Arch Western Finance, LLC 424(b)(3)

The Issuer is offering to exchange its outstanding unregistered notes described above for the new registered notes described above. The terms of the new notes are identical in all material respects to the terms of the outstanding unregistered notes, except for certain transfer restrictions, registration rights and additional interest payment provisions relating to the outstanding unregistered notes. The new registered notes will rank equally with and form part of a single series with the Issuer’s existing 6 3/4% Senior Notes due 2013 which previously were registered under the Securities Act and will have the same terms as those existing registered notes. In this document, we refer to the outstanding unregistered notes as the “old notes” and to the new registered notes as the “new notes”. We sometimes refer to the old notes and the new notes collectively as the “notes.”

The notes will be senior obligations of the Issuer. Arch of Wyoming LLC is a co-obligor with respect to the notes. The notes are not currently senior, equal or junior to any indebtedness of the Issuer or Arch of Wyoming, other than indebtedness represented by the old registered notes. The notes will be unconditionally guaranteed on a senior basis by Arch Western Resources, LLC and each of its domestic subsidiaries other than Canyon Fuel Company, LLC. Each guarantee will rank equally with each guarantor’s other unsecured senior indebtedness. The notes will be secured by a first-priority security interest in promissory notes issued by Arch Coal, Inc. to Arch Western Resources, LLC. These promissory notes are unsecured obligations of Arch Coal and are effectively subordinated to Arch Coal’s secured indebtedness and other liabilities of Arch Coal’s subsidiaries other than us and our subsidiaries.


	•	The exchange offer is subject to certain conditions described in this prospectus, including that no injunction, order or decree has been issued which would prohibit, prevent or materially impair our ability to proceed with the exchange offer.

	•	All old notes that are validly tendered and not validly withdrawn will be exchanged.

	•	Tenders of old notes may be withdrawn at any time prior to the expiration of the exchange offer.

	•	The Issuer will not receive any proceeds from the exchange offer.

For a discussion of certain factors that you should consider before participating in the exchange offer, see “Risk Factors” beginning on page 13 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

You should rely only on the information contained or incorporated by reference in this prospectus. Neither the Issuer, Arch Western, Arch Coal nor any subsidiary guarantor has authorized anyone to provide you with different information. If anyone provides you with different information, you should not rely on it. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus or, with respect to information incorporated by reference from reports or documents filed with the Securities and Exchange Commission, the date such report or document was filed. Neither the delivery of this prospectus nor any sale or exchange hereunder shall under any circumstance imply that the information herein is correct as of any date subsequent to the date on the cover of this prospectus.

Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. The form of letter of transmittal for the exchange offer states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act of 1933. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes where such old notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Issuer, Arch Western and the subsidiary guarantors have agreed that, starting on the expiration date of the exchange offer and ending on the close of business 180 days after the expiration date

Neither the fact that a registration statement or an application for a license has been filed under RSA 421-B with the State of New Hampshire nor the fact that a security is effectively registered or a person is licensed in the State of New Hampshire constitutes a finding by the secretary of state that any document filed under RSA 421-B is true, complete and not misleading. Neither any such fact nor the fact that an exemption or exception is available for a security or a transaction means that the secretary of state has passed in any way upon the merits or qualifications of, or recommended or given approval to, any person, security or transaction. It is unlawful to make, or cause to be made, to any prospective purchaser, customer or client any representation inconsistent with the provisions of this paragraph.

SUMMARY

This summary is a brief discussion of material information about Arch Western Resources, LLC, Arch Western Finance, LLC, Arch of Wyoming, LLC and Arch Coal, Inc. contained elsewhere in this prospectus. As a result, it does not contain all of the information that you should consider in deciding whether to participate in the exchange offer. We urge you to carefully read this entire prospectus and the documents incorporated into it by reference, including the “Risk Factors” and “Forward-Looking Statements” sections and the consolidated financial statements and related notes. Unless otherwise indicated, references in this prospectus to “Arch Western,” “we,” “our” and “us” and similar terms refer to Arch Western Resources, LLC, its wholly owned subsidiaries, including Arch Western Finance, LLC and Arch of Wyoming, LLC, and its 65% membership interest in Canyon Fuel Company, LLC; the term “Issuer” refers to Arch Western Finance, LLC; the term “Co-obligor” refers to Arch of Wyoming, LLC; and the term “Arch Coal” refers to Arch Coal, Inc. and its subsidiaries (including us). We are owned 99% by Arch Coal and 1% by an affiliate of BP p.l.c. The historical financial statements included in this prospectus account for the financial results of Canyon Fuel utilizing the equity method. From and after August 1, 2004, following Arch Coal’s acquisition of the remaining 35% interest in Canyon Fuel in July 2004, we consolidate 100% of the results of operations of Canyon Fuel in our financial statements and deduct Arch Coal’s 35% minority interest in Canyon Fuel’s net income. Except as otherwise indicated, references to “pro forma” give effect to (1) Arch Coal’s acquisition of the remaining 35% interest in Canyon Fuel and the related financing, including the change in accounting resulting from the acquisition; (2) Arch Coal’s acquisition of Triton Coal Company, LLC in August 2004, the related financing and Arch Coal’s concurrent sale of Triton’s Buckskin mine; and (3) Arch Coal’s contribution of Triton to us in August 2004, as if each occurred on the first day of the applicable period. References to the “Transactions” refer to (1) the acceptance of Arch Coal’s bid for the Little Thunder lease by the U.S. Bureau of Land Management in September 2004 and the related financing and (2) the issuance in October 2004 by the Issuer of $250.0 million of 6 3/4% Senior Notes due 2013 and the application of the net proceeds therefrom as set forth under “Use of Proceeds.” References to productivity in this prospectus are measured in tons of coal produced per employee-shift.

Arch Western Resources, LLC

We are one of the largest and most productive operators of compliance and low sulfur coal mines in the United States. On a pro forma basis, we sold 106.7 million tons of coal in 2003 and 79.9 million tons of coal during the nine months ended September 30, 2004, all of which was compliance and low sulfur. Our largest mine, Black Thunder, is located in Wyoming in the Powder River Basin, the largest and fastest-growing U.S. coal-producing region. We are in the process of integrating the operations of Triton’s North Rochelle mine with our Black Thunder mine, creating one of the largest and most productive mines in the world. We are also the largest producer of coal in the Western Bituminous Region, where we operate one underground mine in Colorado and two underground mines in Utah.

As of December 31, 2003 on a pro forma basis, we controlled approximately 2.0 billion tons of proven and probable compliance and low sulfur coal reserves. In September 2004, Arch Coal successfully bid for a 5,084-acre federal coal lease known as Little Thunder, which is adjacent to our Black Thunder mine in the Powder River Basin. In turn, Arch Coal intends to sublease Little Thunder to us. Arch Coal expects to finalize the Little Thunder lease, subject to regulatory review, in the first quarter of 2005. According to the U.S. Bureau of Land Management, Little Thunder contains approximately 719.0 million mineable tons of compliance coal. Compliance coal and low sulfur coal are coals which, when burned, emit 1.2 pounds or less and 1.6 pounds or less of sulfur dioxide per million Btus, respectively. In general, compliance coal does not require electric generators to use expensive sulfur dioxide reduction technologies to comply with the requirements of the Clean Air Act.

We sell substantially all of our coal to producers of electric power, most of whom are large, investment grade utilities. As of December 31, 2004, we have committed and priced approximately 90% of our 2005 production, approximately 71% of our planned 2006 production and approximately 35% of our planned 2007 production. Our goal with respect to a significant portion of the remainder of our planned

production which is uncommitted is to seek long-term supply agreements with our largest and best customers, providing us with a relatively reliable and stable revenue base. The remaining uncommitted position will enable us to take advantage of improving market conditions.

Arch Western Finance, LLC

The Issuer is a Delaware limited liability company and an indirect wholly-owned subsidiary of Arch Western Resources, LLC. It was formed in June 2003 solely for the purpose of being the issuer of the 6 3/4% senior notes due 2013. The Issuer has no operations, and we do not expect that it will have operations in the future. The Issuer’s only assets consist of intercompany notes.

Arch of Wyoming, LLC

The Co-obligor is a Delaware limited liability company and an indirect wholly owned subsidiary of Arch Western. The Co-obligor previously operated two small-scale surface mines in the Western Bituminous region that were placed into reclamation mode in 2004. The Co-obligor currently has no operations, and we do not expect that it will have operations in the future. The Co-obligor’s assets consist primarily of a 76-cubic-yard dragline and a 32-cubic-yard dragline, as well as intercompany notes.

Arch Coal, Inc.

Arch Coal is the second largest operator of compliance and low sulfur coal mines in the United States and operates some of the industry’s most productive mines. Arch Coal mines, processes and markets compliance and low sulfur coal from mines located in both the eastern and western United States, enabling it to ship coal cost-effectively to most of the major domestic coal-fired electric generation facilities. Including our operations, as of December 31, 2003 on a pro forma basis, Arch Coal controlled approximately 3.1 billion tons of proven and probable coal reserves, 84% of which was compliance and low sulfur coal, and which does not include approximately 719.0 million tons of reserves that will be acquired upon completion of Arch Coal’s Little Thunder lease. On a pro forma basis, Arch Coal sold 137.8 million tons of coal in 2003 and 106.0 million tons of coal during the nine months ended September 30, 2004.

In addition to our operations, Arch Coal produces coal in Central Appalachia in the eastern United States. Arch Coal supplied the fuel for approximately 7% of the electricity used in the United States in 2003, on a pro forma basis. Arch Coal’s sales volume has increased from 40.9 million tons in 1997 to 137.8 million tons in 2003, on a pro forma basis, primarily as a result of selective acquisitions as well as the strategic development of existing reserves.

Arch Coal’s common stock is listed on the New York Stock Exchange and traded under the symbol “ACI.”

Corporate Structure

In connection with our formation in 1998, we and Arch Coal entered into various agreements with a predecessor to BP p.l.c., including a Limited Liability Company Agreement and a Tax Sharing Agreement. These agreements place various restrictions on our ability to make distributions, incur, repay or refinance indebtedness, sell, lease or dispose of properties or take other actions. See “Governing Documents and

The Exchange Offer

On October 22, 2004, the Issuer issued in a private offering $250.0 million in aggregate principal amount of its 6 3/4% Senior Notes due 2013, which are referred to in this prospectus as the old notes. The Issuer, Arch Coal, Arch Western and the subsidiary guarantors entered into a registration rights agreement with the initial purchasers of the old notes in which the Issuer, Arch Coal, Arch Western and the subsidiary guarantors agreed to deliver this prospectus to you. You are entitled to exchange your old notes in the exchange offer for new notes that are identical in all material respects to the old notes, except that the new notes have been registered under the Securities Act of 1933, as amended, and will not bear legends restricting their transfer. Unless you are a broker-dealer or are unable to participate in the exchange offer, we believe that the new notes to be issued in the exchange offer may be resold by you without compliance with the registration and prospectus delivery requirements of the Securities Act. We urge you to read the discussions under the headings “The Exchange Offer” and “Description of the Notes” for further information regarding the new notes.


Registration Rights Agreement		You are entitled under the registration rights agreement to exchange your old notes for new notes with substantially identical terms. The exchange offer is intended to satisfy these exchange rights. After the exchange offer is complete, except as set forth in the next paragraph, you will no longer be entitled to any exchange or registration rights with respect to your old notes.

		The registration rights agreement requires us to file a registration statement for a continuous offering in accordance with Rule 415 under the Securities Act for your benefit if:

		• we determine that we are not permitted to effect the exchange offer due to any change in law or applicable interpretations of the SEC’s staff;

		• the exchange offer is not consummated within 225 days of the issuance date of the old notes;

		• any initial purchaser of old notes so requests with respect to old notes that are not eligible to be exchanged in the exchange offer and that are held by it following consummation of the exchange offer;

		• any holder of old notes (other than an initial purchaser) is not eligible to participate in the exchange offer; or

		• an initial purchaser of old notes does not receive freely tradeable new notes in the exchange offer in exchange for old notes constituting any portion of an unsold allotment.

The Exchange Offer		The Issuer is offering to exchange $1,000 principal amount of its 6 3/4% Senior Notes due 2013, which have been registered under the Securities Act and which we refer to in this prospectus as the new notes, for each $1,000 principal amount of its unregistered 6 3/4% Senior Notes due 2013, which we refer to in this prospectus as the old notes. In order to be exchanged, an old note must be properly tendered and accepted. All old notes that are validly tendered and not validly withdrawn will be exchanged. As of the date of this prospectus, there are $250.0 million aggregate principal amount of old notes outstanding. The Issuer


		will issue the new notes promptly after the expiration of the exchange offer.

Resales of the New Notes		We believe that the new notes to be issued in the exchange offer may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act if you meet the following conditions:

		• the new notes are acquired by you in the ordinary course of your business;

		• you are not engaging in and do not intend to engage in a distribution of the new notes;

		• you do not have an arrangement or understanding with any person to participate in the distribution of the new notes; and

		• you are not an affiliate of ours, as that term is defined in Rule 405 under the Securities Act.

		Our belief is based on interpretations by the staff of the Securities and Exchange Commission, as set forth in no-action letters issued to third parties unrelated to us. We have not applied to the Commission for no-action relief with respect to this exchange offer, and we cannot assure you that the staff would make a similar determination with respect to this exchange offer.

		If you do not meet the above conditions, you may incur liability under the Securities Act if you transfer any new note without delivering a prospectus meeting the requirements of the Securities Act. We do not assume or indemnify you against that liability.

		Each broker-dealer that is issued new notes in the exchange offer for its own account in exchange for old notes which were acquired by that broker-dealer as a result of market-making activities or other trading activities must agree to deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of the new notes. A broker-dealer may use this prospectus for an offer to resell or to otherwise transfer these new notes. See “Plan of Distribution.”

Expiration Date		The exchange offer will expire at 5:00 p.m., New York City time, on March 22, 2005, or such later date and time to which we extend it. The exchange offer will not remain in effect for more than 45 business days after the date on which notice of the exchange offer is mailed to you. We currently do not intend to extend the expiration date, although we reserve the right to do so. See “The Exchange Offer — Expiration Date; Amendments.”

Certain Conditions to the Exchange Offer		The exchange offer is subject to certain customary conditions, which we may waive. Please read carefully the section of this prospectus captioned “The Exchange Offer — Conditions” for more information regarding the conditions to the exchange offer.


Procedures for Tendering Old Notes in the Form of Book-Entry Interests		The old notes were issued as global securities in fully registered form without coupons. Beneficial interests in the old notes which are held by direct or indirect participants in The Depository Trust Company through certificateless depositary interests are shown on, and transfers of the old notes can be made only through, records maintained in book-entry form by DTC with respect to its participants.

		If you are a holder of an old note held in the form of a book-entry interest and you wish to tender your old note for exchange pursuant to the exchange offer, you must transmit to The Bank of New York, as exchange agent, on or prior to the expiration of the exchange offer either:

		• a written or facsimile copy of a properly completed and executed letter of transmittal and all other required documents to the address set forth on the cover page of the letter of transmittal; or

		• a computer-generated message transmitted by means of DTC’s Automated Tender Offer Program system and forming a part of a confirmation of book-entry transfer in which you acknowledge and agree to be bound by the terms of the letter of transmittal.

		The exchange agent must also receive on or prior to the expiration of the exchange offer either:

		• a timely confirmation of book-entry transfer of your old notes into the exchange agent’s account at DTC, in accordance with the procedure for book-entry transfers described in this prospectus under the heading “The Exchange Offer — Book-Entry Transfer;” or

		• the documents necessary for compliance with the guaranteed delivery procedures described below.

		A letter of transmittal accompanies this prospectus. By executing the letter of transmittal or delivering a computer-generated message through DTC’s Automated Tender Offer Program system, you will represent to us that, among other things:

		• the new notes to be acquired by you in the exchange offer are being acquired in the ordinary course of your business;

		• you are not engaging in and do not intend to engage in a distribution of the new notes;

		• you do not have an arrangement or understanding with any person to participate in the distribution of the new notes; and

		• you are not an affiliate of ours.

Procedures for Tendering Certificated Old Notes		If you are a holder of book-entry interests in the old notes, you are entitled to receive, in limited circumstances, in exchange for your book-entry interests, certificated notes which are in equal principal amounts to your book-entry interests. See “Description


		of the Notes — Book-Entry System.” No certificated old notes are issued and outstanding as of the date of this prospectus. If you acquire certificated old notes prior to the expiration of the exchange offer, you must tender your certificated old notes in accordance with the procedures described in this prospectus under the heading “The Exchange Offer — Procedures for Tendering — Certificated Old Notes.”

Special Procedures for Beneficial Owners		If you are a beneficial owner of old notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, and you wish to tender the old notes in the exchange offer, you should contact that registered holder promptly and instruct that registered holder to tender on your behalf. If you wish to tender on your own behalf, you must, prior to completing and executing the letter of transmittal and delivering your old notes, either make appropriate arrangements to register ownership of the old notes in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time and may not be able to be completed prior to the expiration date. See “The Exchange Offer — Procedures Applicable to All Holders.”

Guaranteed Delivery Procedures		If you wish to tender your old notes and your old notes are not immediately available or you cannot deliver your old notes, the letter of transmittal or any other documents required by the letter of transmittal, or cannot comply with the applicable procedures under DTC’s Automated Tender Offer Program prior to the expiration date, you must tender your old notes according to the guaranteed delivery procedures set forth in this prospectus under “The Exchange Offer — Guaranteed Delivery Procedures.”

Acceptance of Old Notes and Delivery of New Notes		Except under the circumstances described above under “Certain Conditions to the Exchange Offer,” we will accept for exchange any and all old notes which are properly tendered in the exchange offer prior to 5:00 p.m., New York City time, on the expiration date. The new notes to be issued in the exchange offer will be delivered promptly following the expiration date. See “The Exchange Offer — Terms of the Exchange Offer.”

Withdrawal		You may withdraw the tender of your old notes at any time prior to 5:00 p.m., New York City time, on the expiration date. The new notes to be issued to you in the exchange offer will be delivered promptly following the expiration date. See “The Exchange Offer — Terms of the Exchange Offer.”

Exchange Agent		The Bank of New York is serving as exchange agent in connection with the exchange offer. See “The Exchange Offer — Exchange Agent.”

Summary of the Terms of the New Notes

For a more complete description of the terms of the new notes, see “Description of the Notes.” As used in this summary, “Arch Western” means Arch Western Resources, LLC and not to any of its subsidiaries, and “Arch Coal” refers to Arch Coal, Inc. and not to any of its subsidiaries.


Issuer		Arch Western Finance, LLC, a Delaware limited liability company wholly-owned indirectly by Arch Western.

Co-obligor		Arch of Wyoming, LLC, a Delaware limited liability company wholly-owned indirectly by Arch Western.

Notes Offered		$250,000,000 aggregate principal amount of 6 3/4% Senior Notes due 2013, which have been registered under the Securities Act. The new notes will be issued under an indenture dated June 25, 2003, pursuant to which the Issuer previously issued $700,000,000 of 6 3/4% Senior Notes due 2013 which were registered under the Securities Act. That indenture was supplemented by a supplemental indenture dated October 22, 2004. The new notes offered by this prospectus will rank equally with and form part of a single series with any old notes that are not exchanged in this exchange offer and the previously registered 6 3/4% Senior Notes due 2013 and have the same terms as such existing notes except as otherwise provided in this prospectus.

Maturity		July 1, 2013.

Interest Payment Dates		January 1 and July 1 of each year, commencing January 1, 2005.

Guarantees		The new notes will be unconditionally guaranteed on a senior basis by Arch Western and all of its subsidiaries other than Canyon Fuel.

Ranking		The new notes will be:

		• senior obligations of the Issuer and the Co-obligor; and

		• secured by a first-priority security interest in the promissory notes issued by Arch Coal to Arch Western evidencing cash loaned by Arch Western to Arch Coal. The Arch Coal promissory notes are unsecured obligations of Arch Coal payable upon demand by us and accrue interest at the prime rate.

		The guarantees of Arch Western and its subsidiaries (excluding Canyon Fuel) will be:

		• equal in right of payment to any future senior debt of the guarantors;

		• effectively subordinated to any future secured debt of the guarantors to the extent of the assets securing such debt;

		• senior in right of payment to any future subordinated debt of the guarantors; and

		• effectively subordinated to any existing and future liabilities of any subsidiaries of Arch Western that are not guarantors.


		As of September 30, 2004, on a pro forma basis as adjusted to give effect to the Transactions:

		• the Issuer would have had $950.0 million of debt, all of which would have consisted of the 6 3/4% Senior Notes due 2013 issued in June 2003 and the old notes;

		• the Co-obligor would have had $950.0 million of debt, all of which would have consisted of the 6 3/4% Senior Notes due 2013 issued in June 2003 and the old notes (excluding intercompany debt);

		• Arch Western would have had $950.0 million of debt, all of which would have consisted of the guarantee of the 6 3/4% Senior Notes due 2013 issued in June 2003 and the old notes (excluding intercompany debt);

		• the subsidiary guarantors other than the Co-obligor would have had no debt (excluding $950.0 million representing guarantees of the 6 3/4% Senior Notes due 2013 issued in June 2003 and the old notes and intercompany debt);

		• Canyon Fuel, the non-guarantor subsidiary of Arch Western, would have had $66.4 million of debt and other liabilities;

		• Arch Coal would have had $665.9 million of unsecured debt (including $646.2 million representing obligations to Arch Western under the promissory notes issued by Arch Coal to Arch Western and excluding $25.0 million of secured debt represented by outstanding borrowings as of December 31, 2004 under Arch Coal’s revolving credit facility established in December 2004); and

		• the subsidiaries of Arch Coal (other than Arch Western and its subsidiaries) would have had $704.7 million of debt and other liabilities.

		Any distributions to, or investments in, Arch Coal or its subsidiaries (other than us or our subsidiaries) will be in the form of loans evidenced by additional promissory notes issued by Arch Coal to Arch Western, which will be pledged to the trustee as security for the notes. Amounts due under the promissory notes pledged to the trustee may be repaid and cancelled in whole or in part prior to the maturity of the notes. See “Description of the Notes — Security.”

Optional Redemption		At any time on or after July 1, 2008, the Issuer may redeem some or all of the notes at the redemption prices specified in this prospectus. See “Description of the Notes — Optional Redemption.”

		At any time and from time to time on or prior to July 1, 2006, the Issuer may redeem a portion of the notes with the net cash


		proceeds of any public equity offering of Arch Western, so long as:

		• it pays 106.750% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, to the date of redemption;

		• at least 65% of the aggregate principal amount of all notes issued under the indenture remain outstanding afterwards; and

		• the redemption occurs within 75 days of the date of the closing of such public equity offering.

Change of Control		Upon a change of control involving Arch Western, you will have the right, as a holder of the notes, to require the Issuer to repurchase all of your notes at a repurchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase. The Issuer may not be able to pay you the required price for your notes at that time because it or Arch Western may not have available funds to pay the repurchase price, or the terms of other debt may prevent the Issuer from paying you. See “Description of the Notes — Repurchase at the Option of Holders Upon a Change of Control.”

Restrictive Covenants		The old notes were issued and the new notes will be issued under an indenture among the Issuer, Arch Western, each of Arch Western’s subsidiaries, excluding Canyon Fuel, and The Bank of New York, as trustee. The indenture limits the ability of Arch Western and its subsidiaries to:

		• incur more debt;

		• pay dividends and make distributions or repurchase stock;

		• make investments;

		• create liens;

		• issue and sell capital stock of subsidiaries;

		• sell assets;

		• enter into restrictions affecting the ability of restricted subsidiaries to make distributions, loans or advances to Arch Western;

		• engage in transactions with affiliates;

		• enter into sale and leasebacks; and

		• merge or consolidate or transfer and sell assets.

		These covenants are subject to a number of important exceptions and limitations, which are described under “Description of the Notes.”

Termination of Certain Covenants		Many of the restrictive covenants will terminate if the notes achieve an investment grade rating from both Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services and no default or event of default has occurred and is continuing under

In addition to the other information contained in or incorporated by reference into this prospectus, you should carefully consider the following risk factors and the information under “Forward-Looking Statements,” which appears elsewhere in this prospectus, before deciding whether to participate in the exchange offer. The risk factors set forth below generally are applicable to the old notes as well as the new notes.

As of September 30, 2004, on a pro forma basis as adjusted to give effect to the Transactions, we would have had indebtedness of approximately $950.0 million, representing approximately 65% of our total capitalization, and Arch Coal would have had consolidated indebtedness (including ours) of approximately $969.7 million, representing approximately 54% of its total capitalization. Our ability to satisfy our debt, lease and royalty obligations, and our ability to refinance our indebtedness, will depend upon our future operating performance, which will be affected by prevailing economic conditions in the markets that we serve and financial, business and other factors, many of which are beyond our control. We may be unable to generate sufficient cash flow from operations and future borrowings or other financing may be unavailable in an amount sufficient to enable us to fund our future financial obligations or our other liquidity needs.

The amount and terms of our debt could have material consequences to our business, including, but not limited to:


	•	making it more difficult for us to satisfy our debt covenants and debt service, lease payment and other obligations;

	•	increasing our vulnerability to general adverse economic and industry conditions;

	•	limiting our ability to obtain additional financing to fund future acquisitions, working capital, capital expenditures or other general operating requirements;

	•	reducing the availability of cash flow from operations to fund acquisitions, working capital, capital expenditures or other general operating purposes;

	•	limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and

	•	placing us at a competitive disadvantage when compared to competitors with less relative amounts of debt.

Despite these significant levels of indebtedness, we and Arch Coal may incur additional indebtedness in the future, which would heighten the risks described above.

The notes will be secured by a pledge of the promissory notes issued by Arch Coal to us evidencing cash loaned by us to Arch Coal. On September 30, 2004, on a pro forma basis and as adjusted for the Transactions, there would have been $646.2 million outstanding under those promissory notes. Any distributions by us to, or investments by us in, Arch Coal or any of its subsidiaries, other than us or our subsidiaries, will be in the form of loans evidenced by additional promissory notes which will be pledged for the benefit of the holders of the notes as security for the payment of the notes. Under the indenture,

Arch Coal is a holding company and does not directly conduct any business operations. Arch Coal depends on its operating subsidiaries and has no assets other than its interests in its subsidiaries. The Arch Coal notes are unsecured obligations of Arch Coal ranking effectively junior in right of payment to all existing and future secured debt of Arch Coal to the extent of the collateral securing such debt. As of December 31, 2004, Arch Coal had $25.0 million of secured debt outstanding under its revolving credit facility established in December 2004. In addition, the Arch Coal notes are structurally subordinate to the indebtedness and other liabilities of all of Arch Coal’s subsidiaries other than us and the guarantors. Therefore, all of the indebtedness and other liabilities, including trade payables, of those subsidiaries must be satisfied in full before any of the assets of such subsidiaries would be available for distribution, upon a liquidation or otherwise, to Arch Coal to meet its obligations with respect to the Arch Coal notes. As of September 30, 2004, on a pro forma basis as adjusted to give effect to the Transactions, the subsidiaries of Arch Coal (other than Arch Western and its subsidiaries) would have had $704.7 million of debt and other liabilities. As a result, Arch Coal may have insufficient assets or funds to repay the promissory notes in whole, in part or at all.

We are permitted to incur liens on the Arch Coal notes in favor of the lenders under a credit facility in an amount not to exceed $100.0 million, which liens will be equal and ratable with the liens securing the notes. As a result, in the event that we foreclose on the Arch Coal notes, we may have to share proceeds from such foreclosure with our lenders under such a credit facility.

You will not have any claim as a creditor against our subsidiaries that are not guarantors of the notes, which currently only includes our 65% owned subsidiary, Canyon Fuel (which represented approximately 19% and approximately 24% of our consolidated assets at September 30, 2004 and consolidated income from operations for the nine months ended September 30, 2004, respectively). As a result, all indebtedness and other liabilities, including trade payables, of the non-guarantor subsidiaries, whether secured or unsecured, must be satisfied before any of the assets of such subsidiaries would be available for distribution, upon a liquidation or otherwise, to us in order for us to meet our obligations with respect to the guarantees. For a further discussion of the circumstances under which our subsidiaries may not guarantee the notes, see “Description of the Notes — Certain Covenants — Designation of Restricted and Unrestricted Subsidiaries.” As of September 30, 2004, Canyon Fuel had approximately $66.4 million of total indebtedness and other liabilities, including trade payables and accrued expenses. In addition to the structurally senior claims of creditors of Canyon Fuel, the minority equity interests of Arch Coal in any dividend or other distribution made by Canyon Fuel are structurally senior to the guarantees.

The notes are general unsecured obligations ranking effectively junior in right of payment to all existing and future secured debt of each guarantor to the extent of the collateral securing such debt. In addition, the indenture governing the notes permits the incurrence of additional debt, some of which may be secured debt. In the event that a guarantor is declared bankrupt, becomes insolvent or is liquidated or reorganized, creditors whose debt is secured by assets of the guarantor will be entitled to the remedies available to secured holders under applicable laws, including the foreclosure of the collateral securing such debt, before any payment may be made with respect to the affected guarantees. Holders of the notes will

Our ability to make payments on and to refinance our indebtedness, including our guarantee of the notes, depends on our ability to generate cash in the future. We are subject to general economic, climatic, industry, financial, competitive, legislative, regulatory and other factors that are beyond our control. In particular, economic conditions could cause the price of coal to fall, our revenue to decline and hamper our ability to repay our indebtedness, including the notes. As a result, we may need to refinance all or a portion of our indebtedness, including the notes, on or before maturity. Our ability to refinance debt or obtain additional financing will depend on, among other things:


	•	our financial condition at the time;

	•	restrictions in the indenture governing the notes and any other indebtedness; and

	•	other factors, including financial market or coal industry conditions.

As a result, we may not be able to refinance any of our indebtedness, including the notes, on commercially reasonable terms, or at all. If our operations do not generate sufficient cash flow from operations, and additional borrowings or refinancings are not available to us, we may not have sufficient cash to enable us to meet all of our obligations, including payments on the notes.

The indenture governing the notes will contain covenants that, among other things, limit our ability and the ability of our subsidiaries to:


	•	incur more debt;

	•	make distributions;

	•	make investments;

	•	create liens;

	•	issue and sell capital stock of subsidiaries;

	•	sell assets;

	•	enter into restrictions affecting the ability of restricted subsidiaries to make distributions, loans or advances to us;

	•	engage in transactions with affiliates;

	•	enter into sale and leasebacks; and

	•	merge or consolidate or transfer and sell assets.

These restrictions on operations and financings, as well as those that may be contained in future debt agreements, may limit our ability and the ability of Arch Coal to execute preferred business strategies. Moreover, if operating results fall below current levels, we may be unable to comply with these covenants. If that occurs, our lenders, including you, could accelerate their debt. If their debt is accelerated, we may not be able to repay all of their debt, in which case your notes may not be fully repaid, if they are repaid at all.

The indenture contains certain covenants that permanently will cease to be in effect from and after the first date when the notes are rated investment grade by both Standard & Poor’s and Moody’s. These covenants restrict, among other things, our ability and the ability of our subsidiaries to:


	•	incur additional debt;

	•	make distributions;

	•	sell capital stock or other assets; and

	•	engage in transactions with affiliates.

Because these restrictions will not apply when the notes are rated investment grade, we will be able to incur additional debt and consummate transactions that may impair our ability to satisfy our obligations with respect to our guarantee or the Issuer’s ability to satisfy its obligations with respect to the notes. These covenants will not be restored, even if the credit ratings assigned to the new notes later fall below investment grade.

Upon the occurrence of certain kinds of change of control events, you will have the right, as a holder of the notes, to require the Issuer to repurchase all of your notes at a repurchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase. The Issuer may not be able to pay you the required price for your notes at that time because we or the Issuer may not have available funds to pay the repurchase price. In addition, the terms of other existing or future debt may prevent the Issuer from paying you.


	*Federal and state fraudulent conveyance laws may permit a court to void the notes and the guarantees, and, if that occurs, you may not receive any payments on the notes.*

The issuance of the notes and the guarantees may be subject to review under federal and state fraudulent conveyance statutes. While the relevant laws may vary from state to state, under such laws the payment of consideration generally will be a fraudulent conveyance if:


	•	it was paid with the intent of hindering, delaying or defrauding creditors; or

	•	the Issuer or any of the guarantors received less than fair consideration in return for issuing either the notes or a guarantee, as applicable, and either:


	•	the Issuer or the guarantor was insolvent or rendered insolvent by reason of the incurrence of the indebtedness;

	•	payment of the consideration left the Issuer or the guarantor with an unreasonably small amount of capital to carry on the business; or

	•	the Issuer or the guarantor intended to, or believed that it would, incur debts beyond its ability to pay the debt.

If a court were to find that the issuance of the notes or a guarantee was a fraudulent conveyance, the court could void the payment obligations under the notes or such guarantee or further subordinate the notes or such guarantee to presently existing and future indebtedness, or require the holders of the notes to repay any amounts received with respect to the new notes or such guarantee. In the event of a finding that a fraudulent conveyance occurred, you may not receive any repayment on the notes. Further, the voidance of the notes or a guarantee could result in an event of default with respect to our other debt that could result in acceleration of that debt.

Demand for our coal and the prices that we may obtain for our coal are closely linked to coal consumption patterns of the domestic electric generation industry, which has accounted for approximately 92% of domestic coal consumption in recent years. These coal consumption patterns are influenced by factors beyond our control, including the demand for electricity, which is significantly dependent upon general economic conditions, summer and winter temperatures in the United States, government regulation, technological developments and the location, availability, quality and price of competing sources of coal, alternative fuels such as natural gas, oil and nuclear and alternative energy sources such as hydroelectric power. Demand for our low sulfur coal and the prices that we will be able to obtain for it will also be affected by the price and availability of high sulfur coal, which can be marketed in tandem with emissions allowances in order to meet Clean Air Act requirements. Any reduction in the demand for our coal by the domestic electric generation industry would result in a decline in our revenues and profit, which could be material.

The Clean Air Act and similar state and local laws extensively regulate the amount of sulfur dioxide, particulate matter, nitrogen oxides, and other compounds emitted into the air from electric power plants, which are the largest end-users of our coal. Such regulations, which can take a variety of forms, may reduce demand for coal as a fuel source because they may require significant emissions control expenditures for coal-fired power plants to attain applicable ambient air quality standards, which may lead these generators to switch to other fuels that generate less of these emissions and may also reduce future demand for the construction of coal-fired power plants.

The U.S. Department of Justice, on behalf of the EPA, has filed lawsuits against several investor-owned electric utilities and brought an administrative action against one government-owned utility for alleged violations of the Clean Air Act. We supply coal to some of the currently-affected utilities, and it is possible that other of our customers will be sued. These lawsuits could require the utilities to pay penalties, install pollution control equipment or undertake other emission reduction measures, any of which could adversely impact their demand for our coal.

A regional haze program initiated by the EPA to protect and to improve visibility at and around national parks, national wilderness areas and international parks restricts the construction of new coal-fired power plants whose operation may impair visibility at and around federally protected areas and may require some existing coal-fired power plants to install additional control measures designed to limit haze-causing emissions.

The Clean Air Act also imposes standards on sources of hazardous air pollutants. For example, the EPA has announced that it would regulate hazardous air pollutants from coal-fired power plants. Under the Clean Air Act, coal-fired power plants will be required to control hazardous air pollution emissions by no later than 2009, which likely will require significant new investment in controls by power plant operators. These standards and future standards could have the effect of decreasing demand for coal.

Other proposed initiatives, such as the Bush administration’s announced Clear Skies Initiative, may also have an effect upon coal operations. As proposed, this initiative is designed to further reduce emissions of sulfur dioxide, nitrogen oxides and mercury from power plants. Other so-called multi-pollutant bills, which could regulate additional air pollutants, have been proposed by various members of Congress. If such initiatives are enacted into law, power plant operators could choose other fuel sources to meet their requirements, reducing the demand for coal.

The coal mining industry is subject to regulation by federal, state and local authorities on matters such as:


	•	the discharge of materials into the environment;

	•	employee health and safety;

	•	mine permits and other licensing requirements;

	•	reclamation and restoration of mining properties after mining is completed;

	•	management of materials generated by mining operations;

	•	surface subsidence from underground mining;

	•	water pollution;

	•	legislatively mandated benefits for current and retired coal miners;

	•	air quality standards;

	•	protection of wetlands;

	•	endangered plant and wildlife protection;

	•	limitations on land use;

	•	storage of petroleum products and substances that are regarded as hazardous under applicable laws; and

	•	management of electrical equipment containing polychlorinated biphenyls, or PCBs.

Extensive regulation of these matters has had and will continue to have a significant effect on our costs of production and competitive position. Further regulations, legislation or orders may also cause our sales or profitability to decline by hindering our ability to continue our mining operations, by increasing our costs or by causing coal to become a less attractive fuel source.

Mining companies must obtain numerous permits that strictly regulate environmental and health and safety matters in connection with coal mining, some of which have significant bonding requirements. Regulatory authorities exercise considerable discretion in the timing of permit issuance. Also, private individuals and the public at large possess rights to comment on and otherwise engage in the permitting process, including through intervention in the courts. Accordingly, the permits we need for our mining operations may not be issued, or, if issued, may not be issued in a timely fashion, or may involve requirements that may be changed or interpreted in a manner which restricts our ability to conduct our mining operations or to do so profitably. Under the federal Clean Water Act, state regulatory authorities must conduct an antidegradation review before approving permits for the discharge of pollutants into waters that have been designated by the state as high quality. This review involves public and intergovernmental scrutiny of permits and requires permittees to demonstrate that the proposed activities are justified in order to accommodate significant economic or social development in the area where the waters are located. If the plaintiffs are successful, the exemption from the antidegradation review policy is revoked and we discharge into waters designated as high quality by the state, the cost, time and difficulty associated with obtaining and complying with Clean Water Act permits for our affected surface mining operations would increase and may hinder our ability to conduct such operations profitably.

Federal and state laws require us to obtain surety bonds to guaranty performance or payment of certain long-term obligations, including mine closure or reclamation costs, federal and state workers’ compensation costs, coal leases and other miscellaneous obligations. Many of these bonds are renewable on

Our mining operations are inherently subject to changing conditions that can affect levels of production and production costs at particular mines for varying lengths of time and can result in decreases in our profitability. We are exposed to commodity price risk related to our purchase of diesel fuel, explosives and steel. In addition, weather conditions, equipment replacement or repair, fires, variations in thickness of the layer, or seam, of coal, amounts of overburden, rock and other natural materials and other geological conditions have had, and can be expected in the future to have, a significant impact on our operating results. Prolonged disruption of production at any of our principal mines, particularly our Black Thunder mine, would result in a decrease in our revenues and profitability, which could be material. Other factors affecting the production and sale of our coal that could result in decreases in our profitability include:


	•	continued high pricing environment for our raw materials, including among other things, diesel fuel, explosives and steel;

	•	expiration or termination of, or sales price redeterminations or suspension of deliveries under, coal supply agreements;

	•	disruption or increases in the cost of transportation services;

	•	changes in laws or regulations, including permitting requirements;

	•	litigation;

	•	work stoppages or other labor difficulties;

	•	mine worker vacation schedules and related maintenance activities; and

	•	changes in coal market and general economic conditions.

Decreases in our profitability as a result of the factors described above could adversely impact our quarterly or annual results materially.

The coal industry is intensely competitive, primarily as a result of the existence of numerous producers in the coal producing regions in which we operate. We compete with four major coal producers in the Powder River Basin and effectively compete with a large number of coal producers in the markets that we serve. Additionally, we are subject to the continuing risk of reduced profitability as a result of excess industry capacity and weak power demand by the industrial sector of the economy, which led us to reduce the rate of coal production from planned levels and adversely impacted our profitability.

Electric utility deregulation is expected to provide incentives to generators of electricity to minimize their fuel costs and is believed to have caused electric generators to be more aggressive in negotiating prices with coal suppliers. To the extent utility deregulation causes our customers to be more cost sensitive, deregulation may have a negative effect on our profitability.

We sell a substantial portion of our coal under long-term coal supply agreements, which are contracts with a term greater than 12 months. The prices for coal shipped under these contracts may be below the current market price for similar-type coal at any given time. For the nine months ended September 30, 2004, the weighted average price of coal sold under our long-term contracts was $8.36 per ton. As a consequence of the substantial volume of our sales that are subject to these long-term agreements, we have less coal available with which to capitalize on higher coal prices if and when they arise. In addition, because long-term contracts typically allow the customer to elect volume flexibility, our ability to realize the higher prices that may be available in the spot market may be restricted when customers elect to purchase higher volumes under such contracts. Our exposure to market-based pricing may also be increased should customers elect to purchase fewer tons. In addition, the increasingly short terms of sales contracts and the consequent absence of price adjustment provisions in such contracts make it more likely that we will not be able to recover inflation related increases in mining costs during the contract term.

For the year ended December 31, 2003, we derived 26% of our total coal revenues from sales to our two largest customers, Southern Company and Tennessee Valley Authority and 63% of our total coal revenues from sales to our ten largest customers. All of our coal supply agreements with our two largest customers expire at various times from 2004 to 2013. We intend to discuss the extension of existing agreements or entering into new long-term agreements with those and other customers, but the negotiations may not be successful, and those customers may not continue to purchase coal from us under long-term coal supply agreements, or at all. If any of our large customers were to significantly reduce their purchases of coal from us, or if we were unable to sell coal to them on terms as favorable to us as the terms under our current agreements, our revenues and profitability could suffer materially.

Our profitability depends substantially on our ability to mine coal reserves that have the geological characteristics that enable them to be mined at competitive costs. Replacement reserves may not be available when required or, if available, may not be capable of being mined at costs comparable to those characteristic of the depleting mines. We may not be able to accurately assess the geological characteristics of any reserves that we acquire, which may adversely affect our profitability and financial condition. Exhaustion of reserves at particular mines also may have an adverse effect on our operating results that is disproportionate to the percentage of overall production represented by such mines.

The coal industry depends on rail and trucking transportation to deliver shipments of coal to customers, and transportation costs are a significant component of the total cost of supplying coal. Disruptions of these transportation services could temporarily impair our ability to supply coal to our customers and thus adversely affect our business and the results of our operations. In addition, increases in transportation costs associated with our coal, or increases in our transportation costs relative to transportation costs for coal produced by our competitors or of other fuels, could adversely affect our business and profitability.

We base our reserve information on geological data assembled and analyzed by our staff, which includes various engineers and geologists, and periodically reviewed by outside firms. The reserve estimates are annually updated to reflect production of coal from the reserves and new drilling or other data received. There are numerous uncertainties inherent in estimating quantities of recoverable reserves, including many factors beyond our control.

Estimates of economically recoverable coal reserves and net cash flows necessarily depend upon a number of variable factors and assumptions, such as geological and mining conditions which may not be fully identified by available exploration data or which may differ from experience in current operations, historical production from the area compared with production from other producing areas, the assumed effects of regulation by governmental agencies and assumptions concerning coal prices, operating costs, severance and excise tax, development costs and reclamation costs, all of which may vary considerably from actual results.

For these reasons, estimates of the economically recoverable quantities attributable to any particular group of properties, classifications of reserves based on risk of recovery and estimates of net cash flows expected from particular reserves prepared by different engineers or by the same engineers at different times may vary substantially. Actual coal tonnage recovered from identified reserve areas or properties and revenues and expenditures with respect to our reserves may vary materially from estimates. These estimates thus may not accurately reflect our actual reserves.

We conduct a significant part of our mining operations on properties that we lease. The loss of any lease could adversely affect our ability to mine the associated reserves. Because title to most of our leased properties and mineral rights is not usually verified until we make a commitment to develop a property, which may not occur until after we have obtained necessary permits and completed exploration of the property, our right to mine some of our reserves has in the past, and may again in the future, be adversely affected if defects in title or boundaries exist. In order to obtain leases or mining contracts to conduct our mining operations on property where these defects exist, we have had to, and may in the future have to, incur unanticipated costs. In addition, we may not be able to successfully negotiate new leases or mining contracts for properties containing additional reserves, or maintain our leasehold interests in properties where we have not commenced mining operations during the term of the lease.

We continually seek to expand our operations and coal reserves through acquisitions of businesses and assets, including leases of coal reserves. Acquisition transactions involve various inherent risks, such as:


	•	uncertainties in assessing the value, strengths, weaknesses, contingent and other liabilities and potential profitability of acquisition or other transaction candidates;

	•	the potential loss of key personnel of an acquired business;

	•	the ability to achieve identified operating and financial synergies anticipated to result from an acquisition or other transaction;

	•	problems that could arise from the integration of the acquired business;

	•	unanticipated changes in business, industry or general economic conditions that affect the assumptions underlying the acquisition or other transaction rationale; and


	•	unexpected development costs, such as those related to the development of the Little Thunder reserves, that adversely affect our profitability.

Any one or more of these factors could cause us not to realize the benefits anticipated to result from the acquisition of businesses or assets.

Our failure to meet the challenges involved in integrating our Black Thunder mine with the North Rochelle mine successfully or otherwise to realize any of the anticipated benefits of the acquisition could materially impact our results of operations. Realizing the anticipated benefits of the acquisition will depend in part on the successful integration of operations and personnel. We may not successfully integrate Black Thunder’s operations with North Rochelle’s operations in a timely manner, or at all. The costs of achieving any synergies may be higher than anticipated, and we may not realize the anticipated benefits or synergies of the acquisition to the extent, or in the timeframe, anticipated. These anticipated benefits and synergies are based on projections and assumptions, all of which are subject to change.

On October 15, 2003, Moody’s downgraded our and Arch Coal’s credit ratings, including the ratings on the notes, to Ba3 with a stable outlook. Any downgrade in our or Arch Coal’s credit ratings could adversely affect our or Arch Coal’s ability to borrow and result in more restrictive borrowing terms, including increased borrowing costs, more restrictive covenants and the extension of less open credit. This in turn could affect our or Arch Coal’s internal cost of capital estimates and therefore operational decisions.

The agreement under which we were formed provides that one of Arch Coal’s affiliates, as our managing member, generally has exclusive power and authority to conduct, manage and control our business. However, consent of our other member generally would be required in the event that we would propose to make a distribution, incur indebtedness, sell properties or merge or consolidate with any other entity if, at that time, we have a debt rating less favorable than Ba3 from Moody’s Investors Service or BB- from Standard & Poor’s or fail to meet specified indebtedness and interest coverage ratios.

In connection with our formation, Arch Coal entered into an agreement under which Arch Coal agreed to indemnify our other member against specified tax liabilities in the event that these liabilities arise as a result of certain actions taken prior to June 1, 2013, including the sale or other disposition of specified properties of ours, repurchases by us of our equity interests or the reduction under some circumstances of indebtedness incurred by us in connection with our acquisition.

We estimate our future postretirement medical and pension benefit obligations based on various assumptions, including:


	•	actuarial estimates;

	•	assumed discount rates;

	•	estimates of mine lives;

	•	expected returns on pension plan assets; and

	•	changes in health care costs.

Based on changes in our assumptions, our annual postretirement health and pension benefit costs increased by approximately $1.2 million in 2003. If our assumptions relating to these benefits change in the future, our costs could further increase, which would reduce our profitability. In addition, future regulatory and accounting changes relating to these benefits could result in increased obligations or additional costs, which could also have a material adverse affect on our financial results.

We urge you to carefully review the information contained in or incorporated by reference into this prospectus. In this prospectus, statements that are not reported financial results or other historical information are “forward-looking statements.” Forward-looking statements give current expectations or forecasts of future events and are not guarantees of future performance. They are based on our management’s expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements.

You can identify these forward-looking statements by the fact that they do not relate strictly to historic or current facts. They use words such as “anticipate,” “estimate,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to:


	•	our expectation of continued growth in the demand for our coal by the domestic electric generation industry;

	•	our belief that legislation and regulations relating to the Clean Air Act and other proposed environmental initiatives and the relatively higher costs of competing fuels will increase demand for our compliance and low sulfur coal;

	•	our expectations regarding incentives to generators of electricity to minimize their fuel costs as a result of electric utility deregulation;

	•	our intention to discuss the extension of existing coal supply agreements or entering into new long-term coal supply agreements;

	•	our expectation that we will continue to have adequate liquidity from cash flow from operations;

	•	a variety of market, operational, geologic, permitting, labor and weather related factors;

	•	expectations regarding any synergies to be derived from the operational integration of the North Rochelle and Black Thunder mines; and

	•	the other risks and uncertainties which are described in this prospectus under “Risk Factors,” including, but not limited to, the following:


	•	A reduction in consumption by the domestic electric generation industry may cause our profitability to decline.

	•	Extensive environmental laws and regulations could cause the volume of our sales to decline.

	•	The coal industry is highly regulated, which restricts our ability to conduct mining operations and may cause our profitability to decline.

	•	We may not be able to obtain or renew our surety bonds on acceptable terms.

	•	Unanticipated mining conditions may cause profitability to fluctuate.

	•	Intense competition and excess industry capacity in the coal producing regions has adversely affected our revenues and may continue to do so in the future.

	•	Deregulation of the electric utility industry may cause customers to be more price-sensitive, resulting in a potential decline in our profitability.

	•	Our profitability may be adversely affected by the status of our long-term coal supply contracts.

	•	Decreases in purchases of coal by our largest customers could adversely affect our revenues.

	•	An unavailability of coal reserves would cause our profitability to decline.

	•	Disruption in, or increased costs of, transportation services could adversely affect our profitability.


	•	Numerous uncertainties exist in estimating our economically recoverable coal reserves, and inaccuracies in our estimates could result in lower revenues, higher costs or decreased profitability.

	•	Title defects or loss of leasehold interests in our properties could result in unanticipated costs or an inability to mine these properties.

	•	All acquisitions involve a number of inherent risks, any of which could cause us not to realize the benefits anticipated to result.

	•	Due to potential challenges resulting from integration, we may not achieve the benefits expected to result from the contribution of the North Rochelle mine to us by Arch Coal.

	•	Changes in our credit ratings could adversely affect our costs and expenses.

	•	Some of our agreements limit our ability to manage our operations exclusively and impose significant potential indemnification obligations on us, and our expenditures for postretirement medical and pension benefits could increase in the future.

	•	Any inability to comply with restrictions imposed by our credit facilities and other debt arrangements could result in a default under these agreements.

	•	Our estimated financial results may prove to be inaccurate.

We cannot guarantee that any forward-looking statements will be realized, although we believe that we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and assumptions that may prove to be inaccurate. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove to be inaccurate, actual results could vary materially from those anticipated, estimated or projected. You should bear this in mind as you consider any forward-looking statements.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. You are advised, however, to consider any additional disclosures that we or Arch Coal may make on related subjects in future filings with the SEC. You should understand that it is not possible to predict or identify all factors that could cause our actual results to differ. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

The Issuer will not receive any cash proceeds from the completion of the exchange offer. We used the net proceeds from the sale of the old notes to repay and retire the outstanding indebtedness under our former $100.0 million term loan which would have matured in April 2007. The proceeds from the term loan were loaned to Arch Coal and used to finance Arch Coal’s acquisition of Triton. The balance of the net proceeds were loaned to Arch Coal to be used to repay borrowings under its prior revolving credit facility and for general corporate purposes, which includes funding Arch Coal’s eastern operations.

In October 2004, Arch Coal completed a sale of 7,187,500 shares of its common stock. Arch Coal used the $230.6 million of net proceeds from that offering after deducting the underwriters’ discount and estimated offering expenses, along with the net proceeds from the sale of the old notes that we loaned to Arch Coal, to repay $122.0 million of outstanding indebtedness under its prior revolving credit facility incurred to finance Arch Coal’s acquisition of Triton and Arch Coal’s first annual payment under the Little Thunder federal coal lease. The remaining net proceeds have been or will be used by Arch Coal for its general corporate purposes.

The indebtedness under Arch Coal’s revolving credit facility due in April 2007 and our term loan facility bore interest at variable rates based on LIBOR. On September 30, 2004, the interest rates in effect under Arch Coal’s revolving credit facility and our term loan facility were 4.07% and 4.59%, respectively.

The following tables set forth cash and cash equivalents and capitalization as of September 30, 2004 for us and for Arch Coal:


	•	on an actual basis;

	•	on a pro forma basis to give effect to the sale of the old notes and the use of the net proceeds as described in “Use of Proceeds;” and

	•	in the case of Arch Coal, on a pro forma basis as adjusted to give effect to its sale of 7,187,500 shares of its common stock in October 2004 and the use of the net proceeds as described in “Use of Proceeds.”

The tables should be read in conjunction with the respective unaudited consolidated financial statements and the related notes of Arch Western and Arch Coal and with the respective management’s discussions and analyses of financial condition and results of operations of Arch Western and Arch Coal that are included elsewhere or incorporated by reference in this prospectus.


(1)	As of December 31, 2004, Arch Coal had cash and cash equivalents of $323.2 million.

(1)	Arch Coal established a new revolving credit facility in December 2004 which replaced its prior revolving credit facility. Arch Coal’s new revolving credit facility permits borrowing of up to $700.0 million and is secured by the ownership interests in its subsidiaries, other than Arch Western and its subsidiaries, and by substantially all of the assets of Arch Coal and its subsidiaries, other than Arch Western and its subsidiaries. As of December 31, 2004, after giving effect to outstanding borrowings of $25.0 million and letters of credit, Arch Coal had borrowing availability of $606.0 million under its revolving credit facility. The revolving credit facility expires in December 2009.

(2)	The promissory note, which was issued to the seller in connection with Arch Coal’s acquisition of the remaining 35% interest in Canyon Fuel, has a stated value of $22.0 million and does not bear interest. The note is payable in quarterly installments beginning with a payment of $1.0 million in October 2004 and ending in July 2009. The note has been discounted to its present value using a rate of 7.0%.

(3)	Reflects the decrease in Arch Coal’s stockholders’ equity expected to result from the recognition of losses of $1.2 million from interest rate swaps that had hedged interest payments due under Arch Coal’s revolving credit facility.

The following selected historical consolidated financial and operating data are qualified by reference to, and should be read in conjunction with, our audited consolidated financial statements and the related notes, our unaudited interim consolidated financial statements and the related notes and “Arch Western’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. The selected consolidated financial data set forth below for each of the five years in the period ended December 31, 2003 are derived from our audited consolidated financial statements. The selected consolidated financial data for the nine months ended September 30, 2003 and 2004 are derived from our unaudited interim consolidated financial statements, and, in the opinion of our management, fairly present our results for such periods. Our results for the nine months ended September 30, 2004 are not necessarily indicative of the results to be expected for the year ended December 31, 2004 or for any other future period.


(1)	Amounts reported as non-operating consist of income or expense resulting from our financing activities other than interest, including debt extinguishment costs and charges resulting from termination of hedge accounting for interest rate swaps.

(2)	Effective January 1, 2003, we adopted Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations. The impact of adoption is reported as the cumulative effect of accounting change.

(3)	Ratio of earnings to fixed charges and preference dividends is computed on a total enterprise basis including our consolidated subsidiaries, plus our share of significant affiliates accounted for on the equity method that are 50% or greater owned or whose indebtedness has been directly or indirectly guaranteed by us. Earnings consist of income (loss) from continuing operations before income taxes and are adjusted to include fixed charges (excluding capitalized interest). Fixed charges consist of interest incurred on indebtedness, the portion of operating lease rentals deemed representative of the interest factor and the amortization of debt expense. The deficiency of earnings to cover fixed charges and preference dividends was $20,693 and $15,517 for the years ending December 31, 2000 and 1999, respectively.

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this prospectus.

We were formed as a joint venture on June 1, 1998 when Arch Coal acquired the U.S. coal operations of Atlantic Richfield Company and combined these operations with Arch Coal’s western operations. Our membership interests are owned 99% by Arch Coal and 1% by an affiliate of BP p.l.c., the successor to Atlantic Richfield Company. Arch Coal acts as our managing member.

We are a producer and marketer of low sulfur coal, which we supply principally to domestic electric utilities and independent power producers. We operate large, modern mines in two of the major low sulfur coal basins in the western United States. These mines are among the most productive in the regions in which they operate and are supported by an extensive reserve base totaling 1.8 billion tons.

We derive more than 80% of our revenues from long-term supply contracts (defined as having terms of one year or greater). These supply agreements typically have terms of one to three years, although certain contracts have much longer durations. The remainder of our coal sales result from sales on the spot market.

We operate in two low sulfur coal producing regions in the western United States. We operate one surface mine and own one idle mine in the Power River Basin. Additionally, we operate three mines in the Western Bituminous region (defined as southern Wyoming, Colorado and Utah). These mines include an underground mine in Colorado and two underground mines in Utah. We also own an idle mine in Utah. Our Utah operations are held by our 65% owned subsidiary, Canyon Fuel Company, LLC. In July 2004, Arch Coal purchased the remaining 35% interest in Canyon Fuel. Prior to August 1, 2004, our interest in Canyon Fuel was accounted for using the equity method of accounting. From August 1, 2004, we will consolidate 100% of the results of operations of Canyon Fuel and deduct Arch Coal’s 35% minority interest in Canyon Fuel’s net income.

In August 2004, Arch Coal completed its acquisition of Triton’s North Rochelle mine. Following the acquisition, Arch Coal contributed the North Rochelle mine, except for its reserves, to us. We are in the process of integrating the operations of North Rochelle with Black Thunder, creating what we believe will be one of the largest and most productive mines in the world.

Coal is the dominant fuel source for electric generation in the United States. Last year, coal’s share of the electric generation market increased to 51%. Furthermore, coal has significant advantages that should enable it to maintain or even increase market share over the course of the next two decades. First, coal is a low-cost fuel for electric generation, averaging less than one-third the cost of natural gas or crude oil per megawatt hour of generation. In addition, there is significant excess capacity at existing coal-based power plants, and this excess capacity represents a very low-cost source of electricity to the power grid. At present, coal-based power plants are operating at an average utilization rate of around 70%. We believe that there is significant potential to increase this utilization rate and thus drive increased coal demand. The U.S. Energy Information Administration projects that coal’s share of electric generation will increase to 52% by the year 2025.

The principal driver for U.S. coal demand is growth in domestic power generation. Domestic power needs are expected to grow over the next several years as the economy grows and the U.S. economy becomes increasingly electrified. The U.S. Energy Information Administration projects that power demand will continue to climb at a rate of 1.8% annually over the course of the next two decades.

As energy demand grows, we believe that coal is well-positioned to supply much of this demand, as competing fuels that have played a prominent role in meeting the nation’s growing power demand in recent years are starting to be confronted with obstacles that could impede their future growth. For instance:


	•	Nuclear power, the second leading source of electric generation in the U.S. with a roughly 20% share, is operating near its effective capacity. Nuclear output has remained relatively flat since peaking in 2001. It appears unlikely that any new nuclear capacity will be constructed in the next five to 10 years.

	•	Natural gas, the source of roughly 17% of generating capacity, is currently limited by an insufficient resource base. As natural gas supplies have declined, prices have soared, with prices nearly double the average level of a few years ago. Those high prices have made natural gas plants uncompetitive, and were the principal reason that output at natural gas plants actually declined in 2003. While imports of liquefied natural gas are expected to alleviate some of this supply pressure in the future, it will likely be several years before liquefied natural gas will play a meaningful role in U.S. electric generation.

That means that coal likely will continue to act as the dominant fuel source for electric generation in the years ahead. In addition, we believe that low sulfur coal will benefit disproportionately from future coal demand growth. Utilities have sought to comply with the sulfur dioxide standards contained in Phase II of the Clean Air Act by shifting increasingly to lower sulfur coals rather than building expensive scrubbing capacity. At present, only a little more than 25% of eastern coal-based power generation is equipped with scrubbers. Until more scrubbing capacity is added, we believe that low sulfur coal will have a significant advantage in the marketplace.

Our management has positioned the company to benefit from these trends by focusing on cost containment and growth in our core operating regions.

In recent quarters, operating costs have risen due in part to higher costs associated with medical benefits, workers’ compensation, insurance, explosives, diesel fuel, and surety bonding. We are focused on offsetting any future cost increases with cost savings and productivity improvements elsewhere. During 2004, we intensified efforts at our mines to extend best practices; analyze major cost drivers and bottlenecks; implement process improvements; apply cutting edge maintenance programs; and invest in advanced technologies where appropriate and prudent.

On August 20, 2004, Arch Coal acquired (1) Vulcan Coal Holdings, L.L.C., which owns all of the common equity of Triton and (2) all of the preferred units of Triton for a purchase price of $376.0 million, including transaction costs and subject to working capital adjustments. Upon acquisition, Arch Coal contributed the assets and liabilities of Triton’s North Rochelle mine (excluding coal reserves) to us. The contribution has resulted in the integration of the North Rochelle mine with our existing Black Thunder mine in the Powder River Basin.

On July 31, 2004, Arch Coal purchased the 35% interest in Canyon Fuel not owned by us. Through July 31, 2004, our interest in Canyon Fuel was accounted for on the equity method as a result of certain super-majority voting rights in the Canyon Fuel joint venture agreement. Upon Arch Coal’s acquisition of the 35% interest, Canyon Fuel’s joint venture agreement was amended to eliminate the super-majority voting rights. As a result, for periods subsequent to July 31, 2004, we will consolidate 100% of the results of Canyon Fuel in our financial statements and deduct for Arch Coal’s 35% minority interest in Canyon Fuel. Amounts included in the accompanying condensed consolidated financial statements for Canyon Fuel represent amounts recorded under the equity method of accounting through July 31, 2004 and amounts consolidated in our financial statements subsequent to that date.

The comparison of our operating results for the quarter-to-date and year-to-date periods ending September 30, 2004 and 2003 are affected by the following significant items:

Wyoming severance tax assessment. During the nine months ended September 30, 2004, the Office of Surface Mining completed an audit of certain of our federal reclamation fee filings for the period from 1998 through 2003. The audit resulted in an assessment of additional fees of $1.3 million and interest of $0.2 million. The additional fees have been recorded as a component of cost of coal sales in the accompanying Condensed Consolidated Statements of Operations, while the interest portion has been reflected as interest expense.

Severance costs — Skyline Mine. During the first quarter of 2004, Canyon Fuel, which was accounted for under the equity method through July 31, 2004, began the process of idling its Skyline Mine (the idling process was completed in May 2004), and incurred severance costs of $3.2 million for the nine months ended September 30, 2004. Our share of these costs totals $2.1 million and is reflected in income from equity investments.

Expenses resulting from early debt extinguishment and termination of hedge accounting for interest rate swaps. On June 25, 2003, we repaid our term loan with the proceeds from the offering of senior notes. Prior to the repayment, we had designated certain interest rate swaps as hedges of the variable rate interest payments due under the term loans. Pursuant to the requirements of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“FAS 133”), historical mark-to-market adjustments related to these swaps through June 25, 2003 were deferred as a component of Accumulated Other Comprehensive Loss. Subsequent to the repayment of the term loans, these deferred amounts will be amortized as additional expense over the contractual terms of the swap agreements. For the three and nine months ending September 30, 2004, we recognized $3.4 million and $10.2 million, respectively, of expense related to the amortization of previously deferred mark-to-market adjustments. For the nine months ended September 30, 2003, we recognized $3.6 million related to the amortization of previously deferred mark-to-market adjustments and $4.7 million of expense related to early debt extinguishment costs.

Severance Tax Recoveries. During the nine months ended September 30, 2003, we were notified by the State of Wyoming of a favorable ruling as it relates to our calculation of coal severance taxes. The ruling resulted in a refund of previously paid taxes and the reversal of previously accrued taxes payable. The impact on the three and nine months ended September 30, 2003 was a loss of $0.8 million and a gain of $2.5 million, respectively, which is reflected in cost of coal sales in the accompanying Condensed Consolidated Statements of Operations.

Coal sales. The increase in coal sales resulted from the combination of higher pricing, increased sales volumes and the effects of the North Rochelle contribution and the consolidation of Canyon Fuel.

Sales volumes increased in both of our operating regions. The Powder River Basin volumes increased 16.0%, while Western Bituminous volumes increased 32.5% for the first nine months of 2004 compared to the first nine months of 2003. These increases were primarily due to additional volumes from the Black

Per ton realizations increased primarily due to higher contract prices in both regions (a 9.9% increase in the Powder River Basin and a 14.4% increase in Western Bituminous). The per ton realizations were also partially affected in the Powder River Basin by contracts that were contributed to us along with the North Rochelle assets and liabilities. These contracts have higher pricing on average than our historical contracts.

Cost of coal sales. The increase in cost of coal sales is primarily due to the increase in coal sales revenues discussed above. Specific factors contributing to the increase are as follows:


	•	Consolidation of Canyon Fuel added $27.9 million for the months of August and September 2004.

	•	Excluding Canyon Fuel, production taxes and coal royalties (which are incurred as a percentage of coal sales realization) increased $29.4 million.

	•	Excluding Canyon Fuel, repairs and maintenance costs increased $9.8 million, and depreciation, depletion and amortization charges increased $4.0 million due partially to the property additions resulting from the contribution of North Rochelle during the third quarter of 2004.

	•	Poor rail performance during the second and third quarters of 2004 resulted in missed shipments and disruptions in production.

	•	Incentive compensation costs increased $2.3 million for amounts expected to be earned under Arch Coal’s annual and long-term incentive plans based on operating results for the nine months ending September 30, 2004.

	•	We experienced higher supply costs, primarily related to explosives (an increase of $4.1 million) and diesel fuel (an increase of $5.5 million).

On a per-ton basis, operating costs (defined as including all mining costs but excluding pass-through transportation costs) at our Powder River Basin increased from $5.55 per ton in the first nine months of 2003 to $6.21 per ton in the first nine months of 2004. The increase in per ton costs in the Powder River Basin is due primarily to increased production taxes and coal royalties ($27.7 million, or $0.24 per ton) and repairs and maintenance charges ($10.3 million, or $0.10 per ton) and to the higher explosives and diesel fuel costs discussed above. Additionally, average costs were higher due to the integration of the North Rochelle mine into our Black Thunder mine.

Operating cost per ton at our Western Bituminous operations increased to $15.82 per ton in the first nine months of 2004 from $15.34 per ton in the first nine months of 2003. The increase in per ton costs is due primarily to increased production taxes and coal royalties, increased repairs and maintenance costs and disruptions in production caused by poor rail performance. The consolidation of the Canyon Fuel mines in July 2004 resulted in lower per ton operating costs as the Canyon Fuel operations have slightly lower costs as compared to our other Western Bituminous operations.

Income from equity investment. The decline in income from our equity investment results from the consolidation of Canyon Fuel in our financial statements subsequent to July 31, 2004, lower production and sales levels at Canyon Fuel during the period when we accounted for our investment under the equity method, and the costs related to idling the Skyline Mine, including the severance costs noted above.

Interest expense. The increase in interest expense results primarily from a higher average interest rate in the first nine months of 2004 as compared to the same period in 2003. In 2004, the Company’s outstanding borrowings consist primarily of fixed rate borrowings, while borrowings in the first half of 2003 were primarily variable rate borrowings. Short-term interest rates in 2003 were lower than the fixed rate of borrowing that makes up the majority of average debt balances in 2004. The increase in interest expense also results partly from a higher amount of average borrowings in the first nine months of 2004 as compared to the same period in 2003 as a result of additional debt issued late in the current year-to-date period to help finance the Triton acquisition discussed above.

Interest income. Our cash transactions are managed by Arch Coal. Cash paid to or from us that is not considered a distribution or a contribution is recorded as a receivable from Arch Coal. The receivable balance earns interest from Arch Coal at the prime interest rate. The increase in interest income results primarily from a higher average receivable balance in the first nine months of 2004 as compared to the same period in 2003.

Amounts reported as non-operating consist of income or expense resulting from our financing activities other than interest. As described above, our results of operations for the nine months ended September 30, 2004 include expenses of $10.2 million related to the termination of hedge accounting and resulting amortization of amounts that had previously been deferred. The amounts recorded for the nine months ended September 30, 2003 relate $3.6 million to the amortization of previously deferred mark-to-market adjustments and $4.7 million to early debt extinguishment costs.

The decrease in net income before cumulative effect of accounting change is due primarily to the increase in interest expense, lower income from our equity investment in Canyon Fuel through July 31, 2004 and to the expenses related to the termination of hedge accounting described above.

Effective January 1, 2003, we adopted FAS 143, which requires legal obligations associated with the retirement of long-lived assets to be recognized at fair value at the time the obligations are incurred. Upon initial recognition of a liability, that cost should be capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset. Application of FAS 143 resulted in a cumulative effect loss as of January 1, 2003 of $18.3 million.

Operating results for 2003 versus 2002 and discussion of the 2003 results are provided below.

Coal sales revenues. The increase in coal sales in 2003 was the result of higher average pricing on coal shipped during 2003 as compared to 2002. The increase resulted from higher contract pricing during 2003 in both of our operating regions. The decrease in tons sold resulted from lower production at our Black Thunder mine in the Powder River Basin and our West Elk mine in the Western Bituminous region.

Cost of coal sales. The increase in cost of coal sales resulted from increased coal sales revenues, as certain of our costs (including severance and other production taxes and coal royalties) are incurred as a percentage of coal sales realization. Additionally, 2003 cost of coal sales reflect an increase in the cost of diesel fuel and explosives (which combined to result in increased costs of approximately $4.8 million), and the above-mentioned long-term incentive compensation charge.

In the Powder River Basin, cost of coal sales declined 1.3% as sales volumes declined 3.9%. On a per ton operating cost basis, costs increased slightly to $5.42 in 2003 from $5.28 in 2002. The increase was primarily a result of higher costs for certain operating supplies, including explosives and diesel fuel.

In the Western Bituminous region, cost of coal sales increased 2.0% despite a decline in volume of 6.4%, resulting in per-ton operating costs increasing form $14.53 to $15.41. As many of our costs are fixed in nature, the reduced volume did not result in reduced overall costs. Volumes declined as a result of our utility customers reducing inventory stockpiles throughout the year.

Selling, general and administrative expenses. Selling, general and administrative expenses represent expenses allocated to us from Arch Coal. The cost increase for the year ended 2003 compared to the prior year is a result of an increase in compensation-related expenses at Arch Coal.

Amortization of coal supply agreements. The decrease in amortization of coal supply agreements is a result of the expiration of a contract that was fully amortized in 2002. Amortization of $0.8 million was recognized on this contract in 2002.

Income from equity investment. During 2003, Canyon Fuel, our equity investment, improved its operating margins, as reduced operating costs more than offset slightly lower realizations. Additionally, 2002 operating results were negatively impacted by a weak market environment for Utah coal throughout 2002 and by adverse geologic issues at one of Canyon Fuel’s mines.

Other operating income. Other operating income consists of income from sources other than coal sales, including administration and production fees from Canyon Fuel and gains and losses from dispositions of long-term assets.

Interest expense. The increase in interest expense results from higher outstanding debt levels and higher interest rates on outstanding borrowings. In 2003, we repaid our $675 million term loans with the proceeds from the issuance of the old notes. The old notes bear interest at a fixed rate of 6.75%, while term loans bore interest at a variable rate. Variable rates in 2002 were lower than the fixed rate in 2003.

Interest income primarily from Arch Coal, Inc. The increase in interest income primarily from Arch Coal results from a higher average balance on the note receivable from Arch Coal.

Amounts reported as non-operating consist of expenses resulting from our financing activities other than interest. As described above, our results of operations for 2003 include expenses of $4.7 million related to debt extinguishment costs and $7.0 million related to the termination of hedge accounting and resulting amortization of amounts that had previously been deferred.

Increased net income before cumulative effect of accounting change results primarily from increased income from our equity investment in 2003 as compared to 2002, offset by the non-operating charges incurred in 2003.

Effective January 1, 2003, we adopted Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (“FAS 143”), which requires legal obligations associated with the retirement of long-lived assets to be recognized at fair value at the time the obligations are incurred. Upon initial recognition of a liability, that cost should be capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset. Application of FAS 143 resulted in a cumulative effect loss as of January 1, 2003 of $18.3 million.

Our results for 2002 were adversely impacted by the state of oversupply in the coal market that resulted from an extremely mild winter and a period of industrial economic weakness that dampened electricity demand. As a result, we reduced our rate of production from planned levels at our mining operations. Offsetting the impact of the overall production cuts was an improvement in operating performance at our West Elk mine, which had experienced production difficulties and increased costs in 2001 resulting from high methane levels.

Operating results for 2002 versus 2001 and additional discussion of the 2002 results are provided below.

Coal sales revenues. The increase in coal sales in 2002 was the result of higher average pricing on coal shipped during 2002 as compared to 2001. This increase was due in part to higher contract prices and in part to the mix of the tons sold. In 2002, a higher percentage of tons sold were from our West Elk mine in Colorado. The average realized sales price from this mine is generally higher than prices from our other operations. Production at the West Elk mine was constrained in 2001 due to higher than normal levels of methane gas in the coal seam. Partially offsetting the impact of higher average prices was a decrease in the number of tons sold.

Cost of coal sales. The increase in cost of coal sales is due primarily to the change in sales mix noted above.

In addition, the following items impacted cost of coal sales in the period noted:

We received a final insurance settlement of $9.4 million related to the temporary shut down of the West Elk mine following detection of combustion-related gases in a portion of the mine. This final insurance settlement has been recognized as a reduction in the cost of coal sales.

We were notified by the Bureau of Land Management that we would receive a royalty rate reduction for certain tons mined at our West Elk mine. The rate reduction applies to a specified number of tons beginning October 1, 2001 and ending no later than October 1, 2005. The retroactive portion of the refund totaled $3.3 million and has been recognized as a reduction in the cost of coal sales.

In the Powder River Basin, cost of coal sales in 2002 increased less than one percent as compared to 2001, while volumes declined 3.7%. On a per-ton operating cost basis, costs increased 9.5% from $4.82 to $5.28. The increase in per-ton costs is a result of our decision to cut back production throughout 2002 in response to the weak coal market environment at that time, resulting in our fixed costs being spread over fewer tons.

In the Western Bituminous region, sales volumes increased 21.3%, resulting in an increase in cost of coal sales of 13.8%. On a per-ton operating cost basis, costs declined 4.4% from $15.19 to $14.53. Costs during 2001 were negatively affected by production difficulties and increased costs at our West Elk mine caused by high methane levels.

Income from equity investment. The decrease in investment income from Canyon Fuel resulted from decreased operating earnings at Canyon Fuel due to the expiration of a favorable sales contract at the end of 2001, reduced operating results in early 2002 at one mine resulting from adverse geologic issues and a weak market environment for Utah coal throughout 2002. Additionally, in 2001, Canyon Fuel recognized recoveries of previously paid property taxes. Our share of these recoveries was $2.6 million.

Other operating income. The decrease in other revenues is primarily due to a gain on a land sale in 2001 of $5.1 million. There were no significant land sales in 2002. Additionally, we recognized $2.1 million of outlease royalties in 2001 from an outlease arrangement that terminated in 2001.

Interest expense. Interest expense decreased primarily as a result of lower interest rates on our outstanding variable rate borrowings.

Interest income primarily from Arch Coal, Inc. Interest income primarily from Arch Coal decreased due to a decrease in the interest rate on the note receivable from Arch Coal.

The decrease in net income is primarily due to the decreases in our income from Canyon Fuel and the decrease in other operating income, as discussed above.

We had designated certain interest rate swaps as hedges of the variable rate interest payments due under Arch Western’s term loans. Pursuant to the requirements of FAS 133, historical mark-to-market adjustments related to these swaps through June 25, 2003 of $44.3 million were deferred as a component of Accumulated Other Comprehensive Loss. Subsequent to the repayment of the term loans, these deferred amounts will be amortized as additional expense over the original contractual terms of the swap agreements. As of December 31, 2003, the remaining deferred amounts will be recognized as expense in the following periods: $10.2 million for the remainder of 2004; $12.7 million in 2005; $7.9 million in 2006; and $3.1 million in 2007.

The following is a summary of cash provided by or used in each of the indicated types of activities during the nine months ended September 30, 2004 and 2003:

Cash used in operating activities for the nine months ended September 30, 2004 was $70.7 million, compared to cash provided by operating activities of $48.8 million in the nine months ended September 30,

Cash used in investing activities for the nine months ended September 30, 2004 consists of capital expenditures of $52.6 million and additions to prepaid royalties of $11.7 million. Cash used in investing activities for the nine months ended September 30, 2003 consisted of capital expenditures of $22.4 million. The increase in capital expenditures was primarily at our Black Thunder Mine, where certain assets were bought out of lease arrangements.

Cash provided by financing activities for the nine months ended September 30, 2004 consists almost entirely of the $100.0 million proceeds from our term loan facility. On August 20, 2004, we borrowed $100.0 million under our term loan facility in order to help finance Arch Coal’s acquisition of the North Rochelle operations from Triton. Cash provided by financing activities for the nine months ended September 30, 2003 reflects the proceeds from the issuance of senior notes (which were used to retire existing debt). On June 25, 2003, Arch Western Finance LLC, a subsidiary of the Company, completed the offering of $700 million of 6.75% senior notes. The proceeds of the offering were primarily used to repay Arch Western’s existing term loans.

Expenditures for property, plant and equipment were $52.6 million and $22.4 million for the nine months ended September 30, 2004 and 2003, respectively. Capital expenditures are made to improve and replace existing mining equipment, expand existing mines, develop new mines and improve the overall efficiency of mining operations. We estimate that our capital expenditures will be approximately $172.8 million in total for 2005. This estimate assumes no other significant expansions of our existing mining operations or additions to our reserve base. We anticipate that we will fund these capital expenditures with available cash.

The following is a summary of cash provided by or used in each of the indicated types of activities during the years ended December 31, 2003, 2002, and 2001:

Cash provided by operating activities in 2003 declined slightly as compared to 2002 despite higher income before the cumulative effect of accounting change. The decline was the result of the settlement of asset retirement obligations at our Black Thunder and Arch of Wyoming mines totaling $19.0 million. Cash provided by operating activities increased in 2002 as compared to 2001 due primarily to improved operating performance and reduced requirements for working capital components other than inventories.

Cash used in investing activities in 2003 declined from 2002 levels as we limited capital expenditures in light of the weak coal market that existed during much of 2003. Cash used in investing activities increased in 2002 as compared to 2001 due to increased capital expenditures of $17.9 million at Black Thunder and increased prepaid royalty payments of $8.0 million.

Expenditures for property, plant and equipment were $27.3 million, $51.4 million and $32.1 million for 2003, 2002 and 2001, respectively. Capital expenditures in 2002 included the scheduled purchase of

Cash provided by financing activities in 2003 represents the net proceeds resulting from the issuance of the $700.0 million of 6 3/4% senior notes due 2013 by Arch Western Finance (see below) and the repayment of our term loans with the proceeds of the issuance of those notes. Cash used in financing activities during 2002 represents costs associated with the debt refinancing that occurred in the first quarter of 2002. Our cash transactions are managed by Arch Coal. Cash paid to or from us that is not considered a distribution or a contribution is recorded in an Arch Coal receivable account. At December 31, 2003, 2002 and 2001, the receivable from Arch Coal was $351.9 million, $333.8 million and $259.8 million, respectively. The receivable is interest bearing and is payable on demand by us. However, we do not intend to demand payment of the receivable within the next year. Therefore, the receivable is classified on the consolidated balance sheets as long-term.

We generally satisfy our working capital requirements and fund our capital expenditures and debt-service obligations with cash generated from operations. We believe that cash generated from operations will be sufficient to meet our working capital requirements and anticipated capital expenditures for the next several years. Our ability to fund planned capital expenditures and meet our debt-service obligations will depend upon our future operating performance, which will be affected by prevailing economic conditions in the coal industry, and by financial, business and other factors, some of which are beyond our control.

On June 25, 2003, Arch Western Finance completed an offering of $700.0 million of 6 3/4% senior notes due 2013, and we utilized the proceeds of that offering to repay our then existing term loans. Those notes bear a fixed rate of interest of 6.75% and are due in full on July 1, 2013. Interest on those notes is payable on January 1 and July 1 each year commencing January 1, 2004. Those notes are guaranteed by us and certain of our subsidiaries and are secured by a security interest in our receivable from Arch Coal. The terms of those notes contain restrictive covenants that limit our ability to, among other things, incur additional debt, sell or transfer assets, and make investments.

On September 19, 2003, we established a term loan credit facility. The credit facility provided for a $100.0 million term loan, subject to certain conditions of borrowing. We borrowed $100.0 million under the credit facility in August 2004 and loaned the funds to Arch Coal to finance its acquisition of Vulcan, which increased the aggregate principal amount of the Arch Coal notes by $100.0 million. The term loan was due in quarterly installments from October 2004 through April 2007 and was permanently repaid with the net proceeds of the offering of the old notes.

The terms of our LLC Agreement provide for a preferred return distribution in an amount equal to 4% of the preferred capital account balance, which was $2.4 million for each of the years ended December 31, 2003, 2002 and 2001. Preferred distributions made during the years ended December 31, 2003, 2002 and 2001 were $0.1 million in each year. Except for the preferred return distribution, distributions may generally be made at such times and in such amounts as our managing member determines. We made no distributions other than the preferred return in the years ended December 31, 2003, 2002 and 2001.

We are exposed to market risk associated with interest rates. At September 30, 2004, our outstanding debt was comprised of debt that bore interest at both fixed and variable rates.

We are exposed to commodity price risk related to our purchase of diesel fuel. We enter into forward purchase contracts to reduce volatility in the price of diesel fuel purchased for our operations.

The discussion below presents the sensitivity of the market value of our financial instruments to selected changes in market rates and prices. The range of changes reflects our view of changes that are reasonably possible over a one-year period. Market values are the present value of projected future cash flows based on the market rates and prices chosen. The major accounting policies for these instruments are described in Note 1 to our consolidated financial statements.

At September 30, 2004, our debt portfolio consisted of both fixed rate and variable rate debt. Changes in interest rates have different impacts on the fixed-rate and variable-rate portions of the Company’s debt portfolio. A change in interest rates on the fixed rate debt impacts the net financial instrument position but has no impact on interest incurred or cash flows. A change in interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows but does not impact the net financial instrument position. The sensitivity analysis related to our fixed rate debt assumes an instantaneous 100-basis point move in interest rates from their levels at September 30, 2004, with all other variables held constant. A 100-basis point increase in market interest rates would result in a $43.9 million decrease in the fair value of the Company’s fixed rate debt at September 30, 2004. Based on the variable-rate debt included in the Company’s debt portfolio as of September 30, 2004, a 100-basis point increase in interest rates would result in an annualized additional $1.0 million of interest expense incurred.

The following is a summary of our significant contractual obligations as of December 31, 2003:

Subsequent to December 31, 2003, we have incurred additional indebtedness. As of September 30, 2004, we had outstanding borrowings of $100.0 million under a term loan payable from October 2004 through April 2007. The term loan was permanently repaid with the net proceeds of the old unregistered notes.

Unconditional purchase obligations represent amounts committed for purchases of materials and supplies, payments for services, and capital expenditures.

The federal Surface Mining Control and Reclamation Act of 1977 and similar state statutes require that mine property be restored in accordance with specified standards and an approved reclamation plan. We accrue for the costs of reclamation in accordance with the provisions of FAS 143, which was adopted as of January 1, 2003. These costs relate to reclaiming the pit and support acreage at surface mines and sealing portals at deep mines. Other costs of reclamation common to surface and underground mining are related to reclaiming refuse and slurry ponds, eliminating sedimentation and drainage control structures, and dismantling or demolishing equipment or buildings used in mining operations. The establishment of the reclamation liability is based upon permit requirements and requires various estimates and assumptions, principally associated with costs and productivities.

We review our entire environmental liability periodically and make necessary adjustments, including permit changes and revisions to costs and productivities to reflect current experience. Our management believes it is making adequate provisions for all expected reclamation and other associated costs. As of September 30, 2004, we had accrued $147.5 million for asset retirement obligations.

We are party to claims and lawsuits with respect to various matters. We provide for costs related to contingencies, including environmental matters, when a loss is probable and the amount is reasonably determinable. After conferring with counsel, it is the opinion of management that the ultimate resolution of these claims, to the extent not previously provided for, will not have a material adverse effect on our consolidated financial condition, results of operations or liquidity. As of September 30, 2004, we have not accrued for any legal contingencies.

Because the coal mining industry is subject to significant regulatory oversight and affected by the possibility of adverse pricing trends or other industry trends beyond our control, we may suffer losses in the future if legal and regulatory rulings, mine idlings and closures, adverse pricing trends or other factors affect our ability to mine and sell coal profitably.

Our financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Our management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from the estimates used under different assumptions or conditions. Note 1 to our consolidated financial statements provides a description of all significant accounting policies. We believe that of these significant accounting policies, the following may involve a higher degree of judgment or complexity.

Our asset retirement obligations arise from the federal Surface Mining Control and Reclamation Act of 1977 and similar state statutes, which require that mine property be restored in accordance with specified standards and an approved reclamation plan. Significant reclamation activities include reclaiming refuse and slurry ponds, reclaiming the pit and support acreage at surface mines, and sealing portals at deep mines. We account for the costs of our reclamation activities in accordance with the provisions of FAS 143. We determine the future cash flows necessary to satisfy our reclamation obligations on a mine-by-mine basis based upon current permit requirements and various estimates and assumptions, including estimates of disturbed acreage, cost estimates, and assumptions regarding productivity. Estimates of disturbed acreage are determined based on approved mining plans and related engineering data. Cost estimates are based upon historical internal or third-party costs, depending on how the work is expected to be performed. Productivity assumptions are based on historical experience with the equipment that is expected to be utilized in the reclamation activities. In accordance with the provisions of FAS 143, we determine the fair value of our asset retirement obligations. In order to determine fair value, we must also estimate a discount rate and third-party margin. Each is discussed further below:


	•	Discount rate — FAS 143 requires that asset retirement obligations be recorded at fair value. In accordance with the provisions of FAS 143, we utilize discounted cash flow techniques to estimate the fair value of our obligations. We base our discount rate on the rates of treasury bonds with maturities similar to expected mine lives, adjusted for our credit standing.

	•	Third-party margin — FAS 143 requires the measurement of an obligation to be based upon the amount a third-party would demand to assume the obligation. Because we plan to perform a significant amount of the reclamation activities with internal resources, a third-party margin was added to the estimated costs of these activities. This margin was estimated based upon our historical experience with contractors performing certain types of reclamation activities. The inclusion of this margin will result in a recorded obligation that is greater than our estimates of our


		cost to perform the reclamation activities. If our cost estimates are accurate, the excess of the recorded obligation over the cost incurred to perform the work will be recorded as a gain at the time that reclamation work is completed.

On at least an annual basis, we review our entire reclamation liability and make necessary adjustments for permit changes as granted by state authorities, additional costs resulting from accelerated mine closures, and revisions to cost estimates and productivity assumptions, to reflect current experience. At September 30, 2004, we had recorded asset retirement obligation liabilities of $147.5 million, including amounts reported as current. While the precise amount of these future costs cannot be determined with certainty, as of September 30, 2004, we estimate that the aggregate undiscounted cost of final mine closure is approximately $283.1 million.

We have non-contributory defined benefit pension plans covering certain of our salaried and non-union hourly employees. Benefits are generally based on the employee’s age and compensation. We fund the plans in an amount not less than the minimum statutory funding requirements nor more than the maximum amount that can be deducted for federal income tax purposes. For the year ended December 31, 2003, we contributed $7.6 million into the plan. We account for our defined benefit plans in accordance with FAS 87, Employer’s Accounting for Pensions, which requires amounts recognized in the financial statements to be determined on an actuarial basis.

The calculation of our net periodic benefit costs (pension expense) and benefit obligation (pension liability) associated with our defined benefit pension plans requires the use of a number of assumptions that we deem to be “critical accounting estimates.” Changes in these assumptions can result in different pension expense and liability amounts, and actual experience can differ from the assumptions.


	•	The expected long-term rate of return on plan assets is an assumption of the rate of return on plan assets reflecting the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. We establish the expected long-term rate of return at the beginning of each fiscal year based upon historical returns and projected returns on the underlying mix of invested assets. The pension plan’s investment targets are 65% equity, 30% fixed income securities and 5% cash. Investments are rebalanced on a periodic basis to stay within these targeted guidelines. The long-term rate of return assumption used to determine pension expense was 9.0% for the years ended December 31, 2003 and 2002, which is less than the plan’s actual life-to-date returns and includes the negative returns of 2001 and 2002 as experienced by the markets in general. Any difference between the actual experience and the assumed experience is deferred as an unrecognized actuarial gain or loss and amortized into the future. The impact of lowering the expected long-term rate of return on plan assets from 9% to 8.5% for 2003 would have been an increase to expense of approximately $0.3 million.

	•	The discount rate represents our estimate of the interest rate at which pension benefits could be effectively settled. Assumed discount rates are used in the measurement of the projected, accumulated and vested benefit obligations and the service and interest cost components of the net periodic pension cost. In estimating that rate, Statement No. 87 requires rates of return on high quality, fixed income investments. We utilize a bond portfolio model that includes bonds that are rated “AA” or higher with maturities that match the expected benefit payments under the plan. The discount rates used to determine pension expense for 2003 and 2002 were 7.0% and 7.5%, respectively. The impact of lowering the discount rate from the 7.0% utilized in 2003 to an assumed 6.5% would have resulted in an approximate $0.4 million increase in expense in 2003.

The differences generated in changes in assumed discount rates and returns on plan assets are amortized into earnings over a five-year period.

For the measurement of our year-end pension obligation for 2003 (and pension expense for 2004), we changed our long-term rate of return assumption to 8.5% and the discount rate to 6.5%.

We also currently provide certain postretirement medical/ life insurance coverage for eligible employees. Generally, covered employees who terminate employment after meeting eligibility requirements are eligible for postretirement coverage for themselves and their dependents. The salaried employee postretirement medical/life plans are contributory, with retiree contributions adjusted periodically, and contain other cost-sharing features such as deductibles and coinsurance. Our current funding policy is to fund the cost of all postretirement medical/life insurance benefits as they are paid. We account for our other postretirement benefits in accordance with FAS 106, Employer’s Accounting for Postretirement Benefits Other Than Pensions, which requires amounts recognized in the financial statements to be determined on an actuarial basis.

Various actuarial assumptions are required to determine the amounts reported as obligations and costs related to the postretirement benefit plan. These assumptions include the discount rate and the future medical cost trend rate.


	•	The discount rate assumption reflects the rates available on high-quality fixed-income debt instruments at year-end and is calculated in the same manner as discussed above for the pension plan. The discount rate used to calculate the postretirement benefit expense for 2003 and 2002 was 7.0% and 7.5%, respectively. Had the discount rate been lowered from 7.0% to 6.5% in 2003, we would have incurred additional expense of $0.2 million.

	•	Future medical trend rate represents the rate at which medical costs are expected to increase over the life of the plan. The health care cost trend rate is determined based upon our historical changes in health care costs as well as external data regarding such costs. We have implemented many effective programs that have resulted in actual increases in medical costs to fall far below the double-digit increases experienced by most companies in recent years. The postretirement expense in 2003 was based on an assumed medical inflationary rate of 7.5%, trending down in half percent increments to 5%, which represents the ultimate inflationary rate for the remainder of the plan life. This assumption was based on our then current three-year historical average of per capita increases in health care costs. A change in the future medical trend rate in 2003 would not have had a material impact on the expense recognized because the employer contribution cap was reached.

For the measurement of our year-end other postretirement obligation for 2003 (and other postretirement expense for 2004), we changed our medical inflationary rate assumption to 8.0% (trending down to 5%) and our discount rate to 6.5%.

We are one of the largest and most productive operators of compliance and low sulfur coal mines in the United States. On a pro forma basis, we sold 106.7 million tons of coal in 2003 and 79.9 million tons of coal during the nine months ended September 30, 2004, all of which was compliance and low sulfur coal. We have a total of four operating mines. Our largest mine, Black Thunder, is located in Wyoming in the Powder River Basin, the largest and fastest-growing U.S. coal-producing region. We are in the process of integrating the operations of Triton’s former North Rochelle mine with our Black Thunder mine, creating one of the largest and most productive mines in the world. We are also the largest producer of coal in the Western Bituminous Region, where we operate one underground mine in Colorado and two underground mines in Utah.

As of December 31, 2003 on a pro forma basis, we controlled approximately 2.0 billion tons of proven and probable compliance and low sulfur coal reserves. In September 2004, Arch Coal added to that position by successfully bidding for a 5,084-acre federal coal lease in the Powder River Basin known as Little Thunder. Arch Coal intends to sublease Little Thunder to us. Arch Coal expects to finalize the Little Thunder Lease, subject to regulatory review, in the first quarter of 2005. According to the U.S. Bureau of Land Management, Little Thunder contains approximately 719.0 million mineable tons of low sulfur coal. Compliance coal and low sulfur coal are coals which when burned, emit 1.2 pounds or less and 1.6 pounds or less of sulfur dioxide per million Btu’s respectively. In general, compliance coal does not require generators of electricity to use sulfur dioxide reduction technologies to comply with the requirements of the Clean Air Act.

We sell substantially all of our coal to producers of electric power, most of whom are large, investment grade utilities. For the year ended December 31, 2003, we derived 26% of our total coal revenues from sales to our largest customers, Southern Company and Tennessee Valley Authority, and 63% of our total cash revenues from sales to our ten largest customers. As of December 31, 2004 we have committed and priced approximately 90% of our planned 2005 production, approximately 71% of our planned 2006 production and 35% of our planned 2007 production. Our goal with respect to a significant portion of the remainder of our planned production which is uncommitted is to seek long-term supply agreements with our largest and best customers, providing us with a relatively reliable and stable revenue base. The remaining uncommitted position will enable us to take advantage of improving market conditions.

As of December 31, 2004, we operated a total of four mines and have two mines which are idle and one which is in reclamation mode, all located in the western United States. We use four distinct extraction techniques: continuous mining, longwall mining, truck-and-shovel mining and dragline mining. Coal is transported from our mining complexes to customers by railroad cars. As is customary in the industry, virtually all of our coal sales are made F.O.B. mine or loadout, meaning that customers are responsible for the cost of transporting purchased coal to their facilities.


(1)	Amounts exclude North Rochelle’s tons sold. The former North Rochelle operations are in the process of being integrated operationally with Black Thunder following Arch Coal’s acquisition of Triton in August 2004.

(2)	Utilizes 164-cubic-yard, 130-cubic-yard, 78-cubic-yard and 45-cubic-yard draglines and 53-cubic-yard, 60-cubic-yard and 82-cubic-yard shovels.

(3)	Idled beginning in the third quarter of 2000 because of unfavorable conditions existing in the market environment.

(4)	Owned by Canyon Fuel. Historically, Canyon Fuel’s financial statements and tons sold were not consolidated into our financial statements and tons sold. From and after July 31, 2004, following Arch Coal’s acquisition of the remaining 35% interest in Canyon Fuel, we consolidate 100% of the results of operations of Canyon Fuel and deduct Arch Coal’s 35% interest in Canyon Fuel’s net income. Amounts in this table represent 100% of Canyon Fuel’s tons sold. The Skyline mine was idled in 2004.

(5)	Placed into reclamation mode in 2004.

(6)	Utilizes 76-cubic-yard dragline at Medicine Bow and a 32-cubic-yard dragline at Seminoe II. These mines are expected to be put into reclamation mode in 2004.

Black Thunder. The Black Thunder mine is located in Campbell County, Wyoming on approximately 14,711 acres, excluding North Rochelle’s acreage. Mining the approximately 68-foot coal seam are four draglines and seven shovels, not including equipment at North Rochelle that was acquired in the Triton acquisition. There is no washing plant at Black Thunder. The coal is crushed through either the near pit crushing and conveying system or the primary system. Coal from these two crushing facilities is conveyed into one of two silos or a slot storage facility. Coal is shipped through two loadouts on trains operated by Burlington Northern and Union Pacific.

Coal Creek. The Coal Creek mine is located in Campbell County, Wyoming on approximately 6,720 acres. Coal Creek has been idle since July 2000. The equipment at the mine consists of one shovel, ten trucks and a loadout facility. The Coal Creek mine is located on a joint rail line operated by Burlington Northern and Union Pacific.

West Elk. The West Elk mine is an underground operation located in Gunnison County, Colorado on approximately 14,700 acres. The coal is mined by two continuous mines in support of a longwall. The loadout facility at the mine is serviced by the Union Pacific Railroad.

Skyline. Canyon Fuel’s Skyline mine is an underground longwall mine located in Carbon County and Emery County, Utah on 11,300 acres. The Skyline mine was idled in 2004 because current market prices do not support expansion into an additional reserve base at the mine.

SUFCO. Canyon Fuel’s SUFCO mine, an underground longwall mine, is located in Sevier County, Juab County and Emery County, Utah on 23,900 acres. Two continuous miners support the longwall. All of the coal produced from the mine is crushed at a facility located at the mine and trucked either directly to customers or to a train loadout located approximately 80 miles from the mine. The Union Pacific Railroad serves this loadout.

Dugout Canyon. Canyon Fuel’s Dugout Canyon mine is an underground longwall mine located in Carbon, County, Utah on 13,700 acres. Two continuous miners support the longwall operation. The coal produced is crushed at the mine and trucked to a third party loadout served by the Union Pacific Railroad. We currently own or lease the equipment utilized in our mining operations.

As of December 31, 2003 on a pro forma basis, we estimate that we controlled approximately 2.0 billion tons of assigned and unassigned proven and probable recoverable reserves. Recoverable reserves include only saleable coal and do not include coal which would remain unextracted. Reserve estimates are prepared by our engineers and geologists and reviewed and updated periodically. Total recoverable reserve estimates and reserves dedicated to mines and complexes change from time to time to reflect mining activities, analysis of new engineering and geological data, changes in reserve holdings and other factors. Our recoverable reserves consist of steam coal, which is coal used in steam boilers to make electricity. The following tables present our estimated assigned and unassigned recoverable coal reserves at December 31, 2003:


(1)	As received Btu per lb. includes the weight of moisture in the coal on an as sold basis.

(2)	Excluding 100% of the reserves at the North Rochelle mine which was acquired by Arch Coal in August 2004 and which we lease from Arch Coal. As of December 31, 2003, the North Rochelle mine had approximately 215.8 million tons of assigned recoverable reserves.

(3)	Including 100% of the reserves held by Canyon Fuel.

As of September 30, 2004, approximately 90,800 acres of our total of approximately 182,400 acres of coal land were leased by a subsidiary of Arch Coal from the federal government. We have subleased those federal lands from that subsidiary of Arch Coal on terms that are substantially identical to those of the underlying lease. In addition, approximately 41,200 acres were leased by us from state governments, and approximately 32,700 acres were leased by us from private lessors. These leases have terms expiring between 2004 and 2027, subject to readjustment or extension and to earlier termination for failure to meet development requirements. Under current mining plans, all reported leased reserves will be mined out within the period of existing leases or within the time period of assured lease renewal periods.

Reserves at properties leased by us to other coal operators represent an immaterial amount of our coal reserves and are included in our reserve figures set forth in this prospectus in accordance with the SEC’s Industry Guide 7. All of the identified coal reserves held by us have been subject to preliminary coal seam analysis to test sulfur content. Of these reserves, approximately 93.5% consist of compliance coal. Accordingly, our reserves are primarily suitable for the domestic steam coal markets.

Our federal coal leases are administered by the U.S. Department of the Interior under the Federal Coal Leasing Amendments Act of 1976. These leases cover our principal reserves in Wyoming and other reserves in Utah and Colorado. The Bureau of Land Management has asserted the right to adjust the terms and conditions of these leases, including rent and royalties, after the first 20 years of their term and at ten-year intervals thereafter. Annual rents under our federal coal leases are now set at $3.00 per acre. Production royalties on federal leases are set by statute at 12.5% of the gross proceeds of coal mined and sold for surface-mined coal and 8% for underground-mined coal. The federal government limits by statute

Title to coal properties that we lease or purchase and the boundaries of such properties generally are verified at the time of leasing or acquisition. However, in cases involving less significant properties and consistent with industry practices, title and boundaries are not completely verified until such time as we prepare to mine such reserves. If defects in title or boundaries of undeveloped reserves are discovered in the future, control of and the right to mine such reserves could be adversely affected. From time to time, private lessors or subleasors of land leased by us have sought to terminate such leases on the basis that we have failed to comply with the financial terms of the leases or that the mining and related operations conducted by us are not authorized by the leases. Some of these allegations relate to leases upon which we conduct operations material to our consolidated financial position, results of operations and liquidity, but we do not believe any pending claims by such lessors or subleasors have merit or will result in the termination of any material lease or sublease.

We must obtain permits from applicable state regulatory authorities before we begin to mine reserves. Applications for permits require extensive engineering and data analysis and presentation and must address a variety of environmental, health and safety matters associated with a proposed mining operation. These matters include the manner and sequencing of coal extraction, the storage, use and disposal of waste and other substances and other impacts on the environment, the construction of overburden fills and water containment areas and reclamation of the area after coal extraction. We are required to post bonds to secure our performance under our permits. As is typical in the coal industry, we strive to obtain mining permits within a time frame that allows us to mine reserves as planned on an uninterrupted basis. We generally begin preparing applications for permits for areas that we intend to mine up to three years in advance of their expected issuance date. Regulatory authorities have considerable discretion in the timing of permit issuance and the public has rights to comment on and otherwise engage in the permitting process, including through intervention in the courts.

Our reported coal reserves are those that could be economically and legally extracted or produced at the time of their determination. In determining whether our reserves meet this standard, we take into account, among other things, our potential inability to obtain a mining permit, the possible necessity of revising a mining plan, changes in estimated future costs, changes in future cash flows caused by changes in costs required to be incurred to meet regulatory requirements and obtaining mining permits, variations in quantity and quality of coal, and varying levels of demand and their effects on selling prices. We have obtained, or we have a very high probability of obtaining, all required permits or government approvals with respect to our reserves. We are not currently aware of matters which would significantly hinder our ability to obtain future mining permits or governmental approvals with respect to our reserves.

We periodically engage third parties to review our reserve estimates. The most recent third party review of our reserve estimates was conducted by Weir International Mining Consultants in April 2003.

The coal industry is intensely competitive. We compete with four major coal producers in the Powder River Basin area and effectively compete with a large number of eastern and western coal producers in the markets that we serve. Excess industry capacity, which has occurred in the past, tends to result in reduced prices for our coal. In addition to competition from other coal producers, we also compete with producers of alternative fuels used to produce electric power, such as natural gas, petroleum, nuclear and hydropower.

The most important factors on which we compete are coal price at the mine, coal quality and characteristics, transportation costs from the mine to the customer and the reliability of supply. Demand

Federal, state and local governmental authorities regulate the coal mining industry on matters as diverse as air quality standards, water pollution, groundwater quality and availability, plant and wildlife protection, the reclamation and restoration of mining properties, the discharge of materials into the environment and surface subsidence from underground mining. These regulations and legislation have had and will continue to have a significant effect on our costs of production and competitive position. New legislation, regulations or orders may be adopted or become effective which may adversely affect our mining operations, our cost structure or the ability of our customers to use coal. For example, new legislation, regulations or orders may require us to incur increased costs or to significantly change our operations. New legislation, regulations or orders may also cause coal to become a less attractive fuel source, resulting in a reduction in coal’s share of the market for fuels used to generate electricity. Depending upon the nature and scope of the legislation, regulations or orders, any legislation, regulation or order could significantly increase our costs to mine coal.

The coal mining industry is subject to regulation by federal, state and local authorities on matters such as:


	•	the discharge of materials into the environment;

	•	employee health and safety;

	•	mine permits and other licensing requirements;

	•	reclamation and restoration of mining properties after mining is completed;

	•	management of materials generated by mining operations;

	•	surface subsidence from underground mining;

	•	water pollution;

	•	legislatively mandated benefits for current and retired coal miners;

	•	air quality standards;

	•	protection of wetlands;

	•	endangered plant and wildlife protection;

	•	limitations on land use;

	•	storage of petroleum products and substances that are regarded as hazardous under applicable laws; and

	•	management of electrical equipment containing polychlorinated biphenyls, or PCBs.

In addition, the electric generating industry, which is the most significant end-user of coal, is subject to extensive regulation regarding the environmental impact of its power generation activities, which could affect demand for our coal. The possibility exists that new legislation or regulations may be adopted or that

Clean Air Act. The federal Clean Air Act and similar state and local laws, which regulate emissions into the air, affect coal mining and processing operations primarily through permitting and emissions control requirements. The Clean Air Act also indirectly affects coal mining operations by extensively regulating the emissions from coal-fired industrial boilers and power plants, which are the largest end-users of our coal. These regulations can take a variety of forms, as explained below.

The Clean Air Act imposes obligations on the Environmental Protection Agency, or EPA, and the states to implement regulatory programs that will lead to the attainment and maintenance of EPA-promulgated ambient air quality standards, including standards for sulfur dioxide, particulate matter, nitrogen oxides and ozone. Owners of coal-fired power plants and industrial boilers have been required to expend considerable resources in an effort to comply with these ambient air standards. Significant additional emissions control expenditures will be needed in order to meet the current national ambient air standard for ozone. In particular, coal-fired power plants will be affected by state regulations designed to achieve attainment of the ambient air quality standard for ozone. Ozone is produced by the combination of two precursor pollutants: volatile organic compounds and nitrogen oxides. Nitrogen oxides are a by-product of coal combustion. Accordingly, emissions control requirements for new and expanded coal-fired power plants and industrial boilers will continue to become more demanding in the years ahead.

In July 1997, the EPA adopted more stringent ambient air quality standards for particulate matter and ozone. In a February 2001 decision, the U.S. Supreme Court largely upheld the EPA’s position, although it remanded the EPA’s ozone implementation policy for further consideration. On remand, the Court of Appeals for the D.C. Circuit affirmed the EPA’s adoption of these more stringent ambient air quality standards. As a result of the finalization of these standards, states that are not in attainment for these standards will have to revise their State Implementation Plans to include provisions for the control of ozone precursors and/or particulate matter. Revised State Implementation Plans could require electric power generators to further reduce nitrogen oxide and particulate matter emissions. The potential need to achieve such emissions reductions could result in reduced coal consumption by electric power generators. Thus, future regulations regarding ozone, particulate matter and other pollutants could restrict the market for coal and our development of new mines. This in turn may result in decreased production and a corresponding decrease in our revenues. Although the future scope of these ozone and particulate matter regulations cannot be predicted, future regulations regarding these and other ambient air standards could restrict the market for coal and the development of new mines.

Furthermore, in October 1998, the EPA finalized a rule that will require 19 states in the Eastern United States that have ambient air quality problems to make substantial reductions in nitrogen oxide emissions by the year 2004. To achieve these reductions, many power plants would be required to install additional control measures. The installation of these measures would make it more costly to operate coal-fired power plants and, depending on the requirements of individual state implementation plans, could make coal a less attractive fuel. States subject to the rule were required to submit revisions of their State Implementation Plans, including provisions for reducing nitrogen oxide emissions, to the EPA by May 1, 2004.

Along with these regulations addressing ambient air quality, the EPA has initiated a regional haze program designed to protect and to improve visibility at and around National Parks, National Wilderness Areas and International Parks. This program restricts the construction of new coal-fired power plants whose operation may impair visibility at and around federally protected areas. Moreover, this program may

Additionally, the U.S. Department of Justice, on behalf of the EPA, has filed lawsuits against several investor-owned electric utilities and brought an administrative action against one government-owned electric utility for alleged violations of the Clean Air Act. The EPA claims that these utilities have failed to obtain permits required under the Clean Air Act for alleged major modifications to their power plants. We supply coal to some of the currently affected utilities, and it is possible that other of our customers will be sued. These lawsuits could require the utilities to pay penalties and install pollution control equipment or undertake other emission reduction measures, which could adversely impact their demand for coal.

New regulations concerning the routine maintenance provisions of the New Source Review program were published in October 2003. Fourteen states, the District of Columbia and a number of municipalities filed lawsuits challenging these regulations, and in December the Court stayed the effectiveness of these rules. In January 2004 the EPA Administrator announced that EPA would be taking new enforcement actions against utilities for violations of the existing New Source Review requirements, and shortly thereafter, EPA issued enforcement notices to several electric utility companies.

In January 2004, EPA proposed two new rules pursuant to the Clean Air Act that, once final, may require additional controls and impose more stringent requirements at coal-fired power generation facilities. First, EPA is seeking to lower nickel and mercury emissions at new and existing sources by requiring the use of Maximum Achievable Control Technology (“MACT”) and by implementing a nationwide “cap and trade” program. Second, EPA has proposed to require the submission of State Implementation Plans by 29 states and the District of Columbia to include control measures to reduce the emissions of sulfur dioxide and/or nitrogen oxides, pursuant to the 8-hour ozone standard established pursuant to the Clean Air Act. Should either or both of these proposed rules become final, additional costs may be associated with operating coal-fired power generations facilities that may render coal a less attractive fuel source.

Other Clean Air Act programs are also applicable to power plants that use our coal. For example, the acid rain control provisions of Title IV of the Clean Air Act require a reduction of sulfur dioxide emissions from power plants. Because sulfur is a natural component of coal, required sulfur dioxide reductions can affect coal mining operations. Title IV imposes a two phase approach to the implementation of required sulfur dioxide emissions reductions. Phase I, which became effective in 1995, regulated the sulfur dioxide emissions levels from 261 generating units at 110 power plants and targeted the highest sulfur dioxide emitters. Phase II, implemented January 1, 2000, made the regulations more stringent and extended them to additional power plants, including all power plants of greater than 25 megawatt capacity. Affected electric utilities can comply with these requirements by:


	•	burning lower sulfur coal, either exclusively or mixed with higher sulfur coal;

	•	installing pollution control devices such as scrubbers, which reduce the emissions from high sulfur coal;

	•	reducing electricity generating levels; or

	•	purchasing or trading emissions credits.

Specific emissions sources receive these credits, which electric utilities and industrial concerns can trade or sell to allow other units to emit higher levels of sulfur dioxide. Each credit allows its holder to emit one ton of sulfur dioxide.

In addition to emissions control requirements designed to control acid rain and to attain the national ambient air quality standards, the Clean Air Act also imposes standards on sources of hazardous air pollutants. Although these standards have not yet been extended to coal mining operations, the EPA recently announced that it will regulate hazardous air pollutants from coal-fired power plants. Under the

Other proposed initiatives may have an effect upon coal operations. One such proposal is the Bush Administration’s Clear Skies Initiative. As proposed, this initiative is designed to reduce emissions of sulfur dioxide, nitrogen oxides, and mercury from power plants. Other so-called multi-pollutant bills, which could regulate additional air pollutants, have been proposed by various members of Congress. While the details of all of these proposed initiatives vary, there appears to be a movement towards increased regulation of a number of air pollutants. Were such initiatives enacted into law, power plants could choose to shift away from coal as a fuel source to meet these requirements.

Mine Health and Safety Laws. Stringent safety and health standards have been imposed by federal legislation since the adoption of the Mine Safety and Health Act of 1969. The Mine Safety and Health Act of 1977, which significantly expanded the enforcement of health and safety standards of the Mine Safety and Health Act of 1969, imposes comprehensive safety and health standards on all mining operations. In addition, as part of the Mine Safety and Health Acts of 1969 and 1977, the Black Lung Act requires payments of benefits by all businesses conducting current mining operations to coal miners with black lung and to some survivors of a miner who dies from this disease.

Surface Mining Control and Reclamation Act. SMCRA establishes operational, reclamation and closure standards for all aspects of surface mining as well as many aspects of deep mining. SMCRA requires that comprehensive environmental protection and reclamation standards be met during the course of and upon completion of mining activities. In conjunction with mining the property, we are contractually obligated under the terms of our leases to comply with all laws, including SMCRA and equivalent state and local laws. These obligations include reclaiming and restoring the mined areas by grading, shaping, preparing the soil for seeding and by seeding with grasses or planting trees for use as pasture or timberland, as specified in the approved reclamation plan.

SMCRA also requires us to submit a bond or otherwise financially secure the performance of its reclamation obligations. The earliest a reclamation bond can be completely released is five years after reclamation has been achieved. Federal law and some states impose on mine operators the responsibility for repairing the property or compensating the property owners for damage occurring on the surface of the property as a result of mine subsidence, a consequence of longwall mining and possibly other mining operations. In addition, the Abandoned Mine Lands Act, which is part of SMCRA, imposes a tax on all current mining operations, the proceeds of which are used to restore mines closed before 1977. The maximum tax is $0.35 per ton of coal produced from surface mines and $0.15 per ton of coal produced from underground mines.

We also lease some of our coal reserves to third party operators. Under SMCRA, responsibility for unabated violations, unpaid civil penalties and unpaid reclamation fees of independent mine lessees and other third parties could potentially be imputed to other companies that are deemed, according to the regulations, to have “owned” or “controlled” the mine operator. Sanctions against the “owner” or “controller” are quite severe and can include civil penalties, reclamation fees and reclamation costs. We are not aware of any currently pending or asserted claims against us alleging that we “own” or “control” any of our lessees’ operations.

Framework Convention on Global Climate Change. The United States and more than 160 other nations are signatories to the 1992 Framework Convention on Global Climate Change, commonly known as the Kyoto Protocol, which is intended to limit or capture emissions of greenhouse gases such as carbon dioxide and methane. The U.S. Senate has neither ratified the treaty commitments, which would mandate a reduction in U.S. greenhouse gas emissions, nor enacted any law specifically controlling greenhouse gas emissions, and the Bush Administration has withdrawn support for this treaty. Nonetheless, future regulation of greenhouse gases could occur either pursuant to future U.S. treaty obligations or pursuant to

Comprehensive Environmental Response, Compensation and Liability Act. CERCLA and similar state laws affect coal mining operations by, among other things, imposing cleanup requirements for threatened or actual releases of hazardous substances that may endanger public health or welfare or the environment. Under CERCLA and similar state laws, joint and several liability may be imposed on waste generators, site owners and lessees and others regardless of fault or the legality of the original disposal activity. Although the EPA excludes most wastes generated by coal mining and processing operations from the hazardous waste laws, such wastes can, in certain circumstances, constitute hazardous substances for the purposes of CERCLA. In addition, the disposal, release or spilling of some products used by coal companies in operations, such as chemicals, could implicate the liability provisions of the statute. Thus, coal mines that we currently own or have previously owned or operated, and sites to which we sent waste materials, may be subject to liability under CERCLA and similar state laws. In particular, we may be liable under CERCLA or similar state laws for the cleanup of hazardous substance contamination at sites where we own surface rights.

Mining Permits and Approvals. Numerous governmental permits or approvals are required for mining operations. In connection with obtaining these permits and approvals, we may be required to prepare and present to federal, state or local authorities data pertaining to the effect or impact that any proposed production of coal may have upon the environment. The requirements imposed by any of these authorities may be costly and time consuming and may delay commencement or continuation of mining operations. Regulations also provide that a mining permit can be refused or revoked if an officer, director or a shareholder with a 10% or greater interest in the entity is affiliated with another entity that has outstanding permit violations. Thus, past or ongoing violations of federal and state mining laws could provide a basis to revoke existing permits and to deny the issuance of additional permits.

In order to obtain mining permits and approvals from state regulatory authorities, mine operators, including us, must submit a reclamation plan for restoring, upon the completion of mining operations, the mined property to its prior condition, productive use or other permitted condition. Typically we submit the necessary permit applications several months before we plan to begin mining a new area. In our experience, permits generally are approved several months after a completed application is submitted. In the past, we have generally obtained our mining permits without significant delay. However, we cannot be sure that we will not experience difficulty in obtaining mining permits in the future.

Future legislation and administrative regulations may emphasize the protection of the environment and, as a consequence, the activities of mine operators, including us, may be more closely regulated. Legislation and regulations, as well as future interpretations of existing laws, may also require substantial increases in equipment expenditures and operating costs, as well as delays, interruptions or the termination of operations. We cannot predict the possible effect of such regulatory changes. Under some circumstances, substantial fines and penalties, including revocation or suspension of mining permits, may be imposed under the laws described above. Monetary sanctions and, in severe circumstances, criminal sanctions may be imposed for failure to comply with these laws.

Surety Bonds. Federal and state laws require us to obtain surety bonds to secure payment of certain long-term obligations including mine closure or reclamation costs, federal and state workers’ compensation costs, coal leases and other miscellaneous obligations. Many of these bonds are renewable on a yearly basis. It has become increasingly difficult for us to secure new surety bonds or renew such bonds without the posting of collateral. In addition, surety bond costs have increased while the market terms of such bonds have generally become more unfavorable.

Endangered Species. The federal Endangered Species Act and counterpart state legislation protects species threatened with possible extinction. Protection of endangered species may have the effect of prohibiting or delaying us from obtaining mining permits and may include restrictions on timber harvesting, road building and other mining or agricultural activities in areas containing the affected species. A number of species indigenous to our properties are protected under the Endangered Species Act. Based

Other Environmental Laws Affecting Us. We are required to comply with numerous other federal, state and local environmental laws in addition to those previously discussed. These additional laws include, for example, the Resource Conservation and Recovery Act, the Safe Drinking Water Act, the Toxic Substance Control Act and the Emergency Planning and Community Right-to-Know Act. We believe that we are in substantial compliance with all applicable environmental laws.

We employ a total of approximately 1,700 persons, none of whom were represented by organized labor unions.

The Issuer is a Delaware limited liability company and an indirectly wholly-owned subsidiary of Arch Western. It was formed in June 2003 solely for the purpose of being the issuer of the 6 3/4% senior notes due 2013. The Issuer has no operations, and we do not expect that it will have operations in the future. The Issuer’s only assets consist of intercompany notes.

Arch Coal originally was organized as Arch Mineral Corporation in 1969. On July 1, 1997, Ashland Coal, Inc. then a majority-owned subsidiary of Ashland Inc., merged with a subsidiary of Arch Mineral Corporation. In connection with the merger, the name of Arch Mineral Corporation was changed to Arch Coal, Inc. On June 1, 1998, Arch Coal acquired the United States coal operations of Atlantic Richfield Company for an aggregate of approximately $1.14 billion in cash and combined these operations with its western operations to form Arch Western Resources, LLC. Arch Coal owns 99% of Arch Western, and an affiliate of BP p.l.c., the successor to Atlantic Richfield Company, owns the remaining 1% interest.

Arch Coal is the second largest operator of compliance and low sulfur coal mines in the United States and operates some of the industry’s most productive mines. Including our operations, as of December 31, 2003 on a pro forma basis, Arch Coal controlled approximately 3.1 billion tons of proven and probable coal reserves. On a pro forma basis, Arch Coal sold 137.8 million tons of coal in 2003 and 106.0 million tons of coal during the nine months ended September 30, 2004.

In addition to our operations, Arch Coal produces coal in Central Appalachia in the eastern United States. Arch Coal produces compliance and low sulfur coal exclusively, and 84% of its reserves on a pro forma basis are compliance quality or low sulfur. Arch Coal supplied the fuel for approximately 7% of the electricity used in the United States in 2003, on a pro forma basis. Arch Coal’s sales volume has increased from 40.9 million tons in 1997 to 137.8 million tons in 2003, on a pro forma basis, primarily as a result of selective acquisitions as well as the strategic development of existing reserves.

On July 31, 2004, Arch Coal purchased the 35% interest in Canyon Fuel Company, LLC not owned by us for a net purchase price of $98.4 million. As of December 31, 2003, Canyon Fuel controlled approximately 161.0 million tons of high-quality, low sulfur coal reserves in Utah. In 2003, Canyon Fuel produced approximately 13.0 million tons of coal. Arch Coal funded the acquisition with $80.2 million in cash on hand and a promissory note payable to the seller. As a wholly owned subsidiary of Arch Coal, Canyon Fuel’s results now will be consolidated in Arch Coal’s financial statements. We now will consolidate 100% of the results of Canyon Fuel and deduct for Arch Coal’s 35% minority interest in Canyon Fuel’s net income.

On August 20, 2004, Arch Coal completed its acquisition of Triton for an aggregate purchase price of $376.0 million, including transaction costs and subject to working capital adjustments. Triton was the nation’s sixth largest coal producer and operated two mines in the Powder River Basin, North Rochelle and Buckskin. Also on August 20, 2004, Arch Coal sold Triton’s Buckskin mine for net proceeds of approximately $72.9 million. Arch Coal financed the acquisition of Triton with $254.0 million in cash, including the proceeds from the Buckskin sale, $22.0 million in borrowings under Arch Coal’s existing revolving credit facility, and $100.0 million in borrowing under our term loan facility. We are in the process of integrating the operations of the North Rochelle mine with the Black Thunder mine.

In 2003, North Rochelle produced 23.9 million tons of 8,800 Btu, compliance coal. At December 31, 2003, the North Rochelle mine had reserves of approximately 215.8 tons. We expect to realize synergies of $15 million to $20 million annually through the operational integration of the North Rochelle mine with our Black Thunder mine. For the year ended December 31, 2003 and the twelve months ended June 30, 2004, North Rochelle generated $198.8 million and $184.0 million of total revenues, respectively.

On September 22, 2004, the U.S. Bureau of Land Management accepted Arch Coal’s bid of $611 million for a 5,084-acre federal coal lease known as Little Thunder, which is located adjacent to the Black Thunder mine in Wyoming’s Powder River Basin. We expect the Little Thunder lease to be finalized, subject to regulatory review, in the first quarter of 2005. According to the U.S. Bureau of Land Management, the lease contains approximately 719.0 million mineable tons of compliance coal. Arch Coal borrowed $100.0 million under its former revolving credit facility and used $22.2 million of cash on hand to fund the first of five annual payments of $122.2 million under the lease.

Our managing member is an indirect wholly owned subsidiary of Arch Coal. As a result, Arch Coal’s management is effectively our management. The executive officers and directors of Arch Coal and their respective ages and positions are set forth below.

Set forth below is a description of the backgrounds of these executive officers and directors of Arch Coal.

Steven F. Leer has been Arch Coal’s President and Chief Executive Officer and a director of Arch Coal since 1992. He is also a Director of the Norfolk Southern Corporation, the Western Business Roundtable and the Mineral Information Institute. Mr. Leer is a past chairman and continues to serve on the boards of the Center for Energy and Economic Development, the National Coal Council and the National Mining Association.

Bradley M. Allbritten has been Arch Coal’s Vice President — Marketing since August 2002. From March 2000 to February 2003, Mr. Allbritten was Arch Coal’s Vice President — Human Resources. Mr. Allbritten also served as Arch Coal’s Director of Human Resources from February 1999 through February 2000. From January 1995 to February 1999, Mr. Allbritten served as Human Resources Manager for Atlantic Richfield Company.

C. Henry Besten, Jr. has been Arch Coal’s Senior Vice President — Strategic Development since December 2002. Mr. Besten is also President of Arch Coal’s Arch Energy Resources, Inc. subsidiary and has served in that capacity since July 1997. From July 1997 to December 2002, Mr. Besten served as Vice President — Strategic Marketing of Arch Coal. Mr. Besten also served as Acting Chief Financial Officer of Arch Coal from December 1999 through November 2000.

John W. Eaves has been Arch Coal’s Executive Vice President and Chief Operating Officer since December 2002. From February 2000 to December 2002, Mr. Eaves served as Senior Vice President — Marketing of Arch Coal and from September 1995 to December 2002 as President of Arch Coal’s Arch Coal Sales Company, Inc. subsidiary. Mr. Eaves also served as Vice President — Marketing of Arch Coal from July 1997 through February 2000. Mr. Eaves serves on the board of directors of ADA-ES, Inc.

Sheila B. Feldman has been Arch Coal’s Vice President — Human Resources since February 2003. From 1997 to February 2003, Ms. Feldman was the Vice President — Human Resources and Public Affairs of Solutia Inc.

Robert G. Jones has been Arch Coal’s Vice President — Law & General Counsel since March 2000. Mr. Jones served as Arch Coal’s Assistant General Counsel from July 1997 through February 2000 and as Senior Counsel from August 1993 to July 1997.

Robert J. Messey has been Arch Coal’s Senior Vice President and Chief Financial Officer since December 2000. Prior to joining Arch Coal, Mr. Messey served as vice president of financial services of Jacobs Engineering Group Inc. from January 1999 and, prior to that, served as senior vice president and chief financial officer of Sverdrup Corporation from 1992. Mr. Messey serves on the board of directors of Baldor Electric Company.

David B. Peugh has been Arch Coal’s Vice President — Business Development since 1993.

Kenneth G. Woodring has been Arch Coal’s Executive Vice President — Mining Operations since July 1997. Mr. Woodring served as Senior Vice President — Operations of Ashland Coal from 1989 through July 1997. Mr. Woodring has announced his intention to retire in February 2005.

James R. Boyd, Arch Coal’s Chairman of the Board, has been a director of Arch Coal since 1990. He served as Senior Vice President and Group Operating Officer of Ashland Inc., a multi-industry company with operations in chemicals, motor oil, car care products and highway construction, from 1989 until his retirement in January 2002. Mr. Boyd is also a director of the Farmers Bank of Lynchburg, Tennessee.

Frank M. Burke, Jr. has been a director of Arch Coal since September 2000. He has served as Chairman, Chief Executive Officer and Managing General Partner of Burke, Mayborn Company, Ltd., a private investment and consulting company, since 1984. Mr. Burke is also a director of Kaneb Services, LLC, Xanser Corporation, Kaneb Pipe Line Company (general partner of Kaneb Pipe Line Partners, LP), a member of the Board of Managers of Dorchester Minerals Management GP LLC (general partner of Dorchester Minerals, L.P.) and Crosstex Energy GP, LLC (general partner of Crosstex Energy, L.P.), a director of Crosstex Energy Inc. and a member of the National Petroleum Council.

Patricia Fry Godley has been a director of Arch Coal since 2004. Since 1998, Ms. Godley has been a partner with the law firm of Van Ness Feldman. From 1994 until 1998, Ms. Godley served as the Assistant Secretary for Fossil Energy at the U.S. Department of Energy. Ms. Godley is also a director of the United States Energy Association and State Law Resources, Inc.

Douglas H. Hunt has been a director of Arch Coal since 1995 and, since May 1995, has served as Director of Acquisitions of Petro-Hunt, L.L.C., a private oil and gas exploration and production company.

Thomas A. Lockhart has been a director of Arch Coal since February 2003 and a member of the Wyoming State House of Representatives since 2000. Mr. Lockhart worked for PacificCorp, an electric utility, for over 30 years and retired in 1998 as a Vice President. Mr. Lockhart is also a director of Blue Cross Blue Shield of Wyoming and First Interstate Bank of Casper, Wyoming.

A. Michael Perry has been a director of Arch Coal since 1998. He served as Chairman of Bank One, West Virginia, N.A. from 1993 and as its Chief Executive Officer from 1983 to his retirement in June 2001. Mr. Perry is also a director of Champion Industries, Inc.

Robert G. Potter became a director of Arch Coal in April 2001. He was Chairman and Chief Executive Officer of Solutia Inc., a producer and marketer of a variety of high performance chemical-based materials, from 1997 until his retirement in 1999. Mr. Potter served for 32 years with Monsanto Company prior to its spin-off of Solutia in 1997, most recently as the Chief Executive of its chemical businesses. Mr. Potter is a Director of Stepan Company and of certain private companies of which he is also an investor.

Theodore D. Sands has been a director of Arch Coal since 1999 and, since February 1999, has served as President of HAAS Capital, LLC, a private consulting and investment company. Mr. Sands served as Managing Director, Investment Banking for the Global Metals/ Mining Group of Merrill Lynch & Co. from 1982 until February 1999. Mr. Sands is also a director of Protein Sciences Corporation and Terra Nitrogen Corporation.

Arch Western is a Delaware limited liability company that is governed by the terms of a limited liability company agreement (the “LLC Agreement”) entered into as of June 1, 1998 between Arch Western Acquisition Corporation (the “Arch Member”), a Delaware corporation owned by Arch Coal, and Delta Housing Inc. (the “BP Member”), a Delaware corporation indirectly owned by BP p.l.c. (“BP”) as the successor corporation to Atlantic Richfield Company (“ARCO”). On June 1, 1998, Arch Coal acquired the Colorado and Utah coal operations of ARCO and simultaneously combined the acquired ARCO coal operations and Arch Coal’s Wyoming coal operations with ARCO’s Wyoming coal operations in connection with our formation.

Under the terms of the LLC Agreement, the Arch Member has a 99% common membership interest in Arch Western, while the BP Member has a 0.5% common membership interest and a 0.5% preferred membership interest. Net profits and losses are allocated only to the common membership interests on the basis of 99.5% to the Arch Member and 0.5% to the BP Member. Except with respect to annual tax distributions of available cash described below, distributions may generally be made at such times and in such amounts as the managing member determines. Available cash must first be distributed to the members based on the common membership interest in a hypothetical tax amount which represents the tax we would pay if we were a corporation taxed at 4% plus the highest tax rate for corporations. The BP Member is entitled to a preferred return distribution in an amount equal to 4% of its preferred capital account balance at the end of the year prior to any distributions, other than tax distributions, to the Arch Member. As of December 31, 2003, the BP Member’s preferred capital account was approximately $2.4 million. After the preferred return distribution, distributions to the members are allocated based on their common membership interests of 99.5% to the Arch Member and 0.5% to the BP Member.

Except as described below, the Arch Member, as the managing member of Arch Western, has full and complete authority, power and discretion to manage and control the business, affairs and property of Arch Western, to make all decisions regarding those matters and to perform any and all acts or activities customary or incident to the management of Arch Western’s business. However, consent of the BP Member is required in the event that Arch Western proposes to make a distribution of cash or certain property, or make loans to or other investments in a member or any affiliate of a member (except for required tax distributions), incur certain indebtedness, sell, lease or dispose of properties outside the ordinary course of business or to merge or consolidate Arch Western with any other person if, at that time, Arch Western has a debt rating less favorable than Ba3 from Moody’s Investors Service and BB- from Standard & Poor’s and fails to maintain an interest ratio of greater than 3.0:1 or an indebtedness ratio of less than 3.5:1. The LLC Agreement requires the managing member to designate a President, Treasurer and Secretary of Arch Western, and such persons serve at the will of the managing member until a successor is elected or such person’s earlier resignation or removal. Because our managing member is wholly owned by Arch Coal, Arch Coal’s management is effectively our management.

Except as described below, no member may dispose of all or any portion of its membership interest. A member may at any time transfer all or a portion of its interest:


	•	to any controlled affiliate of such member;

	•	in connection with a transaction or series of related transactions in which the parent or any affiliate of a member transfers its interest in any affiliate that owns an interest in Arch Western to a controlled affiliate;


	•	to the administrator or trustee in an involuntary bankruptcy;

	•	pursuant to the put and call provisions of the LLC Agreement (described below); or

	•	with the prior written consent of the other member.

No transfer of a member’s interest (other than in connection with the put and call provisions) will be a permitted transfer if such transfer would reasonably likely result in a breach of any covenant, representation or other agreement in any instrument with respect to the Arch Western indebtedness originally incurred at the time the LLC Agreement was entered into, or any successor indebtedness thereto, or otherwise materially adversely affect the creditworthiness of Arch Western.

Under the terms of the LLC Agreement, at any time after June 1, 2005, the BP Member has a put right to require the Arch Member to purchase all or part of the BP Member’s interest in Arch Western upon 60 days’ advance written notice. The purchase price pursuant to this put right shall be as determined by mutual agreement between the Arch Member and the BP Member within 60 days after the date of the put notice. If the parties do not mutually agree on the purchase price, the LLC Agreement provides that the purchase price shall be the sum of (a) an amount equal to all or such portion of the preferred capital amount to be sold and any accrued and unpaid preferred return thereon if the preferred capital amount is to be sold, and (b) the net equity of the BP Member’s common percentage interest or part thereof if the common partnership interest is to be sold, determined on such date as is specified in the LLC Agreement. If the BP Member put is exercised, no damages are payable to the BP Member under the Tax Sharing Agreement (described below).

At any time, the Arch Member has a call right to purchase or cause another person to purchase all of the BP Member’s interest at a price equal to the sum of (a) the preferred capital amount and any accrued and unpaid preferred return thereon, and (b) the net equity of the BP Member’s common percentage interest, determined on such date as specified in the LLC Agreement, together with certain damages, if any, under the Tax Sharing Agreement. In addition, at any time after January 1, 2013, the Arch Member has the right to purchase all of the BP Member’s interest and any interest of the BP Member transferred at a price equal to the net equity of the BP Member’s interest and/or transferred interest determined on such date as specified in the LLC Agreement. No damages shall be payable to the BP Member pursuant to the Tax Sharing Agreement in connection with the exercise by the Arch Member of its call right after June 1, 2013.

Arch Western shall dissolve and commence winding up and liquidating upon the first to occur of (a) the sale of substantially all of the property of Arch Western and (b) the agreement of the members to dissolve, wind up, and liquidate Arch Western. The managing member shall be responsible for overseeing the winding up and dissolution of Arch Western. The LLC Agreement provides for the application and distribution of the proceeds realized in the liquidation of Arch Western’s property in the following priority: (I) payment of all of Arch Western’s debts and liabilities to creditors other than the members and to the payment of the expenses of liquidation and (2) payment of all member loans (as defined) and all of Arch Western’s debts and liabilities to its members as provided therein.

In connection with Arch Coal’s acquisition of the western United States coal properties of ARCO in June 1998, Arch Western, Arch Coal, the Arch Member and the BP Member entered into a Tax Sharing Agreement dated June 1, 1998 (the “Tax Sharing Agreement”).

Under the Tax Sharing Agreement, Arch Coal and the Arch Member agreed to indemnify the

BP Member against specified tax liabilities in the event that such tax liabilities arise as a result of certain actions taken with respect to Arch Western prior to June 1, 2013. These actions include:


	•	the sale or other taxable disposition of all or any part of the assets, rights and properties contributed by ARCO or the BP Member to Arch Western;

	•	the purchase and sale of the BP Member’s interest in Arch Western pursuant to certain call rights of the Arch Member under the terms of the LLC Agreement; or

	•	a reduction in the amount of certain debt allocable to the BP Member under the Internal Revenue Code of 1986, as amended, due to an Arch Indemnifiable Event (as defined therein and described below).

For purposes of the Tax Sharing Agreement, the term Arch Indemnifiable Event means any of the following actions undertaken, except as otherwise provided, by Arch Coal and its affiliates, the managing member, or by Arch Western, except to the extent that the BP Member has consented to such action and executed a written waiver of its rights to collect payment for such event:


	•	a repayment, acceleration that results in a reduction in principal amount of all or part of the original principal amount of indebtedness incurred by Arch Western concurrently with the entering into of the LLC Agreement or any successor debt (as defined), except in connection with the refunding of the original indebtedness with successor debt of an equal principal amount;

	•	an express guarantee, indemnification, reimbursement agreement, pledge of collateral or any other payment or payment related obligation for the direct benefit of creditors of Arch Western by Arch and its affiliates or the Arch Member with respect to the original indebtedness or successor debt, except as set forth in the LLC Agreement and the Contribution Agreement entered into in connection with the formation of Arch Western (including the making or repayment of loans to Arch Coal and certain affiliates);

	•	a refinancing of the original indebtedness or successor debt if the principal amount of indebtedness outstanding at such time is reduced;

	•	classification of Arch Western as a corporation for federal income tax purposes or a merger or consolidation of Arch Western into a corporation or the transfer of substantially all of the assets of Arch Western to a corporation;

	•	the dissolution or liquidation of Arch Western;

	•	an amendment or modification of the terms of the original indebtedness or successor debt pursuant to which Arch, the Arch Member or Arch Western agrees that (x) no member will be liable for such debt or (y) that any member other than the BP Member or its affiliate is liable, pursuant to a guarantee or otherwise, for satisfaction of the indebtedness; or

	•	a repayment or other reduction in principal amount of all or part of the original indebtedness or successor debt arising upon the bankruptcy or insolvency of Arch Western, the Arch Member or Arch Coal.

Canyon Fuel is a Delaware limited liability company that is governed by the terms of a limited liability company agreement (the “Canyon Fuel LLC Agreement”) entered into as of December 18, 1996, and as amended and restated on August 1, 2004, by and between Arch Western Bituminous Group, LLC, a Delaware limited liability company and subsidiary of Arch Western, and Arch Coal. Under the terms of the Canyon Fuel LLC Agreement, Arch Western Bituminous has a 65% membership interest in Canyon Fuel, and Arch Coal has a 35% membership interest. In general, the terms of the Canyon Fuel LLC Agreement provide for a pro rata allocation of profits and losses to members in accordance with their respective percentage interests. Except for certain required withholdings authorized by the Canyon Fuel LLC Agreement, cash available for distribution will be distributed to Canyon Fuel’s members pro rata in accordance with their respective percentage interests at such times as may be determined by Arch Western Bituminous Group, as managing member.

Arch Coal and Arch Western are parties to a Services Agreement pursuant to which Arch Coal provides Arch Western with various accounting, legal, geological, engineering, financial, developmental, operational, management and other services and assistance of the type customarily furnished by a parent corporation to its consolidated subsidiaries. Under the Services Agreement, Arch Coal is reimbursed by Arch Western for all direct costs and expenses incurred by Arch Coal and its affiliates in connection with the provision of services pursuant to the Services Agreement, plus an allocation of overhead and other indirect costs based on the services provided as determined in good faith by Arch Coal. Under the Services Agreement, Arch Western has indemnified Arch Coal and its directors, officers, stockholders, employees and agents from any liabilities arising out of or in connection with the provision of such services and assistance.

We pay selling, general and administrative services fees to Arch Coal. Expenses are allocated based on Arch Coal’s best estimates of proportional or incremental costs, whichever is more representative of costs incurred by Arch Coal on our behalf. Amounts allocated to us by Arch Coal were $15.7 million, $13.0 million and $13.0 million for the years ended December 31, 2003, 2002 and 2001, respectively. Allocated expenses are not necessarily representative of costs that would be incurred if we operated on a stand-alone basis.

Arch Coal manages our cash transactions. Cash paid to or from us that was not considered a distribution or a contribution is maintained in an Arch Coal receivable account and evidenced in the form of promissory notes issued by Arch Coal to us, which have been pledged as security for the payment of the notes. Any distribution by us to, or investment by us in, Arch Coal or any of its subsidiaries other than us or our subsidiaries, will be in the form of loans evidenced by additional promissory notes which will be pledged as security for the payment of the notes and reflected on our balance sheet as an increase in receivable from Arch Coal. Interest earned on the Arch Coal promissory notes for the years ended December 31, 2003, 2002 and 2001 was $14.6 million, $13.6 million and $15.5 million, respectively. At December 31, 2002 and 2003 and September 30, 2004, the aggregate principal amount of Arch Coal promissory notes was $333.8 million, $351.9 million and $489.4 million, respectively. As of September 30, 2004, on a pro forma basis as adjusted to give effect to the Transactions, the aggregate principal amount of Arch Coal promissory notes would have been $646.2 million. The Arch Coal promissory notes accrue interest at the prime interest rate. The Arch Coal promissory notes are payable on demand by us; however, our management currently does not intend to demand payment on the Arch Coal promissory notes within the next year. Therefore, the receivable is classified on our consolidated balance sheets as long-term.

In 2000, we began mining on portions of a federal lease known as the Thundercloud tract. The Thundercloud tract contains approximately 353 million tons of coal reserves and is contiguous to our existing operations. A subsidiary of Arch Coal owns the rights to the tract. Prior to mining, we entered into a sublease with that subsidiary of Arch Coal that requires annual advance royalty payments, which are fully recoverable against production on the Thundercloud tract. In 2003, 2002 and 2001, we made advance royalty payments of $10.0 million, $12.7 million and $4.8 million, respectively, under this lease. In addition, we also pay a production royalty of 5.5% of realization and a $0.01 per ton override royalty for every ton mined from the Thundercloud tract, resulting in production royalties paid to that subsidiary of Arch Coal of $9.2 million, $7.3 million and $4.9 million in 2003, 2002 and 2001, respectively. We also lease certain assets from Little Thunder Leasing Company, a subsidiary of BP p.l.c. Lease expenses for the

Following Arch Coal’s completion of its acquisition of Triton and sale of Triton’s Buckskin mine in August 2004, Arch Coal contributed Triton’s reserves to its subsidiary, Ark Land Company, and then contributed Triton, except for its reserves, to us. Those reserves were leased by Triton under federal coal leases having terms expiring between 2006 and 2018, subject to readjustment or extension and to earlier termination for failure to meet development requirements. Also in August 2004, we and Ark Land entered into a sublease with respect to the North Rochelle mine reserves formerly controlled by Triton. The term of the sublease expires on March 31, 2005, at which time the parties have agreed to enter into a permanent sublease arrangement on substantially the same terms and with terms that run concurrently with the terms of the underlying federal coal leases, as they cover and relate to the applicable portions of the leased reserves. Under the temporary sublease, we pay to Ark Land an overriding production royalty of $0.05 per ton mined and shipped during the preceding month from the leased property. As of December 31, 2004, we have paid $0.4 million in royalties to Ark Land under this sublease.

Once it is finalized, we intend to lease the reserves under the Little Thunder coal lease from Arch Coal.

The Issuer issued the old notes on October 22, 2004 in a private placement to a limited number of qualified institutional buyers, as defined under the Securities Act. The old notes were issued under an indenture dated June 25, 2003 pursuant to which the Issuer previously issued $700,000,000 of 6 3/4% Senior Notes due 2013. That indenture was supplemented by a supplemental indenture dated October 22, 2004. In connection with the issuance of the old notes in October 2004, the Issuer, Arch Western, the subsidiary guarantors and Arch Coal entered into a registration rights agreement. These agreements require that we file a registration statement under the Securities Act with respect to the new notes to be issued in the exchange offer and, upon the effectiveness of the registration statement, offer to you the opportunity to exchange your old notes for a like principal amount of new notes. The new notes will be issued without a restrictive legend, and, except as set forth below, we believe that the new notes may be reoffered and resold by you without registration under the Securities Act. After we complete the exchange offer, our obligations with respect to the registration of the old notes will terminate, except as provided in the last paragraph of this “— Purpose and Effect” section. Copies of the indenture, the supplemental indenture and the registration rights agreement have been filed as exhibits to the registration statement of which this prospectus is part.

Based on an interpretation by the staff of the SEC set forth in no-action letters issued to third parties unrelated to us, if you are not our “affiliate” within the meaning of Rule 405 under the Securities Act or a broker-dealer referred to in the next paragraph, we believe that new notes to be issued to you in the exchange offer may be offered for resale, resold and otherwise transferred by you, without compliance with the registration and prospectus delivery provisions of the Securities Act. This interpretation, however, is based on your representations to us that:


	(1) the new notes to be issued to you in the exchange offer are acquired in the ordinary course of your business;

	(2) you are not engaging in and do not intend to engage in a distribution of the new notes to be issued to you in the exchange offer;

	(3) you have no arrangement or understanding with any person to participate in the distribution of the new notes to be issued to you in the exchange offer; and

	(4) you are not an “affiliate” of ours, as defined under Rule 405 of the Securities Act.

We have not applied to the SEC for no-action relief with respect to this exchange offer, and we cannot assure you that the staff of the SEC would make a similar determination with respect to this exchange offer.

If you tender your old notes in the exchange offer for the purpose of participating in a distribution of the new notes to be issued to you in the exchange offer, you cannot rely on this interpretation by the staff of the SEC. Under those circumstances, you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. Each broker-dealer that receives new notes in the exchange offer for its own account in exchange for old notes that were acquired by the broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of those new notes. See “Plan of Distribution.”

If (i) due to any change in law or applicable interpretations thereof by the SEC’s staff, the Issuer, Arch Coal, Arch Western and the subsidiary guarantors determine that they are not permitted to effect the exchange offer; (ii) any initial purchaser of the old notes so requests with respect to old notes that are not eligible to be exchanged for new notes in the exchange offer and that are held by it following consummation of the exchange offer; (iii) any holder (other than an initial purchaser of old notes) is not eligible to participate in the exchange offer; or (iv) you are an initial purchaser of old notes that does not

We will, in the event a shelf registration statement is filed, among other things, provide to each holder for whom the shelf registration statement was filed a copy of the shelf registration statement, and each amendment of the shelf registration statement and each amendment or supplement to the prospectus included in the shelf registration statement, notify each of those holders when the shelf registration statement has been filed with the SEC and when the shelf registration statement or any post-effective amendment to it has become effective and take certain other actions as are required to permit unrestricted resales of the old notes. A holder selling old notes pursuant to the shelf registration statement generally would be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the registration rights agreement which are applicable to that holder (including certain indemnification obligations).

We will pay additional cash interest on the old notes, subject to certain exceptions, if:


	(1) the registration statement of which this prospectus is part is not declared effective on or prior to the 180th day following the date of the issuance of the old notes;

	(2) the exchange offer is not consummated on or prior to the 225th day following the date of the issuance of the old notes; or

	(3) if required, a shelf registration statement with respect to the old notes has not been filed with the SEC on or prior to the 60th day following the date the obligation to file the shelf registration statement arises

(each such event referred to in clauses (1) through (3) above, a “Registration Default”) from and including the date on such Registration Default will occur to but excluding the date on which all Registration Defaults have been cured.

The rate of additional interest will be at the rate equal to 0.25% of the principal amount of the old notes (determined daily) with respect to the first 90-day period following such Registration Default. The amount of additional interest will increase by an additional 0.25% per annum to a maximum of 1.00% per annum for each subsequent 90-day period until the Registration Default has been cured. We will pay the additional interest on regular interest payment dates. The additional interest will be in addition to any other interest payable from time to time with respect to the old notes.

All references in the indenture, as supplemented, in any context, to any payment of principal, purchase prices in connection with a purchase of notes, and interest or any other amount payable on or with respect to any of the notes, will be deemed to include payment of any additional cash interest pursuant to the registration rights agreement.

Old notes which you do not tender or we do not accept will, following the exchange offer, continue to be restricted securities. You may not offer or sell untendered old notes except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We will issue new notes in exchange for the old notes pursuant to the exchange offer only following the satisfaction of procedures and conditions described elsewhere in this prospectus. These procedures and conditions

Because we anticipate that most holders of old notes will elect to exchange their old notes, we expect that the liquidity of the market for any old notes remaining after the completion of the exchange offer may be substantially limited. Any old note tendered and exchanged in the exchange offer will reduce the aggregate principal amount of the old notes outstanding. Following the exchange offer, untendered old notes generally will not have any further associated registration rights, and untendered old notes will continue to be subject to transfer restrictions. Accordingly, the liquidity of the market for any old notes could be adversely affected.

Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept any and all old notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the expiration date. We will issue $1,000 principal amount of new notes in exchange for each $1,000 principal amount of old notes accepted in the exchange offer. You may tender some or all of your old notes pursuant to the exchange offer. However, old notes may be tendered only in integral multiples of $1,000 principal amount.

The form and terms of the new notes are substantially the same as the form and terms of the old notes, except that the new notes to be issued in the exchange offer have been registered under the Securities Act and will not bear legends restricting their transfer. The new notes will be issued pursuant to, and entitled to the benefits of, the indenture, as supplemented. The indenture, as supplemented, also governs the old notes and the notes issued by the Issuer in June 2003. The new notes, the old notes and the notes issued by the Issuer in June 2003 are deemed one issue of notes under the indenture.

As of the date of this prospectus, $950.0 million in aggregate principal amount of 6 3/4% Senior Notes due 2013 were outstanding, $700.00 million of which were previously registered under the Securities Act. This prospectus, together with the letter of transmittal, is being sent to all registered holders and to others believed to have beneficial interests in the old notes. You do not have any appraisal or dissenters’ rights in connection with the exchange offer under the General Corporation Law of the State of Delaware or the indenture. We intend to conduct the exchange offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the SEC promulgated under the Exchange Act.

We will be deemed to have accepted validly tendered outstanding old notes when, as, and if we have given oral or written notice of our acceptance to the exchange agent. The exchange agent will act as our agent for the tendering holders for the purpose of receiving the new notes from us. If we do not accept any tendered old notes because of an invalid tender, the occurrence of certain other events set forth in this prospectus or otherwise, we will return certificates for any unaccepted old notes, without expense, to the tendering holder promptly after the expiration date.

You will not be required to pay brokerage commissions or fees or, except as set forth below under “— Transfer Taxes,” transfer taxes with respect to the exchange of your old notes in the exchange offer. We will pay all charges and expenses, other than certain applicable taxes, in connection with the exchange offer. See “— Fees and Expenses” below.

The exchange offer will expire at 5:00 p.m., New York City time, on March 22, 2005, unless we determine, in our sole discretion, to extend the exchange offer, in which case, it will expire at the later date and time to which it is extended. We currently do not intend to extend the exchange offer, although we reserve the right to do so. The exchange offer will not remain in effect for more than 45 business days after the date on which notice of the exchange offer is mailed to you. If we extend the exchange offer, we will give oral or written notice of the extension to the exchange agent and give each registered holder


	(1) to delay accepting any old notes or, if any of the conditions, other than those relating to necessary governmental approvals, set forth below under “— Conditions” have not been satisfied or waived prior to the expiration date, to terminate the exchange offer by giving oral or written notice of such delay or termination to the exchange agent; provided, however, we will not delay payment subsequent to the expiration date other than in anticipation of receiving necessary governmental approvals; or

	(2) to amend the terms of the exchange offer in any manner by complying with Rule 14e-l(d) under the Exchange Act to the extent that rule applies.

We acknowledge and undertake to comply with the provisions of Rule 14e-l(c) under the Exchange Act, which requires us to pay the consideration offered, or return the old notes surrendered for exchange, promptly after the termination or withdrawal of the exchange offer. We will notify you promptly of any extension, termination or amendment.

If the exchange offer is amended in a manner determined by us to constitute a material change, we promptly will disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders of the old notes, and we will extend the exchange offer for a period of five to ten business days, depending upon the significance of the amendment and the manner of disclosure to the holders, if the exchange offer would otherwise expire during such five- to ten-business day period.

Without limiting the manner in which we may choose to make a public announcement of any delay, extension, amendment or termination of the exchange offer, we will have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to an appropriate news agency.

The old notes were issued as global securities in fully registered form without interest coupons. Beneficial interests in the global securities, held by direct or indirect participants in DTC, are shown on, and transfers of these interests are effected only through, records maintained in book-entry form by DTC with respect to its participants.

If you hold your old notes in the form of book-entry interests and you wish to tender your old notes for exchange pursuant to the exchange offer, you must transmit to the exchange agent on or prior to the expiration date either:


	(1) a written or facsimile copy of a properly completed and duly executed letter of transmittal, including all other documents required by such letter of transmittal, to the exchange agent at the address set forth on the cover page of the letter of transmittal; or

	(2) a computer-generated message transmitted by means of DTC’s Automated Tender Offer Program system and received by the exchange agent and forming a part of a confirmation of book-entry transfer, in which you acknowledge and agree to be bound by the terms of the letter of transmittal.

In addition, in order to deliver old notes held in the form of book-entry interests:


	(1) a timely confirmation of book-entry transfer of such notes into the exchange agent’s account at DTC pursuant to the procedure for book-entry transfers described below under “— Book-Entry Transfer” must be received by the exchange agent prior to the expiration date; or

	(2) you must comply with the guaranteed delivery procedures described below.

The method of delivery of old notes and the letter of transmittal and all other required documents to the exchange agent is at your election and risk. Instead of delivery by mail, we recommend that you use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure delivery to the exchange agent before the expiration date. You should not send the letter of transmittal or old notes to us. You may request your broker, dealer, commercial bank, trust company, or nominee to effect the above transactions for you.

Only registered holders of certificated old notes may tender those notes in the exchange offer. If your old notes are certificated notes and you wish to tender those notes for exchange pursuant to the exchange offer, you must transmit to the exchange agent on or prior to the expiration date, a written or facsimile copy of a properly completed and duly executed letter of transmittal, including all other required documents, to the address set forth below under “— Exchange Agent.” In addition, in order to validly tender your certificated old notes:


	(1) the certificates representing your old notes must be received by the exchange agent prior to the expiration date; or

	(2) you must comply with the guaranteed delivery procedures described below.

If you tender an old note and you do not withdraw the tender prior to the expiration date, you will have made an agreement with us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal.

If your old notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your notes, you should contact the registered holder promptly and instruct the registered holder to tender on your behalf. If you wish to tender on your own behalf, you must, prior to completing and executing the letter of transmittal and delivering your old notes, either make appropriate arrangements to register ownership of the old notes in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time.

Signatures on a letter of transmittal or a notice of withdrawal must be guaranteed by an eligible institution unless:


	(A) by a registered holder who has not completed the box entitled “Special Registration Instructions” or “Special Delivery Instructions” on the letter of transmittal or

	(B) for the account of an eligible institution; and


	(2) the box entitled “Special Registration Instructions” on the letter of transmittal has not been completed.

If signatures on a letter of transmittal or a notice of withdrawal are required to be guaranteed, the guarantee must be by a financial institution, which includes most banks, savings and loan associations and brokerage houses, that is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Program or the Stock Exchanges Medallion Program.

If the letter of transmittal is signed by a person other than you, your old notes must be endorsed or accompanied by a properly completed bond power and signed by you as your name appears on those old notes.

If the letter of transmittal or any old notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or

We will determine, in our sole discretion, all questions regarding the validity, form, eligibility, including time of receipt, acceptance and withdrawal of tendered old notes. This determination will be final and binding. We reserve the absolute right to reject any and all old notes not properly tendered or any old notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular old notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties.

You must cure any defects or irregularities in connection with tenders of your old notes within the time period we will determine unless we waive that defect or irregularity. Although we intend to notify you of defects or irregularities with respect to your tender of old notes, neither we, the exchange agent nor any other person will incur any liability for failure to give this notification. Your tender will not be deemed to have been made and your notes will be returned to you if:


	(1) you improperly tender your old notes;

	(2) you have not cured any defects or irregularities in your tender; and

	(3) we have not waived those defects, irregularities or improper tender.

In this event, the exchange agent will return your notes, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration of the exchange offer.


	(1) purchase or make offers for, or offer new notes for, any old notes that remain outstanding subsequent to the expiration of the exchange offer;

	(2) terminate the exchange offer if a condition to the exchange offer is not satisfied; or

	(3) to the extent permitted by applicable law, purchase notes in the open market, in privately negotiated transactions or otherwise.

The terms of any of these purchases or offers could differ from the terms of the exchange offer.

By tendering old notes in the exchange offer, you will represent to us that, among other things:


	(1) the new notes to be acquired by you in the exchange offer are being acquired in the ordinary course of your business;

	(2) you are not engaging in and do not intend to engage in a distribution of the new notes to be acquired by you in the exchange offer;

	(3) you do not have an arrangement or understanding with any person to participate in the distribution of the new notes to be acquired by you in the exchange offer; and

	(4) you are not our “affiliate,” as defined under Rule 405 of the Securities Act.

In all cases, issuance of new notes in exchange for old notes that are accepted for exchange in the exchange offer will be made only after timely receipt by the exchange agent of certificates for your old notes or a timely book-entry confirmation of your old notes into the exchange agent’s account at DTC, a properly completed and duly executed letter of transmittal, or a computer-generated message instead of the letter of transmittal, and all other required documents. If any tendered old notes are not accepted for any reason set forth in the terms and conditions of the exchange offer or if old notes are submitted for a greater principal amount than you desire to exchange, the unaccepted or non-exchanged old notes, or old notes in substitution therefor, will be returned without expense to you. In addition, in the case of old notes tendered by book-entry transfer into the exchange agent’s account at DTC pursuant to the book-entry

If you desire to tender your old notes in the exchange offer and your old notes are not immediately available, you may tender your old notes if:


	(1) you tender your old notes through an eligible financial institution;

	(2) on or prior to 5:00 p.m., New York City time, on the expiration date, the exchange agent receives from an eligible institution, a written or facsimile copy of a properly completed and duly executed letter of transmittal and notice of guaranteed delivery, substantially in the form provided by us; and

	(3) the certificates for all certificated old notes, in proper form for transfer, or a book-entry confirmation, and all other documents required by the letter of transmittal, are received by the exchange agent within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery.

The notice of guaranteed delivery may be sent by facsimile transmission, mail or hand delivery. The notice of guaranteed delivery must set forth:


	(1) your name and address;

	(2) the amount of old notes you are tendering; and

	(3) a statement that your tender is being made by the notice of guaranteed delivery and that you guarantee that within three New York Stock Exchange trading days after the execution of the notice of guaranteed delivery, the eligible institution will deliver the following documents to the exchange agent:


	(A) the certificates for all certificated old notes being tendered, in proper form for transfer or a book-entry confirmation of tender;

	(B) a written or facsimile copy of the letter of transmittal, or a book-entry confirmation instead of the letter of transmittal; and

	(C) any other documents required by the letter of transmittal.

The exchange agent will establish an account with respect to the book-entry interests at DTC for purposes of the exchange offer promptly after the date of this prospectus. You must deliver your book-entry interest by book-entry transfer to the account maintained by the exchange agent at DTC. Any financial institution that is a participant in DTC’s systems may make book-entry delivery of book-entry interests by causing DTC to transfer the book-entry interests into the exchange agent’s account at DTC in accordance with DTC’s procedures for transfer.


	(1) you cannot deliver a book-entry confirmation of book-entry delivery of your book-entry interests into the exchange agent’s account at DTC; or

	(2) you cannot deliver all other documents required by the letter of transmittal to the exchange agent prior to the expiration date,

then you must tender your book-entry interests according to the guaranteed delivery procedures discussed above.

You may withdraw tenders of your old notes at any time prior to 5:00 p.m., New York City time, on the expiration date.

For your withdrawal to be effective, the exchange agent must receive a written or facsimile transmission notice of withdrawal at its address set forth below under “— Exchange Agent” prior to 5:00 p.m., New York City time, on the expiration date.


	(1) state your name;

	(2) identify the specific old notes to be withdrawn, including the certificate number or numbers and the principal amount of withdrawn notes;

	(3) be signed by you in the same manner as you signed the letter of transmittal when you tendered your old notes, including any required signature guarantees or be accompanied by documents of transfer sufficient for the exchange agent to register the transfer of the old notes into your name; and

	(4) specify the name in which the old notes are to be registered, if different from yours.

We will determine all questions regarding the validity, form and eligibility, including time of receipt, of withdrawal notices. Our determination will be final and binding on all parties. Any old notes tendered and withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Any old notes which have been tendered for exchange but which are not exchanged for any reason will be returned to you without cost promptly after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn old notes may be retendered by following one of the procedures described under “— Procedures for Tendering” above at any time on or prior to 5:00 p.m., New York City time, on the expiration date.

Notwithstanding any other provision of the exchange offer and subject to our obligations under the registration rights agreement, we will not be required to accept for exchange, or to issue new notes in exchange for, any old notes and may terminate or amend the exchange offer, if at any time before the expiration of the exchange offer any of the following events occur:


	(1) any injunction, order or decree has been issued by any court or any governmental agency that would prohibit, prevent or otherwise materially impair our ability to proceed with the exchange offer; or

	(2) the exchange offer violates any applicable law or any applicable interpretation of the staff of the SEC.

We currently do not believe that any of these events has occurred, or that the exchange offer violates any applicable law or any applicable interpretation of the staff of the SEC.

These conditions are for our sole benefit, and we may assert them regardless of the circumstances giving rise to them, subject to applicable law. We also may waive in whole or in part at any time and from time to time any particular condition, other than those relating to necessary governmental approvals, in our sole discretion prior to the expiration of the exchange offer. If we waive a condition, we may be required in order to comply with applicable securities laws to extend the expiration date of the exchange offer. To the extent that we waive a condition with respect to one tender of notes, we will waive that condition for all other tenders as well. Our failure at any time to exercise any of the foregoing rights will not be deemed a waiver of these rights and these rights will be deemed ongoing rights which may be asserted at any time and from time to time prior to the expiration of the exchange offer.

In addition, we will not accept for exchange any old notes tendered, and no new notes will be issued in exchange for any of those old notes, if at the time the old notes are tendered any stop order is threatened by the SEC or in effect with respect to the registration statement of which this prospectus is a part or the qualification of the indenture under the Trust Indenture Act of 1939.

The exchange offer is not conditioned on any minimum principal amount of old notes being tendered for exchange.

We have appointed The Bank of New York as exchange agent for the exchange offer. Questions, requests for assistance and requests for additional copies of the prospectus, the letter of transmittal and other related documents should be directed to the exchange agent addressed as follows:

We will not pay brokers, dealers, or others soliciting acceptances of the exchange offer. The principal solicitation is being made by mail. Additional solicitations, however, may be made in person or by telephone by our officers and employees.

We will pay the cash expenses to be incurred in connection with the exchange offer. These expenses include fees and expenses of the exchange agent, accounting, legal, printing and related fees and expenses.

You will not be obligated to pay any transfer taxes in connection with a tender of your old notes for exchange unless you instruct us to register new notes in the name of, or request that old notes not tendered or not accepted in the exchange offer be returned to, a person other than the registered tendering holder, in which event the registered tendering holder will be responsible for the payment of any applicable transfer tax.

We will not recognize any gain or loss for accounting purposes upon the consummation of the exchange offer. We will amortize the expense of the exchange offer over the term of the new notes under generally accepted accounting principles.

The Issuer issued the old notes and will issue the new notes under an Indenture, dated as of June 25, 2003 (as supplemented by the First Supplemental Indenture, dates as of October 22, 2004 (the “First Supplemental Indenture”) among the Issuer, Arch Western the Subsidiary Guarantors and The Bank of New York, as trustee. the “Indenture”), among the Issuer, Arch Western, the Subsidiary Guarantors and The Bank of New York, as trustee. The Indenture and the First Supplemental Indenture have been filed as exhibits to the registration statement of which this prospectus is part. The Indenture complies with the Trust Indenture Act of 1939. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The Security Documents referred to below under the heading “Security” define the terms of the security interest that secure the Notes.

On June 25, 2003, the Issuer issued $700.0 million aggregate principal amount of 6.75% Senior Notes due 2013 (the “Initial Notes”) under the Indenture. The Initial Notes and the new notes will have the same terms, and the terms of the new notes will be identical in all material respects to the old notes, except for certain transfer restrictions and registration and other rights relating to the exchange of the old notes for new notes. The trustee will authenticate and deliver new notes for original issue only in exchange for a like principal amount of new notes. The new notes, any old notes that remain outstanding after the consummation of the exchange offer and the Initial Notes will be treated as a single series of notes under the Indenture, including for purposes of determining whether the required percentage of holders have given their approval or consent to an amendment or waiver or joined in directing the trustee to take certain actions on behalf of all holders. Accordingly, all references in this “Description of the Notes” to specified percentages in aggregate principal amounts of outstanding Notes shall be deemed to mean at any time after the exchange offer is consummated that percentage in aggregate principal amount of the old notes, new notes and Initial Notes then outstanding. For purposes of this description, unless the context indicates otherwise, references to the “Notes” include the new notes, the Initial Notes and the old notes that remain outstanding after the consummation of the exchange offer.

You can find the definitions of certain terms used in this description under the subheading “Certain Definitions.” In this description, “Arch Western” refers only to Arch Western Resources, LLC and not to any of its subsidiaries, the “Issuer” refers to Arch Western Finance, LLC, a wholly owned Subsidiary of Arch Western, the “Co-obligor” refers to Arch of Wyoming, LLC, a wholly owned subsidiary of Arch Western, and “Arch Coal” refers to Arch Coal, Inc. and not to any of its subsidiaries.

You are encouraged to read the Indenture the First Supplemental Indenture, the Security Documents and the Registration Rights Agreement because they, and not this description, define your rights as a holder of the Notes. Copies of the Indenture, the First Supplemental Indenture, the Security Documents and the Registration Rights Agreement are available upon request to Arch Western at the address indicated under “Where You Can Find More Information.”

The Issuer issued $700.0 million aggregate principal amount of Initial Notes on June 25, 2003 and $250.0 million aggregate principal amount of old notes on October 22, 2004, and may issue up to $250.0 million aggregate principal amount of new notes in this exchange offer. In addition, subject to compliance with the limitations described under “— Certain Covenants — Limitation on Debt,” the Issuer may in the future issue an unlimited principal amount of additional Notes at later dates under the same Indenture (the “Additional Notes”). Any Additional Notes that the Issuer issues in the future will be identical in all material respects to the Notes that the Issuer has issued and will issue in the exchange offer, and the new notes will form a single series with any untendered old notes and the Initial Notes and the new notes, except that Notes issued in the future will have different issuance dates and may have different issuance prices. The Issuer will issue Notes only in fully registered form without coupons, in denominations of $1,000 and integral multiples of $1,000.

Interest on the new notes will accrue at a rate of 6.75% per annum and will be payable semi-annually in arrears on January 1 and July 1, commencing on January 1, 2005. The Issuer and the Co-Obliger will pay interest to those persons who were holders of record on the June 15 or December 15 immediately preceding each interest payment date. Interest on the new notes will accrue from July 1, 2004. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.


	(1) the Issuer and the Guarantors do not file on a timely basis a resale shelf registration statement for the new notes;

	(2) the registration statement of which this prospectus is a part or the registration statement referred to above is not declared effective on a timely basis;

	(3) the exchange offer referred to above is not consummated on a timely basis; or

	(4) certain other conditions are not satisfied as described under “Exchange Offer; Registration Rights.”

Any interest payable as a result of any such increase in interest rate is referred to as “Special Interest” and all references to interest in this description include Special Interest. You should refer to the description under the heading “Exchange Offer; Registration Rights” for a more detailed description of the circumstances under which the interest rate will increase.


	•	senior obligations of the Issuer and the Co-obligor and

	•	secured by a first-priority security interest in the Arch Coal Notes.

The Notes are unconditionally guaranteed on a senior basis by Arch Western and all of its Domestic Subsidiaries other than Canyon Fuel. The Guarantees are:


	•	equal in right of payment to any future senior debt of the Guarantors;

	•	effectively subordinated to all future secured debt of the Guarantors to the extent of the assets securing such debt;

	•	senior in right of payment to any future subordinated debt of the Guarantors; and

	•	effectively subordinated to any existing and future liabilities of any Subsidiaries of Arch Western that are not Guarantors.

As of September 30, 2004, on a pro forma basis and after giving effect to the Transactions:


	•	the Issuer would have had $950.0 million of debt, all of which would have consisted of the Notes;

	•	the Co-obligor would have had $950.0 million of debt, all of which would have consisted of the Notes (excluding intercompany debt);

	•	Arch Western would have had $950.0 million of debt, all of which would have consisted of the guarantee of the Notes (excluding the Arch Western Notes);

	•	the Subsidiary Guarantors would have had no debt (excluding $950.0 million representing guarantees of the Notes and intercompany debt);

	•	Canyon Fuel, the non-guarantor subsidiary of Arch Western, would have had $66.4 million of debt and other liabilities;

	•	Arch Coal would have had $665.9 million of unsecured debt (including $646.2 million of which would have represented obligations to Arch Western under the Arch Coal Notes and excluding


		$25.0 million of secured debt represented by outstanding borrowings as of December 31, 2004 under Arch Coal’s revolving credit facility established in December 2004); and

	•	subsidiaries of Arch Coal (other than Arch Western and its subsidiaries) would have had $704.7 million of debt and other liabilities.

As of the date of this prospectus, all of Arch Western’s Subsidiaries will be “Restricted Subsidiaries.” However, under the circumstances described below under the caption “— Certain Covenants — Designation of Restricted and Unrestricted Subsidiaries,” Arch Western will be permitted to designate certain of its Subsidiaries as “Unrestricted Subsidiaries.” Arch Western’s Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the Indenture. Arch Western’s Unrestricted Subsidiaries will not Guarantee the Notes.

In addition, there are no Foreign Subsidiaries, and the only Subsidiary of Arch Western that does not Guarantee the Notes is Canyon Fuel. In the event of a bankruptcy, liquidation or reorganization of any of these non-guarantor Subsidiaries, the non-guarantor Subsidiaries will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to Arch Western or a Subsidiary Guarantor. Canyon Fuel’s total assets represented approximately 19% of the consolidated assets of Arch Western and its subsidiaries at September 30, 2004 and contributed approximately 24% of the consolidated income from operations of Arch Western and its subsidiaries in the nine months ended September 30, 2004.

Arch Western unconditionally guarantees (the “Arch Western Guarantee”) all of the Issuer’s obligations under the Notes, including its obligations to pay principal, interest, and premium, if any, with respect to the Notes. The Arch Western Guarantee is joint and several with any other Note Guarantee, is a general unsecured obligation of Arch Western and ranks pari passu with all existing and future Debt of Arch Western that is not, by its terms, expressly subordinated in right of payment of the Arch Western Guarantee.

The Notes are guaranteed by each existing Domestic Subsidiary of Arch Western (excluding Canyon Fuel) and all future Domestic Subsidiaries. The Indenture also requires that each existing and future Restricted Subsidiary that is not otherwise a Guarantor that guarantees any other Indebtedness of Arch Western or any of its Restricted Subsidiaries guarantees the Notes.

Each of the Subsidiary Guarantors unconditionally guarantees, on a joint and several basis with all other Note Guarantees, all of the Issuer’s obligations under the Notes, including its obligations to pay principal, interest, and premium, if any, with respect to the Notes. The Subsidiary Guarantees are general unsecured obligations of the Subsidiary Guarantors and rank pari passu with all existing and future debt of the Subsidiary Guarantors that is not, by its terms, expressly subordinated in right of payment to the Subsidiary Guarantees. The obligations of each Guarantor are limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under the Indenture, will result in the obligations of such Guarantor under its Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. See “Risk Factors — Risks Related to the Notes — Federal and state fraudulent conveyance laws permit a court to void the notes and guarantees, and if that occurs, you may not recover payment on the notes.” Each Subsidiary Guarantor that makes a payment or distribution under a Subsidiary Guarantee shall be entitled to a contribution from each other Subsidiary Guarantor in an amount pro rata, based on the net assets of each Subsidiary


	(i) in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all the Capital Stock of any Subsidiary Guarantor to any Person that is not an Affiliate of Arch Western, such Subsidiary Guarantor will be released and relieved of any obligations under its Subsidiary Guarantee; provided that the Net Available Cash from such sale or other disposition is applied in accordance with the applicable provisions of the Indenture. See “Certain Covenants — Limitation on Asset Sales;”

	(ii) upon the release or discharge of another Guarantee of a Subsidiary Guarantor that resulted in the creation of the Subsidiary Guarantee of such Subsidiary Guarantor, except a discharge or release by or as a result of payment under such other Guarantee, such Subsidiary Guarantor will be released and relieved of any obligations under its Subsidiary Guarantee; and

	(iii) upon the designation of any Subsidiary Guarantor as an Unrestricted Subsidiary in accordance with the terms of the Indenture, such Subsidiary Guarantor will be released and relieved of any obligations under its Subsidiary Guarantee.

The Notes are secured by a first-priority security interest in the Arch Coal Notes. As of September 30, 2004 on a pro forma basis as adjusted to give effect to the Transactions, there would have been $646.2 million of outstanding Arch Coal Notes. The outstanding amount of Arch Coal Notes will increase by the amount of any Restricted Payment to, or Permitted Investment in, Arch Coal or any of its Affiliates (other than Arch Western or its Restricted Subsidiaries) and will decrease to the extent Arch Coal repays amounts owing pursuant to the Arch Coal Notes.

The Lien securing the Notes will be released upon (1) a satisfaction and discharge of the Indenture and (2) a legal defeasance as described under “— Defeasance.”

Subject to the covenant described under “— Certain Covenants — Limitation on Debt,” Arch Western can Incur a Lien on the Arch Coal Notes to secure Debt under a credit facility in an aggregate principal amount not to exceed $100.0 million at any time outstanding, which Liens will be equal and ratable with the Liens securing the Notes. In such event, the Issuer, Arch Western, the administrative agent under such credit facility, the Trustee on behalf of the holders of the Notes and a collateral trustee (the “Collateral Trustee”) will amend the Security Documents and enter into a collateral trust agreement (the “Collateral Trust Agreement”). Pursuant to the terms of the Collateral Trust Agreement, the Collateral Trustee will be appointed as collateral agent for each of the secured parties and will hold the liens and security interests in the Arch Coal Notes granted pursuant to the Security Documents with sole authority to exercise remedies under the Security Documents. The Collateral Trustee will agree to act as mortgagee under all mortgages, beneficiary under all deeds of trust and as secured party under the applicable security agreements, to follow the instructions provided to it under the Collateral Trust Agreement and to carry out certain other duties.

Under the Collateral Trust Agreement, the Liens securing the Notes and such credit facility may not be enforced by the holders of the Notes or the lenders under the new credit facility, except for certain limited exceptions involving payment or bankruptcy Events of Default under the Indenture (each, a “Triggering Event”). If a Triggering Event has occurred and is continuing, the actions of the Collateral Trustee will be directed by the Trustee, as directed by holders of at least a majority in principal amount of the Notes, and administrative agent under the new credit facility. All proceeds of the Arch Coal Notes will be ratably shared among all holders of the Notes and the lenders under the new credit facility, if any.

Except as set forth in the next paragraph, the Notes will not be redeemable at the option of the Issuer prior to July 1, 2008. Starting on that date, the Issuer may redeem all or any portion of the Notes, at once or over time, after giving the required notice under the Indenture. The Notes may be redeemed at the redemption prices set forth below, plus accrued and unpaid interest to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). The following prices are for Notes redeemed during the 12-month period commencing on July l of the years set forth below, and are expressed as percentages of principal amount:

In addition, at any time and from time to time, prior to July 1, 2006, the Issuer may redeem up to a maximum of 35% of the original aggregate principal amount of the Notes (calculated giving effect to any issuance of Additional Notes) with the proceeds of one or more Public Equity Offerings, at a redemption price equal to 106.750% of the principal amount thereof, plus accrued and unpaid interest to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that after giving effect to any such redemption, at least 65% of the original aggregate principal amount of the Notes (calculated giving effect to any issuance of Additional Notes) remains outstanding (excluding Notes held by Arch Coal or any of its Subsidiaries). Any such redemption shall be made within 75 days of such Public Equity Offering upon not less than 30 nor more than 60 days’ prior notice.

Upon the occurrence of a Change of Control, each holder of Notes shall have the right to require the Issuer to repurchase all or any part of such holder’s Notes pursuant to the offer described below (the “Change of Control Offer”) at a purchase price (the “Change of Control Purchase Price”) equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the repurchase date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). If the repurchase date is after a record date and on or before the relevant interest payment date, the accrued and unpaid interest, if any, will be paid to the person or entity in whose name the Note is registered at the close of business on that record date, and no additional interest will be payable to holders whose Notes shall be subject to redemption.


	(a) cause a notice of the Change of Control Offer to be sent at least once to the Dow Jones News Service or similar business news service in the United States; and

	(b) send, by first-class mail, with a copy to the Trustee, to each holder of Notes, at such holder’s address appearing in the Security Register, a notice stating:


	(1) that a Change of Control has occurred and a Change of Control Offer is being made pursuant to the covenant entitled “Repurchase at the Option of Holders Upon a Change of Control” and that all Notes timely tendered will be accepted for payment;


	(2) the Change of Control Purchase Price and the repurchase date, which shall be, subject to any contrary requirements of applicable law, a business day no earlier than 30 days nor later than 60 days from the date such notice is mailed;

	(3) the circumstances and relevant facts regarding the Change of Control (including information with respect to pro forma historical income, cash flow and capitalization after giving effect to the Change of Control); and

	(4) the procedures that holders of Notes must follow in order to tender their Notes (or portions thereof) for payment, and the procedures that holders of Notes must follow in order to withdraw an election to tender Notes (or portions thereof) for payment.

The Issuer will not be required to make a Change of Control Offer following a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Issuer and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.

The Issuer will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this covenant, the Issuer will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue of such compliance.

The Issuer and Arch Western have no present intention to engage in a transaction involving a Change of Control, although it is possible that they would decide to do so in the future. Subject to certain covenants described below, Arch Western could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of debt outstanding at such time or otherwise affect its capital structure or credit ratings.

The definition of Change of Control includes a phrase relating to the sale, transfer, assignment, lease, conveyance or other disposition of “all or substantially all” the Property of Arch Western and its Restricted Subsidiaries, considered as a whole. Although there is a developing body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, if Arch Western and its Restricted Subsidiaries, considered as a whole, dispose of less than all of this Property by any of the means described above, the ability of a holder of Notes to require the Issuer to repurchase its Notes may be uncertain. In such a case, holders of the Notes may not be able to resolve this uncertainty without resorting to legal action.

Future debt of Arch Western may contain prohibitions of certain events which would constitute a Change of Control or require such debt to be repurchased or repaid upon a Change of Control. In addition, the Issuer’s ability to pay cash to holders of Notes upon a repurchase may be limited by Arch Western’s then existing financial resources. The Issuer cannot assure you that sufficient funds will be available when necessary to make any required repurchases. The Issuer’s failure to repurchase Notes in connection with a Change of Control would result in a default under the Indenture. Such a default could, in turn, constitute a default under debt of the Guarantors. The Issuer’s obligation to make an offer to repurchase the Notes as a result of a Change of Control may be waived or modified at any time prior to the occurrence of such Change of Control with the written consent of the holders of at least a majority in aggregate principal amount of the Notes. See “— Amendments and Waivers.”

Covenant Termination. Set forth below are summaries of certain covenants contained in the Indenture. Upon the first date that:


	(a) the Notes have Investment Grade Ratings from both Rating Agencies; and

	(b) no Default or Event of Default has occurred and is continuing under the Indenture,

Arch Western and its Restricted Subsidiaries will cease to be subject to the following provisions of the Indenture:


	•	“— Limitation on Debt;”

	•	“— Limitation on Restricted Payments;”

	•	“— Limitation on Asset Sales;”

	•	“— Limitation on Restrictions on Distributions from Restricted Subsidiaries;”

	•	“— Limitation on Transactions with Affiliates;”

	•	clause (a) (i) and (b) of “— Limitation on Sale and Leaseback Transactions;”

	•	“— Designation of Restricted and Unrestricted Subsidiaries;” and

	•	clause (e) of the first paragraph of “— Merger, Consolidation and Sale of Property”

(collectively, the “Specified Covenants”). As a result, the Notes will be entitled to substantially less protection from and after the date of termination of the covenants.

Limitation on Debt. The Issuer shall not Incur any Debt other than the Notes and any Additional Notes. Arch Western shall not, and shall not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Debt unless, after giving effect to the application of the proceeds thereof, no Default or Event of Default would occur as a consequence of such Incurrence or be continuing following such Incurrence and either:


	(1) such Debt is Debt of Arch Western or a Subsidiary Guarantor and, after giving effect to the Incurrence of such Debt and the application of the proceeds thereof, Consolidated Interest Coverage Ratio of Arch Western would be at least 2.0 to 1.0, or

	(2) such Debt is Permitted Debt.


	(a) Debt of the Issuer evidenced by the Initial Notes issued in exchange for such Initial Notes and the Note Guarantees thereof;

	(b) Debt of Arch Western or a Restricted Subsidiary in respect of Capital Lease Obligations and Purchase Money Debt; provided that:


	(1) the aggregate principal amount of such Debt does not exceed the Fair Market Value (on the date of the Incurrence thereof) of the Property acquired, constructed or leased, and

	(2) the aggregate principal amount of all Debt Incurred and then outstanding pursuant to this clause (b) (together with all Permitted Refinancing Debt Incurred and then outstanding in respect of Debt previously Incurred pursuant to this clause (b)) does not exceed, at any one time outstanding, 5% of Consolidated Net Tangible Assets;

(c) Debt of Arch Western owing to and held by any Restricted Subsidiary and Debt of a Restricted Subsidiary owing to and held by Arch Western or any Restricted Subsidiary; provided, however, that (1) any subsequent issue or transfer of Capital Stock or other event that results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of any such Debt (except to Arch Western or a Restricted Subsidiary) shall be deemed, in each case, to


	constitute the Incurrence of such Debt by the issuer thereof and (2) if a Guarantor is the obligor on such Debt, such Debt is subordinated in right of payment to the Note Guarantee of such Guarantor;

	(d) Debt under Interest Rate Agreements entered into by Arch Western or a Restricted Subsidiary for the purpose of managing interest rate risk in the ordinary course of the financial management of Arch Western or such Restricted Subsidiary and not for speculative purposes, provided that the obligations under such agreements are directly related to payment obligations on Debt otherwise permitted by the terms of this covenant;

	(e) Debt under Currency Exchange Protection Agreements entered into by Arch Western or a Restricted Subsidiary for the purpose of managing currency exchange rate risks directly related to transactions entered into by Arch Western or such Restricted Subsidiary in the ordinary course of business and not for speculative purposes;

	(f) Debt under Commodity Price Protection Agreements entered into by Arch Western or a Restricted Subsidiary in the ordinary course of the financial management of Arch Western or such Restricted Subsidiary and not for speculative purposes;

	(g) Debt in connection with one or more standby letters of credit or performance or surety bonds or completion guarantees issued by Arch Western or a Restricted Subsidiary in the ordinary course of business or pursuant to self-insurance obligations and not in connection with the borrowing of money or the obtaining of advances or credit;

	(h) Debt of Arch Western or a Restricted Subsidiary outstanding on the Issue Date not otherwise described in clauses (a) through (g) above;

	(i) other Debt of Arch Western or any Subsidiary Guarantor in an aggregate principal amount outstanding at any one time not to exceed $100.0 million;

	(j) Permitted Refinancing Debt Incurred in respect of Debt Incurred pursuant to clause (1) of the first paragraph of this covenant and clauses (b) and (h) above; and

	(k) Debt consisting of installment payment obligations to the federal government in connection with the acquisition of coal leases in the ordinary course of business and consistent with past practices.


	(a) Arch Western shall not permit any Restricted Subsidiary that is not a Guarantor to Incur any Debt pursuant to this covenant if the proceeds thereof are used, directly or indirectly, to Refinance any Debt of any Guarantor; and

	(b) accrual of interest, accretion or amortization of original issue discount and the payment of interest or dividends in the form of additional Debt, will be deemed not to be an Incurrence of Debt for purposes of this covenant.

For purposes of determining compliance with this covenant in the event that an item of Debt meets the criteria of more than one of the categories of Permitted Debt described in clauses (a) through (j) above or is entitled to be incurred pursuant to clause (1) of the first paragraph of this covenant, Arch Western shall, in its sole discretion, classify such item of Debt in any manner that complies with this covenant.

Limitation on Restricted Payments. Arch Western shall not make, and shall not permit any Restricted Subsidiary to make, directly or indirectly, any Restricted Payment if at the time of, and after giving effect to, such proposed Restricted Payment,


	(a) a Default or Event of Default shall have occurred and be continuing;

	(b) Arch Western could not Incur at least $1.00 of additional Debt pursuant to clause (1) of the first paragraph of the covenant described under “— Limitation on Debt;” or


	(c) the aggregate amount of such Restricted Payment and all other Restricted Payments declared or made since the Issue Date (the amount of any Restricted Payment, if made other than in cash, to be based upon Fair Market Value at the time of such Restricted Payment) would exceed an amount equal to the sum of:


	(1) 50% of the aggregate amount of Consolidated Net Income of Arch Western accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter during which the Issue Date occurs to the end of the most recent fiscal quarter ending at least 45 days prior to the date of such Restricted Payment (or if the aggregate amount of Consolidated Net Income of Arch Western for such period shall be a deficit, minus 100% of such deficit), plus

	(2) 100% of the Capital Stock Sale Proceeds, plus

	(3) the sum of:


	(A) the aggregate net cash proceeds received by Arch Western or any Restricted Subsidiary from the issuance or sale after the Issue Date of convertible or exchangeable Debt that has been converted into or exchanged for Capital Stock (other than Disqualified Stock) of Arch Western, and

	(B) the aggregate amount by which Debt (other than Subordinated Obligations) of Arch Western or any Restricted Subsidiary is reduced on Arch Western’s consolidated balance sheet on or after the Issue Date upon the conversion or exchange of any Debt issued or sold on or prior to the Issue Date that is convertible or exchangeable for Capital Stock (other than Disqualified Stock) of Arch Western,


	(x) any such Debt issued or sold to Arch Western or a Subsidiary of Arch Western or an employee stock ownership plan or trust established by Arch Coal or any such Subsidiary for the benefit of their employees, and

	(y) the aggregate amount of any cash or other Property distributed by Arch Western or any Restricted Subsidiary upon any such conversion or exchange;


	(A) the net reduction in Investments in any Person other than Arch Western or a Restricted Subsidiary resulting from dividends, repayments of loans or advances or other transfers of Property, in each case to Arch Western or any Restricted Subsidiary from such Person, and

	(B) the portion (proportionate to Arch Western’s equity interest in such Unrestricted Subsidiary) of the Fair Market Value of the net assets of an Unrestricted Subsidiary of Arch Western at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary;


	provided, however, that the foregoing sum shall not exceed, in the case of any Person, the amount of Investments previously made (and treated as a Restricted Payment) by Arch Western or any Restricted Subsidiary in such Person.


	(a) pay dividends on its Capital Stock within 60 days of the declaration thereof if, on the declaration date, such dividends could have been paid in compliance with the Indenture; provided, however, that such dividend shall be included in the calculation of the amount of Restricted Payments;

(b) purchase, repurchase, redeem, legally defease, acquire or retire for value Capital Stock of Arch Western or Subordinated Obligations in exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of Arch Western (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of Arch Coal or an employee stock ownership plan or trust established by Arch Coal or any such Subsidiary for the benefit of their employees); provided, however, that


	(1) such purchase, repurchase, redemption, legal defeasance, acquisition or retirement shall be excluded in the calculation of the amount of Restricted Payments and

	(2) the Capital Stock Sale Proceeds from such exchange or sale shall be excluded from the calculation pursuant to clause (c) (2) above;


	(c) purchase, repurchase, redeem, legally defease, acquire or retire for value any Subordinated Obligations in exchange for, or out of the proceeds of the substantially concurrent sale of, Permitted Refinancing Debt; provided, however, that such purchase, repurchase, redemption, legal defeasance, acquisition or retirement shall be excluded in the calculation of the amount of Restricted Payments;

	(d) repurchase shares of, or options to purchase shares of, common stock of Arch Western or any of its Subsidiaries from current or former officers, directors or employees of Arch Western or any of its Subsidiaries (or permitted transferees of such current or former officers, directors or employees), pursuant to the terms of agreements (including employment agreements) or plans (or amendments thereto) approved by the Board of Directors under which such individuals purchase or sell, or are granted the option to purchase or sell, shares of such common stock; provided, however, that: (1) the aggregate amount of such repurchases shall not exceed $2.5 million in any calendar year and (2) at the time of such repurchase, no other Default or Event of Default shall have occurred and be continuing (or result therefrom); provided further, however, that such repurchases shall be included in the calculation of the amount of Restricted Payments;

	(e) so long as no Default or Event of Default has occurred and is continuing and Arch Western is a limited liability company, make distributions to the ARCO Member (as defined in the LLC Agreement), with respect to any period after March 31, 2003, not to exceed the Tax Amount allocated to such member under the LLC Agreement for such period; provided, however, that such distributions shall be included in the calculation of the amount of Restricted Payments;

	(f) so long as no Default or Event of Default has occurred and is continuing, make distributions of the Preferred Return (as defined in the LLC Agreement) to the ARCO Member (as defined in the LLC Agreement) pursuant to the LLC Agreement in effect on the Issue Date; provided, however, that such distribution shall be included in the calculation of the amount of Restricted Payments; and

	(g) so long as (i) no Default or Event of Default has occurred and is continuing and (ii) Arch Western could incur at least $1.00 of additional Debt pursuant to clause (1) of the first paragraph of the covenant described under “— Limitation on Debt,” make loans or advances in cash to Arch Coal out of Available Cash as of the date of such loan or advance; provided, however, that such loans or advances shall be included in the calculation of the amount of Restricted Payments.

Notwithstanding the prior two paragraphs, any Restricted Payment to, or Permitted Investments in, Arch Coal or any of its Affiliates (other than Arch Western or a Restricted Subsidiary) shall be in the form of a loan for cash which shall be evidenced by Arch Coal Notes that are immediately pledged to the Trustee on behalf of the holders of the Notes.

Limitation on Liens. Arch Western shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist, any Lien on the Arch Coal Notes, except for the Liens securing the Notes and Additional Notes and Liens described in clause (k) of the definition of Permitted Liens.

Arch Western shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist, any Lien (other than Permitted Liens) upon any of its Property (including Capital Stock

Limitation on Asset Sales. Arch Western shall not, and shall not permit any Restricted Subsidiary, to, directly or indirectly, sell, transfer or otherwise dispose of (including by means of a merger, consolidation or similar transaction) any shares of Capital Stock of the Issuer, Arch Western Notes or the Arch Coal Notes. Arch Western shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale unless:


	(a) Arch Western or such Restricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the Property subject to such Asset Sale;

	(b) at least 75% of the consideration paid to Arch Western or such Restricted Subsidiary in connection with such Asset Sale is in the form of cash or Cash Equivalents or the assumption by the purchaser of liabilities of Arch Western or any Restricted Subsidiary (other than contingent liabilities or liabilities that are by their terms subordinated to the Notes) as a result of which Arch Western and the Restricted Subsidiaries are no longer obligated with respect to such liabilities; and

	(c) Arch Western delivers an Officers’ Certificate to the Trustee certifying that such Asset Sale complies with the foregoing clauses (a) and (b).

The Net Available Cash (or any portion thereof) from Asset Sales may be applied by Arch Western or a Restricted Subsidiary to the extent Arch Western or such Restricted Subsidiary elects (or is required by the terms of any Debt) to:


	(a) Repay any Debt of Arch Western or such Restricted Subsidiary (other than Subordinated Obligations); or

	(b) reinvest in Additional Assets (including by means of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by Arch Western or another Restricted Subsidiary).

Any Net Available Cash from an Asset Sale (other than an Asset Sale consisting of all of the Capital Stock of Canyon Fuel or Mountain Coal Company, L.L.C.) not applied in accordance with the preceding paragraph within 365 days from the date of the receipt of such Net Available Cash or that is not segregated from the general funds of Arch Western for investment in identified Additional Assets in respect of a project that shall have been commenced, and for which binding contractual commitments have been entered into, prior to the end of such 365-day period and that shall not have been completed or abandoned shall constitute “Excess Proceeds;” provided, however, that the amount of any Net Available Cash that ceases to be so segregated as contemplated above and any Net Available Cash that is segregated in respect of a project that is abandoned or completed shall also constitute “Excess Proceeds” at the time any such Net Available Cash ceases to be so segregated or at the time the relevant project is so abandoned or completed, as applicable; provided further, however, that the amount of any Net Available Cash that continues to be segregated for investment and that is not actually reinvested within twenty-four months from the date of the receipt of such Net Available Cash shall also constitute “Excess Proceeds.” Any Net Available Cash from an Asset Sale consisting of all of the Capital Stock of Canyon Fuel or Mountain Coal Company, L.L.C. not applied in accordance with the preceding paragraph within 365 days from the date of the receipt of such Net Available Cash shall be segregated from the general funds of Arch Western and invested in cash or Cash Equivalents pending application in accordance with the preceding paragraph.

When the aggregate amount of Excess Proceeds (including income earned on such Excess Proceeds) exceeds $20.0 million, the Issuer will be required to make an offer to repurchase (the “Prepayment Offer”) the Notes, which offer shall be in the amount of the Allocable Excess Proceeds (rounded to the


	(1) the numerator of which is the aggregate principal amount of the Notes outstanding on the date of the Prepayment Offer, and

	(2) the denominator of which is the sum of the aggregate principal amount of the Notes outstanding on the date of the Prepayment Offer and the aggregate principal amount of other Debt of Arch Western outstanding on the date of the Prepayment Offer that is pari passu in right of payment with the Arch Western Guarantee and subject to terms and conditions in respect of Asset Sales similar in all material respects to this covenant and requiring Arch Western to make an offer to repurchase such Debt at substantially the same time as the Prepayment Offer.

Within five business days after the Issuer is obligated to make a Prepayment Offer as described in the preceding paragraph, the Issuer shall send a written notice, by first-class mail, to the holders of Notes, accompanied by such information regarding Arch Western and its Subsidiaries as the Issuer in good faith believes will enable such holders to make an informed decision with respect to such Prepayment Offer. Such notice shall state, among other things, the purchase price and the repurchase date, which shall be, subject to any contrary requirements of applicable law, a business day no earlier than 30 days nor later than 60 days from the date such notice is mailed.

The Issuer will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Issuer will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue thereof.

Limitation on Restrictions on Distributions from Restricted Subsidiaries. Arch Western shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist any consensual restriction on the right of any Restricted Subsidiary to:


	(a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock, or pay any Debt or other obligation owed, to Arch Western or any other Restricted Subsidiary;

	(b) make any loans or advances to Arch Western or any other Restricted Subsidiary; or (c) transfer any of its Property to Arch Western or any other Restricted Subsidiary. The foregoing limitations will not apply:


	(A) in effect on the Issue Date (including, without limitation, restrictions pursuant to the Notes and the Indenture);

	(B) relating to Debt of a Restricted Subsidiary of Arch Western and existing at the time it became a Restricted Subsidiary if such restriction was not created in connection with


	or in anticipation of the transaction or series of transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by Arch Western; or

	(C) that result from any amendment, restatement, renewal or replacement of an agreement referred to in clause (1) (A) or (B) above or in clause (2) (A) or (B) below, provided such restrictions are not less favorable, taken as a whole, to the holders of Notes than those under the agreement evidencing the Debt so Refinanced, and


	(A) relating to Debt that is permitted to be Incurred and secured without also securing the Notes pursuant to the covenants described under “— Limitation on Debt” and “— Limitation on Liens” that limit the right of the debtor to dispose of the Property securing such Debt;

	(B) encumbering Property at the time such Property was acquired by Arch Western or any of its Restricted Subsidiaries, so long as such restrictions relate solely to the Property so acquired and were not created in connection with or in anticipation of such acquisition;

	(C) resulting from customary provisions restricting subletting or assignment of leases or customary provisions in other agreements that restrict assignment of such agreements or rights thereunder; or

	(D) customary restrictions contained in asset sale agreements limiting the transfer of such Property pending the closing of such sale.

Limitation on Transactions with Affiliates. Arch Western shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, conduct any business or enter into or suffer to exist any transaction or series of transactions (including the purchase, sale, transfer, assignment, lease, conveyance or exchange of any Property or the rendering of any service) with, or for the benefit of, any Affiliate of Arch Western (an “Affiliate Transaction”), unless:


	(1) set forth in writing;

	(2) in the best interest of Arch Western or such Restricted Subsidiary, as the case may be; and

	(3) no less favorable to Arch Western or such Restricted Subsidiary, as the case may be, than those that could be obtained in a comparable arm’s-length transaction with a Person that is not an Affiliate of Arch Western;


	(b) if such Affiliate Transaction involves aggregate payments or value in excess of $5.0 million, the Board of Directors (including at least a majority of the disinterested members of the Board of Directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clauses (a) (2) and (3) of this paragraph as evidenced by a Board Resolution promptly delivered to the Trustee; provided, however, if there are no disinterested members of the Board of Directors, Arch Western shall receive a written opinion from an Independent Financial Advisor described in clause (c) below; and

	(c) if such Affiliate Transaction involves aggregate payments or value in excess of $25.0 million, Arch Western obtains a written opinion from an Independent Financial Advisor to the effect that the consideration to be paid or received in connection with such Affiliate Transaction is fair, from a financial point of view, to Arch Western and its Restricted Subsidiaries.

Notwithstanding the foregoing limitation, Arch Western or any Restricted Subsidiary may enter into or suffer to exist the following:


	(a) any transaction or series of transactions between Arch Western and one or more Restricted Subsidiaries or between two or more Restricted Subsidiaries in the ordinary course of business, provided that no more than 5% of the total voting power of the Voting Stock (on a fully diluted basis) of any such Restricted Subsidiary is owned by an Affiliate of Arch Western (other than a Restricted Subsidiary);

	(b) any Restricted Payment (other than an Investment) permitted to be made pursuant to the first paragraph of the covenant described under “— Limitation on Restricted Payments;”

	(c) the payment of compensation (including amounts paid pursuant to employee benefit plans) for the personal services of officers, directors and employees of Arch Western or any of its Restricted Subsidiaries, so long as the Board of Directors in good faith shall have approved the terms thereof and deemed the services theretofore or thereafter to be performed for such compensation to be fair consideration therefor;

	(d) loans and advances to employees made in the ordinary course of business permitted by law and consistent with the past practices of Arch Western or such Restricted Subsidiary, as the case may be, provided that such loans and advances do not exceed $2.5 million in the aggregate at any one time outstanding;

	(e) agreements in effect on the Issue Date and described in the offering memorandum dated June 19, 2003 and any modifications, extensions or renewals thereto that are no less favorable to Arch Western or any Restricted Subsidiary than such agreements as in effect on the Issue Date; and

	(f) the Arch Coal Notes.

Limitation on Sale and Leaseback Transactions. Arch Western shall not, and shall not permit any of its Restricted Subsidies to, enter into any Sale and Leaseback Transaction with respect to any Property unless:


	(1) Incur Debt in an amount equal to the Attributable Debt with respect to such Sale and Leaseback Transaction pursuant to the covenant described under “— Limitation on Debt;” and

	(2) create a Lien on such Property securing such Attributable Debt without also securing the Notes or the applicable Note Guarantee pursuant to the covenant described under “— Limitation on Liens;” and


	(b) such Sale and Leaseback Transaction is effected in compliance with the covenant described under “— Limitation on Asset Sales.”

Designation of Restricted and Unrestricted Subsidiaries. The Board of Directors may designate any Restricted Subsidiary (other than the Issuer) to be an Unrestricted Subsidiary if that designation (which would constitute an Investment in such Subsidiary) would not result in a breach of the covenant described under “— Limitation on Restricted Payments” or otherwise cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by Arch Western and its Restricted Subsidiaries in the Subsidiary properly designated will be deemed to be an Investment made as of the time of the designation as set forth under the definition of “Investment” and will reduce the amount available for Restricted Payments under the first paragraph of the “— Limitation on Restricted Payments” covenant or Permitted Investments, as determined by Arch Western. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.

The Board of Directors may also designate any Subsidiary of Arch Western to be an Unrestricted Subsidiary if:


	(a) the Subsidiary to be so designated does not own any Capital Stock or Debt of, or own or hold any Lien on any Property of, Arch Western or any other Restricted Subsidiary and is not required to be a Guarantor pursuant to the Indenture; and

	(b) either:


	(1) the Subsidiary to be so designated has total assets of $1,000 or less; or

	(2) such designation is effective immediately upon such entity becoming a Subsidiary of Arch Western.

Unless so designated as an Unrestricted Subsidiary, any Person that becomes a Subsidiary of Arch Western will be classified as a Restricted Subsidiary; provided, however, that such Subsidiary shall not be designated a Restricted Subsidiary and shall be automatically classified as an Unrestricted Subsidiary if either of the requirements set forth in clauses (x) and (y) of the second immediately following paragraph will not be satisfied after giving pro forma effect to such classification or if such Person is a Subsidiary of an Unrestricted Subsidiary.

In addition, neither Arch Western nor any of its Restricted Subsidiaries shall at any time be directly or indirectly liable for any Debt that provides that the holder thereof may (with the passage of time or notice or both) declare a default thereon or cause the payment thereof to be accelerated or payable prior to its Stated Maturity upon the occurrence of a default with respect to any Debt, Lien or other obligation of any Unrestricted Subsidiary (including any right to take enforcement action against such Unrestricted Subsidiary).

The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary if, immediately after giving pro forma effect to such designation,


	(x) Arch Western could Incur at least $1.00 of additional Debt pursuant to clause (1) of the first paragraph of the covenant described under “— Limitation on Debt,” and

	(y) no Default or Event of Default shall have occurred and be continuing or would result therefrom.

Any such designation or redesignation by the Board of Directors will be evidenced by filing with the Trustee a Board Resolution giving effect to such designation or redesignation and an Officers’ Certificate that:


	(a) certifies that such designation or redesignation complies with the foregoing provisions; and (b) gives the effective date of such designation or redesignation,


	such filing with the Trustee to occur within 45 days after the end of the fiscal quarter of Arch Western in which such designation or redesignation is made (or, in the case of a designation or redesignation made during the last fiscal quarter of Arch Western’s fiscal year, within 90 days after the end of such fiscal year).

Guarantees by Restricted Subsidiaries. Arch Western shall not permit any Restricted Subsidiary that is not a Guarantor, directly or indirectly, to Guarantee or secure the payment of any other Debt of Arch Western or any of its Restricted Subsidiaries unless such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to the Indenture providing for a Subsidiary Guarantee of the payment of the Notes by such Restricted Subsidiary; provided that this paragraph shall not be applicable to:


	(i) any Guarantee of any Restricted Subsidiary that existed at the time such Person became a Restricted Subsidiary and was not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary;


	(ii) any Guarantee arising under or in connection with performance bonds, indemnity bonds, surety bonds or letters of credit or bankers’ acceptances; or

	(iii) Permitted Liens.

If the Guaranteed Debt is a Subordinated Obligation, the Guarantee of such Guaranteed Debt must be subordinated in right of payment to the Subsidiary Guarantee to at least the extent that the Guaranteed Debt is subordinated to the Notes or the applicable Subsidiary Guarantee.

The Issuer shall not merge, consolidate or amalgamate with or into any other Person. Arch Western shall not merge, consolidate or amalgamate with or into any other Person (other than a merger of a Wholly Owned Restricted Subsidiary of Arch Western into Arch Western) or sell, transfer, assign, lease, convey or otherwise dispose of all or substantially all its Property in any one transaction or series of transactions unless:


	(a) Arch Western is the Surviving Person or the Surviving Person (if other than Arch Western) formed by such merger, consolidation or amalgamation or to which such sale, transfer, assignment, lease, conveyance or disposition is made shall be a limited liability company or corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia;

	(b) the Surviving Person (if other than Arch Western) expressly assumes, by supplemental indenture in form satisfactory to the Trustee, executed and delivered to the Trustee by such Surviving Person, the due and punctual performance and observance of all the obligations of the Indenture, the Arch Western Guarantee or the Security Documents, to be performed by Arch Western;

	(c) in the case of a sale, transfer, assignment, lease, conveyance or other disposition of all or substantially all the Property, such Property shall have been transferred as an entirety or virtually as an entirety to one Person;

	(d) immediately before and after giving effect to such transaction or series of transactions on a pro forma basis (and treating, for purposes of this clause (d) and clause (e) below, any Debt that becomes, or is anticipated to become, an obligation of the Surviving Person or any Restricted Subsidiary as a result of such transaction or series of transactions as having been Incurred by the Surviving Person or such Restricted Subsidiary at the time of such transaction or series of transactions), no Default or Event of Default shall have occurred and be continuing;

	(e) immediately after giving effect to such transaction or series of transactions on a pro forma basis, at least $1.00 of additional Debt would be able to be Incurred under clause (1) of the first paragraph of the covenant described under “— Certain Covenants — Limitation on Debt;”

	(f) Arch Western shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers’ Certificate and an Opinion of Counsel, each stating that such transaction or series of transactions and the supplemental indenture, if any, in respect thereto comply with this covenant and that all conditions precedent herein provided for relating to such transaction or series of transactions have been satisfied; and

	(g) Arch Western shall have delivered to the Trustee an Opinion of Counsel to the effect that the holders will not recognize income, gain or loss for Federal income tax purposes as a result of such transaction and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such transaction had not occurred.

Arch Western shall not permit any Subsidiary Guarantor to consolidate with or merge with or into any Person or sell, assign, transfer, convey or otherwise dispose of, all or substantially all of its assets, in one or more related transactions, to any Person unless Arch Western has delivered to the Trustee an


	(a) the other Person is Arch Western or any Wholly Owned Restricted Subsidiary that is a Subsidiary Guarantor or becomes a Subsidiary Guarantor concurrently with the transaction; or

	(b) (1) either (x) the Subsidiary Guarantor shall be the Surviving Person or (y) the entity formed by such consolidation or into which the Subsidiary Guarantor is merged, expressly assumes, by a Guarantee or a supplemental indenture in form satisfactory to the Trustee, executed and delivered to the Trustee by such surviving Person the due and punctual performance and observance of all the obligations of such Subsidiary Guarantor under the Subsidiary Guarantee; and


	(2) the Surviving Person, if other than the Subsidiary Guarantor, is a corporation or limited liability company organized under the laws of the United States, any state thereof or the District of Columbia and immediately after giving effect to the transaction and any related Incurrence of Debt of, no Default or Event of Default shall have occurred and be continuing; or

(c) the transaction constitutes a sale or other disposition (including by way of consolidation or merger) of the Subsidiary Guarantor or the sale or disposition of all or substantially all the assets of the Subsidiary Guarantor (in each case other than to another Subsidiary Guarantor) and at the time of such transaction after giving pro forma effect thereto, the provisions of clause (d) of the first paragraph of this covenant would be satisfied, the transaction is otherwise permitted by the Indenture and the Subsidiary Guarantor is released from its Subsidiary Guarantee at the time of such transaction in accordance with the Indenture.

The Surviving Person shall succeed to, and be substituted for, and may exercise every right and power of Arch Western under the Indenture (or of the Subsidiary Guarantor under the Subsidiary Guarantee, as the case may be), but Arch Western, in the case of:


	(a) a sale, transfer, assignment, conveyance or other disposition (unless such sale, transfer, assignment, conveyance or other disposition is of all the assets of Arch Western as an entirety or virtually as an entirety); or

	(b) a lease,

shall not be released from any of the obligations or covenants under the Indenture.

Arch Western will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid or is paid to all holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.

Notwithstanding that Arch Coal or Arch Western may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, Arch Coal and Arch Western shall file with the Commission and provide the Trustee and holders of Notes with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such information, documents and reports to be so filed with the Commission and provided at the times specified for the filing of such information, documents and reports under such Sections; provided, however, that Arch Coal and Arch Western shall not be so obligated to file such information, documents and reports with the Commission if the Commission does not permit such filings; provided further, however, that Arch Coal and Arch Western will be required to provide to the Trustee and the holders of Notes any such information, documents or reports that are not are so filed.


	(1) failure to make the payment of any interest on the Notes when the same becomes due and payable, and such failure continues for a period of 30 days;

	(2) failure to make the payment of any principal of, or premium, if any, on, any of the Notes when the same becomes due and payable at its Stated Maturity, upon acceleration, redemption, optional redemption, required repurchase or otherwise;

	(3) failure to comply with the covenant described under “— Repurchase at the Option of Holders Upon a Change of Control,” “— Certain Covenants — Limitations on Asset Sales” and — Merger, Consolidation and Sale of Property;”

	(4) failure to comply with any other covenant or agreement in the Notes, the Indenture, the Note Guarantees or the Security Documents (other than a failure that is the subject of the foregoing clause (1), (2) or (3)), and such failure continues for 60 days after written notice is given to the Issuer as provided below;

	(5) a default under any Debt by Arch Western or any Restricted Subsidiary that results in acceleration of the maturity of such Debt, or failure to pay any such Debt at maturity, in an aggregate amount greater than $25.0 million or its foreign currency equivalent at the time (the “cross acceleration provisions”);

	(6) any judgment or judgments for the payment of money in an aggregate amount in excess of $25.0 million (or its foreign currency equivalent at the time) that shall be rendered against Arch Western or any Restricted Subsidiary and that shall not be waived, satisfied or discharged for any period of 30 consecutive days during which a stay of enforcement shall not be in effect (the “judgment default provisions”);

	(7) certain events involving bankruptcy, insolvency or reorganization of Arch Coal, Arch Western, the Issuer, any Guarantor or any other Significant Subsidiary (the “bankruptcy provisions”);

	(8) any Note Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under any Note Guarantee; and

	(9) the legal impairment of the security interests under the Security Documents for any reason other than the satisfaction in full of all obligations under the Indenture and discharge of the Security Documents or any security interest created thereunder shall be declared invalid or unenforceable or Arch Western or any of its Subsidiaries asserting, in any pleading in any court of competent jurisdiction, that any such security interest is invalid or unenforceable (the “security default provisions”).

A Default under clause (4) is not an Event of Default until the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding notify Arch Western or the Issuer of the Default and Arch Western or the Issuer does not cure such Default within the time specified after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a “Notice of Default.”

Arch Western shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers’ Certificate of any event that with the giving of notice or the lapse of time or both would become an Event of Default, its status and what action is being taken or proposed to be taken with respect thereto.

If an Event of Default with respect to the Notes (other than an Event of Default resulting from the bankruptcy provisions) shall have occurred and be continuing, the Trustee or the registered holders of not less than 25% in aggregate principal amount of the Notes then outstanding may declare to be immediately

Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the holders of the Notes, unless such holders shall have offered to the Trustee reasonable indemnity. Subject to such provisions for the indemnification of the Trustee, the holders of at least a majority in aggregate principal amount of the Notes then outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Notes.

No holder of Notes will have any right to institute any proceeding with respect to the Indenture, or for the appointment of a receiver or trustee, or for any remedy thereunder, unless:


	(a) such holder has previously given to the Trustee written notice of a continuing Event of Default;

	(b) the registered holders of at least 25% in aggregate principal amount of the Notes then outstanding have made a written request and offered reasonable indemnity to the Trustee to institute such proceeding as Trustee; and

	(c) the Trustee shall not have received from the registered holders of at least a majority in aggregate principal amount of the Notes then outstanding a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days.

However, such limitations do not apply to a suit instituted by a holder of any Note for enforcement of payment of the principal of, and premium, if any, or interest on, such Note on or after the respective due dates expressed in such Note.

Subject to certain exceptions, Arch Western, the Issuer and the Trustee with the consent of the registered holders of at least a majority in aggregate principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for the Notes) may amend the Indenture and the Notes, the Note Guarantees or the Security Documents and the registered holders of at least a majority in aggregate principal amount of the Notes outstanding may waive any past default or compliance with any provisions of the Indenture, the Notes, the Note Guarantees or the Security Documents (except a default in the payment of principal, premium or interest and certain covenants and provisions of the Indenture which cannot be amended without the consent of each holder of an outstanding Note). However, without the consent of each holder of an outstanding Note, no amendment may, among other things,


	(1) reduce the amount of Notes whose holders must consent to an amendment or waiver;

	(2) reduce the rate of, or extend the time for payment of, interest on any Note;

	(3) reduce the principal of, or extend the Stated Maturity of, any Note;

	(4) make any Note payable in money other than that stated in the Note;


	(5) impair the right of any holder of the Notes to receive payment of principal of, premium, if any, and interest, on, such holder’s Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder’s Notes;

	(6) release any security interest that may have been granted in favor of the holders of the Notes other than pursuant to the terms of such security interest;

	(7) reduce the premium payable upon the redemption of any Note or change the time at which any Note may be redeemed, as described under “— Optional Redemption;”

	(8) reduce the premium payable upon a Change of Control or, at any time after a Change of Control has occurred, change the time at which the Change of Control Offer relating thereto must be made or at which the Notes must be repurchased pursuant to such Change of Control Offer;

	(9) at any time after the Issuer is obligated to make a Prepayment Offer with the Excess Proceeds from Asset Sales, change the time at which such Prepayment Offer must be made or at which the Notes must be repurchased pursuant thereto;

	(10) modify or change any provision of the Indenture affecting the ranking of the Notes or the Note Guarantees in a manner adverse to the holders of the Notes (it being understood that amendments or waivers of Security Documents or releases of Liens on the Arch Coal Notes do not relate to ranking); or

	(11) release any Guarantor from any of its obligations under its Note Guarantee or the Indenture other than in accordance with the provisions of the Indenture, or amend or modify any provision relating to such release.

The Indenture and the Notes may be amended by Arch Western, the Issuer and the Trustee without the consent of any holder of the Notes to:


	(a) cure any ambiguity, omission, defect or inconsistency in any manner that is not adverse in any material respect to any holder of the Notes;

	(b) provide for the assumption by a Surviving Person of the obligations of Arch Western under the Indenture;

	(c) provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163 (f) (2) (B) of the Code);

	(d) add Note Guarantees with respect to the Notes or confirm and evidence the release, termination or discharge of any security or Note Guarantee when such release, termination or discharge is permitted by the Indenture;

	(e) secure the Notes, add to the covenants of the Issuer for the benefit of the holders of the Notes or surrender any right or power conferred upon the Issuer;

	(f) make any change that does not adversely affect the rights of any holder of the Notes;

	(g) comply with any requirement of the Commission in connection with the qualification of the Indenture under the Trust Indenture Act; or

	(h) provide for the issuance of Additional Notes in accordance with the Indenture.

The consent of the holders of the Notes is not necessary to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment becomes effective, the Issuer is required to mail to each registered holder of the Notes at such holder’s address appearing in the Security Register a notice briefly describing such amendment. However, the failure to give such notice to all holders of the Notes, or any defect therein, will not impair or affect the validity of the amendment.

Arch Western and the Issuer at any time may terminate all of their obligations under the Notes and the Indenture (“legal defeasance”), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes. Arch Western and the Issuer at any time may terminate:


	(1) their obligations under the covenants described under “— Repurchase at the Option of Holders Upon a Change of Control” and “— Certain Covenants;”

	(2) the operation of the cross acceleration provisions, the judgment default provisions and the bankruptcy provisions with respect to Significant Subsidiaries described under “— Events of Default” above; and

	(3) the limitations contained in clause (e) under the first paragraph of “— Merger, Consolidation and Sale of Property” above (“covenant defeasance”).

Arch Western and the Issuer may exercise their legal defeasance option notwithstanding their prior exercise of its covenant defeasance option.

If Arch Western and the Issuer exercise their legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If Arch Western and the Issuer exercise their covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (4) (with respect to the covenants described under “— Certain Covenants”), (5), (6) or (7) (with respect only to Significant Subsidiaries) under “— Events of Default” above or because of the failure to comply with clause (e) under the first paragraph of “— Merger, Consolidation and Sale of Property” above.

The legal defeasance option or the covenant defeasance option may be exercised only if:


	(a) Arch Western or the Issuer irrevocably deposit in trust with the Trustee money or U.S. Government Obligations for the payment of principal of, premium, if any, and interest on the Notes to maturity or redemption, as the case may be;

	(b) Arch Western or the Issuer delivers to the Trustee a certificate from a nationally recognized firm of independent certified public accountants expressing their opinion that the payments of principal, premium, if any, and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal, premium, if any, and interest when due on all the Notes to be defeased to maturity or redemption, as the case may be;

	(c) 123 days pass after the deposit is made, and during the 123-day period, no Default described in clause (7) under “— Events of Default” occurs with respect to Arch Western or the Issuer or any other Person making such deposit which is continuing at the end of the period;

	(d) no Default or Event of Default has occurred and is continuing on the date of such deposit and after giving effect thereto;

	(e) such deposit does not constitute a default under any other agreement or instrument binding on Arch Western or any of its Restricted Subsidiaries;


	(f) Arch Western or the Issuer delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940;

	(g) in the case of the legal defeasance option, Arch Western or the Issuer delivers to the Trustee an Opinion of Counsel stating that:


	(1) Arch Western or the Issuer has received from the Internal Revenue Service a ruling, or

	(2) since the date of the Indenture there has been a change in the applicable Federal income tax law, to the effect that, and based thereon such Opinion of Counsel shall confirm that, the holders of the Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same time as would have been the case if such defeasance has not occurred;


	(h) in the case of the covenant defeasance option, Arch Western or the Issuer delivers to the Trustee an Opinion of Counsel to the effect that the holders of the Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the sane amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and

	(i) Arch Western or the Issuer delivers to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Notes have been complied with as required by the Indenture.

The Indenture and the Notes are governed by the internal laws of the State of New York.

Except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such of the rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person’s own affairs.

Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms as well as any other capitalized terms used herein for which no definition is provided. Unless the context otherwise requires, an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP.


	(a) any Property (other than cash, Cash Equivalent and securities) to be owned by Arch Western or any of its Restricted Subsidiaries and used in a Permitted Business; or

	(b) Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by Arch Western or another Restricted Subsidiary from any Person other than Arch Western or an Affiliate of Arch Western; provided, however, that, in the case of clause (b), such Restricted Subsidiary is primarily engaged in a Permitted Business.


	(a) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; or

	(b) any other Person who is a director or officer of:


	(1) such specified Person;

	(2) any Subsidiary of such specified Person; or

	(3) any Person described in clause (a) above.

For the purposes of this definition, “control,” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing. For purposes of the covenants described under “— Certain Covenants — Limitation on Transactions with Affiliates” and “Limitation on Asset Sales” and the definition of “Additional Assets” only, “Affiliate” shall also mean any beneficial owner of shares representing 5% or more of the total voting power of the Voting Stock (on a fully diluted basis) of Arch Western or of rights or warrants to purchase such Voting Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof.

“Arch Coal Notes” means all existing and future unsubordinated demand promissory notes issued by Arch Coal to Arch Western as consideration for loans and advances made by Arch Western to Arch Coal or any of its Affiliates (other than Arch Western or a Restricted Subsidiary), which shall bear interest payable no less frequently than quarterly from the date made until paid in full at a rate per annum no less favorable to Arch Western than if such loan or advance had been made by an unaffiliated financial institution.

“Arch Western Note” means a demand promissory note issued by Arch Western to the Issuer as consideration for the proceeds from the offering of the Notes or any Additional Notes advanced to Arch Western by the Issuer. Each Arch Western Note issued will be in an amount equal to the aggregate principal amount of the Notes or Additional Notes issued.

“Asset Sale” means any sale, lease, transfer, issuance or other disposition (or series of related sales, leases, transfers, issuances or dispositions) by Arch Western or any of its Restricted Subsidiaries, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a “disposition”), of


	(a) any shares of Capital Stock of a Restricted Subsidiary (other than directors’ qualifying shares); or

	(b) any other Property of Arch Western or any of its Restricted Subsidiaries outside of the ordinary course of business of Arch Western or such Restricted Subsidiary,

	other than, in the case of clause (a) or (b) above,


	(1) any disposition by a Restricted Subsidiary to Arch Western or by Arch Western or its Restricted Subsidiary to a Restricted Subsidiary;

	(2) any disposition that constitutes a Permitted Investment or Restricted Payment permitted by the covenant described under “— Certain Covenants — Limitation on Restricted Payments;”

	(3) any disposition effected in compliance with the first paragraph of the covenant described under “— Merger, Consolidation and Sale of Property;” and

	(4) any disposition in a single transaction or a series of related transactions of assets for aggregate consideration of less than $5.0 million.

“Attributable Debt” in respect of a Sale and Leaseback Transaction means, at any date of determination,


	(a) if such Sale and Leaseback Transaction is a Capital Lease Obligation, the amount of Debt represented thereby according to the definition of “Capital Lease Obligations;” and

	(b) in all other instances, the greater of:


	(1) the Fair Market Value of the Property subject to such Sale and Leaseback Transaction; and

	(2) the present value (discounted at the interest rate borne by the Notes, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction (including any period for which such lease has been extended).

“Available Cash” means, as of any date, the cash of Arch Western as of such date less amounts necessary to pay for operating expenses, interest, principal and sinking fund payments on indebtedness, capital expenditures, improvements and replacements, contingencies, reserves and other expenses of Arch Western and its Subsidiaries and less any Net Available Cash received from an Asset Sale consisting of all of the Capital Stock of Canyon Fuel or Mountain Coal Company, L.L.C. not used to Repay any Debt of Arch Western (other than Subordinated Obligations) or reinvest in Additional Assets (including by reason of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by Arch Western).

“Average Life” means, as of any date of determination, with respect to any Debt or Preferred Stock, the quotient obtained by dividing:


	(a) the sum of the product of the numbers of years (rounded to the nearest one-twelfth of one year) from the date of determination to the dates of each successive scheduled principal payment of such Debt or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by

	(b) the sum of all such payments.

“Board of Directors” means the board of directors, or equivalent, of Arch Western; provided, however, that if no such entity exists, “Board of Director” means the board of directors of Arch Coal or, if Arch Coal does not control Arch Western, the board of directors, or equivalent, of the Person that controls Arch Western; provided further, however, that for purposes of Affiliate Transactions with Arch Coal or its Affiliates (other than Arch Western or a Restricted Subsidiary) under “— Certain Covenants — Limitations on Transactions with Affiliates,” “Board of Directors” shall mean the board of directors, or equivalent, of Arch Western.

“Canyon Fuel” means Canyon Fuel Company, LLC, a limited liability company organized and existing under the laws of the State of Delaware.

“Capital Lease Obligations” means any obligation under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP; and the amount of Debt represented by such obligation shall be the capitalized amount of such obligations determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. For purposes of “— Certain Covenants — Limitation on Liens,” a Capital Lease Obligation shall be deemed secured by a Lien on the Property being leased.

“Capital Stock” means, with respect to any Person, any shares or other equivalents (however designated) of any class of corporate stock or partnership or limited liability company interests or any other participations, rights, warrants, options or other interests in the nature of an equity interest in such Person, including Preferred Stock, but excluding any debt security convertible or exchangeable into such equity interest.

“Capital Stock Sale Proceeds” means the aggregate cash proceeds received by Arch Western from the issuance or sale (other than to a Subsidiary of Arch Coal or an employee stock ownership plan or trust established by Arch Coal or any such Subsidiary for the benefit of their employees) by Arch Western of its Capital Stock (other than Disqualified Stock) after the Issue Date, net of attorneys’ fees, accountants’ fees, underwriters’ or placement agents’ fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes or Tax Amount paid or payable as a result thereof.


	(a) Investments in U.S. Government Obligations maturing within 365 days of the date of acquisition thereof;

	(b) Investments in time deposit accounts, certificates of deposit and money market deposits maturing within 90 days of the date of acquisition thereof issued by a bank or trust company organized under the laws of the United States of America or any state thereof having capital, surplus and undivided profits aggregating in excess of $500 million and whose long-term debt is rated “A-3” or “A-” or higher according to Moody’s or S&P (or such similar equivalent rating by at least one “nationally recognized statistical rating organization” (as defined in Rule 436 under the Securities Act));

	(c) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (a) entered into with:


	(1) a bank meeting the qualifications described in clause (b) above or

	(2) any primary government securities dealer reporting to the Market Reports Division of the Federal Reserve Bank of New York;


	(d) Investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of Arch Western) organized and in existence under the laws of the United States of America with a rating at the time as of which any Investment therein is made of “P-l” (or higher) according to Moody’s or “A-1” (or higher) according to S&P (or such similar equivalent rating by at least one “nationally recognized statistical rating organization” (as defined in Rule 436 under the Securities Act)); and

	(e) direct obligations (or certificates representing an ownership interest in such obligations) of any state of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of such state is pledged and which are not callable or redeemable at the issuer’s option; provided that:


	(1) the long-term debt of such state is rated “A-3” or “A-” or higher according to Moody’s or S&P (or such similar equivalent rating by at least one “nationally recognized statistical rating organization” (as defined in Rule 436 under the Securities Act)), and

	(2) such obligations mature within 180 days of the date of acquisition thereof.

(a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act or any successor provisions to either of the foregoing), including any group acting for the purpose of acquiring, holding, voting or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act, other than Arch Coal, becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act, except that a person will be deemed to have “beneficial ownership” of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 50% or more of the total voting power of the Voting Stock of Arch Western (for purposes of this clause (a), such person or group shall be deemed to beneficially own any Voting Stock of a corporation held by any other corporation (the “parent corporation”) so long as such person or group beneficially owns,


	directly or indirectly, in the aggregate at least a majority of the total voting power of the Voting Stock of such parent corporation); or

	(b) the sale, transfer, assignment, lease, conveyance or other disposition, directly or indirectly, of all or substantially all the Property of Arch Western and its Restricted Subsidiaries, considered as a whole (other than a disposition of such Property as an entirety or virtually as an entirety to a Wholly Owned Restricted Subsidiary of Arch Western), shall have occurred, or Arch Western merges, consolidates or amalgamates with or into any other Person or any other Person merges, consolidates or amalgamates with or into Arch Western in any such event pursuant to a transaction in which the outstanding Voting Stock of Arch Western is reclassified into or exchanged for cash, securities or other Property, other than any such transaction where:


	(1) the outstanding Voting Stock of Arch Western is reclassified into or exchanged for other Voting Stock of Arch Western or for Voting Stock of the Surviving Person, and

	(2) the holders of the Voting Stock of Arch Western immediately prior to such transaction own, directly or indirectly, not less than a majority of the Voting Stock of Arch Western, or the Surviving Person immediately after such transaction and in substantially the same proportion as before the transaction; or


	(c) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election or appointment by such Board or whose nomination for election by the shareholders of Arch Western, Arch Coal or such other Person who controls Arch Western, as applicable, was approved by a vote of not less than three-fourths of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute at least a majority of the Board of Directors then in office; or

	(d) the adoption of any plan of liquidation or dissolution of Arch Coal, Arch Western or the Issuer; or

	(e) the first day on which (1) Arch Coal’s direct or indirect percentage ownership of the Capital Stock of Arch Western is less than 80% or (2) Arch Coal ceases to control (as defined in the definition of “Affiliate”) Arch Western.

“Code” means the Internal Revenue Code of 1986, as amended. “Commission” means the U.S. Securities and Exchange Commission.

“Commodity Price Protection Agreement” means, in respect of a Person, any forward contract, commodity swap agreement, commodity option agreement or other similar agreement or arrangement designed to protect such Person against fluctuations in commodity prices.

“Consolidated Current Liabilities” means, as of any date of determination, the aggregate amount of liabilities of Arch Western and its consolidated Restricted Subsidiaries which may properly be classified as current liabilities (including taxes accrued as estimated), after eliminating:


	(a) all intercompany items between Arch Western and any Restricted Subsidiary or between Restricted Subsidiaries; and

	(b) all current maturities of long-term Debt.

“Consolidated Interest Coverage Ratio” of a Person means, as of any date of determination, the ratio of:


	(a) the aggregate amount of EBITDA of such Person for the most recent four consecutive fiscal quarters ending at least 45 days prior to such determination date to

	(b) Consolidated Interest Expense of such Person for such four fiscal quarters;

	provided, however, that:


	(A) since the beginning of such period such Person or any Restricted Subsidiary of such Person has Incurred any Debt that remains outstanding or Repaid any Debt or

	(B) the transaction giving rise to the need to calculate the Consolidated Interest Coverage Ratio is an Incurrence or Repayment of Debt,


	Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Incurrence or Repayment as if such Debt was Incurred or Repaid on the first day of such period, provided that, in the event of any such Repayment of Debt, EBITDA for such period shall be calculated as if such Person or such Restricted Subsidiary of such Person had not earned any interest income actually earned during such period in respect of the funds used to Repay such Debt, and

	(2) if


	(A) since the beginning of such period such Person or any Restricted Subsidiary of such Person shall have made any Asset Sale or an Investment (by merger or otherwise) in any Restricted Subsidiary of such Person (or any Person which becomes a Restricted Subsidiary of such Person) or an acquisition of Property which constitutes all or substantially all of an operating unit of a business;

	(B) the transaction giving rise to the need to calculate the Consolidated Interest Coverage Ratio is such an Asset Sale, Investment or acquisition; or

	(C) since the beginning of such period any other Person (that subsequently became a Restricted Subsidiary of such Person or was merged with or into such Person or any Restricted Subsidiary of such Person since the beginning of such period) shall have made such an Asset Sale, Investment or acquisition,


	then EBITDA for such period shall be calculated after giving pro forma effect to such Asset Sale, Investment or acquisition as if such Asset Sale, Investment or acquisition had occurred on the first day of such period.

If any Debt bears a floating rate of interest and is being given pro forma effect, the interest expense on such Debt shall be calculated as if the base interest rate in effect for such floating rate of interest on the date of determination had been the applicable base interest rate for the entire period (taking into account any Interest Rate Agreement applicable to such Debt if such Interest Rate Agreement has a remaining term in excess of 12 months). In the event the Capital Stock of any Restricted Subsidiary of such Person is sold during the period, such Person shall be deemed, for purposes of clause (1) above, to have Repaid during such period the Debt of such Restricted Subsidiary to the extent such Person and its continuing Restricted Subsidiaries are no longer liable for such Debt after such sale.

“Consolidated Interest Expense” of a Person means, for any period, the total interest expense of such Person and its consolidated Restricted Subsidiaries, plus, to the extent not included in such total interest expense, and to the extent Incurred by such Person or its Restricted Subsidiaries,


	(a) interest expense attributable Capital Lease Obligations;

	(b) amortization of debt discount and debt issuance cost, including commitment fees;


	(c) capitalized interest;

	(d) non-cash interest expense;

	(e) commissions, discounts and other fees and charges owed with respect to letters of credit and banker’s acceptance financing;

	(f) net costs associated with Hedging Obligations (including amortization of fees);

	(g) Disqualified Stock Dividends;

	(h) Preferred Stock Dividends;

	(i) interest Incurred in connection with Investments in discontinued operations;

	(j) interest accruing on any Debt of any other Person to the extent such Debt is Guaranteed by such Person or any of its Restricted Subsidiaries; and

	(k) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than such Person) in connection with Debt Incurred by such plan or trust.

“Consolidated Net Income” of a Person means, for any period, the net income (loss) of such Person and its consolidated Restricted Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income:


	(a) any net income (loss) of any other Person (other than such Person) if such other Person is not a Restricted Subsidiary, except that:


	(1) subject to the exclusion contained in clause (c) below, equity of such Person and its consolidated Restricted Subsidiaries in the net income of any such other Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash distributed by such other Person during such period to such Person or its Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (b) below), and

	(2) the equity of such Person and its consolidated Restricted Subsidiaries in a net loss of any other Person for such period shall be included in determining such Consolidated Net Income to the extent such Person or any Restricted Subsidiary of such Person has actually contributed, lent or transferred cash to such other Person;


	(b) any net income (loss) of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions, directly or indirectly, to such Person, except that:


	(1) subject to the exclusion contained in clause (c) below, the equity of such Person and its consolidated Restricted Subsidiaries in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash distributed by such Restricted Subsidiary during such period to such Person or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to another Restricted Subsidiary, to the limitation contained in this clause); and

	(2) the equity of such Person and its consolidated Restricted Subsidiaries in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income;


	(c) any gain (but not loss) realized upon the sale or other disposition of any Property of such Person or any of its consolidated Subsidiaries (including pursuant to any Sale and Leaseback Transaction) that is not sold or otherwise disposed of in the ordinary course of business;

	(d) any extraordinary gain or loss;


	(e) the cumulative effect of a change in accounting principles; and

	(f) any non-cash compensation expense realized for grants of performance shares, stock options or other rights to officers, directors and employees of such Person or any Restricted Subsidiary, provided that such shares, options or other rights can be redeemed at the option of the holder only for Capital Stock of such Person (other than Disqualified Stock).

Notwithstanding the foregoing, for purposes of the covenant described under “— Certain Covenants — Limitation on Restricted Payments” only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of Property from Unrestricted Subsidiaries to such Person or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such covenant pursuant to clause (c)(4) thereof.

“Consolidated Net Tangible Assets” means, as of any date of determination, the sum of the amounts that would appear on a consolidated balance sheet of Arch Western and its consolidated Restricted Subsidiaries, less any amounts attributable to non-Wholly Owned Restricted Subsidiaries that are not consolidated with Arch Western and plus the portion of the consolidated net tangible assets of a non-Wholly Owned Restricted Subsidiary that is not consolidated with Arch Western equal to the percentage of its outstanding Capital Stock owned by Arch Western and its Restricted Subsidiaries, as of the end of the most recent fiscal quarter ending at least 45 days prior to such determination date as the total assets (less accumulated depreciation and amortization, allowances for doubtful receivables, other applicable reserves and other properly deductible items) of Arch Western and its Restricted Subsidiaries, after giving effect to purchase accounting and after deducting therefrom Consolidated Current Liabilities and, to the extent otherwise included, the amounts of (without duplication):


	(a) the excess of cost over fair market value of assets or businesses acquired;

	(b) any revaluation or other write-up in book value of assets subsequent to the last day of the fiscal quarter of Arch Western immediately preceding the Issue Date as a result of a change in the method of valuation in accordance with GAAP; and

	(c) unamortized debt discount and expenses and other unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, licenses, organization or developmental expenses and other intangible items.

“Currency Exchange Protection Agreement” means, in respect of a Person, any foreign exchange contract, currency swap agreement, currency option or other similar agreement or arrangement designed to protect such Person against fluctuations in currency exchange rates.

“Debt” means, with respect to any Person on any date of determination (without duplication):


	(1) debt of such Person for money borrowed, and

	(2) debt evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable;


	(b) all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale and Leaseback Transactions entered into by such Person;

	(c) all obligations of such Person representing the deferred purchase price of Property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business);

	(d) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (a) through (c) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon


	or, if and to the extent drawn upon, such drawing is reimbursed no later than the third business day following receipt by such Person of a demand for reimbursement following payment on the letter of credit);

	(e) the amount of all obligations of such Person with respect to the Repayment of any Disqualified Stock or, with respect to any Subsidiary of such Person, any Preferred Stock (but excluding, in each case, any accrued dividends);

	(f) all obligations of the type referred to in clauses (a) through (e) above of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee;

	(g) all obligations of the type referred to in clauses (a) through (f) above of other Persons secured by any Lien on any Property of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the Fair Market Value of such Property and the amount of the obligation so secured; and

	(h) to the extent not otherwise included in this definition, Hedging Obligations of such Person.

The amount of Debt of any Person at any date shall be the outstanding balance, or the accreted value of such Debt in the case of Debt issued with original issue discount, at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. The amount of Debt represented by a Hedging Obligation shall be equal to:


	(1) zero if such Hedging Obligation has been Incurred pursuant to clause (d), (e) or (f) of the second paragraph of the covenant described under “— Certain Covenants — Limitation on Debt,” or

	(2) the notional amount of such Hedging Obligation if not Incurred pursuant to such clauses.

“Default” means any event which is, or after notice or passage of time or both would be, an Event of Default.

“Disqualified Stock” means any Capital Stock of a Person or any of its Restricted Subsidiaries that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable, in either case at the option of the holder thereof) or otherwise:


	(a) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise;

	(b) is or may become redeemable or repurchaseable at the option of the holder thereof, in whole or in part; or

	(c) is convertible or exchangeable at the option of the holder thereof for Debt or Disqualified Stock,

on or prior to, in the case of clause (a), (b) or (c), the first anniversary of the Stated Maturity of the Notes.

“Disqualified Stock Dividends” of a Person means all dividends with respect to Disqualified Stock of such Person held by Persons other than a Wholly Owned Restricted Subsidiary of such Person. The amount of any such dividend shall be equal to the quotient of such dividend divided by the difference between one and the maximum statutory federal income tax rate (expressed as a decimal number between 1 and 0) then applicable to such Person (or if such Person is a limited liability company, the tax rate used to calculate the Tax Amount).

“Domestic Subsidiary” means any Restricted Subsidiary of Arch Western other than a Foreign Subsidiary.

“EBITDA” of a Person means, for any period, an amount equal to, for such Person and its consolidated Restricted Subsidiaries:


	(a) the sum of Consolidated Net Income for such period, plus the following to the extent reducing Consolidated Net Income for such period:


	(1) the provision for taxes based on income or profits or utilized in computing net loss;

	(2) Consolidated Interest Expense;

	(3) depreciation;

	(4) amortization of intangibles;

	(5) any other non-cash items (other than any such non-cash item to the extent that it represents an accrual of, or reserve for, cash expenditures in any future period); and

	(6) to the extent not included in (I) through (5) above, the portion of any of the items described in (1) through (5) above of a non-Wholly Owned Restricted Subsidiary that is not consolidated with such Person equal to the percentage of the outstanding common Capital Stock of the non-Wholly Owned Restricted Subsidiary owned by such Person and its Restricted Subsidiaries, minus


	(b) all non-cash items increasing Consolidated Net Income for such period (other than any such non-cash item to the extent that it will result in the receipt of cash payments in any future period).

Notwithstanding the foregoing clause (a), the provision for taxes and the depreciation, amortization and non-cash items of a Restricted Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to such Person by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its shareholders or members.

“Event of Default” has the meaning set forth under “— Events of Default.”

“Exchange Notes” means the notes issued in exchange for the Notes issued in this offering or any Additional Note pursuant to the registration rights agreement described under “Exchange Offer; Registration Rights” or any similar registration rights agreement with respect to any Additional Notes.

“Fair Market Value” means, with respect to any Property, the price that could be negotiated in an arm’s-length free market transaction, for cash, between a willing seller and a willing buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair Market Value shall be determined, except as otherwise provided,


	(a) if such Property has a Fair Market Value equal to or less than $5.0 million, by any Officer; or

	(b) if such Property has a Fair Market Value in excess of $5.0 million, by at least a majority of the disinterested members of the Board of Directors and evidenced by a Board Resolution, dated within 30 days of the relevant transaction, delivered to the Trustee.

“Foreign Subsidiary” means any Subsidiary of Arch Western that is not organized under the laws of the United States of America or any state thereof or the District of Columbia.

“GAAP” means United States generally accepted accounting principles as in effect on the Issue Date, including those set forth in:


	(a) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants;

	(b) the statements and pronouncements of the Financial Accounting Standards Board;

	(c) such other statements by such other entity as approved by a significant segment of the accounting profession; and

	(d) the rules and regulations of the Commission governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the Commission.

“Guarantee” means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Debt of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person:


	(a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise); or

	(b) entered into for the purpose of assuring in any other manner the obligee against loss in respect thereof (in whole or in part);


	(1) endorsements for collection or deposit in the ordinary course of business; or

	(2) a contractual commitment by one Person to invest in another Person for so long as such Investment is reasonably expected to constitute a Permitted Investment under clause (a), (b) or (c) of the definition of “Permitted Investment.”

“Guarantor” means Arch Western, the Subsidiary Guarantors, and any Subsidiary of Arch Western that has issued a Guarantee in favor of the Notes.

“Hedging Obligation” of any Person means any obligation of such Person pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement, Commodity Price Protection Agreement or any other similar agreement or arrangement.

“Holder” means a Person in whose name a Note is registered in the Security Register.

“Incur” means, with respect to any Debt or other obligation of any Person, to create, issue, incur (by merger, conversion, exchange or otherwise), extend, assume, Guarantee or become liable in respect of such Debt or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Debt or obligation on the balance sheet of such Person (and “Incurrence” and “Incurred” shall have meanings correlative to the foregoing); provided, however, that any Debt or other obligations of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary; and provided further, however, that solely for purposes of determining compliance with “— Certain Covenants — Limitation on Debt,” amortization of debt discount shall not be deemed to be the Incurrence of Debt, provided that in the case of Debt sold at a discount, the amount of such Debt Incurred shall at all times be the aggregate principal amount at Stated Maturity.

“Independent Financial Advisor” means an investment banking firm of national standing or any third party appraiser of national standing, provided that such firm or appraiser is not an Affiliate of Arch Western.

“Interest Rate Agreement” means, for any Person, any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement designed to protect against fluctuations in interest rates.

“Investment” by any Person means any direct or indirect loan, advance or other extension of credit or capital contribution (by means of transfers of cash or other Property to others or payments for Property or services for the account or use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or other securities or evidence of Debt issued by, any other Person. For purposes of the covenants described under “— Certain Covenants — Limitation on Restricted Payments” and “— Designation of Restricted and Unrestricted Subsidiaries” and the definition of “Restricted Payment,” the term “Investment” shall include the portion (proportionate to Arch Western’s or a Restricted Subsidiary’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of any Subsidiary of Arch Western at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, Arch Western shall be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary of an amount (if positive) equal to:


	(a) Arch Western’s “Investment” in such Subsidiary at the time of such redesignation, less

	(b) the portion (proportionate to Arch Western’s or a Restricted Subsidiary’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of such redesignation.

In determining the amount of any Investment made by transfer of any Property other than cash, such Property shall be valued at its Fair Market Value at the time of such Investment.

“Investment Grade Rating” means a rating equal to or higher than Baa3 (or the equivalent) by Moody’s and BBB- (or the equivalent) by S&P.

“Lien” means, with respect to any Property of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement (other than any easement not materially impairing usefulness or marketability), encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such Property (including any Capital Lease Obligation, conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing or any Sale and Leaseback Transaction).

“LLC Agreement” means the Limited Liability Company Agreement of Arch Western Resources LLC dated as of June 1, 1998 between Arch Western Acquisition Corporation and Delta Housing, Inc.

“Moody’s” means Moody’s Investors Service, Inc. or any successor to the rating agency business thereof.

“Net Available Cash” from any Asset Sale means cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Debt or other obligations relating to the Property that is the subject of such Asset Sale or received in any other non-cash form), in each case net of:


	(a) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Sale;


	(b) all payments made on or in respect of any Debt that is secured by any Property subject to such Asset Sale, in accordance with the terms of any Lien upon such Property, or which must by its terms, or in order to obtain a necessary consent to such Asset Sale, or by applicable law, be repaid out of the proceeds from such Asset Sale;

	(c) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Sale; and

	(d) the deduction of appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the Property disposed of in such Asset Sale and retained by Arch Western or any Restricted Subsidiary after such Asset Sale.

“Note Guarantees” means the Arch Western Guarantee, and the Subsidiary Guarantees.

“Officer” means the Chief Executive Officer, the President, the Chief Financial Officer or any Executive Vice President of Arch Western, or, in the event no such officers exist, of Arch Coal or the Person who controls Arch Western.

“Officers’ Certificate” means a certificate signed by two Officers, at least one of whom shall be the principal executive officer or principal financial officer, and delivered to the Trustee.

“Opinion of Counsel” means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to Arch Western or the Trustee.

“Permitted Business” means any business that is related, ancillary or complementary to the businesses of Arch Western and its Restricted Subsidiaries on the Issue Date.

“Permitted Investment” means any Investment by Arch Western or its Restricted Subsidiary in:


	(a) Arch Western or any Restricted Subsidiary;

	(b) any Person that will, upon the making of such Investment, become a Restricted Subsidiary, provided that the primary business of such Restricted Subsidiary is a Permitted Business;

	(c) any Person if as a result of such Investment such Person is merged or consolidated with or into, or transfers or conveys all or substantially all its Property to, Arch Western or its Restricted Subsidiary, provided that such Person’s primary business is a Permitted Business;

	(d) Cash Equivalents;

	(e) receivables owing to Arch Western or its Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as Arch Western or such Restricted Subsidiary deems reasonable under the circumstances;

	(f) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business;

	(g) loans and advances to employees made in the ordinary course of business permitted by law and consistent with past practices of Arch Western or such Restricted Subsidiary, as the case may be; provided that such loans and advances do not exceed $2.5 million in the aggregate at any one time outstanding;

	(h) stock, obligations or other securities received in settlement of debts created in the ordinary course of business and owing to Arch Western or a Restricted Subsidiary or in satisfaction of judgments;

	(i) any Person to the extent such Investment represents the non-cash portion of the consideration received in connection with an Asset Sale consummated in compliance with the covenant described under “— Certain Covenants — Limitation on Asset Sales;”


	(j) Investments in Permitted Joint Ventures in an aggregate amount, together with all other Investments made pursuant to this clause (j), not to exceed 5.0% of Consolidated Net Tangible Assets; and

	(k) other Investments made for Fair Market Value that do not exceed $50.0 million in the aggregate outstanding at any one time.

“Permitted Joint Ventures” means any Person which is, directly or indirectly, through its Subsidiaries or otherwise, engaged principally in a Permitted Business, and the Capital Stock (or securities convertible into Capital Stock) of which is owned by Arch Western or one or more of its Restricted Subsidiaries and one or more other Person other than Arch Coal or any of its Subsidiaries or Affiliates.


	(a) Liens to secure Debt permitted to be Incurred under clause (b) of the second paragraph of the covenant described under “— Certain Covenants — Limitation on Debt” and other purchase money Liens to finance Property of Arch Coal or any of its Restricted Subsidiaries; provided that any such Lien may not extend to any Property of Arch Western or any Restricted Subsidiary, other than the Property acquired, constructed or leased and any improvements or accessions to such Property (including, in the case of the acquisition of Capital Stock of a Person that becomes a Restricted Subsidiary, Liens on the Property of the Person whose Capital Stock was acquired);

	(b) Liens for taxes, assessments or governmental charges or levies on the Property of Arch Western or any Restricted Subsidiary if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision that shall be required in conformity with GAAP shall have been made therefor;

	(c) Liens imposed by law, such as carriers’, warehousemen’s and mechanics’ Liens and other similar Liens, on the Property of Arch Western or any Restricted Subsidiary arising in the ordinary course of business and securing payment of obligations that are not more than 60 days past due or are being contested in good faith and by appropriate proceedings;

	(d) Liens on the Property of Arch Western or any Restricted Subsidiary Incurred in the ordinary course of business to secure performance of obligations with respect to statutory or regulatory requirements, performance or return-of-money bonds, surety bonds or other obligations of a like nature and Incurred in a manner consistent with industry practice, in each case which are not Incurred in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of Property and which do not in the aggregate impair in any material respect the use of Property in the operation of the business of Arch Western and the Restricted Subsidiaries taken as a whole;

	(e) Liens on Property at the time Arch Western or any Restricted Subsidiary acquired such Property, including any acquisition by means of a merger or consolidation with or into Arch Western or any Restricted Subsidiary; provided, however, that any such Lien may not extend to any other Property of Arch Western or any Restricted Subsidiary; provided further, however, that such Liens shall not have been Incurred in anticipation of or in connection with the transaction or series of transactions pursuant to which such Property was acquired by Arch Western or any Restricted Subsidiary;

	(f) Liens on the Property of a Person at the time such Person becomes a Restricted Subsidiary; provided, however, that any such Lien may not extend to any other Property of Arch Western or any other Restricted Subsidiary that is not a direct Subsidiary of such Person; provided further, however, that any such Lien was not Incurred in anticipation of or in connection with the transaction or series of transactions pursuant to which such Person became a Restricted Subsidiary;

	(g) pledges or deposits by Arch Western or any Restricted Subsidiary under workers’ compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in


	connection with bids, tenders, contracts (other than for the payment of Debt) or leases to which Arch Western or any Restricted Subsidiary is party, or deposits to secure public or statutory obligations of Arch Western, or deposits for the payment of rent, in each case Incurred in the ordinary course of business;

	(h) utility easements, building restrictions and such other encumbrances or charges against real Property as are of a nature generally existing with respect to properties of a similar character;

	(i) Liens existing on the Issue Date not otherwise described in clauses (a) through (h) above;

	(j) Liens on the Property of Arch Coal or any Restricted Subsidiary to secure any Refinancing, in whole or in part, of any Debt secured by Liens referred to in clause (a), (e), (f) or (i) above; provided, however, that any such Lien shall be limited to all or part of the same Property that secured the original Lien (together with improvements and accessions to such Property), and the aggregate principal amount of Debt that is secured by such Lien shall not be increased to an amount greater than the sum of:


	(1) the outstanding principal amount, or, if greater, the committed amount, of the Debt secured by Liens described under clause (a), (e), (f) or (i) above, as the case may be, at the time the original Lien became a Permitted Lien under the Indenture, and

	(2) an amount necessary to pay any fees and expenses, including premiums and defeasance costs, incurred by Arch Western or such Restricted Subsidiary in connection with such Refinancing;


	(k) Liens on the Arch Coal Notes to secure Debt under a credit facility of Arch Western in an aggregate principal amount not to exceed $100.0 million at any one time outstanding; and

	(l) Liens not otherwise permitted by clauses (a) through (k) above encumbering Property having an aggregate Fair Market Value not in excess of 5.0% of Consolidated Net Tangible Assets.

“Permitted Refinancing Debt” means any Debt that Refinances any other Debt, including any successive Refinancings, so long as:


	(a) such Debt is in an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) not in excess of the sum of:


	(1) the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding of the Debt being Refinanced, and

	(2) an amount necessary to pay any fees and expenses, including premiums and defeasance costs, related to such Refinancing;


	(b) the Average Life of such Debt is equal to or greater than the Average Life of the Debt being Refinanced;

	(c) the Stated Maturity of such Debt is no earlier than the Stated Maturity of the Debt being Refinanced; and

	(d) the new Debt shall not be senior in right of payment to the Debt that is being Refinanced;


	(x) Debt of a Subsidiary of Arch Western that is not a Subsidiary Guarantor that Refinances Debt of Arch Western or a Subsidiary Guarantor, or

	(y) Debt of Arch Western or a Restricted Subsidiary that Refinances Debt of an Unrestricted Subsidiary.

“Person” means any individual, corporation, company (including any limited liability company), association, partnership, joint venture, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

“Preferred Stock” means any Capital Stock of a Person, however designated, which entitles the holder thereof to a preference with respect to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of any other class of Capital Stock issued by such Person.

“Preferred Stock Dividends” of a Person means all dividends with respect to Preferred Stock of Restricted Subsidiaries of such Person held by Persons other than such Person or a Wholly Owned Restricted Subsidiary of such Person. The amount of any such dividend shall be equal to the quotient of such dividend divided by the difference between one and the maximum statutory federal income rate (expressed as a decimal number between 1 and 0) then applicable to the issuer of such Preferred Stock (or if the issuer is a limited liability company, the tax rate used to calculate the Tax Amount).

“pro forma” means, with respect to any calculation made or required to be made pursuant to the terms hereof, a calculation performed in accordance with Article 11 of Regulation S-X promulgated under the Securities Act, as interpreted in good faith by the Board of Directors after consultation with the independent certified public accountants of Arch Western, or otherwise a calculation made in good faith by the Board of Directors after consultation with the independent certified public accountants of Arch Western, as the case may be.

“Property” means, with respect to any Person, any interest of such Person in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including Capital Stock in, and other securities of, any other Person. For purposes of any calculation required pursuant to the Indenture, the value of any Property shall be its Fair Market Value.

“Public Equity Offering” means an underwritten public offering of common Capital Stock (other than Disqualified Stock) of Arch Western pursuant to an effective registration statement under the Securities Act.


	(a) consisting of the deferred purchase price of Property, conditional sale obligations, obligations under any title retention agreement, other purchase money obligations and obligations in respect of industrial revenue bonds, in each case where the maturity of such Debt does not exceed the anticipated useful life of the Property being financed; and

	(b) Incurred to finance the acquisition, construction or lease by Arch Western or a Restricted Subsidiary of such Property, including additions and improvements thereto;


	provided, however, that such Debt is Incurred within 180 days after the acquisition, construction or lease of such Property by Arch Western or such Restricted Subsidiary.

“Refinance” means, in respect of any Debt, to refinance, extend, renew, refund or Repay, or to issue other Debt, in exchange or replacement for, such Debt. “Refinanced” and “Refinancing” shall have correlative meanings.

“Repay” means, in respect of any Debt, to repay, prepay, repurchase, redeem, legally defease or otherwise retire such Debt. “Repayment” and “Repaid” shall have correlative meanings. For purposes of the covenant described under “— Certain Covenants — Limitation on Asset Sales” and the definition of “Consolidated Interest Coverage Ratio,” Debt shall be considered to have been Repaid only to the extent the related loan commitment, if any, shall have been permanently reduced in connection therewith.


	(a) any dividend or distribution (whether made in cash, securities or other Property) declared or paid on or with respect to any shares of Capital Stock of Arch Western or any Restricted Subsidiary (including any payment in connection with any merger or consolidation with or into Arch Western or any Restricted Subsidiary), except for any dividend or distribution that is made solely to Arch


	Western or a Restricted Subsidiary (and, if such Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, to the other shareholders or members of such Restricted Subsidiary on a pro rata basis or on a basis that results in the receipt by Arch Western or a Restricted Subsidiary of dividends or distributions of greater value than it would receive on a pro rata basis) or any dividend or distribution payable solely in shares of Capital Stock (other than Disqualified Stock) of Arch Western;

	(b) the purchase, repurchase, redemption, acquisition or retirement for value of any Capital Stock of Arch Western or any Restricted Subsidiary (other than from Arch Western or a Restricted Subsidiary) or any securities exchangeable for or convertible into any such Capital Stock, including the exercise of any option to exchange any Capital Stock (other than for or into Capital Stock of Arch Western that is not Disqualified Stock);

	(c) the purchase, repurchase, redemption, acquisition or retirement for value, prior to the date for any scheduled maturity, sinking fund or amortization or other installment payment, of any Subordinated Obligation (other than the purchase, repurchase or other acquisition of any Subordinated Obligation purchased in anticipation of satisfying a scheduled maturity, sinking fund or amortization or other installment obligation, in each case due within one year of the date of acquisition);

	(d) any Investment (other than Permitted Investments) in any Person; or

	(e) the issuance, sale or other disposition of Capital Stock of any Restricted Subsidiary to a Person other than Arch Western or another Restricted Subsidiary if the result thereof is that such Restricted Subsidiary shall cease to be a Restricted Subsidiary, in which event the amount of such “Restricted Payment” shall be the Fair Market Value of the remaining interest, if any, in such former Restricted Subsidiary held by Arch Western and the other Restricted Subsidiaries.

“Restricted Subsidiary” means any Subsidiary of Arch Western other than an Unrestricted Subsidiary.

“S&P” means Standard & Poor’s Ratings Services or any successor to the rating agency business thereof.

“Sale and Leaseback Transaction” means any direct or indirect arrangement relating to Property now owned or hereafter acquired whereby Arch Western or a Restricted Subsidiary transfers such Property to another Person and Arch Western or a Restricted Subsidiary leases it from such Person.

“Security Documents” means Note Pledge Agreements, any Collateral Trust Agreement and any other documents or instruments pursuant to which a Lien on the Arch Coal Notes is granted.

“Significant Subsidiary” means any Subsidiary that would be a “significant subsidiary” of Arch Western within the meaning of Rule 1-02 under Regulation S-X promulgated by the Commission.

“Special Interest” means the additional interest, if any, to be paid on the Notes as described under “Exchange Offer; Registration Rights.”

“Stated Maturity” means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred).

“Subordinated Obligation” means any Debt of Arch Western or a Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) that is subordinate or junior in right of payment to the Notes Guarantees pursuant to a written agreement to that effect.

“Subsidiary” means, in respect of any Person, any corporation, company (including any limited liability company), association, partnership, joint venture or other business entity of which at least a


	(a) such Person;

	(b) such Person and one or more Subsidiaries of such Person; or (c) one or more Subsidiaries of such Person.

“Subsidiary Guarantee” means a Guarantee by a Subsidiary Guarantor of all of the Issuer’s obligations with respect to the Notes.

“Subsidiary Guarantor” means any Subsidiary of Arch Western that executes a Guarantee of the Notes.

“Surviving Person” means the surviving Person formed by a merger, consolidation or amalgamation and, for purposes of the covenant described under “— Merger, Consolidation and Sale of Property,” a Person to whom all or substantially all of the Property of Arch Western or a Subsidiary Guarantor is sold, transferred, assigned, leased, conveyed or otherwise disposed.

“Tax Amount” means the portion of the Hypothetical Income Tax Amount (as defined in the LLC Agreement as in effect on the Issue Date) allocated to the members of Arch Western, other than Arch Coal or any of its Affiliates.

“Tax Distribution” means a distribution in respect of taxes pursuant to clause (e) of the second paragraph of the covenant described above under the caption “Certain Covenants — Restricted Payments.”


	(a) any Subsidiary of Arch Western that is designated after the Issue Date as an Unrestricted Subsidiary as permitted or required pursuant to the covenant described under “— Certain Covenants — Designation of Restricted and Unrestricted Subsidiaries” and is not thereafter redesignated as a Restricted Subsidiary as permitted pursuant thereto; and

	(b) any Subsidiary of an Unrestricted Subsidiary.

After the date upon which Arch Western and its Restricted Subsidiaries cease to be subject to the Specified Covenants, all Unrestricted Subsidiaries shall be Restricted Subsidiaries.

“U.S. Government Obligations” means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer’s option.

“Voting Stock” of any Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof.

“Wholly Owned Restricted Subsidiary” of a Person means, at any time, a Restricted Subsidiary all the Voting Stock of which (except directors’ qualifying shares) is at such time owned, directly or indirectly, by such Person and its other Wholly Owned Subsidiaries.

The Notes will be initially issued in the form of one or more Global Securities registered in the name of The Depository Trust Company (“DTC”) or its nominee.

Upon the issuance of a Global Security, DTC or its nominee will credit the accounts of Persons holding through it with the respective principal amounts of the Notes represented by such Global Security purchased by such Persons in the offering. Such accounts shall be designated by the initial purchasers. Ownership of beneficial interests in a Global Security will be limited to Persons that have accounts with DTC (“participants”) or Persons that may hold interests through participants. Any Person acquiring an

Payment of principal of and interest on Notes represented by a Global Security will be made in immediately available funds to DTC or its nominee, as the case may be, as the sole registered owner and the sole holder of the Notes represented thereby for all purposes under the Indenture. Arch Western has been advised by DTC that upon receipt of any payment of principal of or interest on any Global Security, DTC will immediately credit, on its book-entry registration and transfer system, the accounts of participants with payments in amounts proportionate to their respective beneficial interests in the principal or face amount of such Global Security as shown on the records of DTC. Payments by participants to owners of beneficial interests in a Global Security held through such participants will be governed by standing instructions and customary practices as is now the case with securities held for customer accounts registered in “street name” and will be the sole responsibility of such participants.

A Global Security may not be transferred except as a whole by DTC or a nominee of DTC to a nominee of DTC or to DTC. A Global Security is exchangeable for certificated Notes only if:


	(a) DTC notifies Arch Western that it is unwilling or unable to continue as a depositary for such Global Security or if at any time DTC ceases to be a clearing agency registered under the Exchange Act;

	(b) Arch Western in its discretion at any time determines not to have all the Notes represented by such Global Security; or

	(c) there shall have occurred and be continuing a Default or an Event of Default with respect to the Notes represented by such Global Security.

Any Global Security that is exchangeable for certificated Notes pursuant to the preceding sentence will be exchanged for certificated Notes in authorized denominations and registered in such names as DTC or any successor depositary holding such Global Security may direct. Subject to the foregoing, a Global Security is not exchangeable, except for a Global Security of like denomination to be registered in the name of DTC or any successor depositary or its nominee. In the event that a Global Security becomes exchangeable for certificated Notes,


	(1) certificated Notes will be issued only in fully registered form in denominations of $1,000 or integral multiples thereof;

	(2) payment of principal of, and premium, if any, and interest on, the certificated Notes will be payable, and the transfer of the certificated Notes will be registrable, at the office or agency of Arch Western maintained for such purposes; and

	(3) no service charge will be made for any registration of transfer or exchange of the certificated Notes, although Arch Western may require payment of a sum sufficient to cover any tax or governmental charge imposed in connection therewith.

So long as DTC or any successor depositary for a Global Security, or any nominee, is the registered owner of such Global Security, DTC or such successor depositary or nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Security for all purposes under the Indenture and the Notes. Except as set forth above, owners of beneficial interests in a Global Security will not be entitled to have the Notes represented by such Global Security registered in their names, will not receive or be entitled to receive physical delivery of certificated Notes in definitive form and will not be considered to be the owners or holders of any Notes under such Global Security.

DTC has advised Arch Western and the Issuer that DTC is a limited-purpose trust company organized under the Banking Law of the State of New York, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered under the Exchange Act. DTC was created to hold the securities of its participants and to facilitate the clearance and settlement of securities transactions among its participants in such securities through electronic book-entry changes in accounts of the participants, thereby eliminating the need for physical movement of securities certificates. DTC’s participants include securities brokers and dealers (which may include the initial purchasers), banks, trust companies, clearing corporations and certain other organizations some of whom (or their representatives) own DTC. Access to DTC’s book-entry system is also available to others, such as banks, brokers, dealers and trust companies, that clear through or maintain a custodial relationship with a participant, either directly or indirectly.

Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in Global Securities among participants of DTC, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. None of Arch Western, the Issuer, the Trustee or the initial purchasers will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations.

The Issuer, Arch Western, Arch Coal and the Subsidiary Guarantors have agreed pursuant to a registration rights agreement (the “Registration Rights Agreement”) with the initial purchasers, for the benefit of the holders of the old notes, that the Issuer, Arch Western, Arch Coal and the Subsidiary Guarantors will, at their cost, use their reasonable best efforts to cause the registration statement of which this prospectus is a part (the “Exchange Offer Registration Statement”) to be declared effective under the Securities Act not later than 180 days after the date of original issuance of the old notes. Upon the effectiveness of the Exchange Offer Registration Statement, the Issuer will offer the new notes (the “Exchange Notes”) in exchange for surrender of the old notes (the “Registered Exchange Offer”). The Issuer will keep the Registered Exchange Offer open for not less than 30 business days and not more than 45 business days after the date notice of the Registered Exchange Offer is mailed to the holders of the old notes (or in each case, longer if required by applicable law). For each old note surrendered to the Issuer pursuant to the Registered Exchange Offer, the holder of such old note will receive an Exchange Note having a principal amount equal to that of the surrendered old note. Interest on each Exchange Note will accrue from the last interest payment date on which interest was paid on the old note surrendered in exchange thereof or, if no interest has been paid on such old note, from the date of its original issue. Under existing Commission interpretations, the Exchange Notes would be freely transferable by holders of the old notes other than affiliates of the Issuer after the Registered Exchange Offer without further registration under the Securities Act if the holder of the Exchange Notes represents that it is acquiring the Exchange Notes in the ordinary course of its business, that it has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes and that it is not an affiliate of the Issuer, as such terms are interpreted by the Commission, provided that broker-dealers (“Participating Broker-Dealers”) receiving Exchange Notes in the Registered Exchange Offer will have a prospectus delivery requirement with respect to resales of such Exchange Notes. The Commission has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to Exchange Notes (other than a resale of an unsold allotment from the original sale of the old notes) with the prospectus contained in the Exchange Offer Registration Statement. Under the Registration Rights Agreement, the Issuer, Arch Western, Arch Coal and the Subsidiary Guarantors will be required to allow Participating Broker-Dealers and other persons, if any, with similar prospectus delivery requirements to use the prospectus contained in the Exchange Offer Registration Statement in connection with the resale of such Exchange Notes for 180 days following the effective date of such Exchange Offer Registration Statement (or such shorter period during which Participating Broker-Dealers are required by law to deliver such prospectus).

A holder of old notes (other than certain specified holders) who wishes to exchange such old notes for Exchange Notes in the Registered Exchange Offer will be required to represent that any Exchange Notes to be received by it will be acquired in the ordinary course of its business and that at the time of the commencement of the Registered Exchange Offer it has no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes and that it is not an “affiliate” of the Issuer, as defined in Rule 405 of the Securities Act, or if it is an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable.

In the event that (i) applicable interpretations of the staff of the Commission do not permit the Issuer to effect such a Registered Exchange Offer, (ii) for any other reason the Exchange Offer Registration Statement is not declared effective within 180 days after the date of the original issuance of the old notes or the Registered Exchange Offer is not consummated within 225 days after the original issuance of the old notes, (iii) the initial purchasers so request with respect to old notes not eligible to be exchanged for Exchange Notes in the Registered Exchange Offer or (iv) any holder of old notes (other than an initial purchaser) is not eligible to participate in the Registered Exchange Offer or does not receive freely tradeable Exchange Notes in the Registered Exchange Offer other than by reason of such holder being an affiliate of the Issuer (it being understood that the requirement that a Participating Broker-Dealer deliver the prospectus contained in the Exchange Offer Registration Statement in

connection with sales of Exchange Notes shall not result in such Exchange Notes being not “freely tradeable”), the Issuer, Arch Western, Arch Coal and the Subsidiary Guarantors will, at their cost, (a) as promptly as practicable, but in no event later than 60 days after such filing obligation arises, file a registration statement (the “Shelf Registration Statement”) covering resales of the old notes or the Exchange Notes, as the case may be, (b) use their reasonable best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act prior to 180 days after the obligation to file arises and (c) use their reasonable best efforts to keep the Shelf Registration Statement effective until two years after its effective date. The Issuer will, in the event a Shelf Registration Statement is filed, among other things, provide to each holder for whom such Shelf Registration Statement was filed copies of the prospectus which is a part of the Shelf Registration Statement, notify each such holder when the Shelf Registration Statement has become effective and take certain other actions as are required to permit unrestricted resales of the old notes or the Exchange Notes, as the case may be. A holder selling such old notes or Exchange Notes pursuant to the Shelf Registration Statement generally would be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement which are applicable to such holder (including certain indemnification obligations).

If (a) on or prior to the 180th day following the date of original issuance of the old notes, the Exchange Offer Registration Statement has not been declared effective, (b) on or prior to the 225th day following the date of original issuance of the old notes the Registered Exchange Offer has not been consummated, (c) on or prior to the 60th day following the date the obligation to file the Shelf Registration Statement arises, the Shelf Registration Statement has not been filed with the Commission, (d) on or prior to 180th day following the date the obligation to file arises, the Shelf Registration has not been declared effective, or (e) after either the Exchange Offer Registration Statement or the Shelf Registration Statement has been declared effective, such Registration Statement thereafter ceases to be effective or usable (subject to certain exceptions) in connection with resales of old notes or Exchange Notes in accordance with and during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (a) through (d), a “Registration Default”), interest (“Special Interest”) will accrue on the principal amount of the old notes and the Exchange Notes (in addition to the stated interest on the Notes and the Exchange Notes) from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured. Special Interest will accrue at a rate of 0.25% per annum during the 90-day period immediately following the occurrence of such Registration Default and shall increase by 0.25% per annum at the end of each subsequent 90-day period, but in no event shall such rate exceed 1.00% per annum.

This summary of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, a copy of which is available upon request to Arch Western.

The following general discussion represents the opinion of our counsel, Kirkpatrick & Lockhart Nicholson Graham LLP, as to the material U.S. federal income tax considerations with respect to the acquisition, ownership and disposition of a registered note acquired in exchange for an old note. This discussion is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the applicable treasury regulations promulgated and proposed thereunder, judicial authority and current administrative rulings and practice, all of which are subject to change, possibly with retroactive effect. This discussion is a summary for general information only and does not consider all aspects of U.S. federal income taxation that may be relevant to the acquisition, ownership, and disposition of the registered notes by a prospective investor in light of his or her or its own personal circumstances. This discussion is limited to the U.S. federal income tax consequences to persons who acquired the old note for cash on its original issuance at its issue price and who held the old note and will hold the registered note as a capital asset within the meaning of Section 1221 of the Code. This discussion does not purport to deal with all aspects of U.S. federal income taxation that might be relevant to particular holders in light of their personal investment circumstances or status, nor does it discuss the U.S. federal income tax consequences to certain types of holders subject to special treatment under the U.S. federal income tax laws (for example, financial institutions, insurance companies, dealers in securities or foreign currency, tax-exempt organizations, banks, thrifts, insurance companies, taxpayers holding the old notes or registered notes through a partnership or similar pass-through entity or as part of a “straddle,” “hedge” or “conversion transaction,” or taxpayers that have a “functional currency” other than the U.S. dollar). We will treat the old notes and registered notes as indebtedness for U.S. federal income tax purposes, and the balance of the discussion is based on the assumption that such treatment will be respected. We have not obtained a ruling from the Internal Revenue Service (the “IRS”) or an opinion of counsel regarding the tax treatment of the old notes or registered notes.

This discussion of material U.S. federal income tax considerations is for general information only and is not tax advice. Each holder of old notes should consult his own tax advisors regarding the application of the tax consequences discussed below to such holder’s particular situation as well as the application of any state, local, foreign or other tax laws, including gift and estate tax laws, and any applicable tax treaties.

The exchange of your old notes for registered notes in the exchange offer should not constitute an exchange for U.S. federal income tax purposes. Accordingly, the exchange offer should have no federal income tax consequences to you if you exchange your old notes for registered notes. For example, you should not recognize gain or loss as a result of the exchange, and you should have the same tax basis, holding period, issue price and stated redemption price at maturity in the registered notes as you had in your old notes. The following discussion assumes the foregoing U.S. federal income tax treatment of participating in the exchange will be respected.

The following discussion is limited to the U.S. federal income tax consequences to a holder of a registered note who is:


	•	a citizen or resident of the United States, including an alien resident who is a lawful permanent resident of the United States or who meets the “substantial presence” test under Section 7701(b) of the Code;

	•	a corporation (or any entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, or any political subdivision thereof;

	•	an estate whose income is subject to U.S. federal income taxation regardless of its source; and


	•	a trust, if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust (each a “U.S. Holder”).

Payments of stated interest on the registered notes will generally be taxable to a U.S. Holder as ordinary interest income at the time such payments are received or accrued, in accordance with such holder’s usual method of accounting for U.S. federal income tax purposes. A portion of the price initially paid for old notes will have been allocated to interest that accrued prior to the date the old notes were issued. We intend to treat the issue price of the registered notes as excluding this interest that accrued prior to issuance. Accordingly, a U.S. Holder would treat the portion of the first interest payment equal to this interest that accrued prior to issuance as a return of such interest and would not include that amount in gross income. A U.S. Holder’s adjusted tax basis in the old notes and registered notes would decrease by the amount of such interest.

A holder will have “amortizable bond premium” on its registered notes to the extent the holder’s adjusted basis in the registered notes (determined by subtracting interest accruing prior to issuance of the old notes as described above) exceeds the sum of all amounts payable (other than qualified stated interest) on the registered notes. The holder may elect to reduce the amount of interest recognized with respect to the registered notes by electing to amortize this bond premium. An election to amortize bond premium will apply to all bonds held by the holder (other than bonds the interest on which is exempt from U.S. federal income tax) during or after the taxable year for which the election is made and may not be revoked without the consent of the IRS. A holder will reduce the basis in its registered notes to the extent that any amortizable bond premium is applied to offset interest income on the registered notes. Amortizable bond premium on registered notes held by a U.S. Holder who does not elect to amortize such premium generally will result in a capital loss when the registered note is paid at maturity, or will increase the amount of capital loss or decrease the amount of capital gain realized on a taxable disposition of the registered note prior to maturity.

Upon the disposition of a registered note by sale, exchange or redemption, a U.S. Holder generally will recognize gain or loss equal to the difference between the amount realized on the disposition, other than amounts attributable to accrued interest not yet taken into income which should be taxed as ordinary income, and the U.S. Holder’s adjusted tax basis in the registered note. A U.S. Holder’s adjusted tax basis in a registered note generally should equal the cost of the note to such holder when received by such holder, reduced by any amounts treated as a return of interest that accrued prior to issuance of the old notes and the amount of bond premium, if any, amortized with respect to the registered note.

Gain or loss recognized on a disposition of a registered note generally should constitute capital gain or loss. Any such gain or loss will be long-term capital gain or loss if the U.S. Holder has held the registered note for longer than one year. The deductibility of capital losses is subject to certain limitations.

Under the Code, U.S. Holders of the registered notes may be subject, under certain circumstances, to information reporting and “backup withholding” at a rate of 28% with respect to cash payments in respect of principal, interest, and the gross proceeds from dispositions of the registered notes. Backup withholding applies only if the U.S. Holder (i) fails to furnish its social security or other taxpayer identification number (“TIN”) within a reasonable time after a request therefor, (ii) furnishes an incorrect TIN, (iii) fails to report properly interest or dividends, or (iv) fails under certain circumstances, to provide a certified statements, signed under penalty of perjury, that the TIN provided is its correct number and that

The following discussion is limited to the U.S. federal income and estate tax consequences to a holder of a registered note that is a beneficial owner of a registered note and that is an individual, corporation, estate or trust other than a U.S. Holder (a “Non-U.S. Holder”). For purposes of the discussion below, interest and gain on the sale, exchange, redemption or other disposition of the registered notes will be considered to be “U.S. trade or business income” if such income or gain is:


	•	effectively connected with the conduct of a U.S. trade or business or

	•	in the case of a treaty resident, attributable to a U.S. permanent establishment (or, in the case of an individual, a fixed base) in the United States.

Generally, interest paid to a Non-U.S. Holder will not be subject to U.S. federal income or withholding tax if such interest is not U.S. trade or business income and is “portfolio interest.” Generally, interest on the registered notes would qualify as portfolio interest if the Non-U.S. Holder:


	•	does not actually or constructively own 10% or more of the total combined voting power of all classes of our stock;

	•	is not a controlled foreign corporation with respect to which we are a “related person” within the meaning of the Code;

	•	is not a bank receiving interest on the extension of credit made pursuant to a loan agreement made in the ordinary course of its trade or business; and

	•	certifies, under penalties of perjury, that such holder is not a U.S. person and provides such holder’s name and address.

The gross amount of payments of interest that do not qualify for the portfolio interest exception and that are not U.S. trade or business income will be subject to U.S. withholding tax at a rate of 30% unless a treaty applies to reduce or eliminate withholding. U.S. trade or business income will be taxed at a regular graduated U.S. rates rather than the 30% gross rate. In the case of a Non-U.S. Holder that is a corporation, such U.S. trade or business income also may be subject to the branch profits tax. To claim an exemption from withholding in the case of U.S. trade or business income, or to claim the benefits of a treaty, a Non-U.S. Holder must provide a properly executed Form W-8 ECI (in the case of U.S. trade or business income) or Form W-8BEN (in the case of a treaty), or any successor form, as applicable, prior to the payment of interest. These forms must be periodically updated. A Non-U.S. Holder who is claiming the benefits of a treaty may be required, in certain instances, to obtain a U.S. TIN and to provide certain documentary evidence issued by foreign governmental authorities to prove residence in the foreign country. Also, special procedures are provided under applicable regulations for payments through qualified intermediaries.

Gain realized by a Non-U.S. Holder on the sale, exchange or redemption of the registered notes generally will not be subject to U.S. federal income tax, unless:


	•	such gain is U.S. trade or business income;

	•	subject to certain exceptions, the Non-U.S. Holder is an individual who holds the notes as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition; or

	•	the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax law applicable to certain U.S. expatriates.

Upon a sale, exchange or redemption of a registered note, no U.S. withholding tax should apply to accrued and unpaid interest to the extent that such interest qualifies as portfolio interest as described above under the heading “Interest.” If the accrued and unpaid interest does not so qualify, U.S. withholding tax should apply in the manner described above under the heading “Interest” upon a redemption of a registered note, and in certain circumstances, upon a sale or exchange of a registered note.

The registered notes held (or treated as held) by an individual who is a Non-U.S. Holder at the time of his death should not be subject to U.S. federal estate tax, provided that the individual does not actually or constructively own 10% or more of the total voting power of our voting stock and income on the registered notes was not U.S. trade or business income.

We must report annually to the IRS and to each Non-U.S. Holder any interest that is subject to U.S. withholding tax or that is exempt from withholding pursuant to a tax treaty or the portfolio interest exception. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides.

Backup withholding and information reporting will not apply to payments of principal on the registered notes to a Non-U.S. Holder, if the holder certifies as to its non-U.S. status under penalties of perjury or otherwise establishes an exemption, provided that neither we nor its paying agent has actual knowledge that the holder is a U.S. Holder or that the conditions of any other exception are not, in fact, satisfied.

Payments of the proceeds form the sale of the registered notes to or through a foreign office or broker will not be subject to information reporting or backup withholding, except that if the broker is (i) a United States person, (ii) a foreign person that derives 50% or more of its gross income for certain periods form activities that are effectively connected with the conduct of a trade or business in the United States, (iii) a controlled foreign corporation for U.S. federal income tax purposes or (iv) a foreign partnership more than 50% of the capital or profits of which is owned by one or more U.S. persons or which engages in a U.S. trade or business. Payment of the proceeded of any such sale effected outside the United States by a foreign office of any broker that is described in (i), (ii), (iii), or (iv) of the preceding sentence may be subject to backup withholding tax, and will be subject to information reporting requirements unless such broker has documentary evidence in its records that the beneficial owner is a non-U.S. Holder and certain other conditions are met, or the beneficial owner otherwise establishes an exemption. Payment of the proceeds of any such sale to or through the United States office of a broker is subject to information reporting and backup withholding requirements, unless the broker has documentary evidence in its files that the owner is a Non-U.S. Holder and the broker has no knowledge to the contrary.

Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S. Holder’s U.S. federal income tax liability, provided that the requisite procedures are followed.

THE PRECEDING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH INVESTOR SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES TO IT OF PURCHASING, HOLDING AND DISPOSING OF REGISTERED NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAW.

Each broker-dealer that receives new notes in the exchange offer for its own account must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of the notes. We reserve the right in our sole discretion to purchase or make offers for, or to offer new notes for, any old notes that remain outstanding subsequent to the expiration of the exchange offer pursuant to this prospectus or otherwise and, to the extent permitted by applicable law, purchase old notes in the open market, in privately negotiated transactions or otherwise. This prospectus, as it may be amended or supplemented from time to time, may be used by all persons subject to the prospectus delivery requirements of the Securities Act, including broker-dealers in connection with resales of new notes received in the exchange offer, where the new notes were acquired as a result of market-making activities or other trading activities and may be used by us to purchase any old notes outstanding after expiration of the exchange offer. We have agreed that, for a period of 180 days after the expiration of the exchange offer, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale.

We will not receive any proceeds from any sale of new notes by broker-dealers. New notes received by broker-dealers in the exchange offer for their own account may be sold from time to time in one or more transactions in the over-the counter market, in negotiated transactions, through the writing of options on the new notes or a combination of these methods of resale, at market prices prevailing at the time of resale, at prices related to the prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such new notes. Any broker-dealer that resells new notes that were received by it in the exchange offer for its own account and any broker or dealer that participates in a distribution of the notes may be deemed to be an “underwriter” within the meaning of the Securities Act and any profit on any such resale of the notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter or transmittal states that, by acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.

For a period of 180 days after the expiration of the exchange offer, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests those documents in the letter of transmittal. We and Arch Coal have agreed to pay all expenses incurred by us and Arch Coal in connection with the performance of our and Arch Coal’s obligations incident to the exchange offer, including, in the event of any shelf registration statement, the reasonable fees and disbursements of one firm or counsel acting as counsel for the holders of old notes in connection with the shelf registration statement and will indemnify holders of the notes, including any broker-dealers, against certain liabilities, including liabilities under the Securities Act.

Certain legal matters with respect to the exchange offer will be passed upon for us by Kirkpatrick & Lockhart Nicholson Graham LLP, Pittsburgh, Pennsylvania. As tax counsel to the registrants, Kirkpatrick & Lockhart Nicholson Graham LLP, Pittsburgh, Pennsylvania, also will pass upon certain tax consequences related to the exchange offer.

The consolidated financial statements of Arch Western Resources, LLC as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003, appearing in this Registration Statement and related Prospectus have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

The consolidated financial statements of Arch Coal, Inc. as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003, included in Arch Coal, Inc.’s Annual Report (Form 10-K) have been audited by Ernst & Young LLP, independent registered accounting firm, as set forth in their report thereon and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

The consolidated financial statements of Canyon Fuel Company, LLC as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003 included in Arch Coal, Inc.’s Annual Report (Form 10-K) have been audited by Ernst & Young, LLP, independent registered accounting firm, as set forth in their report thereon and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

The coal reserve audit referred to in this prospectus was prepared by Weir International Mining Consultants.

We file reports and other information with the Securities and Exchange Commission. In addition, Arch Coal files reports, proxy statements and other information with the SEC. These reports, proxy statements and other information can be read and copied at the SEC’s Public Reference Room at Room 024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including Arch Coal and us. The SEC’s Internet address is http://www.sec.gov. In addition, Arch Coal’s common and preferred shares are listed on the New York Stock Exchange, and its reports and other information can be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. Arch Coal’s Internet address is http://www.archcoal.com. The information on Arch Coal’s internet site is not a part of this prospectus.

The SEC allows us to “incorporate by reference” the documents that we or Arch Coal file with the SEC. This means that we can disclose information to you by referring you to those documents. Any information we incorporate in this manner is considered part of this prospectus except to the extent updated and superseded by information contained in this prospectus. Some information we or Arch Coal file with the SEC after the date of this prospectus and until this exchange offer is completed will automatically update and supersede the information contained in this prospectus.

We incorporate by reference the following documents that we and Arch Coal have filed with the SEC and any filings that we or Arch Coal will make with the SEC in the future under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until this offering is completed:

Pursuant to General Instruction B of Form 8-K, any information submitted under Item 2.02, Results of Operations and Financial Condition, or Item 7.01, Regulation FD Disclosure, of Form 8-K is not deemed to be “filed” for the purpose of Section 18 of the Securities and Exchange Act of 1934, and we and Arch Coal are not subject to the liabilities of Section 18 with respect to information submitted by either under Item 2.02 or Item 7.01 of Form 8-K. We are not incorporating by reference any information submitted by us or Arch Coal under Item 2.02 or Item 7.01 of Form 8-K into any filing under the Securities Act or the Exchange Act or into this prospectus.

Statements contained in this prospectus as to the contents of any contract or other document referred to in this prospectus do not purport to be complete, and where reference is made to the particular provisions of that contract or other document, those provisions are qualified in all respects by reference to all of the provisions of that contract or other document. Any statement contained in a document incorporated by reference, or deemed to be incorporated by reference, in this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is incorporated by reference in this prospectus modifies or supersedes the statement. Any such statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus.

We will provide without charge, upon written or oral request, a copy of any or all of the documents that are incorporated by reference into this prospectus and a copy of any or all other contracts or documents which are referred to in this prospectus. Requests should be directed to: Arch Coal, Inc., Attention: Investor Relations, One CityPlace Drive, Suite 300, St. Louis, Missouri 63141, telephone number: (314) 994-2700. You also may review a copy of the registration statement of which this prospectus is a part and its exhibits at the SEC’s Public Reference Room in Washington, D.C., as well as through the SEC’s Internet site.

Assigned Reserves. Recoverable coal reserves that have been designated for mining by a specific operation.

Btu — British Thermal Unit. A measure of the energy required to raise the temperature of one pound of water one degree Fahrenheit.

Clean Air Act. Federal legislation enacted to regulate air emissions, as amended to date.

Compliance Coal. Coal which, when burned, emits 1.2 pounds or less of sulfur dioxide per million Btus, which is equivalent to .72% sulfur per pound of 12,000 btu coal.

Continuous Miner. A machine used in underground mining to cut coal from the seam and load it into conveyors or into shuttle cars in a continuous operation.

Continuous Mining. Underground mining method in which main airways and transportation entries are developed and continuous miners are used to extract coal.

Dragline. A large machine used in the surface mining process to remove the overburden, or layers of earth and rock, covering a coal seam. The dragline has a large bucket suspended from the end of a long boom. The bucket, which is suspended by cables, is able to scoop up great amounts of overburden as it is dragged across the excavation area.

Dragline Mining. A method of mining where large capacity draglines remove overburden to expose the coal seams.

Longwall Mining. One of two major underground coal mining methods currently in use. This method employs a rotating drum, which is pulled mechanically back and forth across a face of coal that is usually several hundred feet long. The loosened coal falls onto a conveyor for removal from the mine. Longwall operations include a hydraulic roof support system that advances as mining proceeds, allowing the roof to fall in a controlled manner in areas already mined.

Low Sulfur Coal. Coal which, when burned, emits 1.6 pounds or less of sulfur dioxide per million Btus.

Metallurgical Coal. The various grades of coal suitable for distillation into carbon in connection with the manufacture of steel. Also known as “met” coal.

Overburden. Layers of earth and rock covering a coal seam. In surface mining operations, overburden is removed prior to coal extraction.

Pit. The area of the mine where the coal is actually extracted from the ground.

Preparation Plant. A preparation plant is a facility for crushing, sizing and washing coal to prepare it for use by a particular customer. The washing process has the added benefit of removing some of the coal’s sulfur content.

Probable Reserves. Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.

Proven Reserves. Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established.

Reclamation. The restoration of land and environmental values to a mining site after the coal is extracted. Reclamation operations are usually underway where the coal has already been taken from a mine, even as mining operations are taking place elsewhere at the site. The process commonly includes “recontouring” or reshaping the land to its approximate original appearance, restoring topsoil and planting native grass and ground covers.

Recoverable Reserves. The amount of proven and probable reserves that can actually be recovered from the reserve base taking into account all mining and preparation losses involved in producing a saleable product using existing methods and under current law.

Reserves. That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.

Scrubber. Any of several forms of chemical/ physical devices which operate to neutralize sulfur compounds formed during coal combustion. These devices combine the sulfur in gaseous emissions with other chemicals to form inert compounds, such as gypsum, which must then be removed for disposal.

Spot Market. Sales of coal under an agreement for shipments over a period of one year or less.

Sulfur. One of the elements present in varying quantities in coal that contributes to environmental degradation when coal is burned. Sulfur dioxide is produced as a gaseous by-product of coal combustion.

Sulfur Content. Coal is commonly described by its sulfur content due to the importance of sulfur in environmental regulations. Nearly all of our coal is of low sulfur grades.

Surface Mine. A mine in which the coal lies near the surface and can be extracted by removing overburden.

Tons. A unit of measure equal to 2,000 pounds. Also know as a “short ton” or “net ton.”

Truck-and-Shovel Mining. An open-cast method of mining that uses large shovels to remove overburden, which is used to backfill pits after coal removal.

Unassigned Reserves. Recoverable reserves that have not yet been designated for mining by a specific operation.

Underground Mine. Also known as a “deep” mine. Usually located several hundred feet below the earth’s surface, an underground mine’s coal is removed mechanically and transferred by shuttle car or conveyor to the surface.

We have audited the accompanying consolidated balance sheets of Arch Western Resources, LLC (the Company) as of December 31, 2003 and 2002, and the related consolidated statements of operations, members’ equity and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Arch Western Resources, LLC at December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for asset retirement obligations effective January 1, 2003.

The accompanying notes are an integral part of the consolidated financial statements.

On June 1, 1998, Arch Coal, Inc. (“Arch Coal”) acquired the Colorado and Utah coal operations of Atlantic Richfield Company (“ARCO”) and simultaneously combined the acquired ARCO operations and Arch Coal’s Wyoming operation with ARCO’s Wyoming operations in a new joint venture named Arch Western Resources, LLC (“the Company”). ARCO was acquired by BP p.l.c. (formerly BP Amoco) in 2000. Arch Coal has a 99% common membership interest in the Company, while BP p.l.c. has a 0.5% common membership interest and a 0.5% preferred membership interest in the Company. Net profits and losses are allocated only to the common membership interests on the basis of 99.5% to Arch Coal and 0.5% to BP p.l.c. In accordance with the membership agreement of the Company, no profit or loss is allocated to the preferred membership interest of BP p.l.c. Except for a Preferred Return, distributions to members are allocated on the basis of 99.5% to Arch Coal and 0.5% to BP p.l.c. The Preferred Return entitles BP p.l.c. to receive an annual distribution from the common membership interests equal to 4% of the preferred capital account balance at the end of the year. The Preferred Return is payable at the Company’s discretion.

Under the terms of the agreement, BP p.l.c. has a put right which allows BP p.l.c., at any time after the seventh year of the agreement, to cause Arch Coal to purchase its members’ interest. (See additional discussion in “Redeemable Equity Interests” in Note 3.) In addition, Arch Coal has a call right which allows Arch Coal to purchase BP p.l.c.’s members’ interest as long as it pays damages as set forth in the agreement between the members. It is the members’ intention at this point to continue the joint venture.

In connection with the formation of the Company, Arch Coal agreed to indemnify BP p.l.c. against certain tax liabilities in the event that such liabilities arise as a result of certain actions taken by Arch Coal or the Company prior to June 1, 2013. The provisions of the indemnification agreement may restrict the Company’s ability to sell or dispose of certain properties, repurchase certain of its equity interests, or reduce its indebtedness.

The consolidated financial statements include the accounts of Arch Western Resources and its subsidiaries. All subsidiaries except Canyon Fuel are wholly owned. Intercompany transactions and accounts have been eliminated in consolidation.

The membership interests in Canyon Fuel are owned 65% by the Company and 35% by a subsidiary of ITOCHU Corporation, a Japanese corporation. The agreement which governs the management and operations of Canyon Fuel provides for a Management Board to manage its business and affairs. Generally, the Management Board acts by affirmative vote of the representatives of the members holding more than 50% of the membership interests. However, significant participation rights require either the unanimous approval of the members or the approval of representatives of members holding more than 70% of the

membership interests. Those matters which are considered significant participation rights include the following:


	•	approval of the annual business plan;

	•	approval of significant capital expenditures;

	•	approval of significant coal sales contracts;

	•	approval of the institution of, or the settlement of litigation;

	•	approval of incurrence of indebtedness;

	•	approval of significant mineral reserve leases;

	•	selection and removal of the CEO, CFO, or General Counsel;

	•	approval of any material change in the business of Canyon Fuel;

	•	approval of any disposition whether by sale, exchange, merger, consolidation, license or otherwise, and whether directly or indirectly, of all or any portion of the assets of Canyon Fuel other than in the ordinary course of business; and

	•	approval of request that a member provide additional services to Canyon Fuel.

The Canyon Fuel agreement also contains various restrictions on the transfer of membership interests in Canyon Fuel. As a result of these super-majority voting rights, the Company’s 65% ownership of Canyon Fuel is accounted for on the equity method in the consolidated financial statements. Income from Canyon Fuel is reflected in the Consolidated Statements of Operations as income from equity investments. (See additional discussion in “Investment in Canyon Fuel” in Note 5.)

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

On January 1, 2003, The Company adopted Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (“FAS 143”). FAS 143 requires legal obligations associated with the retirement of long-lived assets to be recognized at fair value at the time the obligations are incurred. Upon initial recognition of a liability, the cost should also be capitalized as part of the carrying amount of the related long-lived asset and allocated to expense over the useful life of the asset. Previously, the Company accrued for the expected costs of these obligations over the estimated useful mining life of the property. See additional discussion in Note 13, “Asset Retirement Obligations.”

Cash and cash equivalents are stated at cost. Cash equivalents consist of highly liquid investments with an original maturity of three months or less when purchased.

Coal and supplies inventories are valued at the lower of average cost or market. Coal inventory costs include labor, supplies, equipment costs and operating overhead. The Company has recorded a valuation allowance for slow-moving and obsolete supplies inventories of $8.7 million and $8.3 million at December 31, 2003 and 2002, respectively.

Coal lease rights obtained through acquisitions are capitalized and amortized primarily by the units-of-production method over the estimated recoverable reserves. Amortization occurs either as the Company mines on the property or as others mine on the property through subleasing transactions.

Rights to leased coal lands are often acquired through royalty payments. Where royalty payments represent prepayments recoupable against production, they are capitalized, and amounts expected to be recouped within one year are classified as a current asset. As mining occurs on these leases, the prepayment is charged to cost of coal sales.

Acquisition costs allocated to coal supply agreements (sales contracts) are capitalized and amortized on the basis of coal to be shipped over the term of the contract. Value is allocated to coal supply agreements based on discounted cash flows attributable to the difference between the above-market contract price and the then-prevailing market price. Accumulated amortization for sales contracts was $2.0 million and $28.9 million at December 31, 2003 and 2002, respectively. During 2003, the Company wrote off $27.3 million of cost and accumulated amortization for contracts that were fully amortized.

Costs related to locating coal deposits and determining the economic mineability of such deposits are expensed as incurred.

Plant and equipment are recorded at cost. Interest costs applicable to major asset additions are capitalized during the construction period. The Company capitalized no interest in 2003, $0.7 million of interest in 2002 and no interest in 2001.

Expenditures which extend the useful lives of existing plant and equipment or increase the productivity of the asset are capitalized. Except for preparation plants and loadouts, plant and equipment are depreciated principally on the straight-line method over the estimated useful lives of the assets, which range from three to 28 years. Preparation plants and loadouts are depreciated using the units-of-production method over the estimated recoverable reserves, subject to a minimum level of depreciation.

Accumulated depreciation for plant and equipment was $198.6 million and $178.6 million at December 31, 2003 and 2002, respectively.

Costs of developing new mines or significantly expanding the capacity of existing mines are capitalized and amortized using the units-of-production method over the estimated recoverable reserves that are associated with the property being benefited. Additionally, the asset retirement obligation asset has been recorded as a component of deferred mine development. Accumulated amortization for deferred development was $55.0 million and $24.8 million at December 31, 2003 and 2002, respectively.

If facts and circumstances suggest that a long-lived asset may be impaired, the carrying value is reviewed. If this review indicates that the value of the asset will not be recoverable, as determined based on projected undiscounted cash flows related to the asset over its remaining life, then the carrying value of the asset is reduced to its estimated fair value.

Coal sales revenues include sales to customers of coal produced at Company operations and coal purchased from other companies. The Company recognizes revenue from coal sales at the time title passes to the customer. Transportation costs that are billed by the Company and reimbursed to the transportation provider are included in coal sales and cost of coal sales.

Other operating income reflects income from sources other than coal sales, including administration and production fees from Canyon Fuel and gains and losses from dispositions of long-term assets. These amounts are recognized as services are performed or otherwise earned.

The Company has historically utilized derivative financial instruments in the management of its interest rate and diesel fuel exposures. The Company does not use derivative financial instruments for trading or speculative purposes. The Company adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“FAS 133”), on January 1, 2001. FAS 133 requires all derivative financial instruments to be reported on the balance sheet at fair value. Changes in fair value are recognized either in earnings or equity, depending on the nature of the underlying exposure being hedged and how effective the derivatives are at offsetting price movements in the underlying exposure.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives for undertaking various hedge transactions. The Company evaluates the effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis. Any ineffectiveness is recorded in the Consolidated Statements of Operations. No ineffectiveness was recorded during the year ended December 31, 2003. Ineffectiveness for the year ended December 31, 2002 was $0.4 million and was recorded as a reduction of other expenses in the Consolidated Statements of Operations.

The Company has historically entered into interest-rate swap agreements to modify the interest characteristics of outstanding Company debt. The swap agreements essentially converted variable-rate debt

to fixed-rate debt. These agreements required the exchange of amounts based on variable interest rates for amounts based on fixed interest rates over the life of the agreement. The Company accrues amounts to be paid or received under interest-rate swap agreements over the lives of the agreements. Such amounts were recognized as adjustments to interest expense over the lives of agreements, thereby adjusting the effective interest rate on the Company’s debt.

During 2003, the Company repaid its variable-rate term loans with the proceeds from the sale of fixed-rate notes (see Note 8 “Debt and Financing Arrangements”). At that time, the Company determined that certain interest rate swaps that had been designated as hedges of the variable-rate interest payments were no longer effective hedges. Historical mark-to-market losses related to these swaps totaling $44.3 million had been previously deferred and will now be amortized as additional expense over the contractual terms of the swap agreements. The swap agreements’ contractual terms range from September 2005 through October 2007. The Company recognized expense of $7.0 million related to these swaps in 2003. This amount is included in expenses resulting from early debt extinguishment and termination of hedge accounting for interest rate swaps in the accompanying Consolidated Statements of Operations.

Concurrent with the retirement of the term loans, Arch Coal assumed the Company’s liabilities under the interest rate swap agreements in exchange for a reduction in the Company’s receivable from Arch Coal. This transaction was accounted for based on the fair value of the swaps at June 25, 2003. No gain or loss was recognized in connection with the transaction. The Company is not a party to any interest rate swap agreements at December 31, 2003.

The Company has historically entered into heating oil swaps to eliminate volatility in the price to purchase diesel fuel for its operations. The swap agreements essentially fix the price paid for diesel fuel by requiring the Company to pay a fixed heating oil price and receive a floating heating oil price. The changes in the floating heating oil price highly correlate to changes in diesel fuel costs. The Company is not a party to any heating oil swap agreements at December 31, 2003.

The financial statements do not include a provision for income taxes as the Company is treated as a partnership for income tax purposes and does not incur federal or state income taxes. Instead, its earnings and losses are included in the Members’ separate income tax returns.

In December 2003, the Financial Accounting Standards Board issued a revised Interpretation No. 46, Consolidation of Variable Interest Entities. The interpretation clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain types of entities. The Company does not expect the adoption of this interpretation to have a material impact on its financial statements.

Certain amounts in the prior years’ financial statements have been reclassified to conform with the classifications in the current year’s financial statements, with no resulting effect on previously reported net income or members’ equity.

As discussed in Note 1, the terms of the Company’s membership agreement grant a put right to BP p.l.c. which allows BP p.l.c. to cause Arch Coal to purchase its members’ interest at any time after the seventh year of the agreement. The terms of the agreement state that the price of the membership interest

shall be determined by mutual agreement between the members. In the absence of an agreed-upon price, the price is equal to the sum of the Preferred Capital Amount (defined as $2,399,000) and the Net Equity of BP p.l.c.’s common membership interest, as defined in the agreement. The following table presents the components of and changes in BP p.l.c.’s membership interests:

During the fourth quarter of 2003, the Board of Directors of Arch Coal approved awards under a four-year performance unit plan that began in 2000. The Company recorded expense of $2.2 million and $0.2 million during the year ended December 31, 2003 and 2001, respectively, for payouts due its employees under the plan. These amounts are included in cost of coal sales in the accompanying Consolidated Statements of Operations.

During the year ending December 31, 2003, the Company was notified by the State of Wyoming of a favorable ruling as it relates to the Company’s calculation of coal severance taxes. The ruling resulted in a refund of previously paid taxes and the reversal of previously accrued taxes payable. The impact on the 2003 financial results was a gain of $2.5 million, which is reflected as a reduction of cost of coal sales.

During the year ended December 31, 2002, the Company was notified by the Bureau of Land Management (BLM) that it would receive a royalty rate reduction for certain tons mined at its West Elk location. The rate reduction applied to a specified number of tons beginning October 1, 2001 and ending no later than October 1, 2005. The retroactive portion of the refund totaled $3.3 million and was recognized in 2002 as a reduction of cost of coal sales. Additionally, Canyon Fuel was notified by the BLM that it would receive a royalty rate reduction for certain tons mined at its Skyline mine. The rate reduction applied to certain tons mined from September 1, 2001 through September 1, 2006. The

Company’s share of the retroactive refund was $1.1 million and was reflected in 2002 as income from equity investments in the Consolidated Statements of Operations.

The Company’s operating results for the year ended December 31, 2001 reflects an insurance settlement of $9.4 million as part of the Company’s coverage under its property and business interruption policy. The insurance payments represent settlement for losses incurred at the West Elk mine in Gunnison County, Colorado, which was idled from January 28, 2000 to July 12, 2000, following the detection of combustion-related gases. The amount is reflected as a reduction of cost of coal sales in the accompanying Consolidated Statements of Operations.

During 2001, Canyon Fuel recognized recoveries of previously paid property taxes. The Company’s share of these recoveries was $2.6 million and is reflected in income from equity investment on the Consolidated Statements of Operations for the year ended December 31, 2001. During 2001, the Company also recorded a $5.1 million gain as a result of selling land. The gain is included in other operating income.

The following tables present unaudited, summarized financial information for Canyon Fuel, which is accounted for on the equity method.

The Company’s income from its equity investment in Canyon Fuel represents 65% of Canyon Fuel’s net income after adjusting for the effect of purchase adjustments related to its investment in Canyon Fuel. The Company’s investment in Canyon Fuel reflects purchase adjustments primarily related to the reduction in amounts assigned to sales contracts, mineral reserves and other property, plant and equipment. The purchase adjustments are amortized consistent with the underlying assets of the joint venture. During 2001, in accordance with FAS 121, Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of, Canyon Fuel wrote off its investment in LAXT, a coal terminal located in Los Angeles, resulting in a charge of $10.1 million. The Company did not value LAXT in its Canyon Fuel purchase allocation and, therefore, there was no impact of the charge on the Company’s financial position.

Effective January 1, 2003, Canyon Fuel adopted FAS 143 and recorded a cumulative effect loss of $2.4 million. The Company’s 65% share of this amount was offset by purchase adjustments of $0.5 million. These amounts are included in the cumulative effect of accounting change reported in the Company’s Consolidated Statements of Operations.

Other comprehensive income items under FAS 130, Reporting Comprehensive Income, are transactions recorded in members’ equity during the year, excluding net income and transactions with members. Following are the items included in other comprehensive income (loss):

The 2003 activity for financial derivatives is comprised of unrealized mark-to-market losses of $10.4 million and reclassifications of $7.8 million to income.

The minimum pension liability adjustments include the Company’s share of Canyon Fuel’s minimum pension liability adjustment, which is other comprehensive income of $0.6 million in 2003, and other comprehensive losses of $0.6 million in 2002 and $2.0 million in 2001.

On June 25, 2003, Arch Western Finance, LLC, a subsidiary of the Company, completed the offering of $700 million of senior notes and utilized the proceeds of the offering to repay the Company’s existing term loans. The senior notes bear a fixed rate of interest of 6.75% and are due in full on July 1, 2013. Interest on the senior notes is payable on January 1 and July 1 each year commencing January 1, 2004. The senior notes are guaranteed by the Company and certain of the Company’s subsidiaries and are secured by a security interest in the Company’s receivable from Arch Coal. The terms of the senior notes contain restrictive covenants that limit the Company’s ability to, among other things, incur additional debt, sell or transfer assets, and make investments.

In connection with the repayment of the term loans, the Company recognized expenses related to the write-off of loan fees and other debt extinguishment costs. Additionally, the Company had designated certain interest rate swaps as hedges of the variable rate interest payments due under the existing term loans. Pursuant to the requirements of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“FAS 133”), historical mark-to-market adjustments related to these swaps through June 25, 2003 of $44.3 million were deferred as a component of Accumulated Other Comprehensive Loss. Subsequent to the repayment of the term loans, these deferred amounts will be amortized as additional expense over the original contractual terms of the swap agreements. The swap agreements contractual termination dates range from September 2005 through October 2007. During 2003, the Company recognized expense resulting from early debt extinguishment and termination of hedge accounting for interest rate swaps of $11.7 million. Of this amount, $7.0 million related to the amortization of previously deferred mark-to-market adjustments. The remaining $4.7 million represents early debt extinguishment costs.

On September 19, 2003, the Company established a new term loan facility that provides for a $100 million term loan. The facility is subject to certain conditions of borrowing, including the consummation of Arch Coal’s anticipated acquisition of Vulcan Coal Holdings. Currently, no amount is available to the Company under the facility. If the Company borrows pursuant to the terms of the facility, the term loan will be due in quarterly installments from October 2004 through April 2007.

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Debt: At December 31, 2003, the fair value of the Company’s senior notes was $722.1 million. At December 31, 2002, the carrying amounts of the Company’s borrowings under its variable-rate term loans approximated their fair value.

Interest rate swaps: The fair values of interest rate swaps are based on quoted prices, which reflect the present value of the difference between estimated future amounts to be paid and received. At December 31, 2002 the fair value of these swaps were liabilities of $34.1 million.

Substantially all of the Company’s coal reserves are controlled through leasing arrangements. Amounts paid to acquire such lease rights are capitalized and depleted over the life of those reserves that are proven and probable. Depletion of coal lease rights is computed using the units-of-production method and the rights are assumed to have no residual value. The leases are generally long-term in nature (original terms range from 10 to 50 years), and substantially all of the leases contain provisions that allow for automatic extension of the lease term as long as mining continues. Accumulated depletion for mineral lease rights was $150.9 million and $141.5 million at December 31, 2003 and 2002, respectively.

Depletion expense related to mineral lease rights was $23.1 million, $28.0 million, and $31.1 million for the years ended December 31, 2003, 2002, and 2001, respectively.

Estimated depletion expense of mineral lease rights during the next five years is as follows:

Consistent with common practices in extractive industries, the Company has historically classified mineral lease rights in the same manner as the coal it owns in fee. The Company and others in extractive industries have historically taken the position that rights under such long-term mineral leases are the functional equivalent of fee ownership of the underlying coal because the lessee has the exclusive right to extract the coal during the term of the lease and because the lessee owns the extracted coal in fee. At its March 2004 meeting, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) discussed Issue 04-02, “Whether Mineral Rights are Tangible or Intangible Assets and Related Issues.” The EITF determined that mineral rights represent tangible assets; however, this resolution requires approval by the FASB. If the FASB does not approve this resolution, the Company may be required to change the classification of its mineral lease rights.

The Company is liable under the federal Mine Safety and Health Act of 1977, as amended, to provide for pneumoconiosis (black lung) benefits to eligible employees, former employees, and dependents

with respect to claims filed by such persons on or after July 1, 1973. The Company is also liable under various states’ statutes for black lung benefits. The Company currently provides for federal and state claims principally through a self-insurance program. Charges are being made to operations as determined by independent actuaries, at the present value of the actuarially computed present and future liabilities for such benefits over the employees’ applicable years of service.

In addition, the Company is liable for workers’ compensation benefits for traumatic injuries that are accrued as injuries are incurred. Traumatic claims are either covered through self-insured programs or through state sponsored workers’ compensation programs.

The actuarial assumptions used in the determination of black lung benefits included a discount rate of 6.50% as of December 31, 2003 (7.00% and 7.50% as of December 31, 2002 and 2001, respectively) and a black lung benefit cost escalation rate of 4% in each year. Net amortization represents the systematic recognition of actuarial gains or losses over a five year period.

Summarized below is information about the amounts recognized in the consolidated balance sheets for workers’ compensation benefits:

The reconciliation of changes in the benefit obligation of the black lung liability is as follows:

The Company has non-contributory defined benefit pension plans covering certain of its salaried and non-union hourly employees. Benefits are generally based on the employee’s years of service and compensation. The Company funds the plans in an amount not less than the minimum statutory funding requirements nor more than the maximum amount that can be deducted for federal income tax purposes.

The Company also currently provides certain postretirement medical/life insurance coverage for eligible employees. Generally, covered employees who terminate employment after meeting eligibility requirements are eligible for postretirement coverage for themselves and their dependents. The salaried employee postretirement medical/life plans are contributory, with retiree contributions adjusted periodically, and contain other cost-sharing features such as deductibles and coinsurance. The Company’s current funding policy is to fund the cost of all postretirement medical/life insurance benefits as they are paid.

The Company uses a December 31 measurement date for its pension and postretirement benefit plans.

Obligations and Funded Status. Summaries of the changes in the benefit obligations, plan assets and funded status of the plans are as follows:

The accumulated benefit obligation for all pension plans was $57.5 million and $53.4 million at December 31, 2003 and 2002, respectively.

Components of Net Periodic Benefit Cost. The following table details the components of pension and other postretirement benefit costs.

Assumptions. The following table provides the assumptions used to determine the actuarial present value of projected benefit obligations at December 31.

The following table provides the assumptions used to determine net periodic benefit cost for years ended December 31.

The Company establishes the expected long-term rate of return at the beginning of each fiscal year based upon historical returns and projected returns on the underlying mix of invested assets. The Company utilizes Modern Portfolio Theory modeling techniques in the development of its return assumptions. This technique projects rates of returns that can be generated through various asset allocations that lie within the risk tolerance set forth by members of the Company’s Pension Committee. The risk assessment provides a link between a Pension’s risk capacity, management’s willingness to accept investment risk and the asset allocation process, which ultimately leads to the return generated by the invested assets. For the determination of net periodic benefit cost in 2004, the Company will utilize an expected rate of return of 8.50%

The following table provides information regarding the assumed health care cost trend rates at December 31.

The health care cost trend rate assumption can have a significant effect on the amounts reported. However, as the employer contribution cap has been reached, the impact of health care cost changes is not material.

Plan Assets. The Company’s pension plan weighted average asset allocations at December 31, 2003 and 2002, by asset category are as follows:

The Company’s Pension Committee (“the Committee”) is responsible for overseeing the investment of pension plan assets. The Committee is responsible for determining and monitoring appropriate asset allocations and for selecting or replacing investment managers, trustees and custodians. The pension plan’s current investment targets are 65% equity, 30% fixed income securities and 5% cash. The Pension Committee reviews the actual asset allocation in light of these targets on a periodic basis and rebalances among investments as necessary. The Committee evaluates the performance of investment managers as compared to the performance of specified benchmarks and peers and monitors the investment managers to ensure adherence to their stated investment style and to the plan’s investment guidelines.

Cash Flows. The Company expects to contribute approximately $5.0 million to its pension plan in 2004.

Impact of Medicare Prescription Drug, Improvement and Modernization Act of 2003. On December 8, the President signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“the Act”). The Act introduces a prescription drug benefit under Medicare (“Medicare Part D”) as well as a federal subsidy to sponsors of retiree heath care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. On January 12, 2004, the Financial Accounting Standards Board issued FASB Staff Position No. FAS 106-1 (“FSP FAS 106-1”), which permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Act. The Company has elected to defer accounting for the Act until 2004, and as such, measures of the plan’s accumulated postretirement benefit obligation and net periodic postretirement benefit cost in these financial statements and accompanying notes do not reflect the effects of the Act. At this time, the FASB has not issued final authoritative guidance on the accounting for the effects of the Act. When such guidance is issued, the Company may be required to change the information reported in these financial statements.

The Company sponsors savings plans which were established to assist eligible employees in providing for their future retirement needs. The Company’s contributions to the plans were $3.0 million in 2003 and $2.8 million in both 2002 and 2001.

The Company’s asset retirement obligations arise from the federal Surface Mining Control and Reclamation Act of 1977 and similar state statutes, which require that mine property be restored in

accordance with specified standards and an approved reclamation plan. The required reclamation activities to be performed are outlined in the Company’s mining permits. These activities include reclaiming the pit and support acreage at surface mines, sealing portals at deep mines, and reclaiming refuse areas and slurry ponds. Reclamation activities that are an integral part of the Company’s normal mining process are considered a cost of producing coal and are expensed as incurred. Reclamation activities that are performed outside of the normal mining process are accounted for as asset retirement obligations. Reclamation activities accounted for as asset retirement obligations primarily consist of those performed at the end of a mine’s life in conjunction with the closure of the mine.

The Company records its asset retirement obligations at the time that they are incurred or acquired. Obligations are incurred at the time that development of a mine commences for deep and surface mines and at the time that construction begins for support facilities, refuse areas and slurry ponds. The liability is determined using discounted cash flow techniques and is accreted to its then present value each period. Accretion on the asset retirement obligation begins at the time the liability is incurred. Amortization of the related asset is recorded on a units-of-production basis over the mine’s estimated recoverable reserves.

The Company reviews its asset retirement obligations at least annually and makes necessary adjustments for permit changes as granted by state authorities and for revisions of estimates of costs and productivities. For ongoing operations, adjustments to the liability result in an adjustment to the corresponding asset. For idle operations, adjustments to the liability are recognized as income or expense in the period the adjustment is recorded.

As discussed in Note 1, effective January 1, 2003, the Company began accounting for its final mine closure reclamation liabilities in accordance with FAS 143. The cumulative effect of this change on periods prior to January 1, 2003 resulted in a charge to income of $18.3 million, which is included in the Company’s results of operations for the year ended December 31, 2003. In addition, the net income of the Company, excluding the cumulative effect of accounting change, for the year ended December 31, 2003 is $3.8 million less than it would have been if the Company had continued to account for these obligations under its previous method. The unaudited pro forma amounts below reflect the retroactive application of FAS 143 as if the Company had adopted the standard on January 1, 2001 and the corresponding elimination of the cumulative effect of accounting change:

If the Company had accounted for its asset retirement obligations in accordance with FAS 143 for all periods presented, the asset retirement obligation liability (including amounts classified as current) would have been $113.7 million and $104.2 million at December 31, 2002 and January 1, 2002, respectively.

The following table describes the changes to the Company’s asset retirement obligation for the year ended December 31, 2003:

The Company places its cash equivalents in investment-grade short-term investments and limits the amount of credit exposure to any one commercial issuer.

The Company markets its coal principally to electric utilities in the United States. As of December 31, 2003 and 2002, accounts receivable from electric utilities located in the United States totaled $42.3 million and $53.4 million, respectively. Generally, credit is extended based on an evaluation of the customer’s financial condition, and collateral is not generally required. Credit losses are provided for in the financial statements and historically have been minimal.

The Company is committed under long-term contracts to supply coal that meets certain quality requirements at specified prices. These prices are generally adjusted based on indices. Quantities sold under some of these contracts may vary from year to year within certain limits at the option of the customer. Sales (including spot sales) to major customers were as follows:

The Company leases certain assets at its Thunder Basin operation from Little Thunder Leasing Company, a subsidiary of BP p.l.c. Lease expense for Little Thunder Leasing Company for the years ended December 31, 2003, 2002 and 2001 totaled $3.3 million, $3.4 and $7.6 million, respectively.

During 2000, the Company began mining on portions of a federal lease known as the Thundercloud tract. The Thundercloud tract contains approximately 353 million tons of demonstrated coal reserves and is contiguous to Company operations. Rights to the tract are owned by Arch Coal. Prior to mining, the Company entered into a sublease transaction with Arch Coal, which requires annual advance royalty payments which are fully recoupable against production on the Thundercloud tract. During 2003, 2002, and 2001, the Company made $10.0 million, $12.7 million, and $4.75 million, respectively, of advance royalty payments associated with this lease. The remaining payments are reflected in Note 14 under the caption “Royalties.” In addition, the Company also pays a production royalty of 5.5% of realization and a $0.01 per ton override royalty for every ton mined from the Thundercloud tract, resulting in production royalties paid to Arch Coal of $9.3 million, $7.3 million, and $4.9 million during 2003, 2002 and 2001, respectively.

The Company’s cash transactions are managed by Arch Coal. Cash paid to or from the Company that is not considered a distribution or a contribution is maintained in an Arch Coal receivable account. At December 31, 2003 and 2002, the receivable from Arch Coal was $351.9 million and $333.8 million, respectively. This amount earns interest from Arch Coal at the prime interest rate. Interest earned for the years ended December 31, 2003, 2002 and 2001 was $14.6 million, $13.6 million and $15.5 million, respectively. The receivable is payable on demand by the Company; however, it is currently management’s intention to not demand payment of the receivable within the next year. Therefore, the receivable is classified on the Consolidated Balance Sheets as long-term.

The Company pays selling, general and administrative services fees to Arch Coal. Expenses are allocated based on Arch Coal’s best estimates of proportional or incremental costs, whichever is more representative of costs incurred by Arch Coal on behalf of the Company. Amounts allocated to the Company by Arch Coal were $15.7 million, $13.0 million and $13.0 million for the years ended December 31, 2003, 2002 and 2001, respectively. Such amounts are reported as selling, general and administrative expenses in the accompanying Consolidated Statements of Operations.

As described in Note 1, the Company has a 65% ownership interest in Canyon Fuel which is accounted for on the equity method. The Company receives administration and production fees from Canyon Fuel for managing the Canyon Fuel operations. The fee arrangement is calculated annually and is approved by the Canyon Fuel Management Board. The production fee is calculated on a per-ton basis while the administration fee represents the costs incurred by the Company’s employees related to Canyon Fuel administrative matters. The fees recognized as other income by the Company and as expense by Canyon Fuel were $8.5 million, $9.5 million and $8.1 million for the years ended December 31, 2003, 2002 and 2001, respectively. Amounts receivable from Canyon Fuel were $6.5 million and $6.3 million as of December 31, 2002 and 2001, respectively. These amounts are classified as other receivables in the Consolidated Balance Sheets.

The Company leases equipment, land and various other properties under noncancelable long-term leases, expiring at various dates. Certain leases contain options that would allow the Company to renew the lease or purchase the leased asset at the end of the base lease term. Rental expense related to these operating leases amounted to $5.8 million in 2003, $5.1 million in 2002 and $9.1 million in 2001. The Company has also entered into various non-cancelable royalty lease agreements and federal lease bonus payments under which future minimum payments are due.

Minimum payments due in future years under these agreements in effect at December 31, 2003 are as follows (in thousands):

The Company is a party to numerous claims and lawsuits with respect to various matters. The Company provides for costs related to contingencies when a loss is probable and the amount is reasonably determinable. After conferring with counsel, it is the opinion of management that the ultimate resolution of pending claims will not have a material adverse effect on the consolidated financial condition, results of operations or liquidity of the Company.

The changes in operating assets and liabilities as shown in the consolidated statements of cash flows are comprised of the following:

The Company produces steam and metallurgical coal from surface and deep mines for sale to utility, industrial and export markets. The Company operates only in the United States, with mines in the major western low-sulfur coal basins. The Company has two reportable segments, which are based on the coal basins in which the Company operates. Coal quality, coal seam height, transportation methods and regulatory issues are generally consistent within a basin. Accordingly, market and contract pricing have developed by coal basin. The Company manages its coal sales by coal basin, not by individual mine complex. Mine operations are evaluated based on their per-ton operating costs (which include all mining costs but exclude pass-through transportation expenses). The Company’s reportable segments are Powder River Basin and Western Bituminous. The Company’s operations in the Powder River Basin include one active surface mine and one idle surface mine. The Company’s operations in the Western Bituminous region are located in southern Wyoming, Colorado and Utah (through the Company’s equity investment in Canyon Fuel). Including Canyon Fuel, the Western Bituminous operations include 4 underground mines and two surface mines.

Operating segment results for the years ended December 31, 2003, 2002, and 2001 are presented below. Results for the operating segments include all direct costs of mining. Corporate, Other and Eliminations includes overhead, other support functions, and the elimination of intercompany transactions.

Reconciliation of segment income from operations to consolidated income (loss) before income taxes and cumulative effect of accounting change:

In accordance with the indenture governing the Arch Western Finance senior notes, certain wholly-owned subsidiaries of the Company have fully and unconditionally guaranteed the senior notes on a joint and several basis. The following tables present condensed consolidating financial information for (i) the Company, (ii) the issuer of the senior notes (Arch Western Finance, LLC, a wholly-owned subsidiary of the Company), (iii) its wholly-owned subsidiaries (Thunder Basin Coal Company, LLC, Mountain Coal Company, LLC, and Arch of Wyoming, LLC), on a combined basis, which are guarantors under the Notes, and (iv) its majority owned subsidiary (Canyon Fuel Company, LLC) which is not a guarantor under the Notes. Amounts included in the following consolidating condensed financial statements for Canyon Fuel represent amounts recorded by the Company under the equity method of accounting.

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and Securities and Exchange Commission regulations, but are subject to any year-end adjustments that may be necessary. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the period ended September 30, 2004 are not necessarily indicative of results to be expected for the year ending December 31, 2004.

Arch Western Resources, LLC (the “Company”) was formed as a joint venture on June 1, 1998 when Arch Coal, Inc. (“Arch Coal”) acquired the United States coal operations of Atlantic Richfield Company and combined these operations with Arch Coal’s western operations. Arch Western’s membership interests are owned 99% by Arch Coal and 1% by an affiliate of BP p.l.c. (“BP”), the successor to Atlantic Richfield Company. Arch Coal’s ownership is comprised entirely of common membership interests, while BP’s ownership is comprised of a 0.5% common membership interest and a 0.5% preferred membership interest.

Under the terms of the Company’s membership agreement, net profits and losses are allocated only to the common membership interests on the basis of 99.5% to Arch Coal and 0.5% to BP. No profit or loss is allocated to the preferred membership interest of BP. Except for a Preferred Return, distributions to members are allocated on the basis of 99.5% to Arch Coal and 0.5% to BP. The Preferred Return entitles BP to receive an annual distribution from the common membership interests equal to 4% of the preferred capital account balance at the end of the year. The Preferred Return is payable at the Company’s discretion.

The Company mines and markets steam coal from surface and deep mines for sale to utility and industrial customers in the United States and certain export markets. The Company’s principal subsidiaries are Thunder Basin Coal Company, L.L.C., which operates a surface coal mine and owns one idle mine in the Powder River Basin in Wyoming; Mountain Coal Company, L.L.C., which operates one underground coal mine in Colorado; and Arch of Wyoming, which operates two surface coal mines in the Hanna Basin in Wyoming. In addition to these wholly owned operating units, the Company has a 65% interest in Canyon Fuel Company, LLC (“Canyon Fuel”). Canyon Fuel operates three underground mines in Utah. Through July 31, 2004, the Company’s interest in Canyon Fuel was accounted for on the equity method as a result of certain super-majority voting rights in the Canyon Fuel joint venture agreement. On July 31, 2004, Arch Coal purchased the remaining 35% interest in Canyon Fuel not owned by the Company. Upon Arch Coal’s acquisition of the 35% interest, Canyon Fuel’s joint venture agreement was amended to eliminate the super-majority voting rights. As a result, for periods subsequent to July 31, 2004, the Company will consolidate 100% of the results of Canyon Fuel in its financial statements and deduct for Arch Coal’s 35% minority interest in Canyon Fuel. Amounts included in the accompanying condensed consolidated financial statements for Canyon Fuel represent amounts recorded by the Company under the equity method of accounting through July 31, 2004 and amounts consolidated by the Company subsequent to that date.

On August 20, 2004, Arch Coal acquired (1) Vulcan Coal Holdings, L.L.C., which owns all of the common equity of Triton Coal Company, LLC (“Triton”), and (2) all of the preferred units of Triton for a purchase price of $376.0 million, including transaction costs and subject to working capital adjustments. Upon acquisition, Arch Coal contributed the assets and liabilities of Triton’s North Rochelle mine

(excluding coal reserves) to the Company. The contribution results in the integration of the North Rochelle mine with the Company’s existing Black Thunder mine in the Powder River Basin. The North Rochelle mine produced an estimated 23.9 million tons of coal in 2003 and its reserve base totaled an estimated 226.0 million tons of super-compliance coal at December 31, 2003.

Concurrently with the contribution, the Company entered into a sublease transaction with Arch Coal for the right to mine the former North Rochelle coal reserves. Under the terms of the sublease agreement, theCompany pays a production royalty to Arch Coal for tons mined on the North Rochelle property. For the quarter ended September 30, 2004, the Company paid royalties of $0.2 million to Arch Coal.

The effects of the contribution have been recorded in the accompanying condensed consolidated financial statements as of, and for the periods subsequent to, August 20, 2004. The contributed assets and liabilities have been recorded at their estimated fair value. The final valuation of the assets acquired and liabilities assumed is expected to be finalized once third-party appraisals are completed. The Company expects the completion of these appraisals prior to year-end.

The following table summarizes the preliminary estimated fair values of the assets acquired and the liabilities assumed at the date of contribution (dollars in thousands):

Amounts preliminarily allocated to coal supply agreements noted in the table above represent the value attributed to above-market coal supply agreements to be amortized over the remaining terms of the contracts. The amortization period on these acquired coal supply agreements ranges from one to seven years.

The following unaudited pro forma financial information presents the combined results of operations of the Company and the contributed North Rochelle mine, as well as the consolidation of Canyon Fuel (net of Arch Coal’s minority interest), on a pro forma basis, as though the contribution and consolidation had occurred as of the beginning of each period presented. The pro forma financial information does not

necessarily reflect the results of operations that would have occurred had the Company and the North Rochelle mine constituted a single entity during those periods:

Note C — Transactions or Events Affecting Comparability of Reported Results

During the nine months ended September 30, 2004, the Office of Surface Mining completed an audit of certain of the Company’s federal reclamation fee filings for the period from 1998 through 2003. The audit resulted in the Company being assessed additional fees of $1.3 million and interest of $0.2 million. The additional fees have been recorded as a component of cost of coal sales in the accompanying Condensed Consolidated Statements of Operations, while the interest portion has been reflected as interest expense.

During the first nine months of 2004, Canyon Fuel, which was accounted for under the equity method through July 31, 2004, began the process of idling its Skyline Mine (the idling process was completed in May 2004), and incurred severance costs of $3.2 million for the nine months ended September 30, 2004. The Company’s share of these costs totals $2.1 million and is reflected in income from equity investment in the Condensed Consolidated Statements of Operations.

On June 25, 2003, the Company repaid its term loans with the proceeds from the offering of senior notes. The Company had designated certain interest rate swaps as hedges of the variable rate interest payments due under the term loans. Pursuant to the requirements of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“FAS 133”), historical mark-to-market adjustments related to these swaps through June 25, 2003 were deferred as a component of Accumulated Other Comprehensive Loss. Subsequent to the repayment of the term loans, these deferred amounts will be amortized as additional expense over the contractual terms of the swap agreements. For the three and nine months ending September 30, 2004, the Company recognized $3.4 million and $10.2 million, respectively, of expense related to the amortization of previously deferred mark-to-market adjustments. For the nine months ended September 30, 2003, the Company recognized $3.6 million of expense related to the amortization of previously deferred mark-to-market adjustments and $4.7 million of expense related to early debt extinguishment costs.

During the nine months ended September 30, 2003, the Company was notified by the State of Wyoming of a favorable ruling as it relates to the Company’s calculation of coal severance taxes. The ruling resulted in a refund of previously paid taxes and the reversal of previously accrued taxes payable. The impact on the three and nine months ended September 30, 2003 was a loss of $0.8 million and a gain

of $2.5 million, respectively, which is reflected in cost of coal sales in the accompanying Condensed Consolidated Statements of Operations.

On January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (FAS 143). FAS 143 requires legal obligations associated with the retirement of long-lived assets to be recognized at fair value at the time the obligations are incurred. Upon initial recognition of a liability, that cost should be capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset. Previously, the Company accrued for the expected costs of these obligations over the estimated useful mining life of the property.

The following table describes the changes to the Company’s asset retirement obligation for the nine months ended September 30, 2004 and 2003:

Through July 31, 2004, the Company accounted for its investment in Canyon Fuel under the equity method. The following table presents unaudited summarized financial information for Canyon Fuel for those periods when the Company accounted for its investment under the equity method:

Through July 31, 2004, the Company’s income from its equity investment in Canyon Fuel represents 65% of Canyon Fuel’s net income after adjusting for the effect of purchase adjustments related to its investment in Canyon Fuel. The Company’s investment in Canyon Fuel reflects purchase adjustments related to the reduction in amounts assigned to sales contracts, mineral reserves and other property, plant and equipment. The purchase adjustments are amortized consistent with the underlying assets of the joint venture.

Other comprehensive income items under FAS 130, Reporting Comprehensive Income, are transactions recorded in members’ equity during the year from non-owner sources. The following table presents comprehensive income:

Other comprehensive income for the three and nine months ended September 30, 2004 and three months ended September 30, 2003 consists primarily of the reclassification of previously deferred mark-to-market losses from other comprehensive income to net income. Other comprehensive loss for the nine months ended September 30, 2003 represents mark-to-market adjustments related to the Company’s financial derivatives positions for the periods when those positions were deemed to be effective hedges and the reclassification of previously deferred mark-to-market losses from other comprehensive income to net income.

The following table details the components of pension and other postretirement benefit costs.

The Company previously disclosed in its financial statements for the year ended December 31, 2003, that it expected to contribute $6.5 million to its pension plan in 2004. During the period ended September 30, 2004, Arch Coal contributed 210,000 shares of its common stock to the Company’s pension plan (the pension plan subsequently sold the shares on the open market). The market value of Arch Coal’s common stock on the date of contribution was $30.88 per share. The Company presently does not anticipate contributing additional amounts to the pension plan in 2004.

On December 8, the President signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“the Act”). The Act introduces a prescription drug benefit under Medicare (“Medicare Part D”) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In May 2004, the Financial Accounting Standards Board issued FASB Staff Position FAS 106-2, Accounting and Disclosure Requirements related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“FSP 106-2”). The Company has included the effects of the Act in its financial statements for the nine months ending September 30, 2004 in accordance with FSP 106-2. Implementation of FSP 106-2 did not result in a material change in the Company’s postretirement benefit obligation or its anticipated postretirement medical expenses.

On August 20, 2004, the Company borrowed $100.0 million under its term loan facility, which was established on September 19, 2003. The $100.0 million was loaned to Arch Coal and used to help fund the acquisition of Triton. Under the facility, the loan is due in quarterly installments from October 2004 through April 2007.

On June 25, 2003, Arch Western Finance, LLC, a subsidiary of the Company, completed the offering of $700 million of senior notes and utilized the proceeds of the offering to repay the Company’s existing $675 million term loans. The senior notes bear a fixed rate of interest of 6.75% and are due in full on July 1, 2013. Interest on the senior notes is payable on January 1 and July 1 each year commencing January 1, 2004. The senior notes are guaranteed by the Company and certain of its subsidiaries and are secured by a security interest in loans made by the Company to Arch Coal. The terms of the senior notes contain restrictive covenants that limit the Company’s ability to, among other things, incur additional debt, sell or transfer assets, and make investments.

The Company pays selling, general and administrative services fees to Arch Coal. Expenses are allocated based on Arch Coal’s best estimates of proportional or incremental costs, whichever is more representative of costs incurred by Arch Coal on behalf of the Company. Amounts allocated to the Company by Arch Coal were $3.8 million and $3.1 million for the three months ended September 30, 2004 and 2003,respectively and $11.6 million and $10.5 million for the nine months ended September 30, 2004 and 2003, respectively. These amounts are reported as selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.

The Company produces steam and metallurgical coal from surface and deep mines for sale to utility, industrial and export markets. The Company operates only in the United States, with mines in the major western low-sulfur coal basins. The Company has two reportable segments, which are based on the coal basins in which the Company operates. Coal quality, coal seam height, transportation methods and regulatory issues are generally consistent within a basin. Accordingly, market and contract pricing have developed by coal basin. The Company manages its coal sales by coal basin, not by individual mine complex. Mine operations are evaluated based on their per-ton operating costs (which include all mining costs but exclude pass-through transportation expenses). The Company’s reportable segments are Powder River Basin and Western Bituminous. The Company’s operations in the Powder River Basin are located in Wyoming and include one active surface mine (into which the North Rochelle mine was integrated) and one idle surface mine. The Company’s operations in the Western Bituminous region are located in

southern Wyoming, Colorado and Utah and include four underground mines (one of which was idled in May 2004) and two surface mines.

Operating segment results for the three and nine months ending September 30, 2004 and 2003 are presented below. Results for the operating segments include all direct costs of mining. Corporate, Other and Eliminations includes overhead, other support functions, and the elimination of intercompany transactions.

Reconciliation of segment income from operations to consolidated income before income taxes and cumulative effect of accounting change:

Certain amounts in the 2003 financial statements have been reclassified to conform to the classifications in the 2004 financial statements with no effect on previously reported net income or members’ equity.

On October 22, 2004, the Company issued $250.0 million of 6.75% Senior Notes due 2013 at a price of 104.75% of par. Interest on the notes is payable on January 1 and July 1 of each year, beginning on January 1, 2005. The debt offering was issued under an indenture dated June 25, 2003, to which the Company previously issued $700.0 million of 6.75% Senior Notes due 2013. The proceeds from the issuance, net of the underwriters’ discount and related expenses, were $256.8 million. The net proceeds will be used primarily to repay the $100.0 million in borrowings under the Company’s term loan facility. The balance of the net proceeds will be loaned to Arch Coal.

Mountain Coal Company, L.L.C., and Arch of Wyoming, LLC), on a combined basis, which are guarantors under the Notes, and (iv) its majority owned subsidiary (Canyon Fuel Company, LLC) which is not a guarantor under the Notes. Amounts included in the following consolidating condensed financial statements for Canyon Fuel represent amounts recorded by the Company under the equity method of accounting through July 31, 2004 and amounts consolidated by the Company subsequent to that date.

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Consequences of Failure to Exchange		If you do not participate in the exchange offer, the liquidity of the market for your old notes could be adversely affected. See “The Exchange Offer — Consequences of Failure to Exchange.”

Material U.S. Federal Income Tax Considerations		The exchange of the old notes for the new notes will not be a taxable event for federal income tax purposes. See “Material U.S. Federal Income Tax Considerations.”



		As of September 30, 2004

		Actual		Pro Forma


		(Dollars in millions)
Cash and cash equivalents		$	0.1	$	0.1

Debt:
	6 3/4% Senior Notes due 2013	$	700.0	$	950.0
	Term loan due 2007		100.0		—

	Total debt		800.0		950.0
Redeemable equity interests			4.9		4.9
Non-redeemable equity interests			505.0		505.0

Total capitalization		$	1,309.9	$	1,459.9



		As of September 30, 2004

								Pro Forma
		Actual			Pro Forma			As Adjusted


		(Dollars in millions)
Cash and cash equivalents		$	4.8		$	12.6		$	213.1

Debt:
	Revolving credit indebtedness (1)	$	149.0		$	—		$	—
	6 3/4% Senior Notes due 2013		700.0			950.0			950.0
	Term loan due 2007		100.0			—			—
	Promissory note (2)		18.2			18.2			18.2
	Other debt		1.5			1.5			1.5

	Total debt		968.7			969.7			969.7

Stockholders’ equity:
	Preferred Stock		—			—			—
	Common Stock		0.5			0.5			0.6
	Paid-in capital		1,041.8			1,041.8			1,272.3
	Retained deficit (3)		(181.3	)		(182.5	)		(182.5	)
	Unearned compensation		(2.5	)		(2.5	)		(2.5	)
	Less treasury stock, at cost		(5.0	)		(5.0	)		(5.0	)
	Accumulated other comprehensive loss		(32.4	)		(32.4	)		(32.4	)

	Total stockholders’ equity		821.1			819.9			1,050.5

Total capitalization		$	1,789.8		$	1,789.6		$	2,020.2



																Nine Months Ended
	Years Ended December 31,															September 30,

	1999			2000			2001			2002			2003			2003			2004


	(In thousands, except ratios)
Consolidated Statement of Operations Data:
Coal sales revenues	$	420,769		$	393,619		$	468,137		$	492,191		$	500,555		$	369,834		$	490,200
Cost of coal sales		396,951			383,608			440,363			450,144			455,532			335,727			445,457
Selling, general and administrative expenses		12,248			10,991			13,004			13,011			15,686			10,547			11,581
Amortization of coal supply agreements		10,049			9,536			1,976			1,201			361			290			(318	)
Other operating income		25,631			22,967			47,576			21,989			33,734			26,811			16,826

Income from operations		27,152			12,451			60,370			49,824			62,710			50,081			50,306
Interest expense, net		(42,669	)		(33,200	)		(29,028	)		(29,915	)		(30,043	)		(21,481	)		(27,519	)

Other non-operating income (expense), net (1)		—			—			—			—			(11,671	)		(8,283	)		(10,162	)
Income (loss) before cumulative effect of accounting change		(15,517	)		(20,749	)		31,342			19,909			20,996			20,317			12,625
Cumulative effect of accounting change (2)		615			—			—			—			(18,278	)		(18,278	)		—

Net income (loss)	$	(14,902	)	$	(20,749	)	$	31,342		$	19,909		$	2,718		$	2,039		$	10,608

Consolidated Balance Sheet Data (at period end):
Cash and cash equivalents	$	204		$	94		$	461		$	249		$	35,171		$	35,482		$	60
Receivable from Arch Coal		133,568			189,182			259,822			333,825			351,866			333,551			489,416
Total assets		1,308,428			1,308,729			1,329,688			1,373,061			1,411,515			1,401,248			1,804,283
Total debt		675,000			675,000			675,000			675,000			700,000			700,000			800,000
Redeemable equity interests		4,653			4,594			4,667			4,733			4,746			4,713			4,913
Non-redeemable members’ equity		452,867			441,122			455,742			469,241			471,890			465,308			505,008
Other Financial Data:
Capital expenditures		68,417			28,535			32,142			51,360			27,322			22,397			52,626
Ratio of earnings to combined fixed charges and preference dividends (3)		—			—			1.67	x		1.45	x		1.46	x		1.62	x		1.31	x



											Nine Months Ended
	Years Ended December 31,										September 30,

	1999		2000		2001		2002		2003		2003		2004


	(In thousands, except per tonnage data)
Operating Data:
Tons sold		68,357		68,554		73,719		72,519		69,541		51,037		60,030
Tons produced		70,580		68,343		74,032		73,203		69,361		50,446		60,897
Average sales price (per ton)	$	6.16	$	5.74	$	6.35	$	6.79	$	7.20	$	7.25	$	8.17
Average cost of coal sales (per ton)	$	5.81	$	5.60	$	5.97	$	6.21	$	6.55	$	6.58	$	7.42


	Page

Summary		1
Risk Factors		13
Forward-Looking Statements		24
Use of Proceeds		26
Capitalization		27
Arch Western Selected Consolidated Financial and Operating Data		29
Arch Western Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
Business		47
Arch Western Finance, LLC		57
Arch of Wyoming, LLC		57
Arch Coal, Inc.		58
Management		59
Governing Documents and Certain Other Agreements		61
Certain Relationships and Related Party Transactions		64
The Exchange Offer		66
Description of the Notes		75
Exchange Offer; Registration Rights		116
Material U.S. Federal Income Tax Considerations		118
Plan of Distribution		123
Legal Matters		124
Experts		124
Where You Can Find More Information		124
Glossary of Selected Mining Terms		126
Index to Financial Statements		F-1


		the indenture. Covenants that cease to apply as a result of achieving these ratings will not be restored, even if the credit ratings assigned to the notes later fall below investment grade. See “Description of the Notes — Certain Covenants — Covenant Termination.”

Use of Proceeds		The Issuer will not receive any cash proceeds upon the completion of the exchange offer. We used a portion of the net proceeds from the sale of the old notes to repay and retire the outstanding indebtedness under our former $100.0 million term loan which would have matured in April 2007. The balance of the net proceeds from the sale of the old notes were loaned to Arch Coal to be used to repay borrowings under its prior revolving credit facility and for general corporate purposes. See “Use of Proceeds.”


	Both we and Arch Coal have a significant amount of debt relative to our total capitalization, which limits our flexibility and imposes restrictions on us, and a downturn in economic or industry conditions may materially affect our ability to meet our future financial commitments and liquidity needs.


	The Arch Coal promissory notes securing the notes are unsecured obligations of Arch Coal and are effectively subordinated to Arch Coal’s secured indebtedness and to the indebtedness and other liabilities of Arch Coal’s subsidiaries other than us and our subsidiaries. If an event of default occurs, Arch Coal may not have sufficient funds to repay all or any of the promissory notes.


	*The guarantees will be structurally subordinated to the indebtedness of our subsidiaries that are not guarantors of the notes.*


	*The guarantees will not be secured by any assets of the guarantors and therefore will be structurally subordinated to the guarantors’ existing and future secured indebtedness.*


	*We may not generate cash flow sufficient to service all of our obligations, including our obligations related to the notes.*


	*The terms of the agreements governing our indebtedness contain significant restrictions that limit our operating and financial flexibility.*


	If the notes become rated investment grade by both Standard & Poor’s and Moody’s, certain covenants contained in the indenture will be terminated, and you will lose the protection of these covenants permanently, even if the notes subsequently fall back below investment grade.


	*The Issuer may be unable to repurchase notes in the event of a change of control.*


	The demand for and pricing of our coal is greatly influenced by consumption patterns of the domestic electric generation industry, and any reduction in the demand for our coal by this industry may cause our profitability to decline.


	*Extensive environmental laws and regulations affect the end-users of coal and could reduce the demand for coal as a fuel source and cause the volume of our sales to decline.*


	*Because our industry is highly regulated, our ability to conduct mining operations is restricted and our profitability may decline.*


	*We may not be able to obtain or renew surety bonds on acceptable terms.*


	*Our profitability may fluctuate due to unanticipated mine operating conditions and other factors that are not within our control.*


	*Deregulation of the electric utility industry may cause our customers to be more price-sensitive in purchasing coal, which could cause our profitability to decline.*


	*Our profitability may be adversely affected by the status of our long-term coal supply contracts.*


	*The loss of, or significant reduction in, purchases by our largest customers could adversely affect our revenues.*


	Because our profitability is substantially dependent on the availability of an adequate supply of coal reserves that can be mined at competitive costs, the unavailability of these types of reserves would cause our profitability to decline.


	*Disruption in, or increased costs of, transportation services could adversely affect our profitability.*


	We face numerous uncertainties in estimating our economically recoverable coal reserves, and inaccuracies in our estimates could result in lower than expected revenues, higher than expected costs or decreased profitability.


	*Defects in title or loss of any leasehold interests in our properties could limit our ability to mine these properties or result in significant unanticipated costs.*


	*Acquisitions that we may undertake would involve a number of inherent risks, any of which could cause us not to realize the benefits anticipated to result.*


	Although we expect that the contribution of the North Rochelle mine to us by Arch Coal will result in benefits, we may not realize those benefits because of potential challenges to integration.


	*Changes in our credit ratings could adversely affect our costs and expenses.*


	*Agreements to which we are a party contain limitations on our ability to manage our operations exclusively and impose significant potential indemnification obligations on us.*


	*Our expenditures for postretirement medical and pension benefits increased by approximately $1.2 million in 2003 and could further increase in the future.*


	*Nine Months Ended September 30, 2004, Compared to Nine Months Ended September 30, 2003*



	Nine Months Ended
	September 30,				Increase

	2004		2003		$		%


	(In thousands, except per ton data and percentages)
Coal sales	$	490,200	$	369,834	$	120,366		32.5	%
Tons sold		60,030		51,037		8,993		17.6	%
Coal sales realization per ton	$	8.17	$	7.25	$	0.92		12.7	%



	Nine Months Ended
	September 30,					Increase (Decrease)

	2004			2003		$			%


	(In thousands, except per ton data and percentages)
Cost of coal sales	$	445,457		$	335,727	$	109,730			32.7	%
Selling, general and administrative Expenses		11,581			10,547		1,034			9.8	%
Amortization of coal supply agreements		(318	)		290		(608	)		(209.7	)%

Total	$	456,720		$	346,564	$	110,156			31.8	%

Cost of coal sales per ton sold	$	7.42		$	6.58	$	0.84			12.8	%