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How the Federal Leasing Process Affects Miners

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Federal leasing process

In the previous articles, we saw that the Western region of the US is the key area for low sulphur content coal. The majority of the land in the Western part of the country is federally owned. Coal (KOL) mining companies like Cloud Peak Energy (CLD), Peabody Energy (BTU), Alpha Natural Resources (ANRZQ), and Arch Coal (ACIIQ) derive a significant portion of their revenues from this region.

Royalties and various expenditures related to leasing of land form a major portion of cash outflows for companies operating in the Western region, and for Wyoming in particular.

According to the EIA, about 41% of total coal produced in the US came from federal lands in fiscal 2014. Therefore, it is important to know the coal mining leasing process on federally owned land.

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Coal mine leasing

The Mineral Leasing Act of 1920 and the Mineral Leasing Act for Acquired Lands of 1947 gave the Bureau of Land Management (or BLM) the responsibility of leasing coal on approximately 560 million acres of federally owned land. Leasing is precluded in military reservations, National Parks, or National Wildlife Refuges. BLM’s coal-leasing policy is governed by the Code of Federal Regulations.

The lessee has to pay BLM for extracting coal from federally owned lands as follows:

  1. at the time of getting a lease sanctioned in the form of a bonus
  2. an annual rental payment of $3.00 per acre
  3. royalties on the value of each ton of coal extracted

Leasing process

There are two types of procedures for leasing coal mines on federal land:

  1. Regional leasing: BLM selects the land for competitive sale within a particular region.
  2. Leasing by application: Public nominations are taken into consideration for the competitive sale of particular land.

Before the beginning of the competitive bidding process, BLM estimates the fair market value of the coal. This value is kept confidential and compared with the competitive bids received. The highest bid that meets or exceeds the presale fair market value of coal gets the lease.

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