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Peabody Energy To Open New Coal Mine In Illinois Basin

(Dow Jones)
Updated: 2009-03-18 10:49

Peabody Energy Corp. said Tuesday it will open the largest surface mine in the eastern U.S. after signing long-term supply contracts with two Midwest power generators.

The Bear Run mine in Indiana will produce up to 8 million tons of coal a year, a 25% increase over Peabody's sales from the Illinois basin last year. The mine will begin operating in the second half of the year, with coal output for 2010 expected at 2 million to 3 million tons.

The new mine is being developed as U.S. coal companies, including Peabody, voluntarily trim output and capital spending in response to falling prices and softer demand from generators and steel producers.

The new mine is being developed with the support of the two long-term supply contracts worth nearly $6 billion in new revenue. The contracts will run up to 17 years and supply more than 90 million tons of coal to the two generators. Additional production beyond the contracts will help to replace supplies from other Peabody mines in the Illinois basin as their production levels decline over time, Peabody spokeswoman Beth Sutton said.

Sutton declined to disclose the names of the two generators or discuss how production from the new mine could affect market prices.

The agreement with the two generators is one of Peabody's largest in company history. Although the Bear Run surface mine will be the largest in the Illinois basin, its annual capacity of 8 million tons represents a sliver of Peabody's overall sales. Peabody posted 200 million tons of U.S. sales last year.

"Long-term coal demand continues to grow. We are the largest producer and reserve holder in the Illinois Basin, which is one of the fastest-growing coal regions," Peabody chairman and chief executive Gregory Boyce said in a press release.

The St. Louis mining company estimates it will spend $350 million to $400 million over several years to develop the mine. Bear Run will employ an estimated 350 workers.

Peabody shares recently traded up 71 cents, or 2.8%, to $25.86.


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