globalCOAL® RB Index™

Methodology
– Version 1e –

Table of Contents

1 Executive Summary .................................................................................................................................. 2

2 Introduction ............................................................................................................................................... 2

3 Scope of the RB Index and Definitions.................................................................................................... 3

4 Monthly RB Index Calculation .................................................................................................................. 3

5 Weekly RB Index Calculation ................................................................................................................... 4

5.1 Overview of the Weekly RB Index ....................................................................................................... 4

5.2 The Two Components of the Weekly RB Index ................................................................................... 4
5.2.1 Calculating the Weekly Bid-Offer Component ............................................................................. 4
5.2.2 Calculating the Weekly Transaction Component ......................................................................... 6
5.3 Calculating the Weekly RB Index ........................................................................................................ 7
6 Governance................................................................................................................................................ 7

7 Amendments to the RB Index .................................................................................................................. 8

8 Industry Comments ................................................................................................................................... 8

9 APPENDIX: Frequently Asked Questions ............................................................................................... 9

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globalCOAL RB Index™ Methodology (v.1e)

1 Executive Summary

This document outlines the methodology for the calculation of the globalCOAL RB Index (‘RB Index’
or ‘the Index’) – a reference price for thermal coal delivered on an FOB basis at the port of Richards
Bay in South Africa.

The underlying data for the RB Index is derived from trading activity on the globalCOAL online
trading platform, in globalCOAL’s Phys RB1 (FOB RBCT Low Vol) (‘Phys RB’). The calculation is
based on a combination of:
1. Bids and offers posted on the platform
2. Transactions executed on the platform

In order to ensure the reliability and sturdiness of the index and prevent manipulation, a number of
filters and qualifiers are applied to qualify the data for inclusion. Moreover, the formula is structured
in a way that enables the transaction component to weigh more heavily in the calculation as
transacted tonnage increases.

The following methodology details the scope of the globalCOAL RB Index, and offers a fully
transparent description of the calculation of each component in the final Index.

2 Introduction

globalCOAL introduced the RB Index in November 2001 in response to persistent demand for an
independently established, transparent and reliable reference price for spot FOB Richards Bay
thermal coal.

The RB Index methodology is based on a template devised by globalCOAL in collaboration with the
industry. This template was successfully applied to the FOB Newcastle thermal coal market in 2002,
and produced an index that has since established itself as the benchmark for Asia-Pacific thermal
coal prices.

The RB Index provides an independently established, transparent and reliable reference price for
spot FOB Richards Bay thermal coal.

The key strengths of the RB Index are as follows:

 OBJECTIVE: Involves no interpretation or judgement in its compilation ;

 CONSISTENT: Is calculated according to clear, defined rules, which are set out in a
published methodology ;
 ROBUST: Is resistant to manipulation ;
 TRANSPARENT: Utilises underlying data which is published and derived from a
transparent source ;
 INCLUSIVE: Facilitates price contributions from a significant number of industry
participants.
 PARTICIPATIVE: Designed in conjunction with the industry

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3 Scope of the RB Index and Definitions

The RB Index represents the spot price of the index month for the Phys RB1 (FOB FBCT Low
Vol) coal contract under FOB delivery terms at the port of Richards Bay in South Africa. These
terms are defined as follows:

‘Index Month’ refers to the period for which the Monthly RB Index is calculated. The Index Month
begins on the first business day following the close of the prior calendar month, and terminates on
the last Friday of the calendar month.
th th
Example: If the last Friday in January is the 25 , the February Index Month begins on Monday 28 January.

‘Spot Price’ is defined here as the price for coal being delivered in the prompt three months
following the current calendar month.

‘Phys RB1 (FOB RBCT Low Vol) coal contract’ (‘Phys RB’) refers to physical coal falling within
the RB1 coal quality parameters set out in globalCOAL’s Standard Coal Trading Agreement
(SCoTA). The following table summarises RB1 quality parameters:

Phys RB1 (FOB RBCT Low Vol)

Calorific Value Basis 6,000 kcal/kg NCV, minimum 5,850 NCV
Total Moisture Max 12% (as received basis)
Volatile Matter Min 22% (as received basis)
Ash Max 15% (as received basis)
Sulphur Max 1% (as received basis)
Calcium Oxide in Ash Max 12% (dry basis)
HGI Typical 45-70
Nominal Topsize 50mm

‘Free on Board’ (FOB) is a standard Incoterm signifying that the seller has fulfilled the delivery
obligation when the coal passes over the ship’s rail at the port of origin.

‘Richards Bay’ refers to the coal handling facilities located in the Port of Richards Bay, South
Africa.

4 Monthly RB Index Calculation

The globalCOAL Monthly RB Index is the simple average of each Weekly RB Index as calculated
on each Friday falling in that Index Month.

The globalCOAL Monthly RB Index is published on the last Friday of each calendar month after
17.00 London time.

Like its weekly counterpart, the Monthly RB Index is calculated in US Dollars (US$) per metric tonne
to two decimal places (rounding fractions of 0.005 and higher up, and rounding fractions below
0.005 down, to the nearest US cent).

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globalCOAL RB Index™ Methodology (v.1e)

5 Weekly RB Index Calculation

5.1 Overview of the Weekly RB Index

The Weekly RB Index has the following features:

 Is calculated using two categories of applicable data:

o Firm bids and offers in Phys RB for any delivery period entirely contained within
the prompt 3 months following the current calendar month, which are submitted to
globalCOAL’s online coal trading platform. The prices must be posted for a
minimum of 15 minutes from Monday to Friday between 08.00 and 17.00 London
time (excluding public holidays – see below) ;
o Transactions in Phys RB for any delivery period entirely contained within the
prompt 3 months following the current calendar month, which are executed via
globalCOAL’s online coal trading platform. The transaction must be carried out from
Monday to Friday between 08.00 and 17.00 London time.
 Data collected on the following public holidays will be excluded: New Year’s Day, Easter
Friday, Easter Monday, Christmas Day, Boxing Day ;
 Is calculated and published every Friday after 17.00 London time, using applicable data
collected during that day and the previous 4 calendar days (“Data Week”). If a Friday falls
on one of the public holidays listed above, the Weekly RB Index will be calculated and
published on the first day preceding that Friday that is not a public holiday ;
 Is calculated in US$ per tonne to two decimal places (rounding fractions of 0.005 and
higher up, and rounding fractions below 0.005 down, to the nearest US cent).

5.2 The Two Components of the Weekly RB Index

The Weekly RB Index incorporates a bid-offer component, and a transaction component.

5.2.1 Calculating the Weekly Bid-Offer Component

The Weekly Bid-Offer Component is calculated as the simple average of the daily bid-offer
components calculated during for each day of the relevant Data Week. Typically, the Weekly Bid-
Offer Component would be the average of the week’s 5 daily bid-offer components.

Note: Where a week contains one or more applicable holidays (as listed above), the Weekly Bid-Offer Component will be an
average of less than 5 daily bid-offer components.

A series of filters are applied to the applicable bid and offer data to ensure reliability and prevent
manipulation.

Reminder: Applicable bids and offers fulfil the following criteria:

 Are submitted on the globalCOAL online trading platform for Phys RB;
 Are for any delivery period entirely contained within the prompt 3 months following the current calendar month ;
 Are firm prices available for a minimum of 15 minutes from Monday to Friday between 08.00 and 17.00 London time.

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1
The number of bids and offers used in the daily bid-offer component calculation will be the lowest of:

Filtered number of applicable bids = Filtered number of applicable offers =

The lowest of… The lowest of…

10 10

OR OR

The number of applicable bids which have a price The number of applicable offers which have a
falling within 4% of the price of the highest price falling within 4% of the price of the lowest
2 2
applicable bid applicable offer

OR OR

20% of the number of applicable bids 20% of the number of applicable offers
(minimum 1, then rounding fractions of 0.5 and (minimum 1, then rounding fractions of 0.5 and
higher up and fractions below 0.5 down) higher up and fractions below 0.5 down)

OR OR

The filtered number of offers so that the number The filtered number of bids so that the number
of qualifying bids and offers will always be equal of qualifying bids and offers will always be equal

The daily bid-offer component is then calculated by averaging the qualifying bids, and the qualifying
offers, and taking a simple average of the two numbers.

Example: Calculating the 21 January daily bid-offer component as part of January RB Index

Applicable Bids and Offers Posted 21 January:

BID (US$/t) OFFER (US$/t)
March 161.00 166.75 April
March 160.00 167.00 April
February 158.50 168.50 April
March 158.00 174.00 February
April 152.75
April 152.50
March 151.00
February 151.00
Total Bids: 8 Total Offers: 4

The number of bids and offers qualifying for the daily bid-offer component is the lowest of:
METHODOLOGY RULE BIDS OFFERS
Max number of prices to be included 10 10
Number of prices falling within 4% of the best bid and best offer 4 3
20% of the number of bids and 20% of the number of offers (minimum 1) 2 1
An equal number of bids and offers 1 1

Therefore the following bids and offers qualify for today’s daily bid-offer component:
BID (US$/t) OFFER (US$/t)
March 161.00 166.75 March
Average = US$ 163.88

Where the daily bid-offer component cannot be determined due to an absence of qualifying bids
and offers, the daily bid-offer component calculated on the previous business day will be used.

1
The 4% band was agreed in conjunction with the market as an appropriate range.

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The Weekly Bid-Offer Component will then be calculated as the simple average of the Data Week’s
daily bid-offer components.

Example: Calculating the Weekly Bid-Offer Component as part of January RB Index

Daily bid-offer components this week and rolling daily average

Date ABSOLUTE ROLLING AVERAGE
21 January 163.88 163.88
22 January 165.32 164.60
23 January 168.97 166.06
24 January 167.50 166.42
25 January 167.89 166.71
Weekly Bid-Offer Component = US$ 166.71

5.2.2 Calculating the Weekly Transaction Component

The Weekly Transaction Component is calculated as the volume-weighted average price of all
transactions deemed to be applicable data and executed during the Data Week.

Reminder: Applicable transaction data fulfil the following criteria:

 Are executed on the globalCOAL online trading platform Phys RB ;
 Are for any delivery period entirely contained within the prompt 3 months following the current calendar month ;
 Are executed Monday to Friday between 08.00 and 17.00 London time.

Example: Calculating the Weekly Transaction Element as part of January RB Index

Applicable Trades this week:

DETAILS EXPIRY PRICE VOLUME
Phys RB February 161.00 45kt
Phys RB March 162.50 30kt
Phys RB March 162.00 15kt
Phys RB April 160.25 45kt
Phys RB March 162.75 75kt
Volume-weighted average = US$ 161.75

Clarifications on particular cases:

 A Calendar Transaction is never included in the calculation of the Weekly Transaction
Component as it does not fall within “any delivery period entirely contained within the
prompt 3 months following the current calendar month” ;
 A Quarterly Transaction is only included in the calculation of the Weekly Transaction
Component when it is “entirely contained within the prompt 3 months following the current
calendar month” – this will occur namely in December for Q1 transactions, in March for Q2
transactions, in June for Q3 transactions and in September for Q4 transactions ;
 A Time Spread Transaction is never included in the calculation of the Weekly Transaction
Component as the price for each individual leg of the spread trade is subjectively
determined.

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5.3 Calculating the Weekly RB Index

The Weekly RB Index is calculated as a volume-weighted average of the Weekly Bid-Offer

Component and the Transaction Component:

 The Weekly Bid-Offer Component is weighted at a fixed volume of 150,000 tonnes2 ;

 The Transaction Component is weighted according to the total number of tonnes of that
week’s applicable transactions.

Weekly Weekly
Bid-Offer Transaction
Component Component
150,000 tonnes “X” tonnes

Index Calculation
(B * 150,000) + (T * X)
(150,000 + X)

Where: B is the Weekly Bid-Offer Component in US$ per tonne

T is the Weekly Transaction Component in US$ per tonne
and X is the total tonnage of the trades included in the Weekly Transaction Component

Example: Calculation of the Weekly RB Index:

(166.71 x 150,000) + (161.75 x210,000) = (25,006,500 + 33,967,500) = US$ 163.82
(150,000 + 210,000) 360,000

The calculation therefore allows for the weighting of the Weekly Bid-Offer Component to
proportionally decrease as the executed tonnage increases.

6 Governance
globalCOAL is authorised and regulated in the UK by the Financial Services Authority (FSA).

Under FSA rules, globalCOAL operates a multilateral trading facility (MTF) and is therefore required
to have:
 Transparent and non-discretionary rules and procedures for fair and orderly trading ;
 Objective criteria for the efficient execution of orders ;
 Transparent rules regarding the criteria for determining the financial instruments that can be
traded under its systems ;
 Transparent rules, based on objective criteria, governing access to its facility.

Trades are monitored to check whether they are executed within an acceptable range and in
accordance with globalCOAL’s regulatory obligations. If the Compliance Officer of globalCOAL
deems that a trade is ‘off-market’ or otherwise in breach of globalCOAL’s policies, that trade may be
excluded from the Index calculation and the parties referred to the FSA.

Further information on the criteria used by the Compliance Officer to monitor transactions can be
found on the globalCOAL website www.globalcoal.com.

2
A weighting of 150,000 tonnes (equivalent to a cape size vessel) was selected in consultation with the market as it was
deemed to represent a sufficient size to ensure that small physical transactions could not unduly influence the Index.

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7 Amendments to the RB Index

It is globalCOAL’s intention to minimise the number of modifications that will be made to the RB
Index methodology. However, given the developing nature of the OTC market for coal, globalCOAL
reserves the right to make amendments to the methodology in the future.

8 Industry Comments
globalCOAL was created by leading international coal consumers and producers to promote
standardisation and transparency in the coal market. All stakeholders’ comments, feedback and
questions are highly valued. Please contact us at:

globalCOAL globalCOAL
London Office Singapore Office
T +44 207 776 5900 T +65 6538 7386
F +44 207 776 5902 F +65 6223 2448
frontoffice@globalcoal.com frontoffice@globalcoal.com

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9 APPENDIX: Frequently Asked Questions

Q Are index-linked Phys RB transactions included in the RB Index calculation?

A No, they are not. Only Phys RB transactions executed at fixed price and bids and
offers for such a contract are included in the calculation.

Q What is RB2 and is it included in the RB Index calculation?

A RB2 is an alternative SCoTA specification for FOB Richards Bay thermal coal which varies
from the RB1 specification only in the minimum volatile matter allowed (22% for RB1 vs
25% for RB2). It is not currently traded on the globalCOAL screen. Should on-screen
trading of the RB2 product resume, transactions, and bids and offers for this contract, would
not be included in the calculation of the RB Index. The RB Index is only calculated from
transactions, and bids and offers, in Phys RB1 (FOB RBCT Low Vol) coal contract (‘Phys
RB’).

Q Are Phys RB EFP transactions included in the RB Index calculation?

A Yes. The price at which the EFP transaction is executed is included in the index calculation,
prior to it being broken down into its physical index-linked and Futures legs.

Q What safeguards are there against strategies to move the index through off-market
trades?
A As globalCOAL is authorised and regulated by the Financial Services Authority, any off-
market trades will be reported to the regulator. Please see our compliance statement in
section 6.

Q Is the index calculated on UK Bank Holidays?

A Only five holidays a year are excluded from the RB Index calculation: New Year’s Day,
Easter Friday, Easter Monday, Christmas Day, Boxing Day. Other UK Bank Holidays are
considered to be normal business days for the purpose of RB Index calculation.

Q Are there any restrictions on the level of the prices that can be posted on the
globalCOAL screen?
A Yes. globalCOAL generally imposes a +/- US$ 30 band either way of current market prices.
These limits were introduced in part to minimise the possibility of trader mistakes. However,
globalCOAL reserves the right to widen (or reduce) this band in periods of high (or low)
volatility.

Q Are voice bids and offers included in the RB Index calculation?

A No. To be considered applicable data the bid or offer needs to be posted on the
globalCOAL electronic trading platform as a firm price for a minimum of 15 minutes.

Q Does the tonnage associated to a bid or offer affect its weighting in the Index
calculation?
A No. The daily bid-offer component is a simple average of the best bid(s) / best offer(s)
qualifying for inclusion in the Index calculation. The prices are given equal weighting.

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