EX-99.1 2 c18424exv99w1.htm PRESENTATION SLIDES exv99w1
 

Exhibit 99.1
Lehman Brothers CEO Energy/Power Conference Steve Leer Chairman and CEO New York September 6, 2007 Unearthing ValueArch Coal, Inc.

 


 

Forward-looking information This presentation contains “forward-looking statements”-that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties arise from changes in the demand for our coal by the domestic electric generation industry; from legislation and regulations relating to the Clean Air Act and other environmental initiatives; from operational, geological, permit, labor and weather-related factors; from fluctuations in the amount of cash we generate from operations; from future integration of acquired businesses;and from numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive or regulatory nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. For a description of some of the risks and uncertainties that may affect our future results, you should see the risk factors described from time to time in the reports we file with the Securities and Exchange Commission.
Slide 2

 


 

Long-Term Macro Fundamentals Unearthing ValueArch Coal, Inc.

 


 

Developing nations will increase energy use, putting pressure on global supply Electricity Usage Passenger Vehicles per Capitaper Capita 15,000600 U.S.U.S. Italy 12,000Australia Australia 450 9,000U.K. S. KoreaU.K. RussiaItaly300 6,000 S. Korea Malaysiacars per 1000 people 150Russia kilowatt-hours per capita3,000Malaysia MexicoMexico China 00 IndiaIndia China $000000 0$0000 ,00, 00 $10,$20,000$30,000$40,00024 $10,000$$30,0$ GDP per capita (in U.S. $)GDP per capita (in U.S. $)
Source: United Nations’Human Development Report 2005, Slide 42005 World Development Indicators (World Bank)

 


 

Coal’s advantage: abundant, secure and widely dispersed billions of tons Based on current production levels and proven reserves, of oil equivalent 300coal should outlast gas supplies and oil reserves by more than 2x and 4x, respectively 200 100 0Europe Russia
North America Middle East China
India AfricaOther Asia Central and South Pacific America
OilNatural GasCoal
Slide 5Source: Bank of America, BP Statistical Review and Blackwell Energy Research

 


 

Growth in electric generation markets will drive coal consumption in the U.S. Expand 1% increase in GDP = 0.7% increase in the Pieelectric generation
Fill in Increased utilization at existing plants can Troughsexpand demand by at least 100 million tons1
Grow New coal plant construction the Basewill add meaningfully to coal’s 310 GW installed base
Slide 61/ -Assumes an 80% demonstrated peak utilization vs. 73% average utilization.Source: EIA and ACI

 


 

Over the long-term, clean-coal technologies can broaden market demand for coal
A plug-in hybrid is one            Coal can be converted Gasification can reduce entry for coal into the into ultra-low-sulfur emissions & transform transportation marketdiesel fuelcoal into pipeline- quality natural gas `Likely to create `At current oil prices, significant            coal-to-liquids `IGCC & CCS should off-peak demand facilities are enable coal to for electricityeconomically prosper in a carbon feasibleconstrained world Public policy initiatives for domestic energy security are spurring debate on energy legislation and financial incentives for clean-coal technology development Slide 7Source: ACI

 


 

Electric generation will increasingly rely on foreign sources of natural gas U.S. Natural Gas ProductionRig U.S. Natural Gas Supply TcfCount (in trillion cubic feet) 252,000 1,60029 20 1,20022 151000% 800increase 10in LNG 400 50 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 U.S. Dry Gas Production2005 2030 North American Production North American Rig CountImported LNG U.S. dry natural gas Increased dependence on production has declined foreign natural gas will be since peaking in 2001 required for natural gas just despite an ever increasing to maintain its share of number of rigs in productionelectric generation
Slide 8Source: EIA, ACI and Baker Hughes

 


 

Significant nuclear expansion is necessary just to maintain share U.S. Nuclear Capacity FactorsU.S. Nuclear Plants 144 100%
90%104 80%
60% 56% 40% 1980 1990 2000 2002 2004 20062005 2030 Nuclear utilization has increased At least 40 new units are needed substantially over the past 25 yearsjust to maintain current share `Since 2000, nuclear utilization has `No new plant additions are been at or close to 90%forecasted in the next 10 years It is unlikely that utilization can Current nuclear generating increase further given refueling            infrastructure is aging and maintenance requirements`By 2030, the average age of nuclear infrastructure will be 50 years old Slide 9Source: EIA and ACI

 


 

Coal is — and will remain — a vital part of America’s energy future
U.S. Energy ReservesU.S. Petroleum SupplyU.S. Fuel Prices (in trillion Btu)(million bbls per day)($/mm Btu, at 8/29/07)
$12.32
Coal: 95%Domestic 40%$7.89 Impo rs t : 6 % 0 $0.63
PRB 8800 Nat. GasCrude Oil CoalNatural GasOilNon-OPECOPECDomestic FOB mine Wellhead (2008)(Jan. 2008)
Slide 10Source: EIA, Platts and NYMEX

 


 

Current Trends Unearthing ValueArch Coal, Inc.

 


 

U.S. coal market fundamentals are improving in 2007 100Electric generation is up 1.9% year-to-date through Aug. 25 90+26 80 mm MWHrs+8 70 60 Jan Mar May Jul Sep Nov 200520062007 26U.S. coal production is down 242.1% over same time frame 22 Million Tons 20 18 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 200520062007 Slide 12Source: ACI, EEI, EIA and MSHA

 


 

Pressures on Appalachian coal production continue to build Central Appalachia 300 250 in million tons 200 150 978000 01 0020300506 191991999 2 20 2202004 220 Despite price spikes in 2001 & 2004, production peaked in 1997 Cost pressures show no signs of abating Loss of synfuel tax credits may idle some high cost mines Legal/regulatory hurdles threaten to escalate production decline Consolidation and rationalization are widely anticipated Slide 13Source: Platts and ACI estimates

 


 

Strength in international coal markets likely to spill over into domestic market U.S. Net Exports (through June 2007) U.S. export opportunities likely 20%to grow in 2008 due to tight international supply conditions 15% Timing for start-up of Arch’s 18%Mountain Laurel longwall in 4Q07 10%is highly advantageous `Flexibility to sell substantial 7%portion of tonnage into met market 5% 2% 0% Steam ExportsMet ExportsImports Strong seaborne markets driven by higher consumption in Asia U.S. coal increasingly valued for purposes of supply diversification U.S. import growth muted as supply is diverted into strong seaborne trade Slide 14Source: ACI and NMA

 


 

While future prospects are bright, near-term challenges persist Power Plant Stockpile Levels 75 70 65 60 55 50 Days Supply 4546 days 4039-day average 35 3032 days 25 Jan-01Jan-02Jan-03Jan-04Jan-05Jan-06Jan-07 Days Supply5-Yr Min5-Yr Max New stockpile norm may be closer to 5-year maximum vs. average Arch estimates stockpiles at the end of August to be roughly 44 days Slide 15Source: ACI and EIA estimates

 


 

Climate Concerns and the Future of Coal Unearthing ValueArch Coal, Inc.

 


 

Coal is being used in increasingly clean ways 200% +182% 150%Electricity from Coal 100% 50% 0% -50%NOx -33% SO2 -55% -100%PM10 -83% 1970 1975 1980 1985 1990 1995 2000 2005 2006
More progress is expected under existing regulations Higher efficiency rates and the eventual deployment of coal gasification technologies create opportunities for reducing carbon intensity as well
Slide 17NOx (Nitrogen Oxide), SO2 (Sulfur Dioxide), PM10 (Particulate Matter)Source: NMA

 


 

Governmental support for clean-coal technologies is growing “The Strategic Energy Fund would provide $3.5B in incentives and grants to speed the development of more clean coal plants across the country ...” SenatorHillary Clinton (D-NY) “...we’ll need to invest more in the clean technology that will allow us to burn more coal, our country’s most abundant fossil fuel.” Senator Barack Obama (D-IL)
Nancy Pelosi, Speaker of the House (D-CA) “We have a coal industry in our country that cannot be ignored. We want technology to be the answer ... My view is that we must move in a very strong, forceful and generous way in investing in the research for sequestration...” Slide 18Source: Google, Congressional web sites

 


 

Developed world must adopt climate solutions and export these to developing nations CO2 Emission Trends 1990-2030 Rest of Non-OECD
China Rest of OECD United States
China is likely to surpass the U.S. in GHG emissions this year The growth rate of GHG emissions in developing nations is likely to significantly exceed that of the developed world Slide 19Source: IEA World Energy Outlook 2006, Guardian

 


 

Arch Coal
Unearthing ValueArch Coal, Inc.

 


 

About Arch Coal, Inc.
One of the largest coal producers in the U.S. Core business is providing U.S. power generators with clean-burning, low-sulfur coal for electric generation `Supplies roughly 11% of U.S. coal needs `Provides source fuel for roughly 6% of U.S. electricity Talented workforce operates large, modern mines Industry leader in mine safety, productivity and reclamation Slide 21Source: ACI

 


 

Arch’s national scope of operations includes presence in four major U.S. coal basins Powder River BasinIllinois Basin 1.Coal Creek 2. Black Thunder12
12Knight Hawk 3421 43 Western BituminousCentral 1.SkylineAppalachia 2.Dugout1.Mountain Laurel 3. Sufco2.Coal-Mac 4. West Elk3. Cumberland River 4. Lone Mountain 2.9-Billion Ton Reserve Base
PRBWBITILBCAPP (1,829)(464)(220)(393)
Slide 22ComplianceLow-sulfurHigh-sulfurSource: ACI

 


 

Arch’s extensive and diverse reserve base is advantageous for sourcing new coal plants Site Prep/PermittedUnder ConstructionOnline Tucson Electric 400 MW 10 10 GWGWSantee Cooper 580 MW
PRBCAPPMidAmerican PRBCAPPNAPP IllinoisNAPP790 MW IllinoisLignite
3 Total coal demand of 40 3 Total coal demand of 35 3 Total coal demand of 6 million tonsmillion tonsmillion tons 3 Arch’s reserve base 3 Arch’s reserve base 3 Arch’s reserve base strategically positioned strategically positioned strategically positioned to service more than to service more than 85 to service demand from half of proposed plantspercent of new plantseach of these plants Slide 23Source: Platts and ACI

 


 

Arch has one of the industry’s strongest and cleanest balance sheets Net Debt as Percentage of Capitalization 83.9%
58.0% 46.2% 38.9%
12/31/00 12/31/02 12/31/04 12/31/06 Legacy Liabilities of Largest U.S. Coal Companies 12/31/06 (in millions) $3,357Pension Reclamation $2,267Postretirement Medical Workers’Comp
$771 $397$337 Competitor #1Competitor #2 Competitor #3 Competitor #4Arch Coal
Slide 24Source: SEC filings compiled by ACI

 


 

Arch’s 2006 performance validates its focus on three key pillars for success
Operating the world’s safest coal mines `Recognized by MSHA’s Sentinels of Safety award for operating the nation’s safest underground coal mine in 2005 `Second-best year on record for lost-time incidents `Outperformed the industry safety average by three times Achieving industry-leading productivity rates `Operated three of top eight most productive longwall mines `Sufco was the most productive underground mine `Surface mines produced 170% more tons than industry average Acting as responsible citizens and environmental stewards `National Good Neighbor Award `Greenlands Award — best reclamation in West Virginia Slide 25Source: ACI and Public Sources

 


 

Arch has reduced production levels and is containing costs in a weak market cycle Guidance Reduce production targets(charts in millions) `Preserve value of reserves2006$502 2007E Lower capital spending$260 `127 128 Align spending with market demand and reduced production levelsVolume midpoint*Capex midpoint** Focus on cost controlUnpriced tons at 6/30/07 105 — 115 Patient approach to contracting `Unpriced position allows Arch to participate in upside 50 — 60 potential as market rebounds `Creates long-term value for 5 shareholders 2007 2008 2009 *Volume excludes pass-through tons Slide 26 **Capex excludes reserve additionsSource: ACI

 


 

Arch is changing perceptions of coal through investment in coal-conversion technologies Medicine Bow MineEnd Products DKRWultra-clean 13,000 bpdCTL Facilitydiesel fuel Wyominggasification technology chemical Arch as mine operator feedstock FT liquefactiontechnology Off-take agreement
CO2
enhanced oil recovery
Arch owns an equity stake in DKRW Advanced Fuels
Slide 27Source: ACI

 


 

Arch’s future strategic growth possibilities are compelling
Invest in core businesses to enhance profit growth and return on capital as well as evaluate opportunities to further upgrade and expand reserve base
Consider acquisitions, divestitures or other investments that strategically fit and create shareholder value Expand market for coal (and perception of coal’s value) through Btu conversion technologies that provide significant upside Slide 28Source: ACI