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• Prices for Powder River Basin and Illinois Basin coal, two of Peabody's core regions, have <br />dropped by 19% and 38% respectively since 2012. Year-to-year prices have dropped in the <br />Illinois Basin by over 30%. Some optimistic coal -price scenarios see modest improvement in <br />prices but even the most buoyant of those would not reverse Peabody's declining fortunes. <br />• Since 2011 the price of Newcastle coal, the global benchmark for thermal coal, has <br />declined from a peak of $140.00 per ton to $52.00 per ton.2 Over the next six years, the <br />price of Newcastle coal is expected to decline to $42.00 per ton by 2022. <br />These metrics indicate that, all in all, Peabody's current and recent efforts to recover its <br />financial footing contain serious downside risks with limited, mostly short-term benefits that will <br />prove ultimately ineffective. <br />The core findings of this report: <br />Peabody's asset sales are counterproductive. Although the announced sale of $435 million <br />in distressed assets from the three transactions described in this paper may produce short- <br />term cash benefit, the use of cash in this manner simply masks the fact that Peabody's <br />underlying core economic activity, mining coal, is not profitable. The cash infusion, by <br />necessity, will be used to help the company meet its expenses, including its $465 million <br />annual interest payment. Ironically, the mine sales will also contribute to the domestic and <br />international oversupply of coal by encouraging the continued operation of existing mines <br />and the reopening of closed mines in Colorado, New Mexico and Australia. <br />The proposed debt exchange is too little, too late. The company has initiated a $1.5 billion <br />debt exchange with an anticipated reduction of principal of $730 million. The proposed <br />transaction must be approved by bondholders and is expected to achieve a reduction of <br />an estimated $47 million in annual interest payments. Relative to the overall size of the <br />Peabody debt burden and ongoing net losses, the savings are too small to have a <br />meaningful impact on company finances. Operational and debt management actions <br />will be required to staunch operational losses. <br />The company's pledge of existing mines as collateral for the new debt is problematic. <br />Peabody has offered a special vehicle to support the underwriting of a portion of the new <br />debt issuance. That special vehicle will pledges four mines—three in the Illinois Basin and <br />one in Arizona—as collateral to its creditors. Peabody's financial presentation of the three <br />Illinois Basin mines is partial and overly optimistic with regard to current operations and <br />future coal prices. The implied price outlook is unsustainable. The Arizona reserves currently <br />serve as a mine -mouth facility supplying coal at a price that exceeds the spot price of coal <br />in every region of the country. This pricing is likely to be unsustainable. Peabody offers no <br />forward-looking price outlook in its statement to investors. <br />• The company's attempt to avoid additional operational costs by maintaining the status <br />quo on its self -bonding portfolio is highly risky. Peabody Energy is taking steps to preserve a <br />$1.3 billion portfolio of self -bonding agreements in several states. Self -bonding allows <br />companies to pledge company assets to cover mine reclamation obligations in lieu of <br />securing third -party bond payments. Self -bonding allows Peabody to save tens of millions <br />2 http /lwww indexmundi com/commodibes/7commodity=coal-australian&months=60 <br />Peabody's Strategies for Survival Ignore Market Realities and Risk Backfiring 2 <br />