Peabody Energy Announces 2009 Production Cutbacks

Peabody Energy announced in early January that it is reducing its 2009 targets for Powder River Basin coal and Australian metallurgical coal production, reflecting the effects of the global recession.

The company’s 2009 U.S. production is now targeted at 190 to 195 million tons, compared with actual 2008 production in excess of 200 million tons. Targeted 2009 Powder River Basin volumes are being reduced by approximately 10 million tons from 2008 levels to better match production with expected demand and address the current excess customer inventories. The Powder River Basin reductions will be concentrated in lower-quality, lower-margin coal products. Equipment will be relocated to other locations to optimize production and reduce capital spending. Following these cutbacks, U.S. production is essentially fully priced for 2009.

The company’s 2009 metallurgical coal production from Australia operations also will be reduced by up to 2 million tons due to the decline in worldwide steel demand. The company’s total Australia production is expected to be 22 to 24 million tons in 2009 compared with 2008 sales of approximately 24 million tons.

“We are taking prompt market-driven actions to make adjustments to our production platform and respond to the global economic downturn,” said Peabody Chairman and CEO Gregory H. Boyce. “We remain confident in the mid- and long-term outlook for coal demand and expect Peabody to prosper in this environment as we await an economic rebound.”

Actual 2009 production will depend on a number of factors, including the speed of recovery in global markets for electricity generation and steel, as well as the magnitude and timing of stimulus initiatives in the United States, China and other nations.

Caption: Peabody’s Rawhide Mine in the Powder River Basin shipped more than 17 million tons of coal in 2007 and was one of the most productive mines in the nation.

Vale Acquires Coal Assets in Colombia

Vale announces that it entered into a purchase and sale agreement to acquire 100% of the export coal assets of Cementos Argos S.A. (Argos), a Colombian cement producer, for $300 million. Located in the Cesar department, Argos coal assets consist of two mining concessions: El Hatillo, open pit mine, with expected 2008 production of 1.8 million metric tons (mt) of thermal coal ramping up to full capacity 4.5 million mtpy by 2011, and Cerro Largo, under exploration stage. Together these mining concessions have potential for 500 million mt of non-audited geological resources.

Las Cuevas deposit, part of the El Hatillo mining concession, presents the highest potential for additional resources, and Vale has agreed to make an extra payment at fixed price per metric ton of measured and indicated resources exceeding 50 million metric tons, after a confirmatory drilling campaign to be concluded within two years.

Argos coal logistics assets are also included in the deal. Argos has 8.43% stake in the Fenoco consortium that owns the concession and operation of the railroad linking the coal concessions to the SPRC port. It also owns 100% of the concession of the Rio Cordoba SPRC port in the Caribbean coast of the Magdalena Department. Its coal production, which currently uses trucks to reach the port, will begin railroad transportation at the beginning of 2009.

Investment in the coal business is an important part of Vales growth strategy. It already has coal operations in Australia and two joint ventures, one in a coal mine and the other in a coke plant, in China. Vale has also coal projects in different stages of development in Mongolia and Mozambique. Since Colombia is the world’s third largest exporter of high-quality thermal coal, given its low level of sulfur and high calorific value, Vale is seeking to build a coal asset platform in the country to enhance our growth options in the coal business.

Annual Exports Fall Short at Richards Bay

South Africa’s Richards Bay Coal Terminal (RBCT), the world’s largest coal-export facility, said shipments fell for a fourth straight year in 2008 because of lower demand and erratic rail service, according to Bloomberg. RBCT shipped 61.79 million metric tons (mt) of coal last year, 6.6% less than the 66.16 million mt exported in 2007. The pace of exports improved in the last quarter of the year. Derailments, a shortage of capacity on the rail lines and lower orders confined deliveries to 62.66 million mt. The terminal, which currently has the capacity to ship 76 million mt of coal annually, will expand to 91 million mt in 2009.

New Zealand Repeals Ban on Power Plant Construction

The 10-year ban on building thermal power plants will probably be overturned after New Zealand’s Energy and Resources Minister Gerry Brownlee started the

process during December in Parliament, according to the Otago Daily Times. The Electricity (Renewable Preferences) Repeal Bill will overturn what was widely known as the thermal ban, which made it a criminal offense to construct thermal power stations, including gas-fired plants, Mr Brownlee said. “The Government strongly supported renewable energy but a thermal ban now puts the security of our supply at risk. Thermal generation, particularly from gas-fired generation, is the insurance card underpinning the security of our electricity system.”