August 2011

P E A B O D Y - C L O U D P E A K M E R G E R P I T C H

Arame Niang and Joseph L. Reynolds

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of which are accordingly subject to change. J.P. Morgan‟s opinions and estimates constitute J.P. Morgan‟s judgment and should be regarded as indicative,

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Peabody overview

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Cloud Peak overview 6

Summit Coal™ 11

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Peabody Energy overview

Peabody Energy (NYSE:BTU) is the

world's largest private-sector coal

company, serving 330 customers on

six continents

Peabody products fuel approximately

10 percent of America's and 2

percent of the world's electricity

Peabody Energy‟s mission is to be a

leading worldwide producer and

supplier of sustainable energy

solutions

Develop projects that provide a reliable, low-cost supply of energy

Promote balanced energy policies and provide industry leadership in developing

clean coal technologies

Use our assets and expertise to develop and protect the natural, human and

societal resources in the communities where we operate

Create skilled, high paying jobs and a safe work environment

Operational overview

Peabody sustainability

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Source: FactSet, Company filings, Equity research

Market data as of 7/25/11

Stock price performance

Public market overview

$ mm

Price

60.58

52 week high

73.95

% of 52-week high

81.9%

Shares outstanding

270.6

Equity value $16,390.5

Total debt

2,750.0

Minority interest & preferreds

0.0

Cash

1,103.7

Firm value $18,036.8

2011 2012 2013

Sales 8,156.5 9,055.5 9,371.7

% growth

11.0% 3.5%

EBITDA 2,375.9 2,831.2 2,791.5

% margin 29.1% 31.3% 29.8%

EBIT 2193.425 2012 2013

% margin 26.9% 22.2% 21.5%

EPS 2193.425 1006.156 1006.649

Trading multiples 2011 2012 2013

FV/EBITDA 7.6x 6.4x 6.5x

P/EPS 0.0x 0.1x 0.1x

Public market overview

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Research analyst recommendations

“We reiterate our Buy-rating, as Peabody continues to have the best

organic growth profile and be the best-positioned to benefit from strong

Asia met and thermal coal fundamentals of companies under coverage.

We viewed positively BTU‟s confirmation its Queensland mines are fully

operational and organic growth projects continue to progress. Potential

catalysts for outperformance include continued strong met/international

thermal prices/contracting, sustained or increased Asia/European coal

imports, and greater clarity on medium term growth opportunities not

currently in our estimates.

-Goldman Sachs, 7/20/2011

“Peabody remains well positioned to benefit from the growth in

emerging economies, through both its current growth initiatives as

well as the moves it is making for longer-term growth projects in

the pipeline, most notably developing deposits in Mongolia and

China. Given Peabody‟s growing met leverage, increasing

exposure to the world‟s hottest coal markets, and recent pullback

we reiterate our Outperform rating and our target price of $75.”

-Raymond James, 7/20/2011

Firm Date „11 Recommendation Target price

Premium to current

Stifel Nicolaus 07/25 Buy 74 22%

Dahlman Rose & Co 07/25 Buy 84 39%

Raymond James 07/21 Outperform 75 24%

FBR Capital Markets 07/21 Outperform 76 25%

Goldman Sachs 07/20 Buy/attractive 75 24%

Brean Murray Carret & Co 07/20 Buy 81 34%

Howard Weil Inc 07/20 Market perform 75 24%

Iberia Capital Partners LLC 07/20 Outperform 80 32%

BMO Capital Markets 07/19 Outperform 77 27%

Deutsche Bank 07/19 Hold 70 16%

Credit Suisse 07/19 Outperform 80 32%

BB&T Capital Markets 07/19 Buy 75 24%

Atlantic Equities LLP 07/19 Overweight 75 24% Credit Agricole Securities (USA) 07/19 Underweight 64 6%

Citi 07/18 Buy 77 27%

JPMorgan 07/11 Restricted

(100%)

RBC Capital Markets 06/17 Outperform 86 42%

Median 75.0 24%

Mean 75.5 6%

Select analyst targets Selected research commentary

76%79%79%84%84%

17%12%12% 17% 19%

Aug-11Jun-11Apr-11Feb-11Dec-10

Buy Hold

Research sentiments

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67.256.7

64.257.1

8660

73.9540.79

0 10 20 30 40 50 60 70 80 90 100

Price per share in USD

Source:

Valuation summary

52 week range

Analyst price Targets

FV/EBITDA 2011E

FV/EBITDA 2012E

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Cloud Peak overview

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Peabody overview 1

Summit Coal™ 11

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Cloud Peak Energy: Corporate overview

Business Overview Locations of Mining Operations

Cloud Peak Energy Inc., a Delaware corporation organized on July 31, 2008, is a holding company that manages CPE

Resources.

On December 15, 2010, Cloud Peak Energy Inc. completed the Secondary Offering, resulting in CPE Resources

becoming a wholly-owned subsidiary of Cloud Peak Energy Inc.

Headquartered in Gillette, WY, Cloud Peak energy is among the largest producers of coal in the U.S.

In 2010, it was named by Mine Safety and Health Administration as having one of the lowest employee injury rate.

Cloud Peak Energy operates some of the safest mines in the industry.

It operates solely in the Powder River Basin and for this reason metallurgical coal isn‟t produced. Steam coal is

produced and is primarily consumed by electric utilities and industrial consumers as fuel for electricity generation.

In 2010, the coal produced by Cloud Peak Energy generated approximately 4% of the electricity produced in the

U.S.

In 2010, Cloud Peak Energy produced 95.3 million tons of coal.

The following condensed diagram depicts the organizational structure of the company as of December 31, 2010:

Strong Liquidity

Expansion possibilities

the company is in the process of expanding the

permitted mining capacity through the LBA process

Low legacy liabilities

The company only operates surface mines. For this

reason, its exposure to liabilities are relatively low

Significant past investment in facilities and equipment

The company has invested $371 million in its

mining since 2006 .

Senior management has long experience with Cloud

Peak mines.

Long customer relationships

Some Positives

Source: Cloud Peak Energy Inc. 10 K, equity research

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Source: FactSet, Company filings, Equity research

Market data as of 7/25/11

Stock price performance

Public market overview

$ mm

Price 23.11

% of 52-week high 93.6%

Shares outstanding 60.9

Equity value $1,406.9

Plus: Total debt 60.0

Plus: Minority interest 0.0

Less: Cash 0.3

Firm value $1,407.1

2011 2012 2013

Sales 1,469.0 1,565.9 1,693.1

% growth 6.6% 8.1%

EBITDA 337.6 346.0 419.9

% margin 23.0% 22.1% 24.8%

EBIT 229.6 277.5 310.4

% margin 15.6% 17.7 % 18.3%

EPS 1.8 1.8 2.6

Trading multiples 2011 2012 2013

FV/EBITDA 4.2x 4.1x 3.5x

P/EPS 12.8x 12.6x 8.8x

Public market overview

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“

“We maintain our positive stance towards the US thermal coal

market, which we believe will tighten over the next 12 months due

to quickly rising exports and continued US supply constraints, even

with weak US consumption. CLD shares are trading at 4.3x 2012

and 3.5x 2013 EBITDA…In our view this transaction should serve as

the catalyst to close that valuation gap. We reiterate our Outperform

rating.”

Credit Suisse, 5/12/2011

Research analyst recommendations

Selected research commentary Select analyst targets

“In short, while we expected CLD to win the LBA, the purchase price

was a big positive surprise. Cloud Peak was the sole bidder on the

property…. could represent an important milestone for

CLD, which trades at a material discount to other coal producers, in

part because of the short reserve life and in part because excess cash

flow must be allocated toward reserve purchases rather than share

repurchases, dividends, etc.”

BB&T Capital Markets, 5/12/2011

Broker Date Recom. Target

price Premium to current

Dahlman Rose & Co 07/25/11 Hold

(100%)

Johnson Rice & Co 07/22/11 Equalweight (100%)

Raymond James 07/21/11 Outperform 26.0 13%

FBR Capital Markets 07/21/11 Outperform 28.0 21%

Brean Murray Carret & Co 07/14/11 Hold (100%)

Credit Suisse 07/14/11 Outperform 26.0 13%

Howard Weil Inc 07/13/11 Market perform 24.0 4%

Iberia Capital Partners LLC 07/08/11 Outperform 30.0 30%

IPOfinancials.com 07/05/11 Buy (100%)

BMO Capital Markets 06/05/11 Market perform 22.0 (5%)

BB&T Capital Markets 05/13/11 Hold (100%)

Simmons & Co International 05/08/11 Neutral 25.0 8%

RBC Capital Markets 05/05/11 Sector perform 25.0 8%

Tudor Pickering & Co 03/03/11 Buy 28.0 21%

Median 26.0 6%

Mean 26.0 (28%)

“Cloud’s winning PRB reserve bid is a positive for the stock, in

our view. .. bid will effectively add 12 years to the life of its flagship

Antelope mine.. The winning bid comes at a 23% lower cost than

we had modeled, reducing Cloud’s capex requirements by ~$75 mm

vs. our estimate. Reserve funding is cheaper than expected;

positive implications for next round of LBAs.”

Morgan Stanley, 5/12/2011

44%40%43%46%46%

57%54%54% 60% 56%

Aug-11Jun-11Apr-11Feb-11Dec-10

Buy Hold

Research sentiments

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Source:

Valuation summary

52 week range

Analyst price Targets

FV/EBITDA 2011E

FV/EBITDA 2012E

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Summit Coal™

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Peabody overview 1

Cloud Peak overview 6

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Summit Coal™ will be that largest coal producer in the United States

Mines in the PRB would have

access to BNSF and UP

railroads.

Access to many equipment that

is already owned.

Peabody will be able to develop

relationships with new domestic

utility companies and industry

plants.

Peabody will in the future fuel

more electricity generated in the

U.S..

Peabody‟s footprint in the PRB

would be expanded.

This would make Peabody

become a more reliable

source of thermal coal.

Increase the amount of mines

Peabody has in the U.S.

Competition in the PRB would

lessen for Peabody.

Peabody would have an

easier time acquiring more

coal reserves through the

LBA process.

New Customers Access to new materials

Competition Geographic Expansion

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Cloud Peak geographically diversifies Peabody in the US

Source:

Source: http://maps.google.com/maps/ms?authuser=0&vps=23&hl=en&ie=UTF8&oe=UTF8&msa=0&msid=208590207111999002120.0004a99b33c6839fa2085

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Height: 4.75”

Width: 8.84”

Horizontal: 1.33”

Vertical: 2.00”

Existing railways cut down on Cloud Peak to Peabody transportation time

Source: http://transportationfortomorrow.com/final_report/volume_3_html/technical_issues_papers/images/paper2d_01_img_1.jpg

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Peabody Cloud Peak Total

sales ($mm) 8,156.5 1,469.0 9.625.5

Percentage of total sales 85% 15%

Peabody

Met Coal

5%

Thermal

Coal

95%

Peabody / Cloud Peak: Illustrative combination impact

Peabody Cloud Peak Total

Thermal Coal (tons) 212.6 96.9 309.5

Met Coal (tons) 12.0 0 12.0

2012 Sales

Summit Coal

Thermal coal

96%

Met coal 4%

2012 Coal Production

Cloud Peak

Thermal

Coal

100%

Percentage of type of coal produced

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Merger would benefit Peabody‟s domestic thermal coal industry

Peabody Coal Production Cloud Peak Thermal Coal Production In Each Mine

Percentage of shipped tons of coal by state of

destination during 2010

A merger would allow Peabody to have access to

all of Cloud Peak‟s coal reserves which consist of

mainly thermal coal.

A merger would also allow Peabody access to a

wider range of thermal coal customers in the

United States.

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Acquisition financial breakdown

Four

(in millions)

Cash 1,103.7

Equity Value

16,390.5

(in millions)

Firm Value 1,407.1

Allocate Funds Raise Debt

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Acquisition financial breakdown cont‟d

Equity Value

302.2

21%

Cash

403.7

29%

Debt

701.2

50%

Cloud Peak FV Breakdown

Cloud Peak Firm Value

1,407.1 mm

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Should Peabody merge with Cloud Peak?

Our answer:

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