Financial Pacific: Looking ahead to earnings season (third party), October 12.2010

October 10, 2010

Metals & Mining Call Looking Ahead to Earnings Season

Coal: Investors have approached us for our outlook on 3Q results much earlier than normal and seem focused on earnings surprises more so than on thematic ideas. We have marked to market our models for the quarter and provide modest earnings revisions in this report. We also provide our thoughts on key sector themes and company-specific outlooks heading into 3Q reporting season. We continue to like the long-term investment case for low cost thermal coals, but believe near-term price leverage to domestic met coal will be a key theme.

Steel: Stocks posted gains across the group last week. That 3Q results will be weak is now well discounted given various updates and commentary, but we expect the stocks to be sensitive to 4Q outlooks. Investor sentiment is very weak, but we believe fundamentals are bottoming. Global iron ore and met coal prices have been more resilient to slowing steel production. We think the case for rising prices in 2011 is good. Preferred play is US Steel.

Metals: Metal prices and equities continued their rally, at least in part due to anticipated asset purchases from the Fed. Further support was provided by Alcoa’s lifting of aluminum demand growth forecast to 13% from 12%. Copper ended at $3.77 and aluminum at $1.10. LME week starts on Monday in London. We think investors are expecting announcements related to physically backed metal investment products. We have revised estimates for FCX, NOR and CENX to factor in the revised price outlook from our commodity team.

Gold: Gold declined on Thursday on the back of news of completion of hedge book buyback by Anglogold, but continued its rally on Friday, driven by anticipation of QE2. In spite of near term concerns about deflation, we think there is sufficient interest in gold’s role as a hedge against inflation “around the corner” to maintain strong price support. At the equity level, the beta of gold stocks relative to the market has increased. We think gold equities may need the support of broader market to move substantially higher in the near-term.

Recent Reports

Title Date

Steel: 2011 Risk-Reward Looks Favorable to Us

Oct 5, 2010

Global Metals Playbook - 4Q10: Focus on currencies, China and In

Oct 6, 2010

Molycorp, Inc.: Re-Establishing the REO Supply Chain; Overweight

Sep 8, 2010

Coal: Low-Cost Coal Thesis Holds in a Cheap Gas Environment

Aug 23, 2010

US Steel Corporation: Mid-Cycle Valuation Points to Further Upside

Aug 11, 2010

Coal: A Roadmap for PRB Upside Jul 7, 2010

Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.

Morgan Stanley & Co. Incorporated Mark Liinamaa

[email protected] +1 (1)212 761 3537

Evan L Kurtz, CFA [email protected] +1 (1)212 761 7583

Paretosh Misra, Ph.D [email protected] +1 (1)212 761 3590

Wes Sconce [email protected] +1 (1)212 761 6004

M O R G A N S T A N L E Y R E S E A R C H N O R T H A M E R I C A

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M O R G A N S T A N L E Y R E S E A R C H

October 10, 2010 Metals & Mining Call

Coal

KEY INDICATORS (prices as of Thursday’s close)

US thermal coal prices (versus last week) 12M fwd CAPP (NYMEX) @ $69/t (-2%) 12M fwd PRB (NYMEX) @ $14.82/t (-1%) Natural Gas Spot (NYMEX) @ $3.62/Mcf (-7%)

International (Australia) coal price (versus last week) Australian thermal @ $95/t fob Newcastle (flat) Hard coking coal index @ $208/t fob Queensland (-2%) Exhibit 1 Daily CAPP and PRB Thermal Coal Prices

$40

$60

$80

$100

$120

$140

Apr

-07

Sep-

07

Feb-

08

Jul-0

8

Dec

-08

May

-09

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-09

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-10

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-10

NYM

EX C

APP

Pric

es ($

/t)

$5

$7

$9

$11

$13

$15

$17

$19 NYM

EX PRB

Pries ($/t)

CAPP 12M FwdPRB 12M Fwd

Source: Bloomberg, Morgan Stanley Research Exhibit 2 Spot and Quarterly Benchmark Coking Coal Prices

$160

$180

$200

$220

$240

$260

$280

Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10

Pric

e ($

/mt f

ob p

ort)

Spot US High Vol Coking Coal

Spot Queensland Coking Coal

3/31/10 $200/tCY2Q

5/26/10 $225/tCY3Q

8/30/10 $209/tCY4Q

Source: Energy Publishing, Morgan Stanley Research

Key Themes to Monitor in 3Q Results

1) Domestic US coking coal negotiations. We expect coal company management to provide color on the progress of domestic US coking coal negotiations. US met producers have reportedly offered premium-grade low- and mid-vol coals for +$220/t (metric tonne, FOB port equivalent). Producers of specialty-grade premium high-vol met coal continue to seek a premium to baseload low and mid vol coals due to shortfalls stemming from MEE's Upper Big Branch disaster, the early retirement of PCX's Harris mine, and the outage of Raspadskaya's primary met mine. US domestic coking coal contracts are typically set for 12 months on a calendar year basis.

Exhibit 3 Domestic US Met Coal Price Assessments and Implied Export Price Equivalents

Domestic Price Equivalent Export PriceCoal Grade short tons, FOB mine metric tons, FOB port

4Q International Benchmark $150/t $209/t

Specialty High Vol "A+" $180/t $240/tPremium Low & Mid Vol $160/t $220/tHigh Vol "A" $150/t $210/tHigh Vol "B" $120/t $175/tHigh Vol PCI, Crossover $90/t $140/t

Source: Coal & Energy Price Report, Morgan Stanley Research

2) Structural challenges to Appalachian supply. PCX, MEE and CLF have already announced that 3Q volumes were lighter than expected. Among publicly-traded CAPP miners, ANR is the only company that has maintained cost guidance for the full year.

3) Rising PRB production? According to EIA figures, PRB production rose 7% seq. during 3Q. BTU discussed on its 2Q conference call the potential to begin ramping up its new, 20-30 mmtpy School Creek mine, though we believe initial volumes will wait until 1Q11 at the very earliest. ACI controls ~75% of the 40 mmt of idled “Tier 1” PRB capacity and with its significant open position for 2011, we do not expect them to commit to further capacity expansions.

4) Crossover met coal demand. One of our sources suggests that the current price spread between high and lower quality met coals is unlikely to widen beyond current levels (see above exhibit). However, we do see some risk to downgrades for 2H10 met coal volumes.

5) Eastern thermal market, Coal to gas switching. Coal displacement by cheap natural gas remains a concern for the industry and investors, though we think the majority of switching has already taken place (for more on this, please refer to our report from 8/23/2010, Low-Cost Coal Thesis Holds in a Cheap Gas Environment). That said, CAPP coal is uneconomic versus sub-$5/Mcf natural gas, and with increasingly uncertain regulatory environment for coal supply and power plants, utilities are hesitant to commit to term contracts with Appalachian producers.

3



Exhibit 4 3Q10 MS versus Consensus EPS and EBITDA Est.’s

Low Median High MSe vs. ConsACI $0.30 $0.36 $0.52 $0.34 (6%)ANR $0.62 $0.82 $1.14 $0.78 (5%)BTU $0.78 $0.91 $1.06 $0.90 (1%)CLD $0.27 $0.41 $0.48 $0.32 (22%)CNX $0.51 $0.58 $0.74 $0.58 1%PCX ($0.77) ($0.53) $0.15 ($0.47) (11%)WLT $2.28 $2.70 $3.64 $2.49 (8%)

Low Median High MSe vs. ConsACI 184 198 226 193 (3%)ANR 212 243 263 230 (5%)BTU 504 524 555 517 (1%)CLD 71 77 84 71 (7%)CNX 366 379 545 391 3%PCX 0 28 72 29 6%WLT 218 240 271 221 (8%)

3Q10e EPS

FactSet Consensus

Morgan Stanley Estimates

Morgan Stanley Estimates3Q10e EBITDA

FactSet Consensus

Source: Morgan Stanley Research

3Q10 Production Outlook

Preliminary EIA estimates show 3Q total US coal production was up 3Q over 2Q. However, EIA estimates often vary from actual results, which are revised after mines submit production statistics to the Mine Safety and Health Administration. Exhibit 5 EIA Estimates US Coal Production Was Up 3% in 3Q (mmt) APP CAPP NAPP SAPP PRB Illinois CO/UT LIGNITE OTHER TOTAL1Q09 act 95 55 34 6 121 26 13 18 8 2812Q09 act 84 47 32 5 113 27 12 17 10 2633Q09 act 81 46 30 5 121 25 13 19 9 2694Q09 act 81 44 32 5 115 25 11 18 9 2601Q10 act 84 46 33 5 116 26 13 19 8 2652Q10 act 84 46 32 6 117 26 11 19 8 2653Q10: EIA 84 47 32 5 126 25 12 19 8 274Seq Chg. (0)% 3% (3)% (5)% 7% (1)% 3% 2% (1)% 3% Source: EIA, Morgan Stanley Research

PRB: EIA statistics show a 7% sequential jump in 3Q PRB production. Union Pacific, which ships from “Tier 1” Southern PRB mines, reported 3Q PRB rail loadings increased 13%. Exhibit 6 3Q PRB Volumes Could be up 7% from 2Q

(20%)(15%)(10%)

(5%)0%5%

10%15%20%25%

2Q09 3Q09 4Q09 1Q10 2Q10 3Q10

Coa

l Loa

ding

s (S

eq C

hg, %

) UP - Southern PRB EIA - Wyoming

Source: Union Pacific, Morgan Stanley Research

Central App: The EIA shows 3Q CAPP production increased 3%. However, the EIA has overestimated CAPP by ~3 mmt in the past two quarters, which would point to a 4% decline and foot with recent 3Q volume guidance cuts by PCX and MEE.

Western Bit: While the EIA has overstated Western Bit production by ~1 mmtpq (which would suggest an 6% decline from 2Q), UP loadings for Colorado and Utah gained 5%. Exhibit 7 Union Pacific Western Bit Loadings Rose 5% in 3Q

(20%)(15%)(10%)

(5%)0%5%

10%15%20%25%

2Q09 3Q09 4Q09 1Q10 2Q10 3Q10C

oal L

oadi

ngs

(Seq

Chg

, %) UP - CO/UT EIA - Colorado/Utah

Source: Union Pacific, Morgan Stanley Research

Producers could post lower met sales in 3Q. We estimate East Coast US exports, which consist primarily of met coal shipped from Virginia and Maryland, declined 17% in 3Q. Through August, volumes have fallen four consecutive months. Exhibit 8 Estimated Decline of 17% in 3Q East Coast Exports

6789

1011121314

1Q08

2Q08

3Q08

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1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

e

Expo

rt V

olum

es (m

mt)

Note: Data include estimated September shipments from Baltimore based on trailing 3M data. Source: T. Parker Host data via Doyle Trading Consultants, Morgan Stanley Research Exhibit 9 Publicly-traded Companies’ 3Q Virginia Exports Flat

ANR ACI CNX MEE PCX BTU Total1Q10 1.62 0.63 0.73 1.73 0.87 0.50 6.072Q10 1.67 0.65 0.29 1.01 0.73 0.43 4.783Q10e 1.47 0.65 0.50 1.10 0.54 0.51 4.77Seq. (12%) (0%) 73% 9% (25%) 19% (0%)

Note: BTU has no Appalachian mining operations but does actively trade Eastern US coal. We have estimated September shipments based on trailing three-month data. Source: T. Parker Host data via Doyle Trading Consultants, Morgan Stanley Research

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Peabody (October 19 BTO)

Company 2010 Guidance: 3Q10 EPS $0.75-1.00; 3Q10 EBITDA $475-550 mm 2010 Recurring EPS $2.60-3.15; EBITDA $1.7-1.9 bn 185-195 mmt US sales, 133 mmt in PRB 27-30 mmt Australian sales 2.5-3.0 mmt met coal quarterly run-rate production 2.5 mmt of met coal unpriced for 4Q10

• We have maintained our 3Q estimate at $0.90/shr on $514 mm in EBITDA. We lowered Australian volumes modestly following our review of 3Q port throughput but expect this to be offset by stronger PRB and met coal pricing.

• Major issues for investors to focus on:

− PRB supply: The Company in its 2Q earnings call suggested it could ramp up small volumes from their School Creek project to enhance margins. The key questions in our view are timing and quantity.

− Australian expansion: 3Q port throughput was slightly below our expectations, likely due to weather disruptions, Dalrymple Bay maintenance activity and softer demand for lower-quality met coal products. Peabody has a 17% position in the 30 mmt NCIG port, which had its first shipments in 2Q and is expected to ramp up in 2H10, improving thermal and semi-soft met coal volumes.

− Trading & Brokerage EBITDA fell to 5 year lows in 2Q on lower volatility, adverse shipment timing and softer European markets. We see modest improvement in 2H10

− Exchange rate risk: As of 2Q, Peabody had hedged its Australian dollar exposure at ~$0.80 on 85% of 2H10 exposure, 70% for 2011 and 60% for 2012.

Exhibit 10 3Q Dalrymple Bay Port Throughput Declined 5%

(60%)

(40%)

(20%)

0%

20%

40%

60%

80%

100%

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

e

Ship

men

ts (S

eque

ntia

l Chg

, %) DBCT Total Port Throughput Peabody DBCT Exports

Source: North Queensland Bulk Ports Corporation Limited, Morgan Stanley Research

Exhibit 11 BTU Quarterly Summary Peabody 3Q09 4Q09 1Q10 2Q10 3Q10e Seq YOYTons Sold (mmt) 63.5 61.2 58.3 59.7 64.3 8% 1%

Western US 42.0 38.6 40.0 39.8 41.4 4% (2%)Eastern US 7.9 7.8 7.1 7.3 7.8 6% (2%)Australia 6.5 6.4 6.2 6.4 6.7 4% 2%Trading & Brokerage 7.1 8.4 5.0 6.2 8.5 37% 20%

Aust Met (mmt) 2.7 2.4 2.3 2.2 2.3 5% (15%)

Realization ($/t) $26.16 $25.23 $25.88 $27.64 $28.20 2% 8%Western US $16.28 $16.55 $16.55 $16.41 $16.58 1% 2%Eastern US $41.72 $41.73 $43.71 $44.08 $44.00 (0%) 5%Australia $82.29 $74.00 $71.97 $92.69 $98.91 7% 20%Trading & Brokerage $15.90 $12.64 $18.02 $13.19 $15.00 14% (6%)

Margin ($/t) $6.80 $7.04 $7.61 $9.30 $10.18 9% 50%Western US $4.97 $4.58 $5.20 $5.21 $5.24 1% 5%Eastern US $8.75 $9.51 $10.57 $9.73 $9.60 (1%) 10%Australia $16.27 $18.89 $19.84 $34.28 $41.59 21% 156%

EBITDA ($ mm) 341 297 357 440 514 17% 51%US Mining 276 252 282 279 291 4% 6%Australia 108 119 123 224 277 24% 156%Trading & Brokerage 44 48 32 14 25 75% (43%)Resource Management 3 3 4 (0) 5 NM 52%Corporate & Other (90) (124) (85) (76) (84) 10% (7%)

Total Revenues 1667 1554 1516 1661 1818 9% 9%Total COGS 1261 1158 1109 1175 1254 7% (1%)SG&A 55 60 55 54 60 11% 8%DD&A 108 100 106 105 115 9% 6%Net Interest Expense 50 48 49 47 53 12% 5%Income Tax Expense 35 23 51 76 90 19% 161%Diluted EPS (Recurring) $0.49 $0.43 $0.52 $0.72 $0.90 24% 82% Source: Company data, Morgan Stanley Research Exhibit 12 3Q Newcastle Port Throughput Fell 5%

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

e

Ship

men

ts (S

eque

ntia

l Chg

, %) Newcastle Total Port Throughput BTU Newcastle Exports

Source: McCloskey’s, Morgan Stanley Research Exhibit 13 3Q Newcastle Semi-soft Exports Declined 23% Peabody has relatively little exposure to this market from its New South Wales operations

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep

-07

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep

-08

Nov

-08

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09

Mar

-09

May

-09

Jul-0

9

Sep

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Jan-

10

Mar

-10

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-10

Jul-1

0

Sep

-10

5%

10%

15%

20%

25%

30%Coking Coal Exports (mt) Coking Coal % of Newcastle Shipments

Source: Port Waratah Coal Services, Morgan Stanley Research

5



Patriot (October 21 BTO)

Company 2010 Guidance (provided before 9/10 update): 32-34 mmt total sales 7.5 mmt of met coal sales (7.2 mmt committed and priced) 17-19 Appalachian thermal coal sales 7 mmt Illinois Basin thermal coal sales Appalachian costs $56-59/t; Illinois Basin $39-42/t

• We have maintained our PCX earnings estimates. Patriot previously announced that 3Q met and thermal volumes will be roughly 10% (0.8 mmt) below expectations. Patriot did not adjust full year volume or cost guidance with the release.


− Revised Appalachian cost guidance: We estimate 2010 Appalachian segment costs will be towards the top end of previous guidance and rise to $60/t in 2011.

− Status updates on progress being made at the Black Oak and Logan 2 Gas met coal mines.

− Domestic US coking coal negotiations: trade press reports suggest high quality HCC prices at least $220/t and $240/t for Patriot’s specialty high vol products

Exhibit 14 PCX Quarterly Summary Patriot Coal 3Q09 4Q09 1Q10 2Q10 3Q10e Seq YOYAppalachia EBITDA ($ mm) 76.6 79.2 70.8 82.1 88.0 7% 15%

Volumes (mmt) 6.1 6.5 5.8 6.4 6.0 (7%) (3%)Thermal 4.7 5.0 4.2 4.5 4.2 (7%) (10%)Metallurgical 1.5 1.6 1.6 1.9 1.8 (7%) 20%Pricing ($/t) $69.8 $65.4 $66.7 $72.3 $75.0 4% 7%Thermal $59.6 $55.1 $57.9 $58.0 $58.2Metallurgical $101.9 $97.6 $90.3 $106.3 $114.8Operating Cost ($/t) $59.2 $54.4 $55.0 $60.1 $61.1 2% 3%Operating Margin ($/t) $10.5 $11.0 $11.7 $12.1 $13.9 15% 32%Other Segment EBITDA ($ mm) 12.0 7.4 2.1 4.0 5.0 25% (58%)

Illinois Basin EBITDA ($ mm) 0.0 1.6 6.8 (1.5) (0.8) (46%) NMVolumes (mmt) 1.7 1.7 1.7 1.6 1.7 1% (4%)Pricing ($/t) $38.5 $37.9 $42.3 $42.2 $40.0 (5%) 4%Operating Cost ($/t) $38.5 $36.9 $38.4 $43.1 $40.5 (6%) 5%Operating Margin ($/t) $0.0 $0.9 $3.9 ($0.9) ($0.5) (47%) NM

Past Mining Costs ($ mm) 40 39 43 44 45 1% 13%

Revenues 506 503 467 539 518 (4%) 2%Cost of Sales 470 461 433 503 476 (5%) 1%SG&A 11 13 13 13 13 (2%) 15%EBITDA 25 29 21 23 29 28% 15%DD&A 50 50 50 50 49 (4%) (4%)Net Interest Expense 7 6 6 12 13 10% 84%Income Tax Expense 0 0 0 0 0 (100%) NMNet Income (Recurring) (41) (38) (45) (50) (43) (14%) 5%EPS (Recurring) ($0.45) ($0.42) ($0.48) ($0.55) ($0.47) (14%) 3%Sales Contract Accretion (94) (66) (25) (34) (25) (26%) (73%)Extraordinary Expense (Income) (0) (3) (24) (18) 0 (100%) (100%)Net Income (Reported) 53 11 4 (14) (18) 33% (134%)EPS (Reported) $0.58 $0.12 $0.05 ($0.15) ($0.20) 33% (134%)

Source: Company data, Morgan Stanley Research

Walter (release date not yet scheduled)

Company 2010 Guidance: 7.2-7.5 mmt coking coal sales 1.2-1.5 mmt unpriced, primarily for 4Q delivery

• We have lowered our 3Q earnings estimate to reflect coking coal shipment delays that we think could take sales volumes to the low end of the Company’s 1.8-2.0 mmt guidance.


− Guidance cuts in 2009-10. The Company has reduced coking coal sales volume guidance twice since July, leading to some concerns about the likelihood that near-term growth targets in 2011-12 can be achieved.

− 4Q coking coal contract pricing following 4Q benchmark settlements at $209/metric tonne fob port. WLT has previously negotiated premiums to the prevailing benchmark price.

− Longer-term growth projects. The Company is evaluating a potential new longwall mine to complement the existing No 4, No 7 and No 7 East operations.

− Blue Creek reserve acquisitions. Walter has non-binding letters of intent to lease 52 mmt of reserves from Chevron and acquire its North River thermal coal mine, as well as 22 mmt of reserves adjacent to the Chevron property.

Exhibit 15 WLT Quarterly Summary Walter Energy 3Q09 4Q09 1Q10 2Q10 3Q10e Seq YOY

Hard Coking Coal Sales (mmt) 1.871 1.369 1.816 1.766 1.800 2% (4%)Hard Coking Coal Production (mmt) 1.536 1.354 1.658 1.668 1.650 (1%) 7%

Hard Coking Coal Realization ($/ton) $122 $126 $127 $194 $216 12% 78%Hard Coking Coal COGS ($/ton) $81 $77 $71 $80 $87 9% 8%

Natural Gas Sales (bcf) 1.51 1.35 1.44 2.27 3.50 55% 132%Price ($/mcf) $3.29 $4.09 $5.49 $4.45 $4.50 1% 37%Cost ($/mcf) $2.41 $2.87 $3.45 $2.32 $2.36 2% (2%)

Underground Mining Revenue ($ mm) 233 180 240 354 406 15% 74%Underground Mining Op. Inc. ($ mm) 44 42 67 168 194 15% 340%

Thermal Coal Sales 0.302 0.326 0.375 0.387 0.435 12% 44%Thermal Coal Realization ($/ton) $78.9 $77.5 $78.9 $80.0 $85.0 6% 8%Surface Mining Revenue ($ mm) 25 26 31 32 37 16% 49%Surface Mining Op. Income ($ mm) 7 6 7 3 8 129% 13%Natural Res. Op. Income ($ mm) 51 48 74 172 202 17% 296%

Sloss Coke Sales (mmt) 0.04 0.09 0.14 0.10 0.10 (0%) 149%Average price ($/ton) $362 $312 $327 $416 $375 (10%) 4%

Sloss Revenue ($ mm) 23 37 51 45 41 (8%) 77%Sloss Operating Income ($ mm) (0) (0) 8 13 7 (43%) NM

Other Operating Income ($ mm) (8) (8) (8) (12) (11) (5%) 34%

Net Sales & Revenues 278 236 312 411 466 13% 67%Net Cost of Goods Sold 191 149 190 184 212 15% 11%SG&A 19 19 19 22 21 (3%) 11%Postretirement Benefit Expense 8 8 10 10 11 1% 36%EBITDA 61 60 93 194 221 14% 265%DD&A 18 19 20 24 26 9% 42%Net Interest Expense 5 5 5 4 4 4% (13%)Income tax expense (normalized) 13 10 21 50 57 14% 330%Normalized Net Income 24 29 42 116 134 15% 463%Normalized EPS $0.45 $0.50 $0.88 $2.16 $2.49 15% 449% Source: Company data, Morgan Stanley Research

6



Consol (release date not yet scheduled)

Company 2010 Guidance: 56.8 mmt of thermal coal committed and priced at $53/t 127 Bcf of nat gas production, inc. 48 Bcf hedged at $7.85 4.8 mmt of premium hard coking coal sales (100% priced) 2.7 mmt of crossover NAPP crossover met sales

• We expect CNX to post modest improvement over 2Q results in both the coal and gas businesses as costs improve and results reflect a full quarter’s contribution from Dominion gas.


− Monetization of non-core assets. CNX is openly shopping around its mostly undeveloped high-vol met reserves in Central App. Additionally, Consol has suggested that it may look to sell non-core Marcellus shale gas acreage.

− Softening demand for NAPP high vol crossover met coal

− Update on timing of BMX mine development in NAPP

− Details surrounding the idling of the Emery mine in Utah could provide useful read-through for ACI and BTU.

Exhibit 16 CNX Quarterly Summary Consol Energy 3Q09 4Q09 1Q10 2Q10 3Q10e Seq YOYCoal Production (mmt) 13.7 15.5 15.2 15.9 15.2 (5%) (5%)

Northern App 11.1 12.3 11.4 12.5 11.8 (6%) (6%)Central App Thermal 1.7 2.0 1.5 1.4 1.2 (14%) (14%)Metallurgical 0.6 0.9 2.0 1.7 1.9 9% 9%Western Bit 0.3 0.3 0.3 0.3 0.3 0% 0%

Total Coal Sales (mmt) 13.7 15.6 15.4 15.9 15.2 (5%) (5%)Produced Coal Sales 800 891 902 954 950 (0%) (0%)Produced Coal COGS 514 526 517 584 542 (7%) (7%)

Produced Gas Sales (Bcf) 24.8 25.1 24.7 31.5 35.4 12% 12%Avg Gas Price ($/mcf) $6.25 $6.47 $7.26 $6.00 $5.66 (6%) (6%)

Gas EBITDA 85 88 107 90 106 17% 17%Coal EBITDA 161 235 256 264 286 8% 8%CNX EBITDA 246 323 363 354 391 10% 10%

Total Revenues 1095 1238 1240 1289 1298 1% 1%Total COGS 707 739 720 776 735 (5%) (5%)SG&A 32 33 30 39 45 15% 15%Taxes other than income 66 75 81 79 84 6% 6%

DD&A 110 114 119 133 138 4% 4%Interest expense 7.5 8.5 8.1 65.0 65.2 0% 0%Minority Interest 5.9 7 8 4 0 (100%) (100%)Income Tax 35 52 72 49 56 14% 14%Effective Tax Rate 27% 26% 30% 32% 30% (5%) (5%)Net Income 87 142 156 103 132 28% 28%EPS Diluted, Normalized $0.48 $0.78 $0.85 $0.45 $0.58 28% 28% Source: Company data, Morgan Stanley Research

Arch (October 29, BTO)

Company 2010 Guidance: $1.10-1.40 Recurring EPS, $718-790 EBITDA 147-155 mmt total sales volumes including 6-7 mmt met coal sales; ~5.5 mmt committed/priced as of 2Q

• We do not see significant risk to 2010 earnings guidance, though the top end may come in towards consensus. We expect stronger PRB prices to offset weaker demand for Arch’s met coal, where 2010 met volume guidance could be cut to ~6.0-6.5 mmt. Union Pacific’s Utah loadings, much of which is supplied from ACI mines, improved 8% sequentially versus our +2% ACI estimate, suggesting that the Dugout Canyon outage may be less impactful than expected.


− PRB contract bookings and prices achieved during 3Q. Though we think production will rise in PRB over the next 12 months, restarting idled capacity may be read as too soon by the market and weaken investor conviction in the PRB story, which has gained in recent weeks.

− Appetite for lower quality high-vol “B” and PCI grade met coals. We believe the market for these products is at ~$110/t and $90-100/t, respectively. Big question is: is the discount of lower-quality met coal relative to premium grades overextended and could demand improve in 4Q?

− Update on the repricing of Arch’s 9 mmt of legacy W. Bit contracts expiring at year-end. The idling of the Bowie and Emery mines suggest the market remains soft.

Exhibit 17 ACI Quarterly Summary Arch Coal 3Q09 4Q09 1Q10 2Q10 3Q10e Seq. YoYCAPP EBITDA ($ mm) 39 37 59 77 85 11% 118%

Volumes (mmt) 3.0 3.0 2.8 3.1 3.1 (0%) 4%Price ($/t) $62.44 $61.70 $68.43 $73.96 $77.77 5% 25%Cash Cost ($/t) $49.32 $49.31 $47.20 $49.19 $50.20 2% 2%Cash Margin ($/t) $13.12 $12.39 $21.23 $24.77 $27.57 11% 110%

PRB EBITDA ($ mm) 48 73 71 82 102 24% 113%Volumes (mmt) 21.5 30.1 30.6 31.0 32.1 4% 49%Price ($/t) $12.26 $11.85 $11.64 $11.88 $12.03 1% (2%)Cash Cost ($/t) $10.04 $9.42 $9.33 $9.23 $8.85 (4%) (12%)Cash Margin ($/t) $2.22 $2.43 $2.31 $2.65 $3.18 20% 43%

WBit EBITDA ($ mm) 38 46 31 31 31 2% (18%)Volumes (mmt) 4.6 4.8 4.1 4.0 4.1 2% (11%)Price ($/t) $29.08 $29.08 $28.97 $30.09 $30.00 (0%) 3%Cash Cost ($/t) $20.70 $19.47 $21.45 $22.39 $22.27 (1%) 8%Cash Margin ($/t) $8.38 $9.61 $7.52 $7.70 $7.73 0% (8%)

Mining EBITDA 125 156 161 190 219 15% 75%

Revenues 615 725 712 764 796 4% 29%Cost of Sales 489 567 551 571 577 1% 18%SG&A 24 27 27 30 28 (8%) 17%Chg in FV of derivatives (3) (2) 6 5 4 (13%) (220%)Other Operating Expense (16) (11) (3) (4) (100%) (100%)Total EBITDA 121 144 131 163 193 18% 60%DD&A 71 89 89 88 98 11% 37%Net Interest Expense 29 35 35 35 33 (5%) 11%Income Tax Expense (6.0) 2.4 3.2 (5.8) 6.2 (207%) (203%)Income Tax Rate (%) (31%) 12% 38% (14%) 10% (170%) (133%)Net Income (Recurring) 25.7 18.2 5.0 46.3 56.0 21% 118%Diluted EPS (Recurring) $0.16 $0.11 $0.03 $0.28 $0.34 21% 108% Source: Company data, Morgan Stanley Research

7



Alpha (November 3, BTO)

Company 2010 Guidance: 81-89 mmt shipments (47-50 mmt PRB, 23-26 mmt Eastern steam, 11-13 mmt met) 12 mmt met committed, 11.3 mmt met priced PRB cash costs $8.30-8.90 (YTD $8.93/t) Eastern (thermal and met) cash costs $54-57/t (YTD $55.51/t)

• Biggest risk of a miss is in met coal volumes. We assume ANR shipments declined 4% sequentially (0.1 mmt). Alpha’s 3Q East Coast exports fell ~10%, though volumes could have been made up with increased sales into the domestic US market or higher exports through the Gulf Coast ports.


− Domestic US coking coal negotiations: trade press reports suggest high quality HCC prices at least $220/t

− Any change to acquisition strategy? Company has suggested it is willing to lever up to 3.0-3.5x debt/EBITDA and would accept some near-term earnings dilution to expand into international thermal and/or met markets.

− Cost control: ANR is the only CAPP miner that has maintained cost guidance throughout 2010

Exhibit 18 ANR Quarterly Summary Alpha Natural Resources 3Q09 4Q09 1Q10 2Q10 3Q10e Seq. YoYWestern EBITDA ($ mm) 29 25 24 21 30 41% (28%)

Sales Volumes (mmt) 12.7 12.1 12.2 11.1 12.5 13% (13%)Price Realization ($/t) $10.4 $10.5 $10.8 $10.9 $11.0 1% 5%Cost of Sales ($/t) $8.1 $8.5 $8.9 $9.0 $8.6 (5%) 12%Cash Margin ($/t) $2.3 $2.0 $2.0 $1.9 $2.4 25% (17%)

Eastern EBITDA ($ mm) 206 185 236 221 238 8% 7%Steam Volumes (mmt) 6.9 6.6 6.5 6.0 6.0 (0%) (14%)Met Volumes (mmt) 2.4 2.5 2.6 3.1 3.0 (4%) 36%

Total Volumes (mmt) 9.3 9.1 9.2 9.2 9.0 (2%) (1%)Steam Price ($/t) $64.4 $62.6 $67.4 $66.1 $65.3 (1%) 3%Met Price ($/t) $96.9 $97.2 $98.7 $120.0 $116.7 (3%) 21%

Total Price ($/t) $72.9 $72.2 $76.4 $84.5 $82.4 (2%) 16%Total Cash Cost ($/t) $50.6 $51.9 $50.6 $60.4 $55.9 (7%) 19%Total Cash Margin ($/t) $22.2 $20.3 $25.8 $24.1 $26.5 10% 8%

Mining Segment EBITDA 235 210 260 242 268 11% 3%

Total Revenues 729 875 922 1,000 964 (4%) 37%Total Cost of Sales 528 644 656 756 693 (8%) 43%SG&A 41 40 44 42 41 (3%) 3%EBITDA (Recurring) 160 191 223 202 230 14% 27%DD&A 78 98 95 91 94 3% 16%Net Interest Expense 20 20 23 19 19 (3%) (10%)Income Tax Expense 14 14 22 17 24 36% 23%Net Income (Recurring) 49 62 84 76 95 25% 54%Diluted EPS (Recurring) $0.47 $0.51 $0.69 $0.62 $0.78 25% 32% Source: Company data, Morgan Stanley Research

Cloud Peak (release date not yet scheduled)

Company 2010 Guidance: 91-93 mmt production from wholly-owned mines Average expected realized price of $12.30-12.34 Average cash cost/ton $8.65-9.25 Additional Operating Income of $25-30 mm

• We have lifted 2010-11 earnings estimates on stronger volumes and PRB pricing, and greater contribution from Additional Operating Income.


− Cloud’s leverage to rising PRB prices during the second quarter disappointed some investors. Given sharp price improvements during 3Q, we think the market expects a material improvement to the full year outlook.

− PRB exports. Teck Cominco reduced the midpoint of its 3Q coal sales volume guidance by 11% due to shipment shortfalls at the Westshore coal export terminal. These issues could potentially limit CLD exports in 2H10.

− PRB leasing delays. We expect the Company to update investors on the status of lawsuits filed in protest of the lease-by-application system currently used to auction PRB coal leasing rights. In our revised model, we have pushed out expected timing of PRB lease payments.

Exhibit 19 CLD Quarterly Summary Cloud Peak 3Q09 PF 4Q09 1Q10 2Q10 3Q10e Seq YOYCompany-Prod. Coal EBITDA 106.2 94.4 81.8 91.9 82.5 (10%) (10%)

Volumes (mmt) 24.1 23.0 21.5 24.0 23.9 (0%) (0%)Price ($/t) $12.08 $11.84 $12.28 $12.20 $12.37 1% 1%Cash Cost ($/t) $7.68 $7.72 $8.47 $8.37 $8.91 6% 6%Cash Margin ($/t) $4.40 $4.11 $3.80 $3.83 $3.45 (10%) (10%)

Other EBITDA (ex SG&A) 22.1 12.7 12.5 9.5 5.7 (40%) (40%)

Revenues 357.2 336.9 311.0 341.6 342.5 0% 0%Cost of Sales 228.9 229.8 216.7 240.2 254.3 6% 6%SG&A 18.9 13.8 16.3 14.4 17.0 18% 18%EBITDA (Recurring) 109.5 93.4 78.0 87.1 71.2 (18%) (18%)DD&A 35.5 37.6 30.2 28.8 29.3 2% 2%Net Interest Expense (0.0) 4.9 12.7 11.9 13.0 9% 9%Income Tax Expense 21.6 18.5 13.0 17.0 10.4 (39%) (39%)Income Tax Rate (%) 29% 36% 37% 37% 36% (1%) (1%)(Earnings) from Affiliates (0.8) (0.1) (0.3) (1.5) (0.5) (66%) (66%)Net Income (Recurring) 53.1 32.5 22.5 31.0 19.0 (39%) (39%)Diluted EPS (Recurring) $0.88 $0.54 $0.38 $0.51 $0.32 (39%) (39%) Source: Company data, Morgan Stanley Research

8



Exhibit 20 3Q Coal Segment Cash Margins

Production ACI ANR BTU CLD CLF CNX PCX WLT TOTAL ACI ANR BTU CLD CLF CNX PCX WLT TOTAL ACI ANR BTU CLD CLF CNX PCX WLT TOTALPRB 31.0 11.1 34.4 24.3 100.7 32.1 12.5 35.5 24.3 104.4 4% 13% 3% 0% 4%Appalachian Thermal 1.6 6.0 13.9 4.5 0.4 26.5 1.6 6.0 13.0 4.2 0.4 25.2 (0%) (0%) (6%) (7%) 12% (5%)Appalachian Met 1.5 3.1 0.7 1.7 1.9 1.8 10.7 1.5 3.0 1.0 1.9 1.8 1.8 10.9 0% (4%) 43% 9% (7%) 2% 2%Illinois Basin 7.3 1.6 8.9 7.8 1.7 9.4 6% 1% 5%Western Bit & Southwest 4.0 5.4 0.3 9.7 4.1 5.9 0.3 10.2 2% 8% 0% 5%Australia Thermal 4.2 4.6 4.4 4.8 4% 5%Australia Met 2.2 2.2 2.3 2.3 5% 5%Total 38.1 20.2 53.5 24.3 1.1 15.9 8.1 2.2 163.3 39.3 21.5 55.8 24.3 1.5 15.2 7.6 2.2 167.3 3% 6% 4% 0% 34% (5%) (6%) 4% 2%

Realization ACI ANR BTU CLD CLF CNX PCX WLT TOTAL ACI ANR BTU CLD CLF CNX PCX WLT TOTAL ACI ANR BTU CLD CLF CNX PCX WLT TOTALPRB $11.9 $10.9 $13.2 $12.3 $12.3 $12.0 $11.0 $13.3 $12.4 $12.4 1% 1% 1% 1% 1%Appalachian Thermal $60.6 $66.1 $52.9 $58.0 $80.0 $57.6 $61.0 $65.3 $52.9 $58.2 $85.0 $57.8 1% (1%) (0%) 0% 6% 0%Appalachian Met $88.3 $120.0 $144.6 $120.5 $106.3 $193.5 $127.0 $95.7 $116.7 $120.0 $136.5 $114.8 $216.4 $133.6 8% (3%) (17%) 13% 8% 12% 5%Illinois Basin $44.1 $42.2 $43.7 $44.0 $40.0 $43.3 (0%) (5%) (1%)Western Bit & Southwest $30.1 $36.6 $35.0 $33.9 $30.0 $36.5 $35.0 $33.9 (0%) (0%) 0% (0%)Australia Thermal $56.4 $61.3 $57.4 $63.0 2% 3%Australia Met $162.0 $162.0 $177.4 $177.4 10% 10%Total $18.9 $44.2 $29.3 $12.3 $134.5 $59.8 $66.2 $173.1 $33.6 $19.1 $40.9 $30.2 $12.4 $118.9 $62.7 $67.4 $190.9 $34.0 1% (8%) 3% 1% (12%) 5% 2% 10% 1%

Cash Costs ACI ANR BTU CLD CLF CNX PCX WLT TOTAL ACI ANR BTU CLD CLF CNX PCX WLT TOTAL ACI ANR BTU CLD CLF CNX PCX WLT TOTALPRB $9.2 $9.0 $9.5 $8.5 $9.1 $8.8 $8.6 $9.6 $9.0 $9.1 (4%) (5%) 1% 6% (0%)Appalachian Thermal $44.9 $51.4 $39.7 $50.4 $64.1 $44.9 $45.2 $46.0 $38.7 $51.3 $58.5 $43.3 1% (11%) (2%) 2% (9%) (4%)Appalachian Met $53.7 $77.6 $96.9 $50.9 $83.3 $79.8 $72.7 $55.5 $75.7 $106.3 $53.6 $84.4 $87.1 $75.3 3% (3%) 10% 5% 1% 9% 4%Illinois Basin $34.4 $43.1 $36.0 $34.4 $40.5 $35.5 0% (6%) (1%)Western Bit & Southwest $22.4 $22.1 $0.0 $21.5 $22.3 $22.0 $0.0 $21.4 (1%) (1%) (0%)Australia Thermal $34.3 $36.3 $34.6 $38.3 1% 5%Australia Met $104.4 $104.4 $100.2 $100.2 (4%) (4%)Total $13.9 $32.3 $20.0 $8.5 $83.6 $40.1 $56.7 $77.0 $23.3 $13.5 $28.4 $20.0 $9.0 $96.4 $39.8 $56.6 $81.5 $22.9 (3%) (12%) 0% 6% 15% (1%) (0%) 6% (2%)

EBITDA Margin ($/t) ACI ANR BTU CLD CLF CNX PCX WLT TOTAL ACI ANR BTU CLD CLF CNX PCX WLT TOTAL ACI ANR BTU CLD CLF CNX PCX WLT TOTALPRB $2.7 $1.9 $3.7 $3.8 $3.2 $3.2 $2.4 $3.7 $3.4 $3.3 20% 25% (1%) (10%) 3%Appalachian Thermal $15.6 $14.6 $13.2 $7.6 $15.9 $12.8 $15.8 $19.2 $14.1 $7.0 $26.5 $14.5 1% 31% 7% (8%) 66% 13%Appalachian Met $34.6 $42.4 $47.7 $69.6 $23.0 $113.7 $54.3 $40.1 $41.0 $13.6 $82.9 $30.5 $129.4 $58.2 16% (3%) (71%) 19% 33% 14% 7%Illinois Basin $9.7 ($0.9) $7.8 $9.6 ($0.5) $7.8 (1%) (47%) 1%Western Bit & Southwest $7.7 $14.5 $35.0 $12.3 $7.7 $14.5 $35.0 $12.4 0% (0%) 0% 1%Australia Thermal $22.1 $24.9 $22.8 $24.6 3% (1%)Australia Met $57.6 $57.6 $77.2 $77.2 34% 34%Total $5.0 $12.0 $9.3 $3.8 $50.9 $19.7 $9.5 $96.1 $10.2 $5.6 $12.5 $10.2 $3.4 $22.5 $23.0 $10.8 $109.3 $11.0 12% 4% 9% (10%) (56%) 17% 14% 14% 8%

EBITDA Margin ($ mm) ACI ANR BTU CLD CLF CNX PCX WLT TOTAL ACI ANR BTU CLD CLF CNX PCX WLT TOTAL ACI ANR BTU CLD CLF CNX PCX WLT TOTALPRB 82 21 129 92 324 102 30 132 83 347 24% 41% 2% (10%) 7%Appalachian Thermal 25 88 184 34 6 338 25 115 184 29 12 365 1% 31% 0% (15%) 87% 8%Appalachian Met 52 132 34 118 44 201 581 60 123 14 153 54 233 637 16% (7%) (59%) 30% 23% 16% 10%Illinois Basin 71 -2 69 74 -1 74 5% (46%) 6%Western Bit & Southwest 31 78 11 120 31 85 11 127 2% 8% 0% 6%Australia Thermal 93 114 99 118 7% 4%Australia Met 127 127 177 177 40% 40%Total 190 242 498 92 56 312 77 207 1673 219 268 568 83 33 348 82 244 1845 15% 11% 14% (10%) (41%) 11% 7% 18% 10%

(11%)

3Q10 vs 2Q10

19

0.4 0.5

$115.3 $116.5

$58.4 $73.9

22

$56.8 $42.6

2Q10 3Q10

18%

1%

26%

(25%)


9



Steel

KEY INDICATORS

US Industry Operating Rates US operating fell to 69.3% from 70.8%.

US Futures, Chinese Prices US front month futures fell $20/t to $570/t. Due to holidays, there is no new price data from China.

Spot Iron Ore Prices Spot iron ore rose 3.0% to $145.3/t (62% CFR Tianjin)

Exhibit 21 Daily US and Chinese HRC Prices

3,000

3,200

3,400

3,600

3,800

4,000

4,200

4,400

4,600

4,800

7/27

/09

8/24

/09

9/21

/09

10/3

0/09

11/2

7/09

12/2

5/09

1/25

/10

2/22

/10

3/22

/10

4/22

/10

5/20

/10

6/18

/10

7/16

/10

8/13

/10

9/10

/10

10/8

/10

RM

B/t

450

500

550

600

650

700

750

$/sh

ort t

on

Shanghai HRC Price (RMB/t) Front Month US HRC ($/s. ton)

Source: Bloomberg, Morgan Stanley Research

October scrap prices fall modestly less than expectations. Final scrap prices for the month settled down $30/t for obsolete scrap and down $40/t for prime grades. At points last week there was speculation that prices could fall by more than $50/t, and on Tuesday Steel Market Update reported that obsolete scrap prices were likely to be down $30/t and prime would be down $45/t - $/50. Net-net, the final settlement seems modestly better than expectations.

Exhibit 22 Scrap Settled Above Expectations Date Expectation Source27-Sep Down $20t - $30/t SBB28-Sep Rumors of a $50+/t fall AMM5-Oct Obsolete down $30/t, Prime down $45/t - $50/t SMUActual Settlement: Obsolete down $30/t; Prime down $40/t

Source: SBB, AMM, SMU, Morgan Stanley Research

Imports set to fall in September. In September, steel import licenses fell 11%, as reported by the Import Trade Administration. Import licenses, excluding semi-finished products, were down 14%. Oil Country Tubular Goods led the drop falling 46k tons, or 19% sequentially. Rebar import licenses also dropped sharply, falling 53% sequentially. Semi-finished products licenses plunged 30%. However, hot-rolled and cold-rolled sheets import licenses picked up, rising 19% and 36%, respectively, perhaps explaining some of the recent difficulties domestic producers have had with their price hike attempts.

Exhibit 23 Imports Licenses Decline in September, Lead by Oil Country Tubular Goods

(46)

(37) (3

2) (26)

(26) (24) (1

9) (14) (9

)

(9)

(9)

(8) (5

) (3)

(3)

(3)

(2)

(2)

(2)

(1)

(1)

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(0)

(0)

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15

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(k to

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Source: ITA, Morgan Stanley Research

10



Metals

KEY INDICATORS

LME prices climbed up LME prices rose, with copper rising 2.9%, aluminum 2.5%, zinc 3.1%, and nickel 2.5%. Inventories fell, with copper falling 0.5%, aluminum 0.5%, zinc 0.7% and nickel 0.3%.

Shanghai prices rose Shanghai prices climbed up, as copper rose 1.5% and aluminum rose 0.7%. Copper inventory rose 7.7% and aluminum fell 0.1%. Morgan Stanley commodity team has revised its metals price outlook. Our team thinks that cyclical growth is moderating but net growth including China is still positive and supportive for raw material demand. (See “Global Metals Playbook – 4Q10:”, Peter Richardson et al.).

They expect the combination of modest growth and continued supply constraints will be reflected in falling inventories and strengthening prices for preferred metals including copper and nickel. They are more cautious on those metals with they forecast market surplus over the 2010-2012 period including aluminum.

Aluminum: Our commodity team has increased its 4Q10e aluminum price forecast to $0.98 per lb from $0.94 and 2011e to $0.98 per lb from $0.96 previously. Revised price forecasts are 8% below spot prices, which have rallied to $1.06 per lb. Our colleagues remain cautious on aluminum fundamentals, and expect pricing to remain caught between excess supply and support from costs and possibly a physical metal backed investment product.

The possibility of a physically backed aluminum investment product contributed to the price rally. In our commodity team’s view, financial support from inventory financing deals is transitioning to physically backed aluminum investment products in 4Q10 or 1H11. While these will provide a price tensioning impact by limiting physical availability, they defer the necessity of eliminating excess capacity.

Copper: Copper has continued to move higher, defying traditionally weak 3Q inventory and pricing trends. Our commodity team believes the supply/demand fundamentals in copper remain the strongest in the metals complex. Our commodity team has increased our 2010e price forecast by 3% to $3.30, 2011e price forecast by 5% to $3.60 per lb and 2012e by 10% to $3.80 per lb.

LME stocks have fallen every month since February, including a rare drop in August, a month in which inventory almost always rises. Shanghai exchange stocks ended 3Q at their lowest level of the year. While the sustained recovery in global demand contributed to this trend, tighter market conditions are primarily a factor of supply constraints.

Exhibit 24 Changes to EPS Estimates

2010E 2011E 2012EAlcoa (AA.N, $13, Overweight, Target $22)ModelWare EPS ($) 0.53 1.10 1.70 Prior ModelWare EPS ($) 0.53 1.10 1.70 Consensus EPS ($)§ 0.48 1.04 1.32

Century Aluminum (CENX.O, $14, Equal-weight, PT NA)ModelWare EPS ($) 0.60 0.65 1.70 Prior ModelWare EPS ($) 0.60 0.65 1.40 Consensus EPS ($)§ 0.62 0.66 1.26

Noranda Aluminum (NOR.N, $10, Overweight, PT 11)ModelWare EPS ($) 0.69 0.85 1.95 Prior ModelWare EPS ($) 0.69 0.85 1.80 Consensus EPS ($)§ 0.66 1.19 1.46

Freeport-McMoRan (FCX.N, $96, Equal-weight, PT NA)ModelWare EPS ($) 8.11 9.50 10.00 Prior ModelWare EPS ($) 7.50 8.25 8.55 Consensus EPS ($)§ 7.64 8.85 9.33

Source: Company data, Factset, Morgan Stanley Research

Adjusting NOR earnings estimates to reflect revised aluminum price forecast. We have maintained our 2010 and 2011 earnings estimate at $0.69 and 0.85, respectively, offsetting the increased aluminum price forecast with higher costs. We raised 2012 to $1.95 from $1.80 due to $0.05 lift in our aluminum price forecast.

Exhibit 25 Our NOR EPS Estimate For 3Q10e Vs 2Q10 Earnings Bridge

(0.14)(0.03) (0.02)

(0.09) 0.08

0.35

0.00 0.01

2Q10EPS

3Q10eEPS

Lower alu

minum price

Lower alu

mina pric

e

Downstrea

m

Higher Power

Costs

LME-linke

d causti

c

Natural

gas co

sts

Other en

ergy c

osts


11



Adjusting CENX estimates on revised aluminum price forecast as well as other updates provided by the management. We have maintained our 2011 earnings estimate at $0.65 as higher costs offset the increased aluminum price forecast. Further out, we raised 2012 to $1.70 from $1.40 due to higher aluminum price forecast. CENX expects construction of Helguvik smelter to start in 2H10. We have modeled 30kt tons from Helguvik in 2012.

Exhibit 26 Our EPS Estimate For CENX For 3Q10e Vs 2Q10 Earnings Bridge

(0.22)

0.05

0.19

0.06 0.02

2Q10 EPS 3Q10e EPS

Lower aluminumprice

Lower aluminacosts

Lower powercosts


Raising FCX estimates on a higher copper price forecast. As a result, we have lifted our 2010 estimate to $8.11 from $7.50 previously, 2011 to $9.50 from $8.25 and 2012 to $10.00 from $8.55. Our earnings estimates are based on copper, gold and molybdenum production guidance provided by the company for 2010-12. The company has beaten its own production guidance in every quarter since 4Q08 by an average 8%. At the current copper price of $3.70/lb, the company can be net cash in 2011.

Exhibit 27 LME Inventory Summary

Copper Aluminum Zinc Nickel2010e Market Size, kT 18,770 38,080 11,670 1,437

Inventory, T 372,000 4,331,600 611,725 123,222 Change in Inventory, WoW% -0.5% -0.5% -0.7% -0.3%

Inventory as weeks of Consumption 1.0 5.9 2.7 4.5 Canceled Warrants, T 22,725 231,500 43,950 4,062

Canceled Warrants/Mkt Size, x1000 1.21 6.08 3.77 2.83 Trailing 13 week Inventory Chg, T/week (4,992) (5,108) (369) 197 Inventory Chg rate/Market Size, x1000 (0.27) (0.13) (0.03) 0.14

Source: Bloomberg, Morgan Stanley Research

Gold

KEY INDICATORS

Spot gold rose 2% to $1345 per oz.

10 yr Break-even yield rose 11 bp.

DXY fell 2.5% WoW.

Gold had a volatile week, but ended the week strong. Gold fell $13 following the news that Anglogold had completed the unwinding of the hedge book. In Dec 2009, when Barrick announced completion of de-hedging, gold fell about $100/oz. Gold may go through a similar soft phase in the near-term, but we think losses would be lower than in 2009 due to continued speculation about further QE in the US. In addition to the gold price, we think gold equities may prove dependent on the broader market. Since the beginning of the year, beta for gold shares has increased significantly.

Exhibit 28 Beta of Gold Equities Has Risen to ~1.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

Jan-

00Ju

l-00

Jan-

01Ju

l-01

Jan-

02Ju

l-02

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10Ju

l-10

52 w

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rolli

ng b

eta,

wee

kly

retu

rns

-

200

400

600

800

1,000

1,200

1,400

1,600

S&

P 5

00

HUI Beta relative to SP500

SP 500


MS Economics team expects the Fed to implement additional quantitative easing. MS economics team expects the FOMC to restart an asset purchasing program at the November meeting. Our team believes the Fed is not satisfied with the slow increase in inflation and the Fed Chairman seems to feel the Fed needs to do something at this point to address deflation tail risk. See “Restarting Asset Purchases: Some Details” by Richard Berner & David Greenlaw, October 6. Our team thinks that based on signals provided by several officials, it looks like the Fed is converging on a flexible approach that will involve a specified amount of buying (perhaps $100 bn) that would occur prior to the December FOMC meeting, with the provision for the amount to be raised or reduced at future meetings.

12



Exhibit 29 Last Seven Days’ Performance

COAL

CloudArch

PeabodyConsol

WalterAlpha

PatriotNat Gas Spot

CAPP Coal SpotKOL ETF

S&P 500

-30% -20% -10% 0% 10% 20% 30%

Absolute Performance (Last 7 Calendar Days, %)

METALS

CenturyAlcoa

FreeportNoranda

CopperAluminum

Metals Index

-30% -20% -10% 0% 10% 20% 30%Absolute Performance (Last 7 Calendar Days, %)

STEEL

Steel DynamicsMetals USACMC

NucorSchnitzerAK SteelCliffs

US SteelSteel Index

-30% -20% -10% 0% 10% 20% 30%


GOLD

NewmontKinrossGoldcorp

BarrickUSD/EURGold

Precious Index

(30%) (20%) (10%) 0% 10% 20% 30%Absolute Performance (Last 7 Calendar Days, %)

Note: Commodity prices as of Thursday’s close, Equities and FX as of Friday’s close Source: FactSet, Bloomberg, Morgan Stanley Research

Exhibit 30 Year-to Date Performance

COAL

ConsolPatriot

AlphaWalterPeabody

ArchCloud

Nat Gas SpotCAPP Coal Spot

KOL ETFS&P 500

-60% -40% -20% 0% 20% 40% 60%

Absolute Performance (Last 7 Calendar Days, %)METALS

AlcoaCentury

FreeportCopper

AluminumMetals Index

-60% -40% -20% 0% 20% 40% 60%Absolute Performance (Last 7 Calendar Days, %)

STEEL

AK SteelSteel Dynamics

US SteelNucor

CMCSchnitzer

CliffsSteel Index

-60% -40% -20% 0% 20% 40% 60%


GOLD

KinrossGoldcorp

BarrickNewmont

USD/EURGold

Precious Index

(60%) (40%) (20%) 0% 20% 40% 60%Absolute Performance (Year to Date, %)

Note: Commodity prices as of Thursday’s close, Equities and FX as of Friday’s close Source: FactSet, Bloomberg, Morgan Stanley Research

Exhibit 31 Price Target Methodology & Key Risks Ticker Price Target Valuation Methodology Key Risks

Delays in modernization plans or in securing the key land use permit, failure in commercialization of certain products, compression of downstream margins, changes in Chinese policy, capex and/or operating costs higher than our estimates.

MCP $27 Our price target is based on DCF using the last-6-month average REO prices over the life of mine at 12% discount rate.

ACI $32

$62

NOR $11

CLD $19

Weaker than expected Chinese imports; delayed ramp up of key Australian port expansions; weaker nat gas prices; tougher environmental regulations; higher Australian taxes; more modest recovery in US power demand.

Based on 6.8x 2011e EBITDA, slightly below Peabody's average historical multiple and at a premium to US producers, which we believe is warranted given its Australian and US growth potential on top tier reserve profile.

BTU $54

Based on 6.5x 2011e EBITDA and supported by our DCF and Residual Income valuations. Our target multiple is consistent with Arch's historical trading range and represents a premium to peers that we believe is appropriate given Arch's low cost position, size and anticipated volume growth.

More modest recovery in US power demand; weakening demand for US high-vol met coal; slower recovery in mine operating rates; lackluster demand for PRB coal; weak natural gas prices; extended Western Bit longwall mine outages; tougher environmental regulations.

More modest recovery in US power demand; rising mining and LBA-reserve costs; excess PRB supply; delays or changes to the PRB coal leasing process; rail disruptions; tougher environmental regulation

STLD $20Based on 5x 2011e EBITDA (this multiple is consistent with the average historical forward multiple for STLD shares), averaged with a DCF analysis, assuming a WACC of 9.7% and a long-term growth rate of 3%.

As a high beta name, the stock is vulnerable to a broad market sell-off. Overcapacity in the US market could limit pricing. Imports may tick up as struggling international competitors attempt to dump steel.

Risks to our price target include a weaker than expected pickup in manufacturing demand, and a potential resurgance of imports.

Higher than expected power costs; labor/production disruptions; rate of US/global economic growth; potential aluminum price weakness; weak USD impact on non-US costs; idled capacity restarts; greater than expected Chinese aluminum production

AA $22 Based on 13x our normalized EPS estimate of $1.70, implying a 4.7% RoA, 50bp higher than the last 15-year average to give credit for restructuring, capital spending and cost cutting.

Key risks include the rate of US and global economic growth, potential ali price weakness, continued cost inflation, a weak USD, idled capacity restarts, and greater-than-expected aluminum production in China.

Based on DCF at current aluminum futures curve at 9.6% WACC and 0% terminal growth rate

Deflationary concerns dominate investor consideration of gold; broad preference for direct over equity exposure to gold; gold price profile significantly lower than our base case; key projects required to maintain production outlook are delayed; operating costs rise more than expected.

ABX $46 Based on 13x one-year-forward P/CF multiple, consistent with ABX’s historical average trading multiple, applied to 2010e cash flow from operations per share (CFPS), of $3.60.

Based on 5.0x 2011e EBITDA and supported by our DCF and Residual Income valuations. Our target multiple reflects an adequate discount to peers that, in our view, reflects Cloud's ownership overhang, pure-play PRB status and limited near-term volume growth expectations

Based on 5.2x EV/EBITDA multiple on our 2011 estimate. This multiple is a slight premium to the 5-year median forward EV/EBITDA multiple of 4.8x, but we think appropriate given US Steels suprior raw material position.

X

Risks include a sponsor overhang: Apollo owns 65% of MUSA. In addition, high leverage could limit growth. Restrictive covenants limit borrowing capacity, and the company's growth strategy depends on sufficient liquidity.

MUSA $22 Based on 11x our 2011 EPS estimate of $2.02 The multiple represents a slight discount to a normalized Reliance Steel and Aluminum multiple, Metals USA’s closest peer.

Source: Morgan Stanley Research

13



Exhibit 32 North American Metals & Mining Comps Table

Price10/8/2010 2010 2011 2012 2010 2011 2012

18.9 11.0 10.1AA Alcoa Overweight $12.89 $0.50 $1.08 $1.32 26.0 11.9 9.7CENX Century Aluminum Equal-Weight $13.99 $0.65 $1.11 $1.29 21.7 12.6 10.8NOR Noranda Aluminum Overweight $10.08 $0.65 $1.20 $1.43 15.6 8.4 7.1FCX Freeport-McMoran Equal-Weight $95.51 $7.65 $8.75 $8.98 12.5 10.9 10.6MCP Molycorp Overweight $26.76 ($0.46) ($0.42) $2.23 NM NM 12.0

24.0 20.1 18.7ABX Barrick Gold Overweight $48.57 $3.13 $3.38 $3.39 15.5 14.4 14.3GG Goldcorp Inc. Equal-Weight $44.05 $1.29 $1.78 $2.07 34.0 24.8 21.3KGC Kinross Gold Corp. Equal-Weight $19.00 $0.64 $0.74 $0.83 29.5 25.7 22.8NEM Newmont Mining Equal-Weight $62.89 $3.72 $4.01 $3.88 16.9 15.7 16.2

14.6 9.7 8.1ANR Alpha Natural Res. Equal-Weight $45.05 $3.06 $4.73 $6.03 14.7 9.5 7.5ACI Arch Coal Overweight $26.59 $1.10 $2.57 $3.80 24.2 10.3 7.0CLF Cliffs Natural Res. Equal-Weight $69.18 $8.03 $9.61 $10.05 8.6 7.2 6.9CLD Cloud Peak Overweight $18.48 $1.59 $1.75 $2.25 11.7 10.6 8.2CNX Consol Energy Equal-Weight $39.41 $2.48 $3.72 $5.07 15.9 10.6 7.8PCX Patriot Underweight $13.61 ($1.60) ($0.35) $1.37 NM NM 9.9BTU Peabody Overweight $51.76 $3.04 $4.56 $5.52 17.0 11.3 9.4WLT Walter Industries Equal-Weight $85.67 $8.23 $10.40 $10.77 10.4 8.2 8.0

19.5 11.6 8.3AKS AK Steel Equal-Weight $14.48 $0.10 $1.18 $1.68 NM 12.3 8.6CMC Commercial Metals Equal-Weight $14.93 ($1.51) $1.21 $1.98 NM 12.4 7.5MUSA Metals USA Overweight $12.99 $0.60 $1.40 $1.74 21.8 9.3 7.5NUE Nucor Equal-Weight $39.92 $0.77 $2.68 $4.17 NM 14.9 9.6SCHN Schnitzer Steel Underweight $49.87 $2.77 $4.12 $5.19 18.0 12.1 9.6STLD Steel Dynamics Overweight $14.65 $0.79 $1.48 $2.20 18.6 9.9 6.7X US Steel Overweight $45.92 $0.32 $4.48 $5.39 NM 10.3 8.5"Pens-Adj" = Enterprise Value and MS EBITDA adjusted for Pension and OPEB "ASIF" = As-Stated-in-Financials, excluding Pension and OPEB ASIF presented because we believe it is most comparable to consensus

2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 20128.1 6.7 4.8 7.6 6.4 4.6 7.4 5.5 5.2

AA Alcoa 29,597 25,573 3326 4474 5452 2994 4132 5101 2729 3732 4222 8.9 6.6 5.4 8.5 6.2 5.0 9.4 6.9 6.1CENX Century Aluminum 1,555 1,400 120 147 315 123 143 310 153 233 279 13.0 10.5 4.9 11.4 9.8 4.5 9.1 6.0 5.0NOR Noranda Aluminum 992 992 194 204 305 194 204 305 178 234 259 5.1 4.9 3.2 5.1 4.9 3.2 5.6 4.2 3.8FCX Freeport-McMoran 46,986 46,986 9075 10098 10493 9075 10098 10493 8559 9287 9506 5.2 4.7 4.5 5.2 4.7 4.5 5.5 5.1 4.9MCP Molycorp 1,881 1,881 (24) (9) 316 (56) (9) 316 (31) (2) 303 NM NM 6.0 NM NM 6.0 NM NM 6.2

10.5 9.9 9.9 10.5 9.9 9.9 10.4 8.8 8.4ABX Barrick Gold 52,298 52,298 5642 5271 5110 5642 5271 5110 5884 6298 6271 9.3 9.9 10.2 9.3 9.9 10.2 8.9 8.3 8.3GG Goldcorp Inc. 33,463 33,463 1938 2206 2377 1938 2206 2377 1991 2580 2898 17.3 15.2 14.1 17.3 15.2 14.1 16.8 13.0 11.5KGC Kinross Gold Corp. 12,291 12,291 1369 1465 1484 1371 1465 1484 1338 1653 1777 9.0 8.4 8.3 9.0 8.4 8.3 9.2 7.4 6.9NEM Newmont Mining 32,636 32,636 5102 5231 4685 5102 5231 4685 4785 4968 4823 6.4 6.2 7.0 6.4 6.2 7.0 6.8 6.6 6.8

7.1 5.6 4.4 7.2 5.5 4.2 7.0 5.1 4.3ANR Alpha Natural Res. 5,700 5,294 931 1243 1430 899 1212 1401 917 1210 1433 6.1 4.6 4.0 5.9 4.4 3.8 5.8 4.4 3.7ACI Arch Coal 5,907 5,847 707 1079 1429 702 1076 1427 722 1043 1277 8.4 5.5 4.1 8.3 5.4 4.1 8.1 5.6 4.6CLF Cliffs Natural Res. 9,926 9,663 2243 2446 2734 2128 2434 2724 1891 2257 2295 4.4 4.1 3.6 4.5 4.0 3.5 5.1 4.3 4.2CLD Cloud Peak 1,403 1,403 310 304 346 310 304 346 318 330 377 4.5 4.6 4.1 4.5 4.6 4.1 4.4 4.3 3.7CNX Consol Energy 14,593 12,507 1735 2130 2717 1494 1881 2459 1508 2059 2511 8.4 6.9 5.4 8.4 6.7 5.1 8.3 6.1 5.0PCX Patriot 2,213 1,401 217 271 454 122 176 358 138 278 481 10.2 8.2 4.9 11.4 8.0 3.9 10.2 5.0 2.9BTU Peabody 15,597 14,907 1901 2478 3129 1828 2410 3066 1820 2387 2787 8.2 6.3 5.0 8.2 6.2 4.9 8.2 6.2 5.3WLT Walter Industries 4,683 4,344 759 1006 1117 710 957 1069 755 927 948 6.2 4.7 4.2 6.1 4.5 4.1 5.8 4.7 4.6

9.4 5.3 4.3 9.6 5.0 4.0 8.5 5.4 4.5AKS AK Steel 3,137 1,946 361 643 716 277 592 673 301 446 541 8.7 4.9 4.4 7.0 3.3 2.9 6.5 4.4 3.6CMC Commercial Metals 2,624 2,624 55 584 835 55 584 835 61 475 599 NM 4.5 3.1 NM 4.5 3.1 NM 5.5 4.4MUSA Metals USA 774 774 90 154 175 85 154 175 92 136 156 8.6 5.0 4.4 9.1 5.0 4.4 8.4 5.7 5.0NUE Nucor 14,091 14,091 1133 2445 3311 1133 2445 3311 1203 2248 2927 12.4 5.8 4.3 12.4 5.8 4.3 11.7 6.3 4.8SCHN Schnitzer Steel 1,456 1,456 177 250 271 177 250 271 181 251 300 8.2 5.8 5.4 8.2 5.8 5.4 8.0 5.8 4.9STLD Steel Dynamics 5,518 5,518 630 1023 1281 630 1023 1281 667 981 1198 8.8 5.4 4.3 8.8 5.4 4.3 8.3 5.6 4.6X US Steel 11,861 9,107 1201 2127 2741 742 1833 2465 1090 1890 2122 9.9 5.6 4.3 12.3 5.0 3.7 8.4 4.8 4.3"Pens-Adj" = Enterprise Value and MS EBITDA adjusted for Pension and OPEB "ASIF" = As-Stated-in-Financials, excluding Pension and OPEB ASIF presented because we believe it is most comparable to consensus

Net Debt to P/Tang.Cap, 2010YE Bk, 2010YE 2010 2011 2012 2010 2011 2012

5% 11% 14%AA Alcoa 33% e 1.7 $0.48 $1.63 $1.74 4% 13% 13%CENX Century Aluminum 5% e 1.3 $0.23 $1.46 $2.23 2% 10% 16%NOR Noranda Aluminum 73% e -20.6 NA NA NA NA NA NAFCX Freeport-McMoran 9% e 3.7 $9.33 $10.72 $12.01 10% 11% 13%MCP Molycorp 280% e 5.4 NA NA NA NA NA NA

2% 3% 2%ABX Barrick Gold 14% e 3.9 $1.21 $2.05 $1.81 2% 4% 4%GG Goldcorp Inc. 1% e 2.1 ($0.67) $0.73 $0.66 (2%) 2% 1%KGC Kinross Gold Corp. 1% e 2.5 $0.26 $0.41 $0.27 1% 2% 1%NEM Newmont Mining 3% e 2.5 $3.07 $2.81 $1.71 5% 4% 3%

3% 9% 14%ANR Alpha Natural Res. 1% e 2.7 $2.90 $4.32 $5.21 6% 10% 12%ACI Arch Coal 41% e 2.0 $1.92 $3.23 $4.59 7% 12% 17%CLF Cliffs Natural Res. 1% e 2.6 $6.84 $8.77 $9.35 10% 13% 14%CLD Cloud Peak 38% e 2.1 $1.45 $1.72 $2.59 8% 9% 14%CNX Consol Energy 53% e 2.8 ($5.48) $2.41 $3.40 (14%) 6% 9%PCX Patriot 20% e 1.3 ($0.66) $0.14 $2.05 (5%) 1% 15%BTU Peabody 19% e 3.2 $2.63 $4.29 $6.07 5% 8% 12%WLT Walter Industries 26% e 7.6 $7.46 $9.40 $17.80 9% 11% 21%

(0%) 7% 11%AKS AK Steel 34% e 2.0 NA NA NA NA NA NACMC Commercial Metals 47% e 1.5 ($0.49) $1.47 $1.75 (3%) 10% 12%MUSA Metals USA 59% e 3.4 $0.15 $1.01 $1.76 1% 8% 14%NUE Nucor 19% e 2.9 $0.43 $3.15 NA 1% 8% NASCHN Schnitzer Steel 5% e 2.4 $1.87 $4.71 $5.34 4% 9% 11%STLD Steel Dynamics 51% e 4.1 $1.02 $1.25 $1.39 7% 9% 9%X US Steel 35% e 3.2 ($4.45) ($1.02) NA (10%) (2%) NA"Pens-Adj" = Enterprise Value and MS EBITDA adjusted for Pension and OPEB "ASIF" = As-Stated-in-Financials, excluding Pension and OPEB ASIF presented because we believe it is most comparable to consensus

(12%) (16%) 24%

1%(0%)

0%2%

$6.08 4%9%

14%

$0.70 $1.80 $2.15 18.5

14%13%

7%

9%7%

14%13%17%

10%13%4%

15%

5%12%14%10%

9%10%

(1%)

16%

10%

2%3%3%

(2%)

8%2%

12%3%

17%

7%10%(9%)11%

11%

4%5%2%2%6%8%

11%11%

1%13%7%

8%

3%

(3%)

(8%)

(8%)9%9%

(8%)

4%7%

12%6%

4%

2%2%5%4%5%

8%3%6%

5%

2010 2011

10.86.06.1

21.1

2012

6.7

8.58.3

11.48.09.5

13.88.3

6.6

5.8

6.96.9

8.3

20128.67.68.2

23.419.5

12.5

21.39.5

29.323.6

7.86.6

11.2

31.5

201018.624.5

201113.811.821.5

17.022.9

23.4

11.8

15.937.6

25.2

14.7

25.9

19.6

17.010.3

19.2

14.8

11.9

NM

9.710.0

NM

MS EV/EBITDA, Pens-Adj MS EV/EBITDA (ASIF)

NM19.5

8.410.1

4.8

7.76.0

12.0

7.2

$2.00

2012

$1.29 e$2.30 e

$9.24 e

$1.47$1.47($0.23)$2.93

$1.10

$6.19$2.59 e

$1.80 e$5.27 e

$10.12

$3.36

$3.11

$0.58$7.23

$12.03 e

$2.50

$3.41

$1.35$1.72

30.017.2

15.324.3

11.916.6NM17.1

($0.32)

$3.10$1.18

($2.13)

($1.20)$5.61

$10.04 e

$2.48

$5.02$2.86 e

$1.26 e$4.04 e

$7.43

$0.19($0.07)

2011

$1.67 e$0.97 e

$8.04 e

$2.31$0.91$0.33$3.48

($1.26)

$0.07$1.07

($1.54)

($1.02)$4.41

$7.98 e

($1.11)

$1.69$1.78 e

$2.23 e$2.51 e

$2.46

$0.77$0.76$0.93$2.40

$2.45$7.50

Current EV, ASIF

$0.75$0.09

$11.83

$5.75$4.00

$2.85$1.40$0.73$3.70

$3.10

$5.15$4.60

$0.65$6.26$12.38

$2.20

$1.65$4.77

$2.50$1.50$0.80$2.95

2012

$1.70$1.70

$10.00$1.95

$3.15($1.17)$4.53

$3.35

$2.94$1.09

$1.55

2011

$1.10$0.65

$9.50

$10.36$1.34

$3.05$1.17$0.63$3.67

Steel & Ferrous

Gold

Coal

Coal

Steel & Ferrous

Consensus PE

Gold

Coal

Steel & Ferrous

$2.38($1.77)$3.03$7.71

$4.63$2.65

North America Metals & Mining MS PE

North America Metals & Mining

11.1

NM

Stock Rating Cons EPSMS EPS2010

$0.16

$5.22 e

Non-ferrous$0.53$0.60

$8.11

Current EV, Pension-Adj

Non-ferrous

Non-ferrous

North America Metals & Mining MS FCF/Shr2010

Consensus FCF YieldCons FCF/Shr MS FCF Yield

($1.46)

$0.68$2.55

$1.75

$4.15$1.75$4.55

Cons EV/EBITDA (ASIF)

Gold

7.6

NM

Cons EBITDA, ASIFMS EBITDA, Pens-Adj MS EBITDA, ASIF

$9.16

(15%) 2%

($0.44) ($0.19) $2.16 NM

$10.75

$1.75

$0.36 e$0.80 e

($1.86) ($3.98) $0.67 (7%)

NM 12.49.510.1

11.9 5.2

$3.12 e ($0.71) e $0.66 e 31% (7%) 7%

$0.69 $0.85

Source: FactSet, Morgan Stanley Research

14



Exhibit 33 Commodity Price and Inventory Charts

Last 18 M 32.4% 64.3% (4.2%) 91.7% 15.1% 133.6% 74.7% 74.4% 51.3% 45.7% 66.2% 1.5% 32.8% 15.4% 19.5% 26.5% 25.5% 141.8% 79.2% 5.7%Last 12 M 0.3% 30.7% 10.4% 36.7% 1.5% 38.7% 40.6% 21.9% 28.0% 29.3% 15.2% (25.9%) 22.8% 45.3% 25.3% 30.1% 27.3% 68.9% 50.8% 23.3%Last 6 M (3.5%) 0.8% (28.1%) 4.5% (21.2%) 0.7% 12.2% (3.7%) 16.0% (0.4%) (4.9%) (10.0%) 8.6% 11.9% 11.1% 0.2% (4.1%) (10.6%) (6.2%) 5.7%Last 3 M (1.5%) 18.5% (16.2%) 24.4% 1.4% 28.0% (0.7%) 25.8% 11.3% 11.9% 8.3% (17.8%) (1.6%) 8.1% 1.1% 0.5% 10.0% 17.2% 19.9% (7.5%)

Chinese Coke

Aluminum Exchange

Inventories

Copper Exchange

InventoriesNickel LME Inventories

Zinc LME InventoriesAluminum Copper Nickel GoldZinc Platinum CAPP Prompt

NYMEX Nat GasNYMEX Crude

Iron Ore 62% Fines CFR

ChinaPRB Coal

Iron Ore Fines China

DomesticEuropean

Thermal CoalS. African

Thermal CoalChinese HRC

Steel

Aluminum LME Spot ($/lb)

$1.06

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10

Copper LME Spot ($/lb)$3.75

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50


Nickel LME Spot ($/lb)$11.22

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00


Zinc LME Spot ($/lb)

$1.04

$0.50$0.60$0.70$0.80$0.90$1.00$1.10$1.20$1.30


Platinum ($/oz)

$1,700

$1,000$1,100$1,200$1,300$1,400$1,500$1,600$1,700$1,800


Gold ($/oz)

$1,334

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,400


Aluminum Exchange Inventories (MT)from bottom, LME, Comex, SME)

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

5,500,000


Copper Exchange Inventories (MT)from bottom, LME, Comex, SME)

250,000

350,000

450,000

550,000

650,000

750,000

850,000

950,000


Nickel LME Inventories (MT)

75,000

100,000

125,000

150,000

175,000


Zinc LME Inventories (MT)

100,000

200,000

300,000

400,000

500,000

600,000

700,000


Central App Prompt NYMEX Coal Spot ($/ton)

$62

$40

$50

$60

$70

$80


Powder River Basin Coal Spot ($/ton)

$14.27

$8

$10

$12

$14

$16

$18


Nat Gas (NYMEX, $/mmBtu)

$3.62

$2.00$2.50$3.00$3.50$4.00$4.50$5.00$5.50$6.00$6.50


Chinese 2nd Grade Coke for Export FOB ($/tonne)

$370

$200

$300

$400

$500


Crude Oil (NYMEX, $/bbl) $82

$40

$50

$60

$70

$80

$90


European Delivered Thermal Coal (API2, $/tonne)$100

$70

$80

$90

$100

$110


South African Landed Thermal Coal (API4, $/tonne)$95

$60

$70

$80

$90

$100

$110


Chinese Domestic Hot Rolled Coil Steel ($/tonne)

$639

$400

$500

$600

$700

$800


Iron Ore 62% Fines CFR China ($/tonne)

$144

$50

$75

$100

$125

$150

$175

$200


Iron Ore Domestic Chinese Fines ($/tonne)

$181

$75

$100

$125

$150

$175

$200

$225


Note: Prices as of Thursday’s close; Source: Bloomberg, Morgan Stanley Research

15



Disclosure Section The information and opinions in Morgan Stanley Research were prepared by Morgan Stanley & Co. Incorporated, and/or Morgan Stanley C.T.V.M. S.A. As used in this disclosure section, "Morgan Stanley" includes Morgan Stanley & Co. Incorporated, Morgan Stanley C.T.V.M. S.A. and their affiliates as necessary. For important disclosures, stock price charts and equity rating histories regarding companies that are the subject of this report, please see the Morgan Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY, 10036 USA. Analyst Certification The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Mark Liinamaa. Unless otherwise stated, the individuals listed on the cover page of this report are research analysts. Global Research Conflict Management Policy Morgan Stanley Research has been published in accordance with our conflict management policy, which is available at www.morganstanley.com/institutional/research/conflictpolicies. Important US Regulatory Disclosures on Subject Companies As of September 30, 2010, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan Stanley Research: AK Steel Holding Corp., Alcoa Inc., Arch Coal Inc., Consol Energy Inc, Nucor Corporation, Patriot Coal Corporation, Schnitzer Steel Industries, US Steel Corporation, Walter Energy Inc.. Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of AK Steel Holding Corp., Alcoa Inc., Arch Coal Inc., Barrick Gold Corporation, Cloud Peak Energy Inc., Metals USA Holdings Corp., Molycorp, Inc., Noranda Aluminum Holding Corp, Peabody Energy Corp., Steel Dynamics, US Steel Corporation. Within the last 12 months, Morgan Stanley has received compensation for investment banking services from AK Steel Holding Corp., Alcoa Inc., Arch Coal Inc., Barrick Gold Corporation, Cloud Peak Energy Inc., Freeport-McMoRan, Goldcorp Inc., Kinross Gold Corp., Metals USA Holdings Corp., Molycorp, Inc., Newmont Mining Corp., Noranda Aluminum Holding Corp, Nucor Corporation, Patriot Coal Corporation, Peabody Energy Corp., Steel Dynamics, US Steel Corporation, Walter Energy Inc.. In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from AK Steel Holding Corp., Alcoa Inc., Alpha Natural Resources, Inc., Arch Coal Inc., Barrick Gold Corporation, Century Aluminum, Cliffs Natural Resources, Freeport-McMoRan, Goldcorp Inc., Kinross Gold Corp., Metals USA Holdings Corp., Molycorp, Inc., Newmont Mining Corp., Noranda Aluminum Holding Corp, Nucor Corporation, Patriot Coal Corporation, Peabody Energy Corp., Steel Dynamics, US Steel Corporation, Walter Energy Inc.. Within the last 12 months, Morgan Stanley has received compensation for products and services other than investment banking services from AK Steel Holding Corp., Alcoa Inc., Barrick Gold Corporation, Century Aluminum, Goldcorp Inc., Kinross Gold Corp., Peabody Energy Corp., US Steel Corporation. Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the following company: AK Steel Holding Corp., Alcoa Inc., Alpha Natural Resources, Inc., Arch Coal Inc., Barrick Gold Corporation, Century Aluminum, Cliffs Natural Resources, Cloud Peak Energy Inc., Freeport-McMoRan, Goldcorp Inc., Kinross Gold Corp., Metals USA Holdings Corp., Molycorp, Inc., Newmont Mining Corp., Noranda Aluminum Holding Corp, Nucor Corporation, Patriot Coal Corporation, Peabody Energy Corp., Steel Dynamics, US Steel Corporation, Walter Energy Inc.. Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following company: AK Steel Holding Corp., Alcoa Inc., Arch Coal Inc., Barrick Gold Corporation, Century Aluminum, Cliffs Natural Resources, Consol Energy Inc, Freeport-McMoRan, Goldcorp Inc., Kinross Gold Corp., Newmont Mining Corp., Peabody Energy Corp., Steel Dynamics, US Steel Corporation. Morgan Stanley & Co. Incorporated makes a market in the securities of AK Steel Holding Corp., Alcoa Inc., Alpha Natural Resources, Inc., Arch Coal Inc., Barrick Gold Corporation, Century Aluminum, Cliffs Natural Resources, Cloud Peak Energy Inc., Commercial Metals Company, Consol Energy Inc, Freeport-McMoRan, Goldcorp Inc., Kinross Gold Corp., Metals USA Holdings Corp., Molycorp, Inc., Newmont Mining Corp., Noranda Aluminum Holding Corp, Nucor Corporation, Patriot Coal Corporation, Peabody Energy Corp., Schnitzer Steel Industries, Steel Dynamics, US Steel Corporation, Walter Energy Inc.. The equity research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. Morgan Stanley and its affiliates do business that relates to companies/instruments covered in Morgan Stanley Research, including market making, providing liquidity and specialized trading, risk arbitrage and other proprietary trading, fund management, commercial banking, extension of credit, investment services and investment banking. Morgan Stanley sells to and buys from customers the securities/instruments of companies covered in Morgan Stanley Research on a principal basis. Morgan Stanley may have a position in the debt of the Company or instruments discussed in this report. Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions. STOCK RATINGS Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below). Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold and sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In addition, since Morgan Stanley Research contains more complete information concerning the analyst's views, investors should carefully read Morgan Stanley Research, in its entirety, and not infer the contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Global Stock Ratings Distribution (as of September 30, 2010) For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings of Overweight, Equal-weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively.

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Coverage Universe Investment Banking Clients (IBC)

Stock Rating Category Count % of Total Count

% of Total IBC

% of Rating Category

Overweight/Buy 1115 42% 394 43% 35%Equal-weight/Hold 1146 43% 413 45% 36%Not-Rated/Hold 14 1% 4 0% 29%Underweight/Sell 381 14% 99 11% 26%Total 2,656 910 Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in the last 12 months. Analyst Stock Ratings Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Not-Rated (NR). Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months. Analyst Industry Views Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the relevant broad market benchmark, as indicated below. In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant broad market benchmark, as indicated below. Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad market benchmark, as indicated below. Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index. . Important Disclosures for Morgan Stanley Smith Barney LLC Customers Citi Investment Research & Analysis (CIRA) research reports may be available about the companies or topics that are the subject of Morgan Stanley Research. Ask your Financial Advisor or use Research Center to view any available CIRA research reports in addition to Morgan Stanley research reports. Important disclosures regarding the relationship between the companies that are the subject of Morgan Stanley Research and Morgan Stanley Smith Barney LLC, Morgan Stanley and Citigroup Global Markets Inc. or any of their affiliates, are available on the Morgan Stanley Smith Barney disclosure website at www.morganstanleysmithbarney.com/researchdisclosures. For Morgan Stanley and Citigroup Global Markets, Inc. specific disclosures, you may refer to www.morganstanley.com/researchdisclosures and https://www.citigroupgeo.com/geopublic/Disclosures/index_a.html. Each Morgan Stanley Equity Research report is reviewed and approved on behalf of Morgan Stanley Smith Barney LLC. This review and approval is conducted by the same person who reviews the Equity Research report on behalf of Morgan Stanley. This could create a conflict of interest. Other Important Disclosures Morgan Stanley & Co. International PLC and its affiliates have a significant financial interest in the debt securities of Alcoa Inc., Arch Coal Inc., Barrick Gold Corporation, Cliffs Natural Resources, Commercial Metals Company, Consol Energy Inc, Freeport-McMoRan, Goldcorp Inc., Kinross Gold Corp., Newmont Mining Corp., Nucor Corporation, Patriot Coal Corporation, Peabody Energy Corp., Steel Dynamics, US Steel Corporation, Walter Energy Inc.. Morgan Stanley produces an equity research product called a "Tactical Idea." Views contained in a "Tactical Idea" on a particular stock may be contrary to the recommendations or views expressed in research on the same stock. This may be the result of differing time horizons, methodologies, market events, or other factors. For all research available on a particular stock, please contact your sales representative or go to Client Link at www.morganstanley.com. Morgan Stanley Research does not provide individually tailored investment advice. Morgan Stanley Research has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. The securities, instruments, or strategies discussed in Morgan Stanley Research may not be suitable for all investors, and certain investors may not be eligible to purchase or participate in some or all of them. The fixed income research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various factors, including quality, accuracy and value of research, firm profitability or revenues (which include fixed income trading and capital markets profitability or revenues), client feedback and competitive factors. Fixed Income Research analysts' or strategists' compensation is not linked to investment banking or capital markets transactions performed by Morgan Stanley or the profitability or revenues of particular trading desks. Morgan Stanley Research is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading strategy. The "Important US Regulatory Disclosures on Subject Companies" section in Morgan Stanley Research lists all companies mentioned where Morgan Stanley owns 1% or more of a class of common equity securities of the companies. For all other companies mentioned in Morgan Stanley Research, Morgan Stanley may have an investment of less than 1% in securities/instruments or derivatives of securities/instruments of companies and may trade them in ways different from those discussed in Morgan Stanley Research. Employees of Morgan Stanley not involved in the preparation of Morgan Stanley Research may have investments in securities/instruments or derivatives of securities/instruments of companies mentioned and may trade them in ways different from those discussed in Morgan Stanley Research. Derivatives may be issued by Morgan Stanley or associated persons. With the exception of information regarding Morgan Stanley, Morgan Stanley Research is based on public information. Morgan Stanley makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete. We have no obligation to tell you when opinions or information in Morgan Stanley Research change apart from when we intend to discontinue equity research coverage of a subject company. Facts and views presented in Morgan Stanley Research have not been reviewed by, and may not reflect information known to, professionals in other Morgan Stanley business areas, including investment banking personnel. Morgan Stanley Research personnel may participate in company events such as site visits and are generally prohibited from accepting payment by the company of associated expenses unless pre-approved by authorized members of Research management.

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Industry Coverage:Nonferrous Metals & Mining

Company (Ticker) Rating (as of)Price* (10/08/2010)

Mark Liinamaa Alcoa Inc. (AA.N) O (12/21/2009) $12.89Century Aluminum (CENX.O) E (01/21/2009) $13.99Cliffs Natural Resources (CLF.N) E (07/12/2007) $69.18Freeport-McMoRan (FCX.N) E (01/21/2009) $95.51Molycorp, Inc. (MCP.N) O (09/08/2010) $26.76Noranda Aluminum Holding Corp (NOR.N)

O (06/23/2010) $10.08

Stock Ratings are subject to change. Please see latest research for each company. * Historical prices are not split adjusted.

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Financial Pacific: Looking ahead to earnings season (third party), October 12.2010

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Transcript of Financial Pacific: Looking ahead to earnings season (third party), October 12.2010