Cloud Peak Energy Inc. (CLD) has received approvals from the Crow Tribal Legislature to jointly work with the Crow Tribe of Indians. This sanction is primarily based on the idea to obtain the exploration rights, and options to lease and develop up to 1.4 billion tons of Northern Powder River Basin (“NPRB”) coal by the company. The operation is located in Crow Indian Reservation of the southeast Montana.
Per the contract, Cloud Peak will get exploration along with three options to lease three separate coal reserves in the Crow Indian Reservation over an initial five-year term, with two extension periods through 2035, if some conditions are fulfilled. During the initial option period, the company intends to perform exploration activities at the prospective coal tonnages.
The Crow Tribe of Indians is a federally-acknowledged Indian tribe, having 13,000 members. This community occupies a 2.2 million acre Reservation in southeastern Montana.
During the Tribal approvals and execution of the agreements, Cloud Peak will pay $2.25 million to the Crow Tribe of Indians. Later, the company will pay another $1.5 million after receiving approval from the Department of the Interior, and will subsequently make additional annual payments of approximately $10 million, through the initial option period.
In addition, Cloud Peak will pay 8 – 15 cents per ton to the Crow Tribe of Indians on the basis of the lease and coal deposits, coal production taxes, and inflation and royalty rate adjustments. The company will annually invest additional $50,000, as scholarship, for the qualified Crow Tribal members.
As on September 30, 2012, Cloud Peak had cash balance of $185.5 million and its first nine months of 2012 cash flow from operating activities were $202 million. The company’s strong financial position allows it to continue with inorganic growth strategy.
In the last one year, the company has completed a number of acquisitions including purchase of Youngs Creek Mining Company, LLC. As this new plant is located nearer to Cloud Peak's Spring Creek mine and its newly acquired Youngs Creek Mining Company, LLC and CX Ranch assets, enabling the company to optimize its mine development activities in the region and will subsequently strengthen its footprint in NPRB.
We consider the company’s recent transactions as a positive move for its future growth. These factors will reinforce the company’s holdings in the PRB and meet the increase in demands of coal for both domestic and international customers. At the same time, this agreement will create new employment opportunities for the local people, which will consequently improve economic condition of the ethnic group.
However, impacts of the environmental regulations will increase the company’s costs. In addition, uncertainty associated with the company’s agreement in the NPRB and risks to hedging programs are a matter of concern.
Like its peer Alliance Resource Partners LP (ARLP), Cloud Peak Energy Inc. also has a short-term Zacks Rank #3 (Hold).
Gillette, Wyoming-based Cloud Peak Energy Inc. through its subsidiaries engages in coal mining operations in the PRB. The company produces and sells sub-bituminous thermal coal with low sulfur content, primarily to electric utilities.
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