Coal - A World of Opportunity

Coal demand continues to outpace supply all over the world. For the fifth consecutive year, coal has been the fastest-growing fuel globally. More than 75 nations are developing new coal-fueled generation. And the growth of coal is expected to outpace all other energy forms over the next two decades. "Globally, coal growth continues to outpace every other fuel and new supplies have not kept pace with rising demand," said Peabody President and Chief Commercial Officer Richard A. Navarre. "In the United States, coal is gaining market share and exports are rising dramatically. Every coal market in the world has seen significant price increases. And as expected, the Powder River Basin is moving toward pricing equilibrium with coal from other regions."

INTERNATIONAL OVERVIEW

Global demand outpaces supply; inventories in key nations at critically low levels Australian met and thermal coal prices continue to rise from April settlements Peabody Australia volumes up 12% year to date, while industry production is down Significant leverage with large unpriced met and thermal volumes for 2009 and 2010

Global coal markets serving both steel production and electricity generation continued to tighten during the quarter, marked by record growing demand as well as declining inventories.

A ) Fording Canadian Coal Trust* (FDG.UN : TSX : $77.80)

Second-quarter profit at Fording more than tripled on rising coal prices, with the company earning $373 million up from $106 million in the year ago quarter. Fording reported EPS of $2.51, beating consensus of $2.21 and Canaccord

Adams’ estimate (which was at the high-end of the range) of $2.46.

Volume and Prices

Better-than-expected sales volume and realized prices were the main drivers in the quarter – production and sales were reported at 3.9 mt (versus a 3.8 mt expectation), while the realized price was US$204/tonne (versus a US$200/tonne expectation).

Cash available for distribution rose to $420 million, or $2.82 per share, exceeding actual Q2 distributions of $2.50 p er share. Volume, price and cost guidance for the full year was all in line.

Canaccord Adams Metals & Mining Analyst Gary Lampard says the market is refusing to believe the earnings and distribution potential of Fording at these coal prices. Canaccord Adams has forecast a distribution profile of $10.36 in 2008, $15.40 in 2009

and $12.52 in 2010. At yesterday’s close, units of Fording would be yielding 19.79% based on Canaccord Adams estimates for 2009.

B ) Arch Coal ACI $ 55.64 up $4.70 ( 9.2%)

Arch Coal, Inc. reported net income of $113.0 million, or $0.78 per fully diluted share, in the second quarter of 2008 compared with net income of $37.6 million, or $0.26 per fully diluted share, in the second quarter of 2007.

Income from operations more than tripled to $169.0 million in the quarter just ended, and adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") more than doubled to a record $240.9 million. The company also recorded $785.1 million in consolidated revenues during the second quarter of 2008, an increase of more than 30 percent from the year-ago quarter.

"Arch delivered another strong earnings performance in the second quarter, achieving a three-fold increase in net income and earnings per share," said Steven F. Leer, Arch's chairman and chief executive officer. "We also beat the company's previously established EBITDA record that was set in the first quarter of 2008. Our solid financial results were driven by expanded operating margins in our Central Appalachian and Western Bituminous regions, coupled with a significant contribution from our trading and asset optimization function. Our diverse asset base helped the company overcome the impact of weather-related challenges at our Powder River Basin operations during the quarter just ended."

In the first half of 2008, Arch's net income nearly tripled to $194.1 million compared with the first half of 2007. Over the same time period, the company earned a record $430.4 million in EBITDA, representing a 95 percent increase compared with the prior-year period.

C ) Teck Cominco TCK.B $ 39.99 up $1.33 ( 3.44%) Credit Suisse Update Shares of Teck spiked higher with the company reporting what most consider strong quarterly earnings.

Teck reported adjusted Q2/08 FDEPS (from continuing operations) of $1.11 versus

Credit Suisse’s estimate of $1.09 and consensus of $1.02. Revenues in Q2 of $1.870 billion came in slightly higher than Credit Suisse’s estimate of $1.667 billion.

Operating income of $879 million was above the brokerage’s expectation of $828 million.

Credit Suisse stated that Q2 performance was mainly driven by high copper sales and strong performance at coal operations.

C

apital spending remains in-line. Management continues to estimate F08 capex at $1.6 billion, including $365 million on sustaining, $420 million on development projects, $680 million at Fort Hills oil sands project, and $90 million at other various

oil sands properties. Credit Suisse remains positive on Teck, highlighting that market fundamentals remain strong for copper and metallurgical coal, and internal growth initiatives offer upside to current valuations.

The following is Credit Suisse’s breakdown of Teck’s various projects performance during the most recent quarter: operating income at Trail ($52 million) was lower than expected largely due to higher prices for raw materials and concentrates. Operating income at Red Dog ($55 million excluding adjustments) was higher than expected due to higher lead and zinc volumes.

Valley Copper

Operating income at Highland Valley Copper ($160 million) was in-line with expectations. Operating income at Antamina ($178 million) was higher than expected due to copper volumes and operational improvements.

Elk Valley Coal

Operating income at Elk Valley Coal ($309 million) was above expectations due to higher realized coal price and sales volumes. Gold operations continue to perform below expectations

D ) Peabody Energy Corp. BTU $ 66.44 up $3.74 ( 6%)

Peabody Energy Announces Record Results for the Quarter Ended June 30, 2008

Peabody sets quarterly records for revenue, EBITDA, operating profit, net income and earnings per share Second quarter revenues climb 43% to $1.53 billion EBITDA grows 65% to $446.6 million with operating profit of $343.8 million Income from continuing operations totals $242.6 million, 143% above last year Earnings per share from continuing operations rise 141% to $0.89 New 2008 EPS target of $2.50 to $3.00; nearly double prior-year performance

Disclosure : The author owns both Sprott Resource Corp. and Teck Cominco Jack Bass is the editor of the stock market letter The Apprentice Millionaire Program available at www.amprogram.com His latest book is " Building Your AMP Portfolio - Our Best Ideas for 2008 - 09 "