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BTU Taps Gulf Coast Export Platform

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Peabody Energy Corporation (BTU) has entered into an agreement with Kinder Morgan Energy Partners, L.P. (KMP) to utilize Kinder Morgan’s Gulf Coast export platform for Peabody’s Colorado, Illinois Basin and Powder River Basin (“PRB”) coal products. The company will commence export of its Illinois Basin, Colorado and PRB coal products from the deepwater facility beginning 2014.

With this agreement, Peabody expects to increase its Gulf Coast annual coal export capacity in the range of 5 – 7 million tons between 2014 and 2020. Peabody will utilize the terminals to increase its global customer reach.

In addition to this agreement, the company has extended its existing contract with Kinder Morgan's Houston Bulk Terminal. An ongoing contract involving the Cora river terminal in Illinois will be extended through 2018 to facilitate exports through International Marine Terminal and domestic sales.

Kinder Morgan plans to invest $400 million to expand its Gulf Coast terminal network for this project and for all other projects announced earlier.

We view that the present coal market is improving at a fast pace with higher electricity generation and steel production. The demand for coal from emerging markets, primarily China and India will act as a positive catalyst for the company’s future growth. The increase in thermal power generation is expected to drive demand. In addition, Japan is also increasing thermal coal imports driven by higher seaborne natural gas prices and shutdown of a few nuclear power generation plants.

The recent agreement is likely to boost Peabody’s U.S. and Australian coal export capacity. The demand for Australian coal in particular is expected to increase owing to its superior quality and proximity to Asian markets. This will allow the company to strengthen its share of the seaborne coal market.

During first quarter 2012 earnings release, Peabody announced its full year 2012 total sales guidance of 235 – 255 million tons, including 33 – 36 million tons from Australia, 185 – 195 million tons from the U.S. and the remainder from Trading and Brokerage activities. The Zacks Consensus Estimate for second quarter 2012 is currently pegged at 53 cents per share.

Peabody Energy Corporation currently retains a short-term Zacks #3 Rank, which translates into a short-term Hold rating.

St. Louis, Missouri-based Peabody Energy Corporation is the world’s largest private sector coal mining company and a global leader in clean coal solutions. The company owns majority interests in 29 mines in the U.S. and Australia.

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