April 15, 2009
Coal mines leases could bring $1.4B for Montana
By MATTHEW BROWN Associated Press Writer
A new appraisal of vast state-owned coal reserves in southeastern Montana finds the state would reap $1.4 billion in royalty payments over the next four decades if it leases the property for mining.
Development of the Otter Creek tracts — more than a billion tons of coal co-owned by the state and Great Northern Properties — could open the door to a dramatic expansion of the region's coal industry. It also could facilitate construction of a long-delayed rail line, the Tongue River Railroad.
Both projects are fiercely contested by environmentalists and some Montana property owners, including billionaire Forrest Mars Jr. of the Mars candy business.
Developing the tracts has been pushed by private industry and the Montana Rural Education Association. Any royalty payments would go toward the state's public schools.
Montana Gov. Brian Schweitzer said Monday he wants a mine built, but only if the state gets top dollar for its assets. He said any environmental concerns were superseded by the state's obligation to bring in revenues from its land.
"We can only sell it one time," Schweitzer said. "We have a fiduciary responsibility to maximize the value of school trust land."
The Otter Creek appraisal was prepared for the state by Norwest Corp., a Salt Lake City consultant to the mining and energy industries. It will be heard April 20 by the Montana Land Board, which consists of Montana's top five elected officials, who ultimately will decide whether the state will lease the tracts.
Montana's 610 million tons of coal are spread over 9,500 acres near Ashland. The tracts are interspersed in a checkerboard fashion with land owned by Great Northern Properties, which controls a similar amount of coal.
The appraisal estimates that developing a coal mine at Otter Creek and building the Tongue River Railroad would cost $1 billion. The appraisal says the state could expect an upfront bonus of at least $37 million.
The estimate of $1.4 billion in royalties over coming decades was based on an assumption that 33 million tons of coal would be mined annually.
That would mark a 75 percent increase in Montana coal production — at a time when the slowing economy is decreasing demand for the fuel nationwide.
But Monte Mason with the state Department of Natural Resources, which sought the appraisal, said mining companies already are showing interest. He declined to name the companies.
The state's ownership stake in the project could significantly complicate development efforts by giving opponents a political forum for their objections. Mike Scott, Montana representative of the Sierra Club's Beyond Coal campaign, said his group is gearing up to make those objections known.
"The small profit the state can make off these coal tracts is greatly overshadowed by the environmental consequences of mining and burning coal," Scott said. "It just doesn't add up."
Great Northern President Charles Kerr said his company is "highly motivated to make it work" by finding a company willing to invest in a mine.
"It's going to be a polarized process. There's major politics," said Kerr, whose office is in Houston.
Kerr described the outcome of political debate in the state capital of Helena as "a coin toss." And he said the Northern Cheyenne tribe also would have to weigh in.
Leaders from the Northern Cheyenne Indian Reservation, due west of the Otter Creek coal tracts, historically have opposed the Tongue River Railroad but have not adopted a clear line on mining.
The Otter Creek tracts were given to the state by the federal government in 2002 as part of a federally brokered deal to shut down the New World gold mine proposed near Yellowstone National Park in the 1990s. The tracts were intended as compensation for revenues the state would have received from the gold mine.
If the Land Board puts the coal tracts out for bid and then authorizes a lease auction, a winning bidder could be announced by September, said the DNRC's Mason.
Schweitzer said he would be willing to hold multiple auctions, if needed, to get a fair value for the coal. He warned that if the price were set too low, mining companies in neighboring Wyoming could acquire the lease just to prevent the tracts from being developed.
Tongue River Railroad developer Mike Gustafson said Monday that the appraisal marked a "catalytic event" in his long-stalled effort to build his line, which would connect to an existing a Burlington Northern Santa Fe route through Miles City.
Gustafson's railroad received final approval from the Surface Transportation Board in 2007. It remains embroiled in a lengthy federal court challenge brought by conservation groups and landowners.