Western North America’s Export Coal Industry

A Review of the Exporting Regions and the Industry’s Rail and Port Options

第４回石炭投資促進セミナー

12 November 2014

Content

• Introduction • Review of Coal Regions • Overview of Port Options and Capacities • Review of Transportation Options and Cost • Conclusions

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Introduction

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• Regions: • NE BC • Central Alberta • SE BC & Southern Alberta • Northern and Southern PRB

• Distinct coal qualities • Rail distance to terminal options • Distance to Japan

Typical Rail Distances (Kilometers) Coal Region Port Distance

Northeast BC Ridley 988 Central Alberta Westshore 1,082

Ridley 1,374 Southeast BC Westshore 1,190

Neptune 1,200 Ridley 1,790

Southern Alberta Gateway 1,100 Westshore 1,170 Ridley 2,000

Northern PRB Millennium 2,287 Gateway 2,414 Westshore 2,560 Ridley 3,046

Southern PRB Mexport 1,515 Millennium 1,656 Westshore 2,939 Ridley 3,425

Introduction

Source: InfoMine Inc.

6,800 km

11,000 km

7,900 km

Western Export Coal Shipment Summary

Annual Coal Export Shipments from Western Canada (Millions of Tonnes) 1

Terminal 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (est)

Westshore (2) 21.2 21.9 19 21.2 21.1 20.1 24.7 27.3 26.1 30.1 31.5

Neptune 3.5 3.4 5 3.7 4.8 4.3 5.5 5.2 6.4 7.5 7.5 (4)

Ridley (2) (3) 0 1 2.8 5.1 4.8 4 8.1 9.6 11.5 11.8 9 (5)

Total 24.7 26.3 26.8 30.0 30.7 28.4 38.3 42.1 44.0 49.4 48 1. Source, Historic Figures: Westshore Terminals AIF March 18, 2014 2. Includes Petroleum Coke 3. Source: RTI 2013 Annual Report 4. Calculated from Teck’s Q3 2014 production projections 5. Based on estimates of individual shippers’ annual 2014 sales

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• 48Mt total export forecast for 2014 • Westshore estimates 31 to 32Mt for 2014 • Neptune assumed constant • 9Mt estimated for RTI in 2014. Assumes:

• 0.7Mt PCI from Walter in Q4 to total 2.5Mt for year • 1.6Mt from Anglo, slightly less than 2013 • RTI ships 1.5Mt of “recycled material”

NE BC

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NE BC

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SOURCE: Figure 5, British Columbia coal industry overview 2013, Ministry of Energy and Mines, British Columbia Geological Survey, Information Circular 2014-05

Walter Energy’s NE BC Mines

• Mines Idled due to market conditions:

• Willow Creek H1 2013

• Wolverine April 2014

• Brule June 2014

• 2014 sales estimated at 2.3Mt

• No production Q3, only Low Vol PCI sales

• Average realized prices needed in excess of $US 150

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Walter Energy Canadian 2014 Results (000t and US $) 2013 Q1 2014 Q2 2014 Q3 2014 YTD

Total Metallurgical Sales 3,796 598 669 345 1,612 Production 3,600 1060 519 0 1,579 Average Net Selling Price pt $135.93 $123.60 $115.96 $102.85 $115.99 Average Cash Cost of Sales pt $143.06 $149.45 $126.78 $104.17 $130.35 Average Cash Cost of Production pt $103.00 $81.76 $82.71 $82.07

Mid Vol Hard Coking Sales 1,840 278 315 0 593 Production 1,739 491 73 0 564 Average Net Selling Price $144.45 $130.91 $123.35 $126.89 Average Cash Cost of Sales pt $155.38 $150.08 $128.18 $138.45 Average Cash Cost of Production pt $115.46 $85.92 $133.69 $92.10

Low Vol PCI Sales 1,955 320 354 345 1,019 Production 1,861 569 446 0 1,015 Average Net Selling Price $127.91 $117.26 $109.37 $102.85 $109.64 Average Cash Cost of Sales pt $133.34 $147.28 $124.76 $96.74 $122.35 Average Cash Cost of Production pt $91.36 $78.16 $73.31 $76.03

NE BC Licenses and Applications

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West Central Alberta

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Alberta Coal Leases and Application

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Rail to Port Routes Western Canada

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Coal Valley Resources, Inc.

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Coal Valley Resources, Inc.

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Sherritt Consolidated Operating Statistics (Coal Valley & Obed Mines)

2011 2012 2013 Q1 2014

Revenue ($M) $444.8 $352.6 $288.2 $82.2

Cost of Sales ($M) $349.0 $312.1 $325.2 $76.1

Administrative Expenses ($M) $6.3 $7.8 $8.3

EBITDA ($M) $89.5 $32.7 -$45.3 $6.1

Depletion, Depreciation, Amortization ($M) $55.3 $72.7 $46.9

Earnings from Operations ($M) $34.2 -$40.0 -$92.2 $6.1

Production (Mt) 4.4 3.7 3.3 0.8

Sales (Mt) 4.4 3.5 3.3 0.9

Average Realized Prices ($/t $101.61 $101.65 $87.84 $87.95

Unit Operating Cost ($/t) $79.61 $86.48 $82.81 $75.69

Mountain Operations Consolidated Operating Cost Breakdown, FOB Terminals ($/t)

Commissions, Royalties, Freight, Port Fees $25.48 32% $24.21 28% $22.36 27% 40% $30.28

Labour $16.72 21% $19.89 23% $20.70 25% 21% $15.89

Fuel $8.76 11% $10.38 12% $11.59 14% 14% $10.60

Repairs & maintenance $11.15 14% $11.24 13% $9.94 12% 10% $7.57

Rental & Contractors $11.94 15% $11.24 13% $7.45 9% 7% $5.30

Other $5.57 7% $9.51 11% $10.77 13% 8% $6.06

Unit Operating Cost $79.61 100% $86.48 100% $82.81 100% 100% $75.69

SE BC

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SE BC

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SOURCE: British Columbia coal industry overview 2013, Ministry of Energy and Mines, British Columbia Geological Survey, Information Circular 2014-05

SE BC

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Teck Coal

• 2014 forecast

• 26 to 27Mt sales

• $79 to $84pt - average cost of sales before D&A

• Total Capacity Clean Coal 34Mtpa

• Coal price >> $150pt

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Teck Coal (100%) Results 2013 and Q1 – Q3 2014 2013 2014

Q1 Q2 Q3 YTD Production (000t) 25,622 6,730 6,400 6,800 19,930 Sales (000t) 26,911 6,168 6,800 6,700 19,668

Average sale price US$/t $149 $131 $111 $110 $117 Cdn/U.S. exch rate 1.03 1.09 1.10 1.08 1.09

C$/t $153 $143 $122 $119 $127 Cost of Sales (C$/t)

Operating $51 $52 $53 $50 $52 Transportation $38 $38 $37 $38 $38 Inventory Write-Down $5 $2 $3 $3 D and A $27 $29 $26 $27 $27

Total $116 $124 $118 $118 $120 Gross Profit C$pt Sales $37 $19 $4 $1 $7 Gross Profit (C$M) $1,007 $114 $23 $8 $145

Teck's Annual Production Capacities (Mtpa) Operation (100% Basis) Mine Plant

(ROM) (Clean) 1 Fording River 9.0 9.5 2 Greenhills 5.2 5.2 3 Line Creek 3.5 3.5 4 Elkview 6.5 6.8 5 Coal Mountain 2.7 3.5 6 Cardinal River, Alberta 1.7 3.0 7 Quintette Project, NE BC 3.5 3.0

Total 32.1 34.5

Northern Power River Basin

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Powder River Basin Mines

21 Source: BNSF Railway

Northern PRB Rail to Port Options

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Source: BNSF Railway

Spring Creek to: • Ridley: 4,340km • Westshore: 2,560km • Gateway: 2,414km • Millennium: 2,287km • Southern PRB: 378km

Cloud Peak Energy’s Spring Creek Mine

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Cloud Peak Energy Inc. Owned and Operated Mines 2013 Q1-3 2014 Tons sold (M) 86 62.6 Realized price per ton sold $13.08 $13.07 Average cost per ton sold $10.23 $10.52 Export and Purchased Coal Total tons delivered (M tons) 5.5 4.0 Asian export tons (M tons) 4.7 3.2 Revenue (US$M) $265.9 $178.8 Cost of product sold (US$M) $261.2 $188.4 Operating Income (US$M) $68.4 $3.7

Annual Spring Creek Mine Coal Shipments to Asia (Mt) Actual Projected

2007 2008 2009 2010 2011 2012 2013 2015 2019 0.1 0.7 1.6 3.3 4.7 4.4 4.7 6.0 7.0

• Owned and Operated Mines profitable • Export and Purchased Coal ? Yes, with derivatives • Projected Asian market growth to 7Mtpa

Montana: Signal Peak Mine

• As a private company, little information is available • Produced 8.7Mt in 2013, underground longwall

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Southern PRB – Arch Coal

Arch Coal PRB Operating Statistics 2013 Q1-3 2014 Tons sold (Millions) 111.7 91.9 Coal sales realization per ton sold $12.44 $12.86 Cost per ton sold $12.16 $11.14 Operating margin per ton sold $0.28 $0.20

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• Pulled back from the western export market starting in 2012 • Agreement for 2.5Mtpa with Ridley but little or no product

shipped • Owns 38% of Millennium Bulk Terminals-Longview LLC

Western Coal Ports

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Westshore Terminals, Roberts Bank

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Source: National Transportation Safety Board at http://www.tsb.gc.ca/eng/rapports-reports/marine/2012/m12w0207/m12w0207.asp

Westshore Q1- Q3 2014 Results Total (Millions) $ Per Tonne

Tonnes Loaded 23.9

Revenue Coal Loading $236.82 $9.91

Other $5.28 $0.22

Total $242.10 $10.13

Expenses Operating $99.06 $4.15

Administrative $10.92 $0.46

Total $109.98 $4.60

Profit* $92.88 $3.89 * Profit after Net Financing Cost and Income Tax. Excludes proceeds from insurance claim re Dec 2012 vessel incident.

• Loaded 23.9Mt in Q1 - Q3 2014 (59% Met; 40% thermal) • 31 to 32MT forecast for 2014 (30.1Mt in 2013) • Estimated 2014 annual average throughput rate is $10.00pt • 36mtpa committed capacity by 2018 with efficiency improvement

program

Westshore Terminals: Contracts

• Teck Coal • Expires March 31, 2021: • Fixed rate • 19Mtpa minimum starting April 2014

• Cloud Peak Energy • Amended, expires December 31, 2024 • Purchased Coal Valley’s capacity (3Mtpa to

March 31, 2022) for $37M, January 1, 2015 • Existing contract - variable rates based on U.S.

dollar product prices, subject to floor rate

• Grande Cache Coal Corporation – expires March 31, 2022:

• 0.87Mt in H1 2014 at cash costs FOB of about $103pt

• Signal Peak Energy • Produced about 8Mt in 2013

• Peabody • No information

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Westshore's 2013 Shipment Breakdown (Mt and %) Total 30.1Mt

Product Shipper Destination Met 18.1 60% Teck 16.9 56% Korea 11.9 40% Thermal 11.7 39% US thermal 9.3 31% China 6.5 22% Pet Coke 0.3 1% Coal Valley 2.1 7% Japan 6.3 21% 30.1 100% GCCC 1.8 6% Europe 1.7 6%

30.1 100% Taiwan 1.7 6% S. America 1.3 4% Other 0.7 2% 30.1 100%

Neptune Terminals, North Vancouver

• Coal, potash and fertilizer

• Coal portion (46%) owned by Teck

• Coal expansion completed, capacity now 12.5Mtpa, dedicated to Teck, potential to go to 18.5Mtpa

• 2013 shipments about 7.5Mt, assume same for 2014

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Ridley Terminals Inc.

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Source: RTI 2014 Q2 Quarterly Report

• Stockyard expansion & Installation of Second Dumper Postponed

• New Stacker Reclaimer installed • Two Stacker Reclaimers retrofitted in 2014

Ridley Terminals Inc. • Completion of expansion to 25Mtpa in 2014 postponed

• Stock yard expansion and installation of second rotary dumper postponed until coal markets improve

• New stacker reclaimer Installed and two existing stacker reclaimers being retrofitted in 2014 • Resulting capacity possibly 18 to 20Mtpa

• 30Mtpa capacity with addition of 4th stacker reclaimer and completion of 2014 program

• 60Mtpa capacity possible with doubling of facilities on leased adjacent land

• Federal 2014 budget (Bill C-31- June 19, 2014) authorized Finance to sell RTI • Enabling legislation was expected on September 30, 2014 but no announcement

• In H1 2014, RTI shipped 4Mt coal & petroleum coke: • 3.5Mt of coal, 30% less than the 5Mt shipped in H1 2013 • 0.5MT of petroleum coke, 37% less than the 0.7Mt shipped in H1 2013 • Estimated 2014 annual throughput totals 9Mt based on projections for individual shippers,

down 1.5Mt from last quarter’s update

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Ridley – Estimate of Contracted Capacity

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Estimated Annual Contracted Throughput for Ridley Terminal's to 2030 (Millions of Tonnes)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Company 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Ship

pers

Coal Valley 1.6 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0

Arch Coal 2.5 2.5

Pet Coke 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5

Walter Energy 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0

Teck 4.2 3.0 3.0 3.0 3.0 3.0 3.0 2.5 2.5 2.5 2.5 2.5 2.5

Anglo American 1.9 3.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0

Sub-total 15.7 17.0 15.5 15.5 15.5 15.5 15.5 15.0 15.0 15.0 15.0 15.0 11.0

Proj

ects

Hillsborough 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7

Summit Coal 0.8 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9

Coalspur 2.5 4.5 7.4 9.9 10.1 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7

Cardero 0.5 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9

Sub-total 0.5 4.9 7.0 9.9 12.4 12.6 13.2 13.2 13.2 13.2 12.5 12.5 12.5 11.6 11.6 11.6 11.6

Total 16.2 21.9 22.5 25.4 27.9 28.1 28.7 28.2 28.2 28.2 27.5 27.5 23.5 11.6 11.6 11.6 11.6

Fraser Surrey Docks • August 21, 2014 Port Metro Vancouver issued a Project Permit to Fraser

Surrey Docks LP for the development of a Direct Transfer Coal Facility to handle up to 4Mtpa for delivery to vessel terminal at Texada Island .

• Project has potential to increase to 8Mtpa • Any increase over 4Mtpa is subject to a new Port Metro Vancouver

project and environmental review. • Permit has been challenged in Federal court, project’s timing is unclear

• PRB coal is targeted

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Fraser Surrey Docks

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Barge route to Texada Island

Proposed Coal Ports

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Source: SNL Energy

Gateway Pacific Terminal

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Gateway Pacific Terminal

• Owned by SSA Marine

• 1,092-acre site between areas with existing heavy industry

• Served by BNSF

• Capesize vessels

• Project now in the slow moving EIS process • 2015 or later before draft EISs are issued, followed by public comment period and public hearings • Final EISs 2016 or later

• Coordinated EISs underway by U.S. Army Corps of Engineers, Washington state Department of Ecology and Whatcom County

• EISs are required for both the proposed export terminal and BNSF’s associated rail expansion • Through contractor, Corps will coordinate EIS under National Environmental Policy Act (“NEPA”) and

Ecology will coordinate EIS under the State Environmental Policy Act (“SEPA”)

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Millennium Bulk Terminals: Longview, WA

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• Restricted to Panamax vessels, up Columbia River • Owned by Ambre Energy (62%), Arch Coal ($25M for 38%) • Expansion to 25Mtpa in Stage 1 and 44Mtpa in Stage 2 • Coordinated environmental review underway by U.S. Army Corps of Engineers, Washington

state Department of Ecology and Cowlitz County • Through contractor, Corps will coordinate EIS under National Environmental Policy Act (“NEPA”)

and Ecology will coordinate EIS under the State Environmental Policy Act (“SEPA”)

Morrow Pacific Project

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• Owned by Ambre Energy Limited

• Coal to be loaded to covered barges at Port of Morrow near Boardman, Oregon, shipped down the Columbia River to St. Helens and transferred to vessels at Port Westward

• 3.5Mtpa with potential to increase to 8Mtpa

• Progressing through permitting

• In August, Oregon State lands denied project’s dock permit at the Port of Morrow site

• Ambre Energy Limited is appealing

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2,100+ km: Gillette to MEXPORT

MEXPORT Coal & Minerals Terminal

MEXPORT

• Guaymas, Mexico • Current status unknown • Phase 1: Development & Initial Funding - Completion Q2 2015

• Raise $50M development capital • Permitting • Close financing • Complete FEED

• Phase 2: Project Financing - Completion end of 2015 • Raise $650M construction capital

• Phase 3: Construction – Completion end of 2017 • Details:

• Berths for 2 Capesize vessels • 120 - 150 car unit trains • 30+ Mtpa • 2.4Mt storage • Expansion to 100Mtpa

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Transportation Options: FOB Cost

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Combined Rail and Port Costs FOB Transportation Costs of Select Coal Operations and Projects (US$/ton)

Rail Port Total 1 Northeast BC Ridley $20.89 $9.18 $30.07 2 Southeast BC Neptune $22.43 $4.59 $27.03 Westshore $22.25 $7.09 $29.34 Ridley $33.46 $9.18 $42.64 3 Central Alberta Westshore $20.23 $8.76 $28.99 Ridley $25.69 $9.18 $34.87 4 Southern Alberta Gateway $20.57 $8.76 $29.33 Westshore $21.88 $8.76 $30.64 Ridley $37.39 $9.18 $46.57 5 Northern PRB Millennium $24.58 $8.76 $33.35 Gateway $25.95 $8.76 $34.71 Westshore $27.53 $8.76 $36.29 6 Southern PRB MEXPORT $26.21 $8.76 $34.97 Millennium $28.65 $8.76 $37.41

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Conclusions

• 48 -49Mtpa exported from all areas • Ridley only existing terminal with available capacity

• Westshore fully committed (36Mtpa), Neptune captive • Timing of new terminal projects speculative • Ridley is not an economic alternative for all regions

• Existing coal operations not profitable at prevailing prices • Potential to expand exports depends on:

• Improved, sustainable coal price • Economic access to Ridley’s available capacity • Start-up of new terminal capacity

• Opportunities exist for investment at the exploration and development level

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Thank you

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