Creating a Sustainable Mongolian Coal Mining Industry

Arshad Sayed,

President for Peabody

Mongolia and India

May 23, 2012

Presentation Overview

I. Coal Facts

II. Lessons from Other Coal Markets

III. Key Factors for a Sustainable World Class Coal

Mining Industry

IV. Peabody’s Best Practices in Coal Mining

V. Mongolia’s Future in the World Coal Market

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I. Coal Facts

● Almost half of the world’s additional energy demand over the past

10 years was provided by coal

3 Source: IEA World Energy Outlook 2011

● Coal provides 30% of global primary energy needs

● Coal-fired power plants generate 41% of the world’s electricity (more than

any other fuel)

● Coal is a vital resource for industry as needed to produce 68% of the

world’s steel

4 Source: BP Statistical Review of World Energy 2011

I. Coal Facts

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1,000

2,000

3,000

4,000

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Coal Oil N. Gas Nuclear Hydro Other

I. Coal Facts – The World’s Fastest Growing Major Fuel

0%

10%

20%

30%

40%

50%

Coal NaturalGas

Hydro Oil Nuclear

48%

31%

13%

29%

7%

Source: BP Statistical Review of World Energy 2011; International Energy Agency, World Energy Outlook 2011 ‘Current Policies’ scenario. 5

Coal Grows 65% by 2035 to Become World’s Largest Energy Source

Growth 2000 – 2010 Growth to 2035

2009

2020

2035

II. Lessons from Other Coal Markets

● Coal provides a significant direct contribution to

economic development at local level, particularly in

developing countries

– Source of foreign hard currency earnings (from coal export)

– Way to save import costs

● Energy is central to sustainable development and

poverty reduction efforts

– Millennium Development Goals are not fully achievable without

clean, reliable and affordable energy from coal

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II. Lessons from Other Coal Markets

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Example from Hunter Valley, Australia

● Australian coal mining is now a blend of both the

traditional extractive industry and the new era of high-

tech knowledge-based economic activities

● Coal mining helps make Singleton - in the geographic

heart of the Hunter Valley - one of Australia's richest

locations:

– Average wage is A$48,000

– Contributes A$2.5 billion from coal, tourism and other industries

to the economy

– Population 22,500

III. Key Factors for a Sustainable World Class Coal Mining Industry

Sustainable coal mining means mining coal safely, profitably and in

socially and environmentally responsible ways, over a long period of

time so that the resource benefits not just this generation, but

generations to come as well.

Industry and company responsibilities to meet this goal:

● Adhere to world class standards and techniques in safety,

operations, environment and social responsibility

● Ensure the right mix of expertise, leadership, management,

reputation and financing

● Ensure best in class techniques to increase productivity and

resource recovery

● Continue advancing clean coal technologies

● Extract greater value from coals through coal conversion

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Government’s responsibility:

● Provide a predictable, stable, and smart policy framework. Both on

the regulatory and tax policy aspects so as to guide development

and use of coal to reduce electricity production costs and minimize

environmental pollution

● Develop an infrastructure platform such that several reserves and

deposits can leverage this in order to avoid duplication and minimize

the environmental footprint

● Encourage through incentives a healthy relationship between

government, private sector, suppliers and contractors across the

value chain, universities and research institutes, and labor unions

● Ensure benefits flow to the community and GoM budget should

invest more in public goods that benefit all levels of the population

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III. Key Factors for a Sustainable World Class Coal Mining Industry

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Impact-based Model of Sustainable Development

Source: “WATER USE AND SUSTAINABLE DEVELOPMENT IN COAL MINING – A CASE STUDY FROM CENTRAL QUEENSLAND” by Robin Evans (Senior

Researcher, Sustainable Minerals Institute, UQ) Peter Roe (Manager – Environment, BMA Coal) Jim Joy (Director, Mineral Industry Safety and Health Centre,

UQ)

III. Key Factors for a Sustainable World Class Coal Mining Industry

IV. Peabody’s Best Practices in Coal Mining

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OVERVIEW

• The world’s largest private-sector

coal company (129 years record)

o 251 million tons sold in 2011

o $8 billion in revenues

o 9 billion tons of coal reserves

o 27 billion tons of international resources

• Industry leaders for 40+ years

• Customers on six continents

• 30 mines (Surface/underground; U.S. and

Australia)

• Recognized globally for achievements in

safety, productivity and environmental

excellence

• Large-scale open-cut mining expertise

• Significant financial strength

• Historically recognized as “Fortune’s Most

Admired” and “Forbes 400 Platinum List”

company

Peabody’s Approach to Coal Resource Development

● Peabody has core competencies to share with

global partners:

– Best-in-class safety practices

– World-class mining expertise

– Proven record of environmental

stewardship

– Record of safety, environmental and

corporate leadership

– Global leadership in clean coal solutions

● Sharing these competencies could

have significant benefits for Mongolia:

– Improved safety practices

– Better utilization and recovery of resources

– Greater energy supply reliability

– More efficient methods of production

– Adoption of latest mining technologies

– Enhanced environmental preservation and sustainability in a local area and

communities

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Peabody’s Best-in-Class Safety Practices

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Safety Vision: Zero Incidents of Any Kind

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Source: Peabody 2011 data; U.S. Department of Labor, Occupational Safety & Health Administration, 2010 data; Mine Safety and Health Administration,

2011 data.

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World Class Open-Cut Mining Expertise

● Peabody is the largest

producer of open-cut mined

coal in North America

– 89% of Peabody’s volumes

sold were from open-cut mines

– 148 million tons were produced from

Peabody’s three mines in the Southern

Powder River Basin

– 20 open-cut mines in operation globally

● Peabody optimizes production

using multiple mining methods

– Cast blasting

– Draglines with dozer assist

– Truck and shovel with dozer assist

● Surface operations typically recover 90% to 96% of the coal resource

● Open-cut mines in the U.S. are commercially viable and competitive at stripping ratios of up

to 20:1

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World Class Underground Mining Expertise

● Approximately 11% of Peabody’s tons sold are from 10 underground mines

● Peabody utilizes a wide range of underground mining methods, depending on the geology:

– Longwall mining

– Continuous miners with battery or cable shuttle cars for longwall development

– Continuous miner “super sections,” i.e., two continuous miners and four to seven battery cars for room and pillar mining

– Mobile roof supports and continuous miners for pillar extraction

● Peabody extracts coal from underground seams ranging in thickness from 40 inches to 12 feet

● Peabody strives for maximum resource recovery and coal preparation plan yields with results dependent on geology and customer requirements

– Peabody is the largest user of ash analyzers to monitor and blend coal quality among coal companies in North America

– Peabody uses proprietary software to monitor, optimize and blend coal qualities

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Record of Safety, Environmental and Corporate Leadership

● Seven safety awards and 12+

employees honored

● Six environmental awards in

U.S., Australia and Asia

● U.S. Foreign Policy Association

Corporate Responsibility honors

● Recognition for leadership by

Chief Executive and Institutional

Investor magazines

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30 Major Awards for Leadership in 2011

Big Sky Mine, Montana, USA

Ereen Mine, Bulgan

province, Mongolia

Peabody Completed Mongolia’s First Coal Mine Restoration Project

June 2009

May 2010

August 2010

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Ereen Mine, Bulgan province, Mongolia

Global Leadership in Advancing Clean Coal Solutions

Peabody’s objectives:

● Work to eliminate energy poverty by ensuring that at least half of

new generation is fuelled by coal

● Replace 1,000 gigawatts of traditional coal plants with efficient,

advanced coal technologies

● Develop at least 100 major Carbon Capture and Storage (CCS)

projects around the world within the next ten years. This

complements the International Energy Association’s goal of

deploying more than 2,000 projects by mid-century

● Deploy significant coal-to-gas, coal-to-chemicals and coal-to-liquids

projects globally in the next decade, reducing our overdependence

on oil and natural gas

● Commercialize next generation of clean coal technologies to

achieve near-zero emissions

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Clean Coal Projects in the United States, Australia and Asia

Global Leadership in Advancing Clean Coal Solutions (cont’d)

● China’s GreenGen, Australia’s COAL21 Fund

and U.S. FutureGen projects

● Australia’s Global Carbon Capture and Storage

Institute

● Consortium for Clean Coal Utilization

● U.S. Department of Energy National Carbon

Capture Center

● Clean coal conversion projects with China’s

Huaneng Group and Yankuang Group Co.,Ltd 19

V. Mongolia’s Future in the World Coal Market

Mongolia as “Energy Paradise”

It has the key ingredients for developing a world-

class sustainable coal industry:

● Rich coal resources and world-class coal deposits

● Good geographical location – next to key markets

● Vibrant democracy that expects greater accountability

from government and business

● Special respect for, and relationship with, nature and

environment as a result of being a nomadic nation

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