The American coal giant signed a memoranda of understanding with RAG to purchase coal assets including the Twentymile Colorado mine and a 25% interest in a coal operation in Venezuela.

The Twentymile Mine near Steamboat Springs produces approximately 7.5 million tons per year of low-sulfur coal for electricity generators in the West, Southwest, Midwest and Mexico.

The purchase of the Twentymile mine is in line with the company’s acquisition policy of shifting its production and reserve profile to emphasize low-sulfur coal. Approximately 80% of Peabody’s sale volume and 44% of its reserves are low sulfur (before the Twentymile acquisition).

According to a Standard and Poor’s corporate rating of Peabody, the coal operator has positioned itself well to take advantage of the expected continued, although gradual, growth in Powder River Basin coal production.

The Venezuela purchase includes a 25% interest in Carbones del Guasare, a joint venture involving RAG, Anglo American and Carbozulia, a unit of the Venezuelan oil company PDVSA. Carbones del Guasare operates the Paso Diablo surface mine in northwestern Venezuela, which produces nearly seven million metric tonnes per year of coal for electricity generation and steel production in Europe and North America.

The transaction is subject to a number of conditions and the negotiation of definitive agreements. It is expected to be completed in the first half of 2004.

The RAG sale of its American assets has been on the cards for some time and was originally expected to come before the sell-off of its Australian assets. Peabody signed a memorandum of understanding with RAG to purchase North Goonyella longwall and Burton open-cut mines in Queensland at the end of November.

RAG has been divesting itself of its coal mining interests since the beginning of the month. Coal mining now makes up only 20% of group sales, but more than half of RAG's 80,000 workers are still involved in the heavily subsidised industry.

RAG still owns shares in US open cut mines Belle Ayr and Eagle Buttle in Wyoming; Wabash room and pillar mine in Illinois; Emerald and Cumberland longwall mines in Pennsylvania; and Laurel Creek, Camp Creek and Kingston room and pillar mines as well as Pioneer surface mine in West Virginia.