Ladies and gentlemen, thank you for standing by and welcome to the Peabody Energy second quarter earnings release conference call, at this time all participants are in a listen only mode and later we will conduct a question-and-answer session, with instructions being given at that time. (Operator instructions) As a reminder this conference is being recorded, and now I would like to turn the conference over to your host Mr. Vic Svec. Please go ahead Sir.

Okay, thank you, and good morning every one. Thanks very much for taking part in the conference call for BTU. And with us today are our Chairman and CEO, Greg Boyce, Executive Vice President and CFO, Michael Crews, as well as President and Chief Commercial Officer, Rick Navarre. We will make some forward looking statements today and they should be considered along with the risk factors that we note at the end of our release, as well as the MD&A section of our file documents. And we also refer you to peabodyenergy.com for additional information. With that I’ll turn the call over to Greg.

Thanks, Vic, and good morning everyone. It’s clear that Peabody had another outstanding quarter on the strength of our U.S. and Australian mining platforms with our underlying cost control and strong top line lift. In addition, I would say our financial position is better than ever. It is also apparent to me that we are just beginning to reap the benefits from our portfolio optimization programs and the long-term cycle for coal. Our operating initiatives are yielding results, both the U.S. and International markets have much more upside and we have the leverage to rising volumes and pricing as we capitalize on the fastest growing coal markets. Let’s take a moment to review the coal fundamentals and our position in these markets. In the Asia Pacific region, we have seen a two pronged growth driver in the first half, led by China’s appetite for energy and particularly coal imports, as well as recovering generation in steel production in the developed economies such as Japan, Korea, and Taiwan. Peabody expects specific thermo-coal inputs to rise more than 10% in 2010 while global med imports may soar some 30%. Now, one area I would like to discuss is Chinese growth. You know there is a certain deja vu element to this roller coaster views about China’s economy. We have long observed the recurring syndrome. China announced it’s targeted growth rate of 8%, the economy outpaces that growth leading to investor skittishness. The government then announces cooling measures to ensure sustainability of growth, but nervousness increases. And finally when the accounting is finished, GDP is growing 9 or 10%, and then the cycle repeats itself. So we regularly expect 8 to 10% plus GDP growth out of China and haven’t been disappointed in any of the past 10 years. Amid the global financial…

Second quarter revenues of nearly 1.7 billion were 24% above the prior year on slightly higher volumes. The key driver was Australia where volumes increased 28% and average prices rose 49%. EBIDTA reached 440 million, 35% above prior year on much higher Australia results and solid U.S performance. The increased mining contributions more than offset reduced trading and brokerage activities. Let me take you through the EBITDA drivers in more detail beginning with Australia where results were 75% above prior year. Second quarter met sales totaled 2.2 million tons more than double last year. Our realized price for met coal averaged $162 per short ton higher than both last quarter and last year reflecting the benefits of new settlements. Second quarter sales were driven by a combination of business priced in line with the industry benchmark and carry over volumes. On the sea borne thermal side, we sold 2.6 million tones on par with last year at a higher average price of $84 per short ton. Turning now to costs, you will recall that last year we had a much larger mix of thermal coal sales as met shipments were delayed due to price settlement negotiations. In the second quarter, costs were $58 per ton. We continue to target full year Australia costs in a range of 55 to $60 per ton. With higher prices and volumes combined with costs in line with expectation, our Australian margins expanded to more than $34 per ton. Turning now to the U.S, our quarterly results benefited from higher Midwestern prices and lower costs in the west. Midwestern prices were more than $3 per ton higher than last year. Costs averaged $34 per ton reflecting a combination of lower volumes and start up of the new Bear Run mine. Absent the transition costs associated…

(Operator instructions) Our first question will come from the line of Pearce Hammond of Simmons & Company. Please go ahead. Pearce Hammond - Simmons & Company: Good morning.

Good morning, Pearce. Pearce Hammond - Simmons & Company: Great quarter, met coal pricing. Where do you see it right now for high quality met, FOB the port and for lower quality mets in the spot market?

Well, Pearce, as you know we are just recently settled our met coal settlements for the last quarter really just a couple of weeks ago at $225 for the high quality coals and about 75-80% of that number for the semi-softs and PCI quality coals. And that was a meaningful volume, so really since that point in time we haven’t really transacted in the market and frankly I don’t think there has been much volume in the market since that point in time to really give you an indicator of any changes in the price. Of course, we had heard a lot about sentiment [ph] in the last week or two around China but I don’t think that really is much more than noise in the press right now as to what’s really happening because we haven’t seen a lot of changes in the pricing. Pearce Hammond- Simmons & Company: For the high end of your guidance range for the EPS guidance for the full year, is it fair to assume that that is assuming a met coal price similar to the recently agreed to benchmark?

We try to stay away specifically guiding into quarterly pricing, Pearce, we try to stay away giving that pricing obviously for strategic reasons with the customers to really talk about that in too much detail. Pearce Hammond - Simmons & Company: That’s fine. And then finally from a rule of thumb standpoint, if we look at the Australian resource super profit tax, if your tax rate for this quarter was 27%, what’s a rough estimate of what it would look like at the time that the resource super profits tax takes effect. What would you think?

Yeah. This is Mike, Pearce. When you think about the taxes, we look at a combination of both the corporate income tax, the royalties that we pay and then this incremental resource tax. And what was quoted when the RSPT came out initially is that the tax rate all in could be at about in high 50’s because if you look at a 10% rate give or take on the royalties. So we are seeing right now an all in rate of somewhere around 48%. So, it’s just an incremental couple of percent at this point with these provisions based upon our project pipeline as we know it. Pearce Hammond - Simmons & Company: Great, thank you very much.

Thank you, our next question comes from the line of Brian Singer of Goldman Sachs, please go ahead.

Thank you, good morning.

Good morning, Brian.

Couple of big picture questions, first on the PRB first. How much PRB production do you think you could easily bring on if the market continues to improve? And then longer term how are you thinking about School Creek costs and what you would need to see to make a decision to bring that on?

Sure. Couple of point question there. Let me start with you know what our underlying capacity is in the PRB. And of course when you say bring on quickly that’s you know you go from everything starting out with just ramping up overtime at the operations with existing equipment, to then buy, you know bringing in some of the easily obtainable and short term equipment for additional capacity, maybe some more dozers for overboard stripping and the like. And then you get into the haul trucks and the loading equipment that may take you 12 months or more to get substantial capacity brought back in. But if you just look at our platform, we have been migrating our sales to our North Antelope Rochelle operation with the investments that we made there over the last 3 or 4 years both in terms of loading efficiency and blending capacity. It is in our view the lowest cost most productive operation in the Powder River Basin and is one of the reasons why we’ve seen the cost performance out of the PRB and the margin enhancement that we have. So we’ve been -- continue to load that operation up, but it’s got some capacity because we could be running at higher over time rates. Then if you look at our Caballo operation, you know we are running that operation in that 24 million ton a year rate and that operation in the past is run at 32 to 34 million tons, but it would take mining equipment to make that happen, particularly trucks. And then the same thing with our Rawhide operation, that operation is you know it’s got about 6 to 8 million tons a year of capacity with additional mining equipment. So, net-net what I am saying is we’ve got…

Great, thank you very much, it was really helpful. And then separately on the quarter, your met coal volumes fell relative to the first quarter slightly, obviously the realized prices were higher. But can you comment were there any changes in mix or any reason for the slight downtick in quarter on quarter met? If I recall, maybe the first quarter was little stronger than you thought in the first place.

Yeah, I think you always have to be a bit careful with quarter to quarter comparables out of Australia. I mean a couple of vessels moving between shipping on the last day of the quarter versus the first and second days of the following quarter have a big issue with volumes. In some cases our volumes are slightly impacted, it can be impacted by what our competitors are doing; most of these vessels are blended vessels. We may have coal available to ship and then I will tell you all of this quarter we had coal available to ship, in some cases we were delayed because our competitors in Australia were having operating problems. We do our best to mitigate those during the quarter, but all that means is volumes move around bit by bit particularly at the beginning and the ends of the quarters. One of the reasons why our ranges are where they are is because you know one high priced vessel and you are looking at potentially $10 million swing in earnings. And maybe if you miss it just by 4, 5 hours in terms of getting a vessel to sail out of the port. So I think overall we were pleased with the performance, had full coal availability been where it needed to be, we might have been able to get 1 or 2 vessels but for the year, it all averages out.

Thank you very much.

Thank you. Next we will go the line of Jeremy Sussman at Brean Murray. Please go ahead.

Hi, good morning.

Good morning.

Greg, you talked about the expanding quality spread, I believe, expanding spread among met coal qualities, I assume that in terms of pricing and may be demand, can you, would you mind just elaborating on this a little bit?

This is Rick. Actually when you look at the met coal qualities, over the last several months there was a lot of lower quality met coal has entered the market as you are aware, that was blended and moved in. And a lot of customers were having some difficulty with some of that coal. So we have seen a return by our customers looking for higher quality coal to offset some of the lower quality coal they committed to. And so we are seeing a stronger demand for the higher quality products that we produce mostly out of Australia.

Okay. Yeah, Jeremy, just to add a bit, I mean it’s no different than steel. You know, not all steel production is of the same quality and depending on what the underlying demand is for steel, whether it’s for the average pipe type qualities or some of the specialty steels, same thing with the met coal. And what we have seen is a really strong, strong demand for the higher quality met coals. Everybody needs those to blend off and around, and as Rick said what we saw was a bit of exuberance in terms of the amount of stuff that was moving into the market that is questionable whether it was met coal but people were taking it and trying to blend with it, and there has been a bit of backing away from that and more pressure now on the higher quality coals.

Great, no, that’s very helpful, and then just a quick follow up. You know any change in sort of how you are viewing potential acquisitions sort of you know now that you know I guess we are couple of months removed from everything that you went through with Macarthur which I assume is mostly met coal PCI driven at the time?

I don’t think there is anything that has fundamentally changed our views long term and/or what the underlying drivers for you know that acquisition target or the others that we look at. You know we are still very acquisitive and continue to look for opportunities that will provide a good acquisition to add to the portfolio, you know particularly in the sea borne traded coal commodities.

Perfect, thanks very much.

Thank you. And next we will look at the line of Mark Liinamaa at Morgan Stanley, please go ahead.

Hi, unless I missed it, I didn’t hear any comments about the west coast port, can you talk a little bit about how you might see that business model unfolding and does it have to be a kind of a Peabody only type effort? Thanks.

Well, I mean obviously you didn’t miss it, we didn’t have much detail included in our comments and that was by design, because all of this is a bit early stage and still going through a fair bit of base load work in terms of where the optimum locations might be and what would make sense. So we are being a bit careful in what we say. But having said that our initiative is what can we do in volume and quite frankly what can we do in volume for Peabody in order to move you know PRB coals into the Pacific rim, but as well as what can we do for our other coal products in the U.S., Illinois Basin and even Colorado into the International marketplace. But you know you will hear as it unfolds we will provide more information on progress that we are making but it’s just in a period of time where we would like to not to go into too much detail. Suffice it to say there is a tremendous amount of work that’s taking place and our initiatives are focused on what can we put in place that will provide us a significant volume of capacity for PRB coals out of the west coast.

But would you see it as something that tightened the market or something to find a home for your ability to grow production?

Both.

Okay. And then can you just may be touch on your confidence level that something can happen in Mongolia before the election, and how things are going there?

Well, they are already off on their holidays. So I mean Mongolia, the legislature has put together a very broad frame work now for moving forward on TT, but they are all on their national holidays now and then they will go into their election period. So there will be some engagement over the next month, but we really think it’s probably going to be the beginning of fall before we have re-engagement at a more substantive [ph] detailed level and obviously we still feel very good about the positioning that we have placed Peabody to be a participant in that process.

Okay, so you are still confident. That’s great. Thanks, guys.

Thank you. Next we will go to the line of David Khani of FBR Capital Markets. Please go ahead. David Khani – FBR Capital Markets: Yeah. Hi, gentleman.

Good morning David.

Hi, David. David Khani – FBR Capital Markets: With I guess the trading numbers coming down for this quarter and you mentioned sort of some of the reasons. What’s the outlook you think for the remainder part of the year? And then I guess second part of it is with some of the new offices that you have opened up, are you starting to see some of the fruits of labor from those new offices?

Yeah, David this is Rick. I will touch on that. We are seeing some improvements in our numbers and in our volumes initially from the expansion of our trading platform across the globe for sure, and you can see that in our international numbers have been taken a larger share of the total trading high, if you will. When you look at what happened in this particular quarter, I will give you a couple of things that obviously reduced export volume by the United States because what’s happened in Europe with lower prices had an impact. We had a couple of shipments that didn’t go out for variety of reasons due to the equipment issues or other things so we missed a couple of shipments, we will get those back later in the year. And then really just the last piece would be last month or two, we had strong pricing across the Pacific markets and European markets, but it’s had limited volatilities. It’s been in the high 90s but now with very little volatility, very little liquidity. So we pretty much sat on the sidelines for this quarter, because there wasn’t a lot of direction, and that causes to a bit lower on our trading profits than we liked to be. But if you look at the last two years, David, we have been running 30 to $40 million per quarter and we returned to the normal volatility that we think the market will go back to and get liquidity in the market, we think we can return to those same numbers. But we do need to see those things come back to the market. David Khani – FBR Capital Markets: But then with these new offices, you would expect those numbers, the 30 to 40 million to trend up over time, wouldn’t you?

Well, I think over time. It takes time with anything. We approach trading very cautiously and we move into it slowly and make sure we get our feet completely and firmly on the ground before we make a lot of take major positions in this markets. David Khani – FBR Capital Markets: Okay. And then the second question would be what’s you view for imports of both steam and met into China specifically for 2010 and 2011?

My best guess, David, is about 125 to 135; that would be my number. I think on an annualized basis if you look at the data that just came out today probably takes you into 140-ish number. I think if we run closer to what we just saw in June, it will be 125 to 135, could be surprised on the upside, doubt I will be surprised on the downside. David Khani – FBR Capital Markets: And that’s combined, so…

Yeah, that’s met and thermal.

That’s a net number on a combined basis. David Khani – FBR Capital Markets: Okay. And then directionally, I mean if you don’t want to commit to a 2011 number, is it up?

I’d say it’s at least to that number. It’s a little early to say up yet but I would say I don’t see it going down. David Khani – FBR Capital Markets: Okay, great.

David, I spent the last week in China having lot of discussions around this topic and I feel pretty good about that.

Yeah, I mean as you recall, David, we’ve been talking about it increasing for a number of years and everybody thought it was going to go and retrace back to a much lower levels. I mean I think as you look at the underlying energy demand and economic demand in China and where it may go, not only through the back half of this year but then in the next year, as Rick says, we feel very confident, it’s going to stay strong. But I would say early days, the underlying fundamentals would say, it may even continue to increase, maybe at a slower rate, but continue to increase. David Khani – FBR Capital Markets: And would you feel more confident on the steam side versus met or met versus steam? What do you think is going to grow either percentage or actual tons more the steam side or the met side into China?

Yeah, I think they are both going to grow. If I’d have to say which one I think may grow little bit more, it might be the met coal, you know, given where the steel sector is and where the demand is, but their electricity generation has got longer legs in terms of compound annual growth rate over the next ten years. I think versus where their met coal is, it is just that they are structurally short of met coal.

Yeah, you could see more volatility in the met coal side because of policies and the way they manage the steel industry. But when it comes to, as Greg said, the long term fundamentals of electricity demand and fundamentally where the demand is, with the costal plans and all the logistic issues, the steam coal demand is going to be there. David Khani – FBR Capital Markets: Great, thank you.

Thank you. Next we will go to the line of Paul Forward at Stifel Nicolaus, please go ahead.

Thanks good morning. On the Australian volume guidance you have 27 million to 29 million unchanged; first half was just 12.6. So I guess if you were to take the mid-point of your guidance, your implied guidance for the second half of the year that will be about 15.5 million tones, or about 7.7 million tones a quarter. Is all the incremental step up NCIG or would you expect volumes elsewhere to rise as well?

Well, I think the vast majority of it would be NCIG, no question Paul, although we do anticipate some slight increases elsewhere. The Queensland particularly DBCT chain is running better midyear than it was early in the year, we expect that to continue after a bit of maintenance work you know this month. And so we expect a bit stronger back half of the year out of Queensland and then with the NCIG port additions continue to ramp up in New South Wales.

Alright, thanks. And looking at the western US, I thought the cost number was a really good one in the quarter. Just if we compare this quarter to the year ago, prices were about unchanged and volumes were up just slightly, but costs were down 10% again about a $1.28 per ton, I was just wondering if you could provide a little bit more detail on what drove this cost decline and if we can keep those kind of cost levels in the second half of the year?

Well, I think you know as I said earlier, if you recall the investments that we made in the Powder River Basin over the last three or four years in terms of up scaling our shovel fleet, our truck fleet, the major drag line work that we did and then in-pit crushing and conveying and blending facilities at North Antelope Rochelle, all of those were designed to structurally reduce as much as possible our operating costs particularly out of North Antelope Rochelle. So as we continue to load that operation up, we have seen those benefits. But I would also say our operating team has spent a considerable amount of time; and we have talked about it a bit in New York on all of our operating efficiency and our maintenance programs. We really benefited this quarter from a number of maintenance activities that we normally would have had to do that our operating and maintenance practices have allowed us to extend out and get higher utilization and higher life from major components and pieces of equipment. So, some of the savings this quarter are permanent, some are just timing quarter to quarter, and you know we’ll see some of those now have moved into the third quarter. But we expect some of the ones we had budgeted and planned for the third quarter will move out as we continue to get better and better and have higher efficiencies. So, I think that was a big component of it. Mike, any other color in terms of the details of the costs?

No, I think you hit on it. So we’ve had slightly higher volumes and the big change really has been where we have been on maintenance. I talked about it last quarter that we had a very strong shipping month in the first quarter that also pushed a couple of things out. So it’s a combination of maintenance optimization and also strong shipping and you know some of that may get pushed into the third quarter.

Alright. Thanks very much.

Thank you. Next we will go to line of Kuni Chen at Bank of America Merill Lynch, please go ahead.

Hi. Good morning everybody.

Hi. Good morning everybody.

Good morning Kuni.

I just wanted to circle back to the proposed tax changes in Australia. My understanding is that there is an ability to write off growth CAPEX investment there, so is it possible over the next couple of years that you can actually generate a tax benefit out of your Australia operation?

I just wanted to circle back to the proposed tax changes in Australia. My understanding is that there is an ability to write off growth CAPEX investment there, so is it possible over the next couple of years that you can actually generate a tax benefit out of your Australia operation?

Well, there is a couple of different components here, there is the write off of your existing asset base and they changed the rules because they originally started with book value over accelerated basis over a five year period and they have now allowed you to look at the market value. But that’s frozen really in the May 2010 timeframe. As you start to look at projects because this wouldn’t come until 2012 anyway, so it wouldn’t have an impact on our tax rate for 2011. As you get into 2012, there could be some potential for write off, immediate write off of some capital investment at that point.

Okay, but do you have sense directionally as to whether that’s -- in other words those two would be a net positive or negative?

Yeah, overall tax rate?

Just for Australia.

I think it just really remains to be seen where we are in the timing of our capital investments as we get into that 2012 timeframe.

Okay, Brian, fair enough.

Whatever you do there, you do have to be conscious as to how that’s brought back to the U.S. and then integrated into our overall tax structure. That’s why I think we continue to try and provide guidance on our overall tax rates because we do have a lot of moving parts within the system.

Okay understood. And just sort of follow up, can you gives us some color on what you are seeing as far as vessel queues out of Australia if you compare July relative to May or June? Thanks.

Well I think certainly as you look at Newcastle I think the Newcastle port has been running reasonably well. I mean the queue is such and the loading timeframe is within the window. You would expect almost at a normal level and a 14 day kind of thing. Queensland DBCT is still dealing with the high queue but if you refer back to my comments earlier about how some shippers had operational problems and didn’t have coal availability, for ships that have multiple cargos on them and one shipper doesn’t have the coal, they get delayed and they get -- they stand in the queue, and other ships will then go around them. So you know it’s -- you just can’t take the total number of ships and assume that’s the total length of time that everybody is going to be incurring vessel by vessel. So some vessels are coming in and being loaded as soon as they arrive, some are having to wait multiple weeks for coal to be available. But overall, the demand for met coal out of Queensland is still very strong, that queue is longer, and even though the port has performed better you know that queue has not come down appreciably.

All right, thank you.

All right, thank you.

Thank you. And next we will go the line of David Gagliano at Credit Suisse. Please go ahead.

Great, thanks. It looks like the figures in the press release implies you sold forward a fairly meaningful amount of U.S. thermal coal for 2011 delivery. So my questions are how much did you actually sell forward for 2011 delivery during the quarter? And then if you can provide us the average prices for those forward sales and hopefully break it down by region, that would be great? That’s the first question.

Very good try, Dave. 20 million tons, approximately 20 million tons was sold for 2011 delivery in the quarter.

Okay.

As you can expect, just like -- you know it’s broken down, principally it’s going to be the Midwest and Powder River Basin, largely in the Powder River Basin. About half of that was reopener. So what was just actually sold that was uncommitted was probably about 10 million tons.

Okay, is there a reasonable….

Not going to get into prices probably in much detail.

Is it reasonable to assume it was priced around forward curve type…

Oh, yeah, certainly would be forward curve plus, I think, safe with that.

Forward curve, and roughly was that relatively evenly spread throughout the quarter, was it you know early in the quarter, late in the quarter, when was most of that priced?

You know, it varies. I think it was probably I’d say pretty even I guess is the best way to look at it. If you think about each particular sale some of these sales go into 20 million tons sales, but I think pretty evenly. But the price you know, as you know PRB prices continue to march up throughout – have been marching up and we think they will continue to march up based upon what we are seeing and what we are feeling what’s happening with inventories. And you know the people begin to start looking at what they need for next year and so feel pretty good about where pricing is headed.

Okay, great, that’s helpful. And then just as a quick follow up, you mentioned there was some Bear Run start up costs that flowed through the Midwest costs line, and I was wondering if you would just quantify those costs and when do you expect those startup costs to come to an end?

Yeah, when you look at it on a sequential basis, it was about a dollar a ton from the first quarter to second quarter.

Dollar per ton, and should we expect those to come to an end?

Yeah, I think that you are at the largest part of the impact you are going to see within the second quarter. So we will start to see that smooth out as we look at our full year costs.

Great, okay thanks very much.

Thanks Dave.

Thank you. Our next question comes from the line of Curt Woodworth of Macquarie. Please go ahead.

Hi, good morning everyone.

Good morning Curt.

Greg, I have a follow up question on the coking coal volumes not necessarily for the quarter but looking back for the past 2 quarters you had sequential declines basically since the 3rd quarter of last year. I know that doubtful scheduling and competitive issues can impact a quarter but you still the last 3 quarters have been shipping fairly well below 3rd quarter ’09 yet steel production is up a lot, the rails running better, you have the (inaudible) upgrade on the Queensland lines, so I am just wondering you know what do think your normal capacity and shipping level is out of DBCT right now? And then I have a follow up.

Curt, this is Rick, let me address the 3rd quarter of ‘09 because I think what you are looking at is an anomaly. When if you recall last year in the first half of the year we didn’t ship very much met coal because of the issues. We were still negotiating over the carry over pricing discussion with our customers, and so we mostly were largely shipping thermal coal. And once we settle pricing and settle the carry over issues, we shipped a lot of met coal in the third quarter, it’s been a huge, huge back up. So that was an unusual quarter to compare to, so you really pretty much have to look at not look at that quarter. And because the whole half first half of 2009, it’s only 1.8 million tons of met coal, and then in the third quarter we have 2.9 million tons. So it is unusually a little bit higher, but more likely if you look at the average right now, we are averaging probably 2 ½ to 3 million tons a quarter is what you can expect for the met coal going forward.

Okay, so alright 2 ½ to 3. Then in terms of China, so China right now is around, call it 15, 20% of sea borne demand, and I’m wondering how much are you guys selling to China right now, may be just a sense of what proportion of your mix and have you seen any changes in that mix recently?

Last year, I think we have probably sold 5 million tons to China last year. I’d say that mix is pretty consistent and may be down just a little bit on the thermal side out of Australia as Indonesia has taken a little bit more of that business, but Australia has picked up more on the met side.

Yeah. Okay, thank you.

Thank you. And next we go to the line of Michael Dudas of Jefferies. Please go ahead. Michael Dudas - Jefferies & Company: Thanks, good morning everyone.

Hey, Michael. Michael Dudas - Jefferies & Company: Two questions first. Bear Run, remind us on the base load aspect of the contracts that you have assigned to the production there. Is there opportunity to sell above base load tons into the marketplace and does the market look reasonably either from a domestic or an export stand point to position coal at much higher prices?

Yeah, couple of things. I mean the base load contracts at Bear Run you know approximately 75% of that 8 million ton production rate. But we should remind folks that when we built Bear Run we built the infrastructure including the prep plant to be able to easily be expanded up to 12 million tons a year. And so as we, you know as we look at where the market is at, both in terms of domestic and the Illinois basin growth, you know there’s opportunities to take advantage of what’s happening in the spot business as well and/or additional contract business. Michael Dudas - Jefferies & Company: But is that 8 to 12, is that a multiyear phase in?

Yes, it would be a multi year phase in. We built the prep plant big enough to get up to that level. But we would have to buy the equipment, the screens and the spirals and the like inside. Basically I had another circuit to that prep plant in order to get up to that level and some additional mining equipment. So, it would take a couple of years to get up to that level. Michael Dudas - Jefferies & Company: My second question is regarding cap spending, certainly looks like second half of the year is going to be accelerated for what you did in the first half. Could you remind us where that delta is being allocated above your maintenance level spending. And as you get an early look to 2011, and with the five year growth plan, are we going to see significant ramp ups in that type of run rate and/or just a little bit sense of when the timing would be to start seeing additional capital ramp up with your current growth opportunities?

I think on the CapEx front for the rest of the year, we running at about 221 I think on the first half. So clearly we got some back loaded expenditures as a couple of different things going on there. A lot of that is in Australia, it’s production equipment for the underground operations that is more backend weighted as we went through the budget process and where we are looking at lead times. Equipment in general on a sustaining basis is a little more back loaded. And then finally there is fairly large component of that overall total related to our Australia projects and you have metropolitan expansion that will have some, incurring some charges on, but probably the larger one is the box cut capital that we have in our current operation. So we will start moving it into our back half of the year and that will drive up the expenditure as well. Michael Dudas - Jefferies & Company: Well, let’s first say, early look on ‘11 is the second half run rate kind of give or take where you might be in ’11? Are there opportunities that you haven’t really brought to us yet, maybe possibly in the U.S. or else where maybe some of these joint ventures and investments that could bump that up?

Yeah, it’s early in our cycle for next year to be really trying to give any kind of guidance, obviously, know what our sustaining levels are on a project basis. We are now going through fairly extensive project reviews to see what we will add for next year. Michael Dudas - Jefferies & Company: Fair enough. Thanks gentleman.

Thank you. Next we will go the line of Shneur Gershuni at UBS. Please go ahead.

Hi, good morning everyone.

Good morning.

Most of my questions have been asked and answered but if I can just have one follow up question to David’s question before with respect to PRB pricing. You know your operation is currently right now you know is running at less than you know optimum operation. You talked about different ways that you can move the production up and so forth. Are these the price levels that once you sell out for next year that you would be happy enough to move up your production levels or would you prefer price to be above this level before you would bring on incremental tons to where you are currently operating at?

Well, there is no question that you know the price levels that we’re starting to see in the out years provide a margin for our PRB. But you know obviously we want to see things sustainable before we are going to make major moves in terms of production changes.

Absent any change in the curve right now, you are probably going to continue to run at the same run rate? Michael Crews: Yeah, within reason, I think – actually, I think if you look at the curve right now, I’d say that the PRB curve has some work to do, to be honest with you. I think when you compare it to the other price curves in the other basins, both domestically, internationally, there is -- it’s too flat to be honest with you. It’s tightened up and it needs to get – it needs more upward pressure on the out years on the pricing.

Particularly for anything that would require capital allocation.

Great. And my second question, you guys have expressed some frustration in the past with respect of evaluation and so forth. You have a share buyback that’s authorized and you know given the current share price level, are you more incentivized or more interested in potentially pursuing some share buybacks as an opportunity to deploy some of the capital that you have given? You have over a billion on hand at this point right now.

Well I think your overall question is, what is our plan for all of this cash that Mike has accumulated in terms of our liquidity. And as we’ve always said, our first choice is growth. And Rick and the commercial team just have been tireless in terms of looking at opportunities, as well as you know I indicated we are going through beginning our project review cycle. We want to see what you know major growth projects we have in our granite platform, what the timing would look like, so we can really access what our cash needs are going to be, all with a growth driver, first and foremost. Then beyond that, you know we continue to look at what our capital structure is, you know what makes the most sense in terms of debt levels. We’ve got the potential for share repurchase, we have got potential for dividend changes. So, we look at all of those. But I don’t think anything’s changed in terms of our view that to the extent we can take that cash and deploy it in growth opportunities that would be the highest use for that cash.

Great, thank you very much.

Thank you. And our next question comes from the line of Garrett Nelson at Davenport & Company. Please go ahead. Garrett Nelson of Davenport & Company: Good morning everyone. Just a follow up clarification on Bear Run, the press release says that sales are expected to average 3 to 3.5 million in 2010. Did you mean to say that Bear Run sales are expected to total 3.5, 3 or 3.5 million tons, or is that kind of a annualized monthly run rate that you are expecting for the balance of the year. Rick Navarre: Yeah, it’s expected to be the total, it’s probably – it’s the total. Gregory Boyce It’s the total for this year because it just started off, but it grows to 8 million tons per year once it gets up to full production, which is probably not quite totally next year but certainly 2012. Garrett Nelson - Davenport & Company: So the mine started up in May and you are expecting it to do three to three and half for the full year?

That’s correct Garrett Nelson - Davenport & Company: Great. Okay thank you

Thank you. And our next question will come from the line of John Bridges at J.P Morgan, please go ahead.

Hi Greg, everybody. Just a couple of follow ups, I just got a sense that the amount of contracting you have done for the US this year is perhaps ahead of the normal rate? Is that true, is that policy just worked out that way.

Well, John, I think if you recall, we began the year ahead of the normal rate because of where the market was, and what was happening with the economy. You know we entered 2010 largely sold out intentionally and we actually sold out more of 2011 than we would normally have sold out. So you are right, we entered more sold out than normal and so that’s where we are at today. And it was up by design because of the softness in the market.

Okay interesting. And then –School Creek, presumably the comment you made is more of a replacement tons next year if it comes rather than any incremental tonnage?

That’s right. I mean we are looking at it as a margin expansion opportunity. So it would be shuffling some tons around within the portfolio. I mean we are not saying what our PRB volumes are going to be next year, but to the extent that whatever we set that level at, we may take some of those tons from School Creek in order to enhance the margins.

Okay, got it. And then given the importance of the dollar exchange rate, what is the hedging policy with this respect to the Aussie dollar?

John, what we typically do is on a programmatic basis if you will we would layer in hedges over time. And the primary function of that is really to limit volatility. So we will look over a three year period we have taken. We saw some dips in the market earlier in this year and we extended that out just a bit to take a smaller position on later periods. But we are really looking on an average, it’s a sliding scale of how much we will hedge over three years.

And it’s a pretty mechanical process?

It’s a combination of – we will layer in hedges on a month to month basis to maintain a base load of what we were looking to do largely in relation to how much we have contracted But given our view of the coal markets, we will look at the coal relations around that and where we think the currency exchange rates are going to be, we will take that up or down as we take a view.

Do you make much money on the hedge?

Well, the goal is really not to make money; it is to limit the volatility. But it has – and we talked about this at the analyst meeting; actually, we have added I think it’s over a $100 -- or $100 million in value over the five year period.

Thank you. And we have time for one more question, and that will come from the line James Rollyson at Raymond James & Associates. James Rollyson - Raymond James & Associates: Any thoughts what are you guys thinking on the proposal to privatize the Queensland coal rail track?

Well, as I indicated, Jim, we are part of the consortium of companies that are looking to privatize at least at this point the track in Queensland, not the above track or the moving equipment, but the track system itself. The view is who best and who most motivated to make sure that that track system is not only maintained, but also capital investments take place to ensure the availability of volume capacity for moving of coals out of Queensland but the producers of the coal. And so we think it is a strong consortium that has been put together, all of the producers essentially, and we made a strong bid. Queensland government is still analyzing, evaluating exactly what they want to do with those rail assets but the strategy would be to better align the planning and the investments and the capacity and the rail track to what the mine operations themselves are planning going forward. James Rollyson - Raymond James & Associates: That always seem to be the weakest link on the growth aspect, so any idea when you might hear something about that?

No, it’s frankly been a pretty fluid process, and now we have got Australian national elections coming next month, so it’s pretty tough to say. I don’t think it’s going to drag on for six months or more, but I think we are going to hear something and see where it evolves to over the course of the next quarter or so. James Rollyson - Raymond James & Associates: Great. Thank you guys.

Thank you. And now, I will turn it back to Mr. Boyce for any closing remarks.

Well, I want to thank everybody for your interest in BTU and your time with us this morning. Obviously we believe there is a lot to like about our position. The markets are strong, our operations are performing very, very well. As you have seen the results are positive and our outlook continues to strengthen. I would also like to thank our 7,000 employees around the world for their continued attention to safe, low cost operations. And with that, thank you very much for participation this morning.

Thank you. And, ladies and gentlemen, today’s conference will be available for replay after 12:30 p.m. Central Time today until August 20th at midnight. You may access the AT&T executive playback service at any time by dialing 1-800-475-6701 and entering the access code of 163141. International participants may dial 1-320-365-3844 again with the access code of 163141. That does conclude your conference for today, thank you for your participation and for using AT&T executive teleconference service. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you.