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Coal Supply Agreements

Jeffrey J. Scott, Proceedings of 23rd Annual Rocky Mountain Mineral Law Institute (1977)

The intensive capital requirements of coal mine development have caused managers of modern coal companies to focus on the return on investment available from the sale of the product of their mining activities.1 As more companies actively develop coal properties, particularly in the West, and as utilities and other users enter long-term coal supply agreements, the competition for remaining markets becomes keener. The negotiations between seller and buyer, which ultimately result in the coal supply agreement providing for the sale and purchase of coal from the mine in question, reflect the multiple considerations affecting the ultimate deal struck, including type and quality of coal, quantity of coal needed by the user, type and cost of transportation, and, perhaps most importantly, the price [108] to be paid to the seller and the cost to be borne by the buyer for the coal in question.

The coal supply agreement thus becomes a highly individualized document reflecting the unique parameters of each given agreement between a coal seller and a coal buyer. There is no standard form of coal supply agreement. As buyers survey the marketplace for available coal that meets their requirements, in terms of quality, quantity and transportation costs, coal sellers have the opportunity to negotiate in the marketplace to acquire a contract for the sale of their coal over a term of yea