1 Jonathan Brallier and Matthew Donahue

2 Company Overview

3 Peabody Energy Corporation is the largest private sector coal company in the world Sold 248 million tons of coal in 2006 and generated $5.6 billion in revenues, accounting for approximately 10% of all United States electricity used in 2006 Majority of revenues come from sales to U.S. electricity generators, which use coal for 50% of all production Held IPO in May 2001 and joined the S&P 500 in November of 2006 Has majority interests in 40 coal operations throughout the U.S. and Australia, and minority interest in a Venezualian mine

4 Company Overview Operations also include marketing, brokering, and trading coal worldwide Traded almost 80 million tons of coal in 2006 Created an international trading group in 2006 Recently added operations offices in Europe and Beijing to further its global reach

5 Company Overview

6 Financial Ratio Analysis

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9 Risk Factors

10 Unexpected termination of long term contracts Approximately 90% of revenue comes from long-term supply arrangements, the durations of which vary from one to 19 years Contracts often have detailed provisions that require Peabody to meet certain quality and service expectations Failure to meet these requirements can lead to severe economic consequences Risk Factors

11 Soured relationships with major suppliers Over 20% of revenue comes from the company’s five largest customers Leverage could lead to financial stress Peabody has approximately $1.4 billion in debt and about $500 million more in available credit Peabody hedges commodity price risk by using long-term contracts for coal sales Risk Factors

12 The company also hedges commodities used in production through fixed price contracts and derivatives As the end of 2005, the company had fixed price contracts for 68.9 million gallons of diesel fuel The company uses forward contracts, swaps, and options to hedge currency and interest rate fluctuations Risk Factors

13 Recent News

14 Recent News Mild weather has led to decreased demand for coal Companies have been forced to decrease production this year due to high inventory levels and poor demand Recent steam coal prices have hovered around $40 per ton, compared to last year’s price of $56 Coal from the Powder River Basin is slightly over $7 per ton, versus $21 from last year

15 Recent News CEO Gregory Boyce recently told reporters that Peabody is “managing [its] U.S. production and capital to match demand” Reduced capacity will help reduce costs, thus strengthening sluggish revenues Merrill Lynch analyst David Lipschitz expects weak industry wide earnings for the first half of 2007 until production cuts take effect

16 SWOT Analysis

17 Non-union mines account for 86% of production About 90% of revenues come from long term contracts, thus mitigating price fluctuations Ability to grow organically as well as through strategic acquisition opportunities Development of integrated information system, expected to be fully operational by mid-2007, that will streamline international operations in finance, marketing, materials, human resources, sales, production, etc. Safetey record, measured by accident frequency rates, exceeded the industry average by 38% SWOT Analysis StrengthsStrengths

18 #1 market position in U.S. does not leave much room for growth domestically Central Appalachia’s coal reserve is of declining quality High sulfur levels in Illinois Basin coal and high mercury levels in Powder River Basin coal SWOT Analysis WeaknessesWeaknesses

19 Recently established an office in Beijing to pursue new markets and growth opportunities Participation in emerging technologies such as Btu conversion, a process that turns coal into natural gas, liquid, or hydrogen SWOT Analysis OpportunitiesOpportunities

20 Current litigation related to one of the company’s largest supply agreements Current litigation could cost Peabody several billion dollars; however, the company claims to “have recorded adequate reserves for these liabilities and that there is no individual case pending that is likely to have a material adverse effect on our financial condition” ( k) Continual reform of industry regulations and standards regarding safety and waste SWOT Analysis ThreatsThreats

21 Industry Overview

22 Industry Overview Coal generates over 50% of electric power and provides 85% of fossil fuel reserves in the United States Coal supply is reliable and relatively inexpensive compared to other energy sources Investments in the industry are an excellent hedge against inflation and downturns in the market Decreasing labor costs and low unionization will benefit shareholders Paul Forward, formerly of Legg Mason, projects demand growth at 3% per year, with prices increasing at 4.6% per year

23 Industry Overview Coal is not as “clean” as other alternative energy sources, such as wind or solar power Democratic control could lead to restrictions on production –History has shown that coal performs better under republican administrations, and vice versa –Increasing surface mining restrictions –Air pollution legislation often calls for increased capital requirements, thus draining operating profits

24 Relevant Investor Information

25 Relevant Investor Information

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27 Relevant Investor Information

28 Relevant Investor Information Quarterly dividend of $0.06 per share yields a weak 0.6%

29 Comparables Model

30 Comparables Model

31 eValeVal

32 eValeVal

33 eValeVal

34 RecommendationRecommendation

35 RecommendationRecommendation Moderate Buy Analyst Paul Forward recommends Buy Yahoo Finance - 7 Strong Buys, 9 Buys, 4 Holds MoneyCentral - 7 Strong Buys, 3 Moderate Buys, 3 Holds, 1 Moderate Sell Reuters - 6 Buy, 9 Outperform, 5 Hold