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transferred the assets of its gold mining business to Santa Fe
Pacific Mining Corp. (Santa Fe), an unrelated corporation, in
exchange for the assets of Santa Fe’s coal mining business. The
parties to the exchange agreed that the mining assets exchanged
by each had a total value of approximately $550 million. Peabody
treated the transaction as a like-kind exchange under section
1031.
The transfer by Peabody to Santa Fe was of gold mines and
other gold mining property (including buildings and other
improvements, machinery and equipment, and mine exploration and
development rights). In exchange, among other things, Peabody
(1) received from Santa Fe the Lee Ranch coal mine in New Mexico
(which included fee simple land and coal leases to other land
giving the leaseholder rights to the coal in place) and (2)
assumed all obligations of Santa Fe under two long-term coal
supply contracts entered into in the early 1980s by Santa Fe with
Tucson Electric Power Co. (TEPCO) and Western Fuels (WEF),
respectively. The Lee Ranch was in a remote part of New Mexico
and consisted of 13,594 acres of fee simple land and 1,800 acres
of leased coal land. During the early 1990s, the annual coal
output of the Lee Ranch mine was approximately 3.2 million to 5.0
million tons. At the time of the June 25, 1993, exchange, the
Lee Ranch mine contained coal reserves of approximately 200
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