Mining Opportunities Bennett K. Hatfield President and CEO November 29, 2007 Bear Stearns Commodities & Capital Goods Conference 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 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 effect 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 claims. 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/A and in our subsequent filings on Form 10-Q/A, 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 Well-positioned with operations in 3 of 4 largest US coal producing regions Extensive reserve base (69% owned) supports internal growth opportunity Growth strategy targeted toward higher margin metallurgical and premium steam coal markets 100% union free workforce Solid balance sheet with minimal long-term legacy liabilities Large investment grade customer base Key ICG Highlights Summary Statistics Market capitalization 2 : $748 million Coal reserves: 958 million tons Reserve life: Approximately 55 years Employees: 2,200 2007E 1 tons sold: 18.6-19.0 million 2007E 1 tons produced: 17–18 million Notes: 1 Per management guidance as of October 24, 2007 2 Market capitalization is based on 152.9 million shares outstanding and a stock price of $4.89 as of November 27, 2007 |
4 Mining Opportunities 12 active mining complexes - 7 in Central Appalachia, 4 in Northern Appalachia, and 1 in Illinois Basin 3 mine complexes (Raven, Sentinel and Beckley) opened within last 12 months; Tygart #1 expected to open by late 2009 Current and Future Operations Illinois Illinois Kentucky Ohio Beckley West Virginia Virginia MD East Kentucky Flint Ridge Hazard Knott County Raven Eastern Buckhannon Sentinel Tygart Valley #1 Vindex Patriot Jennie Creek Current Operations Future Operations ADDCAR ICG Corporate |
5 Mining Opportunities ICG controls 958 million tons of high-quality coal reserves that are primarily high BTU, low sulfur steam and metallurgical 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% |
6 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 |
7 Mining Opportunities Projected Production Note: 1 2005 pro forma for acquisition of Anker / CoalQuest 2 Per management guidance as of October 24, 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 Key focus: increase met tons Rationalize marginal mines Three mine complexes brought on line in past 12 months added 4.1 mm annual tons production capacity |
8 Mining Opportunities Began shipments in October 2006 Two underground mines now operating 1.2 million tons/year of high quality steam coal Full production expected by early 2008 Target market is the southeastern utility sector Raven Complex (Kite, KY) |
9 Mining Opportunities Resumed production in late 2006 after 8-month construction outage 2 of 3 planned sections are now in production 1.5 million tons/year run rate expected by 1 st quarter 2008 Increasing shift to high volatile met market generates significant margin increase Sentinel Mine (Philippi, WV) |
10 Mining Opportunities Production commenced September 2007 One of 3 planned sections now producing 1.4 million tons/year of low vol met coal Full production expected by mid-2008 Strong interest from both export and domestic steelmakers Beckley Complex (Eccles, WV) |
11 Mining Opportunities Site development: 2007-2008 Major construction of shafts and slope: 2008-2009 Planned production start-up in late 2009 3.5 million tons/year Quality well suited to either premium utility or high volatile met coal markets Underground longwall mine Tygart #1 Complex (Taylor County, WV) |
12 Mining Opportunities 2.3 2.0 0.5 0.1 0.0 0.5 1.0 1.5 2.0 2.5 2006 2007 2008 2009 Increasing Metallurgical Coal Production Est. Est. |
13 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 estimated as of 11/26/07 2 Per management guidance as of October 24, 2007 Favorable Sales Position 100 83 52 2 8 15 40 0 20 40 60 80 100 2007 2008 2009 Uncommitted Committed (subject to re-openers) Committed and priced 1 1 |
14 Mining Opportunities 0 500 1,000 1,500 2,000 2,500 3,000 3,500 2006 Actual 2007 Estimate 2008 Estimate Year Thermal Met Total Exports ICG Export Sales Climbing Sharply |
15 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: $141mm Total Legacy Liabilities¹ ($ in millions) Notes: 1 Legacy liabilities include post retirement benefits, black lung, reclamation, workers compensation and Coal Act liabilities Low Legacy Liabilities |
16 Mining Opportunities Manufactures highwall mining systems Enjoys exclusive U.S. patent rights Introduced new narrow- bench system into marketplace Q2 2007 Significant growth potential for both domestic and international markets ADDCAR – Expanding Opportunities |
17 Mining Opportunities Update on Financial Matters |
18 Mining Opportunities Key components: – Complete ramp-up of strategic development projects representing 4.1 million annual tons of new production for 2008 and beyond • Focus on high-margin met coal operations • Secure margins on new production to replace approximately $30 million of margin contributed from expired brokered coal contracts – Focus management efforts and capex on strengthening operating performance – Concurrently reduce exposure to marginal mines ICG Is Navigating a Critical Transition in 2007 |
19 Mining Opportunities ($ in millions) Tons sold 19.4 14.6 13.9 Revenue $891.6 $664.9 $644.2 % Growth 37.1% 29.7% (3.1%) Avg. coal rev/ton sold $43.05 $43.04 $42.46 EBITDA $71.7 $41.1 $57.9 % Margin 8.0% 6.2% 9.0% Year Ended December 31, 2006 September 30, 2006 September 30, 2007 Nine Months Ended Financial Performance Summary |
20 Mining Opportunities Projected 2008 capital spending of $155 million includes: – Completion of the Sentinel and Beckley projects – Initial site development & slope construction at Tygart #1 complex – Continued upgrading of equipment & facilities at other ICG operations Capital Expenditures ($mm) Total $116 $196 $190 $155 Capital Expenditures 60% 60% 55% 55% 45% 45% 40% 40% 0 50 100 150 200 250 2005 2006 2007 2008 Maintenance Growth Est. Est. |
21 Mining Opportunities Update on Coal Markets |
22 Mining Opportunities Near Term Trend - Continued Price Growth Electricity output up 2.8% YTD Domestic coal production in decline; down 13 million tons YTD per EIA Regulatory issues will further temper output - New MSHA regulations - Continued surface permitting delays Dramatic import / export change - Import growth stalled - Export metallurgical coal demand continues to climb - Export steam market seeing dramatic demand increase Note 1: Per EEI Note 2: Per EIA Weekly Report on US Coal Production 11/23/07 1 2 |
23 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 Has Rebounded |
24 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 26-Nov-07 $52.50 $58.10 $56.85 $56.85 2007 2008 2009 2010 Term Prices Have Recovered |
25 Mining Opportunities Prompt Qtr Index International FOB Vessel Prices $40.00 $50.00 $60.00 $70.00 $80.00 $90.00 $100.00 $110.00 South Africa Russia Australia Columbia Indonesia Average Origin Country March 2007 November 2007 Steam: Tremendous price momentum around the globe – Average price increase March- November is over $41/ton (up 78%) – International steam coal prices are rapidly pulling NAPP & CAPP production away from domestic market – Exports are balancing US inventory Met: Prices also rising due to demand and shipping issues – Australia: continued port issues – Russia: rail/political Issues – China: coke exports reduced – World steel demand is strong Export Market Has Driven the Recovery |
26 Mining Opportunities Outlook for Coal Going Forward |
27 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 – Coal is expected to continue to be the mainstay for US electricity generation Additional long-term demand is expected to come from emerging markets for coal gasification and liquefaction 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 |
28 Mining Opportunities Continued growth in coal demand to supply US energy needs Build-out of scrubbers by Eastern utilities should 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 supply discipline as producers have learned hard lessons from broad demand swings of 2005-07 Overall strengthening of industry through consolidation and attrition as marginal mines and operators exit the business General Outlook for the US Coal Industry |
29 Mining Opportunities Thank You! |