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Peabody Energy Corp  (BTU)
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    Sector  Energy    Industry Coal Mining
 


 

Peabody Energy Corp

Business Description


We are the largest private-sector coal company in the world. Our coal products fuel approximately 10% of all U.S. electricity generation and 3% of worldwide electricity generation. We own, through our subsidiaries, majority interests in 34 coal operations located throughout all major U.S. coal producing regions and in Australia. Additionally, we own minority interests in two mines through joint venture arrangements. Most of our production in the western United States is low-sulfur coal from the Powder River Basin. In the West, we own and operate mines in Arizona, Colorado, New Mexico and Wyoming. In the East, we own and operate mines in Illinois, Indiana, Kentucky and West Virginia. We own 5 mines in Queensland, Australia. One of the Australian mines was acquired in 2002, two were acquired during April 2004, a fourth was opened after the 2004 acquisition, and a fifth began mining operations in early 2006. Most of our Australian production is low-sulfur, metallurgical coal.

Peabody, Daniels and Co. was founded in 1883 as a retail coal supplier, entering the mining business in 1888 as Peabody & Co. with the opening of our first coal mine in Illinois. In 1926, Peabody Coal Company was listed on the Chicago Stock Exchange and, beginning in 1949, on the New York Stock Exchange.

In addition to our mining operations, we market, broker and trade coal. We opened a business development, sales and marketing office in Beijing, China to pursue potential long-term growth opportunities in this market. Our other energy related commercial activities include the development of mine-mouth coal-fueled generating plants, the management of our vast coal reserve and real estate holdings, coalbed methane production, transportation services, and, more recently, BTU conversion. Our BTU conversion initiatives include participation in technologies that convert coal into natural gas, liquids and hydrogen.

Our sales, trading, brokerage and marketing operations include COALSALES, LLC; COALSALES II, LLC (formerly Peabody COALSALES Company); COALTRADE, LLC (formerly Peabody COALTRADE, Inc.) and COALTRADE International, LLC. Through our sales, trading, brokerage and marketing departments, we sell coal produced by our diverse portfolio of operations, broker coal sales of other coal producers, both as principal and agent, trade coal and emission allowances, and provide transportation-related services. We have opened a business development, sales and marketing office in Beijing, China to pursue potential long-term growth opportunities in this market. As of December 31, 2005, we had 75 employees in our sales, trading, brokerage, marketing and transportation operations, including personnel dedicated to performing market research, contract administration and risk/credit management activities. These operations also include our COALTRADE Australia operation, which brokers coal in the Australia and Pacific Rim markets, and is based in Newcastle, Australia.
Transportation


Suppliers
The main types of goods we purchase are mining equipment and replacement parts, explosives, fuel, tires, steel-related (including roof control) products and lubricants. Although we have many long, well-established relationships with our key suppliers, we do not believe that we are dependent on any of our individual suppliers, except as noted below. The supplier base providing mining materials has been relatively consistent in recent years, although there has been some consolidation. Recent consolidation of suppliers of explosives has limited the number of sources for these materials. Although our current supply of explosives is concentrated with one supplier, some alternative sources are available to us in the regions where we operate. Further, purchases of certain underground mining equipment are concentrated with one principal supplier; however, supplier competition continues to develop. In the past year, demand for certain surface and underground mining equipment and off-the-road tires has increased.

Competition
The markets in which we sell our coal are highly competitive. Our principal U.S. competitors are other large coal producers, including Arch Coal, Inc., Kennecott Energy Company, CONSOL Energy Inc, Foundation Coal Corporation and Massey Energy Company, which collectively accounted for approximately 41% of total U.S. coal production in 2004. Major international competitors include Rio Tinto, Anglo-American PLC and BHP Billiton.
A number of factors beyond our control affect the markets in which we sell our coal. Continued demand for our coal and the prices obtained by us depend primarily on the coal consumption patterns of the electricity and steel industries in the United States, China, India and elsewhere around the world; the availability, location, cost of transportation and price of competing coal; and other electricity generation and fuel supply sources such as natural gas, oil, nuclear and hydroelectric. Coal consumption patterns are affected primarily by the demand for electricity, environmental and other governmental regulations, and technological developments. We compete on the basis of coal quality, delivered price, customer service

   

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