By MATTHEW BROWN - Associated Press Writer - Associated Press
Monday, February 8, 2010
Montana's Land Board will have to reconsider its price for developing a half-billion ton reserve of state-owned coal near Ashland after receiving no offers during a lease sale that ended Monday.
Critics had said the price sought by the state was set too high and suggested Land Board members schemed to undermine the sale to appease mining opponents.
The Otter Creek tracts hold an estimated 1.3 billion tons of coal buried in a remote stream valley. About half of those reserves are controlled by the state and the rest by Arch Coal Inc. of St. Louis.
During a six-week lease sale, the state asked for an up-front "bonus" bid of at least $143 million plus annual royalty payments that could approach $1 billion over several decades.
Only Arch responded — not with a bid, but with a letter saying the state's price was too high.
The Land Board is made up of the state's top five elected officials — all Democrats — and chaired by Gov. Brian Schweitzer. It will meet next week to review the failed lease sale.
Schweitzer insisted Monday he was "encouraged" by the letter from Arch, since it showed the company's interest.
"Just about everybody that's ever bought a car knows the way this works," Schweitzer said. "Like any good deal, it starts by working your way from the high to the middle and the low to the middle."
In November, Arch leased rights to 731 million tons of Otter Creek coal owned by Great Northern Properties. The bonus payment on that deal was $73.1 million. That's equal to 10 cents a ton, versus the state's request for 15 cents a ton.
In the letter to the Land Board, David Finnerty, president of Arch's land subsidiary, Ark Land Company, wrote that if the state lowered the 12.5 percent annual royalty payments on coal from Otter Creek, prospective developers would be able to increase their bonus bid.
