iEne022712b_220429 (2)

U.S. Research Published by Raymond James & Associates

Please read domestic and foreign disclosure/risk information beginning on page 9 and Analyst Certification on page 9.

© 2012 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.

International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863

Energy February 27, 2012

Industry BriefJames M. Rollyson, (713) 278-5254, [email protected] David P. Feaster, Jr., Res. Assoc., (713) 278-5248, [email protected]

Energy: Stat of the Week _______________________________________________________________________________________ Will $2.50/Mcf Natural Gas Give the Coal Industry Gas Pains? As our natural gas model continues to evolve, so too does our outlook for domestic coal demand. With our recent U.S. natural gas price estimate reduction to $2.50/Mcf from $3.25/Mcf, we have increased our coal-to-gas switching estimate to approximately 2.6 Bcf/d in natural gas terms (or roughly 65 million tons of coal, plus another 10 million tons for a weaker electric generation outlook). On a purely economic basis, we think the potential for “switching” is clearly meaningfully higher at the current price of natural gas. However, structural challenges and, more importantly, coal contracts are likely to keep the actual amount of market share gain by natural gas utility plants moderated in the short run. As we demonstrate in this note, the pure economics based switching potential is highly sensitive to natural gas prices. Thus, if our 2013 and long-term natural gas price forecasts of $3.25/Mcf and $4/Mcf are accurate, the switching potential will drop significantly under the 2011 delivered fuel cost scenario. Moreover, we also expect the coal industry to respond in kind with production cuts necessary to offset at least most of the near-term demand loss, especially considering current spot prices that reside below cash costs. Economics 101 – cheap natural gas is giving the coal industry heart burn The current abundance of U.S. natural gas is clearly giving the coal industry its share of heart burn lately. The recent decline in natural gas prices back into the sub-$3/Mcf range is wreaking all kinds of havoc in terms of investors, utilities, and coal producer minds alike. Simply stated, weak natural gas prices vis-à-vis delivered coal prices would indicate that a fairly high percentage of coal-fired plants are currently fair game to be dispatched ahead of natural gas-fired plants. Moreover, the warm start to the winter season is further exacerbating the problem as total electric generation is currently running down 8% year/year through the first six weeks of 2012, further adding to coal producers’ woes. If we look purely at simple economics, natural gas prices hovering around $2.50/Mcf (which also happens to be our forecast for average 2012 natural gas prices), implies that as much as 12.7 Bcf/d equivalent of coal-fired demand could be displaced by natural gas generation. The chart below details this concept based on 2011 actual delivered fuel costs to coal-fired utilities on a $/MMBtu basis. Note that this compares to the 2011 average natural gas price of roughly $4/Mcf (our long-term average price assumption), which implied about 2.5 Bcf/d of potential switching, compared to the 1.5 Bcf/d of switching that we calculate actually occurred. Our 2013 estimated natural gas price of $3.25/Mcf is also included for comparison, reducing the potential switching amount to an equivalent of 6.6 Bcf/d.

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Source: EIA, RJ&A Estimates

2012E of $2.50/Mcf = 12.7 Bcf/d

LT Avg & 2011A of $4/Mcf = 2.5 Bcf/d

2013E of $3.25/Mcf = 6.6 Bcf/d

Raymond James U.S. Research

© 2012 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. 2


Taking this one step further, if we were to run approximate economics on an output cost basis, rather than simply a delivered fuel input cost basis, the problem looks a little worse. As shown in the table below, when accounting for recent spot coal and natural gas prices, the all in cost ($/Mwh) to operate a coal-fired power plant burning different types of coal appears more expensive than running a combined cycle natural gas plant (~7,000 heat rate), assuming $2.50/Mcf natural gas prices. When running a less efficient natural gas peaking plant (~10,000 heat rate), only a PRB-fueled coal-fired power plant comes out ahead, and even that depends on the proximity of said plant to the PRB (Powder River Basin) region (as transportation costs represent a higher percentage of the total delivered cost of fuel). The moral of this story is that just based on the current input costs of coal and natural gas, the natural gas plant would win out in most cases under the current relative pricing environment we are living in today with natural gas prices at $2.50/Mcf. But simple economics are not the only factor to consider.

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Source: Raymond James Estimates Contracts, other factors providing some relief to gas pains Looking beyond pure economic factors, there are many other pieces to the coal-versus-gas switching puzzle that come into play in the short run. For starters, if one utility owned every coal and natural gas plant in the U.S. and they were all hooked up to the same grid, dialing up natural gas plants and throttling back coal-fired plants would be a much easier exercise. The reality, however, is that there are multiple owners of various power plant assets, which are also connected to different grids. Moreover, the utility plant owners all have their own unique mix of generating capacity. Finally, there are also regulated utilities that march to the beat of a different drummer and not just simple short-term swings in cost inputs/economics. Another significant near-term factor to consider is coal supply contracts that are in place with various utilities/producers. Unlike the high percentage of oil and natural gas that gets sold on the Nymex futures market, over 90% of coal is still sold through supply contracts between producers and utilities, often at durations that span across multiple years. With only a handful of publicly traded coal producers yet to report year-end 2011 results (that represented about two-thirds of total U.S. production in 2011), it appears that over 96% of estimated thermal coal production volumes are currently committed and/or priced for 2012, based on current production expectations. As most producers managed to contract additional volumes during 4Q11, we would expect that figure to creep a little higher during the remainder of earnings season. From there, if we were to assume that: a) no further un-contracted volumes are sold for the remainder of the year (given the weak natural gas market and initial electric generation trends); b) all of the contracted volumes actually get shipped during the course of the year; and c) the remaining private producers (which represent about 30% of the market) are in a similar contract position, then we are looking at total likely switching capacity in 2012 of around 3.2 Bcf/d (or roughly 80 million tons of coal). On the flip side, if we were to assume that producers hit the minimum anticipated production volume guidance for the year, the total amount of incremental switching is closer to 2.0 Bcf/d (or roughly 50 million tons of coal. We suspect the right answer is somewhere in the middle, which is why we’re modeling 2.6 Bcf/d (or about 65 million tons of coal) for full-year average coal-to-gas switching gains.




2012 U.S. Coal Contract PositionsThermal Coal Metallurgical Coal Total Coal 2012/2011

Producer Committed % of Total Total Est. Committed % of Total Total Est. Committed % of Total Total Est. As of 2011 Volume ChgArch 128.8 90.7% 142.0 5.1 56.7% 9.0 133.9 88.7% 151.0 4Q11 162.4 (11.4)Alliance 33.2 99.1% 33.5 0.3 25.0% 1.0 33.5 97.0% 34.5 4Q11 30.8 3.7Alpha 90.8 97.6% 93.0 18.7 84.9% 22.0 109.4 95.2% 115.0 4Q11 123.3 (8.3)Cliffs Natural Resources 0.5 95.0% 0.5 3.7 60.0% 6.1 4.1 62.7% 6.6 4Q11 5.0 1.6Cloud Peak 94.3 98.7% 95.5 94.3 98.7% 95.5 4Q11 97.1 (1.6)Consol 49.7 98.7% 50.4 3.8 36.5% 10.4 53.5 88.1% 60.8 4Q11 62.6 (1.9)James River 7.9 68.5% 11.5 0.0 0.0% 3.0 7.9 54.3% 14.5 3Q11 13.2 1.4Oxford 8.4 97.0% 8.7 8.4 97.0% 8.7 3Q11 8.1 0.6Patriot 20.0 97.1% 20.6 5.3 71.6% 7.4 25.3 90.4% 28.0 4Q11 31.1 (3.1)Peabody 200.0 100.0% 200.0 200.0 100.0% 200.0 4Q11 203.9 (3.9)Rhino 4.1 94.3% 4.4 0.5 100.0% 0.5 4.6 94.8% 4.9 3Q11 4.7 0.1TECO 3.2 90.0% 3.6 3.2 90.0% 3.6 6.4 90.0% 7.2 4Q11 8.1 (0.9)Walter 4.3 100.0% 4.3 9.3 75.0% 12.4 13.6 81.4% 16.7 4Q11 10.4 6.3Total 645.1 96.6% 667.8 49.8 66.1% 75.4 695.0 93.5% 743.3 760.7 (17.4)Source: Company Reports, RJ Estimates We have a couple of caveats to this analysis. There have been reports of producers being asked by utilities to defer the timing of some shipments this year to later months, particularly given the decline in year/year generation as a result of the mild winter. If these volumes are not made up by the end of the year, switching could be somewhat higher. Likewise, if utilities fully abide by their contractual obligations but do not burn all of the coal they receive, switching could also be higher. As noted earlier, the flip side would be that if producers are able to reach the minimums of production volume guidance, switching would only grow by approximately 2.0 Bcf/d. Historical coal to gas switching sums up to ~3.6 Bcf/d since 2009 The entire coal vs. gas switching discussion began in 2009, when natural gas prices started to dip below coal prices (on the margin) for the first time. Due to a struggling economy and additional contribution from less cold weather, electric generation declined by more than 4% for the year. Because of meaningfully softer natural gas prices, we “switched” approximately 2.1 Bcf/d of coal demand to natural gas, peaking in the month of September as natural gas prices fell below the $3/Mcf threshold (averaging around $4/Mcf for the year). With a rebound in the economy and easy weather comps, electric generation rebounded by more than 4% in 2010, but the level of switching ended relatively flat for the full year with 2009 levels. A much more muted market in 2011 (both for natural gas prices and electric generation) led to further implied coal-to-gas switching, to the tune of 1.5 Bcf/d with data through November. Thus on a cumulative basis, the natural gas industry has picked up approximately 3.6 Bcf/d of demand at the expense of the coal industry since the start of 2009. As indicated in our graph on the front page, the entire coal generating fleet (based on 2011 generation levels) equates to about a 37 Bcf/d market in natural gas terms.

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2010 Avg = 0.0 Bcf/d

Source: Energy Information Administration, RJ&A Research

2011 Avg = 1.5 Bcf/d

To add insult to injury, year-to-date U.S. electric generation is off to a terrible start, given mild weather Although the primary topic of this note is coal-to-gas switching, we would be remiss in not mentioning the fact that extremely mild weather conditions thus far in the year have led to a massive year-over-year decline in electric generation. Through the first six weeks of the year, electric generation in the U.S. is down some 8% over the same time frame in 2011. We obviously don’t expect this trend to hold true for the full year, but given current weather forecasts, mild weather is expected to persist for the remainder of the winter. This compares to our initial 2012 electric generation estimate of a 0.5% decline for the year. When factoring in the year-to-date weakness, further mild temps into March, a 0.5% decline in the shoulder seasons and summer months as well as some rebound in November/December (on easy comps), our full year electric generation estimate now falls to a decline of 1.1% over 2011.




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Source: Edison Electric Institute When we combine ~65 million tons of coal demand lost from coal-to-gas switching and tack on another ~10 million tons from purely year-over-year electric generation declines, less than about a million tons of growth from the industrial/steel part of the equation, we estimate full-year 2012 coal demand to decline by 75 million tons. Will there be enough coal production cuts to offset demand declines? As noted in the table on the top of page 3, when we add up current production plans for 2012 by the publicly traded U.S. producers, relative to actual 2011 production levels (adjusted to normalize M&A activity concluded during 2011), the total implied year-over-year production declines by the U.S. public producers is nearly 17.5 million tons. This includes some growth in domestic metallurgical coal production and does not include potential cuts from the few producers that haven’t reported yet. Given some remaining un-contracted coal, we’d expect the public guys to reduce production levels by a bit more before year end. Meanwhile, we suspect the private coal producers (that represent ~30% of total U.S. production) are likely to contribute an even greater amount of cuts (mainly in the east), given an assumed relative cost disadvantage. Note that unlike the oil/natural gas business, coal producers actually have to spend money each and every day in order to get coal out of the ground. Therefore, if the market remains weak and current spot prices remain at levels that imply negative margins (as they do for many producers in Appalachia and even in the PRB producers at present, using Nymex prices), production will get cut.

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Source: Company Filings, Thomson Reuters, RJ Estimates

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Source: Company Filings, Thomson Reuters, RJ Estimates Looking back at history to get some idea how the current situation may play out suggests we’re due to see pretty significant cuts. In 2009, for example, the industry shed nearly 100 million tons of supply (or over 8%), as shown in the left hand graph below. We suspect supply will get cut again this time around by enough to come at least close to offsetting demand and therefore keeping inventories from ballooning to the degree they did in 2009. One major difference between the current market outlook and what occurred in 2009 stems from the U.S. coal export picture. Expectations are that U.S. coal exports will remain fairly steady in 2012 (with a couple large players expecting slight growth), compared to a pretty significant decline (22+ million tons) in 2009 (shown below) that helped drive a ~40 million ton rise in stockpiles. Either way, we’re certainly not done with production cuts if the weather remains mild and if natural gas prices remain as weak as we think, causing coal to get displaced at the expense of natural gas.




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Source: EIA As a result, we estimate that around 50 million tons of U.S. coal production will be trimmed when all is said and done in 2012. Of that, we expect nearly half of the reduction to occur in the PRB, where there are currently a little over 30 million less tons committed for this year versus what was actually produced/delivered in 2011. Bottom line The picture is far from pretty for the U.S. coal markets right now, based on the combination of cheap natural gas-induced competition and mild weather as the icing on the cake. Although the potential for coal-to-gas switching could approach 13 Bcf/d at our $2.50/Mcf average natural gas price estimate, we think contract commitments as well as other logistical constraints will keep the actual amount of switching far below this figure. As noted, we now estimate full calendar year coal-to-gas switching of ~2.5 Bcf/d, or about 65 million tons of U.S. coal demand – based on current and anticipated coal contracts that we assume will actually be honored. We add another ~10 million tons of coal demand hit being taken due to the weak year-to-date start in electric generation trends to total 75 million tons of overall U.S. coal demand declines in 2012. On the bright side, we’re up to ~17.5 million tons of year-over-year production cuts thus far with additional tons to be added during the remainder of earnings season and likely the rest of the year by just the public producers. Add to that further cuts by the private producers, given the current implied margins, and we estimate full year production declines of just over 50 million tons. When adding in slightly lower imports, slightly higher exports and a reduction in waste coal and losses/unaccounted for coal, our model suggests only a modest build in inventories by year end of around 10-15 million tons. Inventories are likely to rise by more than that in the short run, given the lack of cold weather, which should be corrected to some degree once summer burn season kicks in. While it certainly ain’t pretty for the coal industry, it’s not a complete disaster either.

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Source: RJ&A Estimates




U.S. Rig Count Breakdown

2/24/2012 2/17/2012 W/W ∆ YTD ∆ YTD % ∆ Y/Y ∆ Y/Y % ∆Total Count

U.S. Rig Count 1981 1994 (13) (26) -1% 282 17%By Basin*

Permian 471 471 0 16 4% 120 34%Eagle Ford 246 241 5 10 4% 99 67%Bakken 204 202 2 12 6% 47 30%Marcellus 131 134 (3) -7 -5% 8 7%Haynesville 84 86 (2) -30 -26% -77 -48%Granite Wash 76 77 (1) 5 7% 1 1%Cana Woodford 61 63 (2) 3 5% 8 15%Barnett 55 56 (1) -4 -7% -22 -29%Mississippi Lime 50 55 (5) 2 4% 23 85%DJ Basin 41 41 0 -1 -2% 13 46%Uinta 31 32 (1) 1 3% 7 29%San Joaquin Basin 30 30 0 -2 -6% 7 30%Pinedale 24 29 (5) -5 -17% -6 -20%Fayetteville 23 23 0 -3 -12% -2 -8%Piceance Basin 23 22 1 -4 -15% -6 -21%Powder River Basin 17 17 0 -4 -19% 7 70%Arkoma Woodford 15 16 (1) -5 -25% -4 -21%Utica 13 15 (2) -3 -19% 7 117%Other 386 384 2 -7 -2% 52 16%

Drill For Oil 1265 1272 (7) 72 6% 482 62%Dry Gas 264 266 (2) (37) -12% (73) -22%Wet Gas 446 450 (4) (62) -12% (123) -22%Thermal 6 6 0 1 20% (4) -40%

TrajectoryHorizontal Oil 692 682 10 64 10% 332 92%Horizontal Gas 473 481 (8) (66) -12% (145) -23%Horizontal 1165 1163 2 (2) 0% 184 19%% Horizontal 59% 58% 0% 1% 1%

Source: Baker Hughes, Inc, Raymond James Estimates*Includes all trajectories




Raymond James Weekly Oilfield ReviewFor Week Ending: 2/24/2012

12 Month Oil Calendar Strip 12 Month Gas Calendar StripBrent Henry Hub

This Last Beginning Last This Last Beginning LastWeek Week of Year Year Week Week of Year Year

Price $120.96 $116.04 $93.70 $111.28 Price $3.09 $3.20 $4.63 $4.41

Percent Change 4.2% 29.1% 8.7% Percent Change -3.3% -33.3% -29.9%

Source: Bloomberg Source: Bloomberg

24-Feb-12 17-Feb-12 25-Feb-11 Change From:

This Last Last Last LastWeek Week Year Week Year

1. U.S.Rig Activity

U.S. Oil 1,265 1,272 783 -0.6% 61.6%

U.S. Gas 710 716 906 -0.8% -21.6%

U.S. Miscellaneous 6 6 10

U.S. Total 1,981 1,994 1,699 -0.7% 16.6%

U.S. Horizontal 1,165 1,163 981 0.2% 18.8%

U.S. Directional 210 214 220 -1.9% -4.5%

U.S. Offshore 43 41 25 4.9% 72.0%

U.S. Offshore Gulf of Mexico

Fleet Size 116 113 126 2.7% -7.9%

# Contracted 72 69 66 4.3% 9.1%

Utilization 62.1% 61.1% 52.4% 1.6% 18.5%

U.S. Weekly Rig Permits * 1,374 1,526 1,284 -10.0% 7.0%

2. Canadian Activity

Rig Count 701 705 623 -0.6% 12.5%

3. Stock Prices (2/24/12)

OSX 259.9 254.1 288.0 2.3% -9.7%S&P 500 1,365.7 1,361.2 1,319.9 0.3% 3.5%DJIA 12,983.0 12,949.9 12,130.5 0.3% 7.0%

S&P 1500 E&P Index 638.4 630.4 673.5 1.3% -5.2%

Alerian MLP Index 411.7 408.3 380.4 0.8% 8.2%

4. Inventories

U.S. Gas Storage (Bcf) 2,595 2,761 1,830 -6.0% 41.8%Canadian Gas Storage (Bcf) 521 540 273 -3.5% 90.9%

Total Petroleum Inventories ('000 bbls) 874,516 869,084 903,275 0.6% -3.2%

5. Spot Prices (US$)

Oil (W.T.I. Cushing) $109.49 $103.24 $96.14 6.1% 13.9%

Oil (Brent) $125.13 $119.58 $112.14 4.6% 11.6%

Gas (Henry Hub) $2.59 $2.67 $3.81 -3.0% -32.0%Residual Fuel Oil (New York) $116.13 $114.88 $15.41 1.1% 653.4%Gas (AECO) $2.13 $2.12 $3.71 0.5% -42.6%UK Gas (ICE) $9.78 $9.43 $9.07 3.8% 7.9%

Sources: Baker Hughes, ODS-Petrodata, API, EIA, Oil Week, Bloomberg* Note: Weekly rig permits reflect a 1 week lag

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Raymond James Weekly Coal ReviewFor Week Ending: 2/24/2012

12 Month Big Sandy Barge Prices 12 Month Powder River Basin 8800 Prices

This Last Beginning Last This Last Beginning LastWeek Week of Year Year Week Week of Year Year

Price $60.75 $60.00 $74.10 $70.25 Price $8.95 $8.80 $13.00 $14.00Percent Change 1.3% -18.0% -13.5% Percent Change 1.7% -31.2% -36.1%

Source: Bloomberg Source: Bloomberg

24-Feb-12 17-Feb-12 25-Feb-11 Change From:This Last Last Last LastWeek Week Year Week Year

1. Coal PricesEastern U.S.

CSX 1% $60.75 $60.00 $70.25 1.3% -13.5%Western U.S.

Powder River 8800 $8.95 $8.80 $14.00 1.7% -36.1%

2. Production 17-Feb-12 10-Feb-12 18-Feb-11Eastern U.S. 8,481 8,474 9,096 0.1% -6.8%Western U.S. 11,232 11,588 12,528 -3.1% -10.3%Total 19,713 20,062 21,624 -1.7% -8.8%

Source: Bloomberg

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Company Citations Company Name Ticker Exchange Currency Closing Price RJ Rating RJ EntityAlliance Holdings GP L.P. AHGP NASDAQ $ 49.34 2 RJ & AssociatesAlpha Natural Resources ANR NYSE $ 20.46 1 RJ & AssociatesArch Coal Inc. ACI NYSE $ 14.29 3 RJ & AssociatesCloud Peak Energy CLD NYSE $ 18.25 2 RJ & AssociatesCONSOL Energy Inc. CNX NYSE $ 36.33 1 RJ & AssociatesJames River Coal Company JRCC NASDAQ $ 6.30 2 RJ & AssociatesOxford Resource Partners L.P. OXF NYSE $ 14.00 2 RJ & AssociatesPeabody Energy Corp. BTU NYSE $ 36.33 2 RJ & AssociatesRhino Resource Partners L.P. RNO NYSE $ 19.75 2 RJ & AssociatesWalter Energy Inc. WLT NYSE $ 66.31 2 RJ & Associates Notes: Prices are as of the most recent close on the indicated exchange and may not be in US$. See Disclosure section for rating definitions. Stocks that do not trade on a U.S. national exchange may not be approved for sale in all U.S. states. NC=not covered.


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The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. In addition, said analyst has not received compensation from any subject company in the last 12 months.

Ratings and Definitions Raymond James & Associates (U.S.) definitions Strong Buy (SB1) Expected to appreciate, produce a total return of at least 15%, and outperform the S&P 500 over the next six to 12 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, a total return of at least 15% is expected to be realized over the next 12 months. Outperform (MO2) Expected to appreciate and outperform the S&P 500 over the next 12-18 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, an Outperform rating is used for securities where we are comfortable with the relative safety of the dividend and expect a total return modestly exceeding the dividend yield over the next 12-18 months. Market Perform (MP3) Expected to perform generally in line with the S&P 500 over the next 12 months. Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12 months and should be sold. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should not be relied upon.




Raymond James Ltd. (Canada) definitions Strong Buy (SB1) The stock is expected to appreciate and produce a total return of at least 15% and outperform the S&P/TSX Composite Index over the next six months. Outperform (MO2) The stock is expected to appreciate and outperform the S&P/TSX Composite Index over the next twelve months. Market Perform (MP3) The stock is expected to perform generally in line with the S&P/TSX Composite Index over the next twelve months and is potentially a source of funds for more highly rated securities. Underperform (MU4) The stock is expected to underperform the S&P/TSX Composite Index or its sector over the next six to twelve months and should be sold. Raymond James Latin American rating definitions Strong Buy (SB1) Expected to appreciate and produce a total return of at least 25.0% over the next twelve months. Outperform (MO2) Expected to appreciate and produce a total return of between 15.0% and 25.0% over the next twelve months. Market Perform (MP3) Expected to perform in line with the underlying country index. Underperform (MU4) Expected to underperform the underlying country index. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should not be relied upon. Raymond James European Equities rating definitions Strong Buy (1) Expected to appreciate, produce a total return of at least 15%, and outperform the Stoxx 600 over the next 6 to 12 months. Outperform (2) Expected to appreciate and outperform the Stoxx 600 over the next 12 months. Market Perform (3) Expected to perform generally in line with the Stoxx 600 over the next 12 months. Underperform (4) Expected to underperform the Stoxx 600 or its sector over the next 6 to 12 months. In transacting in any security, investors should be aware that other securities in the Raymond James research coverage universe might carry a higher or lower rating. Investors should feel free to contact their Financial Advisor to discuss the merits of other available investments. Rating Distributions

Coverage Universe Rating Distribution Investment Banking Distribution

RJA RJL RJ LatAm RJA RJL RJ LatAm

Strong Buy and Outperform (Buy) 56% 71% 39% 14% 42% 14%

Market Perform (Hold) 38% 28% 54% 5% 30% 3%

Underperform (Sell) 6% 1% 7% 4% 0% 0% Suitability Categories (SR) For stocks rated by Raymond James & Associates only, the following Suitability Categories provide an assessment of potential risk factors for investors. Suitability ratings are not assigned to stocks rated Underperform (Sell). Projected 12-month price targets are assigned only to stocks rated Strong Buy or Outperform. Total Return (TR) Lower risk equities possessing dividend yields above that of the S&P 500 and greater stability of principal. Growth (G) Low to average risk equities with sound financials, more consistent earnings growth, possibly a small dividend, and the potential for long-term price appreciation. Aggressive Growth (AG) Medium or higher risk equities of companies in fast growing and competitive industries, with less predictable earnings and acceptable, but possibly more leveraged balance sheets. High Risk (HR) Companies with less predictable earnings (or losses), rapidly changing market dynamics, financial and competitive issues, higher price volatility (beta), and risk of principal. Venture Risk (VR) Companies with a short or unprofitable operating history, limited or less predictable revenues, very high risk associated with success, and a substantial risk of principal.




Raymond James Relationship Disclosures Raymond James expects to receive or intends to seek compensation for investment banking services from the subject companies in the next three months.

Company Name Disclosure Alliance Holdings GP L.P.

Limited Partnerships may generate Unrelated Business Taxable Income (UBTI), which can create a tax liability that must be paid from a retirement account. You should receive a Schedule K-1 from the partnership annually that would include UBTI and other financial information. Please consult with your tax advisor to determine whether you must file and pay tax from your account. Raymond James & Associates co-managed a follow-on offering of AHGP shares in March 2011. Raymond James & Associates makes a NASDAQ market in shares of AHGP.

Alpha Natural Resources

Raymond James & Associates received non-securities-related compensation from ANR within the past 12 months.

Arch Coal Inc. Raymond James & Associates received non-investment banking securities-related compensation from ACI within the past 12 months.

Cloud Peak Energy Raymond James & Associates received non-securities-related compensation from CLD within the past 12 months.

CONSOL Energy Inc. Raymond James & Associates received non-securities-related compensation from CNX within the past 12 months.

James River Coal Company

Raymond James & Associates co-managed a follow-on offering of JRCC shares in March 2011. Raymond James & Associates co-managed an offering of convertible debt for James River Coal Company in March 2011 and a public offering of debt for the company in March 2011. Raymond James & Associates makes a NASDAQ market in shares of JRCC.

Oxford Resource Partners L.P.

Limited Partnerships may generate Unrelated Business Taxable Income (UBTI), which can create a tax liability that must be paid from a retirement account. You should receive a Schedule K-1 from the partnership annually that would include UBTI and other financial information. Please consult with your tax advisor to determine whether you must file and pay tax from your account. Raymond James & Associates received non-securities-related compensation from OXF within the past 12 months.

Rhino Resource Partners L.P.

Limited Partnerships may generate Unrelated Business Taxable Income (UBTI), which can create a tax liability that must be paid from a retirement account. You should receive a Schedule K-1 from the partnership annually that would include UBTI and other financial information. Please consult with your tax advisor to determine whether you must file and pay tax from your account. Raymond James & Associates lead-managed an initial public offering of RNO shares in September 2010 and a follow-on offering of RNO shares in July 2011. Raymond James & Associates received non-securities-related compensation from RNO within the past 12 months.

Walter Energy Inc. Raymond James & Associates received non-investment banking securities-related compensation from WLT within the past 12 months. Raymond James & Associates received non-securities-related compensation from WLT within the past 12 months.

Stock Charts, Target Prices, and Valuation Methodologies Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition, and expected total return, among other factors. These factors are subject to change depending on overall economic conditions or industry- or company-specific occurrences. Only stocks rated Strong Buy (SB1) or Outperform (MO2) have target prices and thus valuation methodologies.




Risk Factors General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on Raymond James research: (1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or accounting policies or practices could alter the prospective valuation; or (4) External factors that affect the U.S. economy, interest rates, the U.S. dollar or major segments of the economy could alter investor confidence and investment prospects. International investments involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability.

Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available at rjcapitalmarkets.com/SearchForDisclosures_main.asp. Copies of research or Raymond James’ summary policies relating to research analyst independence can be obtained by contacting any Raymond James & Associates or Raymond James Financial Services office (please see raymondjames.com for office locations) or by calling 727-567-1000, toll free 800-237-5643 or sending a written request to the Equity Research Library, Raymond James & Associates, Inc., Tower 3, 6th Floor, 880 Carillon Parkway, St. Petersburg, FL 33716. For clients in the United Kingdom: For clients of Raymond James & Associates (RJA) and Raymond James Financial International, Ltd. (RJFI): This report is for distribution only to persons who fall within Articles 19 or Article 49(2) of the Financial Services and Markets Act (Financial Promotion) Order 2000 as investment professionals and may not be distributed to, or relied upon, by any other person. For clients of Raymond James Investment Services, Ltd.: This report is intended only for clients in receipt of Raymond James Investment Services, Ltd.’s Terms of Business or others to whom it may be lawfully submitted. For purposes of the Financial Services Authority requirements, this research report is classified as objective with respect to conflict of interest management. RJA, Raymond James Financial International, Ltd., and Raymond James Investment Services, Ltd. are authorized and regulated in the U.K. by the Financial Services Authority. For institutional clients in the European Economic Area (EEA) outside of the United Kingdom: This document (and any attachments or exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted. For Canadian clients: Review of Material Operations: The Analyst and/or Associate is required to conduct due diligence on, and where deemed appropriate visit, the material operations of a subject company before initiating research coverage. The scope of the review may vary depending on the complexity of the subject company’s business operations. This report is not prepared subject to Canadian disclosure requirements. For Latin American clients:

Registration of Brazil-based Analysts: In accordance with Regulation #483 issued by the Brazil Securities and Exchange Commission (CVM) in October 2010, all lead Brazil-based Research Analysts writing and distributing research are CNPI certified as required by Art. 1 of APIMEC’s Code of Conduct (www.apimec.com.br/supervisao/codigodeconduta). They abide by the practices and procedures of this regulation as well as internal procedures in place at Raymond James Brasil S.A. A list of research analysts accredited with the APIMEC can be found on the webpage (www.apimec.com.br/ certificacao/Profissionais Certificados). Non-Brazil-based analysts writing Brazil research and or making sales efforts with the same are released from these APIMEC requirements as stated in Art. 20 of CVM Instruction #483, but abide by recognized Codes of Conduct, Ethics and Practices that comply with Articles 17, 18, and 19 of CVM Instruction #483. Proprietary Rights Notice: By accepting a copy of this report, you acknowledge and agree as follows: This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by Raymond James, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate or commercially exploit the information contained in this report, in printed, electronic or any other form, in any manner, without the prior express written consent of Raymond James. You also agree not to use the information provided in this report for any unlawful purpose. This is RJA client

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