1 Mining Opportunities Bennett K. Hatfield President and CEO October 2, 2007 Davenport Metals & Mining Symposium Exhibit 99.1 |
2 Mining Opportunities Statements that are not historical fact are forward-looking statements and may involve a number of risks and uncertainties. We have used the words “anticipate” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project” and similar terms and phrases, including references to assumptions, in this presentation to identify forward-looking statements. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. The following factors are among those that may cause actual results to differ materially from our forward-looking statements: market demand for coal, electricity and steel; availability of qualified workers; future economic or capital market conditions; weather conditions or catastrophic weather-related damage; our production capabilities; the ongoing integration of Anker and CoalQuest into our business; the consummation of financing, acquisition or disposition transactions and the effect thereof on our business; our plans and objectives for future operations and expansion or consolidation; our ability to obtain permits; our relationships with, and other conditions affecting, our customers; the availability and costs of key supplies or commodities such as diesel fuel, steel, explosives and tires; prices of fuels which compete with or impact coal usage, such as oil and natural gas; timing of reductions or increases in customer coal inventories; long-term coal supply arrangements; risks in coal mining; unexpected maintenance and equipment failure; environmental, safety and other laws and regulations, including those directly affecting our coal mining and production, and those affecting our customers’ coal usage; competition; railroad, barge, trucking and other transportation availability, performance and costs; employee benefits costs and labor relations issues; replacement of our reserves; our assumptions concerning economically recoverable coal reserve estimates; availability and costs of credit, surety bonds and letters of credit; title defects or loss of leasehold interests in our properties which could result in unanticipated costs or inability to mine these properties; future legislation and changes in regulations or governmental policies or changes in interpretations thereof, including with respect to safety enhancements; the impairment of the value of our goodwill; the ongoing effects of the Sago mine explosion; and our liquidity, results of operations and financial condition; the adequacy and sufficiency of our internal controls and legal and administrative proceedings, settlements, investigations and claim. You should keep in mind that any forward-looking statement made by us in this presentation speaks only as of the date on which we make it. See also the “Risk Factors” of our 2006 Annual Report on Form 10-K and in our subsequent filings on Form 10-Q, all of which are currently available on our website at www.intlcoal.com. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this presentation except as may be required by law. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this presentation might not occur. Forward-Looking Statements |
3 Mining Opportunities Company Overview |
4 Mining Opportunities Prominent position in 3 of the 4 largest coal producing regions in the U.S. Large reserve base of 958 million tons is 69% owned and provides attractive internal expansion opportunities Selective production growth strategy targets metallurgical and high quality steam markets for enhanced margins Productive, 100% union free workforce Strong balance sheet with low level of long-term legacy liabilities Investment grade customer base extends across diverse market regions Experienced management team Favorable long-term coal industry fundamentals Key ICG Highlights |
5 Mining Opportunities Summary Statistics Market capitalization 2 : $679 million Coal Reserves: 958 million tons Reserve life: Approximately 55 years Employees: 2200 2007E 1 tons sold: 19–20 million 2007E 1 tons produced: 17–18 million Notes: 1 Per management guidance as of April 25, 2007 2 Market capitalization is based on 152.9 million shares outstanding and a stock price of $4.44 as of Sept. 28, 2007 Leading Appalachian coal producer formed in May 2004 by an investor group led by Wilbur Ross October 2004 – acquired 5 major mining complexes and substantial coal reserves through the bankruptcy sale of Horizon assets November 2005 – completed stock acquisition of Anker and CoalQuest which added 5 mining complexes and boosted reserves by nearly 75% November 2005 – began trading on NYSE under symbol ICO December 2005 – completed $231 million equity offering June 2006 – completed $175 mm senior notes offering and credit facility July/August 2007 – completed $225 mm convertible senior notes offering International Coal Group Overview |
6 Mining Opportunities 12 active mining complexes - 7 in Central Appalachia, 4 in Northern Appalachia and 1 in Illinois Basin 3 mine complexes (Raven, Philippi/Sentinel and Beckley) opened within last 12 months; Tygart #1 to open by mid-2009 Other additional projects are in planning stages, but development is contingent upon securing favorable market commitments Current and Future Operations Illinois Illinois Kentucky Ohio Beckley West Virginia Virginia MD East Kentucky Flint Ridge Hazard Knott County Raven Eastern Buckhannon Philippi Tygart Valley #1 Vindex Patriot Jennie Creek Current Operations Future Operations |
7 Mining Opportunities ICG controls 958 million tons of high-quality coal reserves that are primarily high BTU, low sulfur steam and metallurgical quality coal 54% of Appalachian region reserves are metallurgical quality High Caliber Reserve Base CAPP, 223 million tons NAPP, 355 million tons Illinois Basin, 380 million tons 40% 23% 37% |
8 Mining Opportunities Total Reserve Profile: Owned vs. Leased 69% 31% Leased 294 million tons ICG ownership is largest % among publicly traded peers Peer group median ownership is less than 30% Owned 664 million tons |
9 Mining Opportunities Projected Production Note: 1 2005 pro forma for acquisition of Anker / CoalQuest 2 Per management guidance as of April 25, 2007 8 10 12 14 16 18 20 22 24 26 2005 2006 2007 16.5 14.9 17-18 1 2 Production Outlook – Selective Growth CAPP 66% 68% 67% NAPP 19% 19% 21% ILB 15% 13% 12% Production by Region Target projects that create high margin production Rationalize marginal mines Key focus: increase met tons Three mine complexes brought on line in past 12 months Added 4.1 mm annual tons production capacity 4 th planned for 2009 |
10 Mining Opportunities Began shipments in October, 2006 Operating 2 sections 1.2 million tons/year of high quality utility coal Full production expected by December, 2007 Targeting Southeastern utility market Raven Complex (Kite, KY) |
11 Mining Opportunities Resumed production in November 2006 after 8 month construction outage 2 of 3 planned sections are now in operation 1.5 million tons/year of high quality utility/high vol met coal Full production expected by first quarter, 2008 Philippi-Sentinel Mine (Philippi, WV) |
12 Mining Opportunities Production commenced September 2007 Only one of 3 planned sections now producing 1.4 million tons/year of low vol met coal Full production expected by mid-2008 30 to 50% of production will likely go to export market Beckley Complex (Eccles, WV) |
13 Mining Opportunities Site development – 2007 Major construction of shafts and slope – 2008 Planned production start-up in mid-2009 3.5 million tons/year of high vol utility/met coal Underground longwall mine Tygart #1 Complex (Taylor County, WV) |
14 Mining Opportunities 2.4 1.9 0.5 0.1 0.0 0.5 1.0 1.5 2.0 2.5 3.0 2006 2007 2008 2009 Increasing Metallurgical Coal Production |
15 Mining Opportunities Projected Sales 19-20 19-21 na (mm tons) Committed Tonnage Strong committed sales level for 2008-09, yet substantial room for upside from market improvement 2 Note: 1 Committed tonnages for 2008-2009 are approximations as of 10/01/07 2 Per management guidance as of April 25, 2007 Favorable Sales Position 99 69 47 5 11 1 26 42 0 20 40 60 80 100 2007 2008 2009 Uncommitted Committed (subject to re-openers) Committed 1 1 |
16 Mining Opportunities 100 100 97 92 87 61 60 56 3 8 13 39 40 44 0 20 40 60 80 100 ICG James River Massey Alpha Arch Peabody Foundation Consol Non-Union Union Workforce Composition Largest completely non-union coal company in the U.S. Many peers are vulnerable to substantial cost increases due to United Mine Workers of America (UMWA) contract renewals Productive, Non-Union Workforce |
17 Mining Opportunities 3,574 2,455 764 382 320 141 137 123 Reclamation 66% Rockefeller 4% Workers Comp 2% FAS 106 13% Black lung 15% Source: Company Reports as of 12/31/06 ICG Legacy Liabilities Total: $141mm Total Legacy Liabilities Notes: 1 Legacy liabilities include Post Retirement Benefits, Black Lung liabilities, Reclamation liabilities, Workers Compensation and Coal Act Liabilities ($ in millions) Low Legacy Liabilities 1 |
18 Mining Opportunities The members of ICG’s senior management team have broad industry work experience Position Years in Industry Prior Employer Ben Hatfield President and CEO 27 Arch Scott Perkins Senior Vice President, KY and Illinois Operations 30 Horizon Sam Kitts Senior Vice President, WV and MD Operations 19 Alpha Roger Nicholson Senior Vice President, General Counsel & Secretary 21 Jackson Kelly Mike Hardesty Senior Vice President, Sales & Marketing 24 Arch Gene Kitts Senior Vice President, Mining Services 30 Arch Brad Harris Senior Vice President and Chief Financial Officer 1 GMH Communities Trust Charles Snavely Vice President, Planning and Acquisitions 28 James River Experienced Management Team |
19 Mining Opportunities Update on Financial Matters |
20 Mining Opportunities Key components of the 2007 transition – Complete ramp-up of strategic development projects representing 4.1 million annual tons of new production for 2008 and beyond. • Key focus is on high-margin met coal projects • Secure margins on new production to replace approximately $30 million in 2006 income from expired brokered coal contracts – Focus management efforts and capex on strengthening operating performance – Concurrently reduce exposure to marginal mines Investment strategy is unchanged: Maintain a conservative capital structure and flexible balance sheet to support growth initiatives and possible acquisitions ICG Is Navigating a Critical Transition in 2007 |
21 Mining Opportunities Denmark Property Sale Undeveloped Southern Illinois property sold to Arch Coal in transaction closed on September 28 – ICG estimates coal reserves at 117 million tons – Arch believes the property could yield as much as 157 million tons with the mining methods and market strategy it expects to employ Consideration of $39 million cash plus $4 million in future royalties Win-win for both companies Reserves not part of ICG’s near-term business plan – Current focus is on expanding production at ICG Illinois Viper Mine – ICG still controls over 350 million tons of undeveloped Illinois reserves that can be developed if market conditions warrant |
22 Mining Opportunities During July & August, ICG completed private placement of $225 million in 9% Convertible Senior Notes due 2012 – $195.0 million senior notes offering closed on July 31 – Additional $30.0 million over-allotment exercised Aug. 28 – Simultaneously reduced senior line of credit by $225 million Portion of net proceeds used to repay $25.0 million bridge loan and $65.0 million outstanding under senior credit facility Remainder of net proceeds to fund working capital, capital expenditures, and for general corporate purposes The company now expects to have sufficient liquidity to execute its business plan and capital program through 2008 and beyond. Financing Developments |
23 Mining Opportunities During 2007-2008, $319 million in planned capex will be focused on projects that offer the greatest return Priority development projects are Raven, Sentinel-Clarion and Beckley. The Tygart #1 project is expected to begin major construction in 2008 with production start-up in mid-2009 Capital Expenditures ($mm) Total $116 $196 $177 $142 Capital Expenditures 60% 60% 55% 55% 45% 45% 40% 40% 0 50 100 150 200 250 2005 2006 2007 2008 Maintenance Growth |
24 Mining Opportunities Update on Coal Market |
25 Mining Opportunities 2007 Trends Indicate Strengthening Market Utility demand is rising – Electric generation up 2.5% YTD vs. 2006 (EEI) – EIA forecasts coal demand to be up 16mm tons in 2007 and 1mm in 2008 1 Coal production continues to decline – YTD 2007 is 14.0mm tons lower than 2006 2 – Full year production projected to be 28mm tons (2.5%) below 2006 Import / Export outlook is increasingly favorable – Imports projected lower by 2.1mm tons at year end – Exports to increase by 4.5mm tons at year end – Tightening international supply has created tremendous price momentum • Prices are up by +25% during March-Sept 2007 Substantial price improvement expected as supply & demand correction becomes apparent Note 1: Per EIA Short-term energy outlook 09/11/2007 Note 2: Per EIA Weekly Report on US Coal Production 1 1 |
26 Mining Opportunities Prompt Month Spot Prices End of Month Values per United $34.00 $36.00 $38.00 $40.00 $42.00 $44.00 $46.00 $48.00 $50.00 $52.00 $54.00 $56.00 $58.00 $60.00 CSX 12500 1.6# Pitt 8 13000 3.4# Prompt Market is Rebounding |
27 Mining Opportunities $35.00 $38.00 $41.00 $44.00 $47.00 $50.00 $53.00 $56.00 $59.00 CAPP 12500 <1% Forward Prices 31-Jan-06 $57.50 $55.50 $54.75 $54.00 30-Sep-06 $47.85 $48.75 $49.50 $50.25 31-Dec-06 $41.25 $44.50 $45.50 $46.50 31-Jan-07 $37.00 $40.25 $42.75 $44.00 31-Jul-07 $43.25 $46.50 $49.35 $51.10 28-Sep-07 $46.00 $50.25 $52.00 $53.50 2007 2008 2009 2010 Long Term Prices Also Trending Up |
28 Mining Opportunities Outlook for Coal Going Forward |
29 Mining Opportunities US DOE forecast * predicts electricity demand growth of 41% from 2007 to 2030, with coal’s portion increasing from 50% to 57% – Nuclear provides about 20% of electricity today, but maintaining that level requires building 35-40 new plants within 20 years – an unlikely pace – Natural gas fuels about 19% of electricity today, but growth faces challenges of price volatility, supply uncertainty, & cost that is over 2X coal – Hence, coal will continue to be the mainstay for US electricity generation Additional long-term demand will come from emerging markets for coal conversion technologies (liquefaction & gasification) Heavily politicized climate change debate must eventually be balanced with economic reality – There is no viable replacement for coal that doesn’t force an untenable increase in energy cost and decrease in availability – Anticipate a compromise that advances research and technological solutions, but stops short of near term punitive restrictions that burden the US economy Long-Term Fundamentals Remain Favorable (*) Per EIA Long-term Energy Outlook February 2007 |
30 Mining Opportunities Continued growth in coal demand to supply US energy needs Build-out of scrubbers by Eastern utilities will generally favor Appalachian region coals over Powder River Basin – Higher Btu and lower transportation cost will be key economic advantages – Depletion of CAPP reserves should keep Eastern supply tight & pricing firm; larger reserve holders will be well-positioned Substantial increase in producer market discipline – Transparency associated with publicly traded producers will encourage closer management of production/supply – More cautious investment in future mine expansion projects Overall strengthening of industry through consolidation and attrition as marginal mines and operators exit the business General Outlook for the US Coal Industry |
31 Mining Opportunities Thank You! |