Affordable, Secure, and Consistent Access

to U.S. Coal

Steelhead Global Advisors

May 2018

Japan and US Western Coal – A Natural Alliance

• Affordable, secure, consistent access to US thermal coal is essential

for Japan and is achievable with investment or commitments from

Japan

• If one or more Japanese companies had special access to US thermal

coal, they would have dramatic leverage in the global market

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Security for Japan

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• Japan’s capital investment in new coal fired power generation is $100+ billion over the next 10 years

• Continuous and stable supply of thermal coal is needed to guarantee a return on capital

• The Western US holds nearly 1/3 of all the remaining economical coal reserves in the world

• An integrated Western US supply chain from the coal reserve to a deep water port will de-risk the Japan energy portfolio, provide the lowest cost per KWH, and guarantee the return on capital for the life of new coal fired power generation assets

• Japan can secure its access through investment and long term purchase contracts

Japan Imports Small Minority of Thermal Coal

from the US…

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Japanese and Asian Coal Imports

Source: 2016, TBD

61%AUSTRALIA

23%AUSTRALIA

10%SOUTH AFRICA

9%RUSSIA

27%INDONESIA 55%

INDONESIA

10%RUSSIA

<1% UN ITED STATES

<1% UN ITED STATES

1% COLUM BIA

<1% CANADA

<1% CANADA<1% CHINA

<1% CHINA<1% COLUM BIA

Japan imports 98% of its coal from Australia, Indonesia, and Russia. Less than 1% of coal used in Japan is from the United States.

Overall Asia (excluding Japan) imports less than 1% of its coal from the United States.

Japanese Coal Imports

by Country

Asia Coal Imports

by Country*

*Asia includes TBD

*Asia imports excludes Japan, but includes China, India, Korea, Taiwan, Malaysia, rest of Asia.Source: Mitsubishi Corporation RtM Japan

…while the Global Demand for Seaborne

Thermal Coal Increases

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• Demand for seaborne thermal coal

increases by 26% from 2016 to 2030.

• Coal demand in India and Other Asia will

increase by 140 million and 120 million

respectively from 2016 to 2030.

• China, Europe and Turkey will have lower

demand for coal in response to

environmental policy.

Source: Mitsui & Co., June 2017.

Western US Coal from the Pacific Northwest is

the Right Choice

Western US coal – specifically Powder River Basin coal - is the right solution:

• Competitive shipping routes

• Cost effective, whole value chain coupled with low extraction cost

• Huge reserves

• Consistent quality – little fluctuation in coal specifications

• Supplies the unique specifications needed for advanced Japanese technologies like

IGCC

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Attractive US Export Quality & Excess Capacity

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BrandHunterValley

Utah Colorado

Adaro MontanaWyoming

8800+Wyoming

8400Mulia Decker*

Country Australia USA Indonesia USA USA USA Indonesia USA

Calorific Value Basis (kcal/kg NAR CV)

6,080 6,130 4,900 4,850 4,550 4,330 3,950 4,950

Total Moisture % (ARB) 9.0 9.5 25.0 22.5 27.6 30.0 35.0 24.5

Volatile Matter % (ADB) 33.5 36.0 43.5 30.3 31.1 31.1 38.0 35.3

Ash % (ADB) 13.5 8.9 2.0 6.9 4.9 5.3 3.9 5.1

Total Sulphur % (ADB) 0.56 0.49 0.15 0.51 0.26 0.34 0.15 0.48

2016 Production (millionshort tons)

21.9 32.0 211.7 71.9 3.2

Current Production Capacity

32.9 54.0 312.5 155.0 8.0†

Utilization 67% 59% 68% 46% 40%

*First exports through Millennium will be sourced from Decker, a Lighthouse company†Further low-cost expansion potential

Long-Term Supply

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• Large Economic Reserves

• 10 billion short tons at $8.90 cost/st

• 23 billion at $10.00 cost/st

• 43 billion at $15.15 cost/st

Extensive Coal Transportation by Rail Network

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• BNSF Railroad • moves one-fourth of all rail freight in the U.S.

• coal represents 18.7% of all BNSF volume

• connects with Montana and Wyoming coal mines

• delivers more coal than any other company in the U.S. (228 million tons in 2017)

• operates 32,500 route miles in 28 states and 3 Canadian provinces

• serves over 40 ports

• From 2008-2017, made $39 billion in rail network capital investments, including rail expansion in the Pacific Northwest

• Union Pacific Railroad• Operates 32,100 route miles and connects 23

states in the western two-thirds of the U.S.

• Connects primarily with Utah, Colorado and Wyoming mines

• From 2008-2017, made $34 billion in rail network capital investments

• moves about 200 million tons of coal annually

Comparative Shipping Distances

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Lighthouse US Thermal Coal – The Whole

Value Chain

LHR Coal LHR Products Markets

Domestic

Decker Mine

Domesticcoal

PortJapan

Taiwan

South Korea

Other

Other US coal

producers coal

Bulk

Terminals

Mining Costs:

$15.00 to $17.00 Tonne

Rail to Port Costs:

$25.00 to $30.00 Tonne

Port Costs:

$8.00 to $10.00 Tonne

Total Cost to Port:

~$48.00 to $57.00 Tonne

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Lighthouse Mining

Lighthouse Products Customer

Potential for additional margin through ownership and integration of the

Lighthouse supply chain: $3 (economies of scale from higher volume mining)+$2

(10% shorter rail distance)+$5.00 (port margin, plus more) = approx. $10 per ton

extra margin.

Uniquely Suited to IGCC

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Western U.S. coal from

the Powder River Basin

is not only consistent in

quality, its unique

specifications make it

superior for use in

IGCC plants.

Source of graphic: Presentation by METI, 2017

Powder River Basin Supply – Decker Mine

• 100% owned and operated by LHR

• Operating +40 years

• Highest grade PRB coal quality: 4,950 kcal/kg NAR

• +1 billion tons of reserves & resources

• 2018 planned production 5.5 million tonnes

• 20 metre seams, 3 seam operation, excellent geology

• 2 x 12.0 mtpa ton rail loadouts

• Optimal production @ 12 million tons per annum

• Approx. 1,900 km to Millennium Bulk Terminals on BNSF

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Powder River Basin Supply – Black Butte Mine

• Operating +35 years

• JV with Anadarko Petroleum Corporation NYSE:APC

• Long-term domestic contracts in place

• Rail loop capacity of 14.5 mtpa serviced by Union

Pacific railroad

• Higher quality coal than many PRB resources from 3

coal seams averaging 5,000 kcal/kg NAR

• Over 70 million tons currently under lease and

permit control with additional reserves available

• Approx. 1,600 km to Millennium Bulk Terminals on UP

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Sources Outside the US Are Less Secure…

- Other options are not attractive:

• Russia

• Australia with price fluctuation and fluid costs

• Indonesia, cutting off exports

- Increased competition from China for energy resources and China

influences the other options

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…for Example: Indonesia

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Source: Adaro presentation at Coaltrans Asia, May 2017.

Lack of supply from the US has been due to shortages in port capacity

- Only one final chance available – Millennium Bulk Terminals in Longview, WA

• Deep water port

• In permitting process now

- Lowered cost by scale of operations – 45 mtpa

- There will never be another coal export terminal opportunity of this scale on the US West Coast, especially with the advantages noted on next slide (private port, 400+ acres, deep water, rail access by both BNSF and Union Pacific, existing aquatic lease includes coal)

• Lack of alternative sites with needed infrastructure access

- Especially direct route rail access and deep water port

- Significant local political opposition for other sites

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Millennium Bulk Terminals Longview

• Ex alumina smelter zoned heavy industrial

• 400+ acre site with approx. 2km+ of river frontage

• 80 year land lease with Alcoa executed January 2011 including option to purchase

• Existing aquatic lease with the State of Washington that allows coal and other commodities to be handled across three docks

• Assets 100% owned by Lighthouse Resources

• Columbia River channel dredged to serve panamax vessels

• Rail serviced by BNSF and Union Pacific railroads

• Proposed 44mtpa capacity,

Stage 1=25mtpa; Stage 2= 44mtpa

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Millennium Port Proposed Facility

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• Construction Cost of $650 million – less than $15 per annualized tonne• Lighthouse has exclusive rights to the first 10Mtpa of throughput• Additional review could show opportunities for further improvement = increased upside• Also an existing bulk product terminal = de-risking investment

US Can Uniquely Meet Japan’s Needs for Coal

• Diversity of supply

• Consistency of delivery

• Consistency of quality

• A reliable trade partner

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Japan has needs because it has energy vulnerability:

Japan Total Coal Import

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Source: Presentation by METI, 2017

Western US Coal is Competitive and Secure

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Japan-US Economic Dialogue

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• U.S. Powder River Basin coal is preferred for new coal-fired power plants

• United States has the largest share of coal reserves in the world

Source: (http://www.meti.go.jp/english/press/2017/pdf/1107_001a.pdf

Source: 2017 Mitsubishi Hitachi Power Systems, Ltd., JCOAL Clean Coal Conference Presentation, September 2017.

U.S. Policy: Energy Exports to Allies

• On March 29, 2017, Secretary of Interior Ryan Zinke published Secretary’s Order 3348. He explained that “it is better to develop our energy here under reasonable regulations and export it to our allies…[A]chievingAmerican energy independence will strengthen our national security by reducing our reliance on foreign oil and allowing us to assist our allies with their energy needs.”

• In December 2017, the White House released its updated National Security Strategy (“NSS”). Its discussion of energy issues includes “Promote Exports” in a list of “Priority Actions.” The NSS further explains that “the United States will promote exports of our energy resources,” including by “expand[ing] our export capacity through the continued support of private sector development of coastal terminals….”

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Japan Can Take Control of Western US Coal

Supply

Japan can affect the security of the Western US coal supply through:

- Investment

- Long term contracts

- Japan – US Government dialogue

Security of supply and price stability comes through participation in the whole value chain:

- Upstream

- Rail

- Downstream port

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Lighthouse Connects the Whole Value Chain

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(Non-owned/operated)(commenced shipments October 2016)

Lighthouse Resources – Focused on Exports

Fully integrated US coal mine to export supply chain business

• Developed a business model to capture maximum arbitrage - low priced domestic coal will

be delivered to Asian seaborne export markets at very attractive netback margins. A high degree of vertical integration will allow LHR to capture value at each step along the supply

chain.

• Executed offtake agreements with Korean utilities.

• Developing the MBT-Longview coal export terminal.

• Owned and controlled sub-bituminous coal resources in excess of 1 billion short tons.

Current Asian coal exports through Westshore Terminals

• Secured long-term port capacity through 2028.

• Started coal exports in Q4 2016. Exported 1 million short tons by May 2017.

• Westshore Terminals throughput capacity serves as a “bridge” to completing permitting and development of a larger, brownfield redevelopment at MBT-Longview.

Existing BNSF and Union Pacific rail infrastructure links ports with Decker mine and other Western

US coal mines

• Decker has two 12 million short tons per year rail loadout facilities to the BNSF rail line.

• Significant expansion potential and strategically positioned at the northern portion of the Powder River Basin (PRB) enabling lower rail costs versus other producers.

• Higher quality thermal coal versus other mines in the PRB which commands higher pricing.

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West Coast: Local Political Opposition

Power River Basin

• NGOs have engaged to stop new fossil fuel infrastructure

• 6+ year permitting process in the Pacific Northwest and West Coast

– Process has been slow and costly

– Politicized decisions were made by local officials contrary to law

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Permitting Challenges Have Become an

Opportunity

Window exists now for most effective support through multiple channels,

which have begun in earnest with much progress at the US Federal level:

• Legislative

• Trade Agreements - Competitiveness Chapter Proposal in NAFTA

• Executive Branch Actions Including Discussions with Allies

• Tribal Claims

• Litigation in US Federal Courts

- Including Interstate Commerce Rights

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Arguments for denial are now known and can be

successfully refuted

Legislative Process

• Introduce, negotiate and finalize a chapter on Competitiveness in a trade agreement

• President sends notice of intent to enter into a trade agreement to Congress

• The President signs the trade agreement and sends Congress the implementing bill

• House and Senate debate and vote on the implementing bill under fast track procedures

• Implementing bill avoids Senate filibuster and can be passed with a simple majority vote.

• Including the Competitiveness chapter in NAFTA is preferred to expedite passage; however, another trade agreement could also provide the legislative vehicle for passage.

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One Path Forward – Trade Agreement

• From the framing of the U.S. Constitution, the federal government has enjoyed

supreme authority to regulate foreign and interstate commerce. In giving the

federal government this authority, the Constitution necessarily prohibits individual

states from discriminating against, or unreasonably burdening the free flow of, such

commerce.

• The Bipartisan Congressional Trade Priorities and Accountability Act of 2015 Section

103(b)(1)(A) (also known as the President’s “Trade Promotion Authority”) states:

“Whenever the President determines… any other barrier to, or other distortion of,

international trade unduly burdens or restricts the foreign trade of the United States

or adversely affects the United States economy… the President may enter into a

trade agreement …with foreign countries for (i) the reduction or elimination of a

duty, restriction, barrier, or other distortion...”

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Proposed NAFTA Competitiveness Chapter

• Senator Cruz (TX), Senator Daines (MT), and Senator Gardner (CO) proposed a “Competitiveness” chapter in NAFTA to the President to address the factors that companies consider when they make decisions about where to locate and expand their operations. Reforms are sought in four areas:

• Permitting: Establish a streamlined, coordinated permitting system that expedites infrastructure and manufacturing projects, doesn’t keep companies in endless limbo awaiting politicized determinations, and unleashes exports of… natural resources to reduce the U.S. trade deficit

• Regulatory: Create a predictable and transparent regulatory environment by codifying regulatory reform measures to eliminate red tape.

• Workforce: Develop and maintain a workforce with 21st century skills that employers need, including through promoting greater participation in effective job-training and apprenticeship programs.

• Infrastructure: Develop a 21st century physical and digital infrastructure that enables the swift movement of cargo from the heartland to and through our borders and ports, utilizing the latest advances in logistics and technology to increase the competitiveness of the U.S. economy.

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Proposed Federal Law

• The text of the proposed chapter should provide :

• a lead federal agency will coordinate permitting actions with the State or local authority, and

• where certain criteria are met, the State or local authority cannot unreasonably delay or withhold

approval of the project

• Decisions to unreasonably burden and restrict foreign trade are overturned by this

legislation. The federal government should exercise its final authority over all decisions

regarding approvals, permits, leases, or any other authorizations related to the location,

construction, and operation of the Millennium project to enable it to proceed. Millennium

meets certain criteria:

• It represents the execution of federal trade policy;

• increases U.S. exports with at least one country with whom the U.S. has a trade deficit;

• It contributes toward increased geopolitical security for our trade allies, and

• It has completed an extensive and very thorough environmental review process and has been issued

a final Environmental Impact Statement. Millennium already agreed to reasonable mitigation

measures it controls.

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Media on Competitiveness Chapter

• https://www.cruz.senate.gov/?p=press_office

• https://www.americancommitment.org/content/new-strategy-offers-trump-much-bigger-nafta-win

• http://dailycaller.com/2018/04/05/conservatives-back-senate-push-to-take-alternative-tactic-on-

nafta/

• http://freebeacon.com/issues/conservative-leaders-tell-trump-use-nafta-make-america-

competitive/

• https://www.washingtonexaminer.com/policy/economy/conservatives-push-for-anti-regulatory-

language-in-nafta-deal

• https://www.washingtontimes.com/news/2018/apr/5/conservatives-spot-new-tactic-pass-bills-

without-s/

• https://forexlive.com/news/!/three-big-reasons-that-trump-is-suddenly-ready-to-make-a-nafta-

deal-20180401

• https://www.denverpost.com/2018/04/03/gardner-nafta-trump/

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Support is Widespread

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Japan – U.S. Mutual Cooperation & Security

• Japan and the United States have been strong, committed allies for many years.

• Japan and the US have entered into numerous treaties and agreements that emphasize the need and obligation to collaborate on important matters relating to our mutual security and economic stability.

• The Mutual Defense Assistance Agreement (March 8, 1954) emphasizes the importance of economic stability as a key ingredient to international peace and security, including the two countries making available to the other equipment, materials and services to facilitate that economic stability.

• The Treaty of Mutual Cooperation and Security (January 19, 1960) highlights the need to consult together whenever Japan’s security is threatened.

• Given Japan’s dependence on foreign energy imports, including coal, Japan believes that for its security and economic stability, Japan needs assistance and cooperation from the US to facilitate the export of coal from the US to Japan.

• Having a more robust supply from an important ally such as the US will significantly contribute to Japan’s long-term stability and security.

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Tribal Commerce

• Native American Tribes have unique legal standing within US law.

• The Crow Indian Tribe in Montana has large coal reserves it would like to develop and sell to Asia. The gateway for the Crow to access its market is the Millennium coal export terminal.

• Offtake agreements, subject to adequate port capacity, would assist the Crow.

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Litigation

• Unlawful decisions are being challenged.

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See: https://www.forbes.com/sites/wlf/2018/03/19/washington-state-officials-usurp-federal-authority-with-crusade-to-block-export-terminal/#1232341a5eb9

Expressions of Support• Federal • States• Cowlitz County• Tribal• Railroads• Labor• Business

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