The deal, entered into by Peabody for a cash contribution of up to $US25.8 million, overrides the initial agreement the two made in January. The deal includes Polo’s contributions of up to 1 billion tons of resources.

The reserves, located primarily in the South Gobi region, are subject to exploratory drilling.

As with the previous agreement, Peabody will acquire a 15% interest in Polo.

“Mongolia holds substantial metallurgical and thermal coal reserves that are strategically located to serve the high-demand China and Asian markets,” Peabody said.

“The creation of Peabody-Polo Resources BV marks another step as Peabody expands its Mongolian presence,” Peabody said, adding the venture has more than 100 Mongolian-based staff.

Peabody recently elected its senior vice-president of Mongolian operations, DL Lobb.

“A joint venture with Polo's existing platform will accelerate the development of Peabody's presence in one of the world's premier undeveloped coal regions," Peabody chief executive Greg Boyce said at the time of the initial JV announcement earlier this year.

“Because Polo has existing assets, coal resources and personnel in Mongolia, this transaction advances our goal of expanding our presence in high-growth, high-margin markets."

Polo CEO Stephen Dattels added the deal would give the alliance “the mining expertise and resources required to develop our asset base and unlock the currently unrecognised value of Polo's Mongolian interests”

It is the second time in just a few months that Peabody has invested a large sum of capital in expansion efforts.

The producer said in March that it would spend $350-400 million on the new 350-worker Bear Run complex in Indiana, the largest surface operation in the eastern US, over the coming years to bring the upcoming operation to full production capacity.

The company announced the new operation after securing major long-term coal supply contracts totalling almost $US6 billion.

The deals with two Midwest-based power generators for over 90 million tons under contracts of up to 17 years will be supplied completely by the 8Mtpa Bear Run operation under development now in Sullivan County.

Bear Run is expected to start production during the latter half of this year, and produce 2Mt to 3Mt next year, ramping up thereafter to the 8Mtpa target.