Corsa Coal Corp Platts Coal Marketing Days September 26, 2017 Acosta Deep Mine Day of Grand Opening Somerset County, Pennsylvania
Corsa Coal Corporation: Overview Growth-oriented premium quality metallurgical coal producer Corsa has approximately 400 employees in two operating divisions: NAPP Division Met coal producer with operations in Maryland and Pennsylvania (3 deep mines, 2 surface mines active) CAPP Division Diversified coal producer with operations in Tennessee and Kentucky (1 deep mine active, 2 surface mines active, 1 deep mine on hot idle) 2017 Metallurgical Coal Sales Estimate: 1.615 1.850 million tons 2018E Metallurgical Sales > 2.0 million tons Corsa NAPP Division Pennsylvania Metallurgical Coal Customer Base: Blue chip steel and coke producers in the United States, Asia, South America, and Europe Tennessee Corsa CAPP Division 1 2 Producer / Trader Business Model Company Produced Tons Selling coal that Corsa produces from its active mine sites in Pennsylvania and Maryland. Largest margin contributor. Value Added Services Selling coal that Corsa purchased and providing value added services such as storing, blending, washing, and loading 3 Sales & Trading Volumes Selling coal that Corsa purchases on a clean basis from suppliers outside the NAPP region and blending at the port 1
NAPP Division Logistics Addressable Domestic Market Logistical Advantages Advantaged logistics to both domestic and export markets Ability to deliver coal domestically by truck, rail, barge Geographic proximity to Pittsburgh and the Great Lakes Multiple terminal options for exports due to dual rail access Ability to source coal from third party producers and put blends together at the port Within this shaded region there is ~15mm tons of met coal demand from coke batteries of which ~4mm tons is low volatile met coal. ArcelorMittal ArcelorMittal & SunCoke Energy DTE AK Steel AK Steel & SunCoke Energy U. S. Steel ArcelorMittal, SunCoke Energy & AK Steel Proven track record of exporting coal by selling both at the port and on a fully delivered basis to the customer Source: Industry Research, Management 2
Corsa Sales & Trading Leadership Steve Meehan Fred Cushmore Hunter Hobson 3
Sales & Trading Platform Corsa Sales & Trading combines existing Corsa low and high vol met coal production with purchased coals to market a greater variety of products and access more customers. 2017 Metallurgical Sales Guidance: Sales & Trading Platform Highlights 1.6-1.8 million tons of metallurgical sales company-wide o 1.2 1.3 million tons of low vol metallurgical coal; Balance is high vol and mid vol Customers served: USA, Asia, Europe, South America Capability to sell full vessels of low volatile metallurgical coal as well as high volatile and mid volatile blends. Can load at all US East Coast ports and can purchase coal from both CSX and Norfolk Southern served rail loadouts 5 consecutive quarters of greater than 20% quarter-on-quarter sequential volume growth for metallurgical sales 4
Four-Part Growth Strategy Development of Permitted Projects Ready to go portfolio with quick time to market Exploration and Permitting Program Organic growth in NAPP and CAPP Regions Existing infrastructure enables low capital intensity Ability to Double LV Production Reserve replacement strategy similar to oil & gas producer Goal: 4 million tons per year of met coal sales by 2020 Export Sales & Trading Platform Organic growth Low vol foundation with dual rail access Blending opportunities Acquisitions, Business Development Management and Board have M&A backgrounds Track record of integration and extracting synergies 5
Metallurgical Coal Price History Historical Metallurgical Coal Benchmark Pricing (2006 2017) 10-Year Average: $185/mt Chinese Estimated Breakeven: $146/mt Prices expressed on a $/metric ton, FOB Port basis 6
China s Impact on the Seaborne Coking Coal Price China produces approximately 50% of the world s coking coal and steel. Their policies can set the price of met coal, as occurred in 2016. Chinese Met Coal Producers Limit Supply June 26, 2017: Four of China s largest met coal producers announced plans to cut an initial 13-14 million tons of production. The move came when premium low vol coking coal prices dipped below $140/mt FOBT A near-term floor for met prices? Chinese Policy Initiatives Low cost energy and steel are central parts of achieving social stability objectives Workday Policy Reductions To Support Prices Coal Capacity Reductions / Consolidation Safety Crackdowns / Environmental Regulations Thermal Coal Price Setting Band China Is Not a Low Cost Mining Jurisdiction Shanxi Coking Coal Stated Cost Structure (1) Restructuring in China has looked very different than what occurred in the United States Plant 1,300 RMB Rail 300 RMB CFR China $182 FOB Aus $175 Debt levels at major Chinese coking coal producers remains extremely high. China Breakeven Pricing (2) Mining costs and logistics costs are relatively high Plant 1,040 RMB Rail 300 RMB CFR China $153 FOB Aus $146 (1) Assumes 6.88 RMB to USD conversion rate and 1.28 DDP Tangshang to CFR China (Qingdao) ratio (2) Assumes 35% preparation plant yield 7
Where are Metallurgical Coal Prices Headed? Chinese Metallurgical Imports: A Function of Prices in China vs Seaborne Prices Dry Bulk Freight Rates International and Domestic Steel and Coke Prices / Production Levels Metallurgical Coal Inventory Levels at Chinese Mills Currency Moves Forward Curve / Ability to Hedge 8