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U.S. coal producer Cloud Peak Energy (CLD - Snapshot Report) after a year long preparatory work is all set to drill exploratory wells in Northern Powder River Basin at the Crow Indian Reservation in southeast Montana. In Jun 2013, the company received approval from the Bureau of Indian Affairs (BIA) to work in this reservation. Please read, Cloud Peak to Develop Mine in PRB.

With necessary permits and agreements with Tribal regulators under its belt and the onset of the warm summer weather, Cloud Peak is now ready to drill 100 holes of 6-inch diameter and collect samples to determine the quality and quantity of the coal reserves. These two factors are essential for the commercial viability of coal.

Cloud Peak Energy has been taking necessary steps to preserve the region’s cultural heritage. Cloud Peak has to date made an option payment of $5.25 million to the Tribe and will make additional annual payments during the remainder of the initial five-year option period taking the total payment to $10 million.

Cloud Peak Energy already has exposure in this region through its Spring Creek mine and Youngs Creek Mining Company, LLC and CX Ranch properties. The reserves which are being explored by Big Metal Coal Co. LLC., a unit of Cloud Peak Energy, are located near the aforesaid existing operations of the company.

Powder River Basin (PRB) is one of the prime coal producing regions of the U.S. and supplies nearly 40% of the country’s total coal consumption. Per a report from the U.S. Energy Information Administration (EIA), U.S. coal production will increase to 22.6 quadrillion Btu in 2040 from 20.6 quadrillion Btu in 2012. It goes without saying that PRB coal will contribute substantially to total production.

We believe that the development of PRB reserves will help the company to meet domestic requirements and cater to the ever increasing demand from the coal hungry Asian countries.

Per a report from the U.S. Geological Survey, the states of Wyoming and Montana in the PRB contain about 162 billion short tons of recoverable coal. The report also says out of the total recoverable coal, 25 BST is currently economically viable.  As a result, large coal producers of the likes of Peabody Energy Corporation (BTU - Analyst Report), Arch Coal Inc. (ACI - Analyst Report) and Alpha Natural Resources Inc. (ANR - Snapshot Report) also have stakes in this basin.

Cloud Peak Energy currently has a Zacks Rank #3 (Hold).

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