- The Washington Times - Monday, April 13, 2009

BILLINGS, MONT. (AP) - A new appraisal of vast state-owned coal reserves in southeastern Montana finds the state would reap $1.4 billion in royalty payments over the next four decades if it leases the property for mining.

Development of the Otter Creek tracts _ more than a billion tons of coal co-owned by the state and Great Northern Properties _ could open the door to a dramatic expansion of the region’s coal industry. It also could facilitate construction of a long-delayed rail line, the Tongue River Railroad.

Both projects are fiercely contested by environmentalists and some Montana property owners, including billionaire Forrest Mars Jr. of the Mars candy business.

Developing the tracts has been pushed by private industry and the Montana Rural Education Association, which wants the royalty payments for public schools.

Montana Gov. Brian Schweitzer said Monday he wants a mine built, but only if the state gets top dollar for its assets. He said any environmental concerns were superseded by the state’s obligation to bring in revenues from its land.

“We can only sell it one time,” Schweitzer said. “We have a fiduciary responsibility to maximize the value of school trust land.”

The Otter Creek appraisal was prepared for the state by Norwest Corp., a Salt Lake City consultant to the mining and energy industries. It will be heard April 20 by the Montana Land Board.

The board consists of Montana’s top five elected officials, who ultimately will decide whether the state will lease the tracts.

Montana’s 610 million tons of coal are spread over 9,500 acres near Ashland. The tracts are interspersed in a checkerboard fashion with land owned by Great Northern Properties, which controls a similar amount of coal.

The appraisal estimates that developing a coal mine at Otter Creek and building the Tongue River Railroad would cost $1 billion. Besides annual royalty costs, the appraisal says the state could expect an upfront bonus of at least $37 million.

Great Northern President Charles Kerr said his company is “highly motivated to make it work” by finding a company willing to invest in a mine. But he added the state’s involvement could significantly complicate the leasing process.

“It’s going to be a polarized process. There’s major politics,” said Kerr, whose office is in Houston. “The Northern Cheyenne are going to have to weigh in on the process” and the outcome of political debate in the state capital of Helena is “a coin toss,” he said.

The tribe on the Northern Cheyenne Indian Reservation, due west of the Otter Creek coal tracts, historically has opposed the Tongue River Railroad.

After the state got its tracts as part of a land swap from the federal government in 2002, the Northern Cheyenne and the state agreed that the tribe will receive job training benefits if development proceeds.

If the Land Board puts the coal tracts out for bid and then authorizes a lease auction, a winning bidder could be announced by September, said Monte Mason with the state Department of Natural Resources, which sought the appraisal.

Schweitzer said he would be willing to hold multiple auctions, if needed, to get a fair value for the coal. He warned that if the price were set too low, mining companies in neighboring Wyoming could acquire the lease just to prevent the tracts from being developed.

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