BILLINGS, Mont. (AP) -- A judge has rejected a lawsuit challenging the state Land Board's lease of 587 million tons of publicly owned coal in southeastern Montana, removing a hurdle to a proposed mine with that could drastically expand the state's coal production.
Conservation groups had argued that further environmental studies were needed and that the lease sale would make mining inevitable if allowed to stand.
But District Judge Joe Hegel says the state did not give up its discretion to halt or modify mining plans at a later date when it leased the coal to St. Louis-based Arch Coal Inc. for $86 million in 2010.
Hegel said in his Feb. 3 ruling that the state still must ensure the environment is protected if the coal is mined from the leases near Ashland. Arch has said it intends to ship at least some of the coal overseas, to markets in Asia.
"While it is true that the Land Board has a constitutional duty to prudently manage the property within its control with an eye towards financial return, it cannot do so by turning a blind eye to environmental protection," Hagel wrote. He added that the state "still retains the discretion to mitigate or halt the development."
The state-owned tracts are part of a coal reserve in an area known as Otter Creek that holds more fuel than the United States consumes annually.
Gov. Brian Schweitzer, a strong proponent of the project and chairman of the five-member land board, said Arch's mining aspirations still must pass muster with the Department of Environmental Quality and other the state agencies.
"If you want to challenge it there's an avenue for challenging environmental permits," he said.
He added that the coal industry has successfully reclaimed parts of the state where past mining has occurred and said Arch would have to put up a multi-million dollar reclamation bond before it could move forward.
Plaintiffs in the case included the Northern Plains Resource Council, Sierra Club, National Wildlife Federation and Montana Environmental Information Center.
Attorneys for the plaintiffs said they wanted studies on mining impacts and the consequences of releasing huge volumes of the greenhouse gas carbon dioxide when the coal is burned.
State officials and representatives of Arch countered in arguments before Hegel last year that environmental studies will come later, during the mine permitting process.
Northern Plains said in a statement that Hegel's dismissal of the case was a "mixed ruling" because he said the Land Board has continuing obligations to the environment.
Broadus-area rancher Walter Archer, a member of the group, said in a telephone interview that mining detractors worry the state is putting short-term economic interests ahead of the long-term good of southeastern Montana residents.
"There's a lot of farms and ranches that are going to be impacted by this, especially since it's going to need a railroad to get the coal out of there," he said. "I hope they consider other things than just the dollars."
Arch Coal spokeswoman Kim Link said the company was pleased Hegel's ruling. Arch, one the world's largest coal producers, earlier reached a $73 million deal with Great Northern Properties to lease the remaining coal at Otter Creek.
A private appraisal done for the state in 2009 suggested the coal could be mined at a rate of 22 million tons annually. That would increase the state's coal production by more than 50 percent.
Schweitzer has said Arch hopes to have permits by 2013, and start mining by 2016.