Peabody Energy Corp (BTU) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome the Peabody Energy fourth-quarter earnings release. For the conference, all the participants are in a listen-only mode. There will be an opportunity for your questions; instructions will be given at that time. (Operator Instructions)

As a reminder, today's call is being recorded and with that being said I'll turn the conference over to the Senior Vice President, Investor Relations and Corporate Communications, Mr. Vic Svec. Please go ahead.

Thanks, John and good morning everyone. Thanks very much for taking part in the conference call for BTU.

With us today are Chairman and CEO, Greg Boyce, Executive Vice President and Chief Financial Officer, Mike Crews, and President and Chief Commercial Officer, Rick Navarre. Forward-looking statements should be considered along with the risk factors that we note at the end of our release as well as the MD&A section of our filed documents. We also refer you to Peabodyenergy.com for additional information.

And with that I'll turn the call over to Mike.

Thanks, Vic.

I'm pleased to report that Peabody posted the second best year in our history and that we enter 2011 in our strongest financial position ever. To summarize, our mining operations delivered record results; we grew the top line 14%, held the line on costs, and expanded margins across the platform. Our cash flow generation was substantial and our balance sheet is stronger than ever. We've raised our dividend and we're executing on a number of growth projects all over the world. In short, Peabody has a long runway of growth and financial opportunities ahead.

I'll begin with a review of our income statement and operational highlights. Our 2010 sales volume totaled 246 million tons, slightly above last year as higher Western US and Australian volumes more than offset lower trading and brokerage activity. Revenues reached a record $6.9 billion on a combination of improved realized prices and higher volumes in Australia and the Western US. Australia was a key driver with revenues $842 million above last year. Those higher prices, combined with lower US costs, drove consolidated EBITDA to $1.82 billion, 41% above the prior year.

Moving on to taxes, our effective tax rate excluding currency re-measurement was 23% for the full year. Taxes for the fourth quarter were below previous quarters of 2010, due to lower than expected contributions from Australia, which have a higher effective tax rate. Going forward, we anticipate our full year effective tax rate will be up to 25% higher -- 25%, depending upon the mix of earnings. Income from continuing operations rose to $805.1 million. Excluding the impact of $48 million of non-cash currency re-measurement, our adjusted income from continuing operations totaled $853 million, with adjusted diluted EPS of $3.05, both significantly above prior year levels.

Let me take you through the EBITDA components in more detail, beginning with Australia which more than doubled its contribution. Our volumes in Australia reached 27 million tons, which was nearly 5 million tons higher than last year, reflecting both the investments we have made in the platform and the rising demand in the Pacific. Breaking down Australia sales volumes, we sold 9.8 million tons of met coal in 2010, at an average price of $164 per metric ton which was approximately 20% higher than last year. On the thermal side, we sold 11 million tons of seaborne thermal product throughout the year, our largest such volumes to date and at a higher average price of $78 per metric ton.

Let me take a moment to discuss the Australia rains that have been occurring, most notably since December. For the industry, one of the hardest hit areas has been the mines and rail systems serving the Gladstone Port, which we don't ship through. For Peabody, we've been impacted by flooding to varying degrees at our surface mines and have also seen reduced rail and port performance. The combination of lower than expected fourth-quarter volumes along with repair and recovery expenses reduced EBITDA approximately $85 million or $0.22 per share after tax. The first quarter will also be impacted by lower volumes as we ramp back up to normal levels. In 2010, our full year costs in Australia averaged $58 per ton, in line with our expectations, despite the rain effects. All told, our Australia gross margin rose to 38% for the year, versus 26% in 2009.

Turning now to the US, our operations ran very well and related EBITDA rose 14% to $1.1 billion. In the Midwest, our margins per ton increased 22% to nearly $11 per ton as higher contracted prices more than offset a modest increase in cost from slightly lower volumes and in the west our margins increased 11% on higher average revenues, and costs that were more than 2% below 2009 levels. All in, our consolidated mining operations turned in record results. We also generated $101 million of EBITDA from our Trading and Brokerage and Resource Management businesses.

You'll note that our fourth quarter trading results were lower than average, largely due to three factors. First, we had lower international brokerage earnings relative to higher 2009 performance. We also had some shipment deferrals due to the Australia weather, several of which have since shipped, or are expected to ship this quarter. And finally, the freight position that supports our future export volumes had unfavorable mark-to-market movements. Weather depressed the freight markets, causing them to decline in the fourth quarter versus an increase last year. Like the deferrals, these are temporary, and at the latest, will reverse when the shipments occur. Going forward, we continue to target quarterly EBITDA from this segment at the two year quarterly average of approximately $30 million.

Turning to the balance sheet, our strong performance resulted in cash flows from operations of $1.1 billion, which drove our cash balance to $1.3 billion. Our rising cash flows allowed us to increase our dividend by more than 20%, even as we fund a number of growth projects. The capital program for 2011 is rising to accommodate our organic growth projects. Of this year's $900 million to $950 million of planned spending, $500 million to $550 million is earmarked for growth and extension projects in Australia and the US. 2011 sustaining capital is estimated to average approximately $1.80 per produced ton on continued modernization of our equipment fleet.

Before I close, I'd like to cover our outlook. For the first quarter, we're expecting lower sales volumes and higher average costs due to the rains in Australia. We also have a long wall move planned for Colorado and one in Australia. As a result, first quarter EBITDA is targeted in the range of $325 million to $425 million, with adjusted earnings per share of $0.45 to $0.65. For the full year, our US volumes are targeted to be 195 million to 205 million tons, with stable average margins across the platform, leading to expected US EBITDA within 5% of 2010. Australia sales are targeted to be 28 million to 30 million tons, compared with 27 million tons in 2010. And with Trading and Brokerage, our total Company 2011 sales are likely to be in the 245 million to 265 million ton range. Given the rapid market developments and their potential for meaningful impact, we look forward to providing you outlook updates throughout the year.

So with that review of very strong 2010 results and our outlook, I'll now turn the call over to Greg.

Thanks, Mike and good morning everyone. 2010 was a year of significant accomplishments for Peabody, across the board. Absent the December weather impacts, 2010 EBITDA would have been our best year ever. As it is, we set new Company records in the areas such as global safety and revenues and had major increases in our EBITDA, operating profit, and income. We started up the Bear Run mine in the Midwest and shipped our first coal through the NCIG terminal in Newcastle. We expanded in El Segundo in New Mexico, and sold record volumes from our premium PRB North Antelope Rochelle mine; and we moved forward our project pipeline in Australia and various JVs in China, Mongolia and Indonesia.

We begin 2011 solidly in the first phase of a long-term coal super cycle and Peabody has growth projects advancing in Australia, Asia, and the US. I'd like to review the key markets for our products as well as our key focus areas for 2011. This year, we see a continuation of the two speed global economic engine with China, India and emerging Asia growing at 8% to 10%, and Europe and the US still in lower gear. In the Pacific seaborne market, coal demand grew nearly 20% in 2010 to a record 700 million tons. China continued as the world's fastest growing coal importer and shattered its prior year net import record with 147 million tons. India continued to expand coal imports, and Japan and Korea also bounced back from earlier recession. This year we expect further robust growth in global seaborne coal demand which may exceed 1 billion metric tons for the first time ever. Look for China and India to again lead the growth.

And at the same time, coal supplies are being challenged by events in most major exporting nations. The Southern Hemisphere is home to more than three-quarters of the world's seaborne coal supplies. La Nina has brought heavy rains to Australia, Indonesia, South Africa, and South America.As well, exports have been hampered in the Eastern US and Western Canada. So rising demand and strained supplies are translating into sharp price increases. Just since October, the spot met coal price is up well over 50% and the Newcastle thermal has risen more than 35%. This bodes extremely well as we approach upcoming settlements for quarterly met and annual thermal contracts. And our leverage to these markets is outstanding. Essentially all of Peabody's met coal beyond this quarter is open to pricing, and half of our thermal export coal is available for price for 2011, with 85% open for 2012.

Now, Mike reviewed the effects of the Australia flooding on our results. I'd like to give you a brief update where we stand today. Our Queensland mines continue to work through force [mergers] with customers and recover from the storms. Today, the major questions are what will the normal rainy season, which we're just beginning, bring to us, whether our co-shippers will have coal available when we have coal product ready to ship, and for our Wilkie Creek operation, when will the rail line to the Brisbane Port be restored?We receive multiple reports each day from our Australia team which has been working tirelessly through personal and professional challenges, but their goal is to minimize the impacts of flooding and to recover as quickly as possible. Case in point, we just sold a spot Panamax of semi-hard coking coal to a major customer for prices that are significantly above those settled for the first quarter. So, as we quickly work through these short-term weather related issues, we're keenly focused on capturing the significant upside potential resulting from the 7 million to 8 million tons of metallurgical coal and the 6 million to 7 million tons of thermal coal that we have yet to price for 2011.

Now, let's look at the US markets. Last year a low natural gas price still wasn't enough to derail a 5.5% increase in coal fuel generation. Coal regained market share in 2010 and powered nearly two-thirds of incremental power output. Exports increased led by met coal in the east and PRB in the west. And I note that US coal demand has largely tracked industrial output, which while declining 9% in 2009, bounced back 6% in 2010. We see muted improvement in 2011, with manufacturing growth, natural gas prices, and export volumes holding the keys to any further increases. On the supply side, we expect continued market share gains from the Illinois basin and Powder River basin. We continue to shape our contract book to match the curve of the US rebound with 2012 and beyond continuing to look much brighter.

Now, embedded in these near term market movements are elements of much longer trends. I've noted that I believe we're in the early stages of a long-term super cycle for coal. We see evidence of this around us today. Coal has been the world's fastest growing fuel and IEA projects that growth in coal generation will be more than double that of any other fuel through 2020, and by 2020 global generation capacity and steel production are both expected to grow some 50%. China's electricity and industrial production will again grow at low teen rates, and China's new power plants and steel mills will require several hundred million tons of added coal each year. India's rapidly raising coal imports, and developed economies are starting to see growth in their manufacturing base, so what's important to investors goes beyond whether met coal is $375 per ton. The key is that global demand for coal is strongly and steadily rising, and supply is stretched such that disruptions become quickly apparent.

So where does this leave Peabody? We are ideally positioned for this super cycle. Peabody benefits from rising volumes within a supportive price backdrop, a powerful earnings combination that should sustain our growth for years to come. In 2011, Peabody will use its position in the fastest growing markets to target the following key areas. We will capture value from upward price movements within our significant open position. We will advance expansion of six major Australian metallurgical and thermal export mines and work to recapture value lost from the recent flooding. We will advance emerging growth projects and commercial transactions in China, Mongolia, Indonesia, and India. And we will continue to leverage Peabody's leadership in the three primary growth avenues for the US, the Powder River basin, Illinois basin and US exports, and we will maintain our intensity for excellence in our core areas of Safety, Operations, Portfolio Management, Trading and Brokerage, and Social Responsibility. I want to thank all Peabody employees for their continued efforts. They are the key to our success. And we believe Peabody offers all of you a pure play investment for the global reach, access to the very best markets, and growth rates well above our peers.

So with that overview, we'll now be happy to answer any questions you may have.

(Operator Instructions). Michael Dudas with Jefferies.

First question for the panel, one, can you maybe give us a compare and contrast of the situation today as you see it, given your expanded and more solid position in the growth markets in Asia from Peabody and from the industry relative to what we witnessed in 2007 and 2008; the last time we had such weather and supply disruptions.

I think it's a good -- no question, it's a comparison that needs to be made between 2008 and 2010 or 2011 where we sit today in Australia. There's no question, Michael, that the flooding and the impacts in Australia are much greater today than they were in 2008. They're more widespread. They cover a larger area. If you remember back in 2008, there was a central core in Queensland along that black water line into Gladstone that was hardest hit. This year, there were impacts across the entire Queensland platform, and right at the end of 2010 some impacts in New South Wales.

When you look at 2010, you're probably 8 million- to 10 million-ton impact out of Australia. This year we're looking at 15 million to 20 million tons of total impact; so almost twice. Plus, you have South Africa, you have Colombia and Indonesia, all having concurrent impacts.So when you look at the global perspective, this year's event is much more significant, and in some cases will take a longer period of time to recover, depending on the region that we're talking about.

And my follow-up is regarding US export opportunities. Could you maybe share with us a little thought on how 2011 and 2012 may shape up for the US as an exporter of coals? And it appears the industry's really starting to focus much more on the ability to export through all parts of the US. What should we look for from Peabody in 2011 on that front?

Mike, this is Rick. I'll tackle that question. As we look at exports, you saw an increase in exports last year, obviously, to a number of about 80 million tons out of the United States. And as we look forward and see what's happening around the globe, our estimate today, I'd say it is 90 million plus tons, with emphasis on the plus side, of where we think 2011's going to end up. We see prices that are high in Europe, that support more exports out of the Illinois basin, out of Colorado, out of the east. We see what's happening in the west Coast, there's opportunities to move it.And we're also moving a lot more coal out of the Gulf; so really every port is going to be more fully utilized as we go forward. As we look at Peabody alone, I can tell you in the fourth quarter as the markets began to move, we locked in 7 million tons of export business in the fourth quarter of 2010.

Brian Gamble with Simmons & Company.

Was hoping to maybe get a little bit more detail in Australia. Maybe you could talk about what force majeure you guys have had to implement over the Q4, Q1 time frame; what the production impact there is, and then your expectation for when those mines get back to some semblance of normalcy.

Okay. Well, without going into specifics mine by mine on our force majeures, obviously, we have to have a lot of discussions with our customers. Let me just give you a sense as to where we're at operationally today, and what we see as some of the recovery times. If I just start from the south, let's say that New South Wales is essentially back on track and operating normally from any impacts that they might have had in the fourth quarter.

As we move up into Queensland, it's a couple of different stories. As I mentioned earlier, the most significant impacts and the most catastrophic impacts were along that black water Gladstone corridor, which we did not have any operations in that area. As you go to the Goonyella-DBCT port corridor, which affects our Northern Bowen basin operations, and you look at our surface operations, our Burton operation, Eaglefield and Millennium, all had significant rainfall. Millennium is essentially up and running at capacity, although we have some lower seams that we have still yet to pump the pits down to be able to access for blending purposes.

Our Burton operation, we still have significant pumping to do. You might recall, we have multiple pits at that operation, and we are beginning and we are producing out of some of those pits, but we do not have access to 100% of them yet. It will take us a bit of time to pump those down.

Eaglefield is essentially back up and running as an adjunct to our North Goonyella operation. In terms of North Goonyella, we had some access issues, which were resolved fairly quickly. We also had some geologic issues that we worked through at the end of the year, but it is essentially up and running at full production as we speak today.

So as you move south to our Wilkie Creek operation, it's probably where we've had our biggest impact. We've just recently, within this week, been able to get full access to the site again and are back up in limited production and will be building that production base over the course of the next week. But longer-term, the rail line from Wilkie Creek to the Port of Brisbane was washed out in the flooding, the significant flooding that they had in Brisbane, which we're all aware of. And we're still talking to Queensland Rail as to what they think the repair estimates and time frame might be, but logically that will probably be a month or two before we can see any clarity as to when that will be up and running. Hopefully it won't be any longer than within the quarter.

Great. And then I was just looking back at the 2008 time period, and trying to juxtapose what sort of cost impacts there were to you guys specifically in Q1 that year, versus your new guidance for Q1 in '11. Looking back it seemed like your operational margin in Australia dropped to essentially break-even in that quarter. Is that round-about what you're expecting this time, or are there significant differences that point you one way or the other?

Yes, we're not seeing anything that would say that we're going to drop down to a break-even. I don't remember the weather-related impacts in 2008 causing us to get to that point. We might have had some longwall moves and other things at that point in time, which we do have certainly one longwall move, but you also have a significant price differential today than we had back in 2008.And I think that was probably a bigger impact at the time, given the slightly lower volumes.

We were still on annual pricing back then, and we were still carrying over the pricing from 2007, which was $129 a ton for the first quarter for met coal.

Shneur Gershuni with UBS.

I guess my first question is a follow-up from Mike's question, a little bit philosophical in nature, but there's a view out there that pricing for met will be impacted for the next two quarters because of the disruption, and then settle back down to the 200s level by the fourth quarter and so forth. Given your comments about 1 billion ton plus seaborne traded market, growth in all the areas there, have we opened up a gap that maybe we won't be able to close essentially, and pricing will not necessarily fall down as far as some may think? Just wondering what your view is on pricing longer term in terms of the path and so forth.

Well, I think our view is that we have opened up a significant gap between supply and demand, with demand continuing to be extremely strong. To have a view that pricing is going to recover within a short period of time is not a view that we have.At some point in time in the future, we're going to obviously see a recovery in terms of the production base, but in the meantime demand continues to grow.So the gap that we've opened up, I think there's a significant portion of that gap that will be permanent; albeit when things do normalize we'll see some of the top end come down a bit. But we don't see that occurring in a very short period of time.

Okay, and my follow-up questions are basically with respect to Australia. I was wondering if you can give us some clarity with respect to your expectations for costs, and how it will move throughout 2011 as the first quarter of the peak, and is the fourth quarter the trough and so forth? And your 15 million- to 20 million-ton impact, is that a best case scenario or can it actually be worse than that?

As we look at the first quarter, what I said in my remarks is, we expect higher average costs in the first quarter. You still have a knock on impact of the weather related issues that we're going to have to deal with. At the same time, it remains to be seen ultimately what that's going to be. It's a little tough at this point to give you specific guidance as to what it's going to be in the first quarter, but when you look at the fourth quarter, we're going to continue to have volume impacts. We need to work through the met and thermal mix.

There will be a bit of upward pressure due to exchange rates, even with our hedge position. We will see our all-in effective rate go up a bit. We'll see higher royalties on higher sales prices; so those are the couple of drivers there for the quarter.

Yes, and just to make sure everyone's clear, the 15 million- to 20 million-ton impact that I talked about is industry-wide, obviously not fully within our platform. So as Mike indicated, we'll have more clarity as we get through the quarter in terms of what the full impact is.

I think the other question you asked is, do we think that 15 million to 20 million tons is the end of it. It may not be in terms of -- we don't have visibility into what all of the other producers and their various impacts are. As we talked about, co-shipping is still a risk that we have for the first quarter. So the 15 million to 20 million tons may actually increase somewhat as we go through the rest of the first quarter, and the recovery efforts really kick into place.

I think what everybody has to remember is, there's a significant amount of recovery across all of Queensland that has to take place, not just the coal sector.And so the resources will be strained as everybody tries to get back up and running, and get the rail and the ports where they need to be.

Great. Thank you very much.

Andre Benjamin with Goldman Sachs. Please go ahead.

My first question is, excluding the impact of the weather that you expect in the first quarter of the year, what would your met coal targets or total Australia target for the year have been?

For 2011?

Yes.

Plus another 1 million tons to 1.5 million tons above what we probably forecast.

So you're saying the impact is -- I'm assuming there would be a greater impact in the first quarter, and you'll just make that up as the year goes on, or is that -- ?

Our intention is to get the operations back and running as quickly as possible, and to take advantage of the opportunities that are in the market while others are more impacted by the weather and aren't able to respond, so we can sell more coal to the market.

Great. That's helpful. And then shifting to the US, would you be able to provide any more color on your efforts to identify a west Coast export site for PRB coal?I know Arch and a few others have made a few small announcements, but I was wondering if you felt that there would be any likelihood that you can get that announcement in that 20 million- to 30 million-ton range in the near term.And whether that would have more of an impact in 2011 or 2012, or would that be more of a long-dated agreement?

Peabody continues with serious efforts to secure a long-term facility to ship, what we told you before, 20 million to 25 million tons of Powder River Basin coal to the Asian markets. We're evaluating the options with partners; and the reason we haven't said a lot about it in our releases is because we're under confidentiality agreements. What I can tell you is that our goal is to get a low-cost option that can be a game changer for the market. And when we look at the options, we want a deep water facility, because to ship PRB coal, we believe you have to use capesize vessels; that improves your economics by $5 to $6 in metric ton over Panamax vessels that are being used in some of the other facilities that are available to us to look at.

It has to have affordable rail opportunities and rail rates. And as we evaluate some of the further north opportunities such as Ridley, it's probably a $10 to $15 disadvantage to some of the other options that we look at. We're trying to find the right option that has long-term competitive advantages, that can ship meaningful quantities of PRB coal and has a one-line haul as opposed to a two- or three-line rail haul to get to the port.

So we hope to be able to give you information in the next quarter on this, but it continues to progress very rapidly. A lot of work is going on, and we don't want to announce anything prematurely.

Thank you.

Mark Liinamaa with Morgan Stanley.

Just quickly on your capital spending, you have $500 million to $550 million associated with growth projects. Is that a number that should be carried forward to -- out until that new production kicks in in Australia? Thanks.

Yes, obviously when you look at 2012 and beyond, we haven't finalized any of our capital planning, but if you look at the amount of organic growth that we have in the platform, particularly in Australia, between now and say, 2014, 2015, to meet those growth targets, for planning purposes that's probably not a bad number to add to the sustaining capital on an annual basis going forward.

Okay. Thanks. And just quickly on permitting in the United States, there was one retroactive rescinding of a permit. Can you talk about the general landscape there, and how that might affect supply over the next few years? That's it from me. Thanks.

Sure. Well, I'm not really up-to-speed on the specifics of what happened back in West Virginia with that one permit that you reference. Suffice it to say that all of the permitting is under more scrutiny here in the US. What we have built into all of our planning processes is a longer time frame for permitting, which incorporates earlier acquisition of land resources, so that the permits can be applied for at an earlier time frame; a longer window for both state and federal permits to be received.

We've been successful with that as evidenced by El Segundo, Bear Run, Wild Boar operations that we've started up all within the last couple of years. It's something that everybody in the industry has to be cognizant of. I think we've done a great job of getting ahead of that curve, and making sure that we have our permits in place for our operations to start.

Jeremy Sussman with Brean Murray. Please go ahead.

Good morning. This is Lucas Pipes calling on behalf of Jeremy Sussman. Congratulations on a great operational quarter.

Thank you.

Your Australian volume guidance for this year assumes 1 million to 3 million tons of volume growth over 2010 levels. Could you give us a bit more color on where this growth is coming from, and maybe the breakdown between met and thermal?

In terms of the met and the thermal, I think we have the numbers -- most of the volume, some of it's from our Wilpinjong operations in New South Wales, which as you know has been continuing to grow. And then generally it's across the platform, lower longwall moves, some additional volumes out of our Eaglefield operation up in the north; and all of that tempered a little bit by Wilkie Creek will be down this year because of the loss of the rail line for the first couple of months.

Thank you. And as a follow-up, prices declined somewhat in the western segment quarter-over-quarter. Could you give us a bit more color on whether this was driven primarily by a decline in Southwestern or PRB prices, or whether this was more spread between the two of them.

It was a mix issue, basically, with a bit less of the Southwest product included in the fourth quarter, which drove down pricing because it was more heavily weighted towards Powder River Basin pricing.

Okay. Thank you very much.

Paul Forward with Stifel Nicolaus.

On your US projections for 2011, looks like you have volumes up maybe 3% to 4%, and I believe Mike said that margins would be approximately within 5% of the $5.89 realized margins you had in 2010. I guess what I'd ask about this is, does this imply that there's not a whole lot of change if you look at the big volumes which are in the western US? Average pricing was $16.52 in 2010. Does that statement that the margins don't really change that much imply that pricing's probably going to be pretty close to that mid-$16s type pricing on average for the western US in 2011?

Yes, I think at the end of the day it will ultimately reflect a bit of the mix through the course of the year, Paul, which is why we've tried to just talk a bit about the average US EBITDA platform. As you know, we do have the opportunity with our contracting position to move tons around during the year among different operations with different margin potentials. So, what we really focused on was trying to give that EBITDA target for the US platform for the year rather than focus on any of the one individual either volume or price or margin by region, because we have such a complex set of contracts that allow us to do shifting across the platform.

Okay. And then just quickly on the Chinese projects, 20 million tons a year at this Wucaiwan surface mine, 12 million tons a year in Inner Mongolia; these are big projects. Just wondering if you can shed a little light on how that will translate into revenue for Peabody, and where's that go in the P&L, and if there's any information you can give us on potential timing, that would be great.

Paul, this is Rick. Let me give you a little bit of background on the projects, and there's a couple other projects. We told you last quarter we were working on these projects, and we would hopefully have something to announce and we did. We're at the stage right now in both of these projects where we've signed memorandums of understanding, we're moving towards the signing of the joint venture agreement in mid-2011, and then we'll work towards getting the permits for the coal reserves in 2011 as well. So, at the same time we're finishing diligence and mine planning.But the expectation is, yes, these are significant projects. And in Peabody's case, we would expect to be 45% to 49% owners of the coal mine, and collecting revenues, of course, from that part of the business, as well as participating at some level to be determined in the downstream part of the business as well.

In all likelihood it won't be in consolidated revenues; it will be an equity method accounting in the future. It's probably, at least three years in the future before we start having meaningful production of those operations, but we're very optimistic with these projects, and I think there's more to come as we head towards our goal that's pretty aggressive in Asia to expand our platform over there. So, these are some good projects for us, and I think the endorsement by the Chinese government and the US government is very, very helpful to get us to move forward and get those reserves secured.

Yes, Paul, I think what -- if you look at our platform, we're focused on one of the main horsepowers of growth for us is what we have going on right now in terms of project development in Australia. We see these China projects, Indonesia, Mongolia, the other things that we're working on, as being a significant layer of growth to add on as we get through the back end of our Australian growth over those periods of years.

All right. Thanks very much.

David Khani with FBR.

A lot of my questions have been asked. It seems like we're starting to see a subtle shift here on policy. Obviously because of the elections on the House, and we saw Carol Browner stepping down here. How do you think that's going to impact the execution of the business, whether it's permitting, whether it's coal ash, whether it's transport or [mack] rules. How do you think it is going to play out here?

Well, I think first and foremost, what we're going to see is a good set of discussions in Washington around the regulatory environment, and the impact that the regulatory environment and the potential new regulations that were being proposed will have on economic development, job growth, energy supply, as well as environmental progress. I think that all bodes well for what will be a more rational time frame as we go through the future, in terms of what some of these new regulations might be.

In terms of where we're at in terms of permitting, current regulatory environment for new operations; I think those are moving along. I don't see significant changes there. I think it's more on the generation side, and I think there will be a more folsom discussion around the impacts of those, and a time frame that allows continued electricity growth in this country as we move forward and not the Draconian effects of what we might have seen before.

Do you think that we're at a mindset right now where you could actually see new coal fire generation builds beyond what's already in the queue?

I think if we get to a point where there's a view that coal, and particularly the ultra super critical, super critical power stations, can be built because they're retrofitable in the future for CO2 concerns. Yes, I think that's a possibility, and something that we're starting to hear people talk about in the regulatory and legislative framework in Washington.

Great. Okay. Thank you.

Jim Rollyson with Raymond James.

Greg, this may be circling back on the new projects, longer term from Paul's questions, should we assume, number one, that some of the CapEx we -- I think Mark asked about CapEx this year being a good run rate going forward.Is that embedding the cost of development of the new projects, for part one? And part two, just any color on infrastructure that's in place or necessary, or how that plays out over the course of this project development.

The current capital spend that we have for 2011, $500 plus million of that is project capital, three-quarters of that is down in Australia. And so all of that is dedicated to bringing either the expansions or the extensions of those Australian operations up. Metropolitan is in progress. The slope is being built. We're close to placing the orders for the longwall equipment. Wilpinjong, we're in the process of expanding the prep plant, the wash plant, so we can meet those by the end of the year, expansions.

At Burton, a significant amount of that money was for the overburden removal for the extension at Burton. We have to go back and take a look at that because of the flooding that's occurred in terms of timing.And then we have Millennium as well in terms of some of the expansion capital; so all of that's going into the ground. That would be the run rate over the next three to four years as we fully develop that portfolio of projects that we had in Australia. So hopefully that answers your question. We do have the gateway extension here in the US, which right now is the biggest project that we have; be a couple of year project, as well as completing the final stages of Bear Run.

That's helpful. On a pricing front, you mentioned where spot met pricing has gone to. I'm curious, if you go back to '08 and look at where spot prices went relative to say, the benchmark, and understand that the benchmark was annual then versus quarterly today.Do you see much of a delta between spot and benchmark pricing like there was back in '08, or do you think that gap would be narrower for say, second- or third-quarter pricing.

Right now we actually have a wider gap between benchmark and spot, which I think is even more dramatic when you consider that we are on quarterly pricing. You would have expected a wider gap, or a less wide gap because we're on quarterly; so there's no question that the spot market moved much higher, much quicker than it did back in 2008.

So you think the benchmark for the upcoming quarter will start to catch up with spot a little bit?

I'm not making any predictions on exactly what it's going to be, but I know it's going to be up.

Okay. Great, thanks.

Fritz von Carp with Sage Asset Management.

Yes. So, as we figure how long -- maybe you all have figured this out, but if you could help me, I'd appreciate it. How long will it take to fill in the gap of the coal?I'm trying to figure out how long it would take to fill in the gap of the production that we've missed. Could you put it in context of just quantitatively how tight do you think the market was before the storms, and therefore, how much or how little capacity does the world have, do you think, to flex up production and fill in the shortfall?

Well, if you go back to our discussions last quarter, and then if you go back to the comments earlier about the gap that we have today, I think it was always our view that the met coal supply was much tighter than where met coal demand was going to be. That was even before all of the Australian rains and all of the other production issues across the globe; so that said that we had the dynamics for upward pressure on price across the globe. You layer on top of that the production that's been lost, we don't have, quote, over-capacity in the met coal circuit.

We've never thought that it existed, which says that for that gap to be closed, it might get tempered when we get back up to full production, but in our view it's not going to get closed. We're going to have an even tighter supply situation going forward. 42% -- 40 % plus of all met coal supply is currently operating under forced majeure, which gives you a sense as to the significance of the issues.

And thermal?

Well, on the thermal side it's a different situation. Obviously, we still see the thermal market tightening, and it became particularly tight once met coal supply started to become short because you do have global -- you have 20 million plus tons or more, 20 million to 30 million tons of crossover, which has probably all moved over into the met side now. With what's happened in Colombia, South Africa, and in Indonesia for the La Nina effects, which is almost all predominantly thermal coal, tightness in the thermal market as well, and a significant run up in thermal coal pricing.

Okay. Thank you.

Curt Woodworth with Macquarie.

Just a question on 2Q price opportunity. Are you going to be able to fully benefit all the volume from the higher benchmark, or will you have some contracts that didn't ship this quarter that will linger into 2Q under the current benchmark?

As we look at the second quarter, as we look at really, frankly, after the first quarter, we think we have 100% of our met coal is available to be repriced in the current market conditions. Some of that's subject to the evaluation of our contracts and what the force majeure provisions are in those particular contracts, but 100% of our production is unpriced after the first quarter.

Okay. And in terms of the thermal ASP that you booked for about half your export volume, what is your average price on what you booked so far for Australia for this year?

There's a mixture across -- there's legacy contracts that were booked when we bought Excel. There's contracts that we booked in different years. It's hard to give you an average price. I don't have it in front of me, what the exact number is for the platform, but needless to say we've been booking them at the spot or above pricing for the platform.

Okay. Thanks.

Brian Yu with Citi.

My question is actually a follow-up to Paul's earlier about the US guidance. Mike, I think when you said that 2011 EBITDA performance would be within 5%, can you help us with direction? Is this a plus or minus 5%, or up to a 5% increase?

It's up to a 5% increase.

Okay. And then the second one, Australia, some of the spot tons that were sold; is that out of your own production or the trading business, broker tons?

That was our own production that I referenced in my remarks in terms of the spot sale this quarter.

Okay. Thank you.

John Bridges with JPMorgan.

Just following up from that question, it seems a bit unusual if you're declaring force majeure that you have spot tonnage, which can then go into the spot market. How does that work?

Well, John, it depends on which mine it's coming from. Not all of our mines declared force majeure. If we have a mine that's not on force majeure, and it has available coal to sell, we were able to sell that coal. As you know, we haven't declared force majeure at Millennium at this point in time. We had coal in the ground in our stockpile, so we were able to sell that.

It was Millennium coal. Okay. You were talking about power plants in China. But your project in Kentucky, where are you with that one?

You're talking about the western Kentucky project. The permit process essentially is where it's at right now, John.

Okay. And then, sorry, if I may, the longwalls; you spoke about Colorado. Is that Twenty-Mile?

Yes.

And the Australian one, would that be Goonyella?

No, that's Wambo.

Wambo. Okay. Any others that we have visibility on for the rest of the year, or is that still open?

Yes, we have more moves later in the year. I think -- .

We have two longwall moves in Australia in the second quarter, and then we have another one in the fourth quarter in the Australia platform.

Our final question today will be from the line of Brandon Blossman with Tudor, Pickering, Holt.

One, on CapEx, you've given us a little bit more detail this quarter than you have in the past, particularly around total cost. Has there been any material changes in that? All the projects look very familiar and the timelines look familiar. Quarter-over-quarter or through the last half of 2010, for example, have there been any material changes in that plan?

No, there's been nothing that's significantly material. As I indicated earlier, we have to take a good, hard look at the timing of expenditures at Burton, given the recent weather events. But other than that, the projects are pretty much on track. The capital's pretty much in line with where it had been.

That makes it easy. And then secondly, the Indonesian supply deal, the timing on that, and is that something that will show up in Trading and Brokerage, or some other place?

We completed that transaction. It's beginning to produce coal, and we will get access to that product and that will show up in Trading and Brokerage. We've actually completed another deal since we last issued that release; a bit smaller transaction and have some similar transactions in the pipeline.So we're pretty hopeful that we'll continue to increase our availability of Indonesian coal to sell into the markets.

Thank you very much.

I'll turn it back to Mr. Boyce for any closing comments.

Thanks, John, and thanks to everyone on the call. As you can see, we're still working through some of these very near-term weather-related issues here in the first quarter. But I would say as you look at our position in the last three quarters of the year, where we think the market dynamics are, we're looking for a very, very strong 2011, both from the operating platform, the financial side, as well as our ability to advance our growth projects not only in Australia, but elsewhere. So long-term, super cycle, early stages, coal is going to have sustained continuing growth, and we look forward to our next quarter and continuing the communications process on our progress.So I appreciate the time, everybody. Thank you.

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