The facility will be located in Wyoming at Arch’s Coal Creek mine site, a surface operation in the heart of the Powder River Basin.

As part of the agreement, KFx will handle financing, construction and operation of the complex, for which the companies anticipate starting production by the end of 2008. Also part of the deal is a stock purchase, allowing Arch to acquire more interest in KFx; it has been cleared to obtain $US3 million in common stock and has rights to purchase $US7 million more.

Additionally, Arch was given warrants, which expire at various times throughout the complex’s development, to obtain up to $US40 million in KFx stock at a pre-determined premium to the initial purchase price.

“We are pleased to have the opportunity to expand our equity investment in the company and participate in KFx’s long-term development,” said Arch Coal president Steve Leer. “We look forward to working with KFx to commercialise the K-Fuel product.”

KFx chief Mark Sexton concurred. “Today’s announcement is a win-win for both companies. It allows Arch to benefit from the development of KFx as a whole, while providing KFx with an excellent site for a major K-Fuel facility and providing capital for our current and future growth.”