Ladies and Gentlemen, thank you for standing by and welcome to the Peabody Energy Quarterly Earnings Conference Call. For today's conference, only phone participants 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). As a reminder, today's call is being recorded. Now, that being said, I'll turn the conference over to the Senior Vice President in Investor Relations and Corporate Communication, Mr. Vic Svec. Please go ahead sir.

Well, thank you, John and good morning everyone. Thanks for taking part in the conference call this morning for BTU. Today, our Chairman and CEO, Greg Boyce will provide an overview of the economy, our markets and environmental activities. Executive Vice President and CFO, Mike Crews will review our second quarter and our President and Chief Commercial Officer, Rich Navarre will discuss Peabody's position in the current macro environment. Forward-looking statements should be considered with the risk factors that we noted at the end of our release. As always, of course, the MD&A section of our filed documents. We also refer you to peabodyenergy.com for additional information. And with that I'll turn the call over to Greg.

Thanks Vic and good morning everyone. Mike will review our solid quarter amid the current economic turmoil and Rick will discuss Peabody's sales and trading initiatives given the varied market dynamics. But I'd like to focus on our insights into the economy, the coal markets and provide some environmental updates. Now, the macro economy is clear, continue to be driven by emerging nations such as China, India and Indonesia. It led during strong economic times and continue to outperform in recession, growing at a reduced but still impressive mid-single digit case. The recent data showing China car sales outpacing the U.S. and a 7.9% China GDP market a quarter punctuates the point even further. This is in contrast with the U.S. and Europe, which continue to experience recessionary effects, very cool weather and lower steel production. Globally, coal is the low cost large scale global fuel. So it's no surprise that the largest or fastest growing global economies are powered by coal. Coal is once again the fastest growing fuel in the world in 2008 and the five successive years before that. Long-term coal growth is projected to outpace the combined growth in natural gas, hydro, nuclear, wind and solar. So expanding in the regions that serve the world's fastest growing economies is central to our strategy. Our international earnings eclipsed the 50% mark in 2008 and global growth will be the primary focus of our attention in investments going forward. Let's turn from the economy to energy. Now we're seeing stabilization and signs of early recovery in coal markets in the Asia Pacific region, while neither is yet evident in the Atlantic or U.S. markets. After the end of steel de-stocking in a number of Asian countries and the annual contracts settlements, met coal demand has begun to accelerate…

Well thank you Greg, good morning everyone. We have already turned in a stalled second quarter amid the current global recession. Despite the soft demand, our EBITDA is on par with last quarter and our liquidity remains at very comfortable levels. Given the changes brought on by the current economy, I will generally discuss second quarter performance relative to the first quarter of this year rather than a year ago. I'll begin with the income statement highlights. Revenues for the quarter totaled $1.3 billion or 8% below first quarter driven by lower pricing on the April 1 annual contracts in Australia. Our trading in brokerage revenues were lower sequentially. However, year-to-date they were comparable with 2008 and in the U.S., our revenues exceeded both first quarter and last year due to higher prices. Second quarter EBITDA was $324 million, in consistent with our first quarter. Contributions for mining operations rose 5% as Australian -- higher Australian output more than offset lower PRB volumes. Tax expense reached $77 million, largely due to the re-measurement of tax liabilities denominated in Australian Dollars. The Australian Dollar rose 18% against the U.S. Dollar during the quarter, adding $48 million of tax expense. The increase in tax expense were re-measuring these long dated tax liabilities as non-cash and obviously beyond our control but canceling the tax line significantly. In wealth terms, every $0.01 change in the A Dollar resulted a $0.01 change in earnings per share going forward, due to the tax re-measurement. This quarter, the effect was $0.18. Back in January, I said that our annual effective tax rates would be likely be around 20%. Assuming today the exchange rate, the non-cash currency during the re-measurement we've had so far this year, adds another 10% to our effective tax rate. Now let's turn to…

Thank you Mike and good morning everyone. I plan to provide more detail on the global and U.S. markets and Peabody's position in those markets. Having recently visited the major specific demand and supply centers of China, Indonesia and India, I would reinforce Greg's earlier comments. The difference between the Asia Pacific markets and the U.S and Atlantic markets are dramatic. Starting first with the global metallurgical markets. The current Asian met coal landscape is changing quickly as we're beginning to see the effects of de-stocking and higher demand. In addition many customers had been holding off on sending ships until our contract negotiations were finished. This probably explains the recent resurgence in shipping. Peabody's June met coal shipments for instance were more than double our April levels. Strong shipping and sluggish rail performance also lead to longer ship use in Australia. This combination has driven tighter Asian met coal markets. The spot price of met coal has moved above the benchmark settlements. And we believe the markets could tighten further as time passes. Because of the protracted settlements that we discussed, we still have met coal, it's unpriced for 2009 and that sets us up quite nicely. Much of the surprising strength in this year's global met markets comes from the scarcity in hard coking coals, as well as the rise in China imports. In China demand is real, China has just set a record for six months steel production. Its strong met coal demand means that Australian PCI products are now being pulled back into the met markets and out of the thermal supply and not competing with the thermal coals. And as Greg mentioned, we've seen the Australian imports increase a 126% this year, quite a significant number. The last point on met coal is related to…

Thanks Rich. As a review of Peabody's second quarter, the state of the global and Peabody's near and long term actions to work through the current economic challenges and position us for even greater long term growth. I want to thank Peabody employees worldwide for their efforts during the quarter. We believe we are uniquely positioned when the markets will rebound the fastest and have the highest growth rates and we've got the market insight and the balance sheet to capture these opportunities. And with that, John we'd be happy to open up the call for questions.

(Operator Instructions). And we ask to please try and limit your self to one question and one follow-up. First we'll go to the line of Shneur Gershuni with UBS. Please go ahead.

Hi good morning guys.

Good morning, Shneur.

Just had a quick couple of quick questions actually. I was wondering if we can kind of start on the guidance assumptions for the back half of the year. If I take sort of take out the first half of the year, it kind of seems like you're implying certainly on the low end that you expected the second half of the year to be more challenging than the first half of the year and I was just wondering if you can direct us as to what areas where you expect to see these challenges arising from?

Sure, while I think as Mike indicated in his remarks, if you'd look at the back half versus the first half, obviously we see lower volumes in the U.S. as the full impact of our plant reductions come into effect in the second half of the year. We'll see lower pricing for our Australian platform, the full impact of that for the second half of the year. We will be shipping more on met coal on the second half of the year but overall the pricing structure will come down and so those are really the two big impacts to the year. We're also -- I think that our trading platform will be quieter in the back half of the year. There's been a numbers of counter parties that have left the market, the amount of trading activity has slowed, so as we look at the back half of the year, we think that area will be down as well.

Okay and I guess two more just tiding up questions on the quarter. I was wondering if you can try to give a breakdown of what shift with respect to met coal out of the Australian operation? What was roll over tons? What was new contracted PCI, semi-soft and so forth?

Sure, this is Rich. That's a lot of detail to go through by quality. We typically go and give it to you by quality but we did ship fleet, I mean we started to ship in significantly higher qualities in June and we still expect, I mean the ultimate number really is we're going to ship 6.5 million tons metallurgical coal for 2009 and.

Okay. I can follow with Christine if like afterwards and then just one last question on the Mid West. We trying to start big picked up in volumes there and so forth, can we expect that run-rate through the back half of the year or do we expect that to come off though as well to as part of the volumes falling off in the U.S.?

I think, overall we'll probably see some of the volumes in the Mid West come off from the second half as well.

And there's also a little bit of anomaly because we have some purchase coal that's in this quarter that makes up the overall productions in number look little bit higher.

Perfect. Thank you very much.

Our next question is from Michael Dudas with Jefferies. Please go ahead. Michael Dudas - Jefferies & Company: Gentlemen, good morning.

Good morning, Michael. Michael Dudas - Jefferies & Company: For either Greg or Rick, can you characterize since last year in the U.S. coal market, would you characterize what we are witnessing as more cyclical forces or do you are seeing some secular changes that will make the U.S. coal industry when it emerges from this downturn different than may be you have thought 12 to 24 mints.

Well I think underlying that question is the assumptions that you have to make about the economy and what's going to drive GDP growth forward. I would say that in terms of industrial demand for electricity as well as the industrial load directly for coal, I think the answer to that question is whether its cyclical or going to be a longer term change is still a bit unanswered quite frankly, we are very concerned the overall economic activity and if you will the lack of solid footing and recovery on the industrial load for electricity as well as the direct industrial call for coal. But it is unclear as to whether that's a long term effect or cyclical and that remains to be seen.

Well on the supply front I think there is no question that you've seen and we're seeing a transformation is the supply front. You got the east rising in terms of mining complexity regulatory complexity and cost structure which in our view will shift by volumes continually to the Illinois basin and Apollo river basin which is why we see those two sectors of the US supply growing over the future, while the rest of the US platforms beginning a long term decline. Michael Dudas - Jefferies & Company: Well, thank you Rick and to my follow up, Rick commenting on your trips throughout the past two three months internationally, can you may be comment -- you talked very directly about the demand picture of China, India, other merging nations. How about the supply, I guess two areas I'm thinking about, one Indonesia; how much can they impact or help and satisfy some of that Indian demand? And secondly possibly South Africa and their appetite to sell more coal into the Pacific basin, how that could maybe impact flows going into the Atlantic?

Those are good questions Mike. When you look at the supply side clearly, there is a couple places where the supply has to come from this, the growth in Asia and Indonesia, has been the fastest growing thermal exporter in last five to six years. And that growth has started to slow a bit over quality issues and also regulatory issues than Indonesia to keep more domestic coal at home to satisfy, they've got a large 10,000 mega watt crash program of building coal fire generation in the country. So but we still see Indonesia as a major player to be able to provide that coal into India. So that's we think that's going to continue to happen. As we look at Australia, I clearly we think Australia is going to I mean when its all said and done Australia will be the dominant exporter, net and thermal coal at the end of the day. South Africa is moving some coal into Indonesia into India certainly and it’s all about transportation, how much needs to be staying home in South Africa. I don't see South Africa personally growing as fast as the other two regions. Michael Dudas - Jefferies & Company: Thank you gentlemen.

Thank you.

The next question is from the line of Curt Woodworth with Macquarie. Please go ahead.

Hi good morning, thanks for all the detail.

Good morning Curt.

You know Rick at the Macolsky (ph) Conference you commented that you expected to see some of the spot business being about in the mid side above the bench mark and we've seen a few tenders where that has happened. How much tonnage do you have right now that is unpriced, for that could be sold into the spot market, and do you think you will be able see some of those price realizations for you guys specifically?

We -- two parts of the answer, first we have realized some of those numbers that are higher than benchmark, not in significant quantities because the numbers have just started to move above that number. So the numbers are real. Second I'd say, without giving away too much on what we have on committed, I tell you certainly there's opportunities of up to a million tonnes of production that we have as we said because of the contracted settlements. We haven't sold all the coal that we would have normally sold by now in the met business, so we do have opportunities.

And in aggregate when you look at the 6.5 million tones of met you could sell this to, how much do you think could ship into China?

If we moved our -- it could be couple of million tonnes.

And that would be out from part of the annual odds there right?

And we could move more to our trade house as well, and we have shipped a lot of coal into China from our trading shop (ph) as well.

Okay.

And we have -- moving to China comes just from trading by buying coal from others.

Okay.

And that would be up from a very-very minimal amount last year.

Right. Okay. And one last question, on the cost performance in Australia you guided to 55 to 60 for the year, is that what imply the back half will be running at about $50 a ton. And if you look with the royalty rates are, they're going to be down a fair amount of -- I mean based on my numbers you're looking at COGS that's royalties are up, anywhere from 10 to $15 a ton. Is that math right and what's driving some of the incremental cost pressures in Australia?

Well, when you look at the first quarter we were a little over $62, though with 70 and $80 was related to the three long-long moves that we had.

Yes.

But the primary decline into the second quarter really has to do with mix. Our normal mix in the quarter on met coal is going to be about 35% of the total.

Okay.

It's only 18-19% in the first quarter. In addition with that the thermal component we had shipped some additional domestic thermal which is lower cost as well. So it's that mix to a higher run rate on net coal in the third and fourth quarter that's going to drive that overall average cost per ton up.

Right, but even working at that, I know... I understand that the sequential on the year-over-year basis in the back half of the year with kind of a similar met profile, it looks like your costs are going to be up a fair amount excluding royalties. Is there anything behind that or is that maybe we can touch this offline? Because I think the FX rate is about similar.

Yeah, you're right. The FX rate is similar. We will see slightly lower royalties. We are projecting a little bit to emerge in the second half.

Yeah. Okay all right great, well thanks very much guys.

Thank you.

Our next questions from Jim Rollyson with Raymond James, please go ahead.

Good morning everyone.

Good morning Jim.

Couple of maybe big picture questions. You guys are obviously kind of highlighting your favorability towards the Asia-Pacific market and you guys have made some moves there recently. Can you may be Greg or Rick talk about, kind of the skills and time frame and maybe cost. Your developments in Polo resources and your recent North Western China thermal adventure, just kind of timing and size and that kind of stuff realized just a way down a little bit.

Yeah, I think, to characterize both of those as emerging opportunities is probably the best approach. We are focused right now. We've got a significant number of licensed areas that we hold with the Peabody Polo joint venture in Mongolia, and we're drilling on a number of those right now. Our focus for this year and next year is a fairly extensive drilling program as we try to identify which are the best reserve blocks to begin production on first. So, I think we're probably several years away from having subsided production out of Mongolia. In the case of the China opportunity, there is already a small mine that has been started on that reserve block, it's a very larger reserve block in Western China, and we're working with our partner and looking at opportunities and timing as to how we might be able to increase the volumes there. Part of that is dependent on the timing of the completion of rail-road expansion which has started and is taking place as we speak. But again, we're probably looking at 18 months to a three year window where we see us getting up to the kind of volumes that ultimately we would look at in terms of that, that operation.

Fair enough, and this kind of a follow-up another big picture question; the article in the journal yesterday talking about the steel guys negotiations with the I don't know producers possibly trying to cut it back to a quarterly negotiation rather than annual deal. I guess, do you see that gaining any traction, do you see that spilling over possibly into the met market?

Well yeah, I read that. It’s an interesting concept. I mean we're all having so much fun on an annual basis, I can't imagine why we'd want to do it on a quarterly basis. And at this point in time there's been no indication and no discussions, no direction on the coal side to move that up to anything less than the annual negotiations. The iron ore sector is significantly more concentrated. They've got a variability on their supply side, their lead times are a little bit different and cost structure is different in terms of bringing on new production. So, whether all of that is feeding into kind of a joint view by the sellers and the buyers if they ought to look at a different pricing mechanism, that's a bit of a speculation here. But, suffices to say, to move from a protracted annual price negotiation on the coal side to a protracted quarterly price negotiation doesn't sound all that appetizing to us.

Okay great, thanks guys.

Thank you.

And next to the line of Paul Forward with Stifel, Nicolaus. Please go ahead. Paul Forward - Stifel, Nicolaus & Co.: All right, yes. Thanks. On the on this new pricing for the 20 million tons of planned production for 2010, I guess a couple of questions. One, were you able to commit at levels that could allow you to avoid some sort of margin deterioration from the roughly $4 -- $4 margin is not on the Western U.S. this quarter? And then two why in this crummy market environment, can bid anything at all?

Well Paul this is Greg, I mean clearly we've got a business to run and we have contracts that have reopen of provisions that we have to renegotiate for provisions under the terms and those of the contract, not on the contracts. The majority of that 20 million tons if you think about it, it was, we run out of stock market actively seeking spot sales of new business. We were responding to contractual holders. So, that's why we did it. So I don't think we were chasing the crummy market by any means and I think at the end of the day, I wouldn't look for the stock prices. So again when you use any tough indication where contractual numbers would be.

Yeah Paul, I would say that we probably have seen, this past quarter I'd say this past half a year we're probably seeing one of the widest gaps and differential between contract pricing and spot rising we've seen for a long time. Partly, it's because of the size of the inventory and there are few folks out there that are trying to liquidate excess inventory that's disproportionately impacting the stock market versus what we're seeing in the contractual markets. So, we've already said we had a sales strategy that layer in profitable business in all markets. We're going to maintain a billion ton forward book of sales. We've got to be selling 250 million tons of coal every year. That's a pretty higher run rate on a quarterly basis for sales. So and in good markets we accelerate and in slow markets we sell the minimum and as Rich eluded to what we priced in the second quarter and the little bit that we solved, we viewed it as the minimum we needed to do, to maintain the operations and to meet our contractual requirements. Paul Forward - Stifel, Nicolaus & Co.: Okay. Thanks and you've got a lot of visibility down on 2010 pricing and commitments in the ordinary basin in the Western U.S. Could you anticipate, if you look at contract re-pricings and so on that you would have a margin improvements or a loss of margin from full year '09 to full year 2010 in those two regions?

Well, I think that, I think the short answer Paul, is we haven't finalized the volumes by the particular areas, for particular whether it's going to be PRV volumes versus Colorado versus South West versus particular parts of the Illinois basin, the high yield, the lower yield. So, it's a bit difficult to give you an average estimate for 2010 plus its bit early. So, suffice it to say that within specific product lines and under our contractual commitments that we have we are very conmfortable with when our margins will do year-over-year but to try and say on average what that number of targets going to be without having the mix components competed yet of the we really couldn't do. Paul Forward - Stifel, Nicolaus & Co.: Okay thank you.

Next question is from the line Kuni Chen with Bank of America Securities/ Merrill Lynch. Please go ahead. Kuni Chen - Bank of America Securities/Merrill Lynch: Hi, good day everybody.

Good morning Kuni. Kuni Chen - Bank of America Securities/Merrill Lynch: Good morning, I guess just to go back on the strategic fronts. Can you just give us a sense as to whether as far as your international growth plans, you feel you maybe closer to any specific opportunities here or that still sort of long grade on the curdle?

Well I think we'd be reluctant to give you any kind of review given all of those things that we have in the hopper, some of it is short term, some of it is longer term. I think the exciting thing is that when you look at the international market place, particularly the pacific and the Southeast Asia markets, the growth rates even under the today's view of the future are extremely high and there are real opportunities out there and so we're working pretty hard on trying to bring some of those across the finish line. Kuni Chen - Bank of America Securities/Merrill Lynch: Okay. And I'd guess just to follow up on that, can you give us some parameters as far as whether or not potential transactions they have to do be accretive or what you see as a hurdle rates on bills and where you would feel comfortable taking the balance sheet leverage?

Well, we've already said that we'd like to have long term our balance sheet leverage in that 40 to 50% range, but at times it's gone higher than that as we've made acquisitions. We were up in the upper 50's at one point in time after the Excel acquisition. And the Excel acquisition, you can look at that and say okay it was flat to mildly to accretive, but then had to be hugely accretive when the markets moved. Our preference is clearly always for accretive acquisition, but as we look at all of the opportunities out there, we look at that over a multiple year period of time, not just for the initial year. Kuni Chen - Bank of America Securities/Merrill Lynch: Okay?

And that again is it relates to returns clearly, we have the country risk involved in anyplace we go do business and that will factor into the returns that are acceptable looking for higher returns and these business typically do have higher returns that will get in the U.S. Kuni Chen - Bank of America Securities/Merrill Lynch: Right. Okay. Thanks a lot.

And next we have Brian Gamble with Simmons, please go ahead.

Yes, good morning guys.

Good morning Brian.

One of the starts back on that on coals of question of the 20 million tons that you signed. But you had to with real players of people do not positively not wanting to. Sorry about your coal of these little prices but in light of what you have reached on and then thinking about the your discussion earlier on with regard to your overall Western U.S. cost trends being 125 and you siding step up on all production levels is the reason those are ticking upwards. How should we be looking at that number as we go forward both to the back half of the year and then as we go into next year and its impact on what all raw margins are going to be in the U.S? Is that 450 numbers sustainable in the back half of the year, does that continue to tick upwards depending obviously on our production mix?

But no I think if you -- if there is no mix change, then our efforts and our plans are to make sure that they were stable in terms of our cost structure. In fact we've got a significant number of programs in place right now which are trying to capture the real cost savings in and out in the marketplace to reduce our cost structure. But there will be; as we see volumes in the back half of the year be reduced and that obviously being impacting the Powder River Basin which is the lowest cost structure region, we will see a mixed change. But after taking mixed change, our intent would be flat to declining cost.

How much of the mixed change with the back half should we expect we expect?

Well, I think we've got to put at the size of that when you look at where we are today and that's why we think that the number we are ruining at a run rate right now in Q 2 under PRV that seven million tons lower than what we were riding in the fourth quarter of 2008. So, we're down substantially when you look at it from the higher run rate at Q4 2008, not a very good comparison compared to Q2 of 2008, because we had shutdowns and other issues, rain floods and other things went on. So, the mix is definitely changing and you're going to have more of the higher cost South Western captive business embedded into the number.

Okay. Thanks. And then when you say that 2010, you've got volumes between 10 and 20 million tons that are un-priced, what sort of production levels does that imply, because that's in that flat year-on-year? Is that the assumption you are making there?

Well we haven't disclosed that at this point in time, what our 2010 production levels more weak, see what that comes at this. So well we're ready to those country may or not get priced.

Okay. And then my last question, where was in regard to the 1.7 million tons that you are talking about the deferred range talked of EBITDA of 200 million, half under nine having entered 2010s to 2012. Should we spread that evenly between those three years, or is the bulk of it in 2010 with trailing amount of it in the '11 or '12?

I'd spread it you. I think first half, as I said in 2009 and I spread the rest pretty evenly to the rest of periods. And I guess to say that, taking T & 12 spreading it evenly all the way through 2012, March 31 of 2012. So, essentially spreading it evenly over a 27 month period.

Okay.

If that makes sense for you.

It does. Just there is one final question; when you look at the mix in Australia, obviously you are going to be stronger, going forward on the net side of the things. You talk about how that impacted the costs. But can we expect realizations to go back to where they were in Q1 or possibly above that or because of the deferrals that have happened in -- the EBITDA shifting and whether you're shifting met's costumer A or customer B should we expect those numbers to moderate kind of between where you recognized Q2 versus what the Q1 number was?

This is Mike. The realizations in Australia will be higher than the second quarter due to the construction of methods that you've mentioned but, they will be lower than the first quarter as our pricing comes down, we have partial deferrals that's carry over time.

Thanks Michael. Helpful. Thanks guys.

You're welcome. Thanks.

And our next question from Luther Lu with FBR Capital markets. Please go ahead.

Yeah good morning guys.

Good morning Luther.

First question, I want to reconcile the Australian realization price a little bit. Because in the press release you mentioned the sales average $62 per ton. But given how strong the fees on prices are, that you implied the domestic price is really-really low. Can you give us some guidance on that.

Yeah I think the answer to that is you are correct. The domestic pricing is a low pricing. You have to remember that that domestic pricing reflects the way Australia leases coal reserves for domestic contracts. And that is they amortize the, what would normally in the US the upfront capital costs of the reserve purchase into the cost or the pricing of the coal into those power facilities. So you are always going to see lower domestic delivered coal pricing in Australia versus what you would see on an export basis in the thermal market.

Okay. Sounds good. The next question is, we saw New Castle, yesterday reduced the product for the producers. Is that going to impact Peabody the second half of shipment volume on the thermal side, and also the DBCT continued to have congestion issues, how would that impact the shipments and the volume in the second half?

This is Rick, Luther. I'll address both of those. I think on the New Castle, they did reduce it a million tons yesterday and we due to other opportunity that we have we don't think that's going to impact us. And if we in a normal period we'd get a pro rata share of that, which would be 10 or 15% of that number. But we don't think its really going to have an impact for us on this particular one million ton reduction. If they were to reduce it more down the road, obviously it would have an impact on us. So, but this one we're in good shape. On DBCT, they just recently improved the throughput capacity to 85 million tones the DBCT, we're hoping that's going to help work down some of the congestion there. In both ports you have a number of what we call, dead vessels that haven't they don't coal in them. So it’s exaggerating the amount of ships that are in the queue to some extent. Based upon and its not of course they're not waiting for Peabody, they're waiting from other producers, so it’s not Peabody ship they're waiting on. But as we look at DBCT, we just hope that, towards the back half of the year, we guys as Mike said we've got a lot of inventory to move in the met coal area and we hope the congestion, cleans itself up. The rails have been improving. So we've got our fingers crossed, is the best way to say, at the second half of the year because we can't confirm the control of the logistics there.

Okay and then just one more question on Australia. Any signs of the they'd restart -- reconsider the northern missing link to lessen the infrastructure burden and constraint?

Well I think it's recently been approved, as far as the rail side of things has been approved to move forward with that project. A lot still to happen, lot of capital still to be raised and a lot of agreements that have to be negotiated with the rails. As you might understand in Australia, you have different entities that own the forts, that own the railroads, that own the cars, that -- above rail. So, a lot of parties to negotiate with still.

Okay.

We're -- that's hopefully will increase the capacity. So there are a lot of things in the works including NCIG down south, that hopefully will help our throughput. But Australia is going to always be chasing throughput, because of the demand and the coal resources they have.

Our next question is from the line of Mark Liinamaa with Morgan Stanley, please go ahead.

Hi guys. Can you comment at all on any tangible reasons to help us believe that the Chinese met and thermal coal import changes are sustainable?

Well I think our view is you just have to look hard at the Chinese economy and what is driving that economy right now. There is stimulus packages that they have put in place where they are well down the way have actually spending the cash, was all focused around infrastructure, rail projects and alike; which is high steel consumption; so that is certainly has benefited in the near term the met coal imports. China is short on any kind of quality of met coals at all. So any time that their steel industry continues to grow, which it has even in the face of this recession they will continue to be increased buyers of met coal. On the thermal side, there all of the power generating facilities that they've built still require coal and in the current market environment they were very strong buyers of international coals. But, it's also reflection of the slower growth rates and their actual ability to deliver new mined coal in China versus their electricity rates. And we think that's a struggle they may have for a period of time.

And from domestically, other than the economic recovery in the back half is there any sign post you can point to where we might see an inflection point to inventories. I know that's not a real easy question to answer but it just seems to continue to rise?

Yeah, well of course, the summer that never existed in the context of global cooling in the US and Europe certainly has exacerbated the inventory issues. I mean the burn rates are down to levels that nobody ever would have estimated. We're projecting US generation -- coal field generation is going to be down to 7 -- 7.5% range or overall coal demand which embedded in that as a generation. So, I think unless we have a particular change to where we actually see an increase in underlying electricity using GDPD (ph) consumption, its going to have be a step change in as Rick indicated earlier, all of these -- lot of folks that are kind of hanging on in the high cost part of the cost curve are going to have to start to see some changes. That would be the -- in my view the early inflection point before we will see a significant change in the demand side.

Your next question from the line John Bridges with JP Morgan. Please go ahead.

Hi. Good morning Greg, everybody.

Hi John.

Different on Australian cost, I'm afraid it's a bit like the record, but we're just trying to still reconcile this big jump in a big difference in the cost and if I just play around with the numbers, I just can't get to that. Are there more offs involved in that?

Well. John, it's Greg. Basically as you look at our Australian platform, the average cost of our thermal coal is significantly lower than the average cost of our metrological coal operations in Australia. That's true for all producers. And such an extent that in the first half of this year and particularly in the second quarter, our met volumes were so low and our thermal volumes were pretty steady. It was a mixed issue, now as we get into the back half of the year, we expect that our met coal it's going to be significantly higher than it was in the half of the year. And so, as you had that into the mix at a higher cost, it's really what drives that difference. And what we've tried to provide is a number of that we think we're going to hit for the average for the entire year because of that additional met in the back half of the year. Does that help a bit, John?

Internal.

Let me add one point to help maybe to kind of punctuate that. If you look on the balance sheet John, you will see that our inventory cost have risen period-over-period. So, what has happened is we produced the met coal at a higher cost than the average cost that you're seeing on the schedule and since we didn't ship it, it's in stock file, its still below our sales price versus the stock file. So when it comes out of stock file, come out of cost, which will drive out the cost because it's a higher cost product.

Okay. I think that's probably the missing link. In the western region is it correct to assume that the reductions primarily PLV rather than Western a bit?

Yes, yes.

Okay,

We've had a little bit higher than some of our mines in South West production.

And then global question, on the met coal, we've began to see a little bit of the met coal that was idled in the end of last year coming back into the market. Any sense as to how quickly that can come back in more volume?

I think its going to be slow. I mean its going to be idled property it takes a bit of time to bring those back on line. We see the markets are strong right now and John and I was asked a question earlier how much could I ship into China? I can ship into China if I can turn on the mines that we throttled back faster but I can't because equipment is taking other places, shut down, it just takes time. So this market starting to kick back in but in that's what prices are going to be strong because they can't respond to the demand side. It is side can't respond that quickly.

I mean the good news for us John is we're looking at our Australian platform, if you remember when we completed all of those capital projects that we inherited as part of the Excel purchase, we have a platform in Australia that has the capacity on an annual run rate to begin to approach the 30 million ton range and so right now, we are kind of coasting that platform. So, we have the capacity to grow and to meet this market much quicker than anybody else because all we have to do is to just bring back some of the equipment that we moved to other places and/or have the contractors add some additional people and additional shifts. Once you get beyond that and anybody that's got to add real capital for expansion that's going to take a lot longer period of time. So, I think in our view is we're going to get a good benefit from this change because we do have the ability to produce more tons without capital in Australia.

Our next question is from the line Brian Singer with Goldman Sachs & Co. Please go ahead. Brian Singer - Goldman Sachs & Co: Thank you, good morning.

Good morning Brian. Brian Singer - Goldman Sachs & Co: Really following up at some of the earlier questions including the last one looking forward to some more clear on specifically what China's increased imports have done and can do for Peabody's volumes specially relative to your guidance? Can you talk about how much met you sent to China during the first half and whether the 1 million tons of flexibility that you mentioned earlier, is that within your guidance range or does that represent upside and then maybe lastly if that's coming from trading and why not be more optimistic on the trading potential?

We shipped 3 million of new business into China in the first half of the year and that's continuing to accelerate and if we had more domestic product available as we said earlier we could probably ship for than that and of course we have some of that trading as well. I'm not sure if following on the million ton reflects. Brian Singer - Goldman Sachs & Co: I guess to the extent that you can sell an extra million ton, would you then beat your guidance for overall and steady volumes are that within the range of the 20 to 23 million?

We could sell an extra million tons and we could source it, it would be upside and move it through the infrastructure in Australia. Brian Singer - Goldman Sachs & Co: Right and that I guess is my follow up which is you touch in the last question on the fact that it does take a while to get things operating. What is that lead time? So, we have now seen China increase their net imports substantially for I guess a good 4 or 5 months this year and so are you in process to try and begin to move some of the equipment needed to raise volumes as needed or is there more that you still need to see? And how long will that take?

Well, we were in the processes as we look at this and look at where we are going to be in 2010, as we said, we think we're going to move more coal in 2010 than we did in 2009 as a result of the up tick in volume. To put in context to think about is that they were a number of traditional customers, because of their de-stocking exercises and if you look at steel supplies come from, that actually didn't take as much volume this year as they took in the previous years. So what's happened is, China has soaked up the difference. This is what really happens. So, when those new customers, the traditional customers come back to market at the same levels, that's when we really going to have a significant amount of production to meet and the net effect of what China has purchases have done is not only support the met coal but has supported the thermal coals as well because they bought a fair bit of PCI coals which were absent their purchases would've stayed into the thermal side of the business. So, overall its just have to pull that volume out of the pacific market that as Rick said was reduced from the traditional customers to the extent our viewers they stay in the market and the tradition among customers begin to come back in for both the thermal and med, it'll put on more pressure on the markets. Our strategy in Australia, part of our high stock piles down there in our higher inventories were related to more longer and more protracted negotiations than we anticipated but part of it also was our strategy to make sure that we always have coal on the ground available to put in the real cars and send to pour when other producers have production or shipping issues, which happens all the time in Australia. Now when you look at the vessel Q at both Dalrymple Bay and New South Wales, and a quarter of those vessels are what we call dead vessels. Their destined for producers. They just don't have a call available. So to the extent that we try to be opportunistic, just like we are and everyone else that we produce, we've added a little bit of extra inventory on the balance sheet now. We think a significant amount of that does come off in the back half of the year, but, we will run a little higher than normal, so that we can take advantage of these market opportunities when they arise.

Our next question from the line of Mark Caruso from Millennium Partners. Please go ahead.

Hi, good morning. Just a few clarifications from the questions asked earlier. The first was, Rick, I wanted to make sure I heard you correctly on the carry over tons in the last quarter was 1.7 million tons and I thought you said earlier that, you guys really get in partial credit, but then want to Brian came to ask a question earlier sounded like we can get a 100 million this year and a 100 next year. So, I just want to make sure which of part is correct.

I think what happened in the last call we talked about it. We had said that we're going to negotiate get all of our credit we have sometimes that risk for sure on the semi saw side of the ledger. And but, as results up, we think we're going to get the majority of the value of that 200 plus million, we would get a 100 million in 2009 and we will get the remainder in cal 10 cal 11 in the first quarter of cal 12.

Okay great. And then as far as the committed tones, it looks like you guys booked 20 million more than last quarter. You sure changed the way that you guys reported last quarter, you gave the percentage committed. This quarter you gave the total tons number for next year. Is it safe to assume that you've gone up pretty substantially above the 80% your price tag committed last quarter?

It was 95% committed in 90% price probably at this point in time in the U.S. So, that's substantially priced at really the end of the day. But, that's very little opted to price.

Okay.

To say that once again if we go back to 20 over half of that was a purely just real for the business, that was all contractual nature.

Okay, great. And then, you send over that you think 6.5 this year. Do you guys feel good about I know Gregory just mentioned, do you have the capacity to ramp back up to 30, the way the things are shaping up is it feasible to be 25 plus next year or is there just slow grind of ramping back up that will mess up timing there could be like a run rate?

I think we would anticipate next year, we would be up in that 15% range in our Australian platform across the board.

Our next questions from line of David Lipschitz with CLSA.

Hello everyone.

Good morning.

Good morning. Quest you on -- there is a question earlier about going to quarterly contracting. What about this going to filling the spot but that way you wouldn't have flow so you just do it over the prices?

Well, the biggest problem is particularly in the Pacific rim is the stock markets or the exchange trade is numbers that those volumes are very, very small and are really only on the margin for the total volumes that take place in the Pacific rim. So, until you whenever it get to a point where you have highly liquid and very large exchanges you really would want to price out with those. It would be no different in, why we don't price half the exchanges in the U.S. particularly out in the west, because they not really reflect the underlying contractual market or the fundamentals of what's happening with supply and demand. Maybe that's going to be a recipe that the steel guys think make sense in order to drive a longer term balance between supply and demand, but it doesn't on the surface seem like it is something that we would in interested in.

Yean because just...sometimes the price goes higher from this 1.9 you lose out. If the price goes higher and then they drop the price lower, you lose out as well because they prefer a lot of the shipments. It just seems plausible from that perspective?

Well, I mean to the extent that you have to be able to plan capital investments in this business, I'm not sure we would want to be exposing 100% of our platform to the kind of volatility that we've have seen in these markets. We like to volatility on the trading side because we make a lot of money out of our volatility. But we want a little bit of our book or a good portion of our book under contracts that we can plan for, the capital investments that it takes to maintain and grow the business.

Okay thanks.

Our next question is from the line of Lawrence Jones of Barclays Capital. Please go ahead.

Good morning. Regarding the 480 million term loan that matures in two years, can you update us on your plans in the coming months. My thought is, given the improving bond markets, I thought may be you'd, I thought the assets in the bond markets potentially turn out this maturity and potentially pre-fund any acquisitions or investments such that you wouldn't have to draw on the revolver?

Well there's no question the bond market has gotten better and the bank market remains relatively weak. It doesn't mature until September 2011, we'll start looking at that over the next several months. We may end up terming that out, but at this point I would like to have the bank market except for those in terms of pre-payment. But if I by terminal its reduced (ph). And I still have pretty good head room under the credit facility as well, under the revolver.

Okay. And as my follow up, can you provide us with the dollar amount of investment in joint ventures, on your second quarter cashless statement. The reason I ask is that second quarter operating cash was 39 million, looked a little weak, and I thought perhaps it was affected by cash outlays for the full daily (ph) in the restatement investment?

Yeah, the total investment was 10 million. The biggest thing that's impacting the cash flow is the working capital movement and that was largely driven by the inventories in Australia.

Our next question is from the line of Lasan Johong with RBC Capital Markets. Please go ahead

Thank you. In the 65 to 70 million ton reduction in generation and consumption of coal, how of that do you attribute to switching composite gas, and do you think its going to accelerate, stay the same or go down from your original projections of about 25 million tons.

Yeah, on the coal to gas switching, I think you know we started out the year, we were looking at about 10 to 15 million tons. And I think, in the last quarter we said we'd probably see ourselves at the higher end of that number. And I guess if you today with what we've seen with the continued suppressed gas prices, we'd probably be a closer to a 20 million ton impact related to coal gas switching on those marginal coal plants mostly located in the East.

All right and did I so hear you correctly that tax rate is changing from 20% to 30%?

Yeah what we've said is, our normal run rate would be around 20% because of the tax remeasurement that we had that's going to add about 10% to our rate. Now that's a book rate, in terms of our cash tax so that it does not impact that incremental 10%.

Our next question is from the line of Justine Fisher with Goldman Sachs. Please, go ahead. Justine Fisher - Goldman, Sachs & Co.: Good morning.

Good morning. Justine Fisher - Goldman, Sachs & Co.: I have a quick question on coal cargos going from Australia to China, we had heard I think that was a couple of weeks ago that there were some cargos that has been cancelled on the coal with already on board. I'm wondering if you guys have heard of anything like that, over the last I guess a month or two?

Justine, this is Rick. I saw the one that you're talking about, that was -- published in the trade publications. And it was a steam cargo, that somebody didn't accept I guess and I think it was a one-off situation. We personally haven't had any issues with any of our cargos that we've shipped into China. So, I think there were people that were looking forward to Chinese not to potentially honor some of the shipments as prices moved up in a lot of the import activity chains. But, to the contrary, they have been good to do business with and we haven't had any issues. Justine Fisher - Goldman, Sachs & Co.: Okay, and then the next question also related China. I'm trying to reconcile the bullish commentary, I'm trying to with -- the guidance for June necessarily lower, because you guys haven't given guidance before, on the -- with the sort of subdued, I'd say numbers for Australia going forward. And if the outlook is truly bullish for these, why are we not seeing more CapEx spent to develop production or to increase production back up again in Australia and what would it take us to actually see that?

Well first of all as we indicated, we don't need to spend CapEx in Australia in order to increase production. And as I indicated earlier we're already planning on higher production rates. The back half for this year and more importantly next year because of what we're seeing in China. What other producers need to do relative to their CapEx spent, some of those producers are having global issues relative to CapEx and they'll have to make their own decisions relative to met coal. But, we are planning on increases to the back half of this year and what we believe will be a healthy increase next year. Justine Fisher - Goldman, Sachs & Co.: Okay. And then, just the last question on the US markets, I know that last quarter you guys said that you had not been approached by any of your utility customers, to differ your shipments and you haven't been approached to make any deal to -- for them to pay you to keep tons in the ground, is that still the case because we've seen some other US producers announce deals over the second quarter, whereby utilities paid them not to ship coal?

Well, I think we had already -- made this one clear we said last time. I think last time we said we had very few approaches last time, that we had made some settlements for certain customers we did some buy outs and that did happen in the last quarter, not any significant tons by any means. Have we had people approach us this quarter, sure. And we continue to work with those customers, if it makes sense and if there is -- do the options of either buying out deferring schedules, moving coal from different locations because we have a wider portfolio. But just taking not shipping coal that's in the money we're not doing that. So, we're trying to push over our rights and move the product. So, you see that announced because it maybe more material to them, the transactions and the mountain tons of the -- across our; a small compared to the overall portfolios, so as don't have reason to have public discussions around them. But, we're working through them with our customers as we always do.

And we have time for one last question and that'll be from the line of Sunil Gathader with Sentinel Investments. Please go ahead.

Thanks. On the tax remeasurement, how long this will continue? Is it just for a short period of time or its going to continue to 2010 too?

Well this that's related to FX rates and as the FX rates move, it changes. It essentially it's a fixed balance related to deferred taxes, relatively fixed balance. And as the foreign exchange rate changes compared to the dollar that you have to remeasure those tax liabilities. And, if it stays flat nothing happens, if it moves it might set a penny, it moves P&L one way or the other.

But would impact the cash flow segments?

No.

Okay. You talked about India going to be a major player in the next decade. Are you have any discussions with Indian utilities? Do you ship coal late into next decade into that country or you primarily are saying that you would remain with China -- as major exporter to China?

No, I think it's clear that there is going to be significant opportunities to ship coal into India and we'll pursue opportunities to be able to be a participant there. As Greg mentioned, we're going to open a new Asian training hub and one of our destinations for coal will be India.

And I'll turn the conference over to Mr. Boyce for any closing comments.

Thank you very much John and thank you everybody for your interest in Peabody and BTU. As you can see, we feel about how we are weathering the current economic climate, but feel very good about what we see particularly in the Pacific rim and the Asian markets on a medium to longer term basis. And we look forward to keeping you all updated on our progress on our future calls.

Ladies and gentlemen, this conference is available for replay, it starts today at 12:30 PM Central, will last until August 21 at midnight. You may access the replay anytime by dialing 800-475-6701 or 320-365-3844, the access code 103353. Those numbers again 800-475-6701 or 320-365-3844 and the access code 103353. That does conclude your conference for today. Thank you for your participation. You may now disconnect.