Arch Coal, Inc. and Great Northern Properties Limited Partnership (GNP) announced that they have signed a coal lease comprising all of GNP’s coal resources in the Otter Creek Tracts located in southeastern Montana. The coal lease will give Arch the right to mine approximately 9,600 acres of GNP-owned minerals that encompass approximately 731 million tons of high-quality, low-cost sub-bituminous coal reserves. As consideration for entering into the lease, GNP will receive a front-end bonus of $0.10/ton, or $73.1 million, which will be payable in equal annual installments over a five-year period.
“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,” said Steven F. Leer, chairman and CEO, Arch Coal. “We believe future development of these 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. Investing in these low ratio reserves now will give us a future cost advantage in the domestic and international energy markets.”
“We are pleased to have Arch, a world-class coal company, develop some of GNP’s most significant reserves,” said Corbin J. Robertson Jr., chairman and CEO, GNP.
The 731 million tons of low-ratio, sub-bituminous coal reserves, which are low in sulfur content, are located in the Ashland coalfield southeast of Billings, Mont. These reserves would support the future development of a large-scale, dragline-operated surface coal mine.
The consummation of the Arch-GNP Otter Creek Coal Lease comes on the eve of the State of Montana potentially putting its interests in the Otter Creek coal reserves up for lease as well. The state’s ownership comprises about one-half of the Otter Creek area—with GNP and the state owning their respective interests in a checkerboard pattern. These reserves are a portion of the approximately 20 billion tons of coal reserves owned by GNP in Montana and North Dakota.