Subject: Biogenic Reagents
From: "Jim Mennell" <[email-masked]>
To: "Hunter Biden" <[email-masked]>, "Mark O'Malley" <[email-masked]>, "Mary Gade" <[email-masked]>
Cc: "Jim Mennell" <[email-masked]>
Date: Thu, 9 Dec 2010 08:48:32 -0600

Hunter, Mark and Mary,

Thank you for your time yesterday.  Per our discussion, I and at least one of my partners could be available to meet in New York and provide you with more information regarding Biogenic Reagents on 12/14, 12/17 or 12/20.  Also, I could make 12/15 work but would prefer one of the other dates if possible.  Below is an article from Tuesday that provides a nice overview of the met coal market.  I look forward to continuing our discussions.  --Jim

James A. Mennell
133 First Avenue North
Minneapolis, MN 55401
P. 612-623-2360
C. 612-599-5951
E. [email-masked]<mailto:[email-masked]>

Tight Supplies for Steelmaking Coal Prompt Resource Scramble

Source:  Dow Jones Newswires, Dec. 7, 2010
Coal used in steelmaking is expected to remain in short supply well into the next decade, leaving companies scrambling to buy reserves to take advantage of strong pricing.

Most new mines are years away from producing their first ton of metallurgical coal, yet steel demand continues to recover with the global economy. As with many commodities, Chinese demand is key, but steelmaking in countries like Brazil and India is expected to gobble up supplies as well.

"Met coal is a very good commodity to be in," Laurie Brlas, chief financial officer of Cliffs Natural Resources Inc. (CLF), told Dow Jones Newswires. " There's just not enough to go around."

The Cleveland-based iron ore producer has been adding coal to its production mix. It acquired the West Virginia metallurgical-coal operations of INR Energy LLC for $757 million in August and bought two U.S. mines in 2007.

Australia, the U.S., Canada and Russia contain the world's only large-scale mining operations for high-quality metallurgical coal, which burns hotter and has fewer impurities than coal used for electric generation. The only other places expected to produce large quantities are Mongolia and Mozambique, but mines won't come on line for five to 10 years.

With China one of the main price drivers, a fall off in demand would pose the greatest risk to the strong outlook for metallurgical coal. Prices would likely take a hit if China more aggressively clamps down on growth to head off inflation. An overall pullback in economies around the world also could pressure prices, which fell sharply in 2009 as many countries faced recessions.

For now, the benchmark price reportedly set between Asian steelmakers and Anglo-Australian mining titan BHP Billiton Ltd. (BHP, BHP.AU), the world's largest metallurgical coal producer, is $225 a ton for the first quarter of 2011. That is up from an annual price of $129 last year. Prices are still short of a record high of $305 set in 2008.
Forecasts point toward prices in the mid-$200s next year amid a combination of rising demand and limits on global production.

Demand for steel is on the rise. U.K.-based consultancy MEPS International Ltd. forecasts world finished steel demand to rise 15% in 2010 from last year, and 35% by 2014. China, the leading global producer of steel, is set to consume about 45 million metric tons of the 225 million to 230 million metric tons of metallurgical coal shipped around the world this year, up from just 7 million in 2008.

Metallurgical coal is also in short supply. First, unsafe mines were shuttered in China in 2008, leaving it a net importer. Then regulators began clamping down in the U.S. after an April blast at a Massey Energy Co. (MEE) metallurgical coal mine that killed 29 workers.

"Unless inspections let up, we could have some supply issues here," said Jeremy Sussman, an analyst with Brean Murray, Carret & Co.

Heightened regulatory concerns coincide with declining quality in metallurgical coal seams in the Appalachian region of the eastern U.S. after decades of mining easier-to-access coal.

In Australia, which accounts for more than half of the world's metallurgical coal exports, the main exporting port remains clogged despite upgrades. Further port upgrades aren't expected to have a sizable effect on the supplies until the middle of the decade.

And any decline in Chinese appetite is expected to be taken up by Brazil and India, both emerging global steelmakers without access to enough metallurgical coal domestically.

Consolidation in the industry "comes against a backdrop of very tight global supply and demand," said UBS analyst Shneur Gershuni.

Much of the deal activity is coming in the U.S., with high prices fetched on the international market prompting U.S. producers recently to begin shipping coal to Asia, previously an uneconomical route. The U.S. is the second-largest metallurgical coal exporter after Australia.

Abingdon, Va.-based Alpha Natural Resources Inc. (ANR), the largest U.S. metallurgical coal producer, is among the reported suitors of embattled Richmond, Va.-based Massey Energy, the second-largest U.S. metallurgical coal miner. Tampa-based Walter Energy Inc. (WLT) just finalized a deal for Canadian rival Western Coal Corp. (WTNCF, WTN.T), creating what would be the world's fifth-largest metallurgical coal producer. Consol Energy Inc. (CNX), of Pittsburgh, has received "considerable interest" from domestic and international companies in its metallurgical coal assets.

"People would love to increase their production because of the pricing right now," said Brlas of Cliffs. "You're seeing people looking to buy the assets out there as people look to grow their business."
Cliffs is looking at additional acquisition opportunities, she said, but declined to elaborate further.