NOTE 17 – COMMITMENTS AND CONTINGENCIES

Purchase Commitments

In May 2011, we incurred capital commitments related to an expansion of our Bloom Lake mine. As of June 30, 2011, the project has been approved for capital investments of approximately $615 million, of which $150 million has been committed. The expansion is part of ramping up production capacity from 8.0 million metric tons of iron ore concentrate per year to 16.0 million metric tons of iron ore concentrate per year. As of June 30, 2011, capital expenditures related to this commitment were approximately $52 million. Of the committed capital, expenditures of approximately $98 million are expected to be made during the remainder of 2011.

As a result of the significant tornado damage to the above-ground operations at our Oak Grove mine during the second quarter of 2011, we incurred capital commitments to repair the damage done to the preparation plant and the overland conveyor system. As of June 30, 2011, the project requires a capital investment of approximately $55 million, of which approximately $31 million has been committed. As of June 30, 2011, $6 million in capital expenditures had been expended related to this commitment. Of the committed capital, expenditures of $25 million are scheduled to be made during the remainder of 2011.

In March 2011, we incurred capital commitments related to bringing Lower War Eagle, a high volatile metallurgical coal mine in West Virginia, into production. As of June 30, 2011, the project has been approved for capital investments of approximately $49 million, of which $31 million has been committed. As of June 30, 2011, capital expenditures related to this commitment were approximately $8 million. Of the committed capital, expenditures of approximately $23 million are scheduled to be made during the remainder of 2011.

In 2010, our Board of Directors approved a capital project at our Koolyanobbing Operation in Western Australia. The project is expected to increase the production capacity at the Koolyanobbing Operation to approximately 11 million metric tons annually. The improvements consist of enhancements to the existing rail infrastructure and upgrades to various other existing operational constraints. The expansion project requires a capital investment of approximately $280 million, of which approximately $241 million has been committed, that will be required to meet the timing of the proposed expansion. As of June 30, 2011, $90 million in capital expenditures had been expended related to this commitment. Of the committed capital, expenditures of $130 million and $21 million are scheduled to be made during the remainder of 2011 and in 2012, respectively.

We incurred capital commitments related to an expansion project at our Empire and Tilden mines in Michigan's Upper Peninsula in 2010. The expansion project requires a capital investment of approximately $325 million, of which $170 million has been committed as of June 30, 2011, and is expected to allow the Empire mine to produce at three million tons annually through 2014 and increase Tilden mine production by an additional two million tons annually. As of June 30, 2011, capital expenditures related to this commitment were approximately $103 million. Of the committed capital, expenditures of approximately $50 million and $17 million are scheduled to be made during the remainder of 2011 and in 2012, respectively.

In 2010, we incurred a capital commitment for the construction of a new portal closer to the coal face at our Oak Grove mine in Alabama. The portal requires a capital investment of approximately $31 million, of which $31 million has been committed, and will significantly decrease transit time to and from the coal face, which is expected to result in, among other things, improved safety, greater operational efficiency, increased productivity, lower employment costs and improved employee morale. As of June 30, 2011, capital expenditures related to this commitment were approximately $20 million. Expenditures of $11 million are scheduled to be made throughout the remainder of 2011.

In 2008, we incurred a capital commitment for the purchase of a new longwall plow system for our Pinnacle mine in West Virginia. The system, which requires a capital investment of approximately $90 million, has replaced the previously existing longwall plow system in an effort to reduce maintenance costs and increase production at the mine. As of June 30, 2011, capital expenditures related to this commitment were approximately $89 million. Expenditures of approximately $2 million are scheduled to be made throughout the remainder of 2011.

Contingencies

Litigation

We are currently a party to various claims and legal proceedings incidental to our operations. If management believes that a loss arising from these matters is probable and can reasonably be estimated, we record the amount of the loss, or the minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable than another. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Based on currently available information, management believes that the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse effect on our financial position or results of operations. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages or an injunction. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the financial position and results of operations of the period in which the ruling occurs, or future periods. However, we believe that any pending litigation will not result in a material liability in relation to our consolidated financial statements.