Coal & Energy 11/3/2011 Inbox Thu, Nov 3, 2011 at 8:03 PM Consuelo Silva <csilva@energypublishing.biz> To: lnielsen@energypublishing.

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TECO Coal seems to be a nice proxy for the current dynamic ruling much of the Eastern U.S. coal industry. The company found new reserves of B high-vol met coal and looks set for quick development, it saw its mining costs take a considerable jump on the back of a number of factors and it saw its production decline maybe 10 percent as a result of increased pressure from MSHA. All of this should sound familiar. As a part of its third quarter earnings report, TECO Coal revealed that it had discovered an additional 65 million proven and probable reserves of met coal on property it controls in Kentucky and another 9 million tons classified as resource. The company said it is evaluating mining plans and markets for the high-vol met coal and estimates the coal could be developed in as little as two to three years. TECO Coal has applied to the State of Kentucky for the necessary permit amendments related to surface development activities to access the reserves. The coal would be similar to TECO s B highvol coal, which is currently selling for $130/ to $140/ton. We have been working for probably a year and half looking at these reserves and we know that they re there, TECO Energy President and CEO John Ramil said during the company s conference call. In addition to being high-quality met reserves, we do own or control the property (they are) on. We can access them underground right by our current processing plants. So it s got the benefit of being high-quality coal, low-cost to get to the prep plant and we do not need any federal permits. We can do it by modifying our existing state permits, and those are all pluses. Ramil said TECO will spend the next year working on the engineering, mining and permitting that

needs to be done with production beginning in the two- to three-year window. He said it would probably take five to six years to reach full production of, potentially, 1.5 million tons to 2 million tons a year. He added that he believes the coal could be produced for about $90/ton all-in cost. In the meantime, TECO Energy earned 42 cents per share, beating the Street estimate by 2 cents and besting the third quarter of 2010 by 18 cents. Revenue during the quarter was $911.4 million compared to $901.8 million during Q3 of 2010, a combination of revenues going up and reduced expenses. TECO Coal expects to sell between 8.2 million and 8.5 million tons at an average price of $88/ton during 2011, but production costs are going to be closer to $79/ton than the previously announced $74 to $78/ton. TECO said it expects its 2012 sales to stay near 2011 levels, with about 50 percent of the coal being specialty products PCI, met and stoker coal and the remainder going into the steam market. TECO Coal had third quarter net income of $14.1 million on sales of 2.1 million tons, compared to $8.3 million on sales of 2.2 million tons in the same period in 2010. In 2011, results reflect an average net per-ton selling price almost 19 percent higher than in 2010 due to a sales mix that was more heavily weighted to specialty coal, including metallurgical and PCI coal. All-in total per-ton cost of production in Q3 increased to more than $81/ton. Cost of production in the third quarter was driven by higher contract miner costs, higher costs related to new roof control requirements, higher costs of all supplies that are oil- related such as conveyor belts and tires, and lower productivity due to continued high levels of safety inspections. TECO Coal estimates that increased safety inspections have reduced production more than 10 percent compared to prior years. Year-to-date TECO has had net income of $38.1 million on sales of 6.2 million tons in 2011, compared to $45.8 million on sales of 6.8 million tons in the 2010 period. The year-to-date sales mix was driven by the same factors as in the third quarter. The 2011 year-to-date average net per-ton selling price was almost $87/ton and the all-in total perton cost of production was $79/ton. TECO Coal's effective income tax rate was 22 percent in the yearto-date period, compared to 23 percent, excluding the effect of the state income tax settlements discussed above, in the 2010 year-to-date period.

Walter results slightly better in Q3 than previous guidance; No. 7 squeeze exited Walter Energy produced 2.3 million metric tonnes of metallurgical coal during Q3 1.7 million tonnes of hard coking coal and 600,000 tonnes of low-vol PCI. In addition, the company produced 1.4 million tonnes of thermal coal.

Walter made $1.21/share during the quarter. Walter's results third quarter 2010 results excluded the impact from the acquisition of Western Coal Corp. and were $2.55/share. "Walter Energy's third quarter financial results were slightly above our expectations for operating income, net income and earnings per share, CEO Walt Scheller said. Consolidated revenues were $690 million, driven by lower volumes than expected, primarily within Canada. The impact of lower volumes was partially offset by higher average pricing. "At Mine No. 7 in Alabama, production is increasing and we are now out of the area where the geological squeeze has more recently constrained our cutting rates. I am also pleased to report that we expect production from the new longwall panel at Mine No. 7 within the next few days. The early start of this new longwall will help us accomplish record fourth quarter hard coking coal production in the U.S." The consolidated average net selling price for hard coking coal increased to $263/tonne, up from $243 in the second quarter. The U.S. segment average net selling price increased to $259/ from $237/tonne. In the Canadian and UK operations, the average net selling price for hard coking coal increased to $277/tonne, up from $262. The Q3 consolidated average cash cost per ton was $132/tonne for hard coking coal, $143/tonne for low-vol PCI and $64/tonne for thermal. On a consolidated basis, cash margins per tonne were $131/tonne for hard coking coal, $66/tonne for PCI and approximately $8/tonne for thermal. Walter anticipates consolidated sales of hard coking coal to be within the range of 2.1 million to 2.3 million tonnes for Q4 and production to be within the range of 2.2 million to 2.4 million tonnes. Sales of low-vol PCI are expected to be in the range of 450,000 to 530,000 tonnes and production to be in the range of 580,000 to 650,000 tonnes. Fourth quarter operating income is expected to be between $190 million and $230 million, net income between $120 million and $150 million, and earnings per share between $1.91 and $2.39.

NRP records record revenues in Q3 as met, Illinois Basin gains take center stage Natural Resource Partners reported record third quarter revenues of $103.8 million, up 29 percent from the comparable 2010 period. Distributable cash flow increased 33 percent to $71.9 million. Excluding a non-cash impairment, net income attributable to the limited partners rose 54 percent to 57 cents/unit. But due to a $90.9 million impairment of assets related to NRP's Gatling, WV property, the company incurred a net loss of 27 cents/unit. Gatling, LLC, the owner of the mine on the property, has indicated to NRP that it is no longer forecasting future production from the mine and is considering selling the mine.

NRP and Gatling have amended the lease with respect to the property to provide that the existing minimum royalty balance of $24.1 million is non-recoupable. Gatling will pay $3.4 million in nonrecoupable minimum royalties over the next two quarters, the minimums will be reduced after the first quarter of 2012, and Gatling will continue to maintain and ventilate the mine. The property has not been in production since April 2010 and NRP's 2011 guidance has never included any production or revenues for the property. "NRP continues to realize record revenues due to increased production in coal, oil and gas and aggregates, improved coal royalty revenues per ton and increased throughput on the infrastructure assets," Nick Carter, president and chief operating officer, said. "In 2011, our large percentage of metallurgical production has benefited NRP's coal royalty revenue as metallurgical coal prices while down slightly from earlier in the year are still strong. NRP has diverse properties We are starting to see some of the benefits from our recent coal acquisitions in the Illinois Basin and increased revenues on the BRP assets acquired last year, Carter said. In addition, we are beginning to see a slight improvement in the economy regarding our aggregates. While we did take an impairment charge this quarter regarding the Gatling WV property, this noncash charge will not impact the ability of NRP to pay its distribution." Coal production increased 10 percent over the third quarter 2010 to 13.6 million tons, levels not seen since 2008. A significant portion of the increase was due to sales of Illinois Basin coal that were deferred from the second quarter due to river flooding. The increased sales, coupled with a 15 percent increase in average coal royalty revenue per ton, caused coal royalty revenues to increase 27 percent to a record quarterly amount of $76.4 million. Total Q3 revenues increased 14 percent over the second quarter 2011 to $103.8 million predominantly due to increases in coal royalty revenues and oil and gas revenue. Coal royalty revenues increased $6.6 million or 10 percent to $76.4 million, the result of an 18 percent increase in coal production. Sales in the Illinois Basin rose due to reductions in inventory at the mines that had increased in the second quarter due to river flooding. The Illinois Basin sales more than offset the decrease in production in the Appalachian Basin. Due to the increase in production in both the Illinois Basin and the Northern Powder River Basin, which both receive lower coal royalty revenue per ton than Appalachia, the average coal royalty revenue per ton decreased 7 percent to $5.61. "We continue to see the benefits of the strong group of lessees we have who continue to do an excellent job of marketing coal into all market situations at attractive prices, Carter said. At this time the metallurgical coal markets are unsettled, and it is expected that metallurgical prices will decrease

somewhat from the current levels, as China is attempting to avoid the higher priced seaborne market but can only do so for a limited time. The utility market is essentially the same with the ongoing recession causing demand for electricity to be at lower levels and low natural gas prices have kept fuel switching at a high level. However, utility stockpiles are at the lowest level we have seen since 2008, many analysts believe we have nearly maxed out the fuel switching capability of the grids, and Europe and Asia are using more coal to substitute for the shut-in nuclear plants.

Q3 for Oxford: It s kind of world where companies make news by getting permits It s a mark of the 2011 mining industry that Oxford Resource Partners mentioned in its earnings report the fact it has done something that at one time would have been taken for granted. "We are on track to fully replace all of the reserves that we mine in 2011, President and CEO Charles Ungurean said. In addition, we have obtained permits covering approximately 5 million tons this year despite the increasingly challenging regulatory environment. As a leading producer of surface mined thermal coal, these actions support Oxford's continued growth trajectory." Oxford s net income for the third quarter was negligible, compared to a net loss for Q3 of 20 cents/limited partner unit. The company produced 8.2 percent more coal year-over-year to 2.1 million tons from 1.9 million tons. Increased production from the Cadiz and Muhlenberg mine complexes carried most of the water. Sales volume increased 12.3 percent to 2.3 million tons from 2.0 million tons, primarily attributable to sales resulting from increased contract commitments. Average sales price per ton increased 8.1 percent to $41.72 from $38.58. The $3.14/ton increase was primarily attributable to higher contracted sales price realizations from fuel escalators and changes in customer mix. Coal sales revenue for Q3 increased by $16.8 million, or 21.5 percent, to $94.9 million. That compared to $78.1 million for the third quarter of 2010. Cost of coal sales (excluding DD&A) increased 29.4 percent to $74.0 million from $57.1 million for Q3 10. The $16.9 million increase resulted from larger production volumes ($8.6 million), an increase in diesel fuel costs of( $2.7 million), higher inventory costs ($2.8 million), higher royalties and production taxes ($700,000) and an increase in all other operating costs of $2.1 million. Cost of coal sales per ton increased 12.6 percent to $33.82 from $30.03. "We believe our strategy of being a low cost thermal coal producer in Northern Appalachia and the Illinois Basin uniquely positions us to generate value for our unitholders, Ungurean said. The supply and demand fundamentals in our market remain positive with thermal coal sold domestically

benefiting from elevated exports and strong met coal demand. Coal inventories at utilities have declined significantly year-to-date and pricing remains favorable for our coal. In addition, we believe that the new Cross-State Air Pollution Rule which takes effect in 2012 will not significantly impact our contracted sales commitments. Ultimately our customers' baseload scrubbed power plants may actually secure additional electricity market share in this stricter regulatory environment."

SunCoke Energy announces 3rd quarter results, ships from Middletown facilities SunCoke Energy reported third quarter net income of $18.4 million and earned 26 cents per share, compared to $37.4 million and 53 cents per share during the third quarter of 2010. The bigger news was earlier in the week the company made its first delivery of met coke to AK Steel from its new constructed Middletown, OH facilities. Over the next several months, our plan is to ramp-up production at Middletown with the expectation that we will be operating at full capacity by July 2012, Fritz Henderson, chairman and CEO of SunCoke, said. OurU.S. cokemaking business, which operated at more than 100 percent capacity, produced a record level of coke in the quarter. Our results were also impacted by administrative costs related to becoming an independent, standalone public company, nonrecurring headquarters relocation activity and start-up costs at our new Middletown, OHfacility. SunCoke s coal mining segment delivered better year-over-year results on stronger met coal pricing, but the company s mining operations continue to be challenged by higher cash costs, deteriorating yields and diminished production. As a result, SunCoke decided to slow its planned expansion and focus our efforts on operational improvements in our existing mines and to augment compliance activities, Henderson said. Revenues rose 22 percent to $403.5 million in the third quarter 2011 versus third quarter 2010 due to increased sales driven by higher coal prices. Operating income, adjusted EBITDA and net income attributable to shareholders declined in the third quarter 2011 due to the impact of some contract amendments and higher costs and operating expenses. The increased costs were driven by higher coal production costs, increased coal and coke volumes, the impact of HKCC and higher corporate expenses associated with public company readiness and relocation costs. (BH)

Black Hills subsidiaries to go with natgas at new generating plants in Cheyenne Black Hills subsidiaries Black Hills Power and Cheyenne Light, Fuel & Power announced that they are going to build two new gas-powered generating stations and are withdrawing a previous request to build three simply-cycle units. Black Hills has filed for a certificate of public convenience and necessity with the Wyoming Public Service Commission to construct and operate a new $237 million natural-gas-fired electric generation facility withinCheyenne city limits. The proposed facility will include one simple-cycle combustion turbine unit with a capacity of approximately 37 megawatts that will be wholly owned by Cheyenne Light. It will also include one 95mw combined-cycle that will be jointly owned by Cheyenne Light and Black Hills Power, with Cheyenne Light owning 40 megawatts and Black Hills Power owning 55 megawatts. Cheyenne Light had previously filed a CPCN with the Wyoming Public Service Commission in August to construct three simple-cycle combustion turbine units with a total gross capacity of 120 megawatts at an estimated cost of $158 million. After Cheyenne Light filed its original CPCN in August, Black Hills Power completed its resource plan, which forecasted the future electricity needs of its customers and determined the most costeffective generation resources to meet those needs. If approved by the Wyoming PSC, construction would begin in 2012, and the facility would begin serving customers in 2014. The utilities chose gas to meet current and future U.S. Environmental Protection Agency emission regulations and policies and diversify Black Hills Power's and Cheyenne Light's generation portfolios. Both units are also capable of backing up intermittent renewable generation resources, such as wind, as needed. (BH)

Alpha Natural Resources doubles profit in third quarter, beats analysts predictions Higher met coal prices paved the way for Alpha Natural Resources to more than double its profit during the third quarter compared to the third quarter of 2010. The company netted $66.4 million on revenue of $2.3 billion that translated into 29 cents per share, beating Street analyst s predictions by 25 cents. Alpha's financial results were impacted by the ongoing geological challenges at the Emerald longwall mine, a notice of force majeure from a steelmaking customer in the Middle East, and protracted quarterly price negotiations with some Asian customers that led to delayed shipments of met coal, as well as lower than expected production at several legacy Massey mines.

Taking a longer view, Alpha is now well positioned for success as the third largest supplier of metallurgical coal globally, with the largest export capacity of any U.S. producer, said company CEO Kevin Crutchfield. The integration of the legacy Massey operations remains on track, and over time we anticipate continued improvement in safety performance, enhanced productivity and meaningful synergies from fostering a unified 'Running Right' culture throughout our organization, all of which will drive value and accrue to the benefit of Alpha's shareholders. Total revenues were $2.3 billion compared to $1.0 billion for Alpha stand-alone in the third quarter of 2010, and coal revenues were $2.0 billion compared to $0.9 billion for Alpha stand-alone in the third quarter last year. Coal revenues were higher than the year-ago period due primarily to the inclusion of the first full quarter of shipments from legacy Massey operations, which contributed $805.4 million of coal revenues for the quarter, combined with a 38 percent increase in average per ton realizations on met coal compared with Alpha stand-alone in the third quarter of 2010. During the third quarter of 2011, Alpha shipped 12.6 million tons of Powder River Basin (PRB) coal, 12.7 million tons of Eastern steam coal including 7.0 million tons from the legacy Massey operations and 5.9 million tons of met coal including 2.1 million tons from the legacy Massey operations. Average per ton realization for PRB shipments rose to $11.98 in the third quarter of 2011 compared with $11.10 in the year-ago period. The average per ton realization for Eastern steam coal shipments was $67.07 compared with $67.72 last year, and the average per ton realization for met coal shipments increased to $168.49 in the third quarter of 2011 compared with $122.24 in the third quarter of 2010. Total costs and expenses during the third quarter of 2011 were $2.2 billion compared to $952 million for Alpha stand-alone in the third quarter of 2010. Cost of coal sales in the third quarter was $1.7 billion, which included $770 million from legacy Massey operations. Adjusted cost of coal sales in the East averaged $75.81 per ton compared with $63.04 for Alpha stand-alone in the third quarter last year. The 2011 per ton cost of coal sales in the East has been adjusted to exclude UBB charges of $10.6 million and closed-mine asset retirement obligation charges of $37.1 million primarily related to changes in estimated future costs of water treatment, as well as merger-related expenses of $62.6 million, including a $39.7 million non-cash charge from selling acquired coal inventories written up to fair value in acquisition accounting and $22.9 million related to retention, severance and employee benefit alignment expenses. The higher cost of coal sales per ton in the East compared to the year-ago quarter is primarily the result of the following factors: reduced production and shipments from our Emerald longwall mine due to geological challenges; lower than expected thermal coal production and shipments from Central Appalachia; more metallurgical coal production; higher variable costs due to the increased volumes and higher per ton realizations on metallurgical coal shipments; increased per ton cost of purchased coal; higher diesel fuel costs; and general inflationary pressures. Cost of coal sales in the

West averaged $10.34 per ton in the third quarter of 2011 compared with $8.57 last year. The yearover-year increase was primarily attributable to a mix shift with proportionally more production coming from Alpha's Belle Ayr mine which has higher production costs due to its higher strip ratio, higher diesel fuel expense, the absence of capitalized development expense at Eagle Butte in 2011 and higher variable costs driven by higher average per ton realizations. Based on the midpoint of the shipment guidance ranges, Alpha is essentially sold out in 2011, with 100 percent of Western steam coal committed and priced at average realizations of $11.93 per ton and 100 percent of Eastern steam coal committed and priced at average realizations of $66.75 per ton. Met coal is 98 percent committed and priced at average realizations of $162.00 per ton. For the year 2012 Alpha has increased its Eastern met coal shipment guidance to a range of 23.5 million tons to 26.5 million tons compared to the previous range of 23 million tons to 26 million tons. Based on the midpoint of the current guidance range, approximately 89 percent of Alpha's anticipated 2012 met coal shipments remains unpriced, with approximately 11 percent committed and priced at an average per ton realization of $143.59 and 39 percent committed and unpriced.