Ladies and gentlemen, thank you for standing by, and welcome to the Peabody Energy Quarterly Earnings Conference Call. For the conference, all the participant lines are in a listen-only mode. However, there will be an opportunity for your questions, and instructions will be given at that time. [Operator Instructions]. Today's call is scheduled to last one hour. And as a reminder today's call is being recorded. With that being said, I'd like to turn the conference now to Mr. Vic Svec. Please go ahead sir.

Well, thank you, John, and good morning everyone. Thanks for taking part in the conference call for BTU, and a Happy Earth Day to all of you as well. Today, our President and our Chief Commercial Officer, Rick Navarre, will review our results and our outlook. Chairman and CEO, Greg Boyce, will discuss the markets and Peabody's strong position for 2008 and beyond. Forward-looking statement should be considered along with the risk factors that we note at the end of the release as well as the MD&A sections of our filed documents. And I'll now turn the call over to Rick.

All right. Thanks, Vic, and good morning everyone, and thank you for joining our first quarter 2008 earnings review. As we reflect on the first quarter and look to our very positive outlook for the remainder of the year, one thing is very clear, the strategy to transform Peabody's operating base and portfolio is paying off. You will recall that Peabody has spent considerable resources in recent years positioning ourselves to capitalize on the world's strongest and fastest growing markets. And we expect our diverse portfolio of worldwide operations and our growing international trading and brokerage activities to drive earnings performance much higher. As a result, we are increasing our full-year EBITDA targets by $0.5 billion, which is as much as 50%, with a corresponding significant earnings per share increase. The key discussion points this morning will be on the structural changes in the coal markets and their benefits to Peabody. But first, I will begin with a brief look at our first quarter results starting with the income statement. Our revenues grew 15% versus last year to a quarterly record of $1.28 billion. We realized improved prices throughout all of our operating regions in the US along with higher volumes in Australia. Our first quarter EBITA rose 16%, operating profit increased 17%, and of course pre-tax income grew 24%, which all told drove income from continuing operations above our targeted ranges. Now, let me take you through some of the supplemental schedule information. For the quarter, the US price per ton grew 6% over last year and 9% since last quarter, and this was led by an improvement in PRB price realizations. Turning to costs, you will see that Eastern US operations were affected by lower volumes due to significant flash floods in the Midwest and severe winter weather…

Thanks, Rick, and good morning everyone. And I believe we can all agree it's an outstanding time to be the world's largest coal company. Coal markets are soaring, global supply cannot keep up with demand, prices are regularly breaking through prior records, and Peabody's new global platform is best positioned to leverage the strong sea borne markets. Everyone should also recognize that we have a different DNA makeup than our peers. We are wired to look at the global energy and economic picture, and their effects on our global and U.S. coal markets rather than looking at just the U.S. markets and how they might benefit from exports. We were alone among our U.S. peers in making the decision several years ago to expand beyond our U.S. base, at a time when international earnings were less than 1% of our total. We outlined a strategy to develop a significant Australian presence and grow a global trading platform, and also focus our U.S. expansions in the Illinois, Colorado and PRB basins. What you see today in terms of volume and price leverage and the corresponding benefit to our targets is a clear reflection of the platform that we built as we implemented that strategy. So let's review the industry fundamentals where strong global coal markets are benefiting our international operations and creating demand pool all the way to the PRB. The global energy markets continue to provide enormous headroom for coal, which is the fuel of choice internationally. We have long spoken about the benefits of BTU convergence and global oil, gas and now coal continue to move toward greater parity pricing. Recent headlines note oil above $115 per barrel. But we are focused on a long dated oil strip, and for the first time this has broken through the $100…

Certainly. [Operator Instructions]. With that being said, I'll turn the first question over to Mr. Michael Dudas with Bear, Stearns. Please go ahead. Michael Dudas - Bear, Stearns & Co. Inc.: Good morning, gentlemen. Happy Earth day to you all.

Good morning, Michael. Michael Dudas - Bear, Stearns & Co. Inc.: I appreciate the details on the Australian shipments. My first question is related to the U.S. market, Greg or Rick. How much do you believe over the next couple of years will the U.S. market be the… the dynamics in the market be driven by international activity? And it's something that due to just the customer base starting to recognize a bit more that it is not just domestic production stockpile issues, that's more of a global market?

Yes. Michael, I appreciate the question. I think as you know and others, we have always taken a view that you have to start with the global energy dynamics first and then drill down into the U.S. market impact. And there is no question, as we look at the energy fundamentals and particularly coal demand fundamentals over the next several years, the international platform is going to continue to grow. Sea borne coal markets have been growing 7% a year and we see that continuing. And what we have right now, and if you look at the 100 million tons that we think potentially stockpiles are shorter on the globe, there is only one producing region in the globe that can step up and provide additional volumes, and that's essentially the Powder River Basin. How does that happen, as we continue to expand exports out of NAP, CAP, and the Illinois Basin directly out of this country with some export out of the PRB, the Powder River Basin is going to have to backfill all of that volume. And that’s in essence how it becomes a major additional supplier for the international markets. So, we have talked in the past about how we firmly believe the international markets are totally connected now to the U.S. markets with just the arbitrage on transportation and the like. And we see that now as the ongoing long-term future of global coal markets. Michael Dudas - Bear, Stearns & Co. Inc.: Thanks. My follow-up is what have you seen in your business over the past six months of export opportunities and actual shipments out of the Powder River Basin and in the Illinois Basin? What's the reasonable potential that investors can look at of added marginal tonnage coming out of those regions, given the transportation issues and the fact that I guess it’s a little bit too late to reopen the LA coal terminal?

Mike, this is Rick. I’d say there is… out of Powder River Basin, you're probably going to be looking at somewhere in the neighborhood of 2 million to 3 million tons considerably, maybe a little bit more in total out of that region for exports. We'll get some of that business, others may get a little bit of it as well, and that's mostly come out of [inaudible]. So, there has really not been any significant movements out on the PRB… the southern PRB going west yet. I think that is still yet to be seen and remaining bit higher pricing levels and little bit more capacity in the western terminals to do that. As it relates to Illinois Basin, I think you're seeing a growing demand for that product, particularly the higher heat products that's coming out of that basin, it's hard to predict exactly how big that number might be, but I think it's certainly meaningful. It's not going to be the size of what you have seen out of CAP, but it could be to twice what you’re seeing out of the PRB, and then you've also got Colorado as well to think about in that same equation, which we’re shipping coal out of as well. So to date, we've probably shipped close to 1 million out of each of those regions or so to… on the export market, or have contracted for that anyway.

Michael, I think... it’s Greg. I think that we all remember that given the cost of transportation, both internal to the U.S. as well as the ocean transportation, the higher energy content coals are going to shift the farthest and those are the ones that are going to be the first-line beneficiaries of increased exports. But if you look at the export capacity in this country, poor capacity nameplate is probably 140 million tons. We are running at about 80 million tons, say we get up to 120 million tons without significant capital investment. Most of that's going to be the Gulf Coast in the east. Then if you look at imports into this country of 30 million tons, 35 million tons, if international pricing continues to rise, nothing says any of that has to come into the US. So net-net, from a 50 million ton net export position today, that could double over a couple of years and as the higher heat coals out of the East Illinois Basin and even Colorado go directly to export, Powder River basin coal has to backfill all of that volume. So again, as we look at the connectivity between the international markets and the US markets, that's really how you have to look at where the direct beneficiaries versus the indirect beneficiaries of exports in the international markets are going to come from. Michael Dudas - Bear, Stearns & Co. Inc.: Thank you for your answers, Greg.

And next we are in line of Pearce Hammond with Simmons & Company. Please go ahead. Pearce Hammond, Jr. - Simmons & Company International: Good morning.

Good morning, Pearce.

Good morning, Pearce. Pearce Hammond, Jr. - Simmons & Company International: Thank you again for the color on Australia. That's excellent. Rick, just a follow-up, tax rate for this year we should assume 30%?

Yes, nearly 30%, Pearce. When we first started the year, we were looking at lower expectations and we had about a 15% tax rate and this is… once again this is a financial tax rate, book tax rate, and what's happened now with the increased profitability on the Australian side, we are 30% tax payer and we don't have any NOLs to offset the cash payment. On the US side, as we get more US profitability, it dilutes the impact of the tax shields that we have from percentage depletion, which gets us closer into the higher… mid to high 20s in the US. So it kind of gives us that mid to high 20% tax rate. What I'll say about United State peers, which would be half the number, is that we won’t pay any cash taxes in the US for several years. So we still have $1.8 billion and that allow us to utilize it to offset those taxes. Pearce Hammond, Jr. - Simmons & Company International: Great, thank you. And then, my second question is, Greg, what milestones should investors focus on to measure improving shipments out of Australia, not just for Peabody Energy but really for the entire coal complex? Is it rail capacity, is that the more important thing to look at, or port capacity or some combination thereof?

Well, clearly, the top level number is to look at what the port shipments are on a monthly basis and that's all data that comes out of Australia. If you look at the Newcastle shipping region, which is primarily thermal coal, the port capacities at Newcastle appear to be strong. It's an issue of increasing rail capacity as they continue to add new [inaudible] and railcars and that's something that we're all watching and is continuing to grow. And we see that through this year each quarter getting stronger out of Newcastle. In the case of the prime port in Queensland, which has been the Dalrymple Bay complex, that's actually port capacity itself. In the first of April, they commissioned the first phase of the port expansion. So we are already starting to benefit and see the uplift of that port’s capacity. But in addition, you're right, there are railcars being added to that system. But net-net, when you at look at both of those, it ultimately translates into what the port itself is loading on a basis and that’s really a tied component of rail and port for each of those locations. Pearce Hammond, Jr. - Simmons & Company International: And then, I mean one question that I know is difficult to answer, but a lot of people ask it is when is Australia fixed? What year is it fixed? Is that a question that you can't answer, and if you were to peg a year, could you do that?

Well, I guess if we define the word fixed the same wind as Australia have excess capacity at rail and port, our view is it's not going to happen, that even when all these expansions come online, when you look at global demand for coal, we are always going to be short the ability out of Australia to meet the full demand. So that's good news on the pricing side of the international environment, but we will still see substantial increases in port capacity. We're going to see port capacity increases in substance again in the beginning of 2009 for out of Queensland. We are going to see a substantial increase in port and rail capacity in 2010 in both New South Wales and in Queensland as the new NCIG port, which we are an investor in, opens up in Newcastle in late 2010 and as the Abbott Point rail facility and port expansions get completed in Queensland for the met coal circuit. So we'll see a substantial increase over the next three years in volumes, but our view is… if the term fixes will that satisfy demand, I think our view is we're going to continue to be short.

And Pearce, I’ll give you anecdotally a reminder of that back in 2003 when we acquired the RGS, that's in Australia, we just began to have this port congestion and the influx over this excess demand on the infrastructure. At that point in time, there were many pundits predicting that this thing will be solved by 2006, 2007, and it was a temporary issue, and pricing would just return back to normal. And we were of the view that it couldn't keep at that time and then here we are today sitting here in 2008 and talking about it’s probably significantly worse than it was then. So I think it's got long ways to go. Pearce Hammond, Jr. - Simmons & Company International: Great, excellent. Thank you for the color.

And next we'll go to Paul Forward with Stifel, Nicolaus. Please go ahead. Paul Forward - Stifel, Nicolaus & Co. Inc.: Thanks, good morning.

Good morning, Paul. Paul Forward - Stifel, Nicolaus & Co. Inc.: If we take the midpoint of your 2008 guidance, so the $1.65 billion of EBITDA, $375 million of CapEx suggests some really large free cash flow this year, and you really haven't had this particular problem over the past nine or ten years or so. And I was just wondering if you could just spell out what we can expect there in terms of your priorities on debt pay-downs, new growth projects, acquisitions or returning cash to shareholders.

Well, it’s… you are right. It's going to be a great problem to have and we anticipated. But the… first and foremost, Paul, we continue to focus on growing the business and we will look for opportunities to continue to add value by growing the business, whether it's through organic growth or whether it's through additional acquisitions in the different regions. Now, to the extent that we are in a period of time where those are not available to us, we have said we want to continue to look at our debt structure and try and have a lower debt level than we have today. And then finally we always have the option of share buybacks to continue to use our available cash resources. So I would say it is to continue to... in this kind of an environment continue to grow the business and we have got the opportunity to do that, but also to continue to balance our capital structures for the long-term as our main priorities for available cash flow. Paul Forward - Stifel, Nicolaus & Co. Inc.: All right, thanks. And I guess it sounds like a funny question to be asking, but in the Australian… when you look at your projections on thermal coal pricing for the unpriced part for the rest of 2008, why assume only 90 to 110 for the thermal business if you're seeing some benchmark deals done at 125, which corresponds to the 112 territory for per short ton. You've got some quality advantages in terms of low ash content coal out of Wambo and I was just wondering, why the discount relative to the numbers that we see?

It's a good question. Let me... and really... it's probably a good question for everybody in line. We tried to put in this range, kind of a tight range, we wouldn't make it really wide. We have 30 products in Australia, including different metallurgical products and different thermal products. We've metallurgical products that were sold for less than 200, which is inside the range that we have shown you. But rather than giving you a range that is too wide, that is meaningful for you to utilize, we try to keep it in a tied up range because they were lower qualities. So with that as a backdrop, we have a lot of different thermal coals and you are right the Wambo high ash product will sell for $135 to $137 against the benchmark of $125, so no question, that is a good product. But then we go to Wilpinjong, which is a high ash product, then we go to Wilkie Creek, which is a little bit higher grime product, which sells for maybe $8 or $9 less. So that's where the differences is, Paul. But there is a little bit difference in value, but it's not significant, and so we just use that 90 to 110 range. We think the middle range of these numbers gives you approximately what we think we’ll realize once you finish the settlements. Paul Forward - Stifel, Nicolaus & Co. Inc.: Okay. Thanks, Rick.

The next question is from the line of Jeremy Sussman with Natixis Bleichroeder. Please go ahead.

Hi. Good morning.

Good morning, Jeremy.

Hi, Greg. In terms of... the question is also regarding the… your Australian ports. What level of total exports I guess you guys baking in out of Australia this year and how would that compare to last year? And then sort of before we see the major Dalrymple Bay and Newcastle expansions, I guess what are you seeing over the next one to two years in terms of being able to get more coal out of Australia?

Yes, if you just look at 2008 to start with and you take what the experts in Australia from the ports and the transportation systems have said in their view of available system capacity for this year, which at this point we were using for our baselines, out of Dalrymple Bay we're looking at about 53 million tons of capacity for 2008. As a reference point in 2007, they were at 48 million tons of actual shipments, which is slightly under. For Newcastle they're looking at 93.7 million and 94 million tons of throughput. That compares to there 2007 actual of about 85 million. So you can see that in both cases they're forecasting increasing capacity through this year. When you get to the next year in both cases, they have not yet given us the firm numbers, but in both instances we would see some incremental improvements in Newcastle because of rail improvements, maybe similar to what we are seeing this year. So by 2009, you might be in the upward 90 range for Newcastle. Dalrymple Bay actually gets an additional expansion capacity in 2009, which they have talked about numbers of getting Dalrymple Bay up to about 65 million to 68 million tons on an annualized basis once that expansions come fully up to speed, which probably would be in the first half of 2009. So from a planning purpose, we've used those similar numbers to then look at our portfolio and see what we can ship and how our shipments might grow in the context of those going forward, understanding that as those expansions come online there is a lot of other producers that have also requested allocations for that additional capacity. So it won't be 100% correlated, our increase to the port increase.

To add to that our installed capacity that we have with the mines, particularly with the new projects that we put in last year would certainly exceed the port allocations that we have right now, [inaudible] in 2009 as well.

Okay. Thanks for that color. And then I guess just my last question would be, you mentioned on a parity basis get into $25 or so out of the Powder River Basin. I guess what do we need to continue to see in order where we're actually seeing contracts getting done materially close to those levels or even higher than at least where we are now?

I think you need to continue to see the strong demand out of Central Appalachia, the continued pull on Illinois Basin pricing, which we've seen in the last six months, which has moved that price up, as we said 80% to 90%. You're seeing Colorado prices up. When you look at the arbitrage opportunities between purchasing those coals if available versus what's happening with the PRB, and I think you are seeing... you'll see stronger demand. I think that what… we've said this before, is that you can't really use a reference point of the OTC for Powder River Basin coal, particularly in a shoulder period when there is not a lot of activity in the traded markets and what you're seeing is a little bit softening there. But you can't go out and buy 3 million, 4 million, 5 million tons per annum on long-term contract for multi-year’s business at the price that you are seeing quoted in today's in OTC. We've done business this year at numbers that are, let's just say, much higher than those numbers that are being quoted in today's OTC. They were more closer to what we think the number probably should be, which is in that high teens number and has the opportunity to grow to the 20s once the full impact of what's happening on the export market and the pull out of the U.S. gets felt by all the utilities. It's a time issue. It's going to lag a bit and we will see the markets get tighter.

Thank you. Thank you very much and congratulations on... looks like Australia is really going to help you guys out going forward.

Thank you.

Thanks.

Our next question is from John Hill with Citi. Please go ahead.

Yes, and thank you for a very thorough and detailed call. Just a quick point of clarification on commentary with U.S. export deals more in the first quarter than the past couple of years, yet it sounds like the volumes were pretty modest out of the various basins. Does this step-up in volumes refer primarily to traded and brokerage activity or is there another dimension to the production numbers?

It's a combination of both, John. It's about 5 million tons and it’s traded volumes as well as direct physical shipments from Powder River basin, Illinois Basin and Colorado. We don't want to break them down individually in detail, but certainly that's about the right number in total.

Great. And then just revisiting your comments a moment or so ago that the PRB and the ability to do deals for meaningful volume in the mid, high teens last quarter, it sounded as if it was possible to do term deals in the 15, 16 range. Is that still the same or do you think we've moved up a couple of dollars in terms of what notionally we could get here?

We don't wan to get into any too much detail, but we’d certainly say that we have done deals that are higher than you’ve suggested.

Great. And then finally I would say definitely the schedule on Australia in your release were very helpful. I was just wondering if you could give us your view on the spreads between the various grades of coking coal and PCI coal was to the high quality, the hard, the semi, and the PCI, just however you’d like to talk about the spreads on those, and again just in general terms?

Yes. We probably don't want to do that just yet, because I think we’re right in the midst of the negotiations with all our customers, and that's a pretty fine negotiating point when you're differentiating between the… and they don’t settle at an exact spread rate differential between, and… there’s about 30 different products, we've broken it down in between a smaller batch here. At the end of the day, we feel comfortable. If you take somewhere in the middle of that range, [inaudible] for the total times, you'll get pretty close to where you should be and… because I could give you a quality of coking coal that sells for $150 or coarse coal that comes out of one of our mines. This is small amount of ton, but it’s... but rather than giving you $150 to $270, which I don't think would have made you feel very good about numbers, we try to tie it up as best we can and keep it in a range that we think you can get comfortable with and try to make your best estimate. And in a way we are still negotiating with our customers. We don't want to really get specific.

Sure, great perspective, perhaps once we get past the bulk of the conversations, we could talk about those spreads next time around of this year, that would be helpful, given the… given how topical that team is across multiple regions?

Absolutely. And we will try to give you more transparency to it as best we can.

Thank you.

And next go to Jim Rollyson with Raymond James. Please go ahead. James Rollyson - Raymond James & Associates: Hi, good morning everyone.

Good morning Jim. James Rollyson - Raymond James & Associates: Just, actually I want a follow upon John's question on spreads. I know you don’t want to get into too much detailed, but it seems like your range just broadly is a little bit wider than maybe we had all talked about back in September in Australia. Is that just a function of the factored prices have moved up so much, kind of more sticking along a percentage basis?

Yes. That's exactly right. I mean when you're looking at a year plus, way back in September when we were talking about prices settling out at $120, the difference between high-quality coking coal and lower-quality coking coals may have only been… it may have been an $80 or $90 number now compared to $120, and now you're talking a bigger… little bit bigger difference in that. But it's still strong numbers. James Rollyson - Raymond James & Associates: Oh sure. No, I just trying to clarify.

Once again you've got to take these short tons to metric tons as well, so we’re still talking about 300 down into the 200s for the lower-quality coals. James Rollyson - Raymond James & Associates: Understood. And then just –

I know its not really… on a metric ton basis. James Rollyson - Raymond James & Associates: Great. On a follow-up basis, you talked, Rick, about costs going up in your guidance as well, obviously pricing exceeding cost, but I think $50 million in commodity costs. Can you maybe just… and $30 million demurrage. Can you maybe just kind of talk about where you're seeing costs go up? Your Australian costs this quarter were up for a variety of reasons I suppose, but just kind of what you're looking at is underlying inflationary cost pressures outside of sales sensitive cost in just kind of broadly in the different regions, maybe what you're seeing today versus what you were thinking a quarter ago?

Sure I can do that. But first let me say that, I mean we are focusing all the efforts of the company from the operation standpoint to try to rein in what we consider to be unacceptable cost inflation, but obviously we are just like anybody else faced with what's happening in the energy markets. And with $117 barrel oil today, I mean let me start there and just take Australia. So in Australia, I mean $6 of that quarter-over-quarter increase is truly tied to higher cost of diesel fuel, higher cost of demurrage, and what I told you back at the beginning of the year would be about $2 in currency just because the average rate for the first quarter of '07 was probably about $0.80 to the U.S. dollar versus the $90 plus exchange rate this year. So, you’ve got a little bit of currency, you've got fuel costs, and then you've got the demurrage. When we started the year, we thought the ports were going to be a bit better. We ended up with a big wet and the huge situation that happened in Queensland and we stuffed up the network and we incurred more demurrage in the first quarter and probably will in the second quarter as well than we had expected. So that's really what's driven up our expectations on demurrage for the whole year. Fuel across the board when thinking about $50 million [ph] right now at about a $115 barrel and if it doesn't stay there then we can… we'll have this conversation again next quarter, but hopefully not. So then if you go to the Midwest, we are up about $4 and I think I suggested we’d be up $2 for the course of the year in the Midwest. What we've experienced…

Yes, maybe it's… I could add a little bit additional to that. I mean when we are talking about… one of the positive effects of a strong steel market is coking coal at $300 a ton. One of the negative effects of that is steel at a $1000 of ton and that flows through all of the equipment that we buy, steel that we use for roof bolting, and every time we do maintenance work on a large shovel or a dragline or a facility, we are having to buy new parts new, new steel, all of which have had higher rates of cost increases than we would have originally anticipated. So as Rick said, there is pressures throughout the entire platform. As we sit today, the good news is coal pricing is rising substantially higher than those increase and as we look forward margin expansion is pretty significant, which adds me to my last point. When we are talking about $300 a ton… metric ton met coal in Australia, one of the things we want to do is to produce and shift every ton that we can. Some of those incremental tons may be at a higher cost than our base tons, but they still have a substantial margin when you are looking at the sales price of $300 a ton. So we are working a very fine balance throughout the organization between keeping a tight control and a lid on growing cost pressures, but at also the same time trying to take maximum opportunity to capture what are very, very strong markets. James Rollyson - Raymond James & Associates: Guys, thanks for the detailed answer.

Our next question is from John Bridges with JPMorgan. Please go ahead.

Hi Greg, Rick.

Good morning, John.

You spoke about the move of PRB coal into the other regions to replace coal that is going to be exported. I just wonder what sort of pushback you get from the utilities when you suggest that they use the PRB coal?

Well, I'd say we are not getting any pushback at all. They are looking at PRB coal as the best backfill that they have. Right now, when you look at the inventory dynamics around the country, certainly we have seen Northern App and Illinois Basin utility inventories come down substantially. The Central App inventories have come down not quite as great. And the Power River Basin inventories for the quarter have been fairly stable, which in a quarter that almost always grows those inventory shows that the additional exports are really coming from and out of the stockpiles in this country and all production growth is going directly to the generators. So we are getting requests all the time for PRB volumes to use as alternatives to what used to be Eastern supplied coal or Illinois Basin supplied coal as that coal is moving to the export markets. So it's not a tough sell at all.

Yes, John, I had one other thing. One other fundamental piece of this, it’s really probably not… it has been probably under-discussed, is the fact that what we are seeing with our Midwestern utilities that are on the MISO network that they are… essentially they were running at lower efficiency rates and now they are running at higher capacity rates. So they are running at higher capacity rates burning PRB coal, shipping it by wire into PJM and then in those particular regions. So we are seeing a higher burn out of those regions as they use coal-by-wire.

Now, that is a very interesting development. It is just the D rating of a plant that is designed to use higher btu coal, if you put it just uses PRB coal, I was just wondering how then we're going to handle that?

Well, at the day you’ve got to have energy, you’ve got to have electricity, and they all are learning to adapt the deal with what… the energy sources that are available. And when the coal has already been sold to customers in Europe, they are going to have... they have to adapt.

Understood. Okay. Many thanks, guys.

Our next question is from Luther Lu with Friedman, Billings, Ramsey. Please go ahead.

Good morning.

Good morning.

Greg, I was wondering if you can give us some color on whether you have seen increased test burn of PRB coal this year?

Well, we have seen some additional test burns of PRB coal. I wouldn't say it's been a groundswell, but partly because so many folks had already known what their ability to burn PRB coal was. And as we were getting into a higher scrubber intensity, folks were going back to the Illinois and the CAP or… and the Northern App coals. But they are actually coming now back to PRB coal because they can’t get either one of those of the products. So it isn’t taking a significant amount of additional test burns to move large volumes of PRB coal back into that marketplace, but having said that they are and have been some additional new test burns, not quite as much as in the past.

Okay. And speaking of a PRB backfilling with Northern App coal… for Northern App coal and Central App coal, give us some thoughts on your School Creek extension project now that the capital cost has increased significantly?

Well, a couple of things on School Creek, first the video of the School Creek project when we bring it online is it will be lower capital than any other Greenfield project because the real loop and the load out facilities are already there. So it's just a matter of the incremental mining equipment. Interestingly enough, as we continue to do these efficiency projects add more [inaudible], we are actually beginning to build up some equipment that ultimately can be deployed into the School Creek. So our overall cost per ton capital for School Creek will be fairly competitive. In terms of timing of School Creek, we have always said that we are looking for some longer-term contracts than the standard PRB contracts to develop School Creek before we bring that level of capital and capacity into the marketplace. And at this point, we're still waiting for those to come forward and so we're continuing with the permitting and the engineering. We don't have all of the permits yet, but we are on-track to have those and we will just watch the market and see how they develop in terms of the utilities contracting for longer periods of time.

Okay. And in a recent conference, you guys listed a pipeline of growth projects. If you have to rank, would you develop a Illinois Basin project ahead of the School Creek?

Well, I mean for any project, we would obviously look at the economics of the project, the value that it adds, what the margins are, what the contract in position is, what we think the long-term cost position is going to be. You really can’t go at this point to say head-to-head which one would be better. Right now, we've got very mature projects that we have on the table in both the Illinois Basin and obviously with School Creek and the Powder River Basin. But we are not betting at this point, which one gets across the finish line first.

Okay, and just one more question. Have you guys... as I understand, you guys are still in negotiation with the met coal buyers for 2008. Are you guys also at the same time talking about 2009? Are those guys interested in 2009 contracts?

Luther, for the most part we have put to bed a number of tons already and we are finishing up the negotiations for the 2008 Japanese fiscal year on the met coal and really not talking about 2009 at this point in time.

Okay, thank you.

And we will go to Laurence Jollon with Lehman Brothers. Please go ahead.

Hi, good morning.

Good morning.

Regarding your Resource Management segment, I believe if I’m correct on the last call that guided to $40 million to $50 million of contribution to EBITA in '08. Given the $50 plus million in the first quarter, can you provide updated guidance there?

I think last… it might have been 40 to 60, I may have said $10 million to $15 million a quarter. I think it was what I would have roughly and I think I warned at the time, it's always a lumpy business because it's transactional in nature. At this point in time, you might add another $20 million to it for the rest of the year taking it up a little bit to maybe $80 million. But that's about all we can see at this point in time. We did a lot of transactions in the first quarter. We did one larger transaction, which was one that we’d been working on. It is just a timing issue as to when it gets closed, but I think total guidance would be taking it from $60 million where it’s at today… $56 million to maybe $80 million for the total year.

And Rick, is it possible to help us think about what percent of that is actual cash income just --?

Well, in this particular… where we are at today, we should… by the end of year, we will be about 70% cash on that transaction. So we have a large upfront payment and another installment that goes on the larger transaction that happens and still in 2008 and then we have one three months later. So, we get it all of it within 12 months. So it's --.

[inaudible].

We got all of the cash in 12 months, so we feel pretty good about it. And it has always been part of our business and we just see it with a non-strategic piece of property.

That’s very helpful. And then finally, just on your trading and brokerage operations, I know it's a core part of your business. I don't mean to suggest otherwise. But it was obviously a great contributor in the quarter. As we continue this year, any guidance you can give us around their contributions and then kind of the volatility and sustainability going forward?

Well, I think I said earlier in the remarks that we would be up… this business… probably the best way to look at it is to take about 10% to 15% of EBITDA. And that's… and as we look over history, that's above what we've been able to achieve. So, last year we were on roughly $1 billion of EBITDA. We had a little over $100 million in trading income. And if you look at our history, I think we’ve stayed pretty close to those numbers. And so if you look at our guidance, we started out the year, we thought we're going to somewhere in the $60 million to $80 million range. Obviously, we've done very well for the first quarter with volatility and the price movements in the marketplace. So overall, we are kind of thinking that that number might be somewhere up to 120 this year. So it's not a big… major... it's just hard to predict any more than that at this point of time. It's hard to predict a replication of the same volatility and price movements in Q2, Q3 and Q4 at this point of time. But it will continue to contribute earnings.

That's great color. Thank you.

And next from the line of Sunil Diptendra [ph] with Sentinel Asset Management. Please go ahead.

Yes, just most of the questions have been answered. I'm just wondering about the exports markets from the US here. Do you ship mainly to the European markets or you ship all the way down to the Asian markets too?

Most of our... almost all of our exports are directly to the European market. We've had some businesses going from the western coalfields to Asia. But that's a very, very limited amount. The vast majority of the coal is going out of the Gulf of the East Coast to the European markets.

Okay. You've talked about the tax rate in the US somewhere between somewhere mid to high 20s I think. I did not catch what was the reason for that because you still have about $1.8 billion in [inaudible] in the US I believe?

That's exactly correct. And this is an accounting tax rate, so it doesn't... it's not necessarily a reflection of the cash payments that we will make. So, you're right on the rate and the reason for it. It's kind of a good news or bad new situation I guess at the end of the day, as the bad news is we’ve to pay higher tax and the good news is because we are earning a lot more money. And that's exactly why we’ve kind of leapfrogged a couple of tax rates if you will where we were at in the... where we thought we might be for this year. Australia, we don't have any NOL to protect, so we will probably pay by cash basis tax pay similar to the 30% book rate that we are using.

Okay. Just a last question on the coal derivatives, do you have any kind of contracts on the coal derivatives that may be revised upwards or there might be some realized gains that may flow through the future quarters?

Well, we have a trading business as you know that we have net assets and liabilities on our balance sheet for… from coal trading activities, and some of those items of course are going to be derivatives that are mark-to-market as part of the trading business. So that will go... there’s both liabilities and assets so they can both go both up and beyond. My overall comment is that our game plan in our history shows that over the course of time, we're going to make more money than we're going to be profitable in that business so we would expect for them to go up. But as I said, we think we're looking at a total portfolio increase from where we are at today, maybe $30 million to $40 million, and that's probably on new transactions, not necessarily the transactions we've already put to bed.

Okay. Thank you.

And next from the line of Brett Levy with Jefferies & Co. please go ahead. Unidentified Analyst - Jefferies & Co. Good morning. This is actually Sathya [ph] here calling on behalf of Brett. Most of my questions have been answered. One quick question here though, despite really the normal stockpile that you mentioned, on another call you noted that utilities are still comfortable with their current levels of inventory. Are you hearing a similar feedback?

We've got a strong mix of utilities. Obviously, the ones that are predominantly, right now Powder River basin inventories because they are at more normalized levels, they are not concerned. But there are eastern utilities that would hold map or Illinois Basin coals that are concerned about their inventory levels. So I would say it's very much right now sector specific. Unidentified Analyst - Jefferies & Co. Okay. Great. Thanks a lot. And then in terms of acquisition plans that may be in the works, are you looking to further grow your met coal production?

Well, we are not going to... we don't want to talk specifically about what our acquisition targets might be. Suffice it to say that we're very pleased with the development of the international platform. We'd continue to grow that in either met or thermal coal. As we continue to look at the future of developments, potentially at Mongolia and Mozambique, those would be more metallurgical type developments versus thermal coal developments, particularly for the export markets. So overall right now, we're focused on sea borne and international markets and we'll look at the U.S. in terms of acquisitions, probably more on a synergistic basis right now. But no, I would not say that we’re solely focused or even predominantly focused on met coal, but obviously met coal is an area that we would like to continue to grow. Unidentified Analyst - Jefferies & Co. Great. Thanks a lot. Appreciate it.

And that will conclude the Q&A portion. Now, I will turn it back to the presenters for any closing comments.

Well, I just want to thank everybody for your interest in BTU. As you can see, it was a strong quarter and with our increase in our guidance we are anticipating a very strong year and look forward to updating everybody on our next quarterly conference call.

Thank you

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.