INDIA SEEKS COAL

India is on a coal buying spree. The big Asian nation is scrambling to cover an expected shortfall
in domestic supply.

While Indian cement maker Gujarat Ambuja is seeking 200,000 tonnes of South African coal for
late Q4 shipment, Australian firms Rio Tinto and Gina Rinehart’s Hancock Prospecting are
looking to sell state-owned giant Coal India stakes in thermal coal mines.

Coal India, the world’s biggest coal miner, aims to import 50 million tonnes of thermal coal a
year from Australia, Indonesia and Mozambique from 2016-17 to cover a forecast increase in
demand for power, chairman Partha Bhattacharya said.

India imports Australian coking coal for its steel mills, but it takes only a fraction of Australia’s
130 million tonnes a year of thermal coal exports.

Hancock, which is in the early stages of studies to build two large-scale Queensland thermal
coalmines, and Rio, are understood to be among a number of Australian miners that have
submitted expressions of interest to sell stakes in mines and projects to Coal India.

Rapid acquisitions

In July, Coal India said it would make rapid acquisitions of coal resources in major exporting
countries as it looked to plug a potential 200 million tonnes a year shortfall by 2012.

India’s 11th five-year development plan aims to provide all villages and houses below the
poverty line with power and to boost economic growth to 10 per cent by 2011-12.

Bhattacharya said he planned to have a deal with one or more Australian miners within a year.
He would not indicate what funds he had at his disposal.

Coal India is entertaining all levels of deals, from minority stakes in mines to becoming an
operator and is said to be reportedly chasing stakes in large-scale mines of 10 million to 15
million tonnes a year.

The firm is also said to be eyeing acquisition of a mid-sized thermal coal block in Australia. This
is in addition to the recent offers from a number of prospective ‘strategic partners.’

Expression of interest

CIL has already received 15 expressions of interests (EoI) from Australia for strategic
partnership. Apart from Australia, the company received 18 EoIs from Indonesia, 6 from South
Africa and 13 from the US.
“We have received a total of 52 EoIs. Of the same 45 are from the mining companies and appear
to be sound. A committee is set-up to shortlist the proposals,” Bhattacharyya said. The CIL
chairman will be visiting the US next week.

Indian miners do not produce any Australian thermal coal.

ASX-listed Gujarat NRE Minerals, which is 82 per cent owned by Indian importer Gujarat NRE
Coke, is the only Indian-controlled coalminer in Australia. It has two coking coalmines near
Wollongong, from which it hopes to boost production in Australia from less than one million
tonnes a year to seven million tonnes.

Search on

Looking beyond its border for coal is India’s largest power generator, NTPC, which is currently
engaged in capacity addition of 22,430 mw by the end of 11th plan. The firm is said to be
exploring opportunities for acquisition of coal blocks or coal mines in South Africa, Indonesia,
Mozambique and Australia.

NTPC chairman and managing director RS Sharma said on Tuesday, “It is at a preliminary stage.
As far as the acquisition of coal mines in Indonesia is concerned, NTPC has roped in Australian
firm Macquarie as a consultant to do the due diligence.”

Sharma said the NTPC board was yet to take any decision on acquiring mines or picking up
minority stake in coal blocks in either of these countries.

NTPC sources, however, said the company plans to buy a minority stake in Kalimantau coal
mines in Indonesia to achieve fuel security.

NTPC, which currently produces over 30,000mw, will need 150 million tonne of coal for 2009-
10. It plans to import nearly 12 million tonne. After adding the proposed 22,430 mw by end of
2011-12, NTPC’s coal requirement will shoot up to 225-250 million tonne. The company will
import around 20 million tonne then.

NTPC hopes to produce 20 million tonne from its captive coal mines, which are under various
stages of development. According to NTPC’s corporate plan, the company has proposed a coal
mining capacity of 50 million tonne per annum by 2017.

The company is currently developing four coal blocks – North Karanpura and Brahmini (both in
Jharkhand), Ib Valley (Orissa), and Mand Raigarh (Chhattisgarh).

Initiating coverage

The strength in the Asian markets could “continue to lift US producers with significant overseas
leverage,” said Brean Murray, who has initiated coverage on the US coal space.

Alpha Natural Resources (NYSE:ANR), Buy with a $45 price target.

Peabody Energy (NYSE:BTU), Buy with a $40 target.

Consol Energy (NYSE:CNX), Buy with a $45 target.

James River Coal (Nasdaq:JRCC), Buy with a $22 target.

Patriot Coal (NYSE: PCX) – Hold.

Walter Energy (NYSE: WLT) – Hold.

Corporate news

Patriot Coal Corp (PCX) closed at a 10-month high, though it gapped down slightly Monday.
Shares rose further in the final two hours of the afternoon and closed higher by $2.22 at $12.42
on above average volume.

Patriot Coal Corp rose above a month and a half long range Monday. The company is trading
-43.6 per cent higher (up $-8.46 to $10.95). The stock has traded within a 52-week range of
$2.76 and $39.93. The stock is currently above its 50-day moving average of $8.30 and above its
200-day moving average of $6.70.

James River Coal has reported revenue of 24.7 per cent year on year to $171.7 million versuss
the $189 million consensus put out by analysts. The company has issued downside guidance for
FY09, as it sees EPS of $2.25-2.60 (prior range $3.30-3.80). Adjusted EBITDA was $37.0
million versus $3.0 million in 2Q08

Coal India to import 4 million tonnes

The public sector Coal India Ltd (CIL) is planning to import around four million tonnes of coal
within this fiscal, CIL Director, Marketing, A. K. Sarkar, said. Given the lower calorific value of
Indian coal, the proposed quantum is equivalent to six million tonnes of domestic coal.

CIL Chairman P. S. Bhattacharyya told The Hindu that the issue of coal imports would be taken
forward after the PSU board approves the policy formulated by CIL in this regard. This time,
CIL proposed to float global tenders for importing this coal unlike last year when it had acted as
a mere facilitator to the entire process which was handled by MMTC, Mr. Bhattacharyya said.

In 2008-09, the New Coal Distribution Policy (NCDP) mandated CIL to meet the country’s coal
requirements, if necessary through imports. Eventually, only 2.22 lakh tonnes of coal was
imported for the Haryana Power Development Corporation, although initially the import
requirement was pegged higher.

For this year, an approach paper has been prepared which is to be CIL’s policy for coal imports.
“Issues such as pricing — whether it would be based on CIF or FOB — would need to be
addressed,” Mr. Sarkar said.
International coal prices now average at around $70 a tonne.

Of the 435 million tonnes of coal that CIL plans to raise in 2009-10, around 313 million tonnes
go to the power sector. Firm fuel supply agreements (as required under the NCDP) have been
signed for 306 million tonnes and the Central Electricity Authority wants to reserve six million
tonnes for new power projects.

COAL MARKET TRENDS OF 2010

Global demand for coal drove prices up in 2010, and this trend should continue in coming years,
due in part to growing energy needs of the world’s two largest consumers of coal: India and
China.

China, the world’s fastest growing major economy, has massive coal reserves, but the country’s
energy consumption is growing so rapidly that last year China began importing more coal than it
exports. China imported nearly 50 million tons of coal in the first half of 2010, up almost 130
percent from a year ago. China has taken over the U.S. as the world’s heaviest consumer of coal,
and this, combined with an increased global demand has triggered a change in the world market
for energy.

In spite of both China’s import and domestic coal production, the country still experienced
shortages in 2010. Thermal coal stockpiles at major power plants in Hubei have fell as low as 2
million metric tons, below the required 3 million tons, according to New York City- based
Commodore Research. Inventories at coal-fired generators in Henan Province  also dropped as
low as 2.5 million from a minimum required 3.5 million.

Meanwhile, as the population and economy of India has continued to rise in 2010, so has its
demand for coal. Coal accounts for 55 percent of the country’s energy consumption. In the last
four decades, commercial primary energy consumption in India has grown by about 700 percent. 
Bloomberg reports that Indian imports of thermal coal nearly doubled last year, surging from 30
million tons in 2008 to a little less than 60 million tons in 2009. India has plans to double
electricity generation capacity by 2012, which could see the country importing in excess of 200
million tons of coal.

Coal India Ltd., the near-monopoly supplier of coal in the country, saw the largest initial public
offering of a company in India’s history when it launched in November, 2010. Coal India Ltd.
also became the second-most valuable mining company in the world after investors bid for 15
times the shares on the first day of trading.

By late 2010, coal prices in Europe reached a two-year high, leading power companies and
governments to consider alternative sources of energy like natural gas and biofuels. This upward
drive in price can be partly attributed to disruptions in supplies from Australia, due to flooding in
coal-rich Queensland and a train accident closed a railway line to a major export terminal.
Australia is a major exporter of coal, and accounts for almost two-thirds of the global coking
coal trade.

According to the Energy Information Association, the United States exported 51 percent more
coal in the first six months of 2010 than it did for the entire 2009. Strong global demand for coal,
particularly metallurgical coal used to produce steel, has resulted in sharp increases in U.S. coal
exports in 2010.  Metallurgical coal exports nearly doubled in the first half of this year compared
with the first half of 2009. EIA expects total coal exports to decline in 2011 as other major coal-
exporting countries increase their supply to the global coal market.