Bidder's Statement - Peabody Energy

As demonstrated in Figure 3, Macarthur management has continued to project production growth which has failed to materialise since 2006 –
even after disregarding the impact of the severe weather on FY11 production.
Figure 3: Macarthur saleable production since 2006
Attributable production (Mt)
6.0
5.0
4.0
3.0
2.0
1.0
5.0
2006 - 2010 CAGR = 0%
3.6 3.5
4.7
5.0
3.8
0.0
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011
Source: Macarthur ASX filings.
(d) Development risk: While Macarthur has recently announced the selection of Codrilla as the fourth mine and has a portfolio of preproduction
assets across Queensland, there are substantial uncertainties associated with greenfield mine development and there is no
guarantee that Macarthur will be able to develop Codrilla, or any of the other projects, in the near future, if at all. If that development is
delayed, Macarthur may face liabilities under its port and rail take-or-pay obligations.
Furthermore, in August 2010, Macarthur announced its intention to acquire a controlling interest in MDL162, a pre-production project in the
Bowen Basin, by providing a loan of approximately A$360 million which would be converted into equity in the company holding the licence.
Macarthur has announced that it is now facing difficulty in converting this loan into equity. Accordingly, there is a risk that Macarthur will not
be able to convert the loan into equity or receive full repayment of the loan. See section 6.5(e) for further details.
(e) Funding risk: Development of Macarthur’s projects pipeline will require significant investment in exploration, feasibility studies and mine
construction. This expenditure may exceed Macarthur’s cash reserves and operating cashflows, and therefore Macarthur could be required to
seek debt funding or raise equity from existing or new shareholders. Macarthur’s ability to secure this funding is not guaranteed, which could
cause the deferral of development projects and any future funding arrangements could potentially dilute existing Macarthur Shareholders.
(f) Regulatory risk: The introduction of the proposed minerals resource rent tax and the proposed carbon tax could have a negative effect on
Macarthur’s future earnings and impact the value of the Shares. 7
(g) Litigation risk: Macarthur and two of its subsidiaries, Monto Coal Pty Ltd and Monto Coal 2 Pty Ltd, have been served with a statement of
claim in relation to proceedings commenced in the Supreme Court of Queensland in 2007 by three joint venture participants in the Monto Coal
joint venture. The claim is for damages of not less than A$1.19 billion for breach of contract plus interest and expenses. Whilst Macarthur has
stated that it believes the claims to be unfounded, there is a risk that the outcome of the litigation could be unfavourable to Macarthur.
1.3 The Offer is substantially higher than equity analysts’ valuations of Macarthur
The Offer Value of A$15.66 per Share is 30% higher than the median equity analyst net asset value of Macarthur of A$12.05 per Share.
The median equity analyst valuation of A$12.05 per Share was calculated using the valuations of 15 brokers, and the value in those brokers’
reports range between A$10.50 and A$16.01 per Share. These valuations were published in reports that were released between 11 May 2011 and
26 July 2011. To PEAMCoal’s knowledge, these are the most recent analyst valuations published before the date of this Bidder’s Statement.
Figure 4: Premium to median analyst valuation
15.00
30% premium
12.00
A$/Share
9.00
6.00
12.05
15.66
3.00
0.00
Median Equity Analyst Valuation
Offer Value
7
Macarthur has included an estimate of the impact of the proposed carbon tax on page 11 of its June 2011 quarterly report, a copy of which was released to the ASX on 25 July 2011
and which is available at www.asx.com.au. PEAMCoal notes that such forward looking statements are the sole responsibility of Macarthur and PEAMCoal makes no comment on their
accuracy or otherwise.
8