The lease has estimated reserves of 719 million mineable tons of high Btu, low sulfur coal and is located adjacent to the company's Black Thunder mine.

"We view the addition of the high quality, super-compliance Little Thunder reserves as an important strategic investment in our future," Arch chief executive Steven Leer said.

"Over the past 15 years, demand for Powder River Basin coal has grown robustly at a compound average rate of approximately 6% a year. The addition of these reserves directly west of our existing operations will support continued low-cost production at Black Thunder for many years to come, while at the same time serving as a strategic platform for future growth."

Arch's Powder River Basin reserves now total 2.2 billion tons, including 1.6 billion tons that are mineable by the company's Black Thunder mine, located 50 miles south of Gillette, Wyoming.

Black Thunder - into which the recently acquired North Rochelle mine has now been integrated - is one of the largest and most productive coal mining operations in the world, Arch said. The expanded Black Thunder mine had coal sales of approximately 88.1 million tons on a pro forma basis in 2003.

On Wednesday Arch made the first of five equal annual payments of $122.2 million on the reserve tract.