2 Colo. Code Regs. § 407-4-4

Current through Register Vol. 47, No. 23, December 10, 2024

Rule 2 CCR 407-4-4 - PERFORMANCE WARRANTIES AND FINANCIAL WARRANTIES

4.1 GENERAL PROVISIONS

(1) No governmental office of the state, other than the Board, nor any political subdivision of the state shall have the authority to require a Performance or Financial Warranty of any kind for any mining operation.

(2) No permit may be issued pursuant to the Act until the Board or Office receives and approves the Performance and Financial Warranties required herein. If these Warranties are not received within one (1) calendar year of approval of an application for any new permit, amendment or conversion, the Board shall hold a hearing, in accordance with the notification and comment provisions of Rule 1.6, to reconsider the previous approval. If the Board affirms the original application approval, the Board shall establish a new deadline for submittal of the Financial and Performance warranties. If the required warranties are not posted by the date set by the Board, the application shall be denied.

(3) Whenever two or more persons or entities are named as Operators in a single permit, the Operators may limit the scope of their individual Performance Warranties so long as the warranties, in the aggregate, warrant performance of all requirements of the Act.

(4) Whenever two or more persons or entities act as Financial Warrantors, they may limit the scope of their individual warranties so long as all Financial Warranties, in the aggregate, equal the amount required by the Board.

(5) Financial Warranties may be provided by the Operator, by any Third-party, or by any combination of persons or entities.

(6) Financial Warrantors who provide proof of financial responsibility of any type or types described in Rules 4.3.2, 4.3.7, 4.3.8, or 4.3.9 shall not be required to secure the same by the posting of Third-party sureties or otherwise pledging or encumbering property for the benefit of the state.

(7) Financial Warranties shall be maintained in good standing for the entire life of any permit issued under the Act and these Rules. Financial Warrantors shall immediately notify the Board of any event which may impair their warranties.

(8) Where one Operator succeeds another at any uncompleted operation, the Office shall release the first Operator from all liability as to that particular reclamation operation and shall release all applicable Performance and Financial Warranties as to such operation if the successor Operator assumes, as part of the obligation under the Act, all liability for the Reclamation of the affected land, and the obligation is covered by replacement Performance and Financial Warranties as to such affected land.

(9) 95% of the proceeds of all Financial Warranties forfeited under the provisions of Section 34-32.5-118, C.R.S., shall be deposited in a special account established by the Board for the purposes of reclaiming lands which were obligated to be reclaimed under the permits upon which such Financial Warranties have been forfeited.

(10) Proof of financial responsibility may be of any type and in such amount authorized herein, subject to approval by the Board or Office.

4.1.1General Requirements- Performance Warranties

Each application for any Permit or amendments thereto shall be accompanied by a Performance Warranty.

(a) The Performance Warranty shall be in a form approved and prescribed by the Board.

(b) A Performance Warranty shall be signed by the Operator and/or by a person or persons authorized to bind the Operator.

4.1.2 General Requirements - Financial Warranties

(1) A Financial Warranty shall be signed by person or persons authorized to sign a Financial Warranty.

(2) No Financial Warranty shall be required where the Operator is a unit of municipal or county government or the State Department of Transportation and the Operator submits a written guarantee, in lieu of a financial warranty, stating that the affected lands will be reclaimed in accordance with the terms of the permit, these Rules, and Section 34-32.5-116, C.R.S.

(3) Any proof of financial responsibility submitted or revised on or after July 1, 1993, shall be in compliance with Rules 4.2.1(1) through (7), and 4.1.2(6) and (7).

(4) If the Board or Office has reason to believe that any proposed Financial Warranty does not fully and accurately reflect the current financial condition of the Financial Warrantor, the Board or Office may decline to accept the Financial Warranty as submitted.

(5) Each Financial Warrantor providing proof of financial responsibility in a form described in Rules 4.3.6, 4.3.7, 4.3.8, 4.3.9, or 4.3.10 shall annually cause to be filed with the Board or Office a certification by an independent auditor that, as of the close of the Financial Warrantor's most recent fiscal year, the Financial Warrantor continued to meet all applicable requirements of Rule 4. Financial Warrantors who no longer meet said requirements shall comply with Rule 4.15.

(6) The Board or Office may by permit condition require proof of value on a periodic basis of any Warranty held by the Board.

(7) The Board or Office may by permit condition limit certain types of Warranties to specific purposes only or require a designated percentage of the total Warranty be held in easily valued and convertible instruments.

(8) The Board or Office may refuse to accept any type of Financial Warranty if:

(a) the value of the Financial Warranty offered is dependent upon the success, profitability, or continued operation, of the mine;

(b) for Deeds of Trust, First Priority Liens or Salvage Credit, the Operator has not complied with Rule 4.9; or

(c) the Board determines that the Financial Warranty offered cannot reasonably be converted to cash within one hundred and eighty (180) days of forfeiture.

(9) Any Operator/Applicant that desires to utilize a Financial Warranty described in Rule 4.3.6, 4.3.7, 4.3.8, 4.3.9, or 4.3.10 shall pay to the Office an Annual Fee for the reasonable and necessary cost of establishing and reviewing the Financial Warranty.

(a) No costs may be charged hereunder unless and until the Operator/Applicant signs written fee agreements with the Office. Said agreements shall be in such form as the Board may prescribe. Invoices pursuant to said agreements shall include a statement for services and expenses included in the total amount;

(b) rates charged by the Office hereunder may not exceed prevailing rates for similar services, and shall reflect the actual cost of establishing and reviewing the Financial Warranty;

(c) the Operator/Applicant shall be responsible for all costs properly charged hereunder, even if no permit issues from the Board; and

(d) funds paid to the Office are to be made available for the use of outside legal and financial advice for the purpose of reviewing the Financial Warranty of Operators/Applicants desiring to use the Self-Insurance provision.

(10) The original bond documents shall be submitted to the Office and held in safekeeping by the State Treasurer's Office.

4.1.3Provisions for Recovery of Costs

Any instruments offered as a Financial Warranty pursuant to this Rule 4, shall provide that the Board or Office may recover the necessary costs, including attorney's fees or fees incurred in foreclosing on or realizing the collateral used to secure such Financial Warranty in the event such Financial Warranty is forfeited, in the following manner:

(a) for any Corporate Surety Bond issued by a corporate surety company authorized to do business in this state, the face amount of the bond shall be increased by five hundred dollars ($500);

(b) for any irrevocable Letter of Credit issued by a bank authorized to do business in the United States, the face amount of the Letter of Credit shall be increased by five hundred dollars ($500);

(c) for any Certificate of Deposit, the face amount of the Certificate of Deposit shall not be increased;

(d) for any Individual Reclamation Fund, the amount of the trust fund required to be maintained shall be increased by five hundred dollars ($500);

(e) for any Cash Escrow Account, the amount of the Cash Escrow Account required to be maintained shall not be increased; and

(f) for any Deed of Trust or Security Agreement encumbering real or personal property creating a first priority lien in favor of the state, the value of the real or personal property available to secure the amount of the Financial Warranty attributable to costs of reclamation shall be reduced by an amount to be determined by the Board or Office, but in any case, a minimum of five thousand dollars ($5,000) and up to a maximum amount of two percent (2%) of reclamation costs;

(g) any monies collected and not used to fulfill the requirements of this Rule 4.1.3, shall be returned to the Financial Warrantor upon completion of reclamation and liability release by the Board or Office.

4.2FINANCIAL WARRANTY LIABILITY AMOUNT

4.2.1Adequacy of Financial Warranties

(1) All Financial Warranties shall be set and maintained at a level which reflects the actual current cost of fulfilling the requirements of the Reclamation Plan.

(2) Financial Warranty Review- the Office or Board may, in its discretion, review any Financial Warranty for adequacy at any time. In the event the Office or Board determine that the Financial Warranty is insufficient to perform reclamation, the Permittee shall have up to sixty (60) days to post additional Financial Warranty from the date of written notice from the Office or Board of such insufficiency. If the Permittee disagrees with the Office Notice to Increase the Financial Warranty, the Office shall schedule the matter for a hearing before the Board. The Permittee may be scheduled for a Formal Board Hearing for possible revocation of the permit after sixty (60) days, from the date of notice of any such adjustment, if the amount of any increased Financial Warranty has not been provided.

(3) The Board or Office shall prescribe the amount and duration of Financial Warranties, taking into account the nature, extent, and duration of the proposed mining operation, the magnitude, type and estimated cost of planned reclamation, and the requirements of the Act.

(4) In any single year during the life of the permit, the amount of required Financial Warranties shall not exceed the estimated cost of fully reclaiming all lands to be affected in said year, plus all lands affected in previous permit years and not yet fully reclaimed. For the purpose of this Rule, reclamation costs shall be computed with reference to current reclamation costs. The amount of the Financial Warranty shall be sufficient to assure the completion of reclamation of affected lands if the Office has to complete such reclamation due to forfeiture. Reclamation includes all measures taken to assure the protection of water resources, including costs to cover necessary water quality protection, treatment and monitoring as may be required by Permit, these Rules or the Act.

(5) The Financial Warranty amount shall include an amount equal to five percent (5%) of the amount of the cost of reclamation to defray the administrative costs incurred by the Office in conducting the reclamation.

(6) When mining on federal land and the federal land management agency requires that a Financial Warranty be posted with their agency, the amount of Financial Warranty posted with the state shall be the difference between the amount required to be posted by the federal land management agency, and the amount required by the Mined Land Reclamation Board. In no event shall the amount of Financial Warranty posted with the state be less than one hundred dollars ($100). In addition, the application shall contain a provision that in the event the federal land management agency reduces the Financial Warranty, the Permittee must post an acceptable replacement Warranty with the state prior to any release by the federal land management agency. The replacement Warranty shall be sufficient to cover the cost of reclamation liability unless the state conducts an inspection and concurs with the federal land management agency finding.

4.2.2 Specific Provisions - 110 and 110(6) Limited Impact Operations

(1) This Rule shall be applicable to Financial Warranties provided for Permits applied for pursuant to Section 34-32.5-110(1), C.R.S., as of July 1, 1993. The Financial Warranty for a Limited Impact Permit shall be in an amount to be determined by the Office.

(2) The Financial Warranty for any Limited Impact Permit which is filed pursuant to Section 34-32.5-110(1), C.R.S., including those which are automatically issued as a result of Office inaction within thirty (30) days pursuant to the Act (Section 34-32.5-110(4), C.R.S.) shall be in an amount equal to the estimated cost of reclamation.

(3) Divisions of state government and units of municipal and county government are exempt from submitting Financial Warranties and are not required to provide reclamation costs.

4.2.3 Permit Conversion

The conversion of any 110 Limited Impact Permit to a 112 Reclamation Permit shall require a Financial Warranty in an amount equal to the estimated cost of reclamation.

4.2.4Specific Provisions - 111 Special Operations

(1) The Financial Warranty for a 111 Special Operation Permit which is automatically issued as a result of Office inaction within fifteen (15) calendar days, pursuant to the Act (Section 34-32.5-111(5), C.R.S.), shall be in an amount of not less than two thousand five hundred dollars ($2,500) per acre of affected land. However, the Office or Board may require such other greater amount necessary to ensure that estimated costs of reclamation are assured.

(2) Divisions of state government and units of municipal and county government are exempt from submitting Financial Warranties and are not required to provide reclamation costs.

4.2.5Specific Provisions - 112 Reclamation Permit Operations

(1) The Financial Warranty for any 112 Reclamation Permit shall be in an amount to be determined by the Board in accordance with the guidelines set forth herein.

(2) The Financial Warranty for any 112 Reclamation Permit which is automatically issued as a result of Board inaction within the one hundred and twenty (120) day period pursuant to the Act shall be in an amount equal to two thousand dollars ($2,000.00) for each acre of Affected Land, or other such amount as the Board may determine at a subsequent hearing.

(3) If, at a hearing, the Board determines that the Financial Warranty is not adequate, the Operator shall have sixty (60) days to post the additional Financial Warranty in a form and amount acceptable to the Board.

4.2.6Specific Provisions - Exploration Notice

(1) Upon filing the Notice of Intent to Conduct Exploration, the person shall provide Financial Warranty in the amount of two thousand dollars ($2,000.00) per acre of the land to be disturbed, or such other amount as determined by the Office, based on the projected costs of reclamation.

(2) Statewide Warranties may be submitted for exploration, provided such warranties are in an amount equal to the estimated cost of reclamation per acre of affected land.

4.3TYPES OF FINANCIAL WARRANTIES

Proof of financial responsibility may consist of any one or more of the following, subject to approval by the Board:

4.3.1Cash Bond

Cash or Certified funds assigned to the Board.

4.3.2Cash Escrow Account

A fund of cash or cash invested in

(i) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof, including treasury bills, discount notes of the Federal Home Loan Bank, Federal National Mortgage Association, and Federal Farm Credit System (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one hundred and eighty (180) days from the date of acquisition;

(ii) time deposits, certificates of deposit and banker's acceptances with maturities of not more than one hundred and eighty (180) days from the date of acquisition by such person of a commercial bank having, or which is the principal banking subsidiary of a bank holding company having, a long-term unsecured debt rating of at least "AAA" or the equivalent thereof from Standard & Poor's;

(iii) repurchase obligations with a term of not more than seven (7) days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (ii) above;

(iv) investments in money market funds substantially all assets of which are comprised of securities of the types described in clauses (i) through (iii) above; or

(v) other instruments as approved by the Board established in the form of an escrow account.

4.3.3Corporate Surety Bonds

A Surety Bond issued by a corporate surety authorized to do business in this state.

4.3.4Irrevocable Letters of Credit

An Irrevocable Letter of Credit issued by a bank authorized to do business in the United States; the Operator/Applicant must provide evidence that the bank issuing the Letter of Credit is in good financial standing and condition, as may be evidenced by its rating by an appropriate rating system.

4.3.5 Certificates of Deposit

A Certificate of Deposit assigned to the Board.

4.3.6Deeds of Trust and Security Agreements

A Deed of Trust or security agreement encumbering real or personal property and creating a first lien in favor of the State.

4.3.7Self-Insurance

Self-insurance through credit rating or net worth, as further described in Rules 4.10.1 and 4.10.2, respectively.

4.3.8Individual Reclamation Fund

A trust fund which shall be funded by periodic cash payments representing a fraction of total receipts, providing assurance that the funds required for reclamation will be available.

4.3.9Salvage Credit

Credit for the Salvage Value of project-related fixtures and equipment (excluding rolling stock) owned or to be owned by the Financial Warrantor within the permit area, represented by a security agreement creating an equipment lien, less the value of any encumbrances of higher priority, which encumbrances shall be limited to government encumbrances.

4.3.10First Priority Lien on Project-related Fixtures and Equipment

A Deed of Trust or security agreement encumbering specific project-related fixtures and equipment that must remain on-site upon completion of mining operations, or that must be demolished or removed in order for the Reclamation Plan to be performed, creating a first priority lien in favor of the State.

4.3.11 Negotiable Bonds of the United States Government

A Treasury note backed by the full-faith and credit of the United States Government.

4.4SPECIFIC REQUIREMENTS FOR CASH BONDS

Cash or Certified funds shall be held in trust by the State Treasurer's Office. All interest shall accrue to the benefit of the Financial Warrantor except where a permit is revoked and the Financial Warranty is forfeited, the interest shall accrue to the Division of Reclamation, Mining and Safety. The accrued interest shall be used for reclamation of the site.

4.5SPECIFIC REQUIREMENTS FOR CASH ESCROW ACCOUNTS

(1) Cash Escrow Accounts shall be administered by an independent Escrow Agent other than the Office and shall consist of cash and/or cash invested in financial instruments as described in Rules 4.3.2. If the Escrow Agent is a bank, the bank shall be rated as well-capitalized as defined in the Uniform Bank Performance Report.

(2) The Escrow Agent shall be a United States bank or other financial institution, company, corporation, business or firm.

(3) Investment of the Cash Escrow Account(s) shall be proportioned as follows:

(i) not less than fifty percent (50%) of the Cash Escrow Account(s) shall be convertible into cash or other immediately available funds within twenty-four (24) hours; and

(ii) the balances of the Cash Escrow Account(s) shall be convertible into cash or other immediately available funds within one hundred and eighty (180) days.

(4) All interest shall accrue for the benefit of the Operator.

(5) All maintenance fees for the Cash Escrow Account(s) shall be paid for by the Operator.

(6) The Escrow Agent shall provide to both the Operator and the Board monthly account statement detailing the activities and interests earned on the Cash Escrow Account(s), the cost and market value of the Cash Escrow Account(s), and the balances of the various types of instruments into which the Cash Escrow Account(s) are invested.

(7) On the anniversary of the Cash Escrow Account(s), the Operator shall report to the Board the status of its activities under the Permit, including, but not limited to, the estimated reclamation costs for the area disturbed to date and the estimated amount of reclamation costs for the additional area to be disturbed during the following twelve (12) months. Based upon this annual report, the Board may require the balance of the Cash Escrow Account(s) be increased to an amount that is not less than the total amount of estimated reclamation costs. The Board shall notify the Operator in writing of any required increase in the amount of Cash Escrow Account(s) and, within sixty (60) days of the receipt of such notice, the Operator shall deposit the amount of the increase with the Escrow Agent. The Operator shall submit to the Board the corporation's annual report, which lists the Cash Escrow Account(s) in the report footnotes. The Operator shall also submit an annual report of the Escrow Agent.

(8) In addition to the above requirements, any agreement establishing the Cash Escrow Account(s) shall provide the following:

(a) Upon order of forfeiture of the Cash Escrow Account(s) by the Board, the Escrow Agent shall release the principal of the Cash Escrow Account(s) to the Board within five (5) days after presentment of the Board forfeiture order to the Escrow Agent. The Operator agrees not to contest or otherwise challenge the Escrow Agent's disbursement of the Cash Escrow Account(s) in accordance with this Rule.

(b) The Operator may not use the Cash Escrow Account(s) as collateral for any loan, mortgage or other obligation or as a guarantee or security interest for any obligation of the Operator, including any security interest which may be filed under Article 9 of the Uniform Commercial Code as in effect in Colorado.

(c) The Board may file a security interest and lien upon the Cash Escrow Account(s) in accordance with Article 9 of the Uniform Commercial Code in effect in Colorado.

(d) The Board is not responsible for and is not indemnifying, insuring, or otherwise holding harmless the Escrow Agent or the Operator with respect to the agreement for any loss, liability, cost damage or expense including attorney's fees, the Escrow Agent may suffer or incur by reason of any action, claim or proceeding brought by or against the Escrow Agent arising out of or relating in any way to the agreement or the Cash Escrow Account(s).

4.6SPECIFIC REQUIREMENTS FOR CORPORATE SURETY BONDS

(1) The Operator/Applicant shall submit a fully executed Corporate Surety on a form provided by the Office.

(2) A Power of Attorney authorizing the party signing on behalf of the insurance company shall be submitted with the Corporate Surety.

4.7SPECIFIC REQUIREMENTS FOR IRREVOCABLE LETTERS OF CREDIT

(1) The Irrevocable Letter of Credit shall be executed on the issuing bank's letterhead using the language provided by the Office.

(2) The Irrevocable Letter of Credit shall be automatically renewable. The Letter of Credit shall provide that, in case of non-renewal, the bank must notify the Office and the Operator, by Certified Mail, at least ninety (90) days prior to the expiration date of the Letter of Credit.

(3) The bank shall provide documentation in the form of a balance sheet certified by a Certified Public Accountant demonstrating that the Letter of Credit does not exceed ten percent (10%) of the bank's capital surplus accounts. This documentation shall be provided by the Operator, annually, as part of the Operator's Annual Report.

4.8SPECIFIC REQUIREMENTS FOR CERTIFICATES OF DEPOSIT

(1) The Certificate of Deposit shall be assigned to the State of Colorado/Mined Land Reclamation Board.

(2) The Certificate of Deposit shall be automatically renewed.

(3) The account shall be a public funds account.

(4) The Certificate of Deposit shall be issued by an eligible public depository under the Public Deposit Protection Act (PDPA), as required by Section 11-10.5-101, C.R.S.

4.9SPECIFIC REQUIREMENTS FOR DEEDS OF TRUST AND OTHER SECURITY INTERESTS IN REAL OR PERSONAL PROPERTY

4.9.1General Provisions

(1) The Board or Office may accept interests in real and personal property as Financial Warranties of not more than eighty-five percent (85%) of the estimated value of any such property.

(2) Any person offering such Financial Warranty shall:

(a) submit current information necessary to show clear title to the property and the current appraised value of such property. This information shall contain a completed appraisal in a form approved by the Board.

(b) Submit together with the Annual Report as required by Rule 1.15, the following:

(i) an update by a qualified independent appraiser indicating any changes in property value;

(ii) a statement summarizing any circumstances which may affect the adequacy of the Deed if it is a Trust or security agreement; and

(iii) proof that there are no past-due property taxes.

(3) The Board or Office may refuse to accept any Deed of Trust or security agreement if the property or equipment offered is necessary in the functioning or completion of the approved Reclamation Plan.

4.9.2Deed of Trust- Real Estate

(1) Rules 4.1.2 Shall be applicable for new Construction Materials Operations on July 1, 1993, and existing Construction Materials Operations on January 1, 1996, to Deeds of Trust existing as of July 1, 1993 and subsequent updates of these same Deeds of Trust used as collateral for Financial Warranties; and to any Financial Warranty completed before July 1, 1993 if the value of any such Financial Warranty includes any construction material value or if construction material value is used to update any such Financial Warranty. The value of any Financial Warranty described in this Rule shall include construction material value for the life of the Warranty. Updates shall mean only those changes that adjust the construction material or property value of an existing Deed of Trust, and does not include submissions of new properties.

(2) Failure to provide the documents required by Rule 4.9.1 Shall indicate a reason to believe the Financial Warranty is not being maintained in good standing as required by Rule 4.1(7).

(3) A request for an increase in the bond by the Office shall require a reappraisal of any real property used as security for the bond. Such reappraisal shall be timely, provided by the Operator and shall be completed by an independent appraiser, acceptable to the Office.

4.9.3First Priority Lien - Fixtures and Equipment

With respect to first priority liens on project-related fixtures and equipment described in Rule 4.3.10, above:

(a) the Board or Office may, in its discretion, accept a first priority lien, in the amount of the Financial Warranty prescribed pursuant to Rule 4.2.1, on any project-related fixtures and equipment that must remain on-site in order for the Reclamation Plan to be performed, in lieu of including the cost of acquiring and installing such fixtures and equipment;

(b) the Board or Office may accept a first priority lien on any project-related fixtures and equipment that must be demolished or removed from the site under the Reclamation Plan. The Board or Office may, in its discretion, accept such a lien as a portion of the proof of financial responsibility if the amount credited for such lien does not exceed the cost of demolishing or removing the subject fixtures and equipment or the market value of such fixtures and equipment, whichever is less; and

(c) any fixtures and equipment accepted pursuant to this Rule shall be insured, with the MLRB named as the additional insured, and maintained in good operating condition and shall not be removed from the permit area without the prior consent of the Board or Office. Each Operator/Permittee or Applicant providing a lien on such equipment and fixtures shall file an Annual Report with the Office in sufficient detail to fully describe the condition, value and location of all pledged fixtures and equipment. Such Financial Warrantor shall not pledge such equipment and fixtures to secure any other obligation and shall immediately notify the Office of any other interest that arises in the pledged property, and shall comply with the requirements of Rule 4.15.

4.10SPECIFIC REQUIREMENTS FOR SELF-INSURANCE

4.10.1 Self-Insurance - Credit Rating

The Operator/Permittee or Applicant shall submit to the Office a certified financial statement for the most recent fiscal year and a certification by an independent auditor, which shows:

(a) the Financial Warrantor is the issuer of one or more currently outstanding senior credit obligations that have been rated by a nationally recognized rating organization;

(b) said obligations enjoy a rating of "A" or better; and

(c) at the close of the Financial Warrantor's most recent fiscal year, its net worth was equal to or greater than two (2) times the amount of all Financial Warranties.

4.10.2Self-Insurance - Net Worth

The Operator/Permittee or Applicant shall submit to the Office a certified financial statement for the most recent fiscal year and a certification by an independent auditor, which shows that as of the close of said year:

(a) the Financial Warrantor's net worth was at least ten million dollars ($10,000,000.00) and was equal to or greater than two (2) times the amount of all Financial Warranties;

(b) the Financial Warrantor's tangible fixed assets in the United States were worth at least twenty million dollars ($20,000,000.00);

(c) The Financial Warrantor's total liabilities-to-net worth ratio was not more than two to one; and

(d) the Financial Warrantor's net income, excluding non-recurring items, was positive. Nonrecurring items which affect net income shall be stated in order to determine if they materially affect self-bonding capacity.

4.10.3Board or Office Right to Deny Self-Insurance

The Board or Office may deny self-insurance if the Operator/Permittee or Applicant has non-recurring items that affect self-bonding capacity.

4.11SPECIFIC REQUIREMENTS FOR INDIVIDUAL RECLAMATION FUND

4.11.1Establishment of Fund

(1) Upon commencement of production, the Operator may establish an individual reclamation fund, to be held by an independent trustee for the Board, upon such terms and conditions as the Board may prescribe, which trust fund shall be funded by periodic cash payments representing such fraction of receipts as will, in the opinion of the Board, provide assurance that funds will be available for reclamation.

(2) Prior to issuance of a permit, the Operator will provide another form of Financial Warranty as described herein. As the reclamation fund increases in value, this form of Financial Warranty may be decreased in value so long as the sum of Financial Warranties is that amount specified by the Board or required by the Act.

(3) In approving the Individual Reclamation Fund as a Financial Warranty, the Board or Office shall:

(a) approve the form of the initial Financial Warranty;

(b) fix the fraction of receipts to be held in trust;

(c) identify the trustee to hold said funds for the Board;

(d) prescribe the terms and conditions applicable to the Operator or Warrantor's payment of funds into said trust; and

(e) prescribe the terms and conditions governing the trustee's handling of said funds.

4.12SPECIFIC REQUIREMENTS FOR SALVAGE CREDIT

4.12.1Requirements for Salvage Credit

A Financial Warranty based on Salvage Credit must meet the following requirements:

(a) Project-related fixtures and equipment (excluding Rolling Stock) owned or to be owned by the Operator/Permittee or Applicant within the permit area will have a Salvage Value at least equal to the amount of the Financial Warranty, or the appropriate portion thereof;

(b) Existing liens and encumbrances applicable to said fixtures and equipment, other than liens in favor of the United States or the State of Colorado, any other state, and any political subdivisions, will be subordinated to the lien described in Section 34-32.5-118(4)(b) and (c), C.R.S. and Rule 4.20(6).

(c) Said fixtures and equipment will be maintained in good operating condition, be properly insured against theft, loss, fire and vandalism, and will not be removed from the permit area without the prior consent of the Board. In addition, the Warrantor shall ensure that insurance premiums are always paid two (2) years in advance on said fixtures and equipment.

4.12.2Determination of Salvage Credit

(1) The Operator/Permittee or Financial Warrantor shall provide the Office with appraisals, information regarding invoice price, current value, cost of demolition and/or removal, and any other information as is necessary to establish the Salvage Value of the particular Project-related fixtures and/or equipment for which Salvage Credit is sought as all or part of the Financial Warranty for a Permit.

(2) The Operator/Permittee or Financial Warrantor shall provide the Office with a list of all encumbrances, and shall affirm that no other encumbrances exist to the best of the Operator's or Financial Warrantor's knowledge and belief.

(3) The Office may request the Operator/Permittee or Financial Warrantor to provide additional reasonable information to support the claimed Salvage Value and/or costs associated with any Project-related fixture or equipment for which Salvage Credit is sought.

(4) Ten (10) days prior to any Board hearing regarding a Permit application for which Salvage Credit is offered as all or part of the Financial Warranty, the Office shall inform the Operator/Permittee or Financial Warrantor of its opinion as to the amount or estimate of the amount of the Salvage Value attributable to the Project-related fixtures and equipment for which Salvage Credit is sought.

(5) At the hearing before the Board, the Office shall recommend an amount for Salvage Credit value.

(6) The Board shall, after considering the Office's recommendation, testimony offered by the Operator, Warrantor, or any other person, and facts adduced at the hearing, fix the amount of the Salvage Credit for the Project-related fixtures and equipment, and attach conditions, as may be appropriate, to annually verify the value of the Salvage Credit.

4.13SPECIFIC REQUIREMENTS FOR NEGOTIABLE BONDS OF THE UNITED STATES GOVERNMENT

(1) The Treasury note shall be purchased from a U.S. bank or broker.

(2) The Treasury note shall be for a period of five (5) years.

(3) The Treasury note shall be registered to the custody agent (bank or broker) and pledged to the Board and held in a joint account with the bank or broker.

(4) All interest shall be paid to the operator.

(5) The Board shall accept the value of the Treasury note at ninety percent (90%) of face value.

(6) The only authorized signatory on the account is that of the Board.

(7) The operator shall provide to the Board:

(a) Book Entry receipt.

(b) An Assignment of U.S. Treasury Note to the Board.

(8) Fees associated with the purchase and maintenance of Treasury Notes are the responsibility of the Permittee.

(9) The custody agent shall provide monthly statements of the account to the Board.

(10) If the market value of the U.S. Treasury Note drops below the required ninety percent (90%) of face value, the Permittee will supply the Board with additional funds or post an additional or replacement bond up to the required bond amount.

4.14REDUCTION OF WARRANTY AMOUNT

4.14.1 Operator's Request for Reduction

(1) An Operator may request that the Office reduce the amount of the Financial Warranty required.

(2) Such a request must:

(a) be made in writing, separate from other correspondence;

(b) include an estimate of the actual cost to reclaim the site based on what it would cost an independent contractor to complete reclamation, including unit costs for reclamation activities as appropriate to the operation to comply with the provisions of Rule 3.1 and the Permit's Reclamation Plan.

(3) Such request shall be processed as described in Rule 4.16, for Exploration operations, or Rule 4.17, for all other operations.

4.15 IMPAIRMENT OF FINANCIAL WARRANTIES

(1) Each Financial Warrantor providing proof of financial responsibility in a form described in Rules 4.3.6, 4.3.7, 4.3.8, 4.3.9, and 4.3.10 shall notify the Board within sixty (60) days of any net loss incurred in any quarterly period.

(2) Whenever the Board receives a notice under Rule 4.15 or fails to receive a certification or a substitute Warranty as required by Rule 4.1.2, or otherwise has reason to believe that a Financial Warranty has been materially impaired, it may convene a hearing for the purpose of determining whether impairment has in fact occurred.

(3) Whenever the Board elects to convene a hearing pursuant to Rule 4.15, it may hire an independent consultant to provide expert advice at the hearing. The fees for any such consultant shall be paid by the Financial Warrantor, and no consultant shall be hired until the Financial Warrantor signs a written fee agreement in such form as the Board may prescribe. In the event that a Financial Warrantor refuses to sign such an agreement, the Board may, without hearing, order the Financial Warrantor to provide an alternate form of Financial Warranty.

(4) At any such hearing, if the Board finds that a Financial Warranty has been materially impaired, it may order the Financial Warrantor to provide an alternate form of Financial Warranty.

(5) A Financial Warrantor shall have ninety (90) days to provide an alternate warranty required under Rule 4.15(4).

4.16RELEASE OF WARRANTIES - EXPLORATION OPERATIONS

4.16.1Operator Application for Release of Warranties

(1) Upon the completion of reclamation, any person that filed with the Board or Office an Exploration Notice of Intent and Financial Warranties shall submit to the Office by Certified Mail and separate from other types of communication to the Board or Office a Reclamation Report and request for reclamation responsibility release stating that reclamation is finished.

(2) Such report shall contain, at a minimum:

(a) the name of the operation, the name of the Person conducting exploration, file number of the Exploration Notice of Intent and the name, mailing address and phone number of the contact person;

(b) a signed statement by the Person conducting exploration that all reclamation requirements of the Exploration Notice have been satisfied;

(c) a narrative describing site grading, topsoil replacement, successful revegetation and other stabilization activities, as appropriate;

(d) suitable photographs of the reclaimed area; and

(e) a map of sufficient detail to determine the location of the exploration activity.

(3) The Office shall, within ninety (90) calendar days after receiving said report, or as soon thereafter as weather conditions permit, inspect the lands and reclamation described in the notice to determine if the Person conducting exploration has complied with all applicable requirements.

(4) If the Office finds the reclamation to be in compliance with the requirements of the Notice of Intent, Rules and Regulations, and the Act, the Office shall release all applicable performance and financial warranties. The financial warranty shall not be held for more than sixty (60) calendar days after the Office finds that the Notice of Intent Operator has successfully completed reclamation. However, an appeal to the release of the financial warranties shall stay the release on the sixtieth (60th) day pending a Formal Board Hearing.

4.17RELEASE OF PERFORMANCE AND FINANCIAL WARRANTIES FOR MINING OPERATIONS

4.17.1Operator Requirements

(1) The Operator of any mining operation possessing a 110 Limited Impact Permit, or a 111 Special Operations Permit, or a 112 Reclamation Permit may file a written notice of completion of reclamation and request for release of reclamation responsibility with the Office whenever an Operator believes any or all requirements of the Act, the Rules and Regulations, and the approved reclamation plan have been completed with respect to any or all of the Affected Lands.

(2) The Operator shall include in the notice to the Office the names and addresses and phone numbers of all owners of record to the affected land.

(3) The written notice requesting release shall be sent by Certified Mail and be separate from other types of communication to the Office.

(4) Such notice shall contain a signed statement by the Operator or their agent that all applicable portions of the Reclamation Plan requirements have been satisfied in accordance with these Rules and all applicable requirements under the Act.

4.17.2Office Requirements

(1) The Office, upon receipt of said notice of completion of reclamation, shall immediately provide notice to all owners of record to the affected land and to the county(s).

(2) The Office shall, within sixty (60) calendar days after receiving said notice, or as soon thereafter as weather conditions permit, inspect the lands and reclamation described in the notice to determine if the Permittee has complied with all applicable requirements.

(3) If the Office fails to conduct an inspection within the time specified in Rule 4.17.2, or fails to advise the Permittee of deficiencies within the time specified in Rule 4.17.2, then all Financial Warranties applicable to reclamation described in the notice shall be deemed released as a matter of law.

(4) Where the Office finds that a Permittee has not complied with the applicable requirements of the Act, Rules and Regulations, or the approved reclamation plan, it shall advise the Permittee of such non-compliance not more than sixty (60) calendar days after the date of the inspection.

(5) Where the Office finds that a Permittee has successfully complied with the requirements of the Act, Rules and Regulations, and the approved reclamation plan, the Office shall release all applicable performance and financial warranties. Release (pending an appeal) shall be in writing and mailed within thirty (30) calendar days to the Permittee after the date of such findings. However, an appeal to the release of the financial and performance warranties shall stay the release on the thirtieth (30) day pending a Formal Board Hearing.

4.18PUBLIC NOTICE AND FILING OF WRITTEN OBJECTIONS REGARDING A REQUEST FOR RELEASE OF FINANCIAL WARRANTY

(1) Any person directly and adversely affected or aggrieved may submit written objections on the request for reclamation responsibility release so long as such comments are received by the Office within fifteen (15) days of notice by the Office to the county(s) and all owners of record to the affected land.

(2) Notice of the Office's decision to release the Permittee from further reclamation responsibility shall be published in the next monthly agenda of the Board.

4.19GENERAL PROVISIONS - APPEALS TO DECISION - RELEASE OF FINANCIAL WARRANTY

(1) Any person directly and adversely affected or aggrieved by an Office decision to approve or deny the request for reclamation responsibility release and whose interest is entitled to protection under the Act may appeal the decision to the Board by submitting a request for Administrative Appeal to the Office according to the provisions of Rule 1.4.11 . The request for Administrative Appeal must specify the basis for being directly and adversely affected or aggrieved, a statement of why the person's interest is protected by the Act, the permit number assigned by the Office and include a statement of the factual and legal issues presented by the appeal.

(2) If the Office decision to release a Permittee from reclamation liability is reversed by the Board on appeal, all outstanding obligations under the permit, the financial warranty, and the performance warranty shall remain in effect.

4.20FORFEITURE OF FINANCIAL WARRANTY

(1) A Financial Warranty shall be subject to forfeiture whenever the Board shall determine at a hearing that any one or more of the following circumstances exist:

(a) the Operator has violated a Cease and Desist order entered pursuant to Section 34-32.5-124, C.R.S. 1984, as amended, and, if corrective action was proposed in such order, has failed to complete such corrective action although ample time to have done so has elapsed; or

(b) the Operator is in default under the Performance Warranty and has failed to cure such default although they have been given written notice thereof and has had ample time to cure such default;

(c) the Financial Warrantor has failed to maintain the Financial Warranty in good standing as required by Section 34 32.5 117, C.R.S. 1984, as amended; or

(d) the Financial Warrantor no longer has the financial ability to carry out the obligations under the Act.

(2) Whenever the Board, based on information and belief, has reason to believe that a Financial Warranty is subject to forfeiture, the Board shall so notify the Operator and all Financial Warrantors. The Board shall afford the Operator and all Financial Warrantors the right to appear before the Board at a hearing to be held not less than thirty (30) days after the parties' receipt of said Notice.

(3) At any such hearing, the Board shall be empowered to:

(a) withdraw or modify any determination that the Financial Warranty is subject to forfeiture;

(b) settle or compromise the determination; or

(c) confirm its determination that the Financial Warranty should be forfeited.

(4) Upon finding that a Financial Warranty should be forfeited, the Board shall issue written findings of fact and conclusions of law to support its decision and shall issue an order directing affected Financial Warrantors to immediately deliver to the Board all amounts warranted by applicable Financial Warranties.

(5) The Board, upon issuing any order pursuant to Rule 4.20, may request the Attorney General to institute proceedings to secure or recover amounts warranted by forfeited Financial Warranties. The Attorney General shall have the power, inter alia, to:

(a) foreclose upon any real and personal property encumbered for the benefit of the state;

(b) collect, present for payment, take possession of, and otherwise reduce to cash any property held as security by the Board;

(c) dispose of pledged property.

(6) The amount of any forfeited Financial Warranty shall be a lien in favor of this state upon any project-related fixtures or equipment offered as proof of financial responsibility pursuant to Section 34 32.5 117(3)(f)(V)(C)-(E), C.R.S. 1984, as amended.

(7) Said lien shall have priority over all other liens and encumbrances irrespective of the date of recordation, except liens of record on the effective date of this Act and liens of the United States, the state, and political subdivisions thereof for unpaid taxes, and shall attach and be deemed perfected as of the date the Board approves issuance of the Permit.

(8) Funds recovered by the Attorney General in proceedings brought pursuant to Rule 4.20 shall be held in the account described in Section 34-32.5-122, C.R.S. 1984, as amended, and shall be used to reclaim lands covered by the forfeited warranties, except that, five percent (5%) of the amount of the Financial Warranty forfeited and recovered shall be deposited in the Mined Land Reclamation Fund, created in Section 34 32 127, C.R.S. 1984, as amended, to cover the administrative costs incurred by the Office in performing reclamation.

(9) The Board shall have a right of entry to reclaim said lands. Upon completion of such reclamation, the Board shall present to the Financial Warrantor a full accounting and shall refund all unspent moneys.

(10) Defaulting Operators/Permittees shall remain liable for the actual cost of reclaiming Affected Lands, less any amounts expended by the Board pursuant to Rule 4.20, notwithstanding any discharge of applicable Financial Warranties.

(11) Notwithstanding any provision of this Rule to the contrary, a corporate surety may elect to reclaim Affected Lands in accordance with an approved plan in lieu of forfeiting a bond penalty, or in accordance with the approved Plan acceptable to the Board or Office, otherwise the Board may forfeit the fund and perform reclamation.

2 CCR 407-4-4

42 CR 12, June 25, 2019, effective 7/15/2019