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Arch Coal and GNP sign lease on Otter Creek reserves

World Coal,

Arch Coal Inc., the second largest US coal producer, has announced that it has signed a coal lease agreement with Great Northern Properties Limited Partnership (GNP) for coal resources in the Otter Creek tracts in southeastern Montana, US. The lease allows Arch to mine approximately 9600 acres of coal tracts in the Ashland coalfield, with an estimated 731 million t of high quality coal reserves. Arch will pay GNP a front-end bonus of US$ 73.1 million (US$ 0.10/t). 

Aiding future development  
The company announced its belief that the reserves will help to support the future development of a large-scale, dragline-operated surface coal mine. Arch’s chairman and chief executive officer, Steven F. Leer, said: “The lease of GNP’s Otter Creek reserves provides an attractive future growth opportunity for Arch to build a significant position in the Northern Powder River Basin coal region. We believe future development of these Montana coal reserves will help competitively serve the northern US power generation market, provide Arch with an additional supply source to export into the fast growing Pacific Rim coal market or possibly house the site of a future coal-conversion facility”. 

Pressure on the state    
It is reported that the lease agreement has increased the pressure on Gov. Brian Schweitzer and other state officials to consider leasing adjacent coal tracts owned by the state. Currently, the state owns about half of the Otter Creek area, comprising 572 million t, interspersed in a “checkerboard pattern” with the privately held reserves Arch has acquired. Despite concerns that developments must occur in tandem, a spokeswoman for Arch Coal has said that the company could mine some of its newly acquired coal tracts without participation by the state. The combined coal reserves in the Powder River Basin contain more fuel than the US burns annually.  

Otter Creek is considered a potential competitor to Wyoming’s coal industry. However, Montana coal usually has a higher sodium content than that found in Wyoming, which limits the number of power plants that can burn it. Mary Sexton, director of Montana’s Department of Natural Resources and Conservation, also confirmed that the region requires approximately 90 miles of new railroad track to connect it to existing lines. 

Development of the Tongue River Railroad has been proposed for decades, but has continuously been delayed due to opposition from environmentalists. Such a development of the 131 mile line could potentially provide a new transportation corridor to Otter Creek, as well as billions of additional tons of coal in southeastern Montana, including those in the Northern CheyenneIndian reservation. Arch Coal owns several mines south of Otter Creek, in the Wyoming part of the Powder River Basin, including the world’s largest coal mine, Black Thunder, near Wright, Wyo.

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