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U.S. coal producer Cloud Peak Energy Inc. (CLD - Snapshot Report) received approval to start exploration and development work in a coal mine located in Crow Indian Reservation. The U.S. government wing, The Bureau of Indian Affairs (“BIA”), approved the development of up to 1.4 billion tons of Northern Powder River Basin (“NPRB”) coal located in the Reservation area.

On Jan 24, 2013, Cloud Peak Energy and the Crow Tribe signed an agreement and submitted it to BIA for final approval. Cloud Peak paid $2.25 million to the Crow Tribe at the time of executing the agreement and paid another $1.5 million after receiving the BIA nod, as agreed previously.

Cloud Peak Energy will also make further annual payments to Crow Tribe during the first five-year option period. The option payment will come to $10 million, including the $3.75 million paid earlier. The company will also pay $75,000 a year in scholarships for the tribe beginning with the 2013-2014 academic year.

We believe this approval will allow the company to cater to the ever increasing demand for coal in the Asian countries. This reserve is located near its Spring Creek mine and Youngs Creek Mining Company, LLC and CX Ranch properties. Close vicinity to its other mines will help the company to develop and transport the coal mined to the nearby ports.

Cloud Peak Energy expects the development of this mine to take 5 years and production to touch 10 million tons annually. Moreover, the company is also developing a property in Young Creek situated in the PRB. In fact, Cloud Peak Energy is a pure-play PRB coal company.

The PRB holds a significant volume of coal. As per a recent report from U.S. Geological Survey, the states of Wyoming and Montana in the PRB contain about 162 billion short tons (BST) of recoverable coal. The report also says out of the total recoverable coal, 25 BST is currently economically viable to recover. We believe with the improvement in mining techniques a larger portion of the reserves would be recovered at a cheaper cost.

In 2012, Cloud Peak Energy exported nearly 4.4 million tons of coal to Asian countries. The coal came from its Spring Creek mine. For 2013, the company expects its coal exports to Asian countries to touch 4.5 million tons.

We appreciate the company’s decision to develop mining operations in the PRB area. This in way will allow the company to meet domestic as well as international demand for coal.

Cloud Peak Energy retains a Zacks Rank #3 (Hold).  Other companies in the industry worth considering are Alliance Holdings GP L.P. (AHGP - Snapshot Report), Alliance Resource Partners LP (ARLP - Snapshot Report) and Hallador Energy Company (HNRG - Snapshot Report). All of them presently hold a Zacks Rank #2 (Buy).

Gillette, Wyo-based Cloud Peak Energy Inc. through its subsidiaries engages in coal mining operations in the PRB.

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