U.S. Coal Exports Adapting to Structural Change West Virginia Coal Mining Symposium 2016 Charleston, West Virginia January 27, 2016

Structural changes affecting seaborne coal trade Anemic economic growth in the global economy. China’s demand for raw materials has peaked. A strong US$ has significantly affected the exchange rates of the local currencies in commodity producing countries. Excess ocean vessel capacity has affected the freight rates for various seaborne coal trade routes.

Global Economic Growth

Global Merchandise Trade Growth Global merchandise trade growth declined in 2015; the first time since 2009

Global crude steel production 2015 global crude steel production decreased by 2.8% compared to 2014

Global crude steel production growth trends January 2011 release January 2016 release Growth rates of global crude steel production have peaked and are forecast to decrease by an additional 3% in 2016

Global energy demand Due to anemic global growth, global energy demand is moderating

Global coal demand Due to government policies and competing fuels, global coal demand is also moderating

China

China – no longer an economy based on CAPEX investments and basic industries Overall growth in energy consumption in 2015 was its lowest since 1998, at 0.9 percent. Year-on-year growth in electricity consumption was less than 1% in 2015. Fixed asset investment increased 10% year-on-year, a sixteen year low. Crude steel production declined year-on-year in 2015, the first year- on-year decline since 1981. Domestic coal production in 2015 is estimated to be 3.7 billion tons, a year-on-year decrease of ~4%. Steel exports reached 112.4 million tons, an increase of 19.9% year- on-year.

China Seaborne Coking Coal Imports

China seaborne coking coal imports Year-on-year change Y-o-Y reductions in seaborne coking coal imports in 2006, 2008, and 2011 were mainly due to increased imports from Mongolia. During this time, total coking coal imports increased. Recent decreases in seaborne coal imports are due to decreased demand Y-o-Y reductions in seaborne thermal coal imports in 2015, versus 2014, were ~65 million tons. Since 2013, seaborne thermal coal imports have decreased by ~81 million tons

China crude steel production China crude steel production peaked in 2014 at ~823 million tons. Production declined by -2.3% in 2015. Forecasts for 2016 crude steel production range from 760-780 million tons, i.e. a further decline

Currencies

Currency exchange rates Median Effective Exchange Rates US$ DXY Index As the US$ has strengthened, the currencies of commodity exporters have depreciated

US$ strengthening on the back of an improving U.S economy Recovery from the 1982 recession “Tech” boom US$ exchange rate value on track to repeat the values experienced during the 1997-2003 time period

Australian $ Exchange Rate

A$ Exchange rate forecast-Another challenge? Note forecast that the A$ may continue to depreciate to approximately US$0.61, a further drop of ~13%

Canadian $ Exchange Rate

CD$ Exchange rate forecast-Another challenge? Note forecast that the CD$ may be stabilizing with minimal depreciation, i.e. CD$1.55 = US$0.6896

South African Rand per US$ Exchange Rate

Colombian Peso vs. US$ Exchange Rate

Russian Ruble vs. US$ Exchange Rate

Ocean Freight

Ocean freight rates-Capesize vessels Continent/Far East & Tubarao-Qingdao

Ocean freight rates-Capesize vessels Hampton Roads (USA) /Rotterdam vs Ocean freight rates-Capesize vessels Hampton Roads (USA) /Rotterdam vs. Queensland /Rotterdam The ocean freight rate to ship coal from Queensland, Australia to Rotterdam (Europe) is less than the rate to ship coal from Hampton Roads, Virginia to Rotterdam (Europe)

U.S. Coal Exports

Seaborne Coal Market

Major Seaborne Coking Coal Suppliers

Seaborne Coking Coal Supply 2010 to 2015 Percentage Seaborne Coking Coal Market By Region   Region 2010 2011 2012 2013 2014 2015 Australia 63 53 55 57 61 64 USA 19 24 23 17 14 Canada 10 11 09 Other 12 13

U.S. Seaborne Coal Exports

Hard Coking Coal-Benchmark Settlements (FOBT vessel-Australia)

API2 Thermal Coal pricing API2 is an index representing the price of 11,300 BTU / 1% sulfur coal priced basis a metric ton delivered to Amsterdam / Rotterdam / Antwerp

U.S. Coal Exports – How prices affect volumes U.S. coal companies respond to market prices Seaborne coking coal currently at 2005 price levels Seaborne thermal coal currently at 2003 price levels Year Total Exports (MT)-ex Canada 2014 83.2 million 2013 106.9 million 2012 114.1 million 2009 53.6 million 2005 45.3 million

Summary The global seaborne market for both coking coal and thermal coal will decline in 2016. Only low cost producers, i.e. NAPP Pitt #8 Seam, highly efficient CAPP, SAPP, and Illinois Basin longwall operations, are likely to participate in the seaborne market at current price levels Consolidation will be necessary for many companies to reduce costs, increase efficiencies, and survive. Get ready, and implement a survival plan, to protect and sustain your business until the market improves in 2018-2019.

Credits John T. Boyd Company Financial Times International Monetary Fund Macquarie Research McCloskey Group Platts SSY Research T. Parker Host World Steel Association World Steel Dynamics

Xcoal Energy & Resources Contact Info Ernie Thrasher Xcoal Energy & Resources Phone: +1 (724) 520-1630 E-mail: xcoal@xcoal.com Web: www.xcoal.com