Cloud Peak Energy’s Spring Creek Complex

Big Metal Coal project mapCloud Peak Energy is planning for the potential development of a large northern Powder River Basin (NPRB) surface coal mining complex, centered on its existing Spring Creek Mine and filled out by the Youngs Creek mining project to the south and potentially the Big Metal leases to the west.

In June 2012, Cloud Peak Energy acquired Youngs Creek Mining Co., LLC and the CX Ranch lands. Youngs Creek is a greenfield surface coal mining project located on the state border in Wyoming, seven miles south of Spring Creek Mine. The CX Ranch lands encompass 38,800 acres that abut Youngs Creek to the south and Spring Creek Mine to the north and lay over a substantial deposit of coal on the Crow Indian Reservation to the west.

Crow Tribe of Indian and Cloud Peak Energy signing agreementsOn January 24, 2013, Big Metal and the Crow Tribe of Indians signed an Exploration Agreement and an Option to Lease Agreement for up to 1.4 billion tons1 of in-place coal on the Crow Indian Reservation west of Spring Creek Mine. These agreements have been approved by the U.S. Bureau of Indian Affairs (BIA) and provide Big Metal the opportunity to explore and define mineable coal in the southwestern portion of the Reservation and to exercise rights to lease all or portions of this coal for mining, subject to additional regulatory approvals. The potential coal deposits are Squirrel Creek, Tanner Creek and Upper Youngs Creek, each subject to a separate option to lease.

Taken together, these elements of the proposed Spring Creek Complex cover several distinct political jurisdictions – Montana, Wyoming and Crow, each with federal overlaps – and feature up to 2 billion tons of in-place coal and 46,000 acres. Cloud Peak Energy is in the process of evaluating development and production options to potentially meet demand for both the domestic and export customers.

The Big Metal Agreements

Typical Price Breakdown at Assumed 10% Royalty (Example)Big Metal paid the Crow Tribe $2.25 million upon signing the Exploration Agreement and Option to Lease Agreement and paid an additional $1.5 million upon BIA approval of these agreements, plus annual option payments thereafter during the initial option term that could bring total option payments to $10 million. These payments are only for the right to enter into leases. Substantial multi-million dollar payments would be made to the Tribe upon the exercise of a lease or leases, and Big Metal would then pay production taxes and royalties on coal mined and sold. These tax and royalty payments would range from 21% – 30% of the price paid by Big Metal’s customers for coal.

The initial option period expires in June 2018. There are three coal deposits covered under three separate options to lease. If Big Metal does not exercise a lease during the initial option period, the agreement will expire. However, if a lease option is exercised, the Option to Lease Agreement will be extended to 2025 for any remaining unexercised additional leases and additional option payments will be made to the Tribe. Likewise, if Big Metal exercises another option to lease prior to the end of 2025, the option agreement will be extended a final time, to 2035. If no other options are exercised by the end of 2025, the option agreement will expire at that time.

Big Metal is committed to being a good corporate citizen on the Reservation. In addition to option, exercise, royalty and tax payments, the coal mineral leases with the Tribe – once effective – provide for preferential hiring, training and promotion of Indians and certain preferences for Indian-certified contractors. In addition, Big Metal has agreed to provide annual scholarships totaling $75,000 per year under the option agreement, starting with the 2013-2014 academic year, and $150,000 per year upon the exercise and approval of a lease(s). These amounts are in 2012 dollars and will be adjusted each year for inflation.

1Represents a current estimate of physical in-place coal tons. Does not represent proven and probable reserves, non-reserve coal deposits or a forecast of tons to be produced and sold in the future. Future production and sales of such tons, if any, are subject to exercise of options and significant risk and uncertainty.