MASTER LEASE AND SUBLEASE AGREEMENT

Exhibit 10.12

MASTER LEASE AND SUBLEASE AGREEMENT

among

Ark Land Company
Ark Land LT, Inc.

and

Thunder Basin Coal Company, L.L.C.
Triton Coal Company, LLC

TABLE OF CONTENTS

 i

Exhibits and Schedules

ii

MASTER LEASE AND SUBLEASE AGREEMENT

     THIS MASTER LEASE AND SUBLEASE AGREEMENT (“ Master Agreement ”), dated effective as of April 1, 2005 (“ Effective Date ”), is by and among Ark Land Company (“ Ark ”), a Delaware corporation, and Ark Land LT, Inc. (“ Ark LT ”) a Delaware corporation (Ark and Ark LT are collectively referred to herein as “ Land Companies ”) and Thunder Basin Coal Company, L.L.C. , a Delaware limited liability company (“ TBCC ”) and Triton Coal Company, LLC , a Delaware limited liability company (“ Triton Coal ”) (TBCC and Triton Coal are collectively referred to herein as “ Operating Companies ”).

     WHEREAS, Land Companies are the individual lessees under and pursuant to the coal leases more particularly described on Schedule A hereto, as amended, restated or reissued (“ Coal Leases ”) insofar as such Coal Leases cover and relate to the lands located in Campbell County, Wyoming, and more particularly described on Schedule A (“ Lease Lands ”);

     WHEREAS, Ark is the owner of the surface of the lands located in Campbell County, Wyoming, more particularly described on Schedule B hereto (“ Surface Lands ”);

     WHEREAS, the Coal Leases, the Lease Lands and the Surface Lands are all depicted on the map attached hereto as Exhibit 1 ;

     WHEREAS, certain of the Parties, individually and jointly, have heretofore entered into various lease and sublease arrangements relating to the Coal Leases and the Surface Lands as more particularly set forth on Schedule C hereto (“ Prior Lease Agreements ”); and

     WHEREAS, Land Companies and Operating Companies desire to enter into a master agreement replacing the Prior Lease Agreements and granting rights to the coal reserves subject to the Coal Leases and to the Surface Lands in accordance with the terms of this Master Agreement.

     NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Land Companies and Operating Companies agree as follows:

ARTICLE I

Definitions

     1.1 Definitions .

     “ Ark LT ” has the meaning set forth in the preamble of this Agreement.

     “ Ark ” has the meaning set forth in the preamble of this Agreement.

     “ Base Lessors ” has the meaning set forth in Section 2.7.

     “ Benefits ” has the meaning set forth in Section 7.3.

     “ Coal Leases ” has the meaning set forth in the preamble of this Agreement.

     “ Effective Date ” is defined in the preamble of this Agreement.

     “ Federal Coal Regulations ” means the regulations relating to calculation of federal coal royalties set forth in 30 C.F.R. Subchapter A, and specifically 30 C.F.R. Part 206 Subpart F.

     “ Land Companies ” has the meaning set forth in the preamble of this Agreement.

     “ Laws ” means any law, statute, code, ordinance, treaty, rule, regulation or ruling.

     “ Lease Lands ” has the meaning set forth in the preamble of this Agreement.

     “ Leased Coal ” has the meaning set forth in Section 2.1.

     “ Little Thunder Creek Reserves ” means all mineable and merchantable coal subject to the Coal Leases described in Part 2 of Schedule A .

     “ Master Agreement ” has the meaning set forth in the preamble of this Agreement.

     “ Mining Rights ” has the meaning set forth in Section 2.3.

     “ Parties ” means Ark, Ark LT, TBCC and Triton Coal, and “Party” refers to one of them.

     “ Prior Lease Agreements ” has the meaning set forth in the preamble of this Agreement.

     “ Production Royalty ” has the meaning set forth in Section 4.1(a).

     “ Operating Companies ” has the meaning set forth in the preamble of this Agreement.

     “ Surface Lands ” has the meaning set forth in the preamble of this Agreement.

     “ TBCC ” has the meaning set forth in the preamble of this Agreement.

     “ Thundercloud Reserves ” means all mineable and merchantable coal subject to the Coal Leases described in Part 1 of Schedule A .

     “ Triton Coal ” has the meaning set forth in the preamble of this Agreement.

     “ Triton Reserves ” means all mineable and merchantable coal subject to the Coal Leases described in Part 3 of Schedule A .

ARTICLE II

Grant

     2.1 Demise of Coal Reserves . Subject to the reservations and restrictions contained herein and to the extent, and only to the extent, of Land Companies’ interest in the Coal Leases, Land Companies do hereby sublease and demise unto Operating Companies all of Land Companies’ right, title and interest in and to all of the minable and merchantable coal (“ Leased

Coal ”) in and underlying the Lease Lands insofar as such right, title and interest are derived from the Coal Leases, together with the exclusive right to mine, store, save, waste, remove, transport, own, sell and market, treat, process, and stockpile the Leased Coal in compliance with the terms of the Coal Leases, as expressly granted in Subsections 2.1(a) and (b) as follows:

          (a) Ark subleases to TBCC all Leased Coal constituting the Thundercloud Reserves subject to the Coal Leases described in Part 1 of Schedule A ;

          (b) Ark LT subleases to TBCC all Leased Coal constituting the Little Thunder Creek Reserves subject to the Coal Leases described in Part 2 of Schedule A ; and

          (c) Ark subleases to Triton Coal all Leased Coal constituting the Triton Reserves subject to the Coal Leases described in Part 3 of Schedule A .

     2.2 Grant of Surface Rights . Ark hereby leases and demises unto TBCC so much of the Surface Lands as TBCC may require for the execution of the Mining Rights granted pursuant to Section 2.3.

     2.3 Mining Rights . Subject to the reservations and restrictions contained herein and to the extent Land Companies have the power to grant such rights, Land Companies grant unto Operating Companies all rights conveyed by the Coal Leases to Land Companies as are necessary to enable Operating Companies to mine and remove the Leased Coal covered by the rights granted under Section 2.1, including, without limitation, the following (“ Mining Rights ”):

          (a) The right to mine the Leased Coal by strip, open pit, underground, auger, borehole, drilling, and in-situ solution method, together with all rights-of-way, easements and servitudes as may be necessary, useful or convenient for such purposes, and the right of ingress and egress therefore; and

          (b) The right to construct, use, maintain, repair, replace and relocate any and all facilities and structures on and in the Surface Lands as may be necessary, useful or convenient in connection with such operations on the Surface Lands, including but not limited to buildings, roads, railroads, pits, tailing ponds, piles or waste earth, waste dumps, ditches, drains, pumping stations, boreholes, drill holes, tanks, dams, wells, reservoirs, ponds or other alterations, coal stock piles, pipelines, telephone lines, utility lines, power lines, processing facilities, and plants, shops, and transportation facilities and other utilities, and the maintenance thereof, and all rights-of-way, easements and servitudes as may be necessary, useful or convenient for such purposes, and the right to ingress and egress therefore; and

          (c) The right to use and destroy so much of the surface and subsurface of the Surface Lands as may be found necessary, useful, convenient or incidental for carrying out the purposes of this Master Agreement, without being required to leave or provide subjacent or lateral support for the overlying strata or surface or anything thereon, therein or thereunder.

     2.4 Acceptance . Operating Companies accept this Master Agreement with the understanding that the rights and privileges granted hereunder are and shall be construed as limited to only such rights and privileges as Land Companies possess and have the lawful right to lease, sublease or otherwise grant to Operating Companies. Operating Companies

acknowledge that they have inspected, are satisfied with and accept the Lease Lands and the Surface Lands in their existing condition, which includes any limitations of the area involved. It shall be the sole responsibility of Operating Companies to ascertain the accurate boundary lines of the Lease Lands and the Surface Lands before conducting any mining operations therein.

     2.5 No Warranty .

          (a) LAND COMPANIES MAKE NO IMPLIED OR EXPRESS WARRANTY OR REPRESENTATION CONCERNING THE EXISTENCE, QUANTITY, QUALITY, MINABILITY OR MERCHANTABILITY OF THE LEASED COAL UNDERLYING THE LEASE LANDS OR TITLE THERETO, AND OPERATING COMPANIES ACKNOWLEDGE AND AGREE THAT NO REPRESENTATIONS, STATEMENTS OR WARRANTIES, EXPRESS OR IMPLIED, HAVE BEEN MADE BY OR ON BEHALF OF LAND COMPANIES REGARDING THE LEASE LANDS OR THE SURFACE LANDS, THEIR CONDITION, THE USE OR OCCUPATION THAT MAY BE MADE THEREOF OR THE INCOME THEREFROM.

          (b) Land Companies do not make, and shall not be deemed to have made, any representations or covenants, express or implied, as to the title of the Leased Coal, the Lease Lands, the Surface Lands or Land Companies’ right to sublease the Leased Coal.

     2.6 Incorporation by Reference . All of the provisions of the Coal Leases are incorporated by reference as if fully set forth herein. In addition, all Laws applicable to the Coal Leases and to this Master Agreement or to the operations on the Lease Lands and the Surface Lands, in force from and after the Effective Date, and as and when changed and to the extent applicable to the Coal Leases and this Master Agreement, are incorporated by reference herein. Changes in laws which affect a change in the Coal Leases shall be deemed to constitute a corresponding change in this Master Agreement.

     2.7 Limitations . This Master Agreement is made subject to the Coal Leases and to all limitations, reservations and exceptions specified therein and to all other deeds, easements and conveyances of public record and to such easements as are apparent by visible inspection of the Lease Lands and the Surface Lands. The rights herein granted to Operating Companies are subject to the limitation of Land Companies’ power to grant same and to such rights as Land Companies possess by virtue of the Coal Leases. Land Companies make no representation or warranty that (i) Land Companies or the lessors of the Coal Leases (“ Base Lessors ”) have good and marketable title to the Leased Coal, or that (ii) the rights herein granted to Operating Companies are sufficient to enable Operating Companies to conduct the mining operations contemplated by Operating Companies.

     2.8 Obligations under the Coal Leases .

          (a) From and after the Effective Date, TBCC, for and on behalf of Triton Coal as to the Triton Reserves and for and on behalf of itself with respect to the Thundercloud Reserves and the Little Thunder Creek Reserves, assumes all the obligations of Land Companies under the Coal Leases (excluding any bonus bid obligations payable under the Coal Lease covering and relating to the Little Thunder Creek Reserves), including without limitation

production obligations, provided, however, that the obligation to pay rentals, and minimum and production royalties shall be rendered directly to Land Companies. Land Companies recognize TBCC as the principal Party obligated for all covenants hereunder and, notwithstanding terms referencing Operating Companies, shall look to TBCC for performance of all such obligations.

          (b) Payments due the Base Lessors pursuant to the Coal Leases shall be made by Operating Companies directly to the Land Companies, and upon such payment by Operating Companies to Land Companies, Land Companies shall have full liability therefore, provided, that upon failure by Operating Companies to make such payment Land Companies shall have the right, but not the obligation, to make the required payments to maintain the Coal Leases in good standing.

          (c) Operating Companies covenant and agree to comply with all terms and conditions of the Coal Leases.

          (d) Except as otherwise required of Operating Companies by this Master Agreement, Land Companies shall maintain the Coal Leases in full force and effect, and shall not amend, modify, supplement or terminate the Coal Leases, or waive the terms thereof, or further convey, transfer, assign or sublease any portion of the Lease Lands or the Surface Lands without the prior written consent of Operating Companies. Land Companies shall give to Operating Companies, as their respective rights may pertain to the Coal Leases, a copy of each notice of default or other material notices given to Land Companies by the Base Lessors relating to the Coal Leases. Operating Companies shall have the right to cure any defaults under the Coal Leases.

     2.9 Compliance with Terms of Coal Leases . Notwithstanding anything therein to the contrary, in mining and removing the Leased Coal and in exercising the Mining Rights hereunder, Operating Companies shall be limited to the exercise of the rights and privileges specifically authorized by the Coal Leases and any other instruments by which Land Companies acquired their title or interest. Operating Companies shall comply with all terms and conditions thereof as if such terms had been specifically set forth in this Master Agreement.

     2.10 Reservations .

          (a) Land Companies except and reserve the entire ownership and control of the Lease Lands and the Surface Lands not herein specifically granted to Operating Companies. Without limiting the generality of the foregoing, Ark shall have the following rights: (i) the exclusive use of the Surface Lands not required by TBCC for its mining operations, including the right to grant farm leases, commercial, residential or mineral leases to third parties; (ii) the right to the non-exclusive use of existing roads, roads hereafter constructed by TBCC and the right to construct and maintain new roads; (iii) the non-exclusive right to construct, operate and maintain any and all types of pipe, power, transportation and communication lines, or the equivalent thereof, on and through the Lease Lands; and (iv) the right to conduct or cause to be conducted coalbed methane development operations on the Lease Lands and the Surface Lands.

          (b) Land Companies shall exercise the reserved rights in such way as not unreasonably to interfere with and in such a way as to minimize the inconvenience to the mining

operations of the Operating Companies hereunder. In the exercise of all reserved rights Land Companies shall comply with (i) the terms and provisions of all laws, rules and regulations of any government or agency having jurisdiction of the Lease Lands, the Surface Lands and any operations of Land Companies and (ii) any and all permit and bonding requirements of Land Companies governing the operations of Land Companies on the Lease Lands or the Surface Lands.

     2.11 No Cross Conveyance .

          (a) Notwithstanding anything herein to the contrary, nothing in this Master Agreement shall result in, nor shall it be construed to represent, a conveyance or grant by or among the Parties constituting the Land Companies of any rights in or to the Coal Leases or Lease Lands and all such rights shall be maintained separate and distinct as such rights are held prior to the Effective Date.

          (b) Except as expressly provided herein, nothing in this Master Agreement shall result in, nor shall it be construed to represent, a conveyance or grant to the Parties constituting the Operating Companies of undivided interests in and to the Coal Leases or Lease Lands and all such rights under this Master Agreement shall be maintained separate and distinct as such rights are specifically granted hereunder.

ARTICLE III

Term

     3.1 Term . The term of this Master Agreement shall begin on the Effective Date, and (i) with respect to the Leased Coal shall run for a period concurrently with the terms of the Coal Leases insofar as such leases cover and relate to their respective portions of the Lease Lands, and (ii) with respect to the Surface Lands shall run for a period until all reclamation activities (including release of all applicable reclamation bonds) are completed for the Surface Lands, provided that unless agreed to in writing among the Parties the term of this Master Agreement shall not extend beyond a period of fifty (50) years from the Effective Date. This Master Agreement shall be subject to the right of the Base Lessors to readjust the terms and conditions of the Coal Leases as otherwise provided in the Coal Leases agreements and by applicable laws, rules and regulations. The Parties acknowledge and agree that this Master Agreement may terminate with respect to portions of the Lease Lands without termination of the entire Master Agreement.

ARTICLE IV

Royalties

     4.1 Land Companies’ Production Royalty .

          (a) From and after the Effective Date, Operating Companies shall pay to Land Companies an overriding production royalty (“ Production Royalty ”) equal to seven percent (7%) of the value of Leased Coal mined and removed from the Lease Lands and calculated pursuant to the Federal Coal Regulations.

          (b) Payment of the Production Royalty shall be made within thirty (30) days after each calendar month during which Leased Coal was mined and shipped from the Lease Lands and shall be made by payment to Land Companies at the address shown herein.