Arch Coal Inc. (ACI) and Great Northern Properties Limited Partnership (GNP) have entered into a coal lease agreement for all of GNP’s coal resources in the Otter Creek Tracts located in southeastern Montana. Following the agreement, Arch will own the right to mine about 9,600 acres (731 million tons) of GNP-owned minerals for a consideration of 10 cents per ton or $73.1 million, payable in equal annual installments over a period of five years. The 731 million tons of high-quality, low-cost, sub-bituminous coal reserves, which are low in sulfur dioxide content, are located in the Ashland coalfield southeast of Billings, Montana.
The coal lease provides a future growth opportunity for Arch to build a significant position in the Northern Powder River Basin coal region. We believe investment in these low-ratio reserves would support the future development of a large-scale, dragline-operated surface coal mine. It will also give Arch a future cost advantage in the domestic and international energy markets.
The State of Montana also has about half of the ownership interest in the Otter Creek area. The materialization of the Arch-GNP Otter Creek Coal Lease has come with the State of Montana potentially putting its interests in the Otter Creek coal reserves up for lease as well.
The future development of the Montana coal reserves will help competitively serve the northern U.S. 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.
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