Arch bids $86M for Montana-owned Otter Creek

Arch Coal Inc. has bid $86 million plus future royalties for the right to mine a half-billion tons of state-owned coal in southeastern Montana near the Wyoming border. St. Louis-based Arch already controls 731 million tons of coal in Otter Creek, south of Ashland. Because the public and private coal tracts are arranged in a checkerboard fashion, industry observers say the reserves likely would be mined together. Combined, they contain enough fuel to meet the nation's coal needs for more than a year. Developing a mine could take years and would also require construction of the proposed Tongue River Railroad — a project fiercely fought by environmentalists and area landowners. The Montana Land Board meets Thursday to consider Arch's bid. If the company's offer is accepted, the $86 million bonus bid payment would provide a much-needed jolt to the state's budget. Declining revenues have led to projections of future deficits. A sale would also provide vindication for Montana's pro-coal Democratic governor, Brian Schweitzer, who was sharply criticized for setting the price for Otter Creek too high. Republicans warned he was driving away business. "Forty-nine other governors would pull all of their front teeth out with a vice grip to be in our position right now," Schweitzer said Tuesday. "If they don't develop within 10 years, it's $85 million that we just keep." Over the next several decades, a new mine could bring in royalty payments and taxes totaling more than $5 billion, Schweitzer said. The bonus payment offered by Arch was almost $60 million less than the state sought during a prior lease sale that ended in February. That first sale drew no bidders — only a letter from Arch saying the price was too high. Arch spokeswoman Kim Link said Tuesday the company had no immediate comment on the lease sale. But with Tuesday's bid, the nation's second largest coal miner is continuing its aggressive expansion in the Powder River Basin along the Montana- Wyoming border. Arch acquired the reserves interspersed with the stateowned tracts in November, paying 10 cents a ton, or $73 million to Houston-based Great Northern Properties. In October, Arch paid Rio Tinto $769 million for another Powder River Basin mine, Jacobs Ranch. The region's coal goes primarily to domestic utilities that burn it to generate electricity. But Arch is also now better positioned to ramp up exports to Asia through West Coast ports linked to the basin by rail. Asia and other foreign markets are considered areas of huge growth potential for the coal industry, which faces substantial pressures in the United States due to tightening environmental regulations and competition from renewable power sources like wind. Tuesday's bid was received by Montana's Department of Na t u r a l Re s o u r c e s a n d Conservation, which manages state land at the direction of the Land Board. DNRC staff will make a recommendat ion Wednesday on whether to accept the bid. "It's a good bid," said DNRC director Mary Sexton. "We're very pleased with it, and it certainly reflects well on the process we've gone through." The Land Board includes Montana's five top elected officials: the governor, superintendent of public instruction, attorney general, state auditor and secretary of state. They approved the 15-cent minimum bonus bid for Otter Creek on a 3-2 vote, meaning there should be enough votes to complete the sale.