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Cutting Royalty on Coal Tracts Would Cost State Millions
Montana Coal
BILLINGS – Lowering the price for mining a vast reserve of publicly owned coal near the Wyoming border would cost the state of Montana between $29 million and $170 million over the next few decades, officials said.

Montana's initial attempt to sell leases on the 572 million ton Otter Creek reserve ended Feb. 8 with no company making an offer.

The coal industry and eastern Montana Republicans are pushing for a lower lease price to spur development. Environmentalists and some area landowners want the price high, to discourage a project they said would have unpaid environmental costs.

The Montana Land Board, an all-Democrat panel chaired by Gov. Brian Schweitzer, will reconsider the Otter Creek lease terms Feb. 16.

Lowering the royalty rate on the coal to the minimum 10 percent required under state law would mean $170 million in lost revenue, from about $1 billion over the next 25 years to $830 million.

That figure from the Department of Natural Resources assumed mining 21 million tons per year of coal and factored in inflation.

Trimming the royalty even slightly would cost the state $29 million.

If a company mined the coal more slowly, over 40 years, revenues on a 10 percent royalty would drop to just over $700 million.

"Those are the ranges we're recommending," said DNRC director Mary Sexton.

She added that the state would get the bonus fee regardless of whether a mine was built. "It's looking at short-term revenue versus long term risk," Sexton said.

St. Louis-based Arch Coal Inc. recently bought leases on 731 million tons in the same reserve, from owner Great Northern Properties. Arch paid an upfront bonus bid of 10 cents per ton.

The state wanted more than twice as much — 25 cents per ton. That would have brought in $143 million in quick cash at a time when state tax receipts are dropping quickly in the aftermath of the recession.

Arch, the nation's second-largest coal miner, needs the state's reserves to make mining the Great Northern coal practical. Since the Great Northern and state-owned tracts are arranged in checkerboard fashion, Arch needs the state's reserves to make mining most efficient.

But instead of making a bid, the company sent the Land Board a letter with a suggestion: Lower the long-term royalty rate and maybe the high bonus would be palatable.

Environmental groups including the Sierra Club, National Wildlife Federation, and Montana Environmental Information Center said linking the price of coal to global warming would drive the bonus fee to more than $6 per ton.

That equals more than $3.4 billion, not counting royalties.

In 2009, Arch had revenues of $2.6 billion on sales of 125 million tons of coal from mines in Wyoming, Utah, Colorado, West Virginia, Kentucky, and Virginia. That was down from 138 million tons in 2008.
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