COAL, URANIUM & OIL SANDS — Arch sells portion of reserves

St. Louis-based Arch Coal (ACI-N) has sold a portion of its coal reserves at the Black Thunder mine near Gillette, Wyo., to its neighbour, Kennecott Energy.

Kennecott, a subsidiary of Rio Tinto (RTP-N), operates the nearby Jacobs Ranch coal mine.

Arch received more than US$12 million in exchange for 35 million tons of in situ coal, which the company had not planned to mine for many years. The reserves are in the Thundercloud federal coal lease, which is estimated to contain 412 million tons. As part of the deal, both companies have reached an agreement on overstripping rights for the adjoining mines. The transaction is subject to regulatory approval.

Kennecott acquired the Jacobs Ranch mine from Kerr-McGee (KMG-N) in July 1998. Last month, Arch announced plans to close the Dal-Tex coal mine in West Virginia. The decision follows a court ruling against the issuance of permits for the Spruce Fork coal reserves, adjacent to the Dal-Tex mine. Arch had expected to mine the Spruce Fork coal from existing operations. The mine is expected to close by August.

Arch is the second-largest coal producer in the U.S., providing fuel for 6% of that country’s electricity. In January, it hammered out a long-term contract with the Los Angeles Department of Water and Power.