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Coal giants clash over land lease in Alpha Natural's reorganization plan

Peabody EnergyCorp. is the latest entity to challenge Alpha Natural Resources Inc.'s reorganization plan over leasecontract issues as the latter plots its re-emergence from Chapter 11 bankruptcy.

Court documents show that subsidiary Peabody Caballo Mining LLC is alleging that subsidiary AlphaWyoming Land Co. LLC is attempting to reject a contract signed in 2012 involvingland rental fees.

The suit alleges that the Alpha subsidiary owned a surface leaseover coal deposits in Campbell County, Wyo. The company leased this land to PeabodyCaballo in an agreement in 1977 at a rate of 10 cents for every ton of coal mined,removed, sold and shipped from the leased area, or at a rate of 1% of the averagegross sales price for that coal multiplied by the number of tons, if the latteramount was greater.

Peabody alleges that in 2012 the two energy companies entereda new agreement that changed the rent for the land to $10 a month.

Now Peabody says that Alpha Wyoming is attempting to reject thenew lease amendment without rejecting the original 1977 agreement.

"In what is an unmistakable misuse of the Bankruptcy Code'sexecutory contract provisions, debtors seek to separately 'reject' the parties'September 1, 2012 Lease Amendment so that Alpha Wyoming can then proceed to assumeand assign an earlier, superseded version of the parties' underlying lease agreementcontaining what to Alpha Wyoming and its proposed assignee is a significantly moreadvantageous rental rate," the court document reads.

"For all of the foregoing reasons, Peabody Caballo maintainsthat the Debtors' proposed rejection of the September 1, 2012 lease amendment isillegitimate and insupportable and, thus, should be denied with prejudice."

Alpha did not comment on the lawsuit.