Jonathan Brallier and Matthew Donahue

1. Jonathan Brallierand Matthew Donahue 1

2. Company Overview 2

3. Company Overview • Peabody Energy Corporation is the largest private sector coal company in the world • Sold 248 million tons of coal in 2006 and generated $5.6 billion in revenues, accounting for approximately 10% of all United States electricity used in 2006 • Majority of revenues come from sales to U.S. electricity generators, which use coal for 50% of all production • Held IPO in May 2001 and joined the S&P 500 in November of 2006 • Has majority interests in 40 coal operations throughout the U.S. and Australia, and minority interest in a Venezualian mine 3

4. Company Overview • Operations also include marketing, brokering, and trading coal worldwide • Traded almost 80 million tons of coal in 2006 • Created an international trading group in 2006 • Recently added operations offices in Europe and Beijing to further its global reach 4

5. Company Overview 5

6. Financial Ratio Analysis 6

7. Financial Ratio Analysis 7

8. Financial Ratio Analysis 8

9. Risk Factors 9

10. Risk Factors • Unexpected termination of long term contracts • Approximately 90% of revenue comes from long-term supply arrangements, the durations of which vary from one to 19 years • Contracts often have detailed provisions that require Peabody to meet certain quality and service expectations • Failure to meet these requirements can lead to severe economic consequences 10

11. Risk Factors • Soured relationships with major suppliers • Over 20% of revenue comes from the company’s five largest customers • Leverage could lead to financial stress • Peabody has approximately $1.4 billion in debt and about $500 million more in available credit • Peabody hedges commodity price risk by using long-term contracts for coal sales 11

12. Risk Factors • The company also hedges commodities used in production through fixed price contracts and derivatives • As the end of 2005, the company had fixed price contracts for 68.9 million gallons of diesel fuel • The company uses forward contracts, swaps, and options to hedge currency and interest rate fluctuations 12

13. Recent News 13

14. Recent News • Mild weather has led to decreased demand for coal • Companies have been forced to decrease production this year due to high inventory levels and poor demand • Recent steam coal prices have hovered around $40 per ton, compared to last year’s price of $56 • Coal from the Powder River Basin is slightly over $7 per ton, versus $21 from last year 14

15. Recent News • CEO Gregory Boyce recently told reporters that Peabody is “managing [its] U.S. production and capital to match demand” • Reduced capacity will help reduce costs, thus strengthening sluggish revenues • Merrill Lynch analyst David Lipschitz expects weak industry wide earnings for the first half of 2007 until production cuts take effect 15

16. SWOT Analysis 16

17. SWOT Analysis • Non-union mines account for 86% of production • About 90% of revenues come from long term contracts, thus mitigating price fluctuations • Ability to grow organically as well as through strategic acquisition opportunities • Development of integrated information system, expected to be fully operational by mid-2007, that will streamline international operations in finance, marketing, materials, human resources, sales, production, etc. • Safetey record, measured by accident frequency rates, exceeded the industry average by 38% Strengths 17

18. SWOT Analysis • #1 market position in U.S. does not leave much room for growth domestically • Central Appalachia’s coal reserve is of declining quality • High sulfur levels in Illinois Basin coal and high mercury levels in Powder River Basin coal Weaknesses 18

19. SWOT Analysis • Recently established an office in Beijing to pursue new markets and growth opportunities • Participation in emerging technologies such as Btu conversion, a process that turns coal into natural gas, liquid, or hydrogen Opportunities 19

20. SWOT Analysis • Current litigation related to one of the company’s largest supply agreements • Current litigation could cost Peabody several billion dollars; however, the company claims to “have recorded adequate reserves for these liabilities and that there is no individual case pending that is likely to have a material adverse effect on our financial condition” (2006 10-k) • Continual reform of industry regulations and standards regarding safety and waste Threats 20

21. Industry Overview 21

22. Industry Overview • Coal generates over 50% of electric power and provides 85% of fossil fuel reserves in the United States • Coal supply is reliable and relatively inexpensive compared to other energy sources • Investments in the industry are an excellent hedge against inflation and downturns in the market • Decreasing labor costs and low unionization will benefit shareholders • Paul Forward, formerly of Legg Mason, projects demand growth at 3% per year, with prices increasing at 4.6% per year 22

23. Industry Overview • Coal is not as “clean” as other alternative energy sources, such as wind or solar power • Democratic control could lead to restrictions on production • History has shown that coal performs better under republican administrations, and vice versa • Increasing surface mining restrictions • Air pollution legislation often calls for increased capital requirements, thus draining operating profits 23

24. Relevant Investor Information 24

25. Relevant Investor Information 25

26. Relevant Investor Information 26

27. Relevant Investor Information 27

28. Relevant Investor Information • Quarterly dividend of $0.06 per share yields a weak 0.6% 28

29. Comparables Model 29

30. Comparables Model 30

31. eVal 31

32. eVal 32

33. eVal 33

34. Recommendation 34

35. Recommendation • Moderate Buy • Analyst Paul Forward recommends Buy • Yahoo Finance - 7 Strong Buys, 9 Buys, 4 Holds • MoneyCentral - 7 Strong Buys, 3 Moderate Buys, 3 Holds, 1 Moderate Sell • Reuters - 6 Buy, 9 Outperform, 5 Hold 35