Blackhawk loaded train departs Kanawha Eagle loadout. Blackhawk Mining LLC NCTA Spring Conference

Transcription

1 Blackhawk loaded train departs Kanawha Eagle loadout Blackhawk Mining LLC NCTA Spring Conference 1

2 Blackhawk Overview 3

3 Blackhawk Mining Overview Location: 10 active mining complexes in West Virginia and Kentucky Active Operations: 25 active underground and surface mines ~2,900 employees Production Profile: Blackhawk Headquarters Lexington, KY Baltimore Blackhawk s product mix is diversified, but its foundation is based on HV met coal; Blackhawk has the largest HV met reserves and is the largest producer of HV met coal in the US Coal Sales: Newport News Norfolk 2018E 14.4 million tons Reserves: 8.9 million high-volatile metallurgical / PCI 5.5 million - thermal Control 1.45 billion tons of proven and probable reserves Own 440 million tons of proven and probable reserves Corporate Objective: Be the safest, most productive, coal producer in the US with a constant focus on our responsibility as stewards of the environment Operations WV Rockwell Hampden Speed Kanawha Eagle Winchester Samples Blue Creek KY Spurlock Pine Branch Blue Diamond Met Complex Thermal Complex 4

4 Production (mm tons) 5 Blackhawk History Founded by Mitch Potter May Acquired Pine Branch - low cost surface CAPP thermal operation October Acquired Arch-Hazard low cost CAPP surface thermal operation adjacent to Pine Branch March Purchased the core of Patriot s met coal business, including Rocklick, Wells, Panther, Kanawha Eagle and Winchester October July August Met Acquired Spurlock - large specialty (PCI and stoker) coal reserve base Purchased select mining assets from James River, including Hampden HVA, Blue Diamond PCI and Logan & Kanawha Production Growth by Segment [VALUE] [VALUE] F Met Thermal

5 7 Sales Mix Blackhawk has executed a strategic initiative to expand its metallurgical coal portfolio and will be the largest U.S. producer of met coal in 2018 We project to sell 14.4mm tons in 2018, including 7.8mm tons of high vol met coal, 1.1mm tons of PCI, and 5.5mm tons of thermal coal 40% of met sales in 2018 will be to domestic customers, with the balance exported via terminals on the U.S. east coast 2018E Blackhawk Met Sales by Destination 2018E Blackhawk Sales by Product 14.5mm tons International [VALUE] Domestic [VALUE] CAPP Thermal [VALUE] Met Met [VALUE] Stoker [VALUE] PCI [VALUE]

6 Competitive Position 2017 Full Year Production Metallurgical Coal Reserves (Millions of Tons) (Millions of Tons) Blackhawk Peer 2 Peer 4 Peer 6 Peer 1 Peer 3 Peer Blackhawk Peer 2 Peer 1 Peer 4 Peer 3 Peer 5 High Vol Mid Vol Low Vol PCI High Vol Mid Vol Low Vol PCI Source: MSHA 6

7 8 Logistics Platform Blackhawk has the ability to transport coal via CSX or NS railroads, barge, and truck Over 75% of our HV met production has access to both the CSX and NS railroads providing competitive access to domestic steelmakers and east coast ports for exports Transportation diversity expands customer base, optimizes delivery cost and margins, and allows customer specific blending 2017 Sales by Transportation Method Logistics Access by Complex Complex CSX NS Barge Truck 15% 7% 7% 71% CSX Rail NS Rail Barge Truck Speed Kanawha Eagle x Paint Creek Rockwell Hampden Blue Creek x Pine Branch Spurlock Blue Diamond

8 Met Market Update 9

9 10 Seaborne Met Market Where have we been Global met coal prices have increased substantially since the first half of 2016 Mid-2016 price spike brought on by contraction of supply Prices began easing at the end of 2016 as China reversed coal supply restrictions and supply began increasing in other regions Cyclone Debbie caused another price spike in Q2-2017, but prices quickly retreated More recently prices have firmed driven by: Increased Chinese demand Increased global demand ex-china driven by strong global GDP and steel production Hard Coking Coal Historical Pricing ($/tonne) $350 $300 $250 $200 $150 $100 $50 $0 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 US HVA US HVB HCC Benchmark U.S. Metallurgical Coal Exports (million tonnes) Continuing production issues in Australia and the U.S E Source: Platts, DTC, Energy Information Administration, Energy Ventures Analysis, Xcoal

10 Met Prices Platts Daily Index Index prices for HVA has declined by $16.00/kt to $194.00/kt and the HVB index remained steady at $148/kt By comparison AUS premium low-vol has declined by $79.75/kt and is now indexed below HVA at $182.50/kt Markets generally feel well supported with balanced supply and demand $350 $300 $250 $200 $150 $100 $50 $0 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 US HVA US HVB PLV

11 11 U.S. Supply Trends 2017 U.S. met coal production will likely be 10.0m to 12.0m tons higher than 2016 based on H production data A majority of this increase is from existing mines that were hot idled or running at less than capacity Mines that were cold idled will be very difficult and expensive to reopen as most were stripped of equipment and allowed to flood Rate of growth slowed in Q as the low hanging fruit was harvested early Some existing mines may have a small amount of incremental capacity available, but most mines are already operating at 100% of capacity to achieve the lowest unit costs The ability of U.S. miners to further increase the production of met coal is limited by several key factors Skilled underground labor and mining equipment is in short supply Lengthy process to obtain new mining permits Lack of long term agreements with a fixed pricing structure limits large capital investment and greenfield mine developments Access to capital is limited and expensive

12 Coal Equity Markets Update ($mm) ($mm, unless noted) Source: Jefferies LLC

13 12 Global Market Trends Demise of HCC Benchmark system will likely lead to increased price volatility as short term changes in supply or demand will immediately price into the market International customers of U.S. met coal continue to favor index based purchases, but are beginning to tire of price uncertainty Many buyers seem to be returning to spot purchases After several years of pushing down quality to reduce raw material costs, international buyers seem to be refocusing on higher rank HVA coals which has widened the spread between HVA and HVB prices Continued stability of A$ exchange rate should be positive for prices and U.S. exporters Growing market demand should be able to absorb increased supply, but what will China do

14 14 Section 232 Steel Import Tariffs Customers are still reviewing the impact of the tariffs to their business plan US Steel has announced the reopening of one of the two idle blast furnaces at Granite City They will be increase coke production at Clairton and purchase an additional ~600,000 tons during H ArcelorMittal will run the Indiana Harbor and Burns Harbor blast furnaces harder to generate incremental hot metal production They are maxed out on coke production at both locations so they will need to purchase coke; AK and EES DTE have available coke capacity ArcelorMittal will also use more PCI and is evaluating additional PCI purchases AK Steel has an idle blast furnace at their Ashland facility, but currently indicate no plans to restart production there My assessment of 232 tariffs Doesn t change global steel demand in the long term Does help further tighten the supply/demand balance in the near term Provides US met coal producers the opportunity to contract a higher percentage of production under one year, fixed price contracts which provides better revenue certainty

15 CAPP Thermal Trends 15

16 1000 tons CAPP Coal Production by Product Type 250,000 ($mm) ($mm, unless noted) 200,000 Met PCI Thermal 150, ,000 50, CAPP thermal production peaked in 2006 at ~163 million tons In 2017 CAPP thermal production was only ~32 million tons, a decline of 80% Most remaining CAPP thermal mines are surface mine operations that ship raw coal as opposed to washed coal Deep mine thermal production has declined from ~45 million tons in 2009 to 8.7 million tons in 2017 Source: Energy Ventures Analysis 16

17 Thermal Markets Prompt Quarter API2 export prices have softened by $9.45/kt since the beginning of the year CSX CAPP thermal prices have softened $5.40 per ton Market liquidity, however, is virtually non-existent due to the pullback in international prices, poor domestic fundamentals and the pending shoulder period $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 CSX Physical API 2

18 18 CSX Transportation Changes In 2016 CSX closed the Erwin ($mm, unless Gateway noted) which historically provided access for EKY ($mm) coal to the southeastern U.S. As a result of the Erwin Gateway closure EKY coal now must travel through WV and along the I-64 corridor into Richmond, VA, and then down the I-95 corridor Coal in EKY traditionally had a $2.00 to $3.00 per ton CSX freight advantage to the southeastern U.S. market compared to CSX origin coal in southern West Virginia, but closure of the Erwin Gateway ended that advantage Also in 2016 CSX implemented a new pricing model called Gateway Differentials Under the Gateway Differential structure EKY CSX coal now has as much as a $4.00 per ton freight disadvantage to the southeastern U.S. market as compared to southern WV CSX coal Why is this important? Southeastern customers traditionally purchased a large percentage of their coal from EKY due to its higher quality and better freight rate Southern WV thermal coal is largely unwashed, surface mine production that is lower in quality than coal many customers have traditionally purchased

19 19 Questions? Thanks for your time!