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.

On June 7, 2018, Big Metal provided the Crow Tribe notice that it was exercising its lease option on the Upper Youngs Creek project area and extending its coal lease options for the Squirrel Creek and Tanner Creek project areas. After Big Metal and the Crow Tribe sign the Upper Youngs Creek coal lease, the coal lease will require approval from the U.S. Department of the Interior and related regulatory actions before the lease is effective.

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)During the five years since signing the Exploration Agreement and Option to Lease Agreement, Big Metal has made option payments totaling $10 million to the Crow Tribe. These payments were only for the right to enter into leases. Additional payments totaling approximately $1.8 million were made to the Crow Tribe soon after the exercise of the option on the Upper Youngs Creek project area and the extension of the options for the Squirrel Creek and Tanner Creek project areas. Substantial multi-million dollar payments would be made to the Tribe upon the approval of the Upper Youngs Creek lease, 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.

Big Metal’s exercise of the Upper Youngs Creek option and payment of the initial option payments for the Squirrel Creek and Tanner Creek project areas extended the option periods for Squirrel Creek and Tanner Creek through December 31, 2025. 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.