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Joy Global Inc. Announces Third Quarter Fiscal 2012 Operating Results

Current natural gas prices are below the cost of drilling programs, and the number of rigs drilling for natural gas declined in August to the lowest level in over a decade. Natural gas prices need to be above $4.00 per million BTUs to generate adequate returns in most shale gas regions. This is supported by the futures strip, which trends up and moves above $4.00 per million BTUs by 2014. Various forecasts project natural gas prices approaching this level a year sooner. Natural gas switching reached a peak in April as prices dipped below $2.00 per million BTUs, but switching back to coal has occurred as natural gas prices recently moved toward $3.00 per million BTUs. The first beneficiary of coal switching is Powder River Basin coal, and its rail car loadings increased by 16 percent from June to July. The longer term confidence that our customers have in Powder River Basin demand is evidenced by the increased acreage that has been leased in the past few months. Coal switching will also benefit the Illinois Basin, Northern Appalachia and Central Appalachia, as natural gas prices move progressively from $3.00 per million BTUs to $4.50 per million BTUs.

It is believed that a significant portion of coal’s share loss to natural gas can be recovered as natural gas prices increase. However, this may take a couple of years. In addition, most of the available excess capacity in power generation now resides in coal-fired units, and this will provide another upside for coal as power demand returns to normal levels. U.S. coal will also benefit from exports that tap into the growing demand in the seaborne markets. Europe is one of the main markets for U.S. Eastern coal, and its coal demand has been growing at 12 percent. In addition, two-thirds of its 36 gigawatts of new generating capacity will be coal-fired. U.S. customers also see Asia to be undersupplied in the long term. In response, they have announced increases in port capacity to 270 million tons to capture the expected opportunities in the export markets.

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