry for coal into the into ultra-low-sulfur emissions & transform transportation market diesel fuel coal into pipeline-quality natural gas |
`Likely to create`At current oil prices, significant coal-to-liquids `IGCC & CCS should off-peak demand facilities appear enable coal to for electricity economically prosper in a carbon feasible constrained world |
Public policy initiatives aimed at domestic energy security are leading to energy legislation and financial incentives for clean-coal-technology development |
Slide 15 Source: ACI |
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About ACoal Unearthing Value Arch Coal, Inc. |
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About Arch Coal, Inc. |
One of the largest coal producers in the U.S. |
Core business is providing U.S. power generators with clean-burning, low-sulfur coal for electric generation |
`Supplies roughly 11% of U.S. coal needs |
`Provides source fuel for roughly 6% of U.S. electricity |
Talented workforce operates large, modern mines Industry leader in mine safety, productivity and reclamation |
Slide 17 Source: ACI |
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About Arch Coal, Inc. |
Powder River Basin |
Illinois Basin |
1. Coal Creek 2. Black Thunder |
1 2 |
12 4Knight Hawk21 3 345 C |
entral Appalachia |
1. Mountain Lau |
rel |
2. Coal-Mac |
Western Bituminous 3. Mingo Logan |
4. Cumberland River |
1. Skyline 5. Lone Mountain 2. Dugout 3. Sufco |
4. West Elk |
Leading operating position in all three major low-sulfur basins Equity interest in an Illinois Basin producer, Knight Hawk |
Slide 18 Source: ACI |
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Arch has an extensive reserve base that is predominately low-sulfur |
Reserve base of 2.9 billion tons Reserve life that exceeds 20 years |
Approximately 80% of reserve base is compliance quality |
Compliance Low Sulfur High Sulfur |
Reserves by region (in million tons) PRBWBIT* ILB CAPP (1,829)(464) (220) (402) Slide 19*Includes southern WyomingSource: ACI |
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Arch’s long-term success depends on three pillars of performance |
Achieving industry-leading productivity rates |
`Three of top eight most productive longwall mines `Sufco most productive underground mine in 2006 `Surface mines produced 167% more tons than industry average |
Operating the world’s safest coal mines |
`Sentinels of Safety — safest underground coal mine |
`Second-best year on record for lost-time incidents |
`Outperformed the industry safety average by three times |
Acting as responsible citizens and environmental stewards |
`National Good Neighbor Award `Greenlands Award — best reclamation in West Virginia |
Slide 20 Source: ACI and Public Sources |
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Arch has the cleanest balance sheet among major U.S. coal producers |
Legacy Liabilities of Largest U.S. Coal Companies 12/31/06 (in millions) |
Pension Reclamation $3,357 Postretirement Medical Workers’ Comp |
$2,267 $771 $397 $337 Competitor #1 Competitor #2 Competitor #3 Competitor #4 Arch Coal |
Slide 21 Source: SEC filings compiled by ACI |
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Arch is expanding coal markets through investment in coal-conversion technologies |
Medicine Bow Mine End Products |
DKRW ultra-clean |
13,000 bpd diesel fuel CTL Facility* |
Wyoming |
gasificationtechnology chemical Arch as mine operator feedstock |
FT liquefactiontechnology |
CO2 |
enhanced oil recovery |
Arch owns an equity stake in DKRW Advanced Fuels |
Long-term contract in place with Sinclair Oil Corporation to sell ultra-low-sulfur diesel fuel from planned CTL facility |
Slide 22 Source: ACI |
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Arch has reduced production levels and is containing costs in a weak market cycle |
Reduce production targetsGuidance (charts in millions) `Preserve value of reserves2006 $502 |
2007E Lower capital spending $260 |
`Align spending with market127 133demand and reduced production levels |
Volume midpoint* Capex midpoint** |
Focus on cost control |
Unpriced to |
ns at 3/30/07 |
Maintain upside exposure 110 — 120 `Unpriced position translates70 — 80into more upside potential as market rebounds |
`Creates long-term value for10-15shareholders |
2007 2008 2009 |
*Volume excludes pass-through tons associated with Magnum transaction |
Slide 23**Capex excludes reserve additionsSource: ACI |
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Arch’s future strategic growth possibilities are compelling |
Invest in core businesses to enhance profit growth and return on capital as well as evaluate opportunities to further upgrade and |
id |
expand reserve base Consider acquisitions or investments that strategically fit and create shareholder value |
Expand market for coal(and perception of coal’s value)through |
Btu conversion technologies that provide significant upside |
Slide 24Source: ACI |