    Hardrock Mining: BLM Needs to Better Manage Financial Assurances
    to Guarantee Coverage of Reclamation Costs (20-JUN-05,
    GAO-05-377).

    Since the General Mining Act of 1872, billions of dollars in
    hardrock minerals, such as gold, have been extracted from federal
    land now managed by the Department of the Interior's Bureau of
    Land Management (BLM). For years, some mining operators did not
    reclaim land, creating environmental, health, and safety risks.
    Beginning in 1981, federal regulations required all operators to
    reclaim BLM land disturbed by these operations. In 2001, federal
    regulations began requiring operators to provide financial
    assurances before they began exploration or mining operations.
    GAO was asked to determine the (1) types, amount, and coverage of
    financial assurances operators currently use; (2) extent to which
    financial assurance providers and others have paid to reclaim
    land not reclaimed by the operator since BLM began requiring
    financial assurances; and (3) reliability and sufficiency of
    BLM's automated information system (LR2000) for managing
    financial assurances for hardrock operations.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-05-377
        ACCNO:   A27217
      TITLE:     Hardrock Mining: BLM Needs to Better Manage Financial
    Assurances to Guarantee Coverage of Reclamation Costs
         DATE:   06/20/2005
      SUBJECT:   Data integrity
    	     Federal regulations
    	     Financial analysis
    	     Financial management
    	     Information systems
    	     Land management
    	     Land reclamation
    	     Mine safety
    	     Mining
    	     Mining legislation
    	     Systems evaluation

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    GAO-05-377

    United States Government Accountability Office

     GAO	Report to the Ranking Minority Member, Committee on Homeland Security and
                           Governmental Affairs, U.S. Senate

    June 2005

    HARDROCK MINING

        BLM Needs to Better Manage Financial Assurances to Guarantee Coverage of
                                   Reclamation Costs

                                           a

    GAO-05-377

    [IMG]

    June 2005

    HARDROCK MINING

    BLM Needs to Better Manage Financial Assurances to Guarantee Coverage of
    Reclamation Costs

      What GAO Found

    According to GAO's survey of BLM state offices, as of July 2004, hardrock
    operators were using 11 types of financial assurances, valued at about
    $837 million, to guarantee reclamation costs for existing hardrock
    operations on BLM land. Surety bonds, letters of credit, and corporate
    guarantees accounted for most of the assurances' value. However, these
    financial assurances may not fully cover all future reclamation costs for
    these existing hardrock operations if operators do not complete required
    reclamation. BLM reported that, as of July 2004, some existing hardrock
    operations do not have financial assurances and some have no or outdated
    reclamation plans and/or cost estimates, on which financial assurances
    should be based.

    BLM identified 48 hardrock operations on BLM land that had ceased and not
    been reclaimed by operators since it began requiring financial assurances.
    BLM reported that the most recent cost estimates for 43 of these
    operations totaled about $136 million, with no adjustment for inflation;
    it did not report reclamation cost estimates for the other 5 operations.
    However, as of July 2004, financial assurances had paid or guaranteed $69
    million and federal agencies and others had provided $10.6 million to pay
    for reclamation, leaving $56.4 million in reclamation costs unfunded.
    Financial assurances were not adequate to pay all estimated costs for
    required reclamation for 25 of the 48 operations because (1) some
    operations did not have financial assurances, despite BLM efforts in some
    cases to make the operators provide them; (2) some operations' financial
    assurances were less than the most recent reclamation cost estimates; and
    (3) some financial assurance providers went bankrupt. Also, cost estimates
    may be understated for about half of the remaining 23 operations because
    the estimates may not have been updated to reflect inflation or other
    factors.

    BLM's LR2000 is not reliable and sufficient for managing financial
    assurances for hardrock operations because BLM staff do not always update
    information and LR2000 is not currently designed to track certain critical
    information. Specifically, staff have not entered information on each
    operation, and for those operations that are included, the information is
    not always current. Also, LR2000 does not track some critical information-
    operations' basic status, some types of allowable assurances, and
    state-and county-held financial assurances. Given these limitations, BLM's
    reliance on LR2000 to manage financial assurances is mixed: headquarters
    does not always rely on it and BLM state offices' reliance varies. To
    compensate for LR2000's limitations, some BLM offices use informal
    record-keeping systems to help manage hardrock operations and financial
    assurances. BLM has taken some steps and identified others to improve
    LR2000 for managing financial assurances for hardrock operations.

                     United States Government Accountability Office

    Contents

      Letter

    Results in Brief
    Background
    BLM Identified 11 Types of Financial Assurances Valued at

    Approximately $837 Million, but These Financial Assurances May
    Not Fully Cover Reclamation Costs

    Financial Assurances Were Not Always Adequate to Pay All
    Estimated Costs for Required Reclamation for Hardrock
    Operations That Had Ceased and Not Been Reclaimed by
    Operators

    BLM's LR2000 Is Not Reliable and Sufficient for Managing Financial

    Assurances for Hardrock Operations
    Conclusions
    Recommendations for Executive Action
    Agency Comments and Our Evaluation

    1 6 8

    20

    34

    58 65 65 66

    Appendixes
                    Appendix I:       Objectives, Scope, and Methodology       69
                                  Number of Notice- and Plan-Level Hardrock
                   Appendix II:                 Operations and
                                   Value of Associated Financial Assurances    74
                                Detailed Information on 48 Hardrock Operations
                  Appendix III:                    That Had
                                  Ceased and Not Been Reclaimed by Operators   76
                  Appendix IV:   Comments from the Department of the Interior  93
                                                 GAO Comments                  96
                    Appendix V:     GAO Contact and Staff Acknowledgments      98

    Tables	Table 1: Table 2: Table 3:

    Table 4:

    Description of Types of Hardrock Operations under 1981
    and 2001 BLM Regulations 14
    Type and Amount of Financial Assurances for 12 States
    with Existing Hardrock Operations, as of July 2004 24
    Number of Notice-and Plan-Level Hardrock Operations
    and the Percentage of These Operations BLM Reported
    Had No Financial Assurances, by State, as of July 2004 31
    Reported Percentage of Notice- and Plan-Level Hardrock
    Operations without Reclamation Plans and Cost
    Estimates, by State, as of July 2004 33

    Contents

    Table 5:	Number and Selected Characteristics of 48 Hardrock Operations
    Reported by BLM as Ceased and Not Reclaimed by Operators Since BLM Began
    Requiring Financial Assurances, by State, as of July 2004 36

    Table 6:	Cost Estimates for Required Reclamation of 43 Hardrock Operations
    with Cost Estimates Reported by BLM as Ceased and Not Reclaimed by
    Operators Since BLM Began Requiring Financial Assurances, by State, as of
    July 2004 37

    Table 7:	Type and Value of Financial Assurances Used by Operators to
    Guarantee Reclamation Costs for 38 Operations with Financial Assurances
    that BLM Identified as Ceased and Not Reclaimed by Operators Since BLM
    Began Requiring Financial Assurances, as of July 2004 40

    Table 8:	Reasons Financial Assurances Were Not Adequate to Pay Estimated
    Costs for Required Reclamation for 25 Hardrock Operations Identified by
    BLM as Ceased and Not Reclaimed by Operators Since BLM Began Requiring
    Financial Assurances, as of July 2004 41

    Table 9:	Comparison of Most Recent Cost Estimate as of July 2004 with the
    Value of Financial Assurances for 13 Hardrock Operations with Cost
    Estimates That Exceeded Financial Assurances 44

    Table 10: Value of Cost Estimate Prepared before Hardrock Operations
    Ceased and the Number of Months Elapsed between Estimate Date and July
    2004 for 12 Hardrock Operations Where Financial Assurances Were Equal to
    or Greater than Cost Estimate 50

    Table 11: Reclamation Status and BLM Views on the Likelihood of Completing
    Reclamation of 43 Hardrock Operations for Which Required Reclamation Had
    Not Been Completed by Operators, as of July 2004 57

    Table 12: States' Views on Reliability and Adequacy of LR2000 to Manage
    Financial Assurances 63

    Table 13: Number of Notice-and Plan-Level Hardrock Operations and
    Associated Financial Assurances, by State, as of July 2004 74

    Table 14: Basic Characteristics of 48 Hardrock Operations That Had Ceased
    and Not Been Reclaimed by Operators 77 Table 15: Key Dates for 48 Hardrock
    Operations That Had Ceased and Not Been Reclaimed by Operators 79

                                        Contents

    Table 16: BLM Steps to Compel Operators to Reclaim BLM Land Disturbed by
    48 Hardrock Operations That Had Ceased and Not Been Reclaimed by Operators
    and the Reasons Operators Did Not Reclaim the Land 81

    Table 17: Estimated Reclamation Costs for 48 Hardrock Operations That Had
    Ceased and Not Been Reclaimed by Operators 84

    Table 18: Types and Amount of Financial Assurances and the Amount of
    Financial Assurances Relinquished and Spent on Reclamation of 48 Hardrock
    Operations That Had Ceased and Not Been Reclaimed by Operators 87

    Table 19: Sources of Other Funds and the Status of Reclamation of 48
    Hardrock Operations That Had Ceased and Not Been Reclaimed by Operators 90

    Figures	Figure 1: Figure 2:

    Figure 3: Figure 4:

    Figure 5:

    Figure 6:

    Figure 7:

    BLM-Managed Land 9
    Overview of a Hardrock Operation Using a
    Heap-Leaching Process 11
    The Boundaries of the 12 BLM State Offices 19
    Types of Financial Assurances Used, Value, and
    Percentage of Total Value 21
    Sources and Amount of Funds Provided or Guaranteed to
    Pay Estimated $136 Million in Costs for Required
    Reclamation for Operations that BLM Identified as
    Ceased and Not Reclaimed by Operators Since BLM
    Began Requiring Financial Assurances, as of July 2004 38
    Sources of $10.6 Million Provided by Others to Pay the
    Cost of Required Reclamation for 11 Operations
    Identified by BLM as Ceased and Not Reclaimed by
    Operators, as of July 2004 51
    Zortman and Landusky Mining Operations at or Near
    Buildout in 1993 and Status of Reclamation in 2004 54

    Contents

    Abbreviations

    ALIS Alaska Land Information System
    BLM Bureau of Land Management
    CERCLA Comprehensive Environmental Restoration, Compensation, and

    Liability Act of 1980 LR2000 Legacy Rehost 2000 RAMS Restoration of
    Abandoned Mine Sites

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    A

    United States Government Accountability Office Washington, D.C. 20548

    June 20, 2005

    The Honorable Joseph I. Lieberman
    Ranking Minority Member
    Committee on Homeland Security and Governmental Affairs
    United States Senate

    Dear Senator Lieberman:

    The General Mining Act of 1872 encouraged development of the West by
    allowing individuals1 to stake claims and obtain exclusive rights to gold,
    silver, copper, and other valuable hardrock mineral deposits on land
    belonging to the United States. Since then, thousands of operators2 have
    extracted billions of dollars worth of hardrock minerals from land now
    managed by the Department of the Interior's Bureau of Land Management
    (BLM)-the agency that manages the largest amount of federal land.3
    However, some operators did not reclaim BLM land disturbed by hardrock
    operations related to exploration, mining, and mineral processing when
    their operations ceased. These operators left BLM with many thousands of
    acres of disturbed land, some of which posed environmental and health
    and safety risks.

    The Federal Land Policy and Management Act of 1976 states that the
    Secretary of the Interior shall take any action required to prevent the
    "unnecessary or undue degradation" of public land and its resources. BLM
    has developed and revised regulations and issued policy under this
    provision. Specifically, BLM issued regulations, effective in 1981, that
    require all operators to reclaim BLM land disturbed by their hardrock
    operations. For plan-level operations-those disturbing over 5 acres of
    land or those in certain designated areas, such as the national wild and
    scenic rivers system-operators were to have a BLM-approved plan that

    1Individuals include citizens and people declaring an intention to become
    citizens.

    2For simplicity in this report, we refer to claimants and operators as
    operators. An operator is the person who conducts operations in connection
    with exploration, mining, and processing hardrock minerals on BLM land.
    Both the claimant and operator are responsible for reclamation.

    3BLM manages about 261 million acres, most of which are located in 12
    western states, including Alaska. Other federal agencies, such as the
    Department of Agriculture's Forest Service, also manage federal land
    available for hardrock operations. For simplicity in this report, we refer
    to BLM-managed land as BLM land.

    documented all the anticipated hardrock activities and all required
    reclamation. For notice-level operations-those causing a surface
    disturbance of 5 acres or less-operators were to submit notices that
    informed BLM of the operators' intentions, but these notices did not
    require BLM's approval. Plans have to be approved and notices received by
    BLM before the operators begin exploration or mining operations. Also, to
    guarantee that reclamation costs are paid, these regulations stated that
    BLM could require plan-level operators to provide bonds or other financial
    assurances in an amount specified by BLM, taking into consideration the
    estimated cost of reasonable stabilization and reclamation of the
    disturbed land.4 BLM also could require notice-level operators with a
    history of noncompliance with federal regulations to submit a plan of
    operation and thus notice-level operators could be required to provide
    financial assurances. Through a formal agreement, BLM can designate a
    state agency as responsible for managing some or all hardrock
    requirements, including financial assurances.5 Operators have used a
    variety of types of financial assurances, ranging from funded assurances,
    such as cash and negotiable U.S. securities, to corporate guarantees,
    which are promises to complete reclamation that are backed only by the
    financial strength of the operator. Despite having the regulatory
    authority to do so, BLM rarely required operators to provide financial
    assurances throughout the 1980s.6

    In August 1990, BLM issued a policy instructing BLM officials to require
    operators to provide financial assurances for all plan-level operations
    and for notice-level operations if the operators had a record of
    noncompliance with federal regulations.7 BLM generally limited financial
    assurances to

    4The regulations stated that in lieu of a bond, the operator (1) could
    deposit in a federal depository account of the United States, directed by
    BLM, cash or negotiable U.S. securities or (2) show evidence of an
    existing bond provided for the operation pursuant to state law or
    regulations.

    5Financial assurances could have been payable to either BLM or the
    designated state agency, depending on the terms of the agreement between
    BLM and the state, which are to coordinate efforts and avoid duplication
    of financial assurances and other requirements. These agreements may
    establish joint federal-state program management and enforcement of
    hardrock operations on BLM land or assign primary responsibility for
    management to either BLM or the state.

    6GAO, Importance of Financial Guarantees for Ensuring Reclamation of
    Federal Lands, GAO/T-RCED-89-13 (Washington, D.C.: Mar. 7, 1989).

    7BLM Instruction Memorandum No. 90-582, Modification of Bonding Policy for
    Plans of Operation Authorized by 43 CFR 3809 (Aug. 14, 1990).

    $1,000 per acre for exploration and $2,000 per acre for mining operations.
    However, BLM required operators using leaching chemicals, such as cyanide
    and sulfuric acid, to extract minerals from ore and required operators
    with a record of noncompliance to provide financial assurances to cover
    all estimated reclamation costs for hardrock operations. For these
    operations, BLM was to estimate the cost of reclamation and add to it the
    reasonable administrative costs that would be incurred if reclamation were
    done under contract. However, BLM did not further specify the types of
    financial assurances that could or could not be used.

    Concerns about the types of financial assurance and the lack of financial
    assurances requirements for all notice-level operations, among other
    things, prompted BLM to establish new regulations in 2001. The new
    regulations require operators to include reclamation plans and cost
    estimates in the notices and plans of operation that they submit to BLM
    for acceptance or approval. The new regulations require that before
    exploration or mining operations begin, operators must provide financial
    assurances to cover all estimated reclamation costs for both notice-and
    plan-level hardrock operations. In addition, BLM must periodically review
    the estimated cost of reclamation to determine if the cost estimates
    should be updated. The regulations also specify the types of acceptable
    financial assurances and prohibit new corporate guarantees and increases
    or transfers in the corporate guarantees used under BLM's previous policy.
    The financial assurance provisions of the new regulations applied
    immediately-on January 20, 2001, for new notice-and plan-level operations
    and on January 20, 2003, for extended notice-level operations, unless the
    notice was modified.8 Plans of operations that were approved before
    January 20, 2001, were required to have financial assurances in place no
    later than November 20, 2001.

    Under federal regulations, if an operator fails to complete required
    reclamation, BLM or the designated state agency may take steps to obtain
    funds from the financial assurance providers. Providers then have the
    option of (1) relinquishing the amount guaranteed by the financial
    assurance to BLM or the designated state agency, which would then use the
    funds for reclamation, or (2) completing the reclamation themselves. The
    regulations also give BLM the authority to take steps, such as issuing

    8Before the 2001 regulations, notice-level operations did not have an
    expiration date. The 2001 regulations stated that all notices filed on or
    after January 20, 2001, would be extended only for 2 years, after which
    they would have to be renewed or would expire.

    noncompliance and suspension orders, and revoking plans of operation, if
    operators do not comply with the financial assurance or other regulatory
    requirements.

    BLM established an automated information system-the Legacy Rehost 2000
    (LR2000)-in 1999 that combined into one system several existing systems
    that collect and store information on the programs and land BLM manages.
    LR2000 is composed of a number of subsystems, some of which contain
    information on hardrock operations and financial assurances.

    You asked us to determine the (1) types, amount, and coverage of financial
    assurances operators currently use to guarantee reclamation costs, (2)
    amount that financial assurance providers and others have paid to reclaim
    operations that had ceased and not been reclaimed since BLM began
    requiring financial assurances and the estimated costs of completing
    reclamation for such operations, and (3) reliability and sufficiency of
    BLM's LR2000 for managing financial assurances for hardrock operations.

    We did not rely on LR2000 information to address these objectives, but
    instead designed two surveys to obtain information from BLM's state and
    field offices because they maintain the case files and other specific
    information on hardrock operations. We asked the 12 BLM state offices that
    manage BLM programs across the United States to complete surveys for each
    state in their jurisdiction with hardrock operations.9 We verified the
    information in the surveys through discussions with BLM officials in two
    state and four field offices and by reviewing case files and other
    documents. In the first survey, which focused on states' experiences with
    hardrock operations, we asked these 12 offices to provide information on
    (1) the number of existing hardrock operations for each state within their
    jurisdiction,10 (2) the types and the amounts of financial assurances
    provided for existing hardrock operations in each state, (3) their views
    on

    9Some of the 12 BLM state offices manage BLM programs in more than one
    state. For example, the BLM Montana state office manages BLM programs in
    Montana, North Dakota, and South Dakota, and the BLM Oregon state office
    manages BLM programs in Oregon and Washington.

    10In our survey instructions, we defined existing operations to include
    those hardrock operations that (1) are pending BLM acceptance, (2) have
    been accepted but operations have not begun, (3) are ongoing, and (4) are
    temporarily inactive. While federal regulations require reclamation plans
    and cost estimates for all of these operations, they do not require
    financial assurances for those pending BLM acceptance or those that have
    been accepted but have not begun exploration or mining operations.

    the effectiveness of the various types of financial assurances, (4) their
    views on the reliability and sufficiency of hardrock operation data
    contained in LR2000, and (5) their use of LR2000 for managing hardrock
    operations and financial assurances in their states. In the second survey,
    which focused on selected hardrock operations, we asked these 12 offices
    to provide detailed information on hardrock operations within their
    jurisdiction that met both of the following criteria: the operator (1)
    ceased operations after the requirement for financial assurances went into
    effect- August 1990 for plan-level operations, January 2001 for new
    notice-level operations, and January 2003 for existing notice-level
    operations and (2) failed to complete the required reclamation. We used
    information in this survey to determine the estimated reclamation costs
    and the adequacy of financial assurances for reclaiming each hardrock
    operation that BLM identified as meeting these criteria. We took steps to
    determine whether BLM officials identified all hardrock operations that
    met these criteria, such as comparing BLM's list of operations with
    operations identified by others. To the extent that BLM did not identify
    all hardrock operations that had ceased and not been reclaimed by the
    operator, the information it reported to us would be understated. In
    addition, we did not collect information on the thousands of ceased
    hardrock operations since 1872 that did not require financial assurances
    and therefore fell outside the scope of this review.

    We also took steps to understand BLM's management and oversight of
    hardrock operations and the use of financial assurances to ensure
    reclamation. We reviewed BLM regulations, documents, and independent
    studies relevant to hardrock operations and financial assurances. We also
    discussed these issues with BLM officials at headquarters and in selected
    state and field offices. To understand the relationship between BLM and
    state agencies responsible for overseeing hardrock operations, we met with
    BLM state office and state agency officials in several states, and
    reviewed relevant memorandums of understanding and other agreements. To
    understand the reliability and sufficiency of LR2000, we spoke with BLM
    officials responsible for administering the system and staff in selected
    BLM state and field offices who enter information into the system and who
    use the system to manage hardrock operations and financial assurances. We
    also discussed relevant hardrock operation and financial assurance issues
    with experts and representatives from the mining industry, academia, and
    environmental groups. Finally, to better understand hardrock operations
    and reclamation requirements, we visited five mining operations in Nevada
    and Montana. Appendix I provides detailed information on our scope and
    methodology.

    We conducted our review from October 2003 through May 2005 in accordance
    with generally accepted government auditing standards, which included an
    assessment of data reliability.

    Results in Brief	As of July 2004, hardrock operators were using 11
    different types of financial assurances, valued at approximately $837
    million, to guarantee reclamation costs associated with approximately
    2,500 existing hardrock operations on BLM land in 12 western states,
    according to our analysis of survey results. Surety bonds ($384 million),
    letters of credit ($238 million), and corporate guarantees ($204 million)
    accounted for almost all of the $837 million in financial assurances.
    However, these financial assurances may not fully cover all future
    reclamation costs for these existing hardrock operations if operators do
    not complete required reclamation. BLM reported that, as of July 2004,
    some existing hardrock operations do not have financial assurances, and
    some have no or outdated reclamation plans and/or cost estimates on which
    financial assurances should be based.

    BLM identified 48 hardrock operations on its land that had ceased and not
    been reclaimed by operators since it began requiring financial assurances.
    BLM reported that the most recent cost estimates for reclamation required
    by applicable reclamation plans and federal regulations for 43 of the 48
    operations totaled about $136 million, with no adjustment for inflation;
    it did not report reclamation cost estimates for the other 5 operations.
    However, as of July 2004, the BLM-required financial assurances had
    provided or were guaranteeing $69 million, and federal agencies and others
    had provided $10.6 million to pay the estimated costs for required
    reclamation for the 48 operations, leaving $56.4 million in unfunded
    reclamation costs. Financial assurances were not adequate to pay all
    estimated costs for required reclamation for 25 of the 48 ceased
    operations for several reasons. First, operators did not provide required
    financial assurances for 10 operations, despite BLM's efforts in some
    cases to make the operators provide them. Second, financial assurances
    that were provided were less than the most recent reclamation cost
    estimates for 13 operations. Third, financial assurance providers went
    bankrupt and did not have the funds to pay all reclamation costs for two
    other operations. In addition, cost estimates may be understated for about
    half of the remaining 23 operations because the cost estimates may not
    have been updated to reflect inflation or other factors that could
    increase reclamation costs. Furthermore, the $136 million cost estimate is
    understated to the extent that BLM did not identify or report information
    in response to our survey on all hardrock operations that had ceased and
    not been reclaimed by

    operators, as required. For example, Oregon's BLM state office estimated
    that 20 notice-level operations in Washington state had ceased and not
    been reclaimed, but neither the Oregon BLM state office nor its field
    offices completed our surveys for these operations. Clearly, the $136
    million estimate would be higher if BLM's state or field offices had
    reported this information. Finally, according to BLM officials, required
    reclamation had been completed for only 5 of the 48 operations as of July
    2004, but they believe it is likely that required reclamation will be
    completed on an additional 28 operations sometime in the future.

    BLM's LR2000 is not reliable and sufficient for managing financial
    assurances that guarantee coverage of reclamation costs for BLM land
    disturbed by hardrock operations because staff do not always update
    information, and LR2000 is not currently designed to track certain
    critical information. Specifically, staff have not entered information on
    each hardrock operation and, for those hardrock operations included in
    LR2000, the information is not always current. Moreover, LR2000 does not
    track some information on hardrock operations and their associated
    financial assurances that we believe is critical for effectively managing
    financial assurances. This information includes the basic status of
    operations, such as whether they are ongoing or have ceased and should be
    reclaimed; some types of allowable financial assurances; and state-and
    county-held financial assurances. Given these limitations, it is not
    surprising that BLM's reliance on LR2000 to manage financial assurances is
    mixed. Specifically, BLM headquarters does not always rely on the system,
    and BLM state offices' reliance varies-in four states with hardrock
    operations, the state and field offices relied on the system to little or
    no extent; in eight states, to a moderate or some extent; and in one
    state, to a very great extent. In part to compensate for LR2000's
    limitations, some BLM state and field offices use informal record-keeping
    systems to help manage hardrock operations and financial assurances. BLM
    has taken some steps and identified others to improve LR2000 for managing
    financial assurances for hardrock operations.

    To ensure that hardrock operators on BLM land have adequate financial
    assurances, we are making recommendations to the Secretary of the Interior
    to strengthen BLM's management of financial assurances for hardrock
    operations on its land by directing the Director of BLM to (1) require
    state office directors to develop an action plan for ensuring that
    operators have adequate financial assurances and (2) improve the
    reliability and sufficiency of BLM's automated information system.

    In responding to a draft of this report, Interior stated that it
    appreciated the advice and critical assessment we provided on BLM's
    management of financial assurances required for hardrock operations.
    However, without acknowledging or addressing specific deficiencies
    identified in our report, Interior disagreed with our recommendations,
    stating that guidance already issued ensured that proper management
    attention was being provided. In the face of considerable evidence in this
    report to the contrary, Interior's assertions that all is well and that
    recently issued policy and guidance ensure that adequate financial
    assurances are in place seems hard to comprehend. Accordingly, we continue
    to believe that our recommendations are warranted to ensure that adequate
    financial assurances are in place. Interior's letter and our comments are
    included in appendix IV.

    Background	BLM is responsible for managing approximately 261 million acres
    of public land, over 99 percent of which is located in 12 western states,
    including Alaska. Approximately 90 percent of this land is open to the
    public for hardrock mineral exploration and mining. Less than one-tenth of
    1 percent of BLM land is affected by existing hardrock operations. Figure
    1 shows the BLM land available for hardrock operations.

    minerals within an area. The mining phase includes developing the mining
    infrastructure (water, power, buildings, and roads) and extracting the
    minerals. Mineral extraction generally entails drilling, blasting, and
    hauling ore from pit areas to processing areas. To process minerals,
    operators prepare the ore by crushing or grinding it to extract minerals.
    The material left after the minerals are extracted-tailings (a combination
    of fluid and rock particles)-is then disposed of, often in a nearby pile.
    In addition, some operators use a leaching process to recover microscopic
    hardrock minerals from heaps of crushed ore by percolating solvent (such
    as cyanide for gold and sulfuric acid for copper) through the heap of ore.
    Through this heap-leaching process, the minerals adhere to the solvent as
    it runs through the leach heap and into a collection pond. The
    mineral-laced solution is then taken from the collection pond to the
    processing facility, where the valuable minerals are separated from the
    solution for further refinement. Figure 2 provides an overview of the
    three stages of a hardrock operation using a heap-leaching process.

    Figure 2: Overview of a Hardrock Operation Using a Heap-Leaching Process

    Source: GAO analysis of information provided by BLM, the National Research
    Council, and others.

    At the earliest feasible time, operators are required to reclaim BLM land
    that will not be further disturbed to prevent or control on-site or
    off-site damage. Reclamation practices vary by type of operation and by
    applicable federal, state, and local requirements. However, reclamation
    generally involves resloping pit walls to minimize erosion, removing or
    stabilizing buildings and other structures to reduce safety risks,
    removing mining roads to prevent damage from future traffic, and capping
    and revegetating leach heaps, tailings, and waste rock piles to control
    erosion and minimize the potential for contamination of groundwater from
    acid rock drainage

    and other potential water pollution problems.11 Addressing potential water
    pollution problems may involve long-term monitoring and treatment.
    Reclamation costs for hardrock mining operations vary by type and size of
    operation. For example, the costs of plugging holes at an exploration site
    are usually minimal. Conversely, reclamation costs for large mining
    operations using leaching practices can be in the tens of millions of
    dollars.

        Laws and Regulations for Hardrock Operations

    Hardrock operations on BLM land are regulated by federal and state laws.
    Under the General Mining Act of 1872 (Mining Act),12 an individual or
    corporation can establish a claim to any hardrock mineral on public
    land.13 Upon recording a mining claim with BLM, the claimant must pay an
    initial $25 location fee and a $100 maintenance fee annually per claim;14
    the claimant is not required to pay royalties on any hardrock minerals
    extracted. The Mining Act was designed to encourage the settlement and
    development of the West; it was not designed to regulate the associated
    environmental effects of mining. The number of hardrock operations left
    abandoned throughout the West after operations ceased is not known but is
    estimated to be in the hundreds of thousands, many of which pose
    environmental, health, and safety risks. Until Congress passed the Federal
    Land Policy and Management Act of 1976 (FLPMA),15 development of hardrock
    minerals on public land remained largely unregulated. FLPMA

    11Acid drainage occurs when water and oxygen contact rock with sulfides
    and sulfates and form acids that can be released into the environment.

    1230 U.S.C. S: 22.

    13Under U.S. mining laws, minerals are classified as locatable, leasable,
    or saleable. Locatable minerals-often referred to as hardrock
    minerals-include, for example, copper, lead, zinc, magnesium, gold,
    silver, and uranium. Only hardrock minerals continue to be "claimed" under
    the Mining Act. Leasable minerals include, for example, oil, gas, and
    coal. The Mineral Leasing Act of 1920, 41 Stat. 437 (codified at 30 U.S.C.
    S: 181) created a leasing system for coal, gas, oil and other fuels, and
    chemical minerals. Saleable minerals include, for example, common sand,
    stone, and gravel. In 1955, the Multiple Use Mining Act of 1955, 69 Stat.
    367 (codified at 30 U.S.C. S: 601) removed common varieties of sand,
    stone, and gravel from development under the Mining Act.

    14 The location and maintenance fees were reduced from $30 and $125,
    respectively, by the Consolidated Appropriations Act, 2005, and will not
    be reinstated until, among other things, BLM establishes a nationwide
    system to track the length of time between submission and approval of a
    hardrock plan of operation.

    15Pub. L. No. 94-579 (1976) (codified at 43 U.S.C. S: 1701).

    states that the Secretary of the Interior shall take any action necessary
    to prevent "unnecessary or undue degradation" of public land.16

    Under FLPMA, BLM has developed and revised regulations and issued policies
    to prevent unnecessary or undue degradation of BLM land from hardrock
    operations. BLM issued regulations that took effect in 1981 on how these
    operations were to be conducted.17 Named for their location in the Code of
    Federal Regulations, the "3809" regulations classify surface disturbance
    generated by hardrock operations into three categories: casual use,
    notice-level operations, and plan-level operations. For all three
    operation levels, the operator must prevent unnecessary and undue
    degradation and complete reclamation at the earliest feasible time. BLM
    issued the revised 3809 regulations, effective in part in January 2001
    that, among other things, changed the definition of the types of
    operations, modified the reclamation requirements, and strengthened the
    financial assurance requirements. Table 1 describes each type of operation
    under both the old and new regulations.

    16In addition, hardrock mining operations on BLM land may be subject to a
    variety of federal environmental laws, such as the National Environmental
    Policy Act, the Endangered Species Act, and the Clean Water Act. States
    can also pass their own laws for regulating hardrock operations in their
    state, including operations on BLM land.

    17BLM's Surface Management Program for hardrock operations began in 1981
    with the issuance of these regulations (43 C.F.R. 3809), which apply only
    to hardrock operations.

    Table 1: Description of Types of Hardrock Operations under 1981 and 2001
    BLM Regulations

    Type of operation Description under 1981 regulations Description under
    2001 regulations

    Casual use  o  Activities ordinarily resulting in only negligible  o
    Activities ordinarily resulting in no or negligible disturbance of
    disturbance of public land and resources public land or resources

    o  Does not require the operator to notify BLM  o  Does not require the
    operator to notify BLM

    Notice-level  o  Any operation that causes a surface disturbance  o
    Exploration operations that disturb 5 acres or less of public operation of
    5 acres or less land

    o  Operator must notify BLM 15 calendar days  o  Operator must notify BLM
    15 calendar days in advance of before commencing operations, but BLM does
    causing surface disturbance, but BLM does not approve the not approve the
    notice notice

    Plan-level  o  Any operation that disturbs more than 5 acres or  o  Any
    operation greater than casual use, except for notice-level

    operation	any operation, other than casual use, in BLM operations, and
    operations causing surface disturbance special status areas, such as the
    national wild greater than casual use in special status areas, such as and
    scenic river system designated wilderness areas and national monuments

    o  Plans of operations must be approved by BLM  o  Plans of operations
    must be approved by BLMa

    Source: 1981 and 2001 federal regulations.

    aOther plan-level operations include bulk sampling operations, in which
    1,000 tons or more of presumed ore for testing will be removed.

    While the performance standards for reclamation under the 1981 and 2001
    regulations remain the same, the 2001 regulations specifically identified
    the components involved in reclamation. For standards under both
    regulations, the operator of a notice-or plan-level operation must reclaim
    the disturbed land at the earliest time that is economically and
    technically feasible, except to the extent necessary to preserve evidence
    of the presence of minerals, by taking reasonable measures to prevent or
    control on-site and off-site damage to federal land. Reclamation must
    include the following actions:

    o  saving topsoil to be applied after reshaping disturbed areas;

    o  taking measures to control erosion, landslides, and water runoff;

    o  taking measures to isolate, remove, or control toxic materials;

    o 	reshaping the area disturbed, applying the topsoil, and revegetating
    disturbed areas, where reasonably practicable; and

    o  rehabilitating fisheries and wildlife habitat.

    The 2001 regulations specified that, as applicable, reclamation components
    include:

    o 	isolating, controlling, or removing acid-forming and deleterious
    substances;

    o 	regrading and reshaping the disturbed land to conform with adjacent
    landforms, facilitating revegetation, controlling drainage, and minimizing
    erosion;

    o  placing growth medium and establishing self-sustaining vegetation;

    o  removing or stabilizing buildings, structures, or other support
    facilities;

    o  plugging drill holes and closing underground workings; and

    o  providing for post-mining monitoring, maintenance, or treatment.

    The 2001 regulations also significantly strengthened the financial
    assurance requirements for hardrock mining operations. Under the 1981
    regulations, BLM had the option of requiring an operator to obtain a bond
    or other financial assurances for plan-level hardrock operations and for
    notice-level operations where the operator had a record of
    noncompliance.18 However, BLM rarely exercised this option.19 In 1990, BLM
    instructed its officials to require operators of plan-level operations to
    provide (1) financial assurances of $1,000 per acre for exploration and
    $2,000 per acre for mining and (2) financial assurances for all estimated
    reclamation costs for operations that used leaching chemicals and for
    operators with a record of noncompliance. Under the 2001 regulations, BLM
    requires all notice-and plan-level hardrock operators to provide financial
    assurances that cover all estimated reclamation costs for all plan-and
    notice-level operations before exploration or mining operations begin.
    Casual-use operations do not have to provide financial assurances.

    The 2001 regulations amended the types of financial assurances that can be
    used. The 1981 regulations identified three types of acceptable financial
    assurances-bonds, cash, and negotiable U.S. securities. BLM could also
    accept evidence of an existing bond pursuant to state law or regulations
    if BLM determined that the coverage would be equivalent to the amount that

    18For notice-level operations with a history of noncompliance, BLM had to
    first require the operator to file a plan of operation.

    19GAO/T-RCED-89-13.

    would be required by BLM. Some operations used corporate guarantees, which
    were allowable under state laws and regulations. In contrast, the 2001
    regulations prohibit the use of corporate guarantees for new operations
    and state that corporate guarantees currently in use under an approved BLM
    and state agreement cannot be increased or transferred. The 2001
    regulations specify the following types of financial assurances as
    acceptable:

    o  surety bonds that meet the requirements of U.S. Treasury Circular
    570;20

    o 	cash in an amount equal to the required dollar amount of the financial
    assurance and maintained in a federal depository account of the U.S.
    Treasury by BLM;

    o 	irrevocable letters of credit from a bank or other financial
    institution organized or authorized to transact business in the United
    States;

    o 	certificates of deposit or savings accounts not in excess of the
    Federal Deposit Insurance Corporation's maximum insurable amount;

    o 	negotiable U.S., state, and municipal securities or bonds with a market
    value of at least the required dollar amount of the financial assurance
    maintained in a Securities Investors Protection Corporation insured trust
    account by a licensed securities brokerage firm for the benefit of the
    Secretary of the Interior; 21

    o 	investment-grade securities that (1) have a Standard and Poor's rating
    of AAA or AA, or an equivalent rating from another nationally recognized
    securities rating service, (2) have a market value of at least the
    required dollar amount of the financial assurance, and (3) are maintained
    in a Securities Investors Protection Corporation insured trust account by
    a licensed securities brokerage firm for the benefit of the Secretary of
    the Interior;

    20The Department of the Treasury reviews insurance companies to determine
    whether they qualify to underwrite insurance and annually publishes the
    list of qualified companies in Treasury Circular 570.

    21The Securities Investors Protection Corporation is a nonprofit
    corporation created by Congress and funded by its member securities
    brokers and dealers to protect investors by returning cash, stock, and
    other securities if the brokerage firm goes bankrupt.

    o 	certain types of insurance underwritten by a company having an A.M.
    Best rating of "superior" or an equivalent rating from another nationally
    recognized insurance rating service;

    o 	evidence of an existing financial assurance under state law or
    regulations, as long as the financial assurance is held or approved by the
    state agency for the same operations covered by the notice or plan of
    operation, has a value equal to the required amount, and is redeemable by
    BLM. These financial assurances can include any of the above instruments.
    In addition, they can include state bond pools,22 as well as corporate
    guarantees that existed on January 20, 2001, under an approved BLM and
    state agreement; or

    o 	trust funds or other funding mechanisms available to BLM. The 2001
    regulations require operators, when BLM identifies a need for it, to
    establish a trust fund or other funding mechanism to ensure continuation
    of long-term treatment to achieve water quality standards and for other
    long-term, post-mining maintenance requirements.

    Finally, under the 2001 regulations, all notice-and plan-level operators
    must submit a reclamation plan and an associated cost estimate with its
    notice or plan of operation and any modifications or renewals. The
    financial assurance amount is based on the cost estimate. Furthermore, the
    associated cost estimate must reflect the cost to BLM as if the agency had
    to contract with a third party to complete reclamation. In addition, BLM
    issued guidance in February 2003, which was revised in March 2004, setting
    forth factors that should be considered in developing cost estimates. For
    example, estimates should include administrative and other indirect costs.
    The regulations require BLM to periodically review the estimates to
    determine if the estimate should be updated to reflect any necessary
    changes in the cost of reclaiming the operation.

        BLM's Management and Oversight of Financial Assurances

    BLM headquarters manages and oversees hardrock operations as well as its
    other programs, primarily through its headquarters, 12 state offices, and
    157 field offices. Within headquarters, the Minerals, Realty, and Resource

    22The state must agree that, upon BLM's request, it will use part of the
    bond pool to meet reclamation obligations on public land. In addition, the
    BLM state office director must determine that the bond pool provides the
    equivalent level of protection as otherwise required.

    Protection group is responsible for administering the mining laws and
    establishing hardrock operations policies. This office is also responsible
    for evaluating the effectiveness of policy implementation at the state-and
    field-office levels. For example, in 2004, BLM conducted a survey of 18 of
    its 157 field offices to determine, among other things, whether operators
    had obtained financial assurances as required.

    Each state office is headed by a state director who reports to the
    Director of BLM in headquarters. BLM state office delegations of
    responsibilities for financial assurances vary from state to state. For
    example, some state offices verify the authenticity of the financial
    assurance and confirm that financial assurances are payable to BLM. The
    state offices manage BLM programs and land in the geographic areas that
    generally conform to the boundary of one or more states. The state offices
    are Alaska, Arizona, California, Colorado, Idaho, Montana, Nevada, New
    Mexico, Oregon, Utah, Wyoming, and Eastern States. BLM has little land in
    the east and the Eastern state office is responsible for all of the states
    in the east. Figure 3 shows the boundaries of the 12 BLM state offices.

    The 157 BLM field offices, which are headed by field managers who report
    to the state directors, are responsible for implementing several BLM
    programs and policies, including many aspects of the hardrock mining
    program. The field offices maintain case files on each hardrock operation
    in their jurisdiction. Field office staffs are generally responsible for,
    among other things, (1) reviewing notices and plans of operations, along
    with associated reclamation plans and cost estimates; (2) determining the
    amount of financial assurances needed to pay reclamation costs; and (3)
    inspecting hardrock operations for compliance with regulations.

    In addition, BLM has specialized centers, which are organizationally
    affiliated with headquarters, to carry out a variety of activities. One of
    these centers, near Denver, Colorado, administers BLM's LR2000, which is
    an automated information system used to collect and store information on
    BLM land and programs, including hardrock operations. LR2000 includes
    several subsystems that contain information on hardrock operations and the
    financial assurances provided by operators. Specifically, the Case
    Recordation System contains information on hardrock operations, such as
    the name and address of the operator; the location, type, and size of the
    operation; and inspection information. The other subsystem-the Bonding and
    Surety System-contains information on financial assurances, such as the
    types and amounts of financial assurances and the names of the providers.
    BLM state and field offices both enter data into LR2000 and thus are
    primarily responsible for the data's accuracy and completeness. In most
    instances, field offices are responsible for entering data about hardrock
    operations into the Case Recordation System, while BLM state offices are
    more often responsible for entering data about financial assurances into
    the Bonding and Surety System.

      BLM Identified 11 Types of Financial Assurances Valued at Approximately $837
      Million, but These Financial Assurances May Not Fully Cover Reclamation Costs

    BLM reported that, as of July 2004, hardrock operators were using 11 types
    of financial assurances, valued at approximately $837 million, to cover
    reclamation costs on BLM land in 12 western states. Surety bonds, letters
    of credit, and corporate guarantees accounted for almost 99 percent of
    this $837 million. However, these financial assurances may not fully cover
    all future reclamation costs if operators fail to complete required
    reclamation. BLM reported that it had approximately 2,500 existing
    notice-and planlevel hardrock operations as of July 2004 and that some of
    these operations do not have financial assurances, and some have no or
    outdated reclamation plans and/or cost estimates on which financial
    assurances should be based. While BLM state office explanations indicated
    that financial assurances are not yet required for some operations, other

    explanations indicated that some operations may not be complying with
    BLM's requirements.

        Surety Bonds, Letters of Credit, and Corporate Guarantees Are the Financial
        Assurances Currently Used to Cover Most of the Estimated Reclamation Costs

    As of July 2004, operators were using 11 different types of financial
    assurances valued at approximately $837 million to guarantee reclamation
    costs for BLM land disturbed by hardrock operations, according to our
    analysis of survey results. Almost 99 percent of the $837 million in
    financial assurances is in the form of surety bonds, letters of credit,
    and corporate guarantees. Figure 4 shows the types of financial assurances
    used, their value, and the percentage of the total value accounted for by
    each type.

    Figure 4: Types of Financial Assurances Used, Value, and Percentage of
    Total Value

    Certificate of deposit - $4,106,939

    Cash account - $3,188,869

    State bond pool - $2,187,015

    Trust fund - $1,030,000

    Property - $617,700

    Negotiable U.S securities - $225,900

    Negotiable U.S. bonds - $30,000

    Savings account - $1,000

    Source: GAO analysis of BLM survey responses.

    BLM reported that all of the current notice-and plan-level hardrock
    operations on BLM land-2,490 operations-are located in 12 western

    states.23 Table 2 shows the states with existing hardrock operations and
    the types and amounts of financial assurances operators are currently
    using in each state.

    23BLM reported a total of 1,704 notice-level operations and 786 plan-level
    hardrock operations in these 12 states. The BLM Montana state office,
    which also has jurisdiction over North Dakota and South Dakota, reported
    that South Dakota has only two hardrock operations and that both have
    ceased operating and are being reclaimed by the operators. For this
    reason, South Dakota was not included as a state with existing hardrock
    operations.

                          [This page left intentionally blank]

    Table 2: Type and Amount of Financial Assurances for 12 States with
    Existing Hardrock Operations, as of July 2004

                            Number of                       Letters     Corporate
                   State   operations Surety bonds        of credit    guarantees
                  Alaska          240             $0             $0            $0
                 Arizona          185      3,802,763        571,907
              California          303      3,986,000        737,000
                Colorado          132      1,600,000         19,313
                   Idaho           55        242,340        305,050
                 Montana          180  103,831,894        3,996,803
              New Mexico           35      3,307,406        921,293
                  Nevada          774  230,769,986    192,058,810     200,000,000
                  Oregon          175         34,000              0
                    Utah          216      1,719,343        365,699       122,000
              Washington          139              a              a             a
                 Wyoming           56     34,213,132     39,318,254     3,410,920
                   Total        2,490  $383,506,864  $238,294,129    $203,532,920

    Certificates       Cash State bond            Negotiable Negotiable Savings
                                                        U.S.
    of deposit    accounts       pools Trust      Property   U.S. bonds accounts        Total
                                       funds      securities
              $0         $0 $1,000,000         $0      $0 $0         $0       $0   $1,000,000
         113,085    239,343          0          0   0 45,900          0        0    4,772,998
         184,000     27,800          0          0        0 0          0    1,000    4,935,800
         116,000      1,600          0          0        0 0          0        0    1,736,913
         140,969     77,173          0          0        0 0     30,000        0      795,532
         708,081    153,452          0          0  617,700 0          0        0  109,307,930
          61,009      9,281          0          0        0 0          0        0    4,308,289
     1,931,761   2,526,893   1,187,015  1,030,000  0 180,000          0        0  629,684,465
          16,000      2,000          0          0        0 0          0        0       52,000
         393,034    128,109          0          0        0 0          0        0    2,728,185
               a          a          a          a        a a          a        a            a
         443,000     23,218          0          0        0 0          0        0   77,408,524
                                                  $617,700
    $4,106,939   $3,188,869 $2,187,015 $1,030,000 $225,900      $30,000   $1,000 $836,721,336

    Source: GAO analysis of BLM survey responses.

    aThe BLM Oregon office did not provide information on the amount of
    financial assurances available to reclaim the existing hardrock operations
    it identified in Washington state on BLM land. The office reported no
    individual bonds are used for operations in Washington state, but that a
    statewide bond is held by the Washington state Department of Ecology.

    The information below describes the types of financial assurances
    currently being used and BLM state offices' views of the effectiveness of
    these assurances in minimizing losses to the federal government if the
    operator does not complete reclamation.

    Surety bonds. Surety bonds are a third party guarantee that an operator
    purchases from an insurance company. As a third party with possible
    financial responsibility for reclamation, the insurance company has a
    strong incentive to monitor the operator's environmental safety record and
    efforts to fulfill reclamation obligations. If the operator does not
    complete required reclamation once operations cease, the insurance company
    has the option of performing the reclamation work or paying the financial
    assurance value to BLM or the designated state agency for reclamation.
    According to industry representatives and experts, insurance companies are
    amenable to issuing surety bonds for hardrock operations for predictable
    reclamation activities that will occur in a defined time frame. As table 2
    shows, operators in 10 of the 12 states with hardrock operations

    are using surety bonds. In 7 of these 10 states, BLM state offices rated
    surety bonds as "effective" or "very effective" for minimizing losses to
    the federal government; in the other three states, BLM state offices
    reported that they had no experience (that is, they had not taken steps to
    obtain funds from the financial assurance provider) in using this type of
    assurance in minimizing losses to the federal government.24

    Letters of credit. Letters of credit, which hardrock operators typically
    purchase from a bank or other financial institution, require the
    institution to pay BLM or the designated state agency the value of the
    letter of credit if the purchaser does not complete the required
    reclamation. Depending on the financial condition of the operator, the
    financial institution may require a deposit or collateral. Letters of
    credit are used in nine states with hardrock operations. In seven of these
    states, BLM state offices rated letters of credit as "moderately
    effective" or "very effective" in minimizing losses to the federal
    government; in the other two states, the BLM state offices reported that
    they had no experience in using this type of assurance in minimizing
    losses to the federal government.

    Corporate guarantees. Corporate guarantees are promises by operators,
    sometimes accompanied by a test of financial stability, to pay reclamation
    costs, but do not require that funds be set aside to pay such costs.
    Although BLM prohibits new corporate guarantees in its 2001 regulations, 3
    of the 12 states had existing corporate guarantees that were to cover
    almost one fourth of the total estimated reclamation costs, as of July
    2004. Most of these corporate guarantees-$200 million of the approximately
    $204 million-are for operations in Nevada. The Nevada BLM state office
    rated corporate guarantees as "not effective" for minimizing losses to the
    federal government. Operators in Utah and Wyoming are also using corporate
    guarantees, although in relatively smaller amounts of $122,000 and $3.4
    million, respectively. The Utah BLM state office reported that it has no
    experience in using this type of financial assurance to minimize losses to
    the federal government and therefore did not rate the effectiveness of
    this type of assurance. The Wyoming BLM state office rated corporate
    guarantees as a "very effective" financial assurance, although the office

    24We asked each of the 12 BLM state offices, for each state within their
    jurisdiction with hardrock operations, to rate the effectiveness of each
    type of financial assurance in minimizing losses to the federal government
    based on their experience. The rating categories were very effective,
    effective, moderately effective, somewhat effective, and not effective.

    reported it had no experience with an operation that had this type of
    financial assurance and failed to reclaim the land.

    State bond pools. Operators in two states-Alaska and Nevada-use state bond
    pools to cover reclamation costs. According to Alaska BLM state office
    officials, all hardrock operators on BLM land in Alaska participate in the
    state bond pool.25 Operators in the Alaska bond pool do not develop
    individual cost estimates for reclaiming the land disturbed by their
    operations. The bond pool, administered by the Alaska Department of
    Natural Resources, had $1 million in reclamation funds as of July 2004.26
    According to Alaska BLM state office officials, if the bond pool funds are
    not sufficient to cover reclamation costs, the state of Alaska has agreed
    to cover any additional costs. The Alaska BLM state office rated the bond
    pool as "effective" in minimizing financial losses to the federal
    government. The office also reported that to date no requests or claims
    have been initiated to use bond pool funds for reclamation because either
    BLM has successfully negotiated with the operators to have the operations
    reclaimed, or the operations are pending further action.

    The Nevada reclamation bond pool-which had about $1.2 million as of July
    2004-is open to operators on BLM or private lands. The state's Division of
    Minerals administers this pool that was designed to help smaller
    operations that may have difficulty securing other forms of financial
    assurances. The Nevada bond pool does not establish the amount of the
    assurance required for each operation; this is typically done by BLM for
    operations on BLM land. The maximum bond amount for a participant is

    25The cost to an operator to participate in the Alaska state bond pool is
    calculated by multiplying the total number of acres to be disturbed by an
    operator by $150.00. The $150.00 includes a refundable reclamation deposit
    of $112.50 per acre and an annual nonrefundable administrative fee of
    $37.50 per acre. The fees for entry into the Alaska state bond pool were
    determined to be the average costs for reclamation per acre in the state
    for placer operations-those that involve extracting gold or other minerals
    from stream or beach sediment by gravity using water separation and
    typically do not use leaching chemicals. Operations using cyanide or other
    chemicals for leaching are not authorized to use the Alaska state bond
    pool and must secure another form of financial assurance.

    26The Alaska bond pool covers all hardrock operations on federal, state,
    and private lands in the state.

    $3 million.27 The Nevada BLM state office rated the state's bond pool as
    "very effective" in minimizing financial losses but noted that the pool
    had not been used as of our July 2004 survey. Subsequently, the office
    told us that the bond pool was used for the first time in late 2004, when
    BLM requested funds from the pool to reclaim a hardrock operation.

    Certificates of deposit and savings accounts. Certificates of deposit and
    savings accounts can be used to guarantee reclamation costs but must not
    exceed the maximum amount insured by the Federal Deposit Insurance
    Corporation. Operators use certificates of deposit in 10 of the 12 states
    with hardrock operations. BLM state offices in 7 of these 10 states rated
    these assurances as "effective" or "very effective" in minimizing losses
    to the federal government. Another state office rated this type of
    assurances as "moderately effective" and noted that care must be given to
    ensure that BLM is the beneficiary of the certificate. In the other two
    states, the BLM state offices reported that they had no experience with
    this type of assurance in minimizing losses to the federal government.
    Operators in one state are using savings accounts, and the BLM rated
    savings accounts as "very effective" for minimizing losses to the federal
    government.

    Cash accounts. Operators provide cash to BLM to guarantee reclamation
    costs, and BLM must deposit and maintain this cash in a federal depository
    account of the U.S. Treasury. Operators in 10 of the 12 states with
    hardrock operations use cash accounts. BLM state offices in 8 of these 10
    states rated cash as "very effective" for minimizing losses to the federal
    government. In the other two states, the offices reported that they had no
    experience with using this type of assurance to minimize losses to the
    federal government.

    Trust funds. The 2001 regulations require operators, when BLM identifies a
    need for it, to establish a trust fund or other funding mechanism to
    ensure the continuation of long-term treatment to achieve water quality
    standards and other long-term, post-mining requirements. Funds are placed
    in an interest-bearing trust account by an operator with BLM as the
    beneficiary.

    27For bonds under $10,000, the deposit is 100 percent of the bond amount,
    and the annual premium is 3 percent of the bond amount. For bonds of
    $10,000 and greater, the deposit is 50 percent of the bond amount,
    escalating linearly to 80 percent at the cap; and the annual premium is 10
    percent of the bond amount, declining linearly to 5 percent at the cap.
    Interest earned remains in the pool's account, and the deposit is returned
    to the operator when the bond is released following successful
    reclamation. Premiums are not returned to the operator.

    The trust account should accrue sufficient funds to be sustained in
    perpetuity. The Nevada BLM state office reported one trust fund with just
    over $1 million and said it did not have sufficient experience to
    determine the effectiveness of this type of assurance in minimizing losses
    to the federal government.

    Property. The Montana BLM state office reported that one operator has used
    $617,000 in property-consisting of 17 mining claims on private land owned
    by the operator-as a financial assurance. According to BLM state office
    officials, the operator pledged these properties as collateral. The
    Montana BLM state office reported that it had no experience using property
    to minimize losses to the federal government. We note that the revised
    federal regulations do not identify property as an acceptable type of
    financial assurance.

    Negotiable U.S. securities and bonds. Operators in two states-Arizona and
    Nevada-use negotiable U.S. securities. The Arizona BLM state office
    reported it had no experience in using this type of assurance to minimize
    losses to the federal government. The Nevada BLM state office rated this
    type of assurance as "effective." The Idaho BLM state office reported that
    operators in the state use U.S. bonds to guarantee reclamation costs and
    that the state has no experience using bonds to minimize losses to the
    federal government.

    Although the $837 million in financial assurances that BLM reported is the
    most complete information available, we note that this total may not
    include all financial assurances for hardrock operations on BLM land. Some
    BLM state offices had difficulty determining the value of financial
    assurances for hardrock operations in their jurisdictions when designated
    state agencies hold these assurances. For example, the state offices
    reported the following:

    o 	Washington. The Oregon BLM office did not provide the value of
    financial assurances for the 139 hardrock operations it identified in
    Washington state.

    o 	California. The information the California BLM office provided may not
    be complete because some financial assurances may be held by California's
    58 county agencies, and the state office did not contact each county
    agency to complete our survey.

    o 	Montana. The Montana BLM office does not track state-held financial
    assurances for hardrock operations on BLM land. BLM obtained information
    on these assurances for our survey from the state and reported that this
    information was not all inclusive but appeared to be reasonably accurate.

    See appendix II for the number of notice-and plan-level hardrock
    operations and associated financial assurances for each state identified
    by BLM state offices, as of July 2004.

        Existing Financial Assurances May Not Fully Cover Future Reclamation Costs

    Existing financial assurances for reclaiming BLM land disturbed by
    hardrock operations may not fully cover future reclamation costs for the
    approximately 2,500 hardrock operations that BLM reported if operators do
    not complete required reclamation. The costs may not be fully covered
    because BLM reported that some of these operations do not have financial
    assurances, and some have no or outdated reclamation plans and/or cost
    estimates. BLM's explanations for this lack of coverage indicate that some
    operators may not be complying with BLM requirements.

    As of July 2004, BLM state offices reported that some notice- or
    plan-level operations in 9 of the 12 states with existing hardrock
    operations did not have financial assurances. For example, BLM state
    offices reported that in five states (Arizona, California, Idaho, New
    Mexico, and Utah) more than 5 percent of both notice-and plan-level
    operations did not have financial assurances. All of the operations in two
    other states-Colorado and Wyoming-had financial assurances, and the Oregon
    BLM state office reported that all plan-level operations in Washington
    state had financial assurances, but the office did not know the percentage
    of notice-level hardrock operations without financial assurances in
    Washington state. Table 3 shows the number of notice-and plan-level
    hardrock operations and the percentage of these operations without
    financial assurances for each of the 12 states with existing hardrock
    operations.

    Table 3: Number of Notice- and Plan-Level Hardrock Operations and the
    Percentage of These Operations BLM Reported Had No Financial Assurances,
    by State, as of July 2004

                                         Percentage of              Percentage of
                                          notice-level                 plan-level
                          Number of           hardrock Number of         hardrock
                       notice-level operations without plan-level      operations
                           hardrock          financial   hardrock         without
                                                                        financial
                 State   operations         assurances operations      assurances
                Alaska          134                1-4        106
               Arizona          130              50-74         55           25-49
            California          205               5-14         98           15-24
              Colorado          102                  0         30
                 Idaho           32               5-14         23            5-14
               Montana          150                1-4         30
                Nevada          450                  0        324
            New Mexico           24              15-24         11           15-24
                Oregon          165                1-4         10
                  Utah          167              50-74         49           15-24
            Washington          127        Do not know         12
               Wyoming           18                  0         38

    Source: GAO analysis of BLM survey responses.

    Note: Based on our analysis of survey responses, we identified the range
    of percentages of hardrock operations that did not have financial
    assurances in each of the states with hardrock operations. Those
    percentage ranges were 0, 1-4, 5-14, 15-24, 25-49, 50-74, 75-99, and 100
    percent.

    For the states in which BLM state offices indicated that less than 100
    percent of their hardrock operations had financial assurances, we asked
    them to provide an explanation. While some of the explanations indicated
    that financial assurances are not yet required for some operations, such
    as those that are pending BLM acceptance or have not yet begun exploration
    or mining, others indicated that the operations may not be complying with
    BLM's requirements. The following explanations provided by BLM state
    offices for the lack of financial assurances suggest that some operators
    may not be complying with applicable financial assurance requirements.

    o  Alaska. The operator failed to submit state bond pool fees on time.

    o  California. Some older operations may not have financial assurances.

    o 	Idaho. The office could not find records of financial assurance for two
    plan-level operations.

    o 	Nevada. Some operations have been terminated by the state bond pool,
    operators have gone bankrupt, or operations have been abandoned and the
    operator cannot be found.

    BLM state offices also reported that, as of July 2004, some hardrock
    operations on BLM land have no or outdated reclamation plans and/or
    reclamation cost estimates. Specifically, BLM state offices reported that
    some existing hardrock operations in 9 of the 12 states did not have
    reclamation plans and/or cost estimates. For example, BLM state offices
    reported that in three states (Arizona, California, and Utah) both types
    of operations (notice-and plan-level operations) were missing some
    reclamation plans and cost estimates. In addition, according to BLM state
    office officials, all hardrock operators on BLM land in Alaska currently
    participate in the Alaska bond pool and do not develop cost estimates. All
    of the operations in two other states-New Mexico and Wyoming-had both
    reclamation plans and cost estimates, and the Oregon BLM office reported
    that in Washington state all plan-level operations have reclamation plans
    and cost estimates, but it did not know the percentage of notice-level
    hardrock operations without plans and estimates. Table 4 shows the
    percentage of BLM's notice- and plan-level hardrock operations without
    reclamation plans and cost estimates, as of July 2004.

    Table 4: Reported Percentage of Notice- and Plan-Level Hardrock Operations
    without Reclamation Plans and Cost Estimates, by State, as of July 2004

    Percent of operations without Percent of operations without reclamation
    plans cost estimates

                    State  Notice-level   Plan-level   Notice-level    Plan-level
                   Alaska            1-4            0           100a         100a
                  Arizona          50-74    25-49              50-74        25-49
               California            1-4    15-24              15-24
                 Colorado           5-14            0              0
                    Idaho              0            0           5-14
                  Montana              0            0            1-4
                   Nevada              0            0              0
               New Mexico              0            0              0
                   Oregon            1-4            0            1-4
                     Utah          50-74    15-24              50-74        15-24
               Washington  Do not know              0  Do not know
                  Wyoming              0            0              0

    Source: GAO analysis of BLM survey responses.

    Note: Based on our analysis of survey responses, we identified the ranges
    of the percentages of hardrock operations that did not have reclamation
    plans and cost estimates in each of the states with hardrock operations.
    Those ranges were 0, 1-4, 5-14, 15-24, 25-49, 50-74, 75-99, and 100
    percent.

    aAll of the Alaska operations are covered by the Alaska state bond pool
    and do not develop cost estimates.

    For the states in which BLM state offices reported that less than 100
    percent of their operations had reclamation plans and/or cost estimates,
    we asked BLM to provide an explanation. All notice-and plan-level
    operations are required to have reclamation plans and cost estimates. The
    following explanations provided by BLM state offices for the lack of
    reclamation plans and/or cost estimates suggest that some operators may
    not be complying with financial assurance requirements.

    o 	Arizona. Some of the older plan-level operations may still have
    financial assurances that were calculated on the basis of $2,000 per acre,
    which was the policy under previous federal regulations, rather than all
    of the estimated costs of reclamation as the 2001 regulations now require.

    o 	Colorado. No reclamation plan was required when some of the notices
    were submitted.

    o  Idaho. A record of a cost estimate for two plans could not be found.

    o 	Oregon. Not all of the notice-level operations have a reclamation plan
    because of a general backlog in updating reclamation plans, and
    reclamation cost estimates are still being developed in a few cases.

    In addition, three state offices reported that some reclamation plans and
    cost estimates had not been updated. For example, the California BLM state
    office reported that some of the older reclamation plans for operations in
    that state have not been updated because of a workload backlog and staff
    vacancies. Consequently, these plans and estimates may not provide a sound
    basis for establishing financial assurances to cover all future
    reclamation costs.

    Like our survey results, the results of the 2004 BLM survey of 18 of its
    157 field offices showed that some hardrock mining operations under the
    jurisdiction of 7 field offices did not have financial assurances that met
    BLM's requirements in fiscal year 2003. For example, one field office
    reported that it did not have financial assurances that met BLM's
    requirements because none of the reclamation cost estimates for plan-level
    operations included indirect costs. Another field office had a backlog of
    nearly 80 plan-level operations that had not had their reclamation cost
    estimates updated because, among other things, the office did not have
    sufficiently trained staff to review updates. In yet another field office,
    higher priority work prevented timely updates of some reclamation cost
    estimates.

      Financial Assurances Were Not Always Adequate to Pay All Estimated Costs for
      Required Reclamation for Hardrock Operations That Had Ceased and Not Been
      Reclaimed by Operators

    BLM identified 48 hardrock operations on BLM land that had ceased and not
    been reclaimed by operators since it began requiring financial assurances.
    BLM reported that the most recent cost estimates for reclamation required
    by applicable plans and federal regulations for 43 of these operations
    totaled about $136 million, with no adjustment for inflation; it did not
    report reclamation cost estimates for the other 5

    operations.28 However, as of July 2004, financial assurances had provided
    or were guaranteeing $69 million, and federal agencies and others had
    provided $10.6 million to pay estimated reclamation costs for the 48
    operations, leaving $56.4 million of reclamation costs unfunded. In
    particular, financial assurances were not adequate to pay all estimated
    costs for required reclamation for 25 of the 48 operations because (1)
    some operations had no assurances, (2) some operations' assurances were
    less than the most recent reclamation cost estimates, and (3) some
    financial assurance providers declared bankruptcy and could not pay. In
    addition, for about half of the remaining 23 operations, cost estimates
    may be understated because the cost estimates may not have been updated to
    reflect inflation or other factors that could increase reclamation costs.
    Furthermore, the $136 million cost estimate is understated to the extent
    that BLM did not identify or report information on all hardrock operations
    that had ceased and not been reclaimed by operators as required. Finally,
    according to BLM officials, required reclamation had been completed for
    only 5 of the 48 operations as of July 2004, but they believe it is likely
    that required reclamation will be completed for 28 of the remaining 43
    operations.

        BLM Identified 48 Hardrock Operations That Had Ceased and Not Been Reclaimed
        by Operators Since It Began Requiring Financial Assurances and About $136
        Million in Estimated Costs for Required Reclamation

    BLM identified 48 hardrock operations in seven states that had ceased and
    not been reclaimed by operators, as required by applicable reclamation
    plans and federal regulations, since it began requiring financial
    assurances.29 The number of operations BLM identified in each of the seven
    states, along with the primary minerals explored, mined, and/or processed,
    and the operating authority for the 48 operations are shown in table 5.
    Appendix III, table 14, contains additional information about these
    operations.

    28BLM reported estimates before and/or after operations ceased. (See app.
    III, table 17 for details.) We used the most recent complete cost estimate
    to determine total estimated costs. (See app. I for detailed methodology.)

    29For the other six states with hardrock operations-Colorado, New Mexico,
    Oregon, South Dakota, Utah, and Wyoming-BLM reported that no operations
    had ceased and not been reclaimed by operators since it began requiring
    financial assurances.

    Table 5: Number and Selected Characteristics of 48 Hardrock Operations
    Reported by BLM as Ceased and Not Reclaimed by Operators Since BLM Began
    Requiring Financial Assurances, by State, as of July 2004

    Primary hardrock minerals being explored, mined, or processed Authority

    States Number of hardrock

    operations reported by BLM as ceased and not reclaimed by operators Gold

    Other minerals Unidentified

    Planlevel

    Noticelevel

                        Alaska          4     4          0            0         4
                       Arizona          6     6          0            0         5
                    California          2     2          0            0         2
                         Idaho          1     0         1a            0         1
                       Montana          3     3          0            0         2
                        Nevada         29     25        4b            0        26
                    Washington          3     1          0            2         3
                         Total         48     41         5            2        43

    Source: GAO analysis of BLM survey responses.

    aThe primary mineral explored and mined at this operation was limestone.

    bThe primary mineral was different for each of these four operations: one
    mined copper, another silver, and a third zinc; the fourth was a mill site
    for platinum/gold.

    According to BLM officials in each of the seven states, BLM had taken
    steps to compel operators of most of the 48 operations to reclaim BLM
    land. For example, it had sent notices of noncompliance (24 operations)
    and taken administrative, legal, or other actions (19 other operations),
    such as revoking plans of operations. BLM took no action to compel
    reclamation of the remaining five operations. However, none of the
    operators for these 48 operations completed reclamation, primarily because
    of bankruptcy (30 operations). Appendix III, table 16, details the actions
    BLM took to compel operators to complete reclamation and the reasons
    reclamation was not completed.

    BLM reported reclamation cost estimates for 43 of the 48 operations that
    had ceased and not been reclaimed by the operators; it did not report
    estimates for the other 5 operations-2 in Alaska, 2 in Nevada, and 1 in
    Arizona. The most recent estimates as of July 2004 indicated that the
    total

    reclamation cost for the 43 operations was about $136 million.30 Almost 99
    percent of this estimated cost was associated with operations in Montana
    and Nevada-primarily for the Zortman and Landusky mining operation in
    Montana ($85 million) and the Paradise Peak operation ($21.2 million) and
    MacArthur Mine operation ($17 million) in Nevada. Clearly, the total cost
    estimate would be higher if the costs for the 5 operations with no
    estimates were included. The number of hardrock operations for which BLM
    reported cost estimates and the value of the most recent cost estimates,
    as of July 2004, for each of the seven states is shown in table 6.
    Appendix III, table 17, provides the reported estimates for each of the 43
    operations.

    Table 6: Cost Estimates for Required Reclamation of 43 Hardrock Operations
    with Cost Estimates Reported by BLM as Ceased and Not Reclaimed by
    Operators Since BLM Began Requiring Financial Assurances, by State, as of
    July 2004

                 Number of hardrock Most recent BLM-reported operations with cost
                                       reclamation cost State estimates estimates

                               Alaska                2                   $639,000
                              Arizona                5                    944,439
                           California                2                     17,431
                                Idaho                1                     12,000
                              Montana                3                 85,502,013
                               Nevada               27                 48,840,972
                           Washington                3                     33,825
                                Total               43               $135,989,680

                     Source: GAO analysis of BLM survey responses.

        Financial Assurances and Funds Provided by Others Were Not Adequate to Pay
        All of the Estimated $136 Million in Costs for Required Reclamation

    Financial assurances and funds provided by others were not adequate to pay
    all of the estimated $136 million needed to complete the required
    reclamation of the 43 operations for which BLM reported cost estimates.
    Surety bonds and other types of financial assurances had provided or were
    guaranteeing $69 million of the estimated costs for required reclamation
    that BLM reported for these operations, or about 51 percent. According to
    our analysis of information BLM officials provided in response to our
    survey, these funds were not adequate to pay all estimated costs for

    30See appendix I for details on how the most recent cost estimates were
    identified.

    required reclamation for 25 of the 48 operations. Moreover, cost estimates
    may be understated for 12 of the other 23 operations. In addition, funds
    provided by federal agencies and others paid only a fraction of the
    estimated reclamation costs. As a result, at least $56.4 million, or about
    41 percent, of the estimated $136 million needed for required reclamation
    was unfunded, as shown in figure 5. Finally, the $136 million cost
    estimate for required reclamation is understated to the extent that BLM
    did not identify or report information on all hardrock operations that had
    ceased and not been reclaimed, as required.

    Figure 5: Sources and Amount of Funds Provided or Guaranteed to Pay
    Estimated $136 Million in Costs for Required Reclamation for Operations
    that BLM Identified as Ceased and Not Reclaimed by Operators Since BLM
    Began Requiring Financial Assurances, as of July 2004

    Dollars in millions

    Funds from others - $10.6

    Unfunded - $56.4a

    Financial assurances - $69.0

    Source: GAO analysis of BLM survey responses.

    aThe $56.4 million of unfunded costs includes $4,233,465 in corporate
    guarantees that lost their value when the operator that guaranteed
    reclamation costs went bankrupt and had no funds to pay reclamation costs
    and $949,350 that was not relinquished by a financially-troubled surety
    bond provider. When the $56.4 million in unfunded costs is added to the
    $10.6 million from others, a total of $67 million, or about 49 percent of
    the total estimated cost, was not guaranteed by financial assurances.

    Types of Financial Assurances Varied but Were Not Adequate to Pay About
    Half of the Estimated Costs Needed for Required Reclamation

    Operators used a variety of types of financial assurances for 38
    operations to pay or guarantee coverage of $74.2 million of the $136
    million of estimated costs for required reclamation, as table 7 shows.
    (The remaining 10 operations had no financial assurances.) Operators used
    surety bonds, a trust fund, and corporate guarantees to guarantee almost
    97 percent of these costs, with the rest guaranteed by state bond pools,
    letters of credit, certificates of deposit, cash, and a construction bond
    provided by an operator. However, as of July 2004, financial assurances
    had provided or were guaranteeing only $69 million, or almost 51 percent,
    of the reclamation costs. This amount decreased because $4.2 million in
    corporate guarantees had lost all their value when the operator that
    guaranteed the reclamation costs declared bankruptcy and had no funds to
    pay such costs, and $949,350 was not available from a surety bond because
    the financially-troubled financial assurance provider paid for reclamation
    instead of relinquishing the bond. See appendix III, table 18, for the
    types of financial assurances used for each hardrock operation.

    Table 7: Type and Value of Financial Assurances Used by Operators to
    Guarantee Reclamation Costs for 38 Operations with Financial Assurances
    that BLM Identified as Ceased and Not Reclaimed by Operators Since BLM
    Began Requiring Financial Assurances, as of July 2004

                                          Number of operations
                                                with financial Value of financial
              Type of financial assurance          assurancesa         assurances
                            Surety bondsb                   22        $55,294,010
                              Trust funds                    1         12,300,000
                    Corporate guaranteesc                    3          4,233,465
             Operator's construction bond                    1          2,000,000
                        State bond poolsd                    8            340,573
                        Letters of credit                    2             18,500
                  Certificates of deposit                    3             17,431
                                     Cash                    3              7,076
                                   Totale                  38e        $74,211,046
                Less financial assurances
                                     with
                                 no value                  b,c       ($5,182,815)
                                    Total                  38e        $69,028,231

    Source: GAO analysis of BLM survey responses.

    aTen of the 48 operations had no financial assurances.

    bAs of July 2004, one security provider had financial problems and
    contracted for reclamation instead of relinquishing bond funds.

    cAs of July 2004, these three corporate guarantees had lost all their
    value because the operator that guaranteed the reclamation costs had gone
    bankrupt and had no funds to pay reclamation costs. However, these
    operations also had surety bonds that maintained their value.

    dThis is the value for six of the eight hardrock operations; BLM did not
    provide the value for the other two operations.

    eDoes not add because some operations had more than one type of financial
    assurance.

    These 38 financial assurances provided or guaranteed funds for only about
    half of the estimated costs for required reclamation for the 48 hardrock
    operations. Specifically, these financial assurances were not adequate for
    25 of the 48 operations because (1) operators did not provide financial
    assurances for 10 hardrock operations, (2) the financial assurances that
    were provided were less than the most recent cost estimates for 13
    operations, and/or (3) the financial assurance providers declared
    bankruptcy and did not have the funds to pay all reclamation costs for two
    other operations. (Also, 2 of the 13 operations whose financial assurances
    were less than the most recent cost estimates went bankrupt.) Table 8
    shows the reasons financial assurances were not adequate and the

    associated funding differential. Table 8 also shows that most of the
    difference between the value of the estimated reclamation costs and the
    value of the financial assurances occurred because the financial
    assurances were less than the most recent cost estimate.

    Table 8: Reasons Financial Assurances Were Not Adequate to Pay Estimated
    Costs for Required Reclamation for 25 Hardrock Operations Identified by
    BLM as Ceased and Not Reclaimed by Operators Since BLM Began Requiring
    Financial Assurances, as of July 2004

        Reason for inadequate  Number of  Value of     Value of
              financial        affected   estimated    financial
             assurances        hardrock   reclamation    assurances       Funding
                               operations costs                      differential
          Operations had no
              financial
             assurances               10a   $2,001,014           $0  ($2,001,014)
        Financial assurances
           less than most
        recent cost estimates          13  128,187,236   64,445,305  (63,741,931)
         Bankrupt financial
              assurance
              providers                4b    1,688,006    2,638,017       950,011
              Subtotal                25c $131,876,256  $67,083,322 ($64,792,934)
           Less financial
         assurances with no
                value                   d               (5,182,815)   (5,182,815)
                Total                  25 $131,876,256  $61,900,507 ($69,975,749)

    Source: GAO analysis of BLM survey responses.

    aIncludes one operation with no reported cost estimate.

    bFour operations were affected by bankrupt financial assurances providers.
    The $1.7 million and $2.6 million are the values for estimated reclamation
    costs and associated financial assurances, respectively, for two of these
    operations-County Line and Olinghouse. For the other two operations- the
    MacArthur Mine and the Paradise Peak operations-the values for the
    estimated reclamation costs ($38.2 million) and the associated financial
    assurances ($4.8 million) are included with the 13 operations for which
    financial assurances were less than the most recent cost estimates.

    cDoes not add because two of these operations also had financial
    assurances that were less than the most recent cost estimate.

    dAs of July 2004, three of the four operations affected by bankruptcy used
    corporate guarantees that had lost all their value because the operator
    that guaranteed the reclamation costs was bankrupt and one surety bond
    provider did not relinquish bond funds because the provider went bankrupt.

    No Financial Assurances	As table 8 shows, 10 hardrock operations had no
    financial assurances. These operations were located in Washington (2),
    Arizona (4), and Nevada (4). The most recent reclamation cost estimates
    for 9 of these 10 operations indicated that slightly over $2 million in
    reclamation costs was unfunded; BLM reported no cost estimate for the
    other operation. BLM officials provided the following explanations for why
    the 10 operations did not have the required financial assurances:

    o 	Two operations in Washington. An official in Oregon's BLM state office,
    which manages BLM programs in Oregon and Washington, said that two
    operations in Washington did not have financial assurances, probably
    because the responsible BLM field office did not have adequate staff to
    enforce compliance with this requirement. The official also said that
    financial assurance training had been a problem and that staff turnover in
    one field office meant that financial assurances were overlooked for a
    period of time.

    o 	Four operations in Arizona. According to BLM state office officials,
    the operators of two operations did not provide financial assurances, even
    though BLM told them that financial assurances were required. According to
    an official in the BLM state office, the heavy workloads associated with
    other BLM programs dissuaded staff from taking enforcement actions that
    could involve time-consuming activities, such as obtaining court orders.
    Furthermore, the official said that case files indicated the third
    operation had financial assurances sometime during the 1990s, but
    information on the type and amount of financial assurances after it ceased
    could not be found. No reason was given for the fourth operation.

    o 	Four operations in Nevada. According to BLM state office officials,
    operators of three operations did not provide financial assurances, even
    though BLM notified the operators that financial assurances were required.
    At one of these operations, for example, BLM's field office issued a
    noncompliance order that, after the operator appealed it, was upheld by
    the BLM state office. BLM is currently working with the state of Nevada to
    reclaim this operation. BLM state office officials said that the operator
    of another operation, who eventually went bankrupt, was never able to
    provide a suitable financial assurance instrument. Regarding the fourth
    operation-Relief Canyon-officials in BLM's responsible field office told
    us that the operator refused to provide financial assurances despite the
    field office's enforcement steps. The field office issued a noncompliance
    order and took other enforcement actions, such as revoking the operator's
    plan of operation.

    The Relief Canyon gold mine is located in north-central Nevada on about
    344 acres, including 295 acres of BLM land. According to BLM officials,
    the mine was being reclaimed when a new operator purchased it in 1995 and,
    at that time, the agency advised the new operator of the need for
    financial assurances for all required reclamation-including past and
    future disturbances. However, the operator never obtained the

    financial assurances. According to BLM, the mine's plan of operation was
    last updated in October 1996, and before the operation ceased, the
    operator estimated reclamation costs at about $889,000. BLM reported that,
    as of July 2004, 26 to 50 percent of the operation had been reclaimed. BLM
    officials told us that they had revoked the mine's plan of operation,
    operations had ceased, and the operator should complete reclamation, but
    the operator has appealed this revocation to Interior's Board of Land
    Appeals. The operator contends that he plans to either begin mining
    operations when he gets the funds or sell the operation. When we visited
    the operation in September 2004, we did not see any signs of ongoing
    mining activity and observed that buildings, collection pond liners, the
    security fence, and other structural facilities needed repair. As of June
    2005, BLM was awaiting the board's decision.

    Financial Assurances Were Less As table 8 also shows, 13 operations had
    financial assurances that were less

    Than Recent Cost Estimates	than the most recent cost estimates. These
    operations were located in Alaska (1), California (1), Montana (1), and
    Nevada (10). The most recent cost estimate for these 13 operations was
    $128.19 million, and the value of the associated financial assurances was
    $64.45 million, leaving $63.74 million of the estimated reclamation costs
    with no financial assurance coverage. Table 9 shows the most recent cost
    estimates, compared with the value of financial assurances for each of the
    13 operations. Three mining operations-Zortman and Landusky, MacArthur
    Mine and Paradise Peak- accounted for about 95 percent of the amount that
    the cost estimates exceeded the financial assurances.

    Table 9: Comparison of Most Recent Cost Estimate as of July 2004 with the
    Value of Financial Assurances for 13 Hardrock Operations with Cost
    Estimates That Exceeded Financial Assurances

                                                                      Amount cost
                                                                         estimate
                                         Most recent cost  Value of      exceeded
                                                           financial    financial
         Hardrock operation    Location          estimate  assurances   assurance
          Gold Hill Mining      Alaska           $500,000     $15,000    $485,000
                Nina          California           15,000       5,000      10,000
        Zortman and Landusky   Montana         85,200,000  57,800,000  27,400,000
                Mine
          Wildhorse Canyon      Nevada             53,000      12,000      41,000
         South Hy/Isabella      Nevada            169,700      22,000     147,700
            Golden Butte        Nevada          1,397,000     328,942   1,068,058
              Easy Jr           Nevada            668,936     365,917     303,019
              Kinsley           Nevada          1,400,000     911,763     488,237
    Phoenix Metals USA II    Nevada            100,000      45,904      54,096
                Inc.
        American Canyon KOF     Nevada             21,600       5,314      16,286
           16:1 Millsite        Nevada            458,000     124,017     333,983
          MacArthur Minea       Nevada         17,047,000     184,300  16,862,700
           Paradise Peaka       Nevada         21,157,000   4,625,148  16,531,852
               Total                         $128,187,236 $64,445,305 $63,741,931

    Source: GAO analysis of BLM survey responses.

    aPart of these financial assurances were corporate guarantees that lost
    their value when the operator that guaranteed reclamation costs went
    bankrupt.

    For these 13 hardrock operations, we identified several reasons why
    financial assurances were less than the most recent reclamation cost
    estimate. In particular:

    o 	Estimates at the time operations ceased for 6 of the 13 operations did
    not consider all costs. BLM reported that some estimates excluded BLM
    administrative or indirect costs, interim maintenance costs, long-term
    maintenance and monitoring costs, costs for inflation, and/or other costs.
    For example, estimates for five operations did not include sufficient
    funds to cover BLM administrative or indirect costs, which can be high,
    especially if BLM gets involved with bankruptcy procedures. In its
    guidance on preparing cost estimates BLM states that estimates should
    include (1) costs for contract administration, which should be between 6
    and 10 percent of estimated operations and maintenance costs, depending on
    the size of the operation, and (2)

    indirect costs, which should be 21 percent of the contract administration
    costs.

    o 	One operator intentionally understated reclamation costs for an
    operation to minimize the amount of financial assurances required,
    according to BLM field office officials in Nevada. They said, for example,
    that the operator calculated the estimate as if very large equipment were
    going to be used, which would reduce costs; however, the operator did not
    have such equipment available in the state. The field office officials
    said that the BLM staff who reviewed the cost estimate were inexperienced
    and did not detect the understatement.

    o 	Reclamation plans and cost estimates sometimes were not updated to
    reflect all reclamation costs when the scope of the plan of operations
    changed and, as a result, the reclamation requirements changed. For
    example, BLM reported that the amount of financial assurances for the
    Zortman and Landusky mining operation in Montana was significantly less
    than the cost estimate prepared after the operations ceased. The
    difference in costs was due in part to the failure to update the
    reclamation plan to address acid rock drainage found during an inspection
    in the early 1990s, despite efforts by the operator to update the plan.
    Specifically, the most recent cost estimate for water treatment is greater
    than the estimate prepared before operations ceased. In addition, the cost
    estimate increased because the revised reclamation plan required more
    extensive work on the heap-leach pad than in the earlier plan. Approval of
    the plan was delayed until 2002 by the review process and litigation over
    the effects of the proposed changes, and by that time the operator had
    declared bankruptcy.

    According to the Montana Department of Environmental Quality, which
    jointly manages the hardrock operation with BLM, the value of the
    financial assurances increased during this period. However, the most
    recent reclamation cost estimate was still greater than the associated
    financial assurances. An estimate of $85.2 million for reclamation costs
    was prepared after operations ceased and addressed water contamination and
    other reclamation activities, such as backfilling, regrading, and
    revegetating. This estimate included $36.3 million for earthworks, $22
    million for water treatment through 2017, and $26.9 million for long-term
    water monitoring and treatment, according to BLM field office officials.
    This estimate was $27.4 million more than the $57.8 million in financial
    assurances provided for the reclamation. The financial assurances
    consisted of $29.6 million in surety bonds for

    earthworks, a $2 million construction assurance bond for water treatment
    facilities, $13.9 million in surety bonds for water treatment through
    2017, and $12.3 million in a trust fund for long-term water treatment and
    monitoring. Part of the funding shortfall-about $8.7 million-was covered
    with funds from other sources.

    Financial Assurance Providers For four operations in Nevada, as table 8
    shows, financial assurances were

                                  Declared Bankruptcy

    not adequate because financial assurance providers went bankrupt and could
    not pay all the reclamation costs they guaranteed. For three of these
    operations-Paradise Peak, County Line, and MacArthur Mine-an operator used
    corporate guarantees totaling $4.2 million to guarantee part of the
    estimated reclamation costs. However, these corporate guarantees lost all
    their value when the operator went bankrupt. Reclamation costs for the
    fourth operation were guaranteed with a surety bond underwritten by a
    company that went bankrupt and spent $850,650 for partial reclamation of
    the operation instead of relinquishing the $1.8 million surety bond. In
    particular:

    o 	Paradise Peak, a mining operation in central Nevada, used heap leaching
    to extract gold from ore. When the operation ceased, it covered almost
    1,000 acres, about half of which was on BLM land. The plan of operation
    was last updated in May 1996, and in November 1995, the operator estimated
    that reclamation costs would be $5,462,000. The operator, Arimetco Inc.,
    provided financial assurances totaling $4,625,000- $1,157,000 in a surety
    bond and $3,468,000 in a corporate guarantee that lost all of its value
    when Arimetco went bankrupt. As of July 2004, the surety bond company had
    relinquished the $1,157,000, but none of the funds had been spent. BLM
    reported that estimated reclamation costs were $21,157,000-$20 million
    more than the funds the surety bond company relinquished. This estimated
    cost is significantly more than the original estimate, according to BLM
    state office officials, because the original estimate did not include all
    costs that it should have, such as costs for reclaiming collection ponds,
    and because the cost estimate was not updated to reflect changes in the
    reclamation plan. BLM reported that no reclamation had been done as of
    July 2004, but it was very likely that reclamation would be completed
    because a portion of the needed funding was obtained through bankruptcy
    procedures and BLM was working with the operator to perform reclamation.

    o 	County Line Project, located on 130 acres of BLM land in western
    Nevada, used heap leaching to extract gold from ore. The plan of operation
    was last updated in January 1992, when the operator

    estimated that reclamation costs would be about $837,000. BLM reported no
    more recent reclamation cost estimates. Arimetco Inc., the operator,
    provided $838,000 in financial assurances-$210,000 in surety bonds and
    $628,000 in a corporate guarantee that lost all of its value after
    Arimetco went bankrupt. As of July 2004, the surety bond company had
    relinquished the $210,000, but none of the funds had been spent.31 BLM
    reported that, as of July 2004, between 26 percent and 50 percent of the
    operation had been reclaimed. BLM also reported that it was very unlikely
    that reclamation would ever be completed because it was unlikely that the
    operator would remain viable after bankruptcy.32

    o 	The MacArthur Mine covers about 550 acres, over three-quarters of which
    are on BLM land. The MacArthur Mine was purchased by Arimetco in 1988.
    This copper mine consisted of a pit, waste dump, and roads used to haul
    ore from the pit to three heap-leach pads that Arimetco constructed on the
    nearby Yerington Mine, which was also on BLM land, to extract copper from
    the MacArthur ore.33 BLM reported that Arimetco began operating the
    MacArthur Mine in 1992 and ceased operations in 1997, after it filed for
    bankruptcy. BLM also reported that the plan of operation was last updated
    in 1995 and that Arimetco had no reclamation cost estimate before
    operations ceased. Further, BLM provided documents that showed the
    MacArthur reclamation plan covered not only the MacArthur land but also
    the heap-leach pads at the Yerington Mine. Although Arimetco had no cost
    estimate, it did have $184,300 in financial assurances-$47,000 in a surety
    bond and $137,300 in a corporate guarantee that had lost all of its value
    when Arimetco went bankrupt. BLM reported that, as of July 2004, the
    $47,000 in surety bond funds had been relinquished but not spent. BLM also
    reported that estimated reclamation costs would be $17,047,000-$17 million
    more than the funds relinquished by the surety bond company. This
    estimate, according to an official in a BLM Nevada field office, was
    prepared by

    31BLM officials told us in February 2005 that, as of December 2004, some
    of the surety bond funds had been obligated to review and determine
    reclamation designs and costs.

    32BLM officials told us in February 2005 that, as of December 2004, about
    75 percent of the reclamation had been completed and that the heap-leach
    pad and process ponds were the remaining features to be reclaimed.

    33The Yerington Mine, which is on BLM and private land, was mined by the
    Anaconda Copper Company from 1953 to 1978 (before BLM required reclamation
    or financial assurances) and was purchased by the Atlantic Richfield
    Company in 1977 and sold to a private entrepreneur in 1978. The
    entrepreneur sold the Yerington land to Arimetco in 1988.

    the state of Nevada for bankruptcy procedures. BLM reported that, as of
    July 2004, no reclamation of the MacArthur operation had been undertaken
    or completed and that it was very unlikely reclamation of this operation
    would occur. However, in March 2005, the BLM official told us that the
    Yerington Mine, including the leach heaps built and used by Arimetco for
    the MacArthur operation, would be cleaned up under the Comprehensive
    Environmental Response, Compensation, and Liability Act of 1980, as
    amended (CERCLA).34 CERCLA governs cleanup of severely contaminated
    hazardous waste sites.35

    o 	The Olinghouse Mine operation, a exploration and mining operation in
    northwest Nevada, used heap leaching to extract gold from ore on 502
    acres, of which 447 acres were BLM land. The plan of operation was last
    updated in September 2002, and the operator estimated that reclamation
    costs would be about $851,000. BLM has not reported any more recent cost
    estimates. Alta Gold Company, the operator of the Olinghouse operation and
    eight other hardrock operations in Nevada, provided financial assurances
    to guarantee reclamation of all nine operations through a statewide surety
    bond underwritten by the Frontier Insurance Company (Frontier). In April
    1999, Alta Gold Company filed for bankruptcy, and BLM gave Frontier the
    option of paying or performing reclamation. Subsequently, the insurance
    company filed for bankruptcy and was put into "rehabilitation"-a term for
    bankruptcy with the intent of making the company solvent. In October 2001,
    Frontier offered to reclaim the operation to a "satisfactory level."
    According to BLM, its options were to (1) wait upon the bankruptcy court,
    with no guarantee to obtain funds or (2) find an alternative solution to
    reclaim most of the land. BLM entered into an agreement with Frontier for
    it to perform reclamation using contractors, with BLM oversight. Frontier
    completed the agreed-upon reclamation by February 2003, and in December
    2003, BLM released the company from future financial obligations for this
    operation. Frontier performed the reclamation for $850,650, which was
    significantly less than the $1.8 million surety bond that it would have

    3442 U.S.C. S:S: 9601-9675.

    35BLM officials advised us that their most recent reclamation cost
    estimates for the MacArthur Mine pit and waste piles was $350,000 and for
    the haul road was $1.15 million. They also said that, assuming the
    estimate for the bankruptcy court was correct, over $15.5 million of the
    cleanup costs for the leach heaps on the Yerington Mine used to extract
    copper from the MacArthur pit will be included in the CERCLA cleanup
    costs. The officials said that the total reclamation costs for the
    Yerington Mine had not yet been estimated.

    relinquished if Frontier had not performed the reclamation. BLM state and
    field office officials told us that this solution was satisfactory to all
    parties, even though all reclamation required by the reclamation plan was
    not completed. BLM reported that, as of July 2004, 86 to 95 percent of the
    reclamation had been completed, but it was very unlikely that the
    remaining reclamation would ever be completed. For example, BLM reported
    that all exploration roads were not reclaimed.

    Financial Assurances for 12 Financial assurances may not be adequate to
    pay all costs for required

    Hardrock Operations May Not reclamation for 12 of the other 23
    operations-11 for operations where

    Be Adequate to Pay All Costs for financial assurances were equal to the
    associated cost estimates and 1

    Required Reclamation 	where the financial assurance was greater than
    associated cost estimate.36 The financial assurances may not be adequate
    because the cost estimates on which they were based were prepared before
    operations ceased-in some cases, as long as a decade ago-and likely do not
    reflect inflation or other factors that would cause reclamation costs to
    increase. Table 10 shows the value of the cost estimate prepared before
    the operations ceased and the number of months elapsed between that time
    and July 2004, when our surveys were completed.

    36Of the remaining 11 operations, 3 had been reclaimed, 4 had no basis to
    assess the adequacy of the cost estimates because BLM reported no
    estimates, and the most recent cost estimates for 4 were prepared after
    operations ceased.

    Table 10: Value of Cost Estimate Prepared before Hardrock Operations
    Ceased and the Number of Months Elapsed between Estimate Date and July
    2004 for 12 Hardrock Operations Where Financial Assurances Were Equal to
    or Greater than Cost Estimate

                                   Value of cost                 Number of months
                                        estimate                          elapsed
                               prepared before                       between cost
                                  hardrock                           estimate and
             Operation         operations ceased    Date of cost        July 2004
                                                        estimate
            Pan Project                   $5,670       Feb. 1993
         Monte Exploration                 7,395      April 1993
             Ward Mine                   141,500       Mar. 1993
    Northern Crown Mines                3,897       Dec. 1991
    Phil Claims Expl Proj              28,556       Oct. 1995
    Diamond Peak Prospect               6,500        May 2001
                Mtn
         Eldorado Pediment                 8,200       Oct. 2001
            Elder Creek                  256,062       Feb. 1996
         Gold Bar Resource               303,300       Dec. 1994
               Area
           Gold Bar Mine               2,608,000       Oct. 1994
        Atlas Explorationa              265,000a       June 1994
         Snowbound Placer                 $2,970       June 2003

    Source: GAO analysis of BLM survey responses.

    aThe value of the financial assurance for this operation was $2,000 more
    than the value of the cost estimate.

    Because reclamation costs can be influenced by many factors, we did not
    attempt to project the amount that the cost estimates prepared before
    operations ceased were likely to be less than the amount currently needed
    to complete reclamation. However, BLM's past experience with reclamation
    costs indicates that cost estimates prepared after operations ceased
    likely will be higher than cost estimates prepared before operations
    ceased. Specifically, BLM updated cost estimates for 16 of the 43
    operations for which cost estimates had been prepared before operations
    ceased, and those updated estimates were the same for 2, lower for 2, and
    higher for 12 operations. The increases in BLM's 12 higher estimates
    totaled about $35.5 million, or about a 47 percent increase over the
    estimates before operations ceased, and ranged from $690 to $16.7 million
    per hardrock operation, while the decreases in BLM's 2 lower estimates
    totaled $10,497, or about a 33 percent decrease, and were $6,000 and
    $4,497 for the two hardrock operations.

    Federal Agencies and Others As of July 2004, BLM reported that federal
    agencies and others had Provided Only a Fraction of the provided about
    $10.6 million to help reclaim 11 operations. These funds Funds Needed to
    Pay Estimated accounted for about 8 percent of the estimated $136 million
    needed to pay Costs for Required Reclamation for required reclamation for
    operations identified by BLM as ceased and

    not reclaimed by operators. The sources and amounts of funds provided by
    others are shown in figure 8. Appendix III, table 19, shows the other
    sources of funds for the 48 operations.

    Figure 6: Sources of $10.6 Million Provided by Others to Pay the Cost of
    Required Reclamation for 11 Operations Identified by BLM as Ceased and Not
    Reclaimed by Operators, as of July 2004

    Dollars in millions

    Montana Department of Environmental Quality - $1.7

    3%

    U.S. Environmental Protection Agency - $0.3

    Operator - $1.1

    U.S. Army Corps of Engineers - $0.8

    BLM - $6.7

    Source: GAO analysis of BLM survey responses.

    BLM headquarters provided over $6.7 million to reclaim 10 operations.
    Nearly all of this amount-$5,594,500-was for the Zortman and Landusky
    mining operation in Montana.37 Officials in Montana's Lewistown field
    office told us that most of these funds came from BLM's Abandoned Mine
    Land Program and were used to remove leach pads and tailings, backfill

    37Lewistown Montana BLM field office officials told us that BLM provided
    additional funds after July 2004.

    pits, and treat water.38 BLM headquarters officials told us that some of
    the funds used to reclaim the 10 operations were special funds that became
    available on a one-time basis as the result of a GAO report.39 In March
    2001, we reported that BLM had improperly used Mining Law Administration
    Program funds for purposes other than intended by that program and
    recommended that BLM correct the improper charges. BLM made the
    corrections and, according to BLM headquarters officials, used some of the
    funds for reclamation.

    The U.S. Army Corps of Engineers (the Corps) provided about $0.8 million
    to reclaim two operations through its Restoration of Abandoned Mines Sites
    (RAMS) program, according to BLM. The RAMS program, created in 1999,
    allows the Secretary of the Army to provide assistance to federal and
    nonfederal entities for projects to address water quality problems caused
    by drainage and related activities from inactive and abandoned noncoal
    mines, such as hardrock operations. Specifically, BLM reported that the
    Corps provided $171,000 to reclaim the Easy Jr Mine located near Ely,
    Nevada. These funds were used for a site characterization study and for
    construction to close the operation, with the primary goal of recontouring
    and reclaiming a heap-leach pad. In addition, the Corps provided $600,000
    to reclaim the Golden Butte Mine, which is also located near Ely, Nevada.
    This project included collecting and analyzing water data, characterizing
    the leach pad, and developing a closure plan. The Corps also partnered
    with BLM through the RAMS program on another operation that had ceased and
    not been reclaimed by the operator-the Elder Creek operation located near
    Battle Mountain, Nevada. BLM told us that, as of July 2004, the Corps had
    provided all of the funds to develop the engineering closure design for
    this project, but BLM did not identify the amount of funds provided.

    Funds to reclaim the Zortman and Landusky mining operation also were
    provided from other sources, according to BLM. Through a bankruptcy
    procedure, the bankrupt operator provided $1,050,000 to help reclaim the

    38The Abandoned Mine Land Reclamation Program is authorized by Title IV of
    the Surface Mining Control and Reclamation Act of 1977 and provides funds
    for reclamation and restoration of land mined and abandoned or left
    inadequately restored before August 13, 1977, and for which there is no
    continuous reclamation responsibility under state or other federal laws.

    39GAO, Bureau of Land Management: Improper Charges Made to Mining Law
    Administration Program, GAO-01-356 (Washington, D.C.: Mar. 8, 2001).

    operation. The Environmental Protection Agency provided $340,000 in grant
    funds, primarily to prepare a supplemental environmental impact statement.
    Finally, the Montana Department of Environmental Quality provided
    $1,697,000 for reclamation activities, such as studies, sampling, tailings
    removal, water treatment, and monitoring.40 The status of reclamation in
    1993 and 2004 for the Zortman and Landusky mining operations is shown
    below.

    Description of Zortman and Landusky Mine

    The Zortman and Landusky Mine is located in north-central Montana on about
    1,200 acres, half of which are on BLM land. The operation, originally
    permitted in the 1970s, was the first large open-pit gold mine to use heap
    leaching in the United States. BLM reported that the operation began under
    a BLM-approved plan of operation in 1981 and ceased in 1999 after Pegasus
    Gold, the parent company, went bankrupt. BLM reported that, as of July
    2004, over 85 percent of the required reclamation had been done and that
    complete reclamation is very likely.

                                Source: BLM and others.

    40Most of this money came from Resource Indemnity Trust Grants, which are
    derived from taxes on coal mining in the state.

    Figure 7: Zortman and Landusky Mining Operations at or Near Buildout in 1993 and
                             Status of Reclamation in 2004

                                      Source: BLM.

          The $136 Million Estimate of Costs for Required Reclamation Is Understated
          to the Extent That BLM Did Not Identify or Report on All Hardrock
          Operations