THIRD SUPPLEMENTAL SENIOR NOTE INDENTURE

     THIRD SUPPLEMENTAL  SENIOR NOTE INDENTURE (this  "Supplemental  Senior Note
Indenture"),  dated  as of June 30,  1999,  among  Highland  Mining  Company,  a
Delaware corporation,  Peabody Southwestern Coal Company; a Delaware corporation
(together,  the  "Guaranteeing  Subsidiaries"),  each a  subsidiary  of P&L Coal
Holdings Corporation (or its permitted  successor),  a Delaware corporation (the
"Company"),  the Company,  the other Senior Note  Guarantors  (as defined in the
Senior  Note  Indenture  referred  to herein)  and State  Street  Bank and Trust
Company,  as Senior Note  Trustee  under the Senior Note  Indenture  referred to
below (the "Senior Note Trustee").

                               W I T N E S S E T H

     WHEREAS,  the Company has  heretofore  executed and delivered to the Senior
Note Trustee a Senior Note Indenture (the "Senior Note Indenture"),  dated as of
May 18, 1998 providing for the issuance of an aggregate  principal  amount of up
to $550.0 million of 8-7/8% Senior Notes due 2008 (the "Senior Notes");

     WHEREAS,   the  Senior  Note   Indenture   provides   that  under   certain
circumstances  the  Guaranteeing  Subsidiaries  shall execute and deliver to the
Senior Note Trustee a supplemental  Senior Note Indenture  pursuant to which the
Guaranteeing  Subsidiaries  shall  each  unconditionally  guarantee  all  of the
Company's  Obligations  under the Senior Notes and the Senior Note  Indenture on
the terms and conditions set forth herein (the "Senior  Subsidiary  Guarantee");
and

     WHEREAS,  pursuant to Section 9.01 of the Senior Note Indenture, the Senior
Note Trustee is authorized to execute and deliver this Supplemental  Senior Note
Indenture.

     NOW  THEREFORE,  in  consideration  of the foregoing and for other good and
valuable  consideration,  the  receipt  of which  is  hereby  acknowledged,  the
Guaranteeing  Subsidiaries  and the Senior Note  Trustee  mutually  covenant and
agree for the equal and ratable  benefit of the  Holders of the Senior  Notes as
follows:

     1.  CAPITALIZED  TERMS.  Capitalized  terms used herein without  definition
shall have the meanings assigned to them in the Senior Note Indenture.

     2. AGREEMENT TO GUARANTEE.  Each of the  Guaranteeing  Subsidiaries  hereby
agrees as follows:

          (a) Along with all Senior  Note  Guarantors  named in the Senior  Note
     Indenture,  to jointly and  severally  Guarantee to each Holder of a Senior
     Note  authenticated  and  delivered  by the Senior Note  Trustee and to the
     Senior Note Trustee and its  successors  and assigns,  irrespective  of the
     validity and enforceability of the Senior Note Indenture,  the Senior Notes
     or the obligations of the Company hereunder or thereunder, that:

               (i) the  principal  of and  interest on the Senior  Notes will be
          promptly paid in full when due, whether at maturity,  by acceleration,
          redemption or otherwise,  and interest on the overdue principal of and
          interest  on the  Senior  Notes,  if any,  if  lawful,  and all  other
          obligations  of the Company to the Holders or the Senior Note  Trustee
          hereunder or  thereunder  will be promptly  paid in full or performed,
          all in accordance with the terms hereof and thereof; and

               (ii) in case of any  extension  of time of  payment or renewal of
          any Senior Notes or any of such other  obligations,  that same will be
          promptly  paid in full when due or  performed in  accordance  with the
          terms of the  extension  or renewal,  whether at stated  maturity,  by
          acceleration  or otherwise.  Failing payment when due of any amount so
          guaranteed or any performance so guaranteed for whatever  reason,  the
          Senior Note Guarantors shall be jointly and severally obligated to pay
          the same immediately.

          (b) The obligations hereunder shall be unconditional,  irrespective of
     the  validity,  regularity  or  enforceability  of the Senior  Notes or the
     Senior Note  Indenture,  the absence of any action to enforce the same, any
     waiver or consent by any  Holder of the  Senior  Notes with  respect to any
     provisions  hereof or thereof,  the  recovery of any  judgment  against the
     Company,  any action to enforce  the same or any other  circumstance  which
     might otherwise  constitute a legal or equitable  discharge or defense of a
     Senior Note Guarantor.

          (c) The following is hereby waived:  diligence presentment,  demand of
     payment,  filing  of  claims  with a court in the  event of  insolvency  or
     bankruptcy of the Company,  any right to require a proceeding first against
     the Company, protest, notice and all demands whatsoever.

          (d) This Senior Subsidiary Guarantee shall not be discharged except by
     complete  performance of the obligations  contained in the Senior Notes and
     the Senior Note Indenture.

          (e) If any Holder or the Senior Note  Trustee is required by any court
     or otherwise to return to the Company,  the Senior Note Guarantors,  or any
     custodian, Senior Note Trustee, liquidator or other similar official acting
     in relation to either the Company or the Senior Note Guarantors, any amount
     paid by either to the Senior  Note  Trustee  or such  Holder,  this  Senior
     Subsidiary  Guarantee,  to the  extent  theretofore  discharged,  shall  be
     reinstated in full force and effect.

          (f) The Guaranteeing  Subsidiary shall not be entitled to any right of
     subrogation  in  relation  to the  Holders in  respect  of any  obligations
     guaranteed  hereby  until  payment  in full of all  obligations  guaranteed
     hereby.

          (g) As between the Senior Note  Guarantors,  on the one hand,  and the
     Holders and the Senior Note Trustee, on the other hand, (x) the maturity of
     the obligations guaranteed hereby may be accelerated as provided in Article
     6 of the Senior Note  Indenture for the purposes of this Senior  Subsidiary
     Guarantee,  notwithstanding  any  stay,  injunction  or  other  prohibition
     preventing  such  acceleration  in  respect of the  obligations  guaranteed
     hereby,  and (y) in the event of any  declaration of  acceleration  of such
     obligations  as provided in Article 6 of the Senior  Note  Indenture,  such
     obligations (whether or not due and payable) shall forthwith become due and
     payable by the  Senior  Note  Guarantors  for the  purpose  of this  Senior
     Subsidiary Guarantee.

          (h)  The  Senior  Note  Guarantors   shall  have  the  right  to  seek
     contribution  from any  non-paying  Senior  Note  Guarantor  so long as the
     exercise of such right does not impair the rights of the Holders  under the
     Senior Subsidiary Guarantee.

               (i) Pursuant to Section 10.02 of the Senior Note  Indenture,  the
          obligations  of  each  Guaranteeing  Subsidiary  hereunder  and  under
          Article 10 of the Senior Note Indenture will be limited to the maximum
          amount as will,  after  giving  effect to any  maximum  amount and any
          other  contingent  and fixed  liabilities  that are relevant under any
          applicable  Bankruptcy or fraudulent conveyance laws, and after giving
          effect to any collections from, rights to receive contribution from or
          payments  made by or on behalf of any other  Senior Note  Guarantor in
          respect of the  obligations of such other Senior Note Guarantor  under
          Article 10 of the Senior Note Indenture,  result in the obligations of
          such Senior Note Guarantor under its Senior  Subsidiary  Guarantee not
          constituting a fraudulent transfer or conveyance.

     3. EXECUTION AND DELIVERY.  Each  Guaranteeing  Subsidiary  agrees that the
Senior   Subsidiary   Guarantees   shall   remain  in  full   force  and  effect
notwithstanding  any  failure to endorse on each  Senior Note a notation of such
Senior Subsidiary Guarantee.

     4. GUARANTEEING SUBSIDIARIES MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.

          (a) Neither of the  Guaranteeing  Subsidiary may  consolidate  with or
     merge  with or into  (whether  or not such  Senior  Note  Guarantor  is the
     surviving  Person)  another  corporation,  Person or entity  whether or not
     affiliated with such Senior Note Guarantor unless:

               (i) subject to Section  10.04 of the Senior Note  Indenture,  the
          Person  formed by or surviving  any such  consolidation  or merger (if
          other than a Senior Note  Guarantor  or the  Company)  unconditionally
          assumes all the obligations of such Senior Note Guarantor, pursuant to
          a supplemental Senior Note Indenture in form and substance  reasonably
          satisfactory to the Senior Note Trustee,  under the Senior Notes,  the
          Senior Note Indenture and the Senior Subsidiary Guarantee on the terms
          set forth herein or therein; and

               (ii)  immediately  after giving  effect to such  transaction,  no
          Default or Event of Default exists.

          (b) In case of any such consolidation,  merger, sale or conveyance and
     upon the assumption by the successor  corporation,  by supplemental  Senior
     Note  Indenture,  executed  and  delivered  to the Senior Note  Trustee and
     satisfactory in form to the Senior Note Trustee,  of the Senior  Subsidiary
     Guarantee  endorsed  upon  the  Senior  Notes  and  the  due  and  punctual
     performance  of all of the  covenants  and  conditions  of the Senior  Note
     Indenture  to be  performed by the Senior Note  Guarantor,  such  successor
     corporation  shall  succeed  to and be  substituted  for  the  Senior  Note
     Guarantor  with the same effect as if it had been named  herein as a Senior
     Note Guarantor. Such successor corporation thereupon may cause to be signed
     any or all of the Senior  Subsidiary  Guarantees to be endorsed upon all of
     the Senior Notes issuable  hereunder which  theretofore shall not have been
     signed by the Company and  delivered  to the Senior Note  Trustee.  All the
     Senior Subsidiary  Guarantees so issued shall in all respects have the same
     legal  rank and  benefit  under the  Senior  Note  Indenture  as the Senior
     Subsidiary Guarantees  theretofore and thereafter issued in accordance with
     the  terms of the  Senior  Note  Indenture  as  though  all of such  Senior
     Subsidiary Guarantees had been issued at the date of the execution hereof.

          (c)  Except  as set  forth  in  Articles  4 and 5 of the  Senior  Note
     Indenture, and notwithstanding clauses (a) and (b) above, nothing contained
     in the Senior Note  Indenture or in any of the Senior  Notes shall  prevent
     any  consolidation  or merger of a Senior Note  Guarantor  with or into the
     Company or another  Senior  Note  Guarantor,  or shall  prevent any sale or
     conveyance  of the  property of a Senior Note  Guarantor  as an entirety or
     substantially  as an  entirety  to  the  Company  or  another  Senior  Note
     Guarantor.

     5. RELEASES.

          (a) In the event of a sale or other  disposition  of all of the assets
     of any Senior Note Guarantor, by way of merger, consolidation or otherwise,
     or a sale or other  disposition  of all to the capital  stock of any Senior
     Note Guarantor,  then such Senior Note Guarantor (in the event of a sale or
     other disposition, by way of merger,  consolidation or otherwise, of all of
     the  capital  stock  of such  Senior  Note  Guarantor)  or the  corporation
     acquiring the property (in the event of a sale or other  disposition of all
     or  substantially  all of the assets of such Senior Note Guarantor) will be
     released  and  relieved  of any  obligations  under its  Senior  Subsidiary
     Guarantee; provided that the Net Proceeds of such sale or other disposition
     are applied in accordance with the applicable provisions of the Senior Note
     Indenture,  including  without  limitation  Section 4.10 of the Senior Note
     Indenture.  Upon  delivery by the Company to the Senior Note  Trustee of an
     Officers'  Certificate  and an Opinion  of Counsel to the effect  that such
     sale or other  disposition  was made by the Company in accordance  with the
     provisions  of the Senior  Note  Indenture,  including  without  limitation
     Section 4.10 of the Senior Note  Indenture,  the Senior Note Trustee  shall
     execute any documents  reasonably required in order to evidence the release
     of any  Senior  Note  Guarantor  from  its  obligations  under  its  Senior
     Subsidiary Guarantee.

          (b) Any Senior Note Guarantor not released from its obligations  under
     its Senior Subsidiary  Guarantee shall remain liable for the full amount of
     principal of and interest on the Senior Notes and for the other obligations
     of any Senior Note Guarantor under the Senior Note Indenture as provided in
     Article 10 of the Senior Note Indenture.

     6. NO  RECOURSE  AGAINST  OTHERS.  No past,  present  or  future  director,
officer,  employee,  incorporator,  stockholder or agent of either  Guaranteeing
Subsidiary, as such, shall have any liability for any obligations of the Company
or any Guaranteeing  Subsidiary  under the Senior Notes,  any Senior  Subsidiary
Guarantees, the Senior Note Indenture or this Supplemental Senior Note Indenture
or for any claim based on, in respect of, or by reason of, such  obligations  or
their  creation.  Each  Holder of the Senior  Notes by  accepting  a Senior Note
waives and releases all such  liability.  The waiver and release are part of the
consideration for issuance of the Senior Notes. Such waiver may not be effective
to waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.

     7. NEW YORK LAW TO GOVERN.  THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL
GOVERN AND BE USED TO  CONSTRUE  THIS  SUPPLEMENTAL  SENIOR NOTE  INDENTURE  BUT
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT
THAT THE  APPLICATION  OF THE LAWS OF  ANOTHER  JURISDICTION  WOULD BE  REQUIRED
THEREBY.

     8.  COUNTERPARTS  The  parties  may  sign  any  number  of  copies  of this
Supplemental Senior Note Indenture.  Each signed copy shall be an original,  but
all of them together represent the same agreement.

     9. EFFECT OF HEADINGS. The Section headings herein are for convenience only
and shall not affect the construction hereof.

     10.  THE  SENIOR  NOTE  TRUSTEE.  The  Senior  Note  Trustee  shall  not be
responsible  in any  manner  whatsoever  for or in respect  of the  validity  or
sufficiency of this  Supplemental  Senior Note Indenture or for or in respect of
the  recitals  contained  herein,  all of which  recitals are made solely by the
Guaranteeing Subsidiaries and the Company.

     IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Senior
Note Indenture to be duly executed and attested,  all as of the date first above
written.

Dated:

AFFINITY MINING COMPANY


 /s/ T.L. Bethel
- ------------------------------------------
     Name: T.L. Bethel
     Title:   Vice President & Treasurer

ARID OPERATIONS, INC.


 /s/ Collon Kennedy
- ------------------------------------------
     Name: Collon Kennedy
     Title:   Vice President, Secretary & General Counsel

BIG SKY COAL COMPANY


 /s/ T.L. Bethel
- ------------------------------------------
     Name: T.L. Bethel
     Title:   Treasurer & Asst. Secretary

BLACKROCK FIRST CAPITAL CORPORATION


  /s/ T.L. Bethel
- ------------------------------------------
     Name: T.L. Bethel
     Title:   Vice President & Treasurer

BLUEGRASS COAL COMPANY


 /s/ John Hill
- ------------------------------------------
     Name: John Hill
     Title:   President

CABALLO COAL COMPANY


 /s/ Richard Robinson
- ------------------------------------------
     Name: Richard Robinson
     Title:   Vice President

CHARLES COAL COMPANY


 /s/ T.L. Bethel
- ------------------------------------------
     Name: T.L. Bethel
     Title:   Vice President & Treasurer

COAL PROPERTIES CORP.


 /s/ J.A. Beck
- ------------------------------------------
     Name: J.A. Beck
     Title:   President

COLONY BAY COAL COMPANY
     By: Charles Coal Company

 /s/ T.L. Bethel
- ------------------------------------------
     Name: T.L. Bethel
     Title:   Vice President & Treasurer

COOK MOUNTAIN COAL COMPANY


 /s/ J.A. Beck
- ------------------------------------------
     Name: J.A. Beck
     Title:   President

COTTONWOOD LAND COMPANY


 /s/ S.F. Schaab
- ------------------------------------------
     Name: S.F. Schaab
     Title:   Vice President & Treasurer

EACC CAMPS, INC.


 /s/ T.L. Bethel
- ------------------------------------------
     Name: T.L. Bethel
     Title:   Vice President & Treasurer

EASTERN ASSOCIATED COAL CORP


 /s/ T.L. Bethel
- ------------------------------------------
     Name: T.L. Bethel
     Title:   Vice President & Treasurer

EASTERN ROYALTY CORP.


 /s/ T.L. Bethel
- ------------------------------------------
     Name: T.L. Bethel
     Title:   Vice President & Treasurer

GOLD FIELDS CHILE, S.A


 /s/ Collon Kennedy
- ------------------------------------------
     Name: Collon Kennedy
     Title:   Vice President, Secretary & General Counsel

GOLD FIELDS MINING CORPORATION


 /s/ Collon Kennedy
- ------------------------------------------
     Name: Collon Kennedy
     Title:   Vice President, Secretary & General Counsel

GOLD FIELDS OPERATING CO.-ORTIZ


 /s/ Collon Kennedy
- ------------------------------------------
     Name: Collon Kennedy
     Title:   Vice President, Secretary & General Counsel

GRAND EAGLE MINING, INC.


 /s/ John Hill
- ------------------------------------------
     Name: John Hill
     Title:   President

HAYDEN GULCH TERMINAL, INC.


 /s/  D.A. Wagner
- ------------------------------------------
     Name: D.A. Wagner
     Title:   President

INDEPENDENCE MATERIAL HANDLING COMPANY


 /s/ S. F. Schaab
- ------------------------------------------
     Name: S.F. Schaab
     Title:   Vice President & Treasurer

INTERIOR HOLDINGS CORP.


 /s/ S. F. Schaab
- ------------------------------------------
     Name: S.F. Schaab
     Title:   Vice President & Treasurer

JAMES RIVER COAL TERMINAL COMPANY


 /s/ R. A. Navarre
- ------------------------------------------
     Name:  R. A. Navarre
     Title:    President

JUNIPER COAL COMPANY


 /s/ S.F. Schaab
- ------------------------------------------
     Name: S.F. Schaab
     Title:   Vice President & Treasurer

KAYENTA MOBILE HOME PARK, INC.


 /s/ T. L. Bethel
- ------------------------------------------
     Name: T.L. Bethel
     Title:   Treasurer & Asst. Secretary

MARTINKA COAL COMPANY


 /s/ T. L. Bethel
- ------------------------------------------
     Name: T.L. Bethel
     Title:   Vice President & Treasurer

MIDCO SUPPLY AND EQUIPMENT CORPORATION


 /s/ D. C. Hegger
- ------------------------------------------
     Name: D.C. Hegger
     Title:   President

MOUNTAIN VIEW COAL COMPANY


 /s/ T. L. Bethel
- ------------------------------------------
     Name: T.L. Bethel
     Title:   Vice President & Treasurer

NORTH PAGE COAL CORP.


 /s/ T. L. Bethel
- ------------------------------------------
     Name: T.L. Bethel
     Title:   Vice President & Treasurer

OHIO COUNTY COAL COMPANY


 /s/ John Hill
- ------------------------------------------
     Name: John Hill
     Title:   President

PATRIOT COAL COMPANY L.P.
     By: Bluegrass Coal Company


 /s/ John Hill
- ------------------------------------------
     Name: John Hill
     Title:   President

PEABODY AMERICA, INC.


 /s/ D. C. Hegger
- ------------------------------------------
     Name: D.C. Hegger
     Title:   President

PEABODY COALSALES COMPANY


 /s/ R.A. Navarre
- ------------------------------------------
     Name: R.A. Navarre
     Title:   President

PEABODY COALTRADE, INC.


 /s/ S.F. Schaab
- ------------------------------------------
     Name: S.F. Schaab
     Title:   Vice President & Treasurer

PEABODY COAL COMPANY


 /s/ D.A. Wagner
- ------------------------------------------
     Name: D.A. Wagner
     Title:   Vice President

PEABODY DEVELOPMENT COMPANY


 /s/ S.F. Schaab
- ------------------------------------------
     Name: S.F. Schaab
     Title:   Vice President & Treasurer

PEABODY ENERGY SOLUTIONS, INC.


 /s/ S.F. Schaab
- ------------------------------------------
     Name: S.F. Schaab
     Title:   Vice President & Treasurer

PEABODY HOLDING COMPANY, INC.


 /s/ S.F. Schaab
- ------------------------------------------
     Name: S.F. Schaab
     Title:   Vice President & Treasurer

PEABODY NATURAL RESOURCE COMPANY
     By: Gold Fields Mining Corp.


 /s/ S.F. Schaab
- ------------------------------------------
     Name: S.F. Schaab
     Title:   Vice President & Treasurer

PEABODY TERMINALS, INC.


 /s/ S.F. Schaab
- ------------------------------------------
     Name: S.F. Schaab
     Title:   Vice President & Treasurer

PEABODY VENEZUELA COAL CORP.


 /s/ S.F. Schaab
- ------------------------------------------
     Name: S.F. Schaab
     Title:   Vice President & Treasurer

PEABODY WESTERN COAL COMPANY


 /s/ D.A. Wagner
- ------------------------------------------
     Name: D.A. Wagner
     Title:   President

PINE RIDGE COAL COMPANY


 /s/ T.L. Bethel
- ------------------------------------------
     Name: T.L. Bethel
     Title:   Vice President & Treasurer

POWDER RIVER COAL COMPANY


 /s/ S.F. Schaab
- ------------------------------------------
     Name: S.F. Schaab
     Title:   Vice President & Treasurer

RIO ESCONDIDO COAL CORP.


 /s/ S.F. Schaab
- ------------------------------------------
     Name: S.F. Schaab
     Title:   Vice President & Treasurer

SENECA COAL COMPANY


 /s/ D.A. Wagner
- ------------------------------------------
     Name: D.A. Wagner
     Title:   President

SENTRY MINING COMPANY


 /s/ S.F. Schaab
- ------------------------------------------
     Name: S.F. Schaab
     Title:   Vice President & Treasurer

SNOWBERRY LAND COMPANY


 /s/ S.F. Schaab
- ------------------------------------------
     Name: S.F. Schaab
     Title:   Vice President & Treasurer

STERLING SMOKELESS COAL COMPANY


 /s/ T.L. Bethel
- ------------------------------------------
     Name: T.L. Bethel
     Title:   Vice President & Treasurer

THOROUGHBRED, L.L.C.
     By: Peabody Holding Company


 /s/ Steven F. Schaab
- ------------------------------------------
     Name: S. F. Schaab
     Title:   Vice President & Treasurer

HIGHLAND MINING COMPANY


 /s/ Joseph C. Klingl
- ------------------------------------------
     Name: Joseph C. Klingl
     Title:   Vice President

PEABODY SOUTHWESTERN COAL COMPANY


 /s/ S.F. Schaab
- ------------------------------------------
     Name: S.F. Schaab
     Title:   Vice President & Treasurer

P&L COAL HOLDINGS CORPORATION


 /s/ S.F. Schaab
- ------------------------------------------
     Name: S.F. Schaab
     Title:   Vice President & Treasurer

STATE STREET BANK AND TRUST COMPANY
  as Senior Note Trustee


 /s/ Philip G. Kane, Jr.
- ------------------------------------------
     Name: Philip G. Kane, Jr.
     Title:   Vice President