The deal involved the exchange of 60 million tonne blocks of PRB reserves to optimise each company's mine plans. In addition, Arch sold to Peabody the rail, loadout and surface facilities at the former North Rochelle Mine, as well as the box cut mine development infrastructure and other assets, for $US84.6 million.
Arch said the capital acquisition allowed its planned ultra-low sulfur School Creek mine to expand into premium quality coal more quickly and lower development costs.
"Amid ever-growing demand for Powder River Basin coal, this transaction allows us to accelerate the development of the 30 to 40 million-tonne-per-year School Creek Mine and produce a premium product at the start of operations," Peabody Western operations group vice-president Kemal Williamson said.
Peabody's School Creek Mine will access nearly 800 million tonnes of ultra-low sulfur premium Btu coal. The mine could begin production as early as the fourth quarter of 2008.
For Arch, it plans to use part of the $US84.6 million from Peabody to build a new rail spur and loadout facility closer to its recently acquired 719Mt ultra-low sulfur Little Thunder Creek federal coal lease.
The construction of these new facilities will enable Arch to forego about $US35 million of other planned capital expenditures – associated with conveyor systems and other coal-handling equipment – over the next three years.
"We have enhanced the efficiency of the Black Thunder mine plan, secured cash for the construction of a more modern loadout closer to our future reserve base, and significantly reduced our future capital requirements," Arch chief Steven Leer said.
In the reserve swap, Arch transferred to Peabody about 60Mt of coal reserves obtained by Arch in the Triton Coal Company acquisition in August 2004. In exchange, Peabody transferred to Arch the same number of tonnes on the West Roundup federal coal lease acquired by Peabody in February 2005.
Arch has signed a lease for the exclusive use of the rail and loadout facilities through to September 30 2008, by which time Arch expects to have completed construction on the new loadout.
As a result of the transaction, Arch expects to record a pre-tax gain of $US45-50 million in the fourth quarter of 2005.
