International Coal Trade -- the race for Colombia

Tripartner Trade

Colombia Thermal Coal

Client Debrief

[email protected]

Summer, 2010

• Tripartner Trade is an international trade & supply chain advisory firm – Exclusive purchase mandate for a few selected utilities & trading companies

based in China– Procurement services to allow our clients to focus on their core business.

• We advise on international supply agreements for steam coal, petroleum coke & coking coal

– International portfolio of reliable, cost-competitive suppliers with solid growth prospects to help address our clients’ long-term resource needs

– We represent 1 client per deal in order to secure the most attractive price & payment terms

• We focus on win-win relationships to accrue benefits across the entire supply chain

• We offer finder fee agreements for all successful deals

About Us

[email protected] Tripartner Trade 2

1. Global Coal Market– Strengthening Supply / Demand fundamentals– Colombia exports to surpass Russia & South Africa

2. The Race for Colombia– Overview– Infrastructure– Top Suppliers

3. Risk of supplier monopoly but emerging miners are gaining share– Emerging miners are gaining share of exports against major MNC’s– Profiles of dominant & emerging Colombian mining companies with access to rail + port

capacity– Strategies to ensure cost-competitive, growing supply in the years ahead

4. Current offerings of Coal Supply Contracts– Profiles of emerging miners (not resellers) with rail access + port capacity– Supplier listing + key contact names / email addresses– Listing of FOB & CIF offerings

Contents

Confidential & Privileged Tripartner Trade 3

World Energy Consumption

Confidential & Privileged 4Tripartner Trade

World Fuel Reserves

Confidential & Privileged 5

Who owns fossil energy reserves & how long might they last?

Tripartner Trade

Asia will drive growth in worldwide electricity production


Source: EIA, International Energy Outlook 2007

Avg. Annual Growth in Electricity by Region (2004 to 2030)

Energy Demand Fundamentals

Electricity growth heavily depends on availability of coal -- more so for emerging economies

Tripartner Trade

World Coal Consumption


114.5

136.4

151.6

167.2182.9

199.1

India & China to double thermal coal imports over the next 5 years

Coal Consumption by Region (Quadrillion BTU per year)

Source: Report #:DOE/EIA-0484(2007) Release Date: May 2007 Next Release Date: May 2008 : International Energy Agency, Coal Information 2007

Tripartner Trade

World Coal Production (2009)


Global Production

Thermal85% vs.

Coking15%

Domestic Internationally Traded

Thermal Coking Thermal Coking

6,200 million MT(est.)

5,250 million MT

950 million MT

4,650 million MT

600 million MT

625million MT

225million MT

Source: IEA, Xstrata, McKloskey, Platts International Coal Report, Braemar Seascope Australia

Average FOB Cost by Country


Higher FOB prices have recently enabled Colombia mines to be cost competitive & reshape global coal trade flow patterns

Source: Data provided by Xstrata

Global Seaborne Coal Trade (2009)


Source: International Energy Agency, Bramar Seascope Presentation at Coaltrans India, March 2010

World Coal Exports: 932 MM mt

Colombia forecasted to achieve #3 status by 2011 / 2012•Significant export growth will come from Colombia•Highly restricted growth for exports from Indonesia, Australia, Russia & South Africa until 2014 / 2015

• India’s explosive growth in coal imports will more than double over the next 5 years– Coal India Ltd expects coal imports to increase 26% to 68 MM MT in 2010

– Share of India’s electricity from coal-fired power stations will increase from 50% (today) to ~70% by year 2030

– India’s share of global seaborne coal exports will reach 16% in 2015 and will surpass China’s 15% share

• China’s thermal coal imports forecasted to double over the next 5 years– Xinhau News Agency reports domestic coal shortfall of 200 million MT by 2015

– ~12% growth in thermal coal imports forecasted in 2010 to ~115 million MT

– 1.4 MM MT were imported from Colombia into China in Dec 2010 at avg CFR $107/MT (Reuters 1-15-2010)

– NASA projecting winter season in 2010/2011 to be comparable or colder to last year

• Other Asian economies continue to increase imports – Japan, Korea, Tawian expected to show moderate growth

– Vietnam expected to import ~100 million MT by 2015 (from being net exporter in 2010)

• Australia, Indonesia, South Africa are already experiencing very slow growth in export volumes due to constraints in rail + port logistics until 2012 or beyond

– South Africa’s coal exports in 2010 likely to be lower than 2009

Stage set for Coal ‘Super-Cycle’


Sources: Sunday Times (South Africa), Platts International Coal Report, EIA, Transneft, Bloomberg






Contents




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10

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30

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60

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80

90

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1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F

Production (MM mtpa)

Total Production

Domestic Consumption

Exports


Production has doubled over the last 10 years with aggressive growth supported by infrastructure + port capacity additions

“Our least optimistic scenario is that total production will exceed 150 million MT in 2019” -- E. Monroy, Director, Colombia Ministry of Mines & Energy

Colombia Thermal Coal Exports


Exports by Region (Cerrejon) Exports to Asia (Cerrejon)

Source: CMC presentation at Coaltrans Miami 2010

Colombia

Confidential & Privileged 15Tripartner Trade

• 2nd highest population with 45 million (MM)• 3rd largest destination of Foreign Direct Investment (FDI)• 1st rank among Latin America countries for ‘Doing Business’

by World Bank(1)

– Ranked 37th worldwide– Ranked 5th worldwide for category of ‘Protecting

Investors’ – Consistent performance & improvement since 2006

• Only country in South America with consistent infrastructure investment over the last decade

Colombia in South America

• Solid recovery forecasted from recent global economic downturn

– >5% economic growth rate from 2002 to 2007 and expected to remain robust

– 2.7% growth forecasted in 2010

• Continuing progress in reducing public debt levels from 35% in 2004 to goal of 23.8% in 2020

– 2010 budget deficit of 3.1% GDP

• Special 30% deduction on tangible fixed income producing assets

– 15% income tax rate

Economy

• Increasingly becoming a valuable trading partner– Currently negotiating 19 International Investment

Agreements with 39 countries– Recent visit to China by government delegation

promoting port & other investment opportunities

• Total exports of USD 41.1 BB (F.O.B.)2008 estimate

– Petroleum, Coffee, Coal, Nickel

• Steadily improving security & stability within country– Last terrorist attack occurred in 2002 on Cerrejon

railway

• Agreements in English are enforceable by court system

Foreign Direct Investment


Colombia (II)


• Growing world wide demand for Colombia's mineral assets is a driving force for the Colombian economy

– Major world supplier of thermal coal – Key player in the ferronickel market. – Promising mining potential in basic & precious metals/gems

• Improvement in security situation lifting economic prosperity– Annual Foreign investment surpassed $1 Billion (BB), an increase of

~400MM2003

• Mining sector divided into 26 mining districts identified by government each offering a specific mineral product.

– Eastern & Southern regions earmarked for increased investment in Exploration & Production (E&P)

– Refining capacity of 323.000 barrels per day

Energy & Mining

• ~6,500 million MT of recoverable coal reserves 2003 estimated

– Mostly high-quality bituminous coal, located in the north– Small share of coking coal (~300,000 MT per month production)– Relatively clean burning with Sulfur content < 1%– Coal quality is very low in Nox emissions and will often capture a price

premium from utilities needing to lower emissions

• Majority of reserves concentrated in the Guajira peninsula in the north and the Andean foothills in the interior.

Coal


Ports

Atlantic Ocean

Pacific Ocean

• Expansion of Panama Canal (completed in 2013) will ease freight costs into the Pacific–Enabling passage of small capesize vessels of 130,000 – 140,000 MT

•Coal trade handled primarily by Bolivar, Santa Marta & Prodeco ports

•11

Infrastructure


• Ports were privatized in 1993 with greater competition & competitiveness than other Latin American countries

• Privatization has resulted in large & rapid productivity / efficiency improvements

– Port companies expanding investments to include infrastructure projects enabling further productivity improvements

• Bolivar port loading rate exceeds 40,000 MT per day

– Has never declared a force majeure

– Integrated mine, rail & port processes

Rail Network


• Strong, consistent investment in railway networks will support coal production expansion

– Integrated mine, rail, port processes for Bolivar, Santa Marta

• Fenoco railway project transports >80 MM MT per year

– Between Santa Marta, La Loma, Cienaga and Chiriguana (Drummond), and La Dorada port on the Magdalena River (interior province of Caldas)

• Proposed railway tracks along the Magdalena corridor, a 192 km stretch that will link Drummond's La Loma mine with Cienaga on the coast, where a new port is planned.

Rail Network

Planned Projects

• Carare Railroad– 555 km railway to increase coking coal

transport capacity from Cudinamarca, Boyaca, Santander

• Port extensions include include Agua Dulce, Contecar, Peurto Neuvo

• New port construction planned for Peurto Bahia, TCVUEN currently seeking investors

Infrastructure


Projects & Investment by Sector Total Infrastructure Investment by Sector

Consistent investment within Colombia’s infrastructure will provide for continuing capacity to increase exports

Projects coming online in the near future






Contents


• Dominant market share in Colombia– Operate own rail & port– Joint venture between Anglo-American, BHP Billiton, Xstrata

• Deposits are located in the Guajira region of northern Colombia.• Open cut mines are the largest earthmoving operations worldwide.

– Approximately one million tonnes of material are moved every day, 365 days per year.

– Nearly 4,000 employees & 4,000 contractors • Exports via Puerto Bolivar terminal w/ integrated rail line

Cerrejon

Strictly Confidential & Privileged Tripartner Trade 23

Source: CMC presentation at Coaltrans Miami 2010

Cerrejon


Glencore


Glencore’s Colombian Assets

• Coal operations comprise high-grade thermal coal mining operations and associated infrastructure

• Saleable reserve base > 250 million tonnes

• Two open pit coal mining operations– Calenturitas: 14,000,000 MT Steam Coal

(after ramp-up) – La Jagua Mine: 7,000,000 MT Steam/PCI Coal

(after ramp-up)

• Export port facilities at Puerto Zuñiga in the town of Santa Marta on the Caribbean coast of Colombia

• ~40% ownership share in railway linking Calenturitas and Puerto Zuñiga and proprietary rolling stock.

• Part of consortium investing in Peurto Neuvo expected to be operational in 2012/2013

• 2 coal mines both located in Cesar province– Pribbenow (La Loma) produces ~20 million tons – El Descanso production will be increased from ~3 million tons of coal plans to ~25

million tons over the next three years

• Coal produced among lowest in sulfur & ash coal currently exported from Colombia

• Coal transported from the mine ~190 km by railcar on the renovated portion of the Colombian National Railroad System and National Highway directly to Puerto Drummond, the deep-water ocean port.

– Capability to load all sizes of vessels from handy-size up to the largest capesize.

• Heavy investment in production infrastructure over the last few years has allowed Drummond Ltd. to grow shipments from 1 million tons in 1995 to 21.7 million tons in 2009.

• Currently seeking investment partner to aggressively expand export capacity

Drummond


Emerging Supplier #1


• Recently announced plans to expand & develop 4 open-pit & underground mines

• Production capacity estimated >19 Million Metric Tonnes per year

• Tripartner Trade is currently discussing off-take agreements on behalf of our clients in China

Emerging Suppliers #2 to #6


available upon request