Accounting & Market Changes Impacting Mining Companies William J. Kohm, Audit Director (bkohm@ddafcpa.com) April 29

1. Accounting & Market Changes Impacting Mining CompaniesWilliam J. Kohm, Audit Director (bkohm@ddafcpa.com)April 29, 2013

2. Agenda • 2012 Mining Company Financial Results • Asset Impairment & Reclamation Accounting • New & Proposed Accounting Standards

3. 2012 Mining CompanyFinancial Results

4. 2012 Mining Company Resultsper First Research

5. 2012 Mining Company Financial Results

6. 2012 Mining Company Financial Results

7. Asset Impairment & Reclamation Accounting

8. Example Mine PlanEstimated Production by Year

9. Asset Impairment Accounting • Types • Goodwill (Annual requirement) • Long-term Assets (Facts/Circumstances) • US GAAP • Impairment is permanent • IFRS • Non Goodwill impairment can be reversed

10. GAAP LT Asset Impairment Example

11. GAAP LT Asset Impairment Example

12. Reclamation Accounting • Engineering Valuation Inputs • End of mine reclamation cost estimate by permit • Timing of end of mine reclamation payments consistent with Mine Plan • Discounted Cash Flow Valuation Technique • Risk adjusted risk free rate • Third party profit and risk premium • Inflation

13. New and Proposed Accounting Standards

14. New Accounting Standards International Accounting Change • IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (January 1, 2013) • Accounting issues regarding waste removal costs incurred in surface mining activities during the production phase of a mine, referred to as production stripping costs.

15. IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine • IFRS- now allows capitalization of excess overburden during production process and treated as a depletable asset if can assign to a reserve base • US GAAP- costs are factored into inventory and run through expense upon sale of inventory

16. New Accounting Standards International Accounting Change • IFRS 11 Joint Arrangements (January 1, 2013) • Joint Operations- recognize share of assets and liabilities • Joint Ventures- proportionate consolidation no longer permitted, must use equity accounting

17. Emerging Accounting Issues: Joint IASB/FASB Projects (Leases) • Excluded • Mineral, oil, natural gas leases • ST leases (less than 1 year) • “Right of Use Asset” and Lease Liability • If deemed Significant Use (e.g. equipment lease) • Enhance EBITDA and operating cash flow presentation

18. Emerging Accounting Issues: Joint IASB/FASB Projects (Leases) • 2012 Pro forma impact to Peabody Energy based on min. lease disclosure and assume 6.5% discount rate • PPE goes up 5% • Debt goes up 9% • EBITDA goes up over 10% • In Q2 2013 expect a final lease draft

19. Additional Resources

20. 2012 Coal Company Headlines • Patriot Coal filed for Chapter 11 Bankruptcy Protection. • Arch Coal recorded goodwill, mine closure and asset impairment charges of $850 million, reflects in part idling 5 operations in App and weak coal market conditions. • Alpha recorded Q2 impairment charges of $2.5 billion, reflecting write-down of goodwill relating to Massey acquisition and impaired mineral reserves and PPE in Eastern Coal Operations. • Alliance Resources posted record EBITDA, sales volumes and revenue during 2012 enhanced by its Illinois Basin and Northern App operations.

21. Coal Company Resultsper First Research

22. Metals Company Resultsper First Research

23. Non Metals Company Resultsper First Research

24. Cash Flow ProjectionsIFRS Guidance • Base cash flow projections on reasonable and supportable assumptions that represent management’s best estimate of the range of economic conditions that will exist over the remaining useful life of the asset. Greater weight shall be given to external evidence. • Base cash flow projections on the most recent financial budgets/forecasts approved by management, but shall exclude any estimated future cash inflows or outflows expected to arise from future restructurings or from improving or enhancing the asset’s performance. Projections based on these budgets/forecasts shall cover a maximum period of five years, unless a longer period can be justified.

25. Cash Flow ProjectionsIFRS Guidance • Management assesses the reasonableness of the assumptions on which its current cash flow projections are based by examining the causes of differences between past cash flow projections and actual cash flows. Management shall ensure that the assumptions on which its current cash flow projections are based are consistent with past actual outcomes, provided the effects of subsequent events or circumstances that did not exist when those actual cash flows were generated make this appropriate.

26. Impairment Consideration • The following examples of events or changes in circumstances indicate that the carrying amount of an asset should be assessed for recoverability: • A significant decrease in the market value of an asset; • A significant change in the extent or manner in which an asset is used or a significant change in the physical condition of the asset; • A significant adverse change in legal factors or in the business climate that could affect the value of an asset, including an adverse action or assessment by a regulator;

27. Impairment Consideration • An accumulation of costs significantly in excess of the amount originally expected to acquire or construct an asset; • A current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with an asset; and • A current expectation that, more likely than not (i.e., greater than 50%), an asset will be sold or otherwise disposed of significantly before the end of its estimated useful life.

28. ReclamationTerms • End of Mine (EOM) - disturbed area at completion of mining • Point in Time - disturbed area at current date; what it would cost to reclaim current conditions • Contemporaneous - reclamation completed as part of normal mining activity • Water treatment obligations - perpetual costs to treat water areas

29. End of Mine Reclamation Model

30. Reclamation Accounting7 Best Practices • End of Mine Reclamation (EOM) model properly established and maintained • Management approves key inputs into model • Third party engineering reports used on a periodic basis (at least every third year) • Accounting provided listing of all new disturbances by engineering on a regular basis (cross check that all disturbed permits are included)

31. Reclamation AccountingBest Practices (cont.) • Interim EOM Studies to speed up year end financial close • Timing of expected future EOM payments should be consistent with mine plan • Status of job as active/closed/idle (may start back up) very important

32. Bill Kohm has over 15 years of financial mining experience and leads DDAF’s Natural Resources Team which specializes in the following areas: • accounting • tax • financial statement audit • public company reporting • Internal audit/SOX • acquisition accounting • litigation support • business valuation • IT consulting

33. Accounting & Market Changes Impacting Mining Companies Questions? William J. Kohm, Audit Director (bkohm@ddafcpa.com)