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Cloud Peak Energy Inc. – ‘S-1/A’ on 10/2/09

On:  Friday, 10/2/09, at 8:35pm ET   ·   As of:  10/5/09   ·   Private-to-Public:  Document/Exhibit ¶  –  Release Delayed   ·   Accession #:  1047469-9-8754   ·   File #:  333-161293

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TABLE OF CONTENTS
INDEX TO THE FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on October 2, 2009

Registration No. 333-161293

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 1
TO

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

CLOUD PEAK ENERGY INC.
(Exact name of registrant as specified in its charter)

505 S. Gillette Ave.
Gillette, WY 82716
(307) 687-6000
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

Colin Marshall
Chief Executive Officer
Cloud Peak Energy Inc.
505 S. Gillette Ave.
Gillette, WY 82716
(307) 687-6000
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

        Approximate date of commencement of proposed sale to the public:    As soon as practicable after this Registration Statement becomes effective.

         If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

         If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

         If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

         If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (check one):

CALCULATION OF REGISTRATION FEE

(1)

Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

(2)

Previously Paid.

         The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED OCTOBER 2, 2009

             Shares

CLOUD PEAK ENERGY INC.

Common Stock

        This is the initial public offering of our common stock. We are selling             shares of common stock. Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock is expected to be between $           and $           per share. We have applied to list our common stock on the New York Stock Exchange under the symbol "CLD."

        Immediately prior to this offering, we will acquire an interest in Rio Tinto America Inc.'s western U.S. coal business (other than the Colowyo mine) through the purchase of certain membership units indirectly held by Rio Tinto America in Cloud Peak Energy LLC or CPE LLC. We will use the net proceeds of this offering to finance this acquisition from Rio Tinto America. See "Use of Proceeds" and "Structuring Transactions and Related Agreements."

        We will be a holding company and our sole asset will be our managing member interest in CPE LLC. We will own    % and Rio Tinto America will own indirectly     % of the economic interest in CPE LLC, assuming no exercise of the underwriters' overallotment option. Our only business will be acting as the sole manager of CPE LLC and, as such, we will operate and control all of the business and affairs of CPE LLC.

        The underwriters have an option to purchase a maximum of             additional shares of common stock from us to cover over-allotments of shares of common stock. If the underwriters exercise their option, we will use the net proceeds from the over-allotment option to purchase additional common membership units of CPE LLC indirectly held by Rio Tinto America.

        Investing in our common stock involves risks. See "Risk Factors" on page 22.

        Delivery of the shares of common stock will be made on or about                           , 2009.

        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.

The date of this prospectus is                           , 2009.

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        You should rely only on the information contained in this document or any free writing prospectus prepared by or on behalf of us or to which we have referred you. We have not authorized anyone to provide you with information that is different from the information contained in this document or any free writing prospectus prepared by or on behalf of us or to which we have referred you. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.

Dealer Prospectus Delivery Obligation

        Until                        , 2009 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

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PROSPECTUS SUMMARY

        This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read the entire prospectus carefully, including the section describing the risks of investing in our common stock under "Risk Factors" and the consolidated financial statements of our predecessor, Rio Tinto Energy America Inc., contained elsewhere in this prospectus before making an investment decision. Some of the statements in this summary constitute forward-looking statements. See "Special Note Regarding Forward-Looking Statements."

        In this prospectus, unless the context otherwise requires, references to:

•

"Cloud Peak Energy," "we," "us," "our" or the "Company" refer to Cloud Peak Energy Inc., which was incorporated on July 31, 2008 in preparation for this offering, and its consolidated subsidiary CPE LLC and the businesses that CPE LLC will operate after giving effect to the structuring transactions described in this prospectus and assuming completion of this offering;



•

"CPE LLC" refers to Cloud Peak Energy LLC, a Delaware limited liability company, formerly known as Rio Tinto Sage LLC, that will be the operating company for our business, and in which the Company will acquire a managing member interest and become a member and the sole manager of in connection with this offering;



•

"Rio Tinto Energy America" or "RTEA" refers to Rio Tinto Energy America Inc., our predecessor for accounting purposes, which contributed certain assets used in the operations of CPE LLC;



•

"Rio Tinto America" refers to Rio Tinto America Inc., which contributed certain assets used in the operations of CPE LLC through its subsidiaries and is the owner of RTEA;



•

"Rio Tinto" refers to Rio Tinto plc and Rio Tinto Limited and their subsidiaries, collectively, one of the largest mining companies in the world. Rio Tinto plc is the ultimate parent company of Rio Tinto America and RTEA; and



•

"KMS" refers to Kennecott Management Services Company, a wholly-owned subsidiary of Rio Tinto America.

        Certain industry and other technical terms used throughout this prospectus relating primarily to our business, including terms related to the coal industry, coal reserves, mining equipment and coal regions in the U.S. are defined under "Glossary of Selected Terms" beginning on page 219 of this prospectus.

Cloud Peak Energy Inc.

        We are the third largest producer of coal in the U.S. and in the Powder River Basin, or PRB, based on 2008 coal production. We operate some of the safest mines in the industry. According to data from the Mine Safety and Health Administration, or MSHA, in 2008 we had the lowest employee all injury incident rate among the five largest U.S. coal producing companies. We operate solely in the PRB, the lowest cost coal producing region of the major coal producing regions in the U.S., and operate two of the five largest coal mines in the region and in the U.S. Our operations include three wholly-owned surface coal mines, two of which are in Wyoming and one in Montana. We also own a 50% interest in a fourth surface coal mine in Montana. We produce sub-bituminous steam coal with low sulfur content and sell our coal primarily to domestic electric utilities. Steam coal is primarily consumed by electric utilities and industrial customers as fuel for electricity generation. In 2008, the coal we produced generated approximately 4.4% of the electricity produced in the U.S.

        Following the completion of this offering, CPE LLC will own Rio Tinto America's western U.S. coal business, except for the Colowyo coal mine in Colorado. We will be a holding company that manages CPE LLC, and our only business and sole asset will be our managing member interest in CPE LLC. We will own        % and Rio Tinto America indirectly will own             % of the economic interest in CPE LLC, assuming no exercise of the underwriters' overallotment option.

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        On October 1, 2009 we sold the Jacobs Ranch mine to Arch Coal, Inc. and did not retain the proceeds from that sale. We refer to this transaction as the Jacobs Ranch Sale. The Colowyo and Jacobs Ranch mines are reflected as discontinued operations in the consolidated financial statements of our predecessor, RTEA contained elsewhere in this prospectus.

        For the year ended December 31, 2008 and the six months ended June 30, 2009 we:

•

produced 97.1 million and 45.0 million tons of coal, respectively;



•

generated pro forma revenues of $           million and $           million, respectively; and



•

had pro forma net income of $           million and $           million, respectively.

        The tables below summarize the tons of coal produced and proven and probable coal reserves by mine as of December 31, 2008 and other data regarding our controlled coal:

(1)

Based on our 50% interest in our Decker mine.

(1)

Includes 108 million tons of non-reserve coal deposits acquired in April 2008 with the South Maysdorf LBA tract.



(2)

Relates to our Cordero Rojo mine.

        Our business and operations, including our strengths and strategy listed below, are subject to numerous risks and uncertainties, including risks related to coal prices and mining operations, coal consumption, including electricity demand, and economic and financial conditions, among others, any or all of which could materially and adversely affect our business and market position. See "Risk Factors" beginning on page 22 of this prospectus.

Our Strengths

        We believe that the following strengths enhance our market position:

        We are the third largest coal producer in the U.S. and in the PRB and have a significant reserve base.    Based on 2008 production of 97.1 million tons, we are the third largest coal producer in the U.S. and in the PRB. As of December 31, 2008, we controlled approximately 1.3 billion tons of coal, consisting of approximately 1.05 billion tons of proven and probable coal reserves and approximately 261 million tons of non-reserve coal deposits.

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        We operate highly productive mines located solely in the PRB, the lowest cost coal producing region of the major coal producing regions in the U.S.    All of our mines are located in the PRB, which is the lowest cost coal producing region of the major coal producing regions in the U.S. We operate two of the five largest mines in the PRB and the U.S. We believe that our large PRB mines provide us with significant economies of scale. We benefit from the fact that our mines are among the lowest cost and highest producing mines in the U.S. Because the operational costs of PRB mines are low relative to other major coal producing regions, we believe that we are better able to maintain production levels at low costs despite the adverse impact of economic downturns on our revenues. However, our coal mining operations are subject to numerous operating risks which could result in materially increased operating expenses or decreased production levels.

        Our acquisition of additional LBAs and surface rights and our substantial capital investments in our mines in recent years have positioned us well for the future.    We have focused on strategic acquisitions and subsequent expansions of large, low operating cost, low-sulfur operations in the PRB and replacement of, and additions to, our reserves through the federal coal leasing process, also known as the Lease by Application, or LBA, process and the acquisition of related surface rights. From January 1, 2005 to September 1, 2009, we acquired 444 million tons of reserves, in addition to the North Maysdorf tract that the BLM estimates to contain 55 million tons of non-reserve coal deposits. We acquired the North Maysdorf tract for a total commitment of $48.1 million, of which we have already made cash installment payments of $9.6 million. From January 1, 2006 to June 30, 2009, we have also made significant capital expenditures in our mining facilities and equipment, investing $352.5 million. These investments have increased our existing mines' capacity and productivity. We have also nominated LBA tracts of land that we believe contain, as applied for, approximately 800 million tons of non-reserve coal deposits according to our estimates and subject to final determination by the BLM of the final boundaries and tonnage for these tracts. Accordingly, we believe we are well-positioned for the future through the strategic acquisition of additional LBAs and surface rights. If we are unable to acquire additional LBAs or surface rights, our business, financial condition or results of operations could be adversely affected.

        We are well-positioned to take advantage of favorable long-term industry trends in the U.S. and in the PRB region.    Historically, increases in U.S. coal consumption have been driven primarily by increased use of existing electricity generation capacity and the construction of new coal-fired power plants. While demand for electricity in our target markets has decreased since mid-2008, it is expected to recover as the economy strengthens. According to the U.S. Energy Information Administration, or EIA (report released April 2009), annual U.S. coal demand is projected to reach 1.24 billion tons by 2020, compared to demand of 1.12 billion tons in 2008. Production constraints and increased export demand for eastern U.S. coal reduces the availability of eastern U.S. coal to the U.S. domestic market. As a result, we expect coal consumers may increasingly substitute their use of eastern U.S. coal with PRB coal. Increasingly stringent air quality laws, safety regulations and the related costs of scrubbers may favor low-sulfur PRB coal over other types of coal, which may increase domestic demand for PRB coal. According to the EIA, the western U.S. represented 54% of U.S. coal production in 2008 and is expected to represent approximately 57% of U.S. coal production in 2020. PRB coal demand is expected to increase during this same time period by 70 million tons. The EIA's projections take into account the provisions of the American Recovery and Reinvestment Act of 2009, or ARRA, and assume that no pending or proposed federal or state carbon emissions legislation is enacted and that a number of additional coal-fired power plants will be built during this period. If greenhouse gas emissions from coal-fired power plants are subject to extensive new regulation in the U.S. pursuant to future U.S. treaty obligations, statutory or regulatory changes under the Clean Air Act, or federal or additional state adoption of a greenhouse gas regulatory scheme, or if reductions in greenhouse gas emissions are mandated by courts or through other legally enforceable mechanisms, absent other factors, the EIA's projections with respect to the demand for coal may not be met. If the increased demand for electricity is met by new power plants fueled by alternative energy sources, such as natural

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gas, or if additional state or federal mandates are implemented to support or mandate the use of alternative energy sources, these long-term industry trends may not continue.

        Our employee-related liabilities are low for our industry.    We only operate surface mines. As a result, our exposure to certain health claims and post-retirement liabilities, such as black-lung disease, is lower relative to some of our publicly traded competitors that operate underground mines. Following the completion of this offering, the obligations for pension and post-retirement welfare for active employees will be retained by us, and obligations for employees who have retired as of the date of the completion of this offering will be retained by Rio Tinto.

        We have a strong safety and environmental record.    We operate some of the industry's safest mines. According to data from MSHA, in 2008 we had the lowest employee all injury incident rate among the five largest U.S. coal producing companies. All of the mines we operate are certified to the international standard for environmental management systems (ISO 14001). We are committed to continuing to maintain a system that controls and reduces the environmental impacts of mining operations. We have also won numerous state and federal awards for our strong safety and environmental record.

        We have longstanding relationships with our customers, a majority of whom are rated investment grade.    We focus on building long-term relationships with creditworthy customers through our reliable performance and commitment to customer service. We supply coal to over 46 electric utilities and over 80% of our sales were to customers rated investment grade. Moreover, over 74% of our 2008 sales were to customers with whom we have had relationships for more than 10 years.

        Our senior management team has extensive industry experience.    Our named executive officers have significant work experience in the mining and energy industries, with an average of 20 years of relevant mining experience. Most of our named executive officers gained this experience through various positions held within Rio Tinto, one of the largest mining companies in the world.

Our Strategy

        Our business strategy is to:

        Capitalize on favorable long-term market conditions for PRB coal producers.    The long-term market dynamics for coal producers in the PRB remain favorable. The EIA estimates that PRB coal demand is expected to grow by 70 million tons between 2008 and 2020. Production constraints and increased export demand for eastern U.S. coal reduces the availability of eastern U.S. coal to the U.S. domestic market. As a result, we expect coal consumers may increasingly substitute their use of eastern U.S. coal with PRB coal. Increasingly stringent air quality laws, safety regulations and the related cost of scrubbers favor low-sulfur PRB coal over other types of coal. We intend to continue to capitalize on these market dynamics. By seeking additional expansion opportunities in existing and new mines in the PRB, we aim to maintain or improve our market position in the PRB. Furthermore, while only a small percentage of PRB coal is currently exported, we intend to seek opportunities to increase exports for our higher Btu coal from our Spring Creek mine.

        Continue to build our reserves.    We have historically focused on strategic acquisitions and subsequent expansions of large, low-cost, low-sulfur operations in the PRB and replacement of, and additions to, our reserves through the acquisition of companies, mines and reserves. We will continue to seek to increase our reserve position to maintain our existing production capacity by acquiring federal coal through the LBA process and by purchasing surface rights for land adjoining our current operations in Wyoming and Montana. We have applications outstanding for two LBAs that we anticipate to be bid at some time during the next four years. These LBAs cover, as applied for, approximately 800 million tons of non-reserve coal deposits according to our estimates and subject to final determination by the BLM of the final boundaries and tonnage for these LBA tracts. We will

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continue to explore additional opportunities to increase our reserve base; however, if we are unable to do so, we may be unable to maintain our current production capacity.

        Focus on operating efficiency and leverage our economies of scale.    We seek to control our costs by continuing to improve on our operating efficiency. Following this offering, we will remain the third largest producer of coal in the U.S. based on 2008 production statistics. We believe we will continue to benefit from significant economies of scale through the integrated management and operation of our three wholly-owned mines, although our results as a separate stand-alone company could be significantly different from our historical financial results as part of Rio Tinto. We have historically improved our existing operations and evaluated and implemented new mining equipment and technologies to improve our efficiency. Our large fleet of mining equipment, information technology systems and coordinated equipment utilization and maintenance management functions allow us to enhance our efficiency. Our experienced and well-trained workforce is key in identifying and implementing business improvement initiatives.

        Leverage our excellence in safety and environmental compliance.    We operate some of the safest coal mines in the U.S. We have also achieved recognized standards of environmental stewardship. We continue to implement safety measures and environmental initiatives to promote safe operating practices and improved environmental stewardship. We believe the ability to minimize injuries and maintain our focus on environmental compliance improves our productivity, lowers our costs, helps us attract and retain our employees and makes us an attractive candidate for ventures with third parties.

        Opportunistically pursue acquisitions that will create value and expand our core business.    We intend to pursue acquisition opportunities that are consistent with our business strategy and that we believe will create value for our shareholders. However, we may be unable to successfully integrate these acquired companies or realize the benefits we anticipate from an acquisition.

Coal Market Outlook

        Coal markets and coal prices are influenced by a number of factors and vary materially by region. Coal consumption in the U.S., particularly with respect to coal produced in the PRB, has been driven in recent periods by several market dynamics and trends, which may or may not continue, including the following:

        Favorable outlook for the U.S. steam coal market.    Growth in electricity demand continues to drive domestic demand for steam coal. The recent economic slowdown has reduced electricity and coal demand since mid-2008 and the demand for, and consumption of, coal in the electric power sector in 2009 is projected to decline. The long-term demand for electricity, however, is projected to increase at an average annual rate of approximately 0.5% from 2008 through 2020, according to the EIA. The EIA's projections that were issued in April 2009 take into account the provisions of the ARRA and assume that no pending or proposed federal or state carbon emissions legislation is enacted and that a number of additional coal-fired power plants will be built during the period. The EIA projects that increased utilization rates by existing power plants and new power plant construction will be drivers of coal demand. For 2010, the EIA is forecasting that total electricity generation will increase by 0.8% over 2009, assuming a recovering economy. Coal consumption for the electric power sector is projected to increase to 1 billion tons in 2010, a 16.0 million ton increase over estimated 2009 consumption of 987.0 million tons. However, a smaller number of plants than projected may be built, existing plants may not be able to significantly increase capacity or utilization rates and the number of planned plant retirements may increase more than expected. In addition, if greenhouse gas emissions from coal-fired power plants are subject to extensive new regulation in the U.S. pursuant to future U.S. treaty obligations, statutory or regulatory changes under the Clean Air Act, or federal or additional state adoption of a greenhouse gas regulatory scheme, or if reductions in greenhouse gas emissions are mandated by courts or through other legally enforceable mechanisms, absent other factors, the EIA's projections with respect to the demand for coal may not be met.

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        Expected long-term increases in international demand and the U.S. export market.    International demand for coal continues to be driven by rapid growth in electrical power generation capacity in Asia, particularly in China and India. China and India represented approximately 48% of total world coal consumption in 2006 and are expected to account for approximately 59% by 2030, according to the EIA. During 2007 and the first half of 2008, coal exports increased significantly as demand for U.S. steam and metallurgical coal from the Appalachian and PRB regions increased. Demand for steam and metallurgical coal has declined since mid-2008, as the United States economy and most international economies deteriorated due to the global economic downturn. We expect that these economic challenges will result in lower U.S. exports of coal in 2009 than in 2008. If global economic conditions improve, we anticipate that U.S. exports of coal would eventually increase; however, future exports of coal may not meet or exceed 2008 levels. To the extent that production constraints and increased export demand for eastern U.S. coal reduces the availability of eastern U.S. coal to the U.S. domestic market, we expect coal consumers may increasingly substitute their use of eastern U.S. coal with PRB coal.

        Changes in U.S. regional production.    Coal production in the Central Appalachian region of the U.S. has declined in recent years because of production difficulties, reserve degradation and difficulties acquiring permits needed to conduct mining operations. In addition, underground mining operations have become subject to additional, more costly and stringent safety regulations, increasing their operating costs and capital expenditure requirements. We believe that many eastern utilities are considering blending coals as an option to offset production issues and meet more stringent environmental requirements. Shortages and decreases in supply in the eastern U.S. continue to affect pricing in the entire U.S. market.

        Coal remains a cost-competitive energy source relative to alternative fossil fuels and other alternative energy sources.    Coal generally, and PRB coal in particular, has historically been a low-cost source of energy relative to its substitutes because of the high prices for alternative fossil fuels. Coal also has a lower all-in cost relative to other alternative energy sources, such as nuclear, hydroelectric, wind and solar power. Although the price for certain alternative fuels, such as natural gas, has recently declined, PRB coal continues to be a cost-competitive energy source because it exists in greater abundance and is easier and cheaper to mine than coal produced in other regions. Changes in the prices for other fossil fuels or alternative energy sources in the future could impact the price of coal. Current low natural gas prices in the U.S. and Europe are expected to lower demand for coal and lead to reduced demand for exports in the near term. In addition, if greenhouse gas emissions from coal-fired power plants are subject to extensive new regulation in the U.S. pursuant to future U.S. treaty obligations, statutory or regulatory changes under the Clean Air Act, or federal or additional state adoption of a greenhouse gas regulatory scheme, or if reductions in greenhouse gas emissions are mandated by courts or through other legally enforceable mechanisms, alternative energy sources may become more cost-competitive with coal, which may lead to lower demand for coal. See "Risk Factors—Risks Related to Our Business—New and potential future regulatory requirements relating to greenhouse gas emissions could affect our customers and could reduce the demand for coal as a fuel source and cause coal prices and sales of our coal to materially decline" and "Environmental and Other Regulatory Matters—Climate Change."

        Developments in clean coal technology and related regulatory initiatives.    The U.S. government has recently accelerated its investment in clean coal technology development with the ARRA signed into law by President Obama in February 2009. The ARRA targets $3.4 billion for U.S. Department of Energy fossil fuel programs, including $1.52 billion for carbon capture and sequestration, or CCS, research, $800 million for the Clean Coal Power Initiative, a 10-year program supporting commercial CCS, and $50 million for geology research. Although laws regulating greenhouse gas emissions may result in decreased demand for coal in the short-term, we believe that successful development and funding of these technologies through the ARRA could result in stable demand for coal in the long term. However, cost-effective technologies may not be developed and deployed in a timely manner.

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        Near-term pricing volatility.    U.S. coal markets have recently experienced significant volatility. By the end of 2008, published thermal coal prices in most major markets declined from their mid-2008 highs, largely reversing gains from the first half of 2008. Declining coal demand, coupled with increasing customer stockpiles and spurred by the onset of the global economic downturn, continues to soften pricing in 2009. The EIA projects that domestic electricity demand in 2009 will decline from 2008 levels. In addition, the prices for alternative fossil fuels, such as oil and natural gas, have declined relative to the recent highs. Future decreases in the price of alternative fuels could impact the price of coal. See "Risk Factors—Risks Related to Our Business—Coal prices are subject to change and a substantial or extended decline in prices could materially and adversely affect our revenues and results of operations, as well as the value of our coal reserves."

        Increasingly stringent air quality regulations.    A series of more stringent requirements related to particulate matter, ozone, haze, mercury, sulfur dioxide, nitrogen oxide and other air pollutants have been proposed and/or enacted by federal and/or state regulatory authorities in recent years. As a result of some of these regulations, demand for western U.S. coal has increased as coal-fired electricity producers have switched from bituminous coal to lower sulfur sub-bituminous coal. The PRB has benefited from this switch and its market share has increased accordingly. However, increasingly stringent air regulations may lead some coal-fired plants to install additional pollution control equipment, such as scrubbers, thereby reducing the need for low-sulfur coal. Considerable uncertainty is associated with these air emission regulations, some of which have been the subject of legal challenges in courts, and the actual timing of implementation remains uncertain. As a result, it is not possible to determine the impact of such regulatory initiatives on coal demand nationwide, but they may be materially adverse. See "Risk Factors—Risks Related to Our Business—Extensive environmental regulations, including existing and potential future regulatory requirements relating to air emissions, affect our customers and could reduce the demand for coal as a fuel source and cause coal prices and sales of our coal to materially decline" and "Because we produce and sell coal with a low-sulfur content, a reduction in the price of sulfur dioxide emission allowances or increased use of technologies to reduce sulfur dioxide emissions could materially and adversely affect the demand for our coal and our results of operations" and "Environmental and Other Regulatory Matters."

        See "The Coal Industry" and "The Coal Industry—Special Note Regarding the EIA's Market Data and Projections."

Our Corporate History and Structure

        Rio Tinto initially formed RTEA in 1993 as Kennecott Coal Company which was subsequently renamed Kennecott Energy and Coal Company. Between 1993 and 1998, Kennecott Energy and Coal Company acquired the Antelope, Colowyo, Jacobs Ranch and Spring Creek coal mines and the Cordero coal mine and Caballo Rojo coal mine, which are currently operated together as the Cordero Rojo coal mine, and a 50% interest in the Decker coal mine, which is managed by a third-party mine operator. In 2006, Kennecott Energy and Coal Company was renamed Rio Tinto Energy America Inc., as part of Rio Tinto's global branding initiative. In order to separate certain businesses from RTEA, in December 2008 RTEA contributed Rio Tinto America's western U.S. coal business to CPE LLC (other than the Colowyo mine, which was not contributed to CPE LLC due to restrictions contained in its existing financing arrangements and which is now owned indirectly by Rio Tinto America). On October 1, 2009 we sold the Jacobs Ranch mine to Arch Coal, Inc. and did not retain the proceeds from that sale.

        Cloud Peak Energy Inc. was incorporated in Delaware on July 31, 2008. Prior to this offering, it did not engage in any activities, except in preparation for this offering, and has had no operations.

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        The following simplified diagram depicts our organizational structure prior to this offering.

        See "Structuring Transactions and Related Agreements—History" for a more complete diagram depicting our organizational structure prior to this offering.

        Immediately prior to this offering, we will enter into an acquisition agreement, or the Acquisition Agreement, with RTEA pursuant to which we will acquire a portion of RTEA's interest in Rio Tinto America's western U.S. coal business (other than the Colowyo mine) represented by common membership units of CPE LLC in exchange for a promissory note that we will issue to RTEA, or the CPE Note. The Acquisition Agreement will require us to use the net proceeds of this offering to immediately repay the CPE Note. After the completion of this offering, we will be a holding company that manages CPE LLC, and our only business and material asset will be our managing member interest in CPE LLC. We will own                        % and Rio Tinto America indirectly will own             % of the economic interest in CPE LLC, assuming no exercise of the underwriters' overallotment option. Our only source of cash flow from operations will be distributions from CPE LLC pursuant to the CPE LLC operating agreement and management fees pursuant to a management services agreement between us and CPE LLC. In connection with this offering, CPE LLC is also expected to enter into a $           million revolving credit facility and to issue $           million in senior notes. We expect that $           million of the net proceeds from CPE LLC's senior notes offering will be distributed by CPE LLC to RTEA immediately following the completion of that offering.

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        The following simplified diagram depicts our organizational structure immediately following this offering:

(1)

CPE LLC's wholly-owned subsidiaries will serve as guarantors of CPE LLC's debt in connection with the debt financing transactions.

        See "Structuring Transactions and Related Agreements—Holding Company Structure" for a more complete diagram depicting our organizational structure following this offering and additional information regarding these transactions. References to our managing member interest mean the management and ownership interest as the managing member in CPE LLC, which will initially include membership interests equivalent to approximately            % of the outstanding common membership units (assuming no exercise of the underwriters' overallotment option), and includes any and all benefits to which the managing member is entitled as provided in the CPE LLC Operating Agreement, together with all obligations of the managing member to comply with the terms and provisions of the CPE LLC Operating Agreement.

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Company Information

        Our principal executive office is located at 505 S. Gillette Avenue, Gillette, Wyoming 82716, and our telephone number at that address is (307) 687-6000. Following the completion of this offering, we intend to maintain a website at www.cloudpeakenergy.com. The information that will be contained on, or that will be accessible through, our website is not part of this prospectus.

        Cloud Peak Energy and the Cloud Peak Energy logo are trademarks and service marks of Cloud Peak Energy Inc. All other trademarks, service marks or trade names appearing in this prospectus are owned by their respective holders.

Presentation of Our Coal Data and Pro Forma Consolidated Financial Information and Coal Market Data

Our Historical Financial Information

        Rio Tinto Energy America Inc., or RTEA, is considered to be our predecessor for accounting purposes and its consolidated financial statements are our historical consolidated financial statements. Unless otherwise indicated, historical references contained in this prospectus in "—Summary Actual and Pro Forma Consolidated Financial Data," "Selected Consolidated Financial and Operating Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations," and our historical consolidated financial statements contained elsewhere in this prospectus, relate to RTEA and include, as discontinued operations, results from the Colowyo mine, the Jacobs Ranch mine and the uranium mining venture, which will not be owned by CPE LLC after this offering.

Pro Forma Financial Information

        When we refer to our pro forma financial information we are giving effect to:

•

the structuring transactions and related agreements, including the separation from Rio Tinto to be completed prior to this offering as described in "Structuring Transactions and Related Agreements";



•

the $           million revolving credit facility and $           million of senior notes, which we expect CPE LLC will enter into or issue in connection with this offering, and which we refer to as the debt financing transactions; and



•

the issuance of the shares of our common stock in this offering and subsequent use of proceeds.

The pro forma consolidated statement of operations presents financial information through income (loss) from continuing operations. Accordingly, the income (loss) from discontinued operations related to the Colowyo mine, the Jacobs Ranch mine and the uranium mining venture are not reflected in continuing operations and no pro forma adjustment will be necessary in the pro forma consolidated statement of operations.

Our Coal Data

        References to our coal production, sales and purchases and our reserves and similar items contained in this prospectus exclude the Colowyo mine and the Jacobs Ranch mine which will not be owned by CPE LLC after this offering.

        References to BLM estimates are given as of the date we acquired the lease for the related LBA tract.

        Through our indirect, wholly-owned subsidiary, we currently hold a 50% interest in the Decker mine in Montana through a joint-venture agreement with an indirect, wholly-owned subsidiary of

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Level 3 Communications, Inc., or Level 3. The Decker mine is managed by a third-party mine operator. Information related to our coal production, reserves, purchases and revenues, contained in this prospectus and information in our consolidated financial statements contained elsewhere in this prospectus, unless otherwise indicated, includes amounts reflecting our 50% interest in the Decker mine.

Coal Market Data

        Market data used in this prospectus has been obtained from governmental and independent industry sources and publications, such as the U.S. Energy Information Administration, or EIA, the National Mining Association, or NMA, and the Mine Safety and Health Administration, or MSHA, and, unless otherwise indicated, is based on data and reports published in 2008 or 2009 but may relate to prior years. We have not independently verified the data obtained from these sources and we cannot assure you of the accuracy or completeness of the data. Industry projections of the EIA's report released in April 2009 reflect provisions of the ARRA that were enacted in mid-February 2009. In addition, industry projections of the EIA are subject to numerous assumptions and methodologies chosen by the EIA, including that laws and regulations in effect at the time of the projections remain unchanged and that no pending or proposed federal or state carbon emissions legislation has not been enacted and that a number of additional coal-fired power plants will be built during the period. Therefore, the EIA's projections do not take into account potential regulation of greenhouse gas emissions pursuant to future U.S. treaty obligations, statutory or regulatory changes under the Clean Air Act, or federal or additional state adoption of a greenhouse gas regulatory scheme or reductions in greenhouse gas emissions mandated by courts or through other legally enforceable mechanisms. The EIA's projections with respect to the demand for coal may not be met, absent other factors, if comprehensive carbon emissions legislation is enacted. In addition, the economic conditions accounted for in the EIA's industry projections reflect existing and projected economic conditions at the time the projections were made and do not necessarily reflect current economic conditions or any subsequent deterioration of economic conditions. Forward-looking information obtained from these sources is subject to the same qualifications and the additional uncertainties regarding the other forward-looking statements contained in this prospectus. See "Special Note Regarding Forward-Looking Statements" and "The Coal Industry—Special Note Regarding the EIA's Market Data and Projections."

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The Offering

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        Unless otherwise indicated, all information in this prospectus:

•

reflects the consummation of the structuring transactions described in "Structuring Transactions and Related Agreements"; and



•

assumes an initial public offering of our shares of common stock at a price of $        per share, the midpoint of the estimated public offering price range set forth on the cover page of this prospectus.

        A nominal amount of shares of our common stock are outstanding prior to the completion of this offering. The number of shares to be outstanding after completion of this offering is based on             shares of our common stock to be sold in this offering and, except where we state otherwise, the common stock information we present in this prospectus:

•

excludes up to             shares of our common stock issuable upon, at our election, our assumption of CPE LLC's rights and obligations to acquire common membership units of CPE LLC from RTEA and KMS upon exercise of their redemption right, as described under "Structuring Transactions and Related Agreements—Structure-Related Agreements—CPE LLC Operating Agreement;"



•

excludes the            shares of our common stock to be reserved for issuance under our employee benefits plans to be in effect after the offering;

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•

assumes no exercise by the underwriters of their right to purchase a maximum of             additional shares of common stock to cover over-allotments of shares; and



•

includes approximately            shares of our common stock to be issued to our directors and employees substantially concurrently with this offering.

In addition, unless otherwise indicated, the information regarding common membership units of CPE LLC presented in this prospectus excludes any common membership units that will be issued to us on a one-for-one basis upon the vesting of our restricted stock or the exercise of options to acquire our common stock.

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SUMMARY ACTUAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

        The following table provides a summary of our actual and unaudited pro forma consolidated financial data for the periods indicated. This information should be read in conjunction with the sections of this prospectus entitled "Selected Consolidated Financial and Operating Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our historical consolidated and unaudited pro forma consolidated financial information and related notes thereto included elsewhere in this prospectus.

        RTEA is considered to be our predecessor for accounting purposes and its consolidated financial statements are our historical consolidated financial statements. Our historical consolidated financial statements include, as discontinued operations, financial information for certain operations that will not be owned by Cloud Peak Energy after this offering, including the Colowyo mine, the Jacobs Ranch mine and the uranium mining venture. Our historical consolidated financial statements are not comparable to the unaudited pro forma condensed consolidated financial information included elsewhere in this prospectus or to the results investors should expect after the offering. To date, Cloud Peak Energy Inc. has had no operations. As described in "Structuring Transactions and Related Agreements—Holding Company Structure," following the completion of this offering we will be a holding company and our sole asset will be our managing member interest in CPE LLC. The consolidated financial statements of RTEA are provided elsewhere in this prospectus.

        We have derived the actual consolidated financial data as of December 31, 2007 and 2008 and for each of the three years in the period ended December 31, 2008 from the audited consolidated financial statements of RTEA, included elsewhere in this prospectus. We have derived the actual consolidated balance sheet data as of December 31, 2006 from the audited consolidated financial statements of RTEA, not included in this prospectus. We have derived the actual consolidated financial data as of June 30, 2009 and for the six months ended June 30, 2008 and 2009 from the unaudited consolidated financial statements of RTEA, included elsewhere in this prospectus. The unaudited consolidated financial information was prepared on a basis consistent with that used in preparing our audited consolidated financial statements and includes all adjustments, consisting of normal and recurring items, that we consider necessary for a fair presentation of the financial position and results of operations for the unaudited periods. The interim results of operations are not necessarily indicative of operations for a full fiscal year.

        Prior to the consummation of the offering, our consolidated financial statements were prepared on a carve-out basis from our ultimate parent company, Rio Tinto and its subsidiaries. The carve-out consolidated financial statements include allocations of certain general and administrative costs and Rio Tinto's headquarters costs. We do not expect to continue to incur some of these charges as a stand-alone public company. These allocations were based upon various assumptions and estimates and actual results may differ from these allocations, assumptions and estimates. However, the carve-out consolidated financial statements do not reflect additional expenses we expect to incur as a stand-alone public company. Accordingly, the carve-out consolidated financial statements should not be relied upon as being representative of our financial position or operating results had we operated on a stand-alone basis, nor are they representative of our financial position or operating results following the offering.

        We have derived the unaudited pro forma consolidated financial data as of June 30, 2009 and for the year ended December 31, 2008 and for the six months ended June 30, 2009, from the unaudited pro forma condensed consolidated financial information, included elsewhere in this prospectus. See "Unaudited Pro Forma Condensed Consolidated Financial Information." The unaudited pro forma condensed consolidated financial information is based on our actual consolidated financial statements, included elsewhere in this prospectus. The unaudited pro forma adjustments are based on available information and certain assumptions that we believe are reasonable and are described below in the accompanying notes. The unaudited pro forma condensed consolidated balance sheet as of June 30,

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2009 and the unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2008 and for the six months ended June 30, 2009 are presented on a pro forma basis to give effect, in each case, to the following adjustments as if they occurred on June 30, 2009 for balance sheet adjustments and January 1, 2008 for statement of operations adjustments:

•

the structuring transactions and related agreements, including the separation from Rio Tinto to be completed prior to this offering as described in "Structuring Transactions and Related Agreements";



•

the debt financing transactions which CPE LLC intends to enter into in connection with this offering; and



•

the issuance of the shares of our common stock in this offering and subsequent use of proceeds.

The pro forma condensed consolidated statement of operations presents financial information through income (loss) from continuing operations. Accordingly, the income (loss) from discontinued operations related to the Colowyo mine, the Jacobs Ranch mine and the uranium mining venture are not reflected in continuing operations and no pro forma adjustment will be necessary in the pro forma condensed consolidated statement of operations.

        The unaudited pro forma consolidated financial data is for informational purposes only, and is not intended to represent what our results of operations would be after giving effect to the offering, or to indicate our results of operations for any future period. Therefore, investors should not place undue reliance on the unaudited pro forma consolidated financial data.

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Summary Unaudited Pro Forma Consolidated Financial Data
(dollars in thousands)

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Summary Actual Consolidated Financial Data
(dollars in thousands)

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(1)

Freight revenues accounted for 2.6%, 1.4% and 4.5% of our total revenues for the years ended December 31, 2006, 2007 and 2008, respectively, and 2.3% and 9.0% of our total revenues for the six months ended June 30, 2008 and 2009, respectively. As a general matter, our customers pay their own freight costs. We pay the freight costs, however, for shipping coal to some of our customers and in these cases the customers pay us in respect of these freight costs and the payments are included in our revenues. See Note 3 of Notes to Consolidated Financial Statements included elsewhere in this prospectus.

(2)

Primarily reflects amortization under our brokerage contract related to the Spring Creek mine.

(3)

Allocations of corporate, general and administrative expenses incurred by Rio Tinto America and other Rio Tinto affiliates were $18.3 million, $24.4 million and $25.4 million for the years ended December 31, 2006, 2007 and 2008, respectively, and $12.0 million and $10.5 million for the six months ended June 30, 2008 and 2009, respectively. Of this total, $15.1 million, $20.2 million and $21.0 million, for the years ended December 31, 2006, 2007 and 2008, respectively, and $10.1 million and $9.0 million for the six months ended June 30, 2008 and 2009, respectively, is included in selling, general and administrative expenses in the consolidated statements of operations. The remaining $3.2 million, $4.2 million and $4.4 million, for the years ended December 31, 2006, 2007 and 2008, respectively, and $1.9 million and $1.4 million for the six months ended June 30, 2008 and 2009, respectively, is included in cost of product sold. Also included in selling, general and administrative expenses are costs incurred as a result of actions to divest RTEA, either through a trade sale or an initial public offering, of $25.8 million, $10.2 million, and $7.2 million for the year ended December 31, 2008, and the six months ended June 30, 2008 and 2009, respectively.

(4)

Asset impairment charges for the year ended December 31, 2007 reflects capitalized cost of an abandoned enterprise resource planning, or ERP, systems implementation. The ERP systems implementation was a worldwide Rio Tinto initiative designed to align processes, procedures, practices and reporting across all Rio Tinto business units. The implementation would have taken our stand-alone ERP system and moved it to a shared Rio Tinto platform, which could not be transferred to a new stand-alone company. We do not currently use, and will not use following this offering, this ERP system. Asset impairment charges for the year ended December 31, 2008 includes a $4.6 million charge to write-off certain contract rights, a $1.0 million

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charge for an abandoned cost efficiency project, and a $3.0 million favorable adjustment to the ERP system costs that were included in the 2007 asset impairment charge.

(5)

Certain operations will not be owned by Cloud Peak Energy following the completion of this offering, including the Colowyo coal mine, the Jacobs Ranch coal mine and the uranium mining venture. Accordingly, the consolidated financial statements report the financial position, results of operations and cash flows of the Colowyo mine, the Jacobs Ranch mine and the uranium mining venture as discontinued operations. Amounts presented as discontinued operations as of December 31, 2008 and June 30, 2009 and for the six months ended June 30, 2009 reflect the Jacobs Ranch mine only as the Colowyo mine and uranium mining venture were distributed to Rio Tinto America on October 7, 2008. See Note 4 of Notes to Consolidated Financial Statements included elsewhere in this prospectus.

(6)

Total long-term debt includes the current and long-term portions of the long-term debt—related party, federal coal leases and long-term debt—other. See Note 9 of Notes to Consolidated Financial Statements included elsewhere in this prospectus for additional information on our long-term debt.

(7)

Pro forma EBITDA is derived from the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2008 and six months ended June 30, 2009, included elsewhere in this prospectus. A reconciliation of pro forma EBITDA to pro forma net income for the periods presented, is as follows:

See Note 8 below for a discussion of our use of EBITDA.

(8)

EBITDA, a performance measure used by management, is defined as income (loss) from continuing operations plus: interest expense (net of interest income), income tax provision, depreciation and depletion, amortization and accretion as shown in the table below. EBITDA, as presented for the years ended December 31, 2006, 2007 and 2008 and for the six months ended June 30, 2008 and 2009, is not defined under accounting principles generally accepted in the United States of America, or U.S. GAAP, and does not purport to be an alternative to net income as a measure of operating performance. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to other similarly titled measures of other companies. We use, and we believe investors benefit from the presentation of, EBITDA in evaluating our operating performance because it provides us and our investors with an additional tool to compare our operating performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our core operations. We believe that EBITDA is useful to investors and other external users of our consolidated financial statements in evaluating our operating performance because EBITDA is widely used by investors to measure a company's operating performance without regard to items such as interest expense, taxes, depreciation and depletion, amortization and accretion, which can vary substantially from company to company depending upon accounting methods and book value of assets and liabilities, capital structure and the method by which assets were acquired.

However, using EBITDA as a performance measure has material limitations as compared to net income, or other financial measures as defined under U.S. GAAP, as it excludes certain recurring items which may be meaningful to investors. EBITDA excludes interest expense or interest income; however, as we have

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historically borrowed money from our parent in order to finance transactions and operations, or invested available cash to generate interest income, interest expense and interest income are elements of our cost structure and ability to generate revenue and returns for shareholders. Further, EBITDA excludes depreciation and depletion and amortization; however, as we use capital and intangible assets to generate revenues, depreciation and depletion, as well as amortization are a necessary element of our costs and ability to generate revenue. EBITDA also excludes accretion expense; however, as we are legally obligated to pay for costs associated with the reclamation and closure of our mine sites, the periodic accretion expense relating to these reclamation costs is a necessary element of our costs and ability to generate revenue. Finally, EBITDA excludes income taxes; however, as we are organized as a corporation, the payment of taxes is a necessary element of our operations. As a result of these exclusions from EBITDA, any measure that excludes interest expense, interest income, depreciation and depletion, amortization, accretion and income taxes has material limitations as compared to net income. When using EBITDA as a performance measure, management compensates for these limitations by comparing EBITDA to net income in each period, so as to allow for the comparison of the performance of the underlying core operations with the overall performance of the Company on a full-cost, after-tax basis. Using both EBITDA and net income to evaluate the business allows management and investors to (a) assess our relative performance against our competitors and (b) ultimately monitor our capacity to generate returns for shareholders.

A reconciliation of EBITDA to income from continuing operations for each of the periods presented is as follows:

(9)

Tons of coal sold includes amounts sold under our brokerage contract relating to the Spring Creek mine.

(10)

The pro forma condensed consolidated statement of operations presents financial information through income (loss) from continuing operations. Accordingly, the income (loss) from discontinued operations related to the Colowyo mine, Jacobs Ranch mine and the uranium mining venture will not be reflected and no pro forma adjustment will be necessary in the pro forma condensed consolidated statement of operations.

(11)

Effective September 24, 2008, the outstanding borrowings and related interest of $547.4 million under the revolving credit facility with Rio Tinto America was converted to equity. Such amount is reflected as a capital contribution in shareholder's equity.

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RISK FACTORS

        You should carefully consider the risk factors described below and all other information contained in this prospectus before you decide to invest in our common stock. If any of the following risk factors, as well as other risks and uncertainties that are not currently known to us or that we currently believe are not material, actually occur, our business, financial condition and results of operations could be materially and adversely affected. Accordingly, the trading price of our securities could decline, and you may lose part or all of your investment.

Risks Related to Our Business

The current global economic downturn and disruptions in the financial and credit markets may have a material adverse effect on our business, financial condition and results of operations.

        The recent global economic downturn, particularly with respect to the U.S. economy, coupled with the global financial and credit market disruptions, have had an impact on the coal industry generally and may continue to do so until economic conditions improve. The demand for electricity in our target markets has decreased during this period. Decreases in the demand for electricity typically lead to a decline in the demand for and prices of coal. The economic downturn has also negatively impacted the demand for U.S. exports of coal. If these trends continue we may not be able to sell all of the coal we are capable of producing or sell our coal at prices comparable to recent years. In addition, prices for coal in the spot market, including for PRB coal, have decreased from their historic highs reached during the first half of 2008. Although we have historically sold most of our coal under long-term coal sales agreements with fixed prices, the prices in the spot market influence the price for the forward sales agreements that we are entering into now and may enter into in the future and the prices we receive for our coal may not be as favorable as they have been in the past. In particular, the pricing for long-term contracts we are currently entering into is below the pricing for long-term contracts entered into in 2008. Although economic conditions have generally deteriorated since mid-2008, we began to feel the effects of the changes in the market during the beginning of the second quarter of 2009. In addition, stockpiles of coal by our customers have continued to increase, reaching their highest level in recent years, and our customers have been curtailing future orders until their supplies are depleted. Recent low prices for natural gas and oil, which are substitutes for coal generated power, may also lead to continued decreased coal consumption by electricity-generating utilities. Current market conditions, including tightening of the credit markets, may also impact our customers' ability to finance their operations, which may result in decreased demand for our coal, cancellation of orders or changes to the coal sales agreements with those customers. For example, in the first six months of 2009, we have experienced a greater number of customers seeking to reduce the amount of tons taken under existing contracts and additional customers may seek to similarly reduce tons taken in future periods under their agreements with us. Decreased sales volumes could impact our revenues, cost structure and opportunities for growth in the future. We are unable to predict the duration or severity of the current global economic and financial crisis and any actions we may take in response to these conditions may be insufficient. A protracted continuation or worsening of the global economic downturn or disruptions in the financial markets could have a material adverse effect on our business, financial condition and results of operations. Furthermore, because we seek to enter into long-term arrangements for the sale of a substantial portion of our coal, it is likely that the average sales price we receive for our coal will lag any general economic recovery in the United States.

Coal prices are subject to change and a substantial or extended decline in prices could materially and adversely affect our revenues and results of operations, as well as the value of our coal reserves.

        Our revenues, results of operations and the value of our coal reserves are dependent in large measure upon the prices we receive for our coal. Because coal is a commodity, the prices we receive are set by the marketplace. Prices for coal generally tend to be cyclical, and over the last several years

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have become more volatile. The contract prices we may receive in the future for coal depend upon numerous factors beyond our control, including:

•

the domestic and foreign supply and demand for coal, including demand for U.S. coal exports from eastern U.S. markets;



•

domestic demand for electricity;



•

domestic and foreign economic conditions, including economic downturns and the strength of the global and U.S. economies;



•

the quantity and quality of coal available from competitors;



•

competition for production of electricity from non-coal sources, including the price and availability of alternative fuels, such as natural gas and oil, and alternative energy sources, such as nuclear, hydroelectric, wind and solar power, and the effects of technological developments related to these non-coal and alternative energy sources;



•

domestic air emission standards for coal-fired power plants, and the ability of coal-fired power plants to meet these standards by installing scrubbers or other means;



•

adverse weather, climatic or other natural conditions, including natural disasters;



•

legislative, regulatory and judicial developments, environmental regulatory changes, or changes in energy policy and energy conservation measures that would adversely affect the coal industry, such as legislation that limits carbon dioxide emissions or provides for increased funding and incentives for, or mandates the use of, alternative energy sources;



•

the effects of worldwide energy conservation measures;



•

domestic and foreign governmental regulations and taxes;



•

the quantity, quality and pricing of coal available in the resale market;



•

the capacity of, cost of, and proximity to, rail transportation facilities and rail transportation delays; and



•

market price fluctuations for sulfur dioxide emission allowances.

        A substantial or extended decline in the prices we receive for our future coal sales contracts could materially and adversely affect us by decreasing our revenues thereby materially and adversely affecting our results of operations.

Our coal mining operations are subject to operating risks, which could result in materially increased operating expenses and decreased production levels and could materially and adversely affect our results of operations.

        We mine coal at surface mining operations located in Wyoming and Montana. Our coal mining operations are subject to a number of operating risks. Because we maintain very little produced coal inventory, certain conditions or events could disrupt operations, adversely affect production and shipments and increase the cost of mining at particular mines for varying lengths of time, which could have a material adverse effect on our results of operations. These conditions and events include, among others:

•

poor mining conditions resulting from geological, hydrologic or other conditions, which may cause instability of highwalls or spoil-piles or cause damage to nearby infrastructure;



•

mining and plant equipment failures and unexpected maintenance problems;



•

adverse weather and natural disasters, such as heavy rains, flooding and other natural events affecting operations, transportation or customers;

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•

the unavailability of qualified labor and contractors;



•

the unavailability of raw materials, equipment (including heavy mobile equipment) or other critical supplies such as tires and explosives, fuel, lubricants and other consumables of the type, quantity and/or size needed to meet production expectations;



•

the capacity of, and proximity to, rail transportation facilities and rail transportation delays or interruptions, including derailments;



•

delays, challenges to, and difficulties in acquiring, maintaining or renewing necessary permits, including environmental permits, or mining or surface rights;



•

delays or difficulties in, the unavailability of, or unexpected increases in the cost of acquiring, developing and permitting new LBA acquisitions from the federal government and other new mining reserves and surface rights;



•

competition and/or conflicts with other natural resource extraction activities and production within our operating areas, such as coalbed methane extraction or oil and gas development;



•

a major incident at the mine site that causes all or part of the operations of a mine to cease for some period of time;



•

current and future health, safety and environmental regulations or changes in interpretations of current regulations, including the classification of plant and animal species near our mines, including the potential listing of the sage grouse, as endangered or threatened species;



•

inability to acquire or maintain adequate financial sureties for mining and reclamation purposes or to meet other governmental or private bonding requirements; and



•

the value of the U.S. dollar relative to other currencies, particularly where imported products are required for the mining process, such as tires and petroleum products.

        These changes, conditions and events may materially increase our cost of mining and delay or halt production at particular mines either permanently or for varying lengths of time.

Competition within the coal production industry and with producers of competing energy sources may materially and adversely affect our ability to sell coal at a favorable price.

        We compete with numerous other coal producers in various regions of the U.S. for domestic sales. International demand for U.S. coal also affects competition within our industry. The demand for U.S. coal exports depends upon a number of factors outside of our control, including the overall demand for electricity in foreign markets, currency exchange rates, ocean freight rates, port and shipping capacity, the demand for foreign-produced steel, both in foreign markets and in the U.S. market, general economic conditions in foreign countries, technological developments and environmental and other governmental regulations. Foreign demand for eastern U.S. coal increased significantly during 2008 but declined during the first half of 2009. If foreign demand for U.S. coal continues to decline, this decline could cause competition among coal producers for sales in the U.S. to intensify, potentially resulting in significant additional downward pressure on domestic coal prices, including in the PRB.

        In addition to competing with other coal producers, we compete generally with producers of other fuels, such as natural gas and oil. A decline in price for these fuels, could cause demand for coal to decrease and adversely affect the price of our coal. For example, the price for natural gas has recently declined from $9.86 per thousand cubic feet in the second quarter of 2008 to $2.98 per thousand cubic feet in the third quarter of 2009, leading to, in some instances, decreased coal consumption by electricity-generating utilities. If alternative energy sources, such as wind or solar, become more cost-competitive on an overall basis, demand for coal could decrease and the price of coal could be materially and adversely affected, including in the PRB. Further, legislation requiring the use of these

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alternative energy sources and fuels or legislation providing financing or incentives to encourage continuing technological advances in this area could further enable alternative energy sources to become more competitive with coal.

Excess production and production capacity in the coal production industry could put downward pressure on coal prices and, as a result, materially and adversely affect our revenues and profitability.

        During the mid-1970s and early 1980s, increased demand for coal attracted new investors to the coal industry in the PRB, spurred the development of new mines and resulted in additional production capacity throughout the industry, all of which led to increased competition and lower coal prices. Increases in coal prices during recent periods encouraged the development of expanded capacity by coal producers. Some of these planned capacity increases and existing production plans have been delayed or reduced due to coal price reductions since mid-2008 and the global economic downturn. However, these capacity increases may be restarted in the future. Any overcapacity and increased production in the future could materially reduce coal prices and therefore materially reduce our revenues and profitability.

Decreases in demand for electricity resulting from economic, weather changes or other conditions could adversely affect coal prices and materially and adversely affect our results of operations.

        Our coal customers primarily use our coal as fuel for domestic electricity generation. Overall economic activity and the associated demands for power by industrial users can have significant effects on overall electricity demand. An economic slowdown can significantly slow the growth of electrical demand and could result in contraction of demand for coal. See "—The current global economic downturn and disruptions in the financial and credit markets may have a material adverse effect on our business, financial condition and results of operations." Weather patterns can also greatly affect electricity demand. Extreme temperatures, both hot and cold, cause increased power usage and, therefore, increased generating requirements from all sources. Mild temperatures, on the other hand, result in lower electrical demand, which allows generators to choose the sources of power generation when deciding which generation sources to dispatch. Any downward pressure on coal prices, due to decreases in overall demand or otherwise, including changes in weather patterns, would materially and adversely affect our results of operations.

The use of alternative energy sources for power generation could reduce coal consumption by U.S. electric power generators, which could result in lower prices for our coal, which could reduce our revenues and materially and adversely affect our business and results of operations.

        In 2008, we sold approximately 93% of our coal to domestic electric power generators. Domestic electric power generation accounted for approximately 93% of all U.S. coal consumption in 2008, according to the EIA. The amount of coal consumed for U.S. electric power generation is affected by, among other things:

•

the location, availability, quality and price of alternative energy sources for power generation, such as natural gas, fuel oil, nuclear, hydroelectric, wind and solar power; and



•

technological developments, including those related to alternative energy sources.

        Gas-fired generation has the potential to displace coal-fired generation, particularly from older, less efficient coal-powered generators. We expect that many of the new power plants needed to meet increasing demand for domestic electricity generation will be fired by natural gas because gas-fired plants are cheaper to construct and permits to construct these plants are easier to obtain as natural gas is seen as having a lower environmental impact than coal-fired generators. In recent periods, governmental regulators at the federal, state and local levels have shown increased interest in limiting greenhouse gas emissions. This has resulted in increased regulation of coal mining and of coal-fired

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power plants and other end-users of coal, increasing the cost of burning coal compared to alternative energy sources. In addition, environmental activists concerned with climate change issues have attempted to use the regulatory and judicial processes to block the construction of new coal-fired plants or capacity expansions to existing plants. Further, state and federal mandates for increased use of electricity from renewable energy sources could have an impact on the market for our coal. More than twenty states have enacted legislative mandates requiring electricity suppliers to use renewable energy sources to generate a certain percentage of power. There have been numerous proposals to establish a similar uniform, national standard. Although none of these federal proposals have been enacted to date, the Obama Administration has indicated its support for a federal renewable energy standard, and federal legislation imposing such a mandate is currently under consideration by Congress. Possible advances in technologies and incentives, such as tax credits, to enhance the economics of renewable energy sources could make these sources more competitive with coal. Any reduction in the amount of coal consumed by North American electric power generators could reduce the price of coal that we mine and sell, thereby reducing our revenues and materially and adversely affecting our business and results of operations.

New and potential future regulatory requirements relating to greenhouse gas emissions could affect our customers and could reduce the demand for coal as a fuel source and cause coal prices and sales of our coal to materially decline.

        One major by-product of burning coal is carbon dioxide, which is considered a greenhouse gas and is a major source of concern with respect to global warming, also known as climate change. Climate change continues to attract public and scientific attention, and increasing government attention is being paid to reducing greenhouse gas emissions, including from coal-fired power plants.

        There are many regulatory approaches currently in effect or being considered to address gases, including possible future U.S. treaty commitments, new federal or state legislation that may impose a carbon emissions tax or establish a cap-and-trade program, and regulation by the U.S. Environmental Protection Agency, or the EPA.

•

The Obama Administration has indicated its support for a mandatory cap and trade program to reduce greenhouse gas emissions and the U.S. Congress is actively considering various proposals to reduce greenhouse gas emissions, mandate electricity suppliers to use renewable energy sources to generate a certain percentage of power, and require energy efficiency measures. In June 2009 the U.S. House of Representatives passed a comprehensive climate change and energy bill, the American Clean Energy and Security Act, and the U.S. Senate is considering similar legislation that would, among other things, impose a nationwide cap on greenhouse gas emissions and require major sources, including coal-fired power plants, to obtain "allowances" to meet that cap.



•

In September 2009 the EPA promulgated a rule requiring certain emitters of greenhouse gases, including coal-fired power plants, to monitor and report their greenhouse gas emissions to the EPA. In addition, in response to the 2007 U.S. Supreme Court ruling in Massachusetts v. EPA that the EPA has authority to regulate carbon dioxide emissions under the Clean Air Act, the EPA has issued and is considering several additional proposals, including one that would require best available control technology for greenhouse gas emissions whenever certain stationary sources, such as a power plants, are built or significantly modified.



•

State and regional climate change initiatives intended to limit or affect the emission of greenhouse gas emissions from certain sources, such as the Regional Greenhouse Gas Initiative covering certain northeastern and mid-Atlantic states, the Western Climate Initiative, the Midwestern Greenhouse Gas Reduction Accord, and the California Global Warming Solutions Act (AB32), either have already taken effect or may take effect before federal action.

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•

The State of California recently approved a fee to be paid by certain emitters of greenhouse gases, and other jurisdictions have or are also considering imposing similar fees or taxes.

        The permitting of new coal-fired power plants has also recently been contested, at times successfully, by state regulators and environmental organizations due to concerns related to greenhouse gas emissions from the new plants. Additionally, in September 2009 a U.S. federal appeals court reinstated a lawsuit filed by several state attorneys general and environmental groups against five of the largest U.S. electric utility companies, alleging that those companies have created a public nuisance due to their emissions of carbon dioxide.

        Climate change initiatives and other efforts to reduce greenhouse gas emissions like those described above or otherwise may require additional controls on coal-fired power plants and industrial boilers, may cause some users of coal to switch from coal to a lower carbon fuel and may result in the closure of coal-fired power plants or in reduced construction of new plants. Any switching of fuel sources away from coal, closure of existing coal-fired power plants, or reduced construction of new coal-fired power plants could have a material adverse effect on demand for and prices received for our coal. See "Environmental and Other Regulatory Matters."

Our business requires substantial capital investment and maintenance expenditures, which we may be unable to provide, and our cost of capital will be higher as a stand-alone company.

        Our business plan and strategy are dependent upon our acquisitions of additional reserves, which require substantial capital expenditures. We also require capital for, among other purposes, acquisition of surface rights, equipment and the development of our mining operations, capital renovations, maintenance and expansions of plants and equipment and compliance with environmental laws and regulations. As part of Rio Tinto, our operations and growth have been funded in large part through capital investments by Rio Tinto America. Upon completion of this offering, we will be an independent company and we will no longer have access to capital from Rio Tinto America or be able to take advantage of the borrowing capacity, assets and consolidated investment grade credit rating of Rio Tinto.

        We will need to develop and maintain our own sources of capital and establish and maintain CPE LLC's credit rating. Following the completion of this offering, CPE LLC's credit rating will not be investment grade and we and CPE LLC will have a higher cost of capital than we and CPE LLC would as a part of Rio Tinto. To the extent that cash on hand, cash generated internally and cash available under the debt financing transactions are not sufficient to fund capital requirements, we and CPE LLC will require additional debt and/or equity financing. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources After this Offering." Debt or equity financing may not be available or, if available, may not be available on satisfactory terms. The recent tightening and volatility of the credit markets has resulted in more stringent lending standards and terms and higher volatility in interest rates. These trends together with significant write-offs in the financial services sector, re-pricing of credit risk and weak economic conditions generally could adversely impact our and CPE LLC's ability to obtain additional debt financing or impact the cost of debt if obtained. If we and CPE LLC are unable to obtain additional capital, we may not be able to maintain or increase our existing production rates and we could be forced to reduce or delay capital expenditures or change our business strategy, sell assets or restructure or refinance CPE LLC's indebtedness, all of which could have a material adverse effect on our business or financial condition.

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CPE LLC's substantial indebtedness could adversely affect our results of operations and financial condition and prevent us from fulfilling our financial obligations.

        In connection with this offering, we anticipate that CPE LLC will enter into the debt financing transactions with one or more lenders, which will include a $           million revolving credit facility and $           million of senior notes. Any outstanding indebtedness could have important consequences to us and CPE LLC, such as:

•

limiting CPE LLC's ability to obtain additional financing to fund growth, such as new LBA acquisitions or other mergers and acquisitions, working capital, capital expenditures, debt service requirements or other cash requirements;



•

requiring much of CPE LLC's cash flow to be dedicated to interest obligations and making it unavailable for other purposes;



•

exposing CPE LLC to the risk of increased interest costs if the underlying interest rates rise;



•

limiting CPE LLC's ability to invest operating cash flow in our business (including to obtain new LBAs or make capital expenditures) due to debt service requirements;



•

making it more difficult for CPE LLC to obtain surety bonds or letters of credit;



•

limiting CPE LLC's ability to compete with companies that are not as leveraged and that may be better positioned to withstand economic downturns;



•

limiting CPE LLC's ability to acquire new coal reserves and/or plant and equipment needed to conduct operations; and



•

limiting our and CPE LLC's flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and general economic and market conditions.

        If the indebtedness of CPE LLC is further increased, the related risks that we and CPE LLC now face, including those described above, could intensify. Moreover, these risks will also apply to CPE LLC's subsidiaries since they will be guarantors of CPE LLC's indebtedness. In addition to the principal repayments on debt, CPE LLC has other demands on its cash resources, including capital expenditures and operating expenses. The ability of CPE LLC to pay its debt depends upon the operating performance of our business. In particular, economic conditions could cause revenues to decline, and hamper CPE LLC's ability to repay indebtedness. If CPE LLC does not have enough cash to satisfy its debt service obligations, CPE LLC may be required to refinance all or part of its debt, sell assets or reduce spending. CPE LLC may not be able to, at any given time, refinance its debt or sell assets on acceptable terms or at all.

If we and CPE LLC are unable to comply with the covenants or restrictions contained in CPE LLC's debt instruments, the lenders could declare all amounts outstanding under those instruments to be due and payable, which could materially and adversely affect our financial condition.

        Under our prior credit arrangements with Rio Tinto America we were not subject to covenants or other restrictions on our ability to operate our business. However, we expect that the debt financing transactions will include covenants that, among other things, will restrict our and CPE LLC's ability to dispose of assets, incur additional indebtedness, pay dividends, create liens on assets, make investments, loans or advances, make acquisitions, engage in mergers or consolidations, and engage in certain transactions with affiliates. We also expect that the debt financing arrangements may require CPE LLC to comply with various financial covenants that may be quite restrictive. Because CPE LLC will be our only direct operating subsidiary, complying with these restrictions may prevent CPE LLC from taking actions that we believe would help us to grow our business. As a cyclical business it may be difficult to comply with these financial covenants. These restrictions could limit our ability to plan for or react to

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market conditions or meet extraordinary capital needs or otherwise restrict corporate activities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources After this Offering" for additional information regarding our credit arrangements.

        The breach of any of the covenants or restrictions unless cured within the applicable grace period, could result in a default under the debt instruments that would permit the lenders to declare all amounts outstanding to be due and payable, together with accrued and unpaid interest. In such an event, CPE LLC may not have sufficient assets to repay such indebtedness. As a result, any default could have serious consequences to our financial condition. An event of default or an acceleration under one of CPE LLC's debt instruments could also cause a cross-default or cross-acceleration of another debt instrument or contractual obligation, which would adversely impact our liquidity.

Failure to obtain, maintain or renew our security arrangements, such as surety bonds or letters of credit, in a timely manner and on acceptable terms could affect our ability to secure reclamation and coal lease obligations, and materially and adversely affect our ability to mine or lease coal.

        Federal and state laws require us to secure the performance of certain long-term obligations, such as mine closure or reclamation costs and federal and state workers' compensation costs, including black lung. A significant portion of our obligations are secured by surety bonds and at December 31, 2008 and June 30, 2009, there were $297.4 million and $317.0 million, respectively, of surety bonds in place (including our obligations with respect to the Decker mine). Certain business transactions, such as coal leases and other obligations, may also require bonding. We may have difficulty procuring or maintaining our surety bonds. Our bond issuers may demand higher fees, additional collateral, including putting up letters of credit, posting cash collateral or other terms less favorable to us upon those renewals. While we were a part of Rio Tinto, Rio Tinto typically served as guarantor of our surety bonds. Surety bond issuers may demand terms that are less favorable to us and there may be fewer companies willing to issue these bonds. Because we are required by state and federal law to have these bonds in place before mining can commence or continue, our failure to maintain surety bonds, letters of credit or other guarantees or security arrangements would materially and adversely affect our ability to mine or lease coal. That failure could result from a variety of factors including lack of availability, our lack of affiliation with Rio Tinto, higher expense or unfavorable market terms, the exercise by third-party surety bond issuers of their right to refuse to renew the surety and restrictions on availability of collateral for current and future third-party surety bond issuers under the terms of any credit arrangements then in place. In addition, because we will not be an investment grade company upon the completion of this offering, surety bond issuers will likely require significantly more collateral than prior to the offering while we were a part of Rio Tinto. Due to current economic conditions and the volatility of the financial markets, surety bond providers may be less willing to provide us with surety bonds or maintain existing surety bonds and we may have greater difficulty satisfying the liquidity requirements under our existing surety bond contracts.

        We have also historically used letters of credit issued under Rio Tinto's pre-existing credit facilities to secure our obligations or, occasionally, serve as collateral for reclamation surety bonds. At December 31, 2008 and June 30, 2009, there were $226.9 million and $229.0 million, respectively, of letters of credit in place under Rio Tinto's credit facilities and other arrangements between RTEA and various counterparties (including our obligations with respect to the Decker mine). These letters of credit are typically renewable annually at various times throughout a given year. We will need to have credit facilities or other resources to meet our surety and bonding requirements and we expect CPE LLC to use a portion of $           million revolving credit facility from time to time for these purposes. We also expect that CPE LLC will retain a portion of the net proceeds from its offering of $           million of senior notes as cash reserves for, among other things, securing our reclamation obligations. We and CPE LLC will agree to use our commercially reasonable efforts following the completion of this offering to obtain new surety bonds, letters of credit or other credit arrangements

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and to obtain the full release of Rio Tinto and its affiliates with respect to any existing surety bonds, letters of credit and other guarantees or credit arrangements. See "Structuring Transactions and Related Agreements—Structure-Related Agreements—Master Separation Agreement." If we do not maintain sufficient borrowing capacity or have other resources to satisfy our surety and bonding requirements, our ability to mine or lease coal could be materially and adversely affected.

If we are unable to acquire or develop additional coal reserves that are economically recoverable, our profitability and future success and growth may be materially and adversely affected.

        Our profitability depends substantially on our ability to mine, in a cost-effective manner, coal reserves that possess the quality characteristics our customers desire. Because our reserves decline as we mine our coal, our future success and growth depend upon our ability to acquire additional coal that is economically recoverable. If we fail to acquire or develop additional reserves, our existing reserves will eventually be depleted. As a result, to maintain our production capacity and competitive position, we will need to acquire significant additional coal through the federal competitive leasing process that can be mined on an economically recoverable basis. We also lease or purchase a smaller portion of our reserves from the states of Montana and Wyoming and from private third parties. See "—Because most of the coal in the vicinity of our mines is owned by the U.S. federal government, our future success and growth could be materially and adversely affected if we are unable to acquire additional reserves through the federal competitive leasing process" and "—We may be unable to acquire state leases for coal reserves, or to do so on a cost-effective basis, which could materially and adversely affect our business strategy and growth plans."

        Our ability to obtain additional coal reserves in the future could also be limited by the availability of cash we generate from our operations or available financing, restrictions under CPE LLC's credit arrangements, competition from other coal companies for properties, the lack of suitable acquisition or LBA opportunities or the inability to acquire coal properties or LBAs on commercially reasonable terms. In addition, we may not be able to mine future reserves as profitably as we do at our current operations. Due to the recent global economic downturn, the prices we are currently receiving for new 2010 coal sales agreements are currently below the average price we are receiving for tons sold in 2009. The economic recoverability of our existing coal and our ability to acquire or develop additional economically recoverable reserves will be materially adversely impacted if prices for coal sold continue to decrease.

Because most of the coal in the vicinity of our mines is owned by the U.S. federal government, our future success and growth could be materially and adversely affected if we are unable to acquire additional reserves through the federal competitive leasing process.

        The U.S. federal government owns most of the coal in the vicinity of our mines. Accordingly, the LBA process is the most significant means of acquiring additional reserves. There is no requirement that the federal government lease coal subject to an LBA, lease its coal at all or give preference to any LBA applicant and our bids from time to time may compete with other coal producers' bids in the PRB. In the current coal pricing environment, LBAs are becoming increasingly more competitive and expensive to obtain, and the review process to submit an LBA for bid continues to lengthen. We expect that this trend may continue. The increasing size of potential LBA tracts may make it easier for new mining operators to enter the market on economical terms and may, therefore, increase competition for LBAs. Increased opposition from non-governmental organizations and other third parties may also lengthen, delay, or complicate the LBA process. In order to win a lease in the LBA process and acquire additional coal, our bid for a coal tract must meet or exceed the fair market value of the coal based on the internal estimates of the Bureau of Land Management, or BLM, which they do not publish. We have maintained a history of timely payments related to our LBAs. If we are unable to maintain our "good payor" status, we would be required to seek bonding for any remaining payments. If we are required to purchase bonding for lease obligations this would significantly increase our costs

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and materially and adversely affect our profitability. See "Business—Reserve Acquisition Process" for a more detailed description of the LBA process.

        Earlier this year the U.S. House of Representatives approved a Department of Interior appropriations bill that included a provision to require an up-front payment of the entire bonus bid for coal leases awarded in 2010. Normally we pay bonus bids in five yearly installments, with the first installment being due when we submit the bid for the coal lease to the BLM. If Congress passes this new provision in the appropriations bill, it would require us to make a single up-front bonus bid payment equal to 100% of the bonus bid for the LBAs for which we intend to bid in 2010, which would materially and adversely affect our cash position, future profitability and results of operations.

        The LBA process also requires us to acquire rights to mine from surface owners overlying the coal, and these rights are becoming increasingly more difficult and costly to acquire. Certain federal regulations provide a specific class of surface owners, also known as qualified surface owners, or QSOs, with the ability to prohibit the BLM from leasing its coal. If a QSO owns the land overlying a coal tract, federal laws prohibit us from leasing the coal tract without first securing surface rights to the land, or purchasing the surface rights from the QSO, which would allow us to conduct our mining operations. This right of QSOs allows them to exercise significant influence over negotiations to acquire surface rights and can delay the LBA process or ultimately prevent the acquisition of an LBA. If we are unable to successfully negotiate access rights with QSOs at a price and on terms acceptable to us, we may be unable to acquire LBAs for coal on land owned by the QSO. If the prices to acquire land owned by QSOs increase, it could materially and adversely affect our profitability.

If we are unable to acquire surface rights to access our coal reserves, we may be unable to obtain a permit to mine coal we own and may be required to employ expensive techniques to mine around those sections of land we cannot access in order to access other sections of coal reserves, which could materially and adversely affect our business and our results of operations.

        After we acquire coal reserves through the LBA process or otherwise, we are required to obtain a permit to mine the reserves through the applicable state agencies prior to mining the acquired coal. In part, the permitting requirements provide that, under certain circumstances, we must obtain surface owner consent if the surface estate has been split from the mineral estate, which is commonly known as a "split estate." At certain of our mines where we have obtained the underlying coal and the surface is held by one or more owners, we are engaged in negotiations for surface access with multiple parties. If we are unable to successfully negotiate surface access with any or all of these surface owners, or do so on commercially reasonable terms, we may be denied a permit to mine some or all of our coal or may find that we cannot mine the coal at a profit. If we are denied a permit, this would create significant delays in our mining operations and materially and adversely impact our business and results of operations. Furthermore, if we determine to alter our plans to mine around the affected areas, we could incur significant additional costs to do so, which could increase our operating expenses considerably and could materially and adversely affect our results of operations.

We may be unable to acquire state leases for coal reserves, or to do so on a cost-effective basis, which could materially and adversely affect our business strategy and growth plans.

        We acquire a small percentage of our reserves through state leasing processes. Not including the Decker mine, we typically lease approximately 15% of our reserves from state leases, the majority of which involve our Spring Creek mine. Nearly all of the state leases in Wyoming have already been acquired by various mining operations in the PRB, including ours. If, as part of our growth strategy, we desire to expand our operations into areas requiring state leases, we may be required to negotiate with competing Wyoming mining operations to acquire these reserves. If we are unable to do so on a cost-effective basis, our business strategy could be adversely affected. We do not typically acquire state

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leases in Montana significantly in advance of mining operations due to the complexity of the leasing process in Montana.

Conflicts of interest with competing holders of mineral rights could materially and adversely affect our ability to mine coal or do so on a cost-effective basis.

        In addition to federal coal leases through the competitive leasing process, the federal government also leases rights to other minerals such as coalbed methane, natural gas and oil reserves in the western U.S., including in the PRB. Some of these minerals are located on, or are adjacent to, some of our coal reserves and LBA areas, potentially creating conflicting interests between us and the lessees of those interests. In addition, from time to time we acquire these minerals ourselves to prevent conflicting interests from arising. If, however, conflicting interests arise and we do not acquire the competing mineral rights, we may be required to negotiate our ability to mine with the holder of the competing mineral rights. If we are unable to reach an agreement with these holders, or do so on a cost-effective basis, we may incur increased costs, our ability to mine could be impaired and our business and results of operations could be materially and adversely affected.

Our management team does not have experience managing our business as a stand-alone public company and if they are unable to manage our business as a stand-alone public company, our business may be harmed.

        We have historically operated as part of Rio Tinto. Following the completion of this offering, we will operate as a stand-alone public company. Our management team does not have experience managing our business on a stand-alone basis or as a public company. If we are unable to manage and operate our company as an independent public entity, our business and results of operations will be adversely affected.

We have identified material weaknesses in our internal controls over financial reporting as a stand-alone company that have contributed to a restatement of our 2005, 2006 and 2007 consolidated financial statements and June 30, 2008 interim quarterly consolidated financial statements. If not remediated satisfactorily, these material weaknesses could result in further material misstatements in our consolidated financial statements in future periods.

        During the preparation of our consolidated financial statements as of December 31, 2007 and 2008 and for each of the three years in the period ended December 31, 2008, we identified material weaknesses in our internal controls over financial reporting as a stand-alone company that contributed to a restatement of our 2005, 2006 and 2007 consolidated financial statements and June 30, 2008 interim consolidated financial statements. If not remediated satisfactorily, these material weaknesses could result in further material misstatements in our consolidated financial statements in future periods. Specifically, we have not been required to have, and as a result did not maintain a sufficient complement of personnel with an appropriate level of accounting, taxation, and financial reporting knowledge, experience and training in the application of U.S. GAAP commensurate with our financial reporting requirements on a stand-alone basis and the complexity of our operations and transactions. We also did not maintain an adequate system of processes and internal controls sufficient to support our financial reporting requirements and produce timely and accurate U.S. GAAP consolidated financial statements consistent with being a stand-alone public company.

        A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.

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        We cannot be reasonably assured that our remediation actions will be effective to correct material weaknesses. If we continue to experience material weaknesses, investors could lose confidence in our financial reporting, particularly if such weaknesses result in a restatement of our financial results, and our stock price could decline. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Internal Controls."

Inaccuracies in our estimates of our coal reserves could result in decreased profitability from lower than expected revenues or higher than expected costs.

        Our future performance depends on, among other things, the accuracy of our estimates of our proven and probable coal reserves. We base our estimates of reserves on engineering, economic and geological data assembled and analyzed by our internal engineers. In connection with this offering, these estimates were reviewed by John T. Boyd Company, mining and geological consultants, for the year ended December 31, 2008. Non-reserve coal deposit estimates related to our January 2009 LBA were estimated by the BLM and have not been independently reviewed or verified. The amount of non-reserve coal deposits on this LBA, and additional LBAs we may acquire, or contained in our non-reserve coal deposits may be less than the stated estimates. Coal acquired through the LBA process is not included as proven or probable coal reserves unless assessed by our staff of geologists and engineers to verify that such classification is appropriate. Our estimates of proven and probable coal reserves as to both quantity and quality are updated annually to reflect the production of coal from the reserves, updated geological models and mining recovery data, the tonnage contained in new lease areas acquired and estimated costs of production and sales prices. There are numerous factors and assumptions inherent in estimating the quantities and qualities of, and costs to mine, coal reserves, any one of which may vary considerably from actual results. These factors and assumptions include:

•

quality of the coal;



•

geological and mining conditions, which may not be fully identified by available exploration data and/or may differ from our experiences in areas where we currently mine;



•

the percentage of coal ultimately recoverable;



•

the assumed effects of regulation, including the issuance of required permits, and taxes, including severance and excise taxes and royalties, and other payments to governmental agencies;



•

assumptions concerning the timing for the development of the reserves; and



•

assumptions concerning equipment and productivity, future coal prices, operating costs, including for critical supplies such as fuel, tires and explosives, capital expenditures and development and reclamation costs.

        As a result, estimates of the quantities and qualities of economically recoverable coal attributable to any particular group of properties, classifications of reserves based on risk of recovery, estimated cost of production, and estimates of future net cash flows expected from these properties as prepared by different engineers, or by the same engineers at different times, may vary materially due to changes in the above factors and assumptions. Actual production recovered from identified reserve areas and properties, and revenues and expenditures associated with our mining operations, may vary materially from estimates. Any inaccuracy in our estimates related to our reserves could result in decreased profitability from lower than expected revenues and/or higher than expected costs.

If our highwalls or spoil-piles fail, our mining operations and ability to ship our coal could be impaired and our results of operations could be materially and adversely affected.

        Our operations could be adversely affected and we may be unable to produce coal if our highwalls fail due to conditions which may include geological abnormalities, poor ground conditions, water or blasting shocks, among others. In addition to making it difficult and more costly to recover coal, a

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highwall failure could also damage adjacent infrastructure such as roads, power lines, railways and gas pipelines. Further, in-pit spoil failure due to conditions such as material type, water ingress, floor angle, floor roughness, spoil volume or otherwise, can impact coal removal, reduce coal recovery, increase our costs, or interrupt our production and shipments. Highwall and spoil-pile failures could materially and adversely affect our operations thereby reducing our profitability.

Major equipment and plant failures could reduce our ability to produce and ship coal and materially and adversely affect our results of operations.

        We depend on several major pieces of equipment and plant to produce and ship our coal, including draglines, shovels, coal crushing plants, critical conveyors, major transformers and coal silos. If any of these pieces of equipment or plant suffered major damage or were destroyed by fire, abnormal wear, flooding, incorrect operation, damage from highwall or spoil-pile failures, or otherwise, we may be unable to replace or repair them in a timely manner or at a reasonable cost which would impact our ability to produce and ship coal and materially and adversely affect our results of operations.

Significant increases in the royalty and production taxes we pay on the coal we produce could materially and adversely affect our results of operations.

        We pay federal, state and private royalties and federal, state and county production taxes on the coal we produce. A substantial portion of our royalties and production taxes are levied as a percentage of gross revenues with the remaining levied on a per ton basis. For example, we pay production royalties of 12.5% of gross proceeds to the federal government. We incurred royalties and production taxes which represented 29.5% and 28.9% of proceeds from the coal we produced for the year ended December 31, 2008 and the six months ended June 30, 2009, respectively. If the royalty and production tax rates were to significantly increase, our results of operations could be materially and adversely affected.

        In addition, the Wyoming state severance tax is significantly less than the state severance tax in Montana. Because a substantial portion of our operations are in Wyoming and therefore subject to the more favorable Wyoming severance tax rate, if Wyoming were to increase this tax or any other tax applicable solely to our Wyoming operations, we may be significantly impacted and our results of operations could be materially and adversely affected.

Increases in the cost of raw materials and other industrial supplies, or the inability to obtain a sufficient quantity of those supplies, could increase our operating expenses, disrupt or delay our production and materially and adversely affect profitability.

        We use considerable quantities of explosives, petroleum-based fuels, tires, steel and other raw materials, as well as spare parts and other consumables in the mining process. If the prices of steel, explosives, tires, petroleum products or other materials increase significantly or if the value of the U.S. dollar continues to decline relative to foreign currencies with respect to certain imported supplies or other products, our operating expenses will increase, which could materially and adversely impact our profitability. Additionally, a limited number of suppliers exist for certain supplies, such as explosives and tires as well as certain mining equipment, and any of our suppliers may divert their products to buyers in other mines or industries or divert their raw materials to produce other products that have a higher profit margin. Shortages in raw materials used in the manufacturing of supplies and mining equipment, which, in some cases, do not have ready substitutes, or the cancellation of our supply contracts under which we obtain these raw materials and other consumables, could limit our ability to obtain these supplies or equipment. As a stand-alone company, we may experience more difficulty in acquiring supplies, particularly where there are shortages, than we otherwise would have experienced as part of Rio Tinto. As a consequence, we may not be able to acquire adequate replacements for these

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supplies or equipment on a cost-effective basis or at all, which could also materially increase our operating expenses or halt, disrupt or delay our production. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Cost of Product Sold."

Significant increases in the price of diesel fuel could materially and adversely affect our earnings.

        Operating expenses at our mining locations are sensitive to changes in diesel fuel prices. Our weighted average price for diesel fuel was $3.31 per gallon for the year ended December 31, 2008. Since December 2008, our weighted average price for diesel fuel increased from $1.63 per gallon in December 2008 to $2.01 per gallon in August 2009. Diesel fuel expenses represented 10.6% of our cost of product sold for the year ended December 31, 2008, and 5.3% for the six months ended June 30, 2009. We have not entered into any hedge or other arrangements to reduce the volatility in the price of diesel fuel for our operations, although we may do so in the future. In addition, the supply contract under which we purchase all of our diesel fuel expires at the end of 2009. As a result, if we are unable to extend the term of this agreement, or enter into a new supply contract on the same or similar terms or if the price of diesel fuel continues to increase, we will incur higher expenses for diesel fuel and, therefore, potentially materially lower earnings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Cost of Product Sold."

As a stand-alone company, we will need to enter into new supply contracts for the raw materials and other mining consumables used in our mining operations. If we are unable to do so, or to do so on a cost-effective basis, our operating expenses could materially increase and our ability to conduct our business could be materially and adversely affected.

        As part of Rio Tinto, we historically obtained explosives, petroleum-based fuels, tires, steel and other raw materials, as well as spare parts and other mining consumables used in the mining process through various Rio Tinto global and regional supply contracts. Upon completion of this offering, we will no longer be a party to these Rio Tinto supply contracts. Some of our supplies and equipment will be obtained under purchase orders or other arrangements entered into prior to termination. Additionally, we have begun entering into new supply contracts with our suppliers and expect to continue to enter into new supply contracts prior to the completion of this offering to replace the Rio Tinto supply contracts. Any new contracts may not be on the same or similar terms to those contracts with Rio Tinto. The prices for those supplies and equipment may be more expensive because we will not be part of Rio Tinto or have access to their supply arrangements. If we are unable to enter into new supply contracts or if the new supply contracts contain materially different terms relative to Rio Tinto supply contracts, including with respect to costs, our operating expenses could materially increase and our mining operations could be materially and adversely affected.

The majority of our coal sales contracts are forward sales contracts at fixed prices. If the production costs underlying these contracts increase, our results of operations could be materially and adversely affected.

        The majority of our coal sales contracts are forward sales contracts under which customers agree to pay a specified price under their contracts for coal to be delivered in future years. The profitability of these contracts depends on our ability to adequately control the costs of the coal production underlying the contracts. These production costs are subject to variability due to a number of factors, including increases in the cost of labor, supplies or other raw materials, such as diesel fuel. As part of Rio Tinto, we did not enter into hedge or other arrangements to offset the cost variability underlying these forward sale contracts. In the future, we may enter into these types of arrangements but we may not be successful in hedging the volatility of our costs. To the extent our costs increase but pricing under these coal sales contracts remains fixed, we will be unable to pass increasing costs on to our customers. If we are unable to control our costs, our profitability under our forward sales contracts may be impaired and our results of operations could be materially and adversely affected.

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Our ability to operate our business effectively could be impaired if we fail to attract and retain key personnel.

        Our ability to operate our business and implement our strategies depends, in part, on the continued contributions of our executive officers and other key employees. The loss of any of our key senior executives could have a material adverse effect on our business unless and until we find a replacement. A limited number of persons exist with the requisite experience and skills to serve in our senior management positions. We may not be able to locate or employ qualified executives on acceptable terms. In addition, we believe that our future success will depend on our continued ability to attract and retain highly skilled personnel with coal industry experience. Competition for these persons in the coal industry is intense and we may not be able to successfully recruit, train or retain qualified managerial personnel. As a public company, our future success also will depend on our ability to hire and retain management with public company experience. We may not be able to continue to employ key personnel or attract and retain qualified personnel in the future. Our failure to retain or attract key personnel could have a material adverse effect on our ability to effectively operate our business.

As a stand-alone U.S. public company, we will be required to comply with certain financial reporting and other requirements on a basis that is different than our reporting requirements as a subsidiary of Rio Tinto. If we are unable to comply with these requirements, our business could be materially and adversely affected.

        Prior to this offering, we operated as an indirect, wholly-owned subsidiary of Rio Tinto, which requires us to provide them financial information for inclusion in their consolidated financial reports. We provided this information in accordance with International Financial Reporting Standards, or IFRS, at a level of materiality commensurate with their consolidated financial statements and necessary to meet their regulatory financial reporting requirements. As a stand-alone public company, we will be required to comply with the record keeping, financial reporting, corporate governance and other rules and regulations of the SEC, including the requirements of the Sarbanes-Oxley Act, the Public Company Accounting Oversight Board, or PCAOB, and other regulatory bodies. These entities generally require that financial information be reported in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, which differs from IFRS. We will also be required to report at a level of materiality commensurate with our stand-alone consolidated financial statements and necessary to meet our regulatory financial reporting requirements, which is lower than that of Rio Tinto.

        As an indirect, wholly-owned subsidiary of Rio Tinto, we were not required to and did not have personnel with SEC, Sarbanes-Oxley Act, PCAOB and U.S. GAAP financial reporting expertise. In addition, we were not required to comply with the internal control design, documentation and testing requirements imposed by the Sarbanes-Oxley Act on a stand-alone basis, but rather only complied to the extent required as a part of Rio Tinto. In connection with this offering as a publicly-held, stand-alone company, we will become directly subject to these requirements. If we fail to comply with these requirements, our business and stock price could be materially and adversely affected, including, among other things, through the loss of investor confidence, adverse publicity, investigations and sanctions imposed by regulatory authorities.

We will be required by Section 404 of the Sarbanes-Oxley Act to evaluate the effectiveness of our internal controls. If we are unable to achieve and maintain effective internal controls, our operating results and financial condition could be harmed.

        We will be required to comply with Section 404 of the Sarbanes-Oxley Act beginning with the year ending December 31, 2010. Section 404 will require that we evaluate our internal control over financial reporting to enable management to report on, and our independent registered public accounting firm to audit, the effectiveness of those controls. Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial

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reporting and the preparation of our consolidated financial statements in accordance with U.S. GAAP. While we have begun the lengthy process of evaluating our internal controls, we are in the early phases of our review and will not complete our review until well after this offering is completed. We cannot predict the outcome of our review at this time. During the course of the review, we may identify additional control deficiencies of varying degrees of severity, in addition to the material weaknesses discussed above.

        Management has taken steps to improve and continues to improve our internal control over financial reporting, including identification of the gaps in skills base and expertise of staff required in the finance group to operate as a public company. We will incur significant costs to remediate our material weaknesses and deficiencies and improve our internal controls. To comply with these requirements, we may need to upgrade our systems, including information technology, implement additional financial and management controls, reporting systems and procedures and hire additional accounting, finance and legal staff. If we are unable to upgrade our systems and procedures in a timely and effective fashion, we may not be able to comply with our financial reporting requirements and other rules that apply to public companies.

        As a public company, we will be required to report control deficiencies that constitute a material weakness in our internal control over financial reporting. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Internal Controls." We will also be required to obtain an audit report from our independent registered public accounting firm regarding the effectiveness of our internal controls over financial reporting. If we fail to implement the requirements of Section 404 in a timely manner, if we or our independent registered public accounting firm are unable to conclude that our internal control over financial reporting are effective or if we fail to comply with our financial reporting requirements, investors may lose confidence in the accuracy and completeness of our financial reports. In addition, we or members of our management could be the subject of adverse publicity, investigations and sanctions by regulatory authorities, including the SEC and the NYSE, and be subject to shareholder lawsuits. Any of the above consequences could cause our stock price to decline materially and could impose significant unanticipated costs on us.

We will incur higher costs as a result of being a public company, which may be significant. If we fail to accurately predict or effectively manage these costs, our operating results could be materially and adversely affected.

        As a public company, we will incur higher accounting, purchasing, treasury, legal, risk management, corporate governance and other support expenses than we did as a part of Rio Tinto, which may be significant. The SEC and the New York Stock Exchange have imposed substantial requirements on public companies, including requirements for corporate governance practices and for internal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act. We expect these rules and regulations to increase our accounting, legal and other costs and to make some activities more time-consuming. While additional personnel have been retained, we also will need to recruit additional accounting, legal and administrative staff with experience working for public companies. We may have to enter into short-term arrangements with third-party service providers for certain services, such as legal, external financial reporting, and other functions. These arrangements may not be available on favorable terms. In addition, these service providers may not provide these services at levels sufficient to comply with regulatory requirements. We also may not be able to successfully transition away from these third-party service providers. Moreover, the rules that will be applicable to us as a public company after this offering could make it more difficult and expensive for us to attract and retain qualified members of our board of directors and qualified executive officers. We also anticipate that these rules will make it difficult and expensive for us to obtain director and officer liability insurance. If we fail to predict these costs accurately or to manage these costs effectively, our operating results could be adversely affected. See Note 1(k) in "Unaudited Pro Forma Condensed Consolidated Financial

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Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Post-offering Cost Structure."

Extensive environmental regulations, including existing and potential future regulatory requirements relating to air emissions, affect our customers and could reduce the demand for coal as a fuel source and cause coal prices and sales of our coal to materially decline.

        The operations of our customers are subject to extensive environmental regulation particularly with respect to air emissions. For example, the federal Clean Air Act and similar state and local laws extensively regulate the amount of sulfur dioxide, particulate matter, nitrogen oxides, mercury and other compounds emitted into the air from electric power plants, which are the largest end-users of our coal. A series of more stringent requirements relating to particulate matter, ozone, haze, mercury, sulfur dioxide, nitrogen oxide and other air pollutants is expected to be proposed or become effective in the near future. In addition, federal and state mandates and incentives designed to encourage energy efficiency and the use of alternative energy sources have been proposed and implemented in recent years. Concerted conservation efforts that result in reduced electricity consumption could cause coal prices and sales of our coal to materially decline.

        Considerable uncertainty is associated with these air emissions initiatives. New regulations are in the process of being developed, and many existing and potential regulatory initiatives are subject to review by federal or state agencies or the courts. Stringent air emissions limitations are either in place or are likely to be imposed in the short to medium term, and these limitations will likely require significant emissions control expenditures for many coal-fired power plants. As a result, these power plants may switch to other fuels that generate fewer of these emissions or may install more effective pollution control equipment that reduces the need for low-sulfur coal, possibly reducing future demand for coal and resulting in a reduced need to construct new coal-fired power plants. The EIA's expectations for the coal industry assume there will be a significant number of as-yet-unplanned coal-fired plants built in the future, which may not occur. Any switching of fuel sources away from coal, closure of existing coal-fired plants, or reduced construction of new plants could have a material adverse effect on demand for, and prices received for, our coal. Alternatively, less stringent air emissions limitations, particularly related to sulfur, to the extent enacted, could make low-sulfur coal less attractive, which could also have a material adverse effect on the demand for, and prices received for, our coal. See "Environmental and Other Regulatory Matters."

Extensive environmental laws and regulations impose significant costs on our mining operations, and future laws and regulations could materially increase those costs or limit our ability to produce and sell coal.

        The coal mining industry is subject to increasingly strict regulation by federal, state and local authorities with respect to environmental matters such as:

•

limitations on land use;



•

mine permitting and licensing requirements;



•

reclamation and restoration of mining properties after mining is completed;



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management of materials generated by mining operations;



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the storage, treatment and disposal of wastes;



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remediation of contaminated soil and groundwater;



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air quality standards;



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water pollution;

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•

protection of human health, plant-life and wildlife, including endangered or threatened species;



•

protection of wetlands;



•

the discharge of materials into the environment;



•

the effects of mining on surface water and groundwater quality and availability; and



•

the management of electrical equipment containing polychlorinated biphenyls.

        The costs, liabilities and requirements associated with the laws and regulations related to these and other environmental matters may be significant and time-consuming and may delay commencement or continuation of exploration or production operations. We may not have complied and in the future may not comply with these applicable laws and regulations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of cleanup and site restoration costs and liens, the issuance of injunctions to limit or cease operations, the suspension or revocation of permits and other enforcement measures that could have the effect of limiting production from our operations. We may incur material costs and liabilities resulting from claims for damages to property or injury to persons arising from our operations. If we are pursued for sanctions, costs and liabilities in respect of these matters, our mining operations and, as a result, our profitability could be materially and adversely affected.

        New legislation or administrative regulations or new judicial interpretations or administrative enforcement of existing laws and regulations, including proposals related to the protection of the environment that would further regulate and tax the coal industry, may also require us to change operations significantly or incur increased costs. Such changes could have a material adverse effect on our financial condition and results of operations. See "Environmental and Other Regulatory Matters."

Our operations may affect the environment or cause exposure to hazardous substances, and our properties may have environmental contamination, any of which could result in material liabilities to us.

        Our operations currently use, and in the past have used, hazardous materials and generate, and in the past have generated, hazardous wastes. In addition, many of the locations that we own, lease or operate were used for coal mining and/or involved hazardous materials either before or after we were involved with these locations. We may be subject to claims under federal and state statutes and/or common law doctrines for toxic torts, natural resource damages and other damages, as well as for the investigation and clean up of soil, surface water, groundwater, and other media. These claims may arise, for example, out of current or former conditions at sites that we own, lease or operate currently, as well as at sites that we or predecessor entities owned, leased or operated in the past, and at contaminated third-party sites at which we have disposed of waste. As a matter of law, and despite any contractual indemnity or allocation arrangements or acquisition agreements to the contrary, our liability for these claims may be joint and several, so that we may be held responsible for more than our share of any contamination, or even for the entire share.

        These and similar unforeseen impacts that our operations may have on the environment, as well as human exposure to hazardous substances or wastes associated with our operations, could result in costs and liabilities that could materially and adversely affect us.

Extensive governmental regulations pertaining to employee safety and health impose significant costs on our mining operations, which could materially and adversely affect our results of operations.

        Federal and state safety and health regulations in the coal mining industry are among the most comprehensive and pervasive systems for protection of employee safety and health affecting any segment of U.S. industry. Compliance with these requirements imposes significant costs on us and can result in reduced productivity. Moreover, the possibility exists that new health and safety legislation

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and/or regulations and orders may be adopted that may materially and adversely affect our mining operations.

        We must compensate employees for work-related injuries. If we do not make adequate provisions for our workers' compensation liabilities, it could harm our future operating results. In addition, the erosion through tort liability of the protections we are currently provided by workers' compensation laws could increase our liability for work-related injuries and materially and adversely affect our operating results. Under federal law, each coal mine operator must secure payment of federal black lung benefits to claimants who are current and former employees and contribute to a trust fund for the payment of benefits and medical expenses to claimants who last worked in the coal industry before January 1, 1970. The trust fund is funded by an excise tax on coal production. If this tax increases, or if we could no longer pass it on to the purchasers of our coal under our coal sales agreements, our operating costs could be increased and our results could be materially and adversely harmed. If new laws or regulations increase the number and award size of claims, it could materially and adversely harm our business. See "Environmental and Other Regulatory Matters—Mine Safety and Health."

Federal or state regulatory agencies have the authority to order certain of our mines to be temporarily or permanently closed under certain circumstances, which could materially and adversely affect our ability to meet our customers' demands.

        Federal or state regulatory agencies have the authority under certain circumstances following significant health and safety incidents, such as fatalities, to order a mine to be temporarily or permanently closed. If this occurred, we may be required to incur capital expenditures to re-open the mine. In the event that these agencies order the closing of our mines, our coal sales contracts generally permit us to issue force majeure notices which suspend our obligations to deliver coal under these contracts. However, our customers may challenge our issuances of force majeure notices. If these challenges are successful, we may have to purchase coal from third-party sources, if it is available, to fulfill these obligations, incur capital expenditures to re-open the mines and/or negotiate settlements with the customers, which may include price reductions, the reduction of commitments or the extension of time for delivery or terminate customers' contracts. Any of these actions could have a material adverse effect on our business and results of operations.

We may be unable to obtain, maintain or renew permits or leases necessary for our operations, which would materially reduce our production, cash flow and profitability.

        Mining companies must obtain a number of permits that impose strict regulations on various environmental and operational matters in connection with coal mining. These include permits issued by various federal, state and local agencies and regulatory bodies. The permitting rules, and the interpretations of these rules, are complex, change frequently, and are often subject to discretionary interpretations by the regulators, all of which may make compliance more difficult or impractical, and may possibly preclude the continuance of ongoing operations or the development of future mining operations. The public, including non-governmental organizations, anti-mining groups and individuals, have certain statutory rights to comment upon and submit objections to requested permits and environmental impact statements prepared in connection with applicable regulatory processes, and otherwise engage in the permitting process, including bringing citizens' lawsuits to challenge the issuance of permits, the validity of environmental impact statements or performance of mining activities. Recently environmental groups made extensive comments to an environmental impact statement prepared in connection with one of our federal mining lease applications. These groups argued that the statement failed to satisfactorily consider climate change risks. If this or any other permits or leases are not issued or renewed in a timely fashion or at all, or if permits or leases issued or renewed are conditioned in a manner that restricts our ability to efficiently and economically

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conduct our mining activities, we could suffer a material reduction in our production, and our cash flow or profitability could be materially and adversely affected.

Because we produce and sell coal with low-sulfur content, a reduction in the price of sulfur dioxide emission allowances or increased use of technologies to reduce sulfur dioxide emissions could materially and adversely affect the demand for our coal and our results of operations.

        Our customers' demand for our low-sulfur coal, and the prices that we can obtain for it, are affected by, among other things, the price of sulfur dioxide emissions allowances. The Clean Air Act places limits on the amounts of sulfur dioxide that can be emitted by an electric power plant in any given year. If a plant exceeds its allowable limits, it must purchase allowances, which are tradeable in the open market. Regulatory uncertainty following the action by the U.S. Court of Appeals for the District of Columbia Circuit to vacate the Clean Air Interstate Rule, or CAIR, in July 2008, and its subsequent temporary reinstatement, which established a cap-and-trade program for sulfur dioxide and nitrogen oxide emissions from power plants in certain states, caused a significant decrease in the price of sulfur dioxide allowances in 2008 and 2009 and delayed the installation of technology to reduce emissions at some power plants. Low prices of these emissions allowances could make our low-sulfur coal less attractive to our customers. In addition, more widespread installation by electric utilities of technology that reduces sulfur emissions, which could be accelerated by increases in the prices of sulfur dioxide emissions allowances, may make high sulfur coal more competitive with our low-sulfur coal. This competition could materially and adversely affect our business and results of operations.

Our ability to collect payments from our customers could be impaired if their creditworthiness deteriorates.

        Our ability to receive payment for coal sold and delivered depends on the continued creditworthiness of our customers. The current economic volatility and tightening credit markets increase the risk that we may not be able to collect payments from our customers or be required to continue to deliver coal even if the customer's creditworthiness deteriorates. A continuation or worsening of current economic conditions or a prolonged global or U.S. recession could also impact the creditworthiness of our customers. If we determine that a customer is not creditworthy, we may not be required to deliver coal under the customer's coal sales contract. If we are able to withhold shipments, we may decide to sell the customer's coal on the spot market, which may be at prices lower than the contracted price, or we may be unable to sell the coal at all. Furthermore, the bankruptcy of any of our customers could materially and adversely affect our financial position. In addition, our customer base may change with deregulation as utilities sell their power plants to their non-regulated affiliates or third parties that may be less creditworthy, thereby increasing the risk we bear for customer payment default. These new power plant owners may have credit ratings that are below investment grade, or may become below investment grade after we enter into contracts with them. In addition, competition with other coal suppliers could force us to extend credit to customers and on terms that could increase the risk of payment default.

Our ability to mine and ship coal is affected by adverse weather conditions, which could have an adverse effect on our revenues.

        Adverse weather conditions can impact our ability to mine and ship our coal and our customers' ability to take delivery of our coal. Lower than expected shipments by us during any period could have an adverse effect on our revenues and profitability. For example, in 2005, our volume of coal shipments was impacted by severe heavy rain, which reduced the capacity of the railroads by which our customers contract to transport coal from our mines. In addition, severe weather, including droughts and dust, may affect our ability to conduct our mining operations.

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The availability and reliability of transportation and increases in transportation costs, particularly for rail systems, could materially and adversely affect the demand for our coal or impair our ability to supply coal to our customers.

        Transportation costs, particularly rail transportation costs, represent a significant portion of the total cost of coal for our customers, and the cost of transportation is a key factor in a customer's purchasing decision. Increases in transportation costs or the lack of sufficient rail capacity or availability could make coal a less competitive source of energy or could make the coal produced by us less competitive than coal produced from other regions, either of which could lead to reduced coal sales and/or reduced prices we receive for the coal.

        Our ability to sell coal to our customers depends primarily upon third-party rail systems. If our customers are unable to obtain rail or other transportation services, or to do so on a cost-effective basis, our business and growth strategy could be adversely affected. Alternative transportation and delivery systems are generally inadequate and not suitable to handle the quantity of our shipments or to ensure timely delivery to our customers. In particular, much of the PRB is served by two rail carriers, and the Northern PRB is only serviced by one rail carrier. The loss of access to rail capacity in the PRB could create temporary disruption until this access was restored, significantly impairing our ability to supply coal and resulting in materially decreased revenues. Our ability to open new mines or expand existing mines may also be affected by the availability and cost of rail or other transportation systems available for servicing these mines.

        We are a party to certain transportation contracts. During the past twelve months we have entered into an increasing number of export deals whereby we enter into transportation agreements pursuant to which we arrange for rail transport and port charges. However, typically our coal customers contract for, and pay directly for transportation of coal from the mine or port to the point of use. Disruption of these transportation services because of weather-related problems, mechanical difficulties, train derailment, bridge or structural concerns, infrastructure damage, whether caused by ground instability, accidents or otherwise, strikes, lock-outs, lack of fuel or maintenance items, fuel costs, transportation delays, accidents, terrorism or domestic catastrophe or other events could temporarily or over the long term impair our ability to supply coal to our customers and our customers' ability to take our coal and, therefore, could materially and adversely affect our business and results of operations.

Due to the long-term nature of our coal sales agreements, the prices we receive for our coal at any given time may not reflect the then-existing current market prices for coal.

        We have historically sold most of our coal under long-term coal sales agreements, which we generally define as contracts with a term of one to five years. The remaining amount not subject to long-term coal sales agreements is sold as spot sales in term allotments of less than twelve months. For the year ended December 31, 2008 and the six months ended June 30, 2009, approximately 93.3% and 98.8%, respectively, of our revenues was derived from coal sales that were made under long-term coal sales agreements. The prices for coal sold under these agreements are typically fixed for an agreed amount of time. Pricing in some of these contracts is subject to certain adjustments in later years or under certain circumstances, and may be below the current market price for similar type coal at any given time, depending on the timeframe of the contract. As a consequence of the substantial volume of our forward sales, we have less coal available to sell under short-term contracts with which to immediately capitalize on higher coal prices, if and when they arise. Spot market prices have recently fallen below the prices established in many of our long-term coal sales agreements and we are currently realizing prices for our coal that are higher than the prices we would receive from sales in the spot market. However, to the extent spot market prices increase and become higher than the prices established in our long-term coal sales agreements, our ability to realize those higher prices may be restricted when customers elect to purchase additional volumes allowable under some contracts at contract prices that are lower than current spot prices.

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Changes in purchasing patterns in the coal industry may make it difficult for us to enter into new contracts with customers, or do so on favorable terms, which could materially and adversely affect our business and results of operations.

        Although we currently sell the majority of our coal under long-term coal sales agreements, as electric utilities customers continue to adjust to increased price volatility, increased fungibility of coal products, frequently changing regulations and the increasing deregulation of their industry, they are becoming less willing to enter into long-term coal sales contracts. In addition, in recent months the prices for coal in the spot market have decreased and are currently lower than the prices previously set under many of our existing long-term coal sales agreements. As our current contracts with customers expire or are otherwise renegotiated, our customers may be less willing to extend or enter into new long-term coal sales agreements under their existing or similar pricing terms or our customers may decide to purchase fewer tons of coal than in the past. We have one significant broker sales contract which in 2008 contributed $135.1 million of revenue and income before tax of $38.4 million after an amortization charge for the related contract rights of $33.3 million. Final deliveries are expected to be made under this contract in the first quarter of 2010 at which time we expect the contract to expire. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Revenues."

        These trends in purchasing patterns in the coal industry could continue in the future and, to the extent our customers shift away from long-term supply contracts, it will be more difficult to predict our future sales, and we cannot be certain that we will have a market for our future production at acceptable prices. The prices we receive in the spot market may be less than the contractual price an electric utility is willing to pay for a committed supply. Furthermore, spot market prices tend to be more volatile than contractual prices, which could result in decreased revenues.

If the assumptions underlying our reclamation and mine closure obligations are materially inaccurate, our costs could be significantly greater than anticipated.

        All of our mines are surface mining operations. The Surface Mining Control and Reclamation Act of 1977, or SMCRA, and counterpart state laws and regulations establish operational, reclamation and closure standards for all aspects of surface mining. We estimate our total reclamation and mine-closing liabilities based on permit requirements, engineering studies and our engineering expertise related to these requirements. The estimate of ultimate reclamation liability is reviewed periodically by our management and engineers. At the Decker mine, the reclamation liability is estimated by the third party operator. The estimated liability can change significantly if actual costs vary from our original assumptions or if governmental regulations change significantly. Statement of Financial Accounting Standards, or SFAS, No. 143, Accounting for Asset Retirement Obligations ("FAS 143"), requires that asset retirement obligations be recorded as a liability based on fair value, which reflects the present value of the estimated future cash flows. In estimating future cash flows, we consider the estimated current cost of reclamation and apply inflation rates and a third-party profit, as necessary. The third-party profit is an estimate of the approximate markup that would be charged by contractors for work performed on behalf of us. The resulting estimated reclamation and mine closure obligations could change significantly if actual amounts change significantly from our assumptions, which could have a material adverse effect on our results of operation, and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources After this Offering—Off-Balance Sheet Arrangements" for a description of our estimated costs of these liabilities.

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If the third-party sources we use to supply coal are unable to fulfill the delivery terms of their contracts, our results of operations could be materially and adversely affected.

        To fulfill deliveries under our coal sales agreements, we may from time to time purchase coal through third-party sources. For the year ended December 31, 2008 and the six months ended June 30, 2009, we purchased 8.1 million tons and 5.3 million tons, respectively, from third-party sources for delivery during those periods. We also from time to time use third-party sources to sell our coal. Our profitability and exposure to loss on these transactions or relationships is dependent upon the reliability, including the financial viability, of the third-party coal producer, and on the price of the coal supplied by the third-party or sold by us. Operational difficulties, changes in demand and other factors could affect the availability, pricing and quality of coal purchased by us. Disruptions in the quantities or qualities of coal purchased by us could affect our ability to fill our customer orders or require us to purchase coal, including at higher prices, from other sources in order to satisfy those orders. If we are unable to fill a customer order or if we are required to purchase coal from other sources in order to satisfy a customer order, we could lose existing customers, and our results of operations could be adversely affected.

Certain provisions in our coal sales contracts may provide limited protection during adverse economic conditions or may result in economic penalties upon a failure to meet specifications, any of which may cause our revenues and profits to suffer.

        Most of our sales contracts contain provisions that allow for the base price of our coal in these contracts to be adjusted due to new statutes, ordinances or regulations that affect our costs related to performance. Because these provisions only apply to the base price of coal these terms may provide only limited protection due to changes in regulations. A few of our sales contracts also contain provisions that allow for the purchase price to be renegotiated at periodic intervals. Index-based pricing, "price re-opener" and other similar provisions in sales contracts may reduce the protection available under long-term contracts from short-term coal price volatility. Price re-opener and index provisions, which can permit renegotiation by either party, including at pre-determined times, or based on a fixed formula, are present in contracts covering approximately 44% of our future tonnage commitments. Price re-opener provisions may automatically set a new price based on the prevailing market price or, in some instances, require the parties to negotiate a new price, sometimes between a specified range of prices. In some circumstances, a significant adjustment in base price or the failure of the parties to agree on a price under a price re-opener provision can lead to termination of the contract. Any adjustment or renegotiations leading to a significantly lower contract price could result in decreased revenues.

        Quality and volumes for the coal are stipulated in coal sales agreements. In most cases, the annual pricing and volume obligations are fixed although in some cases the volume specified may vary depending on the quality of the coal. In a relatively small number of contracts customers are allowed to vary the amount of coal taken under the contract. Most of our coal sales agreements contain provisions requiring us to deliver coal within certain ranges for specific coal characteristics such as heat content, sulfur, ash and ash fusion temperature. Failure to meet these specifications can result in economic penalties, including price adjustments, suspension, rejection or cancellation of deliveries or termination of the contracts. Many of our contracts contain clauses which in some cases may allow customers to terminate the contract in the event of certain changes in environmental laws and regulations.

Upon the occurrence of a force majeure, we or our customers may be permitted to temporarily suspend performance under our coal sales contracts which could cause our revenues and profits to suffer.

        Our coal sales agreements typically contain force majeure provisions allowing temporary suspension of performance by us or our customers during the duration of specified events beyond the control of the affected party, including events such as strikes, adverse mining conditions, mine closures,

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serious transportation problems that affect us or the buyer or unanticipated plant outages that may affect the buyer. Some contracts stipulate that this tonnage can be made up by mutual agreement or at the discretion of the buyer. In the first six months of 2009, some of our customers have sought to reduce the amount of tons delivered to them under our coal sales agreements through contractual remedies such as force majeure provisions. Agreements between our customers and the railroads servicing our mines may also contain force majeure provisions. Generally, our coal sales agreements allow our customer to suspend performance in the event that the railroad fails to provide its services due to circumstances that would constitute a force majeure. In the event that we are required to suspend performance under any of our coal sales contracts, or we are required to purchase additional tonnage during the period in which performance under the contract is suspended, our revenues and profits could be materially and adversely affected.

Acquisitions that we may undertake in the future involve a number of risks, any of which could cause us not to realize the anticipated benefits.

        We have focused on strategic acquisitions and subsequent expansions of large, low-cost, low-sulfur operations in the PRB and replacement of, and additions to, our reserves through the acquisition of companies, mines and reserves. We intend to pursue acquisition opportunities in the future. If we are unable to successfully integrate the businesses or properties we acquire, or reserves that we lease or otherwise acquire, our business, financial condition or results of operations could be negatively affected. Acquisition transactions involve various risks, including:

•

uncertainties in assessing the strengths and potential profitability, and the related weaknesses, risks, contingent and other liabilities, of acquisition candidates;



•

changes in business, industry, market, or general economic conditions that affect the assumptions underlying our rationale for pursuing the acquisition;



•

the inability to achieve identified operating and financial synergies anticipated to result from an acquisition;



•

the potential loss of key customers, management or employees of an acquired business;



•

the nature and composition of the workforce, including the acquisition of a unionized workforce;



•

diversion of our management's attention from other business concerns;



•

regulatory challenges for completing and operating the acquired business, including opposition from environmental groups or regulatory agencies;



•

environmental or geological problems in the acquired properties, including factors that make the coal unsuitable for intended customers due to ash, heat value, moisture or contaminants;



•

inability to acquire sufficient surface rights to enable extraction of the coal resources; and



•

outstanding permit violations associated with acquired assets.

        Any one or more of these factors could cause us not to realize the benefits we might anticipate from an acquisition. Moreover, any acquisition opportunities we pursue could materially increase our liquidity and capital resource needs and may require us to incur indebtedness, seek equity capital or both. In addition, future acquisitions could result in our assuming significant long-term liabilities relative to the value of the acquisitions.

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We do not currently operate the Decker mine, in which we hold a 50% interest, and our results of operations could be adversely affected if the third-party mine operator fails to effectively operate the mine. In addition, our future credit arrangements may limit our ability to contribute cash to the Decker mine.

        Through our indirect, wholly-owned subsidiary, we hold a 50% interest in the Decker mine in Montana through a joint venture agreement with an indirect, wholly-owned subsidiary of Level 3. The Decker mine is managed by a third-party mine operator. While we participate in the management committee of the Decker mine under the terms of the joint venture agreement, we do not control the daily management of the Decker mine and our employees do not participate in the day-to-day operations of the mine. If the third-party mine operator fails to manage the Decker mine effectively, our results of operations could be adversely affected.

        While capital contributions to the Decker joint venture have historically been made at the discretion of the management committee, under the terms of the joint venture agreement we may be required to contribute our proportional share of funds to carry on the business of the joint venture or to cover liabilities. In the event that either joint venture partner does not contribute its share of operating expenses or other liabilities, the other partner is not required to assume their obligation, but may have joint and several liability as a matter of law. Accordingly, our financial obligations with respect to the Decker mine may be impacted by the creditworthiness of our joint venture partner. In addition, if we do not provide our proportional share or our joint venture partner does not provide its proportional share, our interest in the Decker mine will be adjusted proportionally. CPE LLC's future credit arrangements may include provisions limiting our and CPE LLC's ability to make contributions to the Decker joint venture.

A shortage of skilled labor in the mining industry could reduce labor productivity and increase costs, which could materially and adversely affect our business and results of operations.

        Efficient coal mining using modern techniques and equipment requires skilled laborers in multiple disciplines such as electricians, equipment operators, mechanics, engineers and welders, among others. We have from time to time encountered shortages for these types of skilled labor. If we experience shortages of skilled labor in the future, our labor and overall productivity or costs could be materially and adversely affected. In the future we may utilize a greater number of external contractors for portions of our operations. The costs of these contractors has historically been higher than that of our employed laborers. If coal prices decrease in the future and/or our labor and contractor prices increase, or if we experience materially increased health and benefit costs with respect to our employees, our results of operations could be materially and adversely affected.

Our work force could become unionized in the future, which could adversely affect the stability of our production and materially reduce our profitability.

        All of our mines, other than the Decker mine, which we do not operate, are operated by non-union employees. Our employees have the right at any time under the National Labor Relations Act to form or affiliate with a union, and in the past unions have conducted limited organizing activities in this regard. If our employees choose to form or affiliate with a union and the terms of a union collective bargaining agreement are significantly different from our current compensation and job assignment arrangements with our employees, these arrangements could adversely affect the stability of our production and materially reduce our profitability. In addition, even if we remain a non-union operation, our business may still be adversely affected by work stoppages at unionized companies or unionized transportation and service providers.

        We hold a 50% interest in the Decker mine, which is a union-based operation. These union-represented employees could strike, which could adversely affect production at the Decker mine, increase Decker's costs and disrupt shipments of coal from the Decker mine to its customers, all of

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which could materially and adversely affect Decker's profitability and the value of our investment in Decker.

Provisions in our federal and state lease agreements, or defects in title or the loss of a leasehold interest in certain property or reserves or related surface rights, could limit our ability to mine our coal reserves.

        We conduct a significant part of our coal mining operations on federal coal that is leased through the LBA process. We also conduct a portion of our operations on coal that is leased from the states of Montana or Wyoming, as applicable. Under these federal and state leases, if the leased coal reserves are not diligently developed during the initial 10 years of the leases or if certain other terms of the leases are not complied with, including the requirement to produce a minimum quantity of coal or pay a minimum advance production royalty, if applicable, the BLM or the applicable state regulatory agency can terminate the lease prior to the expiration of its term. If any of our leases are terminated, we would be unable to mine the affected coal and our business and results of operations could be materially adversely affected.

        We also lease from private third parties or own outright a smaller portion of our reserves. A title defect or the loss of any of these private leases or the surface rights related to any of our reserves, including reserves acquired through the LBA process, could adversely affect our ability to mine the associated coal reserves. Consistent with industry practice, we conduct only limited investigations of title to our coal properties prior to leasing. Title to properties leased from private third parties is not usually fully verified until we make a commitment to develop a property, which may not occur until we have obtained the necessary permits and completed exploration of the property. In addition, these leasehold interests may be subject to superior property rights of other third parties. Title or other defects in surface rights held by us or other third parties could impair our ability to mine the associated coal reserves or cause us to incur unanticipated costs.

Terrorist attacks and threats, escalation of military activity in response to these attacks or acts of war may materially and adversely affect our business and results of operations.

        Terrorist attacks and threats, escalation of military activity or acts of war may have significant effects on general economic conditions, fluctuations in consumer confidence and spending and market liquidity, each of which could materially and adversely affect our business. Future terrorist attacks, rumors or threats of war, actual conflicts involving the U.S. or its allies, or military or trade disruptions affecting our customers may significantly affect our operations and those of our customers. Strategic targets such as energy-related assets and transportation assets may be at greater risk of future terrorist attacks than other targets in the U.S. Disruption or significant increases in energy prices could result in government-imposed price controls. It is possible that any of these occurrences, or a combination of them, could have a material adverse effect on our business and results of operations, including from delays or losses in transportation, decreased sales of our coal or extended collections from customers that are unable to timely pay us in accordance with the terms of their supply agreement.

Risks Related to Our Relationship with Rio Tinto Following this Offering

We will rely on an affiliate of RTEA to provide us and CPE LLC with certain key services for our business pursuant to the terms of a transition services agreement for a limited transition period. If this RTEA affiliate fails to perform its obligations under the agreement or if we do not find equivalent replacement services, we may be unable to provide these services or implement substitute arrangements on a timely and cost-effective basis on terms favorable to us.

        As part of Rio Tinto certain key services are currently provided by various members of Rio Tinto, including services related to treasury, accounting, procurement, legal services, information technology, employee benefit and welfare plans. Prior to the completion of this offering, we and CPE LLC will

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enter into a Transition Services Agreement, whereby an affiliate of RTEA will provide us and CPE LLC with certain of these key services for a transition period generally ranging from three to nine months, although in some cases, such services will be provided on a more limited basis than we have received previously. We believe it is necessary for the RTEA affiliate to provide these services for us to facilitate the efficient operation of our business as we transition to becoming a public company. See "Structuring Transactions and Related Agreements—Structure-Related Agreements—Transition Services Agreement." Once the transition period specified in the Transition Services Agreement has expired, or if the RTEA affiliate fails to perform its obligations under the Transition Services Agreement, we and/or CPE LLC will be required to provide these services ourselves or to obtain substitute arrangements with third parties. After the transition period, we and/or CPE LLC may be unable to provide these services internally because of financial or other constraints or be unable to implement substitute arrangements on a timely and cost-effective basis on terms that are favorable to us and/or CPE LLC, or at all.

Our results as a separate stand-alone company could be significantly different from those portrayed in our historical financial results.

        The historical financial information included in this prospectus has been derived from the consolidated financial statements of Rio Tinto and does not necessarily reflect what our financial position, results of operations, cash flows, costs or expenses would have been had we been a separate, stand-alone company during the periods presented. Rio Tinto did not account for us, and we were not operated, as a separate, stand-alone company for the historical periods presented. The historical costs and expenses reflected in our consolidated financial statements also include allocations of certain general and administrative costs and Rio Tinto's headquarters costs. These expenses are estimates and were based on what we and Rio Tinto considered to be reasonable allocations of the historical costs incurred by Rio Tinto to provide these services required in support of our business. These allocations will not continue when we are a stand-alone public company.

        As a separate stand-alone company, our cost structure will be different and will include both additional recurring costs and nonrecurring costs that we will incur during our transition to being a stand-alone public company. Accordingly, our historical consolidated financial information may not be reflective of our financial position, results of operations or cash flows or costs had we been a separate, stand-alone company during the periods presented, and the historical financial information may not be a reliable indicator of what our financial position, results of operations or cash flows will be in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Post-offering Cost Structure."

The pro forma condensed consolidated financial information in this prospectus is based on estimates and assumptions that may prove to be materially different from our actual experience as a separate, stand-alone public company.

        In preparing the pro forma condensed consolidated financial information included elsewhere in this prospectus, we have made certain adjustments to the historical consolidated financial information based upon currently available information and upon estimates and assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the structuring transactions described in "Structuring Transactions and Related Agreements," the debt financing transactions and this offering. However, these estimates are predicated on assumptions, judgments and other information which are inherently uncertain.

        These estimates and assumptions used in the preparation of the pro forma condensed consolidated financial information in this prospectus may be materially different from our actual experience as a separate, independent company. The pro forma condensed consolidated financial information included elsewhere in this prospectus does not purport to represent what our results of operations would

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actually have been had we operated as a separate, independent company during the periods presented, nor do the pro forma data give effect to any events other than those discussed in the unaudited pro forma condensed consolidated financial information and related notes. See "Unaudited Pro Forma Condensed Consolidated Financial Information."

We will be required to pay RTEA or its affiliate for most of the benefits we may claim as a result of the tax basis step-up we receive in connection with this offering and related transactions.

        We intend to enter into a Tax Receivable Agreement, or the Tax Receivable Agreement, with RTEA or its affiliate that will provide for the payment by us to RTEA or its affiliate of approximately 85% of the amount of cash savings, if any, in U.S. federal income tax that we will actually realize as a result of the increases in tax basis that we expect to obtain in connection with this offering and related transactions, as well as subsequent acquisitions of RTEA's or KMS's units in CPE LLC by us or CPE LLC, and of certain other tax benefits related to entering into the Tax Receivable Agreement. For administrative convenience, we will use an assumed federal income tax rate that is 1% higher than the actual federal income tax rate when calculating our tax benefits instead of calculating the exact amount of state and local income tax and franchise tax benefits that we receive, which is anticipated to approximate the amount of state and local tax savings that we will actually realize. Due to the size of the increases in tax basis in our share of CPE LLC's tangible and intangible assets, as well as the increase in our basis in the equity of CPE LLC's subsidiaries, we expect to make substantial payments to RTEA or its affiliate under the Tax Receivable Agreement. Assuming that there are no material changes in the relevant tax law and that we earn sufficient taxable income to realize the full tax benefit of the increased depreciation, amortization and cost depletion deductions, we expect that future payments under the Tax Receivable Agreement in respect of the purchase will range from approximately $     million to $     million in the aggregate over the term of the agreement (assuming an initial public offering price of            , the midpoint of the range set forth on the cover page of this prospectus), and will be payable over the next             years. If we acquire additional membership units in CPE LLC from RTEA or KMS, or if RTEA or KMS exercises its right to require CPE LLC to acquire by redemption RTEA's or KMS's membership units, it is expected that we will be required to make additional payments to RTEA or its affiliate pursuant to the Tax Receivable Agreement as a result of the increases in tax basis that we expect to obtain, as well as certain other tax benefits related to entering into the Tax Receivable Agreement, and such additional payments may be material. The payment obligations under the Tax Receivable Agreement will not be conditioned upon RTEA's, KMS's or their affiliate's continued ownership of an interest in CPE LLC or our available cash resources. Decisions we make in the course of running our business, such as with respect to mergers, asset sales, other forms of business combinations or other changes in control, may influence the timing and amount of payments that we may be required to make to RTEA or its affiliate under the Tax Receivable Agreement. For example, a disposition of assets that takes place soon after this offering could accelerate payments under the Tax Receivable Agreement and increase the present value of such payments relative to the present value of the payments that would have been made under the Tax Receivable Agreement if there had been no such disposition of assets. It is intended that CPE LLC will make distributions of cash to us to enable us to fulfill our obligations under the Tax Receivable Agreement. These distributions will be made on a per-unit basis, and will be made to all holders of units in CPE LLC, including RTEA and KMS. These distributions will affect CPE LLC's available cash, which may impact CPE LLC's ability to fund capital expenditures or may result in CPE LLC needing to incur debt to finance these distributions to the extent that its cash resources are insufficient to make such distributions as a result of timing discrepancies or otherwise.

        Our ability to achieve benefits from any tax basis increase, and the payments expected to be made under the tax receivable agreement, will depend upon a number of factors, as discussed above, including the timing and amount of our future income. The U.S. Internal Revenue Service may challenge all or part of that tax basis increase, and a court could sustain such a challenge.

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Rio Tinto may benefit from corporate opportunities that might otherwise be available to us.

        Rio Tinto will continue to hold certain coal assets in the U.S. and abroad following the completion of this offering. The Colowyo mine in Colorado was not contributed to CPE LLC and will not be owned by us and will continue to operate in the coal business. Rio Tinto may expand, through development of its remaining coal business, acquisitions or otherwise, its operations that directly or indirectly compete with us. For one year following the completion of this offering, RTEA and its affiliates will not pursue any competitive activity or acquisition in the coal industry within the PRB (other than activities related to the Jacobs Ranch mine in connection with the Jacobs Ranch Sale). Rio Tinto and its affiliates will not be prohibited from pursuing any competitive activity or acquisition outside of the PRB, whether during or after this one-year period, including selling coal or other goods produced outside of the PRB to customers located in the PRB or who are otherwise our customers. Following the completion of this offering, if a corporate opportunity is offered to Rio Tinto or its affiliates or one or more of Rio Tinto's or its affiliates' executive officers or directors that relates to any competitive activity or acquisition in the coal industry:

•

within the PRB after the one-year period referred to above; or



•

outside of the PRB,

no such person shall be liable to us or any of our shareholders (or any affiliate thereof) for breach of any fiduciary or other duty by reason of the fact that the person, including Rio Tinto and its affiliates, pursues or acquires the business opportunity, directs the business opportunity to another person or fails to present the business opportunity, or information regarding the business opportunity, to us, unless, in the case of any person who is a director or executive officer of us, the business opportunity is expressly offered to the director or executive officer in his or her capacity as an executive officer or director of our company.

        In addition, Rio Tinto may have other business interests and may engage in any other businesses not specifically prohibited which could compete with us, and these potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations or prospects if attractive corporate opportunities are allocated by Rio Tinto to itself or other members of Rio Tinto. See "Structuring Transactions and Related Agreements—Structure-Related Agreements—Master Separation Agreement—Corporate Opportunities" and "Description of Capital Stock—Corporate Opportunities."

Our directors and executive officers have potential conflicts of interest with us and your interests as shareholders.

        Following this offering, Preston Chiaro, one of our directors, will also be an executive officer of Rio Tinto or its affiliates. Mr. Chiaro owes fiduciary duties to our shareholders, which may conflict with his role as an executive officer of Rio Tinto or its affiliates. As a result, in connection with any transaction or other relationship involving both companies, Mr. Chiaro may, but is not required to, recuse himself and would therefore not participate in any board action relating to these transactions or relationships.

        Both Colin Marshall, our chief executive officer and a director, and Mr. Chiaro own shares of Rio Tinto or options to purchase Rio Tinto common stock. Mr. Barrett, Mr. Orchard, Mr. Rivenes and Mr. Taylor, our other executive officers, also own shares of Rio Tinto or options to purchase Rio Tinto common stock. These ownership interests may be of greater value than their ownership of our common stock. Ownership of Rio Tinto shares by our directors and executive officers could create, or appear to create, potential conflicts of interest when directors and executive officers are faced with decisions that could have different implications for Rio Tinto or its affiliates than they do us.

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Our agreements with Rio Tinto and its affiliates related to this offering may be less favorable to us than similar agreements between unaffiliated third parties.

        We will enter into various agreements with Rio Tinto and its affiliates in connection with this offering while we are a part of Rio Tinto. These agreements may be less favorable to us than similar agreements negotiated between unaffiliated third parties. Pursuant to our agreements with Rio Tinto and its affiliates, we have agreed to indemnify Rio Tinto and its affiliates for liabilities related to our current and prior business and certain liabilities related to this offering, including liabilities related to information we provide to Rio Tinto that is included in its public filings. See "Structuring Transactions and Related Agreements—Structure-Related Agreements" for a description of these indemnification obligations, as well as the other terms and obligations of our agreements with Rio Tinto and its affiliates. The allocation of assets and liabilities between Rio Tinto and us may not reflect the allocation that would have been reached by two unaffiliated parties.

Third parties may seek to hold us responsible for liabilities of RTEA that we did not assume.

        Third parties may seek to hold us responsible for liabilities of RTEA that we will not assume in connection with this offering, including liabilities related to the Jacobs Ranch mine and the Colowyo mine and the uranium mining venture, which will not be owned by CPE LLC after this offering. Under the Master Separation Agreement, RTEA will agree to indemnify us for certain claims and losses relating to these liabilities. If those liabilities are significant and we are ultimately held liable for them, we cannot assure you that we will be able to recover the full amount of our losses from RTEA.

Risks Related to Our Corporate Structure

We are a holding company with no direct operations of our own, and will depend on distributions from CPE LLC to meet our ongoing obligations.

        We are a holding company with no direct operations of our own and have no independent ability to generate revenue. Consequently, our ability to obtain operating funds depends upon distributions from CPE LLC. The distribution of cash flows and other transfers of funds by CPE LLC to us will be subject to statutory and contractual restrictions based upon CPE LLC's financial performance, including CPE LLC's compliance with any covenants in the debt arrangements it will enter into prior to this offering and its LLC agreement. We will be unable to pay expenses outside the ordinary course of business if CPE LLC fails to comply with these covenants and is unable to distribute cash to us. Any distributions of cash will be made on a pro rata basis to all holders of units in CPE LLC, including us, RTEA and KMS in accordance with each holders' respective percentage interest.

        Pursuant to a management services agreement between us and CPE LLC, CPE LLC will make payments to us in the form of a management fee to fund our day-to-day operating expenses, such as payroll for certain of our officers. However, if CPE LLC cannot make the payments pursuant to the management services agreement, we may be unable to cover these expenses.

        As a member of CPE LLC, we will incur income taxes on our allocated share of any net taxable income of CPE LLC. We expect that the debt arrangements CPE LLC will enter into prior to the completion of this offering will allow CPE LLC to distribute cash pro rata to its members (including us and RTEA) in amounts sufficient to cover our tax liabilities, if any. To the extent we need funds to pay such taxes or for any other purpose, and CPE LLC is unable to provide such funds because of limitations in CPE LLC's debt arrangements or other restrictions, it could have a material adverse effect on our business, financial condition, results of operations or prospects.

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Rio Tinto or its affiliates may have interests that differ from your interests as stockholders and they will have specified consent rights in CPE LLC.

        Following the completion of this offering, Rio Tinto America will indirectly own            % of the common membership units in CPE LLC (assuming no exercise of the underwriter's overallotment option). So long as Rio Tinto owns, directly or indirectly, at least 30% of the common membership units of CPE LLC that are outstanding upon completion of this offering, Rio Tinto's consent will be required prior to Cloud Peak Energy or CPE LLC taking certain actions, including any of the following actions:

•

approval of any transaction that would result in a change of control of CPE LLC or Cloud Peak Energy or a change in the manager of CPE LLC;



•

the merger, consolidation, dissolution or liquidation of CPE LLC or any merger, consolidation, dissolution or liquidation of any subsidiary of CPE LLC (with customary exceptions);



•

the direct or indirect sale, transfer, lease or other disposition of property or assets (including capital stock of any subsidiary) of CPE LLC and its subsidiaries outside of the ordinary course of business in excess of $500 million (subject to adjustment for inflation); provided, however, that Rio Tinto's consent will not be required for the creation, incurrence or assumption of (or foreclosure or other realization with respect to) any lien incurred in connection with this offering, the debt financing transactions and the other transactions contemplated by the CPE LLC Agreement or the other structuring-related agreements;



•

any fundamental change outside of the ordinary course in the nature (but not size or methods) of CPE LLC's coal business as in effect upon completion of this offering, but only insofar as such fundamental change does not relate to the normal operation or activities of CPE LLC's coal business or any business or operation reasonably related or ancillary to CPE LLC's business;



•

the acquisition of any other business or asset for an amount in excess of $500 million or that would result in the issuance of equity interests by us or CPE LLC in excess of $500 million (subject to adjustment for inflation);



•

assumption, incurrence or issuance of indebtedness in excess of 125% of the amounts included in the Company's operating plan (subject to adjustment for inflation), other than indebtedness to fund ordinary course business operations or to fund any capital expenditures which do not require Rio Tinto consent;



•

making or committing to make capital expenditures outside the ordinary course of business; provided that (x) capital expenditures consisting of certain replacement, repair and maintenance capital expenditures, or (y) other capital expenditures not in excess of 125% of the operating plan (subject to adjustment for inflation), including capital expenditures to acquire LBAs or mining property or similar assets, shall in the case of (x) or (y), be deemed to be in the ordinary course of business; and



•

except as otherwise set forth in any other structuring-related agreement, settling claims as to which Rio Tinto would have liability.

See "Structuring Transactions and Related Agreements—Structure-Related Agreements—CPE LLC Operating Agreement."

        In addition, even after Rio Tinto, directly or indirectly, owns less than 30% of the common membership units, the consent of Rio Tinto will be required under the tax receivable agreement before CPE LLC can engage in transactions with certain tax implications and with respect to certain other tax

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matters. See "Structuring Transactions and Related Agreements—Structure-Related Agreements—Tax Receivable Agreement."