Leases

The Company leases equipment and facilities under various non-cancellable lease agreements and historically, the majority of the Company’s leases have been accounted for as operating leases. Certain lease agreements are subject to the restrictive covenants of the Company’s credit facilities and include cross-acceleration provisions, under which the lessor could require certain remedies including, but not limited to, immediate recovery of the present value of any remaining lease payments. During the Chapter 11 Cases, the Company amended and assumed certain leases and made lump sum payments to terminate certain other leases. In relation to the Company’s non-Debtor subsidiaries, the Company successfully negotiated standstill agreements during the Chapter 11 Cases and successfully amended the leases, with those amendments becoming effective upon emergence from the Chapter 11 Cases. Certain of these amendments resulted in new lease agreements which are being accounted for as capital leases with an initial aggregate obligation of approximately $79.9 million.

Rental expense under operating leases, including expense related to short-term operating leases, was $155.1 million, $144.2 million, $57.0 million and $261.8 million for the year ended December 31, 2018, the period April 2 through December 31, 2017, the period January 1 through April 1, 2017 and the year ended December 31, 2016, respectively. The gross book value of property, plant and equipment under capital leases was $125.0 million and $125.3 million as of December 31, 2018 and 2017, respectively, related primarily to the leasing of mining equipment. The accumulated depreciation for these items was $47.9 million and $20.6 million at December 31, 2018 and 2017, respectively, and changes thereto have been included in “Depreciation, depletion and amortization” in the consolidated statements of operations.

The Company also leases coal reserves under agreements that require royalties to be paid as the coal is mined. Certain agreements also require minimum annual royalties to be paid regardless of the amount of coal mined during the year. Total royalty expense was $474.3 million, $364.6 million, $115.2 million and $389.7 million for the year ended December 31, 2018, the period April 2 through December 31, 2017, the period January 1 through April 1, 2017 and the year ended December 31, 2016, respectively.

A substantial amount of the coal mined by the Company is produced from mineral reserves leased from the owner. One of the major lessors is the U.S. government, from which the Company leases substantially all of the coal it mines in Wyoming under terms set by Congress and administered by the U.S. Bureau of Land Management. These leases are generally for an initial term of ten years but may be extended by diligent development and mining of the reserves until all economically recoverable reserves are depleted. The Company has met the diligent development requirements for substantially all of these federal leases either directly through production, by including the lease as a part of a logical mining unit with other leases upon which development has occurred, or by paying an advance royalty in lieu of continued operations. Annual production on these federal leases must total at least 1.0% of the leased reserve or the original amount of coal in the entire logical mining unit in which the leased reserve resides. During 2016, the Company completed substantially all of its required lease payments under U.S. federal coal reserve leases with the U.S. Bureau of Land Management. In addition, royalties are payable monthly at a rate of 12.5% of the gross realization from the sale of the coal mined using surface mining methods and at a rate of 8.0% of the gross realization for coal produced using underground mining methods.

The Company also leases coal reserves in Arizona from The Navajo Nation and the Hopi Tribe under leases that are administered by the U.S. Department of the Interior. These leases expire upon exhaustion of the leased reserves or upon the permanent ceasing of all mining activities on the related reserves as a whole. The royalty rates are also generally based upon a percentage of the gross realization from the sale of coal. These rates are subject to redetermination every ten years under the terms of the leases. The owners of the plant, which is the sole customer of the mine to which these reserves relate, have stated that they do not currently intend to operate of the plant beyond December 2019. The remainder of the leased coal is generally leased from state governments, land holding companies and various individuals. The duration of these leases varies greatly. Typically, the lease terms are automatically extended as long as active mining continues. Royalty payments are generally based upon a specified rate per ton or a percentage of the gross realization from the sale of the coal.

Mining and exploration in Australia is generally conducted under leases, licenses or permits granted by the relevant state government. Mining and exploration licenses and their associated environmental protection approvals (granted by the state government, and in some cases also the federal government) contain conditions relating to such matters as minimum annual expenditures, environmental compliance, protection of flora and fauna, restoration and rehabilitation. Royalties are paid to the state government as a percentage of the sales price (less certain allowable deductions in some cases). Generally, landowners do not own the mineral rights or have the ability to grant rights to mine those minerals. These rights are retained by the state government. Compensation is often payable to landowners, occupiers and Aboriginal traditional owners with residual native title rights and interests for the loss of access to the land from the proposed mining activities. The amount and type of compensation and the ability to proceed to grant of a mining tenement may be determined by agreement or court determination, as provided by law.

Future minimum lease and royalty payments as of December 31, 2018 are as follows:



	Capital Leases		Operating Leases		Coal Lease and Royalty Obligations
Year Ending December 31,	Capital Leases		Operating Leases		Coal Lease and Royalty Obligations
	(Dollars in millions)
2019	$	28.2	$	47.6	$	5.4
2020	8.0		27.6		5.5
2021	0.4		15.9		5.6
2022	0.4		11.8		5.4
2023	0.5		12.1		5.5
2024 and thereafter	8.8		12.1		36.2
Total minimum lease payments	46.3		$	127.1	$	63.6
Less interest	6.3
Present value of minimum capital lease payments	$	40.0

As of December 31, 2018, certain of the Company’s coal lease obligations were secured by outstanding surety bonds totaling $95.4 million.