BLM clears way for lease sales on two coal tracts sought by Cloud Peak

The U.S. Bureau of Land Management has issued a final Record of Decision (ROD) for the Maysdorf II Coal Lease-by-Application (LBA) tract, clearing the way for lease sales on this Powder River Basin coal reserve.

The ROD covers the Maysdorf II portion of a larger final Environmental Impact Statement (EIS) covering four coal lease applications that include reserves located near each other, BLM noted in an Aug. 30 Federal Register notice. For Maysdorf II, located in Campbell County, Wyo., BLM has approved Alternative 3, the preferred alternative for this LBA in the South Gillette Area Coal Final EIS. Under Alternative 3, the Maysdorf II coal LBA area, as modified by the BLM, will be divided into two separate LBA tracts referred to as the Maysdorf II North Tract and the Maysdorf II South Tract.

That split means that there will now be two lease sales for this coal, instead of the one sale that a unit of Cloud Peak Energy (NYSE: CLD) was seeking when it filed one application for these separate tracts. BLM often does this in situations like this one, since a competitive bidder might be interested in only one of the tracts and not both. The theory from BLM is that having two separate sales might encourage competitive bids that wouldn’t happen otherwise.

The Maysdorf II North Tract, as modified by the BLM, includes 1,338.37 acres, more or less, and contains an estimated 167 million tons of in-place federal coal reserves. The Maysdorf II South Tract, as modified by the BLM, includes 2,305.90 acres, more or less, and contains an estimated 271 million tons of in-place federal coal reserves. The BLM will announce two competitive coal lease sales in the Federal Register at a later date.

In September 2006, Cordero Mining filed the original application with BLM to lease the federal coal included in this area, located west and south of and immediately adjacent to the Cordero Rojo mine. In November 2011, tracts were delineated from the study area associated with the Maysdorf II LBA tract such that all surface which did not include surface owner consent was removed and the remaining the area was delineated into a north tract containing one parcel and a south tract containing three parcels. As applied for originally, the Maysdorf II LBA included a total of approximately 4653.8 acres and 504 million tons of in place federal coal.

The Belle Ayr mine of Alpha Natural Resources (NYSE: ANR) is next to the Maysdorf II North parcel and also near the northernmost of the three parcels in Maysdorf II South. The other two Maysdorf II South parcels are nearer Arch Coal’s Coal Creek mine, but there is a gap of land and the UP/BNSF Joint Line between them and Coal Creek, so a competitive bid from Arch seems unlikely.

There was expensive lease competition last year between Alpha and Peabody Energy (NYSE: BTU) in this area of the PRB, driving up the basic costs for future PRB reserve leasing since BLM takes into account past reserve sales in figuring the minimum bids it will accept for future leases in the same area.

Cordero Mining anticipates that, if it acquires the leases for Maysdorf II LBA North and South, it could extend the mine life by approximately 9.9 years. An air quality permit approved by the Air Quality Division of the Wyoming Department of Environmental Quality currently allows mining of up to 65 million tons of coal per year at Cordero Rojo. In the environmental impact statement, the estimated production by the year 2015 at the Cordero Rojo mine has been assumed to be 39 million tons of coal per year and to remain at that rate through the year 2020.

U.S. Mine Safety and Health Administration data shows that Cordero Rojo produced 19 million tons in the first half of this year and 39.5 million tons in all of 2011.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.