BHP Billiton announced it has signed a memorandum of understanding with Navajo officials to sell the 33,000-acre coal mine east of Farmington to the tribe.
The agreement promises to radically alter the tribe's relationship to the natural resources on its lands.
Officials say it will also preserve 800 jobs at the mine and nearby Four Corners Power Plant, which is the sole user of the mine's coal.
“Bottom line: This preserves the jobs,” said Norman Benally, spokesman for BHP Billiton's New Mexico Coal unit.
Under the agreement, BHP Billiton would continue to operate the mine until July 2016. At that point, the Navajo Nation would take over with its own company, or another company of the tribe's choosing. Mine employees and equipment would stay on with the new operator.
Financial terms were not disclosed. BHP Billiton and the tribe hope to have a final deal inked by April.
The agreement comes as coal consumption is in sharp decline nationwide due to economic and regulatory pressures. A mine executive said the deal was about preserving jobs, not profits.
“For BHP Billiton, it's not about the deal as much as sustaining Navajo Mine for all the stakeholders that depend on it,” said Pat Risner, president of BHP Billiton New Mexico Coal.
The company is San Juan County's largest private employer.
For the tribe, the deal represents a dramatic change from leasing its land to a foreign multinational corporation to exploiting for itself the rich coal veins that stripe the northeast edge of the sprawling reservation.
The mine produces about eight millions tons of coal per year.
“In a larger sense, we're talking about Navajo Nation sovereignty, we're talking about owning our assets,” said Erny Zah, spokesman for Navajo President Ben Shelly. “It's definitely a positive for Navajo to assert control and ownership of the natural resources that are on the Navajo Nation.”
Many questions remain unanswered, including how prepared the tribe will be to take over the mine in less than four years.
The mine is the sole supplier for Four Corners, a 2,100 megawatt coal-burning power plant that is a key supplier for the West's electricity grid. Plant operator Arizona Public Service Co. said it would pursue an agreement with the Navajo Nation to continue supplying the plant with coal.
“We've made significant progress on that contract with BHP and the Navajo Nation,” said Damon Gross, spokesman for the Arizona utility. “We feel like a lot of the major hurdles are behind us.”
The agreement pushes back the Arizona utility's plan to partially decommission the plant by the end of this year. APS now plans to close three of the plants five units in spring 2013.
“Our plan for the power plant is still in place,” Gross said.
The mine and power plant stand to lose about 300 jobs when the decommissioning occurs. Officials at both companies say the job cuts will happen through normal attrition, not layoffs. About 800 jobs would remain.
Mayor Tommy Roberts said the expected job loss will hurt the local economy, but the deal will ensure a measure of long-term stability.
“There's certainly potential for the mine and the power plant to operate at a level which continues to provide quality employment opportunities,” he said.
About 85 percent of the mine's workforce is Native American.
Many hurdles remain before the deal is final.
Among them: who will pay to clean up the mine when it is exhausted. The tribe is pushing BHP Billiton to take on those responsibilities. The company has operated the mine since June 1963.
“The legacy costs, pensions and known environment liabilities, those would stay with BHP,” said Zah, the Navajo spokesman. “Also, reclamation and remediation will stay with BHP.”
However, BHP Billiton would not confirm the company will be on the hook for costs after 2016, when the current agreement expires.
“The details around the liabilities and things around that will be worked out in the stock sale agreement that will be finalized in April,” Risner said.
The sale would leave San Juan Mine, the other large-scale coal mine in the area, as BHP Billiton's only New Mexico site. Risner said the deal changes nothing for that mine.
“This transaction has no effect on our ownership, management or operation of San Juan Mine,” he said.
For the tribe, controlling its own coal could open the door to shipping coal to China or even reviving Desert Rock Energy Project, a stalled coal plant proposal, Zah said.
“The United States is not the only place that uses coal,” he said. “If we have control of the energy source, it's one less thing to worry about if we pursue those ideas.”
Mike Eisenfeld, a New Mexico representative of San Juan Citizens Alliance, urged the tribe to move away from dirty coal power. The Durango, Colo.-based environmental group has repeatedly sued the plant and mine.
“Coal appears to be on the decline, and if the Navajo Nation intends to use this as a short-term transition that's one thing,” he said. “But if they want to entrench this they're going to run into a lot of opposition.”