Of the purchase price, $195 million is allocated to the lease of about 450 million tons of in-place coal, while $105 million goes towards the purchase and lease of 38,800 acres of land near the Wyoming-Montana state line, an area well suited to exports through the Pacific Northwest.
The Youngs Creek surface property is permitted but undeveloped. It is just seven miles south of Cloud Peak’s Spring Creek mine. The acreage also extends onto the Crow Indian Reservation to the west and abuts its 50%-owned Decker mine to the east.
The Youngs Creek permits cover 291Mt of the 450Mt of low sulfur, high BTU sub-bituminous coal in-place. Of that permitted coal, 267Mt fall into an 8% royalty rate structure payable to Consol and Chevron.
“The significant coal and surface assets we acquired position Cloud Peak Energy well for future growth in our Asian exports as additional terminal capacity becomes available," president and chief executive officer Colin Marshall.
“The location of the coal and surface lands close to the Spring Creek mine and its rail spur should reduce development costs and allow future operating synergies to be realized. The quality of the coal is similar to that of our Spring Creek mine and offers lower sodium levels to further meet the needs of our customers.”
He also pointed out that the coal had the same geographic and quality advantages as Spring Creek, something that has built its PRB export sales in recent years.
“We now have a large asset base and lots of options as to how we develop our Northern PRB operations to meet future export and domestic coal demand,” Marshall said.
Cloud Peak said the timing and levels of development and production would hinge upon West Coast export port availability as well as a continued strong Asian demand for thermal coal.
The mine would be served exclusively by the BNSF railroad.
The producer said it did not expect it would report the newly-purchased coal in its year-end 2012 reserves.
The deal’s effective date is June 29, the company said.
For Consol, the transaction brings its 2012 asset divestitures to date to $224 million.
It will earmark the cash from the deal to its capital expenditure program. Officials said none of the assets sold generated revenue for the company this year.
“Since the 2010 acquisition of the Dominion Appalachian gas assets, Consol Energy has been able to pull value forward and focus on its near-term opportunity set," chairman and CEO J Brett Harvey said.
“As a result, we have been organically growing our coal and gas businesses in Appalachia while divesting properties that are more naturally suited to others.”