Coal-mining giant Arch Coal Inc. on Tuesday offered to pay nearly $86 million for the right to develop state-owned coal in southeastern Montana’s Otter Creek Valley, setting up a vote this week on whether the bid will be accepted.
Gov. Brian Schweitzer, one of five state Land Board members who will vote on the bid Thursday, promptly declared it a good deal and said he hopes the board will approve it.
Schweitzer also said if the bid is accepted, the $86 million expected from Arch Coal likely will influence his pending decision on whether and where to cut the state budget, in the face of falling state tax revenue.
“I think that I will look much more favorably at some of the cuts we’ve been considering,” he said Tuesday evening. “I can tell you that 49 other states in America would pull out their front teeth with vise grips to have this kind of deal.”
Schweitzer is considering whether to approve $40 million in recommended state spending cuts for the next fiscal year.
Arch Coal, based in St. Louis, was the only coal company to submit a bid by Tuesday’s deadline, to lease the 572 million tons of state-owned coal.
The bid was at the 15-cents-a-ton minimum set by the Land Board last month, or $85.8 million.
If the Land Board accepts the bid, Arch Coal must pay the money up-front, giving it a 10-year window to start mining the huge coal field, which is about 150 miles east of Billings.
The state-owned coal is interspersed with 730 million tons of coal owned by Great Northern Properties, which agreed last November to lease its coal to Arch for 10 cents a ton.
Tuesday’s bid is the latest development in a decade-old tug-of-war over developing the Otter Creek coal, which was transferred by the federal government to the state in the 1990s when state agreed to block a proposed precious-metals mine north of Yellowstone National Park.
Environmental groups and some landowners near Otter Creek have fought the lease, arguing that a coal mine would destroy a pristine valley, lead to worsening climate change, and harm water resources in the area.
They also have said it will enable construction of the Tongue River Railroad, which is bitterly opposed by some Tongue River Valley farmers and ranchers. The railroad would run from Miles City to Ashland, and possibly ship coal from nearby Otter Creek.
Anne Hedges, program director for the Montana Environmental Information Center, said Tuesday that Montana is poised to give its coal away “for a fraction of what it’s worth.”
Hedges noted that Arch has huge mine operations in Wyoming, and said the Tongue River Railroad could benefit those mines by providing a new shipping route for their coal.
She also questioned whether the deal between Great Northern and Arch is an arm’s-length transaction, suggesting it could have been engineered to make a deal for the state coal more likely, at an affordable price for Arch.
“There is nothing good about this (deal) for Montana, from an economic perspective or an environmental perspective,” Hedges said.
Schweitzer, however, said the deal between Arch and Great Northern “is a real transaction,” and that the coal company has already paid the first of five installments on its $73 million bid with Great Northern.
The 15-cents-per-ton bid offered by Arch is three times what a state-hired appraiser said the Montana coal was worth a year ago, he added.
“I can’t imagine us getting a better deal than this,” Schweitzer said.
Schweitzer also noted that if the bid is accepted, the state gets that money up front — and more funds down the road, if a mine is developed.
“If they don’t develop it, we still have the coal, it’s in the ground, and we will have spent the $85 million on … teachers and books,” he said.
The Land Board originally set the minimum “bonus bid” at 25 cents a ton, back in December. The only company to respond by a Feb. 8 deadline was Arch, which said the amount was too high.
The Land Board decided a week later to lower the minimum bid to 15 cents a ton.
Mike Dennison: 443-4920 or email@example.com