Sunnyside 16 SGC-025613 Alta Gold Co. Sunnyside Mine

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CHANGED ITS CORPORATE NAME TO

ALTA GOLD COMPANY

(ALL CORRESPONDENCE,. DOCUMENTS, FILES, ETC. , SHOULD NOW REFLECT THE NEW CORPORATE NAME) R OB E R T F. W E L B O R N ATTO R N EYS AT LAW RANDALL J. FEUERSTEIN PHILIP G. DUFFORD 1700 BROADWAY S, KIRK INGEBRETSEN THOMAS G.BROWN DIANE L.BURKHARDT DALE TOOLEY (1933-1985) DENVER,COLORADO 60290-1199 STEPHEN J. SULLIVAN DAVID W. FURGASON JOHN M. SPILLANE WILLIAM C. ROBS (303) 861-8013 E L L E N T O L L JOHN F. WELBORN DOUGLAS P. RUEGSEGGER WILLIAM A-McLAIN EDWARD D. WHITE BEVERLY J- QUAIL PEGGY J. ANDERSON RICHARD L.FANYO KATHRYN L. POWERS JOHN F. MECK THEOOORE B.ATLASS November 21, 1985 COUNSEL PHILLIP D. BARBER GREGORY A. RUEGSEGGER

Colorado Division of Mines 1313 Sherman Street Denver, CO 80203

Re: Sunnyside Mine

Ladies and Gentlemen:

On November 19, 1985, Sunnyside Gold Corporation acquired the real and personal property associated with the Sunnyside Mine near Silverton, Colorado. Accordingly, enclosed for filing with your Division are the following applications executed by Sunnyside:

1. Application to Store, Transport and Use Explosives; and 2. Application for Diesel Permit (Underground Operations).

Should any questions or problems in connection with this filing arise, please feel free to contact Bill Robb or me at 861-8013. Thank you for your assistance.

Very truly yours,

WELBORN, DUFFORD, BROWN S. TOOLEY

carla St. Romain Title Clerk/Legal Assistant

CS:crh Enclosure ; JLORADO DIVISION OF MI :S

DEPARTMENT OF NATURAL RESOURCES 1313 Sherman Street, Denver, Colorado 80203 Telephone 8 6 6 - 3 4 0 1

R,CHGAov ern ;rLAMM APPLICATION TO STORE, TRANSPORT AND USE EXPLOSIVES

Dat0 November 19, 1985

The following application is made ¡n conformance with Chapter 34, Article 27, Sections 101 through 110, Article 47, Sections 103 and 104, and Chapter 9, Article 7, Colorado Revised Statutes 1973, as amended. Sunnyside Mine - American Tunnel Name of Operation Gladqfnnp m San Juan Address of Operation Sunnyside Gold Corporation County 303-387-5533 Name of Operator Telephone: P.O. Box 177, Silverton CO 81433 Address of Operator ...... — ------— —

76 or More Name of Person in Charge Total No. Employees: 75 or Less_____ X T42N 21 7W Location of Magazine: — ------Township Section Range Surface ( ) Underground ( 5e) Mine Location Gladstone/ San Juan County, Colorado

Kind of Explosives Dynamite, AN/FO and Blasting Emulsions

Maximum Amount to be Stored 5 0 , 0 0 0 l b s

2.5 miles Distance from Main Workway, County Road 2 • 5 miles Highway

Distance from Nearest Inhabited Building______2 miles 10 miles Railroad

Distance from Other Explosives or Detonator Magazine over 200 ft

N u m b e r of Shot Firers or Employees W h o Will Use Explosives 20 (twenty)______

Magazine Construction: (Explain) stub drifts with wood floors and ventilation with warm air

Operations having more than 75 employees must submit a fee of $120.00 with application.

Sketch of Location; (Show nearest inhabited building, roads or highways, drifts, tunnels and crosscuts. Attach sketch if on another sheet.) C jLORADO division o f m , j b s DEPARTMENT OF NATURAL RESOURCES 1313 Sherman Street, Denver, Colorado 60203 Telephone 866- 3 4 0 1 John D. Ward - Acting Director

R IC H ARD D LAMM APPLICATION FOR DIESEL PERMIT Governor (Underground Operations) Date November 19, 1985 The following application is made in conformance with Chapter 34, Article 29, Section 136, Article 47, Section 131, Colorado Revised Statutes 1973, as amended.

Name of Operation Sunnyside Mine Mine ( x) Tunnel ( )

Location: County San Juan District Rnretafotal No. Employees: ^ --- y - Name of Operator______Sunnyside Gold Corporation Telephone ; 303-387-5533

Address of Operator P«0» Box 177, Silverton CO 81433

DIESEL INFORMATION: Make of Engine caterpillar______^Horsepower Ratingl49 Sea Level

Number of Cylinders 6______Number of Cycles___^ Motor No. 58B6361

UNIT INFORMATION: Type of Unit Locomotive (20-Ton Unit #1) (Locomotive, Shuttle Car, Etc.) Manufacturer Plymouth Locomotive Works Serial No. 6361 Conditioner 42 Water SCRUBBER INFORMATION: Manufacturer Jype Capacity Reserve __ £2 (Water, Catalytic)

Name of Property Owner ...sunnyside,.Gold .Corporation. Address Address P.O. Box 177, Silverton CO 81433

Operations having more than 75 employees must submit a fee of $J0,00 with application.

Title (The Following to be Filled in by the Inspector) Type of Ventilation CFM Incast or Outcast at the Portal or Collar_ CFM Being Delivered to the Working Area______Average Number of Men Working in the Area Where Diesel will be Operated_ Course Traveled by Exhaust Gases to Reach the Surface______

Condition of Diesel Equipment______Condition of Scrubber Based on Ventilation and Other Safety Precautions, What is the Maximum Amount of Diesel Horsepower that can be Approved for use Underground at any one time at this Property__ Does the Operator Understand the Rules Governing the use of Diesels Underground______In your Opinion will the Operator Adhere to these Rules______I recommend that this application be (approved) (rejected).

District Mine Inspector District No. Echo Bay Inc. ^ 3300 Manulife Place 10180-101 Street Edmonton, Alberta, Canada T5J3S4

November 19, 1985

Standard Metals Corporation 645 Fifth Avenue New York, NY 10022

Res Transfer of Water Discharge Permits Sunnyside Mine San Juan County, Colorado

Gentlemen:

In connection with the sale of Sunnyside Mine and related assets by Standard Metals Corporation ("Standard Metals") to Sunnyside Gold Corporation ("Sunnyside"), a wholly owned subsidiary of Echo Bay Inc. ("Echo Bay"), on November 19, 1985, Standard Metals requested the transfer to Sunnyside of Water Quality Discharge Permit Nos. C0-0027529 (American Tunnel), C0-0000426 (Mayflower Mill), and CO-0036056 (Terry Tunnel) issued by the State of Colorado (the "Permits").

5 C.C.R. 1002-2-6.9.6 of the regulations of the Colorado Water Quality Control Division (the "Division") require that 30 days' notice be given before a permit transfer may become effective. Accordingly, unless the requested transfer is specifically made effective on an expedited basis by the Division, Standard Metals will remain the permitee of record and will remain responsible for permit compliance and liable for permit violations until December 19, 1985.

In order to allow Sunnyside immediately to commence operations at the Sunnyside Mine and related facilities, in consideration for the right to assume Standard Metals* rights under the Permits, Echo Bay hereby agrees to indemnify and hold harmless Standard Metals for any and all penalties, orders and other responsibilities, duties or liabilities stemming from or related to the Permits which are attributable to conditions, events or omissions occurring within the period from November 19, 1985 until December 19, 1985, or until such other time as the transfer of the Permits officially becomes effective.

ECHO BAY INC.

Approved this 19th day of November, 1985, by STANDARD METALS jGORP OR AT I ON

is Gresov, President Echo Bay Inc. 3300 Manulife Place 10180-101 Street Edmonton, Alberta, Canada T5J3S4

November 19, 1985

Standard Metals Corporation 645 Fifth Avenue New York, NY 10022

Re: Transfer of Water Discharge Permits Sunnyside Mine San Juan County, Colorado

Gentlemen:

In connection with the sale of Sunnyside Mine and related assets by Standard Metals Corporation ("Standard Metals") to Sunnyside Gold Corporation ("Sunnyside"), a wholly owned subsidiary of Echo Bay Inc. ("Echo Bay"), on November 19, 1985, Standard Metals requested the transfer to Sunnyside of Water Quality Discharge Permit Nos. C0-0027529 (American Tunnel), CO-0000426 (Mayflower Mill), and C0-0036056 (Terry Tunnel) issued by the State of Colorado (the "Permits").

5 C.C.R. 1002-2-6.9.6 of the regulations of the Colorado Water Quality Control Division (the "Division") require that 30 days* notice be given before a permit transfer may become effective. Accordingly, unless the requested transfer is specifically made effective on an expedited basis by the Division, Standard Metals will remain the permitee of record and will remain responsible for permit compliance and liable for permit violations until December 19, 1985.

In order to allow Sunnyside immediately to commence operations at the Sunnyside Mine and related facilities, in consideration for the right to assume Standard Metals' rights under the Permits, Echo Bay hereby agrees to indemnify and hold harmless Standard Metals for any and all penalties, orders and other responsibilities, duties or liabilities stemming from or related to the Permits which are attributable to conditions, events or omissions occurring within the period from November 19, 1985 until December 19, 1985, or until such other time as the transfer of the Permits officially becomes effective.

Approved this 19th day of November, 1985, by STANDARD METALS^CQRPORATION

B v f i i Boris Gresov, President R OB E R T F. W E L B O R N ATTO RN EYS AT LAW RANDALL J. FEUERSTEIN PHILIP G. DUFFORD 1700 BROADWAY S. KIRK INGEBRETSEN THOMAS G.BROWN DIANE L.BURKHARDT DALE TOOLEY (1933-1985) DENVER,COLORADO 60290-1199 STEPHEN J. SULLIVAN DAVID W. FURGASON JOHN M. SPILLANE (303) 861-6013 WILLIAM C- ROBB E L L E N T O L L JOHN F. WELBORN DOUGLAS P. RUEGSEGGER WILLIAM A.MCLAIN EDWARD D. WHITE BEVERLY J, QUAIL PEGGY J, ANDERSON RICHARD L.FANYO JOHN F. MECK KATHRYN L. POWERS THEODORE B-ATLASS COUNSEL PHILLIP D.BARBER GREGORY A.RUEGSEGGER October 4, 1985

HAND DELIVERED

Cary L. Unkelbach, Esq. Attorney -General's Office State of-vColorado State Services Building 1525 Sherman Street Denver, CO 80203

Re ; Purchase of Sunnyside Mine

Dear Cary

As we discussed at our meeting today with the Water Quality Control Division staff, this firm represents Echo Bay, Inc. which has entered into an agreement with Standard Metals Corporation to purchase those assets of Standard Metals which comprise the Sunnyside Mine in San Juan County, Colorado. The agreement contemplates a purchase of assets from Standard Metals Corporation, rather than a purchase of the stock of the company. Standard Metals Corporation will continue to exist and has other assets unrelated to the Sunnyside Mine, both in Colorado and elsewhere.

As you know, Standard Metals Corporation is in a reorganization proceeding before the Bankruptcy Court in Colorado, and the purchase agreement is subject to approval by the Bankruptcy Court following notice and hearing. The hearing on approval of the sale is now scheduled for October 16, 1985. I am enclosing a copy of the August 23, 1985 Agreement for your information.

There are a number of conditions to the Agreement, in addition to Bankruptcy Court approval, which must be satisfied before the Agreement can be closed. Among those conditions are certain environmental matters, some of which we discussed with you and the Division staff. We are aware that several notices of violation of permit conditions have previously been issued to Standard Metals with respect to its discharge permits at the Mayflower Mill and American Tunnel. It is our understanding O

Cary L. Unkelbach, Esq. October 4, 1985 , Page 2 that civil penalties are possible under those notices of violation, but that no specific penalties have yet been proposed.

While Echo Bay contemplates rehabilitation and proper operation of the water quality treatment facilities in connection with any restart of the mining operations, we do not feel that past permit violations or potential civil penalties arising from past activities are properly liabilities of the purchaser of assets. The general rule is that one who purchases the assets of another company is not liable for debts and other liabilities of the transferor absent an express agreement assuming those liabilities. 15 Fletcher, Cyclopedia of Corporations, §7122. The exceptions for fraud or corporate reorganization would not apply under the circumstances of this purchase. We are not aware of any provisions of the Colorado Water Quality Control Act or the permit regulations which modify this general rule of law.

In order that Echo Bay may eliminate this contingency from its concerns in satisfying the conditions of the purchase and sale Agreement, we request your confirmation on behalf of the Water Quality Control Division that Echo Bay, as purchaser of these assets would not be subject to liability for any civil penalties based upon permit noncompliance prior to the date of Echo Bay's purchase.

We thank you for your understanding and consideration of this matter on such short notice, but are sure you recognize Echo Bay's need for a timely response. We would be happy to. discuss this matter with you further if you desire.

Yours very truly,

WELBORN, DUFFORD, BROWN & TOOLEY

William C. Robb

WCRscae cc: Bob Shukle Sandy Squire 3300 ManuLife Place 10180 - 101 Street Edmonton, Alberta T5J 3S4

August 23, 1985

Standard Metals Corporation' c/o Glen E. Keller, Jr. Davis, Graham & Stubbs Suite 2600 950 Seventeenth Street Denver, Colorado 80202

Dear Sirs:" Echo Bay Inc. ("Echo Bay"), a wholly owned subsidiary of Echo Bay Mines Ltd., understands from Standard Metals Corporation ("SMC") that SMC is the debtor in possession in a reorganization now pending before the United States Bankruptcy Court for the District of Colorado (the "Court") in Case No. 84 B 00945 G. SMC has represented to Echo Bay that it .anticipates it shall be able to file promptly an amended disclosure statement relating to an amended plan of reorganization (the "Plan") in connection with the transaction herein contemplated, all of which will be designed to secure on a timely basis the confirmation of the Plan by the Court and approval of the sale of assets herein contemplated.

It is the further understanding of Echo Bay that SMC was incorporated in January 1954 to engage in mining, which until recently continued to be its principal activity. The principal mining operations of SMC consisted of the Sunnyside Mine (the "Mine"), an underground vein mine, and the Mayflower Mill (the "Mill"), both located in San Juan County, Colorado, near the Town of Silverton. The Mine was, we understand, shut down on March 15, 1985 and the Mill was closed a week later. Presently the Mine and the Mill are on a care and maintenance program to preserve and secure the assets, including the water treatment facilities connected thereto. Additionally, a security force is on site to protect the properties. c

SMC has indicated to Echo Bay that SMC desires to dispose of its interest in the Mine and the Mill# ana in certain other mineral property and leasehold interests subject to the terms and conditions set out in this letter agreement.

Based and relying upon the foregoing, Echo Bay hereby offers to purchase the assets described in paragraph 1 below from SMC on the terms and conditions set forth herein.

Terms and Conditions

1. Property. The assets that on the Closing Date (as defined in paragraph 3 below) will form part of the purchase and sale transaction contemplated hereby shall consist of all right, title and interest of SMC in and of its property in San Juan County, Colorado consisting of, but not limited to, the Mine, the Mill, the tailings area on site and related assets and facilities currently or intended to be under the control of SMC. SMC has represented to Echo Bay that its interest in the Mine derives principally from its lease with Washington Mining Company ("Washington") originally executed on February 28, 1959; and since amended on several occasions (the "Marcy Lease). The Marcy lease covers numerous patented and unpatented mining claims. In addition, SMC owns or has under lease claims held under two five-year exploration and option agreements, known as the Treasure Mountain and California Mountain agreements, with Noranda Exploration, Inc. and Callahan Mining Corporation and, apart from the foregoing, ‘approximately 165 patented and 169 unpatented lode mining claims, including but not limited to the "Belle Creole lease, the "Joy" lease, the "Brenneman" lease and the American Tunnel easement (also known as the Gold King Lower Tunnel), which belong to SMC and are in the Mine area. All of such assets to be purchased are herein referred to as the Property. Notwithstanding any of the foregoing terms of this paragraph 1, it is a condition of this offer that Echo Bay will not assume any of the contractual or other obligations presently outstanding on the part of^SMC (including, without limitation, employment contracts), with the exception of mining leases and other similar instruments relating to the property, contracts relating to equipment located on or used in connection with the Sunnyside operation and the office lease relating to the Old Hospital Building in Silverton presently occupied by SMC. 2. C onsideration. The consideration to be paid by Echo Bay to acquire the Property shall consist of:

(b) a 30% net profits interest applied in respect of the interest acquired by Echo Bay in the Property. The transfer documents conveying such 30% net profits interest to SMC shall provide for an annual computation of net profits to be made substantially on the following basis: (i) the net operating profit account credits would consist of all operating cash flow from the Property as derived from net smelter revenues less any and all payments of applicable royalties and less any and all costs of mining, milling, development and exploration?

(ix) Echo Bay shall have the right to develop the property in its sole discretion and will not have any liability of any nature whatsoever to any beneficiary of the net profits interest, except for acts of gross negligence, fraud or wilful misconduct. SMC as the transferee of the net profits interest will also agree to indemnify and hold Echo Bay harmless against any and all claims of'any nature whatsoever asserted by any SMC shareholder or by any person claiming through or under SMC except for acts of gross negligence, fraud or willful misconduct of Echo Bay;

(iii) in computing net profits, all capital expenditures, working capital and the amortization of the cash portion of the c ('

purchase price (specified in paragraph 2(a) hereof) over a five-year period, including interest upon the amount being so amortized at a percentage equal to the prime rate charged by The Royal Bank of Canada to its most credit worthy customers plus 1% per annum# corporate general and administrative expenses not to exceed $500,000 per year, all legal and accounting costs and any and all other costs of the operation will be deducted from and debited against the net profits account. Any deficiencies in such account will be accumulated and carried forward, to be deducted from net profits in subsequent years.

Notwithstanding the foregoing, commencing January 1, 1987 and for five (5) years there after, Echo Bay shall be obligated to pay a minimum of $300,000 per year (the "Minimum Payment") to SMC on account of its net profits interest if the making of capital expenditures in respect of the Property for such year results in SMC's receiving or being entitled to receive, less than $300,000 of net profits interest payments? provided that any amounts paid to SMC on account of net profits interest for any year prior or subsequent to January 1, 1987 shall be applied to reduce the $300,000 minimum payment to SMC. However, Echo Bay shall not be required to make the Minimum Payment for any year during which the average ■v price of gold as reported by Comex for the applicable year is less than $375.00 per ounce.

4. Conditions to Closing. The obligations of Echo Bay and SMC to complete the sale and purchase transaction herein contemplated^shall be subject to any necessary approval of the transaction by the respective boards of Directors of Echo Bay and SMC. The management of Echo Bay shall communicate to SMC and the management of SMC shall communicate to Echo Bay, in writing not later than 1700 hours Mountain Daylight Time on August 23, 1985, in each case, confirmation that each has obtained all such necessary board approvals. The obligation of Echo Bay to complete the sale and purchase transaction herein contemplated shall further be subject to: (a) SMC having submitted the Plan and proposed sale of the Property to the Court embracing the terms of this letter agreement and having obtained any approvals and confirmations thereof in full compliance with the laws of the United States. Such approvals and confirmations shall have to be obtained, without any appeal being taken from the Court order(s) related thereto, in order for Echo Bay to be obligated to complete the sale and purchase transaction contemplated by this letter agreement. Further, Echo Bay shall be entitled to receive from Davis, Graham & Stubbs, counsel to SMC, an opinion inform and substance satisfactory to it and certifying that the Plan and order of sale are valid and final, have been validly confirmed and approved in accordance with the laws of the United States and that no other orders,_ consents, confirmations or approvals are necessary in order to permit Echo Bay to complete the acquisition as herein provided; (b) approval by Echo Bay of SMC's title to the Property; (c) Echo Bay's independent confirmation of the matters set out in paragraph 6(c)(ii) and 6(c) (iii) below;

(d) the existence or reasonable opportunity of obtaining all water rights, surface and subsurface rights of access and use, power and supply and governmental permits and approvals that will be necessary for Echo Bay's conduct of mining, milling and related operations in, on, or under or in respect of the Property; (e) Echo Bay being satisfied that all disputes between SMC and Washington in respect of SMC's leasehold interest in the Sunnyside Mine have been resolved to Echo Bay’s satisfaction and that no defaults exist thereunder or under the Stipulation Agreement referred to in SMC's amended disclosure statement dated May 24, 1985, including but not limited to the alleged failure by SMC to conveyor offer claims or other property interests to Washington? and

(f) SMC's executing and delivering to Echo Bay good and sufficient assignments of leases, mining deeds, bills of sale and any and all other instruments which shall, in the opinion of Echo Bay's counsel, be required or desirable to transfer all of SMC's right, title and interest in the Property. SMC shall also obtain and deliver to Echo Bay good and sufficient releases of mortgages, deeds of trust and any other encumbrances existing as to the Property.

The obligation of the parties to complete such sale and purchase transaction shall also be subject to the following!

(g) SMC entering into a formal sale and purchase agreement with Echo Bay containing the representations and warranties that a prudent purchaser would require in the type of sale and purchase transaction herein contemplated, including but not limited to those set forth in paragraph 6 hereof, with SMC to provide all information and assistance reasonably required by Echo Bay to facilitate the preparation of such agreement? and

(h) receipt of all necessary private, governmental or regulatory approvals to the sale and purchase transaction herein contemplated, it being understood and agreed that to the extent Echo Bay waives any of the foregoing conditions (a) to (h), m whole or in part, SMC shall have no liability to Echo Bay for having failed or allegedly failed to comply with the condition.

, 5. Indemnification. Without in any way derogating from the_covenants, conditions, representations and warranties herein contained and subject to all provisions of Section 4 herein, SMC shall indemnify and save Echo Bay and each director, officer, employee or agent thereof harmless against and from any and all losses, liabilities, claims, demands, costs, damages and expenses of any nature whatsoever in any way caused by or arising directly or indirectly from or in connection with (a) the failure or alleged failure by SMC to perform any obligations imposed on it by law relating to the property and any operations conducted in respect thereof, or arising pursuant to any related or underlying agreement, accrued in all cases to the Closing date; (b) any claims by one or more third parties arising out of or connected to the divestiture of the Property by SMC as contemplated by this letter agreement; and

(c) Any breach of any representation or warranty contained in this letter agreement, whether set out in Section 6 hereof or elsewhere herein.

6. General Representations and Warranties. SMC represents and warrants to Echo Bay that:

(a) SMC owns and has, and will on the Closing Date own and have, good and marketable title to the property and, subject to the Court approval and other legal requirements set out in Section 4 hereof, there is nothing in the nature of a right or claim toy any third party which may in any way adversely affect the v ability of SMC to agree to sell the Property or_ complete the sale and purchase transaction herein contemplated or to convey to Echo Bay good and marketable title to the Property? (b) the unpatented mining claims included in the Property were validly and properly located, have been maintained to date in full force and effect by timely performance of any required annual assessment work and otherwise, all filings and recordings for them required by private agreement or county, state, federal or other governmental or regulatory law for preservation of them have been timely and properly made to date and SMC is not aware of any adverse claim or challenge to the validity, maintenance or preservation of such claims; (c) under any and all applicable laws and regulations:

(i) SMC is legally entitled to hold and is the owner of the Property free and clear of all liens, charges, encumbrances and claims of other, except as expressly contemplated by this letter, agreement, (ii) SMC has acquired sufficient surface and subsurface rights in respect of or related to the property as it is intended to be operated and has sufficient water rights and sufficient power supply to conduct mining, milling and related operations in, on, under or in respect of the Property as it is presently contemplated to be operated, and (iii) all required permits or other governmental or regulatory approvals that could have been secured on a timely basis by the Closing Date in respect of the Property as it is contemplated to.be operated have been secured and all others are in the course of being secured so as to permit the conduct of mining, milling and related operations for the Property and all such permits or approvals as have been obtained are in good standing and will continue to be in good standing at the Closing Date and no notices of material violations have been received in respect thereof; and

(d) there is no current litigation and, to the knowledge of SMC, none is pending or has been threatened, involving possible prohibitions or restrictions upon operations within the property on environmental or any other regulatory grounds.

7. Notices. Any notice, direction or other instrument required or permitted to b6 given pursuant to this letter shall be in writing and be given by delivery or sending by telex, telecopy or other similar form of communication, in each case addressed as follows! (a) To SMC: Standard Metals Corporation Olympic Tower 645 Fifth Avenue Suite 415 New York, N.Y. 10022

Telecopy: (212) 832-1025 Telephone:. (212) 832-1014

With a copy to: Glen E. Keller, Jr. Davis, Graham & Stubbs 2600 Colorado National Building 950 Seventeenth Street Denver, Colorado 80202

Telex: 0239 DGS DVR Telecopy: (303) 893-1379 Telephone: (303) 892-9400

(b) To Echo Bay: Echo Bay Inc. 3300 Manulife Place 10180 - 101 Street Edmonton, Alberta

Attention: Richard C. Kraus Senior Vice-President Finance and Administration

Telex: 037-41510? Echo Bay Edm Telecopy: (403) 429-5869 Telephone: (403) 429-5813

Any such notice shall be deemed to have been received by the party to whom it was sent the day it has been delivered, if delivered, and otherwise on the next business day after the sending of the notice, provided that an originally signed copy of the notice is also mailed, postage pre-paid, to such party addressed as set forth above on the same day that the notice is telexed, telecopied or otherwise similarly sent. If the foregoing is acceptable to SMC please signify such acceptance on the duplicate of this letter and return such duplicate to the attention of the undersigned by 1700 hours Mountain Daylight Time on August 23, 1985, whereupon a valid and binding agreement shall be deemed to exist between SMC and Echo Bay enforceable in accordance with its terms. Additionally, Echo Bay shall forthwith instruct its legal counsel to commence preparing a draft of the formal sale and purchase agreement contemplated by paragraph 4(g) above.

Yours truly,

ECHO BAY INC.

Per Ri¿Rara C. Kraus, Senior Vice-President Finance and Administration

ACCEPTED THIS 23rd day of August, 1985

STANDARDS METALS CORPORATION

' \ ‘ ^ 'J Per: -M s ' ■ - w v- Bofc’is 'Gresov, presiaent ana- Chairman of the Board Dò-ili" s/vs/ss' Q 5 ’-V> (r^ ( ¿ ^ M A ECHO BAY INC. ^ K v-nT "

3300 ManuLife Place 10180 - 101 Street Edmonton, Alberta T5J 3S4

August 23, 1985

Standard Metals Corporation c/o Glen E. Keller, Jr. Davis, Graham & Stubbs Suite 2600 950 Seventeenth Street Denver, Colorado 80202 Dear Sirs: Echo Bay Inc. ("Echo Bay"), a wholly owned subsidiary of Echo Bay Mines Ltd., understands from Standard Metals Corporation ("SMC") that SMC is the debtor in possession in a reorganization now pending before the United States Bankruptcy Court for the District of Colorado (the "Court") in Case No. 84 B 00945 G. SMC has represented to Echo Bay that it anticipates it shall be able to file promptly an amended disclosure statement relating to an amended plan of reorganization (the "Plan") in connection with the transaction herein contemplated, all of which will be designed to secure on a timely basis the confirmation of the Plan by the Court and approval of the sale of assets herein contemplated.' It is the further understanding of Echo Bay that SMC was incorporated in January 1954 to engage in mining, which until recently continued to be its principal activity. The principal mining operations of SMC consisted of the Sunnyside Mine (the "Mine"), an underground vein mine, and the Mayflower Mill (the "Mill"), both located in San Juan County, Colorado, near the Town of Silverton. The Mine was, we understand, shut down on March 15, 1985 and the Mill was closed a week later. Presently the Mine and the Mill are on a care and maintenance program to preserve and secure the assets, including the water treatment facilities connected thereto. Additionally, a security force is on site to protect the properties. SMC has indicated to Echo Bay that SMC desires to dispose of its interest in the Mine and the Mill, and in certain other mineral property and leasehold interests subject to the terms and conditions set out in this letter agreement. Based and relying upon the foregoing, Echo Bay hereby offers to purchase the assets described in paragraph 1 below from SMC on the terms and conditions set forth herein.

Terms and Conditions

1. Property. The assets that on the Closing Date (as defined in paragraph 3 below) will form part of the purchase and sale transaction contemplated hereby shall consist of all right, title and interest of SMC in and of its property in San Juan County, Colorado consisting of, but not limited to, the Mine, the Mill, the tailings area on site and related assets and facilities currently or intended to be under the control of SMC. SMC has represented to Echo Bay that its interest in the Mine derives principally from its lease with Washington Mining Company ("Washington") originally executed on February 28, 1959, and since amended on several occasions (the "Marcy" Lease). The Marcy lease covers numerous patented and unpatented mining claims. In addition, SMC owns or has under lease claims held under two five-year exploration and option agreements, known as the Treasure Mountain and California Mountain agreements, with Noranda Exploration, Inc. and Callahan Mining Corporation and, apart from the foregoing, approximately 165 patented and 169 unpatented lode mining claims, including but not limited to the "Belle Creole" lease, the "Joy" lease, the "Brenneman" lease and the American Tunnel easement (also known as the Gold King Lower Tunnel), which belong to SMC and are in the Mine area. All of such assets to be purchased are herein referred to as the "property." Notwithstanding any of the foregoing terms of this paragraph 1, it is a condition of this offer that Echo Bay will not assume any of the contractual or other obligations presently outstanding on the part of SMC (including, without limitation, employment contracts), with the exception of mining leases and other similar instruments relating to the property, contracts relating to equipment located on or used in connection with the Sunnyside operation and the office lease relating to the Old Hospital Building in Silverton presently occupied by SMC. 2. Consideration.- The consideration to be paid by Echo Bay to acquire the Property shall consist of:

(a) U.S. $20,000,000 payable on the Closing Date to SMC to enable SMC to implement its Plan, which includes payment of the secured debt of SMC presently encumbering the Property, the balance of which, including principal, interest and other costs, and charges, SMC represents to be approximately U.S. $9.3 million. It is specifically acknowledged and understood by the parties hereto that the obligation of Echo Bay in respect of cash payments towards the purchase of the property is and shall be limited to U.S. $20,000,000; and (b) a 30% net profits interest applied in respect of the interest acquired by Echo Bay in the Property. The transfer documents conveying such 30% net profits interest to SMC shall provide for an annual computation of net profits to be made substantially on the following basis: (i) the net operating profit account credits would consist of all operating cash flow from the Property as derived from net smelter revenues less any and all payments of applicable royalties and less any and all costs of mining, milling, development and exploration?

(ii) Echo Bay shall have the right to develop the property in its sole discretion and will not have any liability of any nature whatsoever to any beneficiary of the net profits interest, except for acts of gross negligence, fraud or wilful misconduct. SMC as the transferee of the net profits interest will also agree to indemnify and hold Echo Bay harmless against any and all claims of any nature whatsoever asserted by any SMC shareholder or by any person claiming through or under SMC except for acts of gross negligence, fraud or willful misconduct of Echo Bay; (iii) in computing net profits, all capital expenditures, working capital and the amortization of the cash portion of the purchase price (specified in paragraph 2(a) hereof) over a five-year period, including interest upon the amount being so amortized at a percentage equal to the prime rate charged by The Royal Bank of Canada to its most credit worthy customers plus 1% per annum, corporate general and administrative expenses not to exceed $500,000 per year, all legal and accounting costs and any and all other costs of the operation will be deducted from and debited against the net profits account. Any deficiencies in such account will be accumulated and carried forward, to be deducted from net profits in subsequent years. Notwithstanding the foregoing, commencing January 1, 1987 and for five (5) years there after, Echo Bay shall be obligated to pay a minimum of $300,000 per year (the "Minimum Payment") to SMC on account of its net profits interest if the making of capital expenditures in respect of the Property for such year results in SMC's receiving or being entitled to receive, less than $300,000 of net profits interest payments; provided that any amounts paid to SMC on account of net profits interest for any year prior or subsequent to January 1, 1987 shall be applied to reduce the $300,000 minimum payment to SMC. However, Echo Bay shall not be required to make the Minimum Payment for any year during which the average price of gold as reported by Comex for the applicable year is less than $375.00 per ounce.

3. Closing Da te. The closing of the sale and purchase transaction herein contemplated shall take place at the offices of Davis, Graham & Stubbs, 4700 Republic Plaza Building, 370 Seventeenth Street, Denver, Colorado 80202, at 1000 hours on October 31, 1985, or at such other place or time or on such other date not later than November 30, 1985, as Echo Bay and SMC may agree upon in writing (the "Closing Date"). 4. Conditions to Closing. The obligations of Echo Bay and SMC to complete the sale and purchase transaction herein contemplated shall be subject to any necessary approval of the transaction by the respective boards of Directors of Echo Bay and SMC. The management of Echo Bay sihall communicate to SMC and the management of SMC shall communicate to Echo Bay, in writing not later than 1700 hcuts Mountain Daylight Time on August 23, 1985, in each case, confirmation that each has obtained all such necessary board approvals. The obligation of Echo Bay to complete the sale and purchase transaction herein contemplated shall further be subject tos (a) SMC having submitted the Plan and proposed sale of the property to the Court embracing the terms of this letter agreement and having obtained any approvals and confirmations thereof in full compliance with the laws of the United States. Such approvals and confirmations shall have to be obtained, without any appeal being taken from the Court order(s) related thereto, in order for Echo Bay to be obligated to complete the sale and purchase transaction contemplated by this letter agreement. Further, Echo Bay shall be entitled to receive from Davis, Graham & Stubbs, counsel to SMC, an opinion in form and substance satisfactory to it and certifying that the Plan and order of sale are valid and final, have been validly confirmed and approved in accordance with the laws of the United States and that no other orders, consents, confirmations or approvals are necessary in order to permit Echo Bay to complete the acquisition as herein provided; (b) approval by Echo Bay of SMC's title to the Property; (c) Echo Bay's independent confirmation of the matters set out in paragraph 6(c) (ii ) and 6(c)(iii) below;

(d) the existence or reasonable opportunity of obtaining all water rights, surface and subsurface rights of~ access and use, power and supply and governmental permits and approvals that will be necessary for Echo Bay's conduct of mining, milling and related operations in, on, or under or in respect of the Property; (e) Echo Bay being satisfied that all disputes between SMC and Washington in respect of SMC's leasehold interest in the Sunnyside Mine have been resolved to Echo Bay's satisfaction and that no defaults exist thereunder or under the Stipulation Agreement referred to in SMC's amended disclosure statement dated May 24, 1985, including but not limited to the alleged failure by SMC to convey or offer claims or other property interests to Washington? and

(f) SMC's executing and delivering to Echo Bay good and sufficient assignments of leases, mining deeds, bills of sale and any and all other instruments which shall, in the opinion of Echo Bay's counsel, be required or desirable to transfer all of SMC's right, title and interest in the Property, SMC shall also obtain and deliver to Echo Bay good and sufficient releases of mortgages, deeds of trust and any other encumbrances existing as to the Property.

The obligation of the parties to complete such sale and purchase transaction shall also be subject to the followings (g) SMC entering into a formal sale and purchase agreement with Echo Bay containing the representations and warranties that a prudent purchaser would require in the type of sale and purchase transaction herein contemplated, including but not limited to those set forth in paragraph 6 hereof, with SMC to provide all information and assistance reasonably required by Echo Bay to facilitate the preparation of such agreement; and

(h) receipt of all necessary private, governmental or regulatory approvals to the sale and purchase transaction herein contemplated, it being understood and agreed that to the extent Echo Bay waives any of the foregoing conditions (a) to (h), in whole or in part, SMC shall have no liability to Echo Bay for having failed or allegedly failed to comply with the condition.

5. In d e m n i f i c a t i o n . Without in any way derogating from the covenants, conditions, representations and warranties herein contained and subject to all provisions of Section 4 herein, SMC shall indemnify and save Echo Bay and each director, officer, employee or agent thereof harmless against and from any and all losses, liabilities, claims, demands, costs, damages and expenses of any nature whatsoever in any way caused by or arising directly or indirectly from or in connection with (a) the failure or alleged failure by SMC to perform any obligations imposed on it by law relating to the Property and any operations conducted in respect thereof, or arising pursuant to any related or underlying agreement, accrued in all cases to the Closing date? (b) any claims by one or more third parties arising out of or connected to the divestiture of the Property by SMC as contemplated by this letter agreement; and

(c) Any breach of any representation or warranty contained in this letter agreement, whether set out in Section 6 hereof or elsewhere herein.

6. General Representations and Warranties. SMC represents and warrants to Echo Bay that:

(a) SMC owns and has, and will on the Closing Date own and have, good and marketable title to the Property and, subject to the Court approval and other legal requirements set out in Section 4 hereof, there is nothing in the nature of a right or claim by any third party which may in any way adversely affect the ability of SMC to agree to sell the Property or complete the sale and purchase transaction herein contemplated or to convey to Echo Bay good and marketable title to the Property? (b) the unpatented mining claims included in the Property were validly and properly located, have been maintained to date in full force and effect by timely performance of any required annual assessment work and otherwise, all filings and recordings for them required by private agreement or county, state, federal or other governmental o r regulatory law for preservation of them have been timely and properly made to date and SMC is not aware of any adverse claim or challenge to the validity, maintenance or preservation of such claims? (c) under any and all applicable laws and regulations:

(i) SMC is legally entitled to hold and is the owner of the property free and clear of all liens, charges, encumbrances and claims of other, except as expressly contemplated by this letter agreement, (ii) SMC has acquired sufficient surface and subsurface rights in respect of or related to the property as it is intended to be operated and has sufficient water rights and sufficient power supply to conduct mining, milling and related operations in, on, under or in respect of the property as it is presently contemplated to be operated, and (iii) all required permits or other governmental or~ regulatory approvals that could have been secured on a timely basis by the Closing Date in respect of the Property as it is contemplated to be operated have been secured and all others are in the course of being secured so as to permit the conduct of mining, milling and related operations for the Property and all such permits or approvals as have been obtained are in good standing and will continue to be in good standing at the Closing Date and no notices of material violations have been received in respect thereof; and

7. N o tice s. Any notice, direction or other instrument required or - permitted to be given pursuant to this letter shall be in writing and be given by delivery or sending by telex, telecopy or other similar form of communication, in each case addressed as follows: (a) To SMC: Standard Metals Corporation Olympic Tower 645 Fifth Avenue Suite 415 New York, N.Y. 10022 Telecopy: (212) 832-1025 Telephone: (212) 832-1014

With a copy to: Glen E. Keller, Jr. Davis, Graham & Stubbs 2600 Colorado National Building 950 Seventeenth Street Denver, Colorado 80202

Telex: 0239 DGS DVR Telecopy: (303) 893-1379 Telephone: (303) 892-9400

(b) To Echo Bay: Echo Bay Inc. 3300 Manulife Place 10180 - 101 Street Edmonton, Alberta Attention: Richard C. Kraus Senior Vice-President Finance and Administration

Telex: 037-41510; Echo Bay Edm Telecopy: (403) 429-5869 Telephone: (403) 429-5813

Yours truly,

ECHO BAY INC.

Per; ______Richard C. Kraus, Senior Vice-President Finance and Administration

ACCEPTED THIS 23rd day of August, 1985 STANDARDS METALS CORPORATION

Per; feoris Gresov, president and Chairman of the Board ROBERT F. WELBORN ATTORNEYS AT LAW RANDALL J. FEUERSTEIN PHILIP G. DUFFORD 1700 BROADWAY S, KIRK INGEBRETSEN THOMAS G. BROWN DIANE L.BURKHARDT DALE TOOLEY (1933-1985) DENVER, COLORADO 80290-1199 STEPHEN J.SULLIVAN DAVID W. FURGASON JOHN M. SPILLANE WILLIAM C. ROBB (303) 661-8013 ELLEN TOLL JOHN F. WELBORN DOUGLAS P, RUEGSEGGER WILLIAM A.MCLAIN EDWARD D. WHITE BEVERLY J. QUAIL PEGGY J. ANDERSON RICHARD L.FANYO KATHRYN L.POWERS JOHN F. MECK THEODORE B- ATLASS COUNSEL PHILLIP D. BARBER GREGORY A.RUEGSEGGER August 20, 1985

Robert L. Leclerc, Esq. Milner & Steer 2900 Manulife Place 10280-101 Street Edmonton, Canada T5J3V5

Re: Sunnyside Mine--Water Rights Dear Bob:

Attached is a tabulation of the water rights adjudications which we reviewed in the files of Standard Metals Company which were made available to us at the offices of Davis, Graham & Stubbs. These rights were adjudicated by the company in relation to its current mining operations during the 1970's and in 1980.

The rights were all originally adjudicated by Standard Metals so there is no question of title. We have not checked the historic use records of the Division Engineer, but presume that these rights were actively utilized when mining operations were taking place throughout this period of time, leaving the rights in good standing. Since they would largely be nonconsumptive uses, or at least very low consumptive uses, they could be diverted and utilized substantially year round without injury to other water rights. The "developed water" portion of the Mayflower Pipeline would be non-tributary mine water and is administered as a very senior water right since it is not part of the priority system.

In reviewing the files, we also came across the enclosed letter dated April 29, 1974 from UV Industries, Inc. to Standard Metals itemizing certain water rights owned by Washington Mining Company. As I understand it, Standard Metals succeeded to the mining claims, in whole or in part, owned by Washington Mining Company. The only information we have on these four water rights is that they were included on the list of abandoned water rights prepared by the Division Engineer for Robert I». Ledere, Esq. August 21, 1985 Page 2

Water Division No. 7 in 1984. A copy of that portion of the abandonment list is attached. In talking to the Division Engineer, he advises that no one has protested or challenged the listing of these rights as abandoned, even though the list is now being adjudicated in the water court. We will try to develop more information on the title to these water rights. Abandonment generally indicates nonuse of the water right over a substantial period of time, together with an indication that the owner intended to abandon the right. The potential value of these rights would depend upon their historic use and priority. Since they were all adjudicated in 1966, they would be administered under that date, even though they were originally appropriated in the 1890's and early 1900's.

Yours very truly, WELBORN. DUFFORD, BROWN & TOOLEY

William C. Robb

WCR/jjb Encl.

Telecopied to Robert Leclerc 8/21/85 at Toronto office of Clarkson, Gordon Name Adjudication Appropriation Amount Source Use Date Date

Mayflower Pipeline Sep, 1971 Dec, 1930 1.0 cfs Developed Mining and milling .34 cfs Arrastra Creek

Mayflower Pipeline Sep, 1971 Dec, 1930 0.89 cfs Arrastra Creek Mining and Milling American Tunnel Pipeline Dec, 1979 Aug, 1978 0.27 cfs Cement Creek Domestic and Industrial for mining Reclamation Irrigation Pipeline Dec, 1980 June, 1977 0.84 cfs Boulder Creek Irrigation of surface area near tailing pond Reclamation Irrigation Pipeline Feb, 1979 June, 1977 0.17 cfs Animas River Revegetation surface area near tailing pond 19th Floor. University Club Building 136 East South Temple Salt Lake City, Utah 84111 UV INDUSTRIE’S, INC Telephone (801)355-5301

April 29, 197^

Mr. Jerry Ott, Engineer Standard Metals Corporation • P. 0, Box 2Vf Silverton, Colorado 8l*+33

Dear Jerry:

In answer to your question regarding water rights owned by Washington Mining Company, the rights are listed as follows:

1, Richard Flume and Pipeline and Water Right A. Pipeline No, 3 t f.. B. Priority No* 1965-3 j J C. State Engineer Filing No. I1*37*+

2. Lotah Pipe Line and Water Right 2 A. Pipeline No. 8 B. Priority No. 1965-8 C. State Engineer Filing No. 1^375

3* Teriy Tunnel and Ittdway Pipe Line and Power Plant Water Right A. Pipeline No. lU - f ; B. Priority No. 1965-1^ C. State Engineer Filing No. 7299 f

It. Parsons Creek Pipeline Water Right A. Pipeline No. 21 B. Priority No, 1965-21 C. State Engineer Filing No. 10870

All of the above rights were adjudicated in Water District No. 30, Irrigation District No. 7, by Civil Action No. I757-B, in the District Court, LaPlata County, Colorado.

Washington does not own rights to use water from lake Emma. I would assume that, if you intend to use Lake Emma water in your underground operations, you would need to file an application with the State Engineer. WATER RIGHTS AND CONDITIONAL WATER) ABANDONMENT LIST RIGHTS IN WATER DIVISION 7 )

Notice is hereby given that pursuant to Section 37-92-402, C.R.S. (1973 & 1983 supp.) the Division Engineer of Water Division No. 7, in.consultation with the State Engineer, has made such revisions as determined to be necessary or advisable to the July 1, 1978, abandonment list. The abandonment list contains those water rights or conditional water rights that the Division Engineer has determined to have been abandoned in whole or in part. The abandonment list when concluded by judgment and decree, shall be conclusive as to water rights determined to have been abandoned.

The July 1, 1978 abandonment list for Water Division No. 7 contained no water rights or conditional water rights that the Division Engineer determined to have been abandoned, in whole or in part. Accordingly, no abandonment list was either printed or published in 1978. The revisions to the 1978 abandonment list have resulted in a determination that certain absolute and conditional water rights have been abandoned, in whole or in part.

The list of absolute and conditional water rights determined to have been abandoned, in whole or in part, may be inspected after July 1, 1984, in the offices of the Division Engineer, each Water Commissioner and each County Clerk and Recorder.at any time during regular office hours. The Division Engineer will furnish or mail a copy of the Water Division abandonment list to any requesting the same upon payment of a fee of five dollars ($5).

' Any person who wishes to protest the inclusion of any water rights on the abandonment list and any revisions thereto shall file a written protest with the Water Clerk and the Division Engineer in accordance with the procedures of Section 37-92-401(5), C.R.S. (1983 supp.) except that such protest must be filed with the Water Clerk no later than December 31, 1984. The fee for filing such a protest with the Water Clerk shall be twenty dollars 20).

Dated this 1st day of July 1984.

Daries C. Lile, Division Engineer Jeris A. Danielson, State Engineer STR'iCTuOE NAMF DIV-IO-SFQNO SOuRfF NAME DECREED A 8 A N D 0 N E D REMAININGADJ ADJ DATE P A D J DATE APPHO DATE a m o u n t a m o u n t AMOUNT TYPE

TURNER DIVERSION PU m p 730ai?4?mi ANT m a S R I V E R 0.5000 0.5000 0.0000 1 4 11 / 0 8/1923 0 6 / 1 5 / 1 8 7 4 OWYFR DITCH 730005340(ii JUNCTION CREFK 3.7500 2 * 2500 1*5000 I 1 1 / 0 8 / 1 9 2 3 0 6 / 1 5 / 1 8 7 4 NIAGARA DITCH 7300060500? JUNCTION CREEK 1.5000 1.5000 0*0000 1 11/08/1923 0 6 / 0 1 / 1 8 7 8 NIAGARA DITCH 73000*05001 JUNCTtnN CREEK 0.7500 0.7500 0*0000 I 11/08/1923 0 6 / 1 5 / 1 8 7 9 Thompson irg ditch 73000649001 WATERFALL CREEK 1.2500 1.2S0Û 0.0000 1 11/06/1923 01/22/1881 FORRES OUMP s i t e NO I 7300110P001 LIG h T njFR CREEK 1 0.1670 0.1670 0.00 0 0 I 4 . 11/08/1923 05/01/1881 FORRES PUMP SITENO 3 7300110400! LIG h TNFR c r e e k 0.1110 0.1110 0.00 0 0 1 4 11 / 0 8/1923 05/01/1881 FORRES PUMP SITE NO W 73001105001 LIG h TNFR c r e e k 0.1110 0.1110 0.00 0 0 I 4 11/08/1923 05/01/1881 FORRES PUMP SITENO 5 7300110600! L I G H T N F R c r e f k 0.1110 0*1110 0.0000 1 4 1 1 / 0 8 / 1 9 2 3 0 5 / 0 1/1881 RlOOGETT «EST SIDE DITCH7300105I003 FLORIDA RIVER 0.R330 0*0830 0.75 0 0 1 11/08/1923 06/01/1881 BLODGETT EAST SIOE DITCH73001050004 FLORID* RIVER 1.0930 0.16 7 0 0.9160 I 6 11/08/1923 11/08/1923 0 6 / 1 5/1881 WALLACF-AMROLD OITCH 7300066?001 ANIMAS RIVER 0.6250 0*6250 0.00 0 0 1 5 1 1 / 0 8 / 1 9 2 3 0 4 / 1 5 / 1 8 8 4 GUTHRIE OITCH 73000558001 JUNCTION CREEK 0.2500 0.25 0 0 0.0000 1 11/08/1923 06/15/1884 BISHOP OITch 7300051400] ALBERT CREEK 1.6660 1*6660 0.0000 1 11/08/1923 07 / 0 6 / 1 8 8 S DANIEL WALLACE DITCH 73000529001 ANIMAS »IVFR 2 . 5 0 0 0 2.50 0 0 0.0000 I 1 1 / 0 8/1923 0 5 / 0 1 / 1 8 8 6 PETE« DAUM DITCH 73000610001 ELBERT CREEK 2.0000 2.00 0 0 0.00 0 0 1 1 1 / 0 8 / 1 9 2 3 07 / 1 5 / 1 8 8 9 BISHOP OITCH 7300051400? ELBERT CREEK 0.5000 0.50 0 0 0.0000 1 1 1 / 0 8 / 1 9 2 3 05 / 3 1/1691 OLO HCFIE DITCH 73000607001 ELBERT CREEK 0.3300 0.3300 0 . 0000 I 11/08/1923 12/31/1891 OLO HCFIE DITCH 73000607002 ELBERT CREFK 0.1660 0.1660 0*0000 1 11/08/1923 12/31/1891 HAND PIPE LINE 73000559001 ANIMAS RIVER 0.5000 0.5000 0.0000 1 11/08/1923 10/01/1901 DRAW OITCH 73001090001 TRUMBLE DRAW 0 . 5000 0.5000 0 . 0000 1 11/08/1923 0 4 / 2 5 / 1 9 0 3 NAFGELIN DITCH 73000604003 JUNCTION CREEK 0.3750 0 * 3750 0.0000 1 3 1 1 / 0 8 / 1 9 2 3 0 5 / 3 1 / 1 9 0 6 WOOD-MORGAN PWR & IRR D 7300127000? ANIMAS RIVER 2. 0000 2.0000 0.0000 1 11 / 0 8/1923 0 9 / 0 1 / 1 9 0 6 WOOO-MQRGAN PWR L IRR 0 73001270003 ANIMAS RIVER 4.0000 4.0000 0.0000 I 3 11 / 0 8/1923 0 9 / 0 1 / 1 9 0 6 JAKINO DITCH 73001127002 COTTONWOOD CREEK 0.3300 0 . 3300 0*0000 1 3 11/08/1923 0 5 / 1 4 / 1 9 0 8 MCKINLEY DITCH 73001322004 S A L T CREEK 0.3333 0.3333 0*0000 I 3 1 1 / 0 8 / 1 9 2 3 0 4 / 1 5 / 1 9 1 0 STRATMAN DITCH 73001230003 P I N E DRA W 0. 3300 0.3300 0*0000 1 3 1 1 / 0 8 / 1 9 2 3 06 / 2 0 / 1 9 1 2 TYNER MORRISON OITCH 73001245002 FLORIDA RIVER 1.6250 1*6250 0 . 0000 I 3 1 1 / 0 8/1923 0 5 / 1 5 / 1 9 1 7 STR a T m a N E AND E DITCH 73001231002 P I N E D R A W 0.1670 0*1670 0*0000 1 3 11/08/1923 0 5 / 1 0 / 1 9 1 8 EPPICH DITCH 73000541001 JUNCTION CREEK 0.5000 0*5000 0.0000 1 11/08/1923 0 4 / 2 0 / 1 9 1 9 WATER TANK NO 3 FLORIDA 73001261001 FLORIDA RIVER 0.1782 0.1782 0*0000 2 0 3 / 2 1 / 1 9 6 6 1 1 / 0 8 / 1 9 2 3 12/31/1883 RIC4a5Q.FLUHE.AND P L ^ 73000619001 ANIMAS RIVER 6*00 0 0 6 . 0 0 0 0 0.0000 2 03/21/1966 11/08/1923 0 4 / 1 6 / 1 8 9 6 OURANGO RESERVOIR NO 3 73003573001 FLORIDA RIVE» 42.5000 42.5000 0 . 0000 2 0 3 / 2 1 / 1 9 6 6 11/08/1923 06/08/1899 DURANGO RESERVOIR NO 4 73003574001 FLORIDA RIVER 4 4 0 . 0 0 0 0 440.0000 0.0000 2 0 3 / 2 1 / 1 9 6 6 11/08/1923 06/08/1899 — OURANGO RESERVOIR NO 2 7300157?001 FLORIDA RIVER 5 7 0 . 0 0 0 0 570.0000 0*0000 2 03/21/1966 1 1 / 0 8 / 1 9 2 3 0 6 / 0 8 / 1 8 9 9 \ DURANGO RESERVOIR NO 1 73003571*001 FLORIDA RIVER 2 2 2 0 . 0 0 0 0 22 2 0 . 0 0 0 0 Q.0000 2 03/21/1966 11/08/1923 0 6 / 0 8 / 1 8 9 9 ^ .LOTAtL PIPELINED 730005B9001 ANIMAS RIVER 0.5000 0.5000 0.0000 2 0 3 / 2 1 / 1 9 6 6 1 1 / 0 8 / 1 9 2 3 04 / 1 7/1901 E m m a WATER RIGHT AND PL 73000540001 ANIMAS RIVER 36 . 0 0 0 0 36 . 0 0 0 0 0.0000 2 03/21/1966 11/08/1923 07/01/1901 CASCAHF CANAL 73000523001 CASCADE CREEK 5 0 0 . 0 0 0 0 300.0000 200.0000 2 03/21/1966 11/08/1923 1 0 / 0 2/1902 POWER CANAL NO I 73000612001 ELBERT CREEK 500.0000 250*0000 2 5 0 . 0 0 0 0 2 0 3 / 2 1 / 1 9 6 6 1 1 / 0 8 / 1 9 2 3 10/02/1902 HIGHLAND MARY PIPELINE 73000570001 ANIMAS RIVER 15*5000 15.5000 0.0000 2 03 / 2 1 / 1 9 6 6 1 1 / 0 8 / 1 9 2 3 12 / 0 6/1902 WATER TANK NO 4 BONOAD 73001262001 ANIMAS RIVER 0* 1 7 8 2 0 . 1782 0.0000 2 03 / 2 1 / 1 9 6 6 1 1 / 0 8 / 1 9 2 3 12 / 3 1/1905 TERRY TUNNEL * MIOWAY Ptf73000646001 ANIMAS RIVER 20.0000 20.0000 0. 0000 2 03 / 2 1 / 1 9 6 6 11/08/1923 08/17/1909 I^PARSÖNS CREEK PIPELINE«* 73000608001 ANIMAS RIVER 4 . 2 0 0 0 4 . 2 0 0 0 0. 0000 2 0 3 / 2 1 / 1 9 6 6 11/08/1923 08/20/1914 GRAY ROCK DITCH 73000556001 CASCADE CREEK 6*0000 6.0000 0 . 0000 2 0 3 / 2 1 / 1 9 6 6 1 1 / 0 8/1923 08/07/1950 JAMES-C4RR SFPG 0 NO 2 73000577002 ANIMAS RIVER 2.0000 2.0000 0*0000 2 z 0 3 / 2 1 / 1 9 6 6 11/08/1923 06/10/1953 RARNES NO 2 DITCH 73001036001 FLORIDA RIVER 4.0000 3.6500 0.3500 2 0 3 / 2 1 / 1 9 6 6 11 / 0 8/1923 12/13/1955 ST JOHN DITCH 73004663001 ANIMAS RIVER 16.0000 16*0000 0.0000 2 03/21/1966 11 / 0 8/1923 0 9 / 1 6 / 1 9 5 6 MTNFRAL POINT DITCH 73004661001 ANIMAS RIVER 11*0000 11.0000 0.0000 2 0 3 / 2 1 / 1 9 6 6 11 / 0 8/1923 0 9 / 2 7 / 1 9 5 6 BROWNS SPRINKLE».SYSTEM 73001061001 LIGHTNFR CREEK 2*0000 2*0000 0*0000 2 05/03/1968 03/21/1966 06/30/1951

ISFER TO 5- TRANSFER FROM 6** ABANDONMENT 7-ALT POINT 8-COND TO ABSOLUTt

P A G E 1 1 Ì r \ D a v i s , G r a h a m 8 c S t u b b s

ATTORNEYS AT LAW

2600 COLORADO NATIONAL BUILDING S U IT E S O O 950 SEVENTEENTH STREET IOOI TWENTY-SECOND STREET, N.W, POST OFFICE BOX I8S WASHINGTON, O.C. 20037 TELEPHONE 202-822-8660 DENVER, COLORADO 80201 TELECOPIER 203-293-4794 TELEX 24*8260 OCSW TELEPHONE 303 892-9400 S U IT E 3 0 0 TELECOPIER 303-893-1379 DENVER CORPORATE CENTER, TOWER II TELEX 45 0239 OGS OVR 7800 EAST UNION AVENUE ZACH C. MILLER CABLE OAVGRAM, DENVER DENVER, COLORADO 60237 892-4-391 TELEPHONE 303-694-4464 TELECOPIER 303-771-6592 March 25, 1985 S U IT E 6 0 0 821 SEVENTEENTH STREET POST OFFICE BOX I 8 S HAND DELIVERY DENVER, COLORADO 80201 TELEPHONE 303-298-9664 Melinda Kassen, Esq. TELECOPIER 303-293-2918 Assistant Attorney General Natural Resources Section Office of the Attorney General 1525 Sherman Street Denver, Colorado 80203

Re; Standard MetaIs-Sunnyside Mine NOV

Dear Melinda

This letter is in response to your letter dated March 11, 1985, concerning the Ans^wer of Standard Meta 1 s Corporation to the January 23, 1985, Notice of Violation"("NOV") issued for the American Tunnel water treatment facility of the^ Sunny- side Mine. The first item mentioned in your letter is the status of the November 30, 1983, NOV referenced in paragraph 7 of the January 1985 NOV. As you may recall, that 1983 NOV relates to a June 23, 1983, incident in which Standard Metals made an emergency bypass to repair the eroded retaining walls of its Sunnyside Mine settling ponds during a period of extremely heavy rains and high runoff. That bypass resulted in a brief excess discharge. As a result of that incident, EPA demanded payment of a $25,000 suspended penalty agreed to by Standard Metals in a June 1982 Stipulation settling an earlier NOV for that facility. Standard Metals contested that penalty collec tion in a hearing before the EPA Regional Administrator (in which Division personnel participated) and later in Colorado federal district court, on the grounds that the discharge was an allowable and excusable bypass under the permit and proper notices had been given. Civ. Action No. 81-C-489. After Standard Metals petitioned for bankruptcy in April of 1984, the federal district court issued an order to the United States to show cause why that proceeding should not be considered stayed under the Bankruptcy Code. That case is still pending at this time. In addition to that EPA enforcement action, the Colorado Department of Health issued the above-referenced November 19 83 NOV. As you know, Standard Metals proceeded completely pro _se with respect to that NOV. By letter dated December 6, 1984, Standard Metals officer Greg Sparks submitted to the Water Quality Control Division a statement which was clearly intended to serve as Standard's answer to that NOV. In that letter, Mr. Sparks unequivocally and repeatedly stated that Standard Metals denied that the incident described in the NOV constituted a violation of the permit. He further stated that, despite Standard's denial of liability, he did not believe a hearing was "necessary," since Standard had already taken measures to deal with the problem.

I understand that the Division's current policy is that, unless a respondent submits a paragraph-by-paragraph response and also actually participates in a hearing, all allegations made in a NOV will be taken as admitted. In this type of situation, that unwritten policy is both unfair and unauthorized. At the very least, the Division should notify private parties proceeding pro se of that...harsh policy where such parties have obviously {intended to deny all liability under a NOV. - .S ^ — V-c^'■ - That is precisely t h ' e situation in this case. Standard Metals clearly intended to deny any liability under the NOV and was never notified as to any deficiency in its answer. Based on the lack of response to its answer, Standard Metals has assumed that the Division has concurred that no useful purpose would be served by undertaking a hearing in that matter, since the problem underlying that NOV has long since been remedied. Under the circumstances, that assumption waS' well justified.

Accordingly, in response to your inquiry, the above federal district court action and the referenced unrefuted answer of Standard Metals denying all liability are the bases for Standard's assertion that no "findings" of permit violations have been made with respect to the November 30, 1983 NOV.

The second item mentioned in your March 11th letter has to do with the factual findings and affirmative defenses relating to the January 23, 198 5 NOV. In response to Standard's statement in its Answer that it cannot attest to the accuracy and validity of the reported sample results, you state that the basis for such statement is that Standard does "not know whether your own lab does accurate reporting." I note in this regard that paragraph 2 of Standard's Answer indicates that the sample testing and analyses had been performed by an independent laboratory, not Standard's "own lab." Due to a malfunction of Standard Metals' atomic absorption device, Standard contracted some of its sample testing to an independent laboratory in Grand Junction. The remainder of the testing was performed at a private lab in Silverton. Since the time Standard Metals filed its Answer on February 21, 1985, we have been informed that the Silverton lab did not actually perform the analyses but rather simply made their facilities available for use by Standard Metals personnel. We apologize for our original, misinformed statement that all analyses were performed by independent laboratories. It appears, in fact, that some of the sample results noted in the NOV were a result of analyses done by the independent lab in Grand Junction and some were the result of testing by Standard Metals personnel using the private Silverton lab facilities. We have not yet determined which specific results are attributable to each laboratory and will later attempt to do so if necessary. —t* Standard's failure to give "written"1not ic e to the .. Division of the upsets and bypas-se£-.which resulted in the reported discharges was als'cr_ attributable in'part to the delay between the time effluent samples were taken and the time they could be finally analyzed, due again to the general unavail ability of convenient, nearby laboratory facilities. It was the understanding of Standard Metals personnel that the notice provisions of the permit require written notice within five days from occurrence of an excess discharge to invoke the permit exceptions and, since the sample results were generally obtained more than five days after the subject discharges occurred, it was felt that the notice deadlines had already expired. Accordingly, no written notices were sent prior to the routine submittal of monthly reports. In fact, however, that five-day notice deadline begins to run from "the time the permitee becomes aware of the circumstances." But for that misunderstanding, written notices of the subject upsets and bypasses would have been transmitted.

In addition, with respect to the discharges which occurred on July 9, 1984, Division personnel were present at the Sunnyside facility and thus had direct oral notice of the unanticipated bypass which occurred on that day. That bypass was a result of emergency sludge pumping which was undertaken to relieve the berm pressure and prevent later possible excess discharges caused by lack of retention time and space in the Sunnyside settling ponds. Those ponds had not been pumped at an earlier date due to weather, equipment failure, contractor unavailability and other logistical problems. Under the existing circumstances, there were no feasible alternatives to that bypass action. The four daily violations alleged for July 9th and the four monthly violations alleged for the month of July 1984 were all attributable to that bypass and should thus be considered excusable.

Similarly, the reported monthly averages for April, May and June 1984, which only slightly exceeded permit limits, were primarily attributable to minor upsets caused by a combina tion of heavy rains and snow-melt. Although those upsets did not result in discharges exceeding daily permit limits, they had the effect of causing the monthly permit averages to be slightly exceeded, assuming the reported results are accurate. Since those minor, weather-related upsets were temporary, unintentional and beyond Standard Metals1 reasonable control, those alleged monthly violations should also be excusable under the permit. X ...... The alleged dail^vioteteions for July 2, 1984 ,,and. the alleged monthly violations .for August ancT September 1984 were also due to temporary ups'ets beyond Standard's reasonable control. Standard Metals personnel are now attempting to gather more specific information concerning the precise causes of those upsets.

At this point I am sure that you are well aware, Melinda, of the financial difficulties and personnel turnovers experienced by Standard Metals over the period of the last year. Those personnel changes in particular have made it difficult to reconstruct the precise details of many of the events at issue in the subject NOV. In addition, because of the reduction in staff, Standard's environmental engineer and related staff members have been extremely busy keeping Standard' water treatment and other environmental facilities and opera tions functioning properly. For those and other reasons, including Standard's desire to make a meaningful contribution to the improvement of its water treatment system from its limited funds, Standard Metals here repeats its strong desire to avoid the major inconvenience, expense and time loss result ing from a formal hearing and to resolve this matter instead by negotiation and settlement with the Division. It is Standard's hope that the Division would be willing to consider some proposed improvements in Standard's American Tunnel water treatment facilities or operations as an alternative to proceed ing with this enforcement action, as is now being done for the outstanding NOV issued for Standard's Mayflower Mill treatment facilities.

As a practical matter, at this point in time, assess ment of a monetary penalty against Standard Metals would not serve as an effective means of assuring permit compliance. Assuming such a penalty could be collected, it would only de tract from the limited funds which could otherwise be directed towards properly operating and upgrading Standard's water treat ment facilities. In addition, collection of any such penalty in Standard’s bankruptcy proceeding would be problematic at best. The existence of that penalty assessment would serve as an extremely negative influence, however, in Standard's on going negotiations to seek an influx of capital from third parties. Conversely, even if Standard were to prevail on the defenses raised in its Answer to the NOV, the time and expense of participating and defending itself in a formal hearing would, in itself, cause a major expenditure of f^ndswhich couldJ3e_ _ much better spent on improving Standard's water treatment facilities or operations. ,.:-7 — - c “-t = ___

We hope that you arict members of the Division will seriously consider this request, so the limited resouces of both the Division and Standard Metals may be expended in a way that will make some meaningful contribution to improving water quality. We look forward to hearing from you.

Very truly yours,

■Zach C. Miller for DAVIS, GRAHAM & STUBBS Attorneys for Standard Metals Corporation ZCM/gjv cc: Gregory J. Hobbs, Jr., Esq. Greg Sparks DEPARTMENT OF NATURAL RESOURCES David H. Qetches, Executive Director MINED LAND RECLAMATION DIVISION DAVID C. SHELTON, Director

Richard D. Lam m Governor NOTICE OF INSPECTION ANO INSPECTION REPORT

DATE OF INSPECTION: July 10, 1985

OPERATOR CONTACT: Mr. Douglas Murray

NAME OF OPERATOR: Standard Metals Corporation

ADDRESS: P.O. Box 247 Si 1 verton, Col orado 81433

FILE NO.: 77-378

MINE: Sunnyside

COUNTY: San Juan

ACRES PERMITTED: 140 r ------—

INSPECTOR(S): Camilîe Farréïl and Ph'iìip C* Saletta

(Please note the Instructions indicated by an X below)

_____ No problems noted at time of inspection. As a reminder/be sure to file your Annual Report or Notice of Intent to Continue by the Permit Anniversary D&te.

_____ Possible problem(s) - Note recommendation(s) below to avoid further complications or possible violation(s) at the time of the next inspection.

_____ Possible violation(s) - Complete recommendatlon(s) below and reply to the Division by ______to defer consideration by the Mined Land Reclamation Board.

Possible violatlon(s) require MLR Board cohsideratlon on date specified under separate cover.

(Continued on page 2) OBSERVATIONS OF IMPORTANCE:

1«. The inspectors were accompanied by Mr. Doug Murray during the inspection. Prior to the field inspection mine activities and annual report maps were reviewed. It was discussed that at the present time, Mr. Murray is in charge of the mine, he was the only staff member retained along with 9 mine guards after a recent lay-off.

American Tunnel Portal Area

2. This site was inspected. This site consists of the tunnel and associated facilities, a water treatment facility with four ponds, a ta ilin g s and pond-sludge disposal area and a waste rock dump.

3. This site is located at the confluence of the North Fork and the South Fork of Cement Creek. It is evident that water quality in these creeks above and below the site 1s poor. In general, drainage control at this site is poor. Upland diversion of undisturbed runoff is inadequate. It was discussed that use of the;iex1st1ngHsoatfsnTray~fre used fo r controlling drainage i f properly graded.-¿See_&ecommendation No. 1. ^ , -. ■ 4. The water treatment facility was not 1n operation at the time of this inspection. Untreated mine waters were being routed through the ponds and then discharged into the North Fork of Cement Creek. Mr. Murray stated that the Colorado Department of Health was aware of th is situation. The four water treatment ponds are constructed adjacent to the North Fork of Cement Creek. Pond embankment/stream channel bank stability was discussed. It was discussed that rlprapping and reinforcing the pond embankments on the stream channel side may be needed to increase stability.

5. Sludge from these ponds was o rig in a lly disposed of 1n an old ta ilin g s disposal pond. This s ite was approved in the permitted plan and appears that with adequate maintenance could be a good location fo r disposal. The sludge is rich in iron, and would be considered acid and toxic forming. This sludge has also been disposed 1n an unapproved area adjacent to the Animas River, this location will be discussed later in this report. No samples of the sludge were taken by the Mined Land Reclamation Division. See Recommendation No. 2.

6. The waste rock dump has been constructed with little engineering concern. It is apparently constructed in a swampy area with no rock drains. In addition, i t appears as though some sludge material has been disposed at the base of the waste rock dump. This 1s not approved. The largest problem with th is dump is the Improper and Inadequate disposal of mine trash. Numerous unmarked barrels, old mine equipment, large volumes of trash, e tc ., are Incorporated randomly Into the p ile with no concern for geotechnical stability. This disposal of mine trash is not addressed in the permit. See Recommendation No. 3.

Mill site and Tailings Disposal Area

7. When the mill site area was inspected, the mill was not in operation. There was no discharge from the mill to the tailings ponds. It was noted that a small borrow area above the m ill building was excavated fo r f i l l material fo r the Colorado Division of Highways. State Highway 110 had been washed out approximately one-quarter m ile southwest of the m ill, adjacent to the ta ilin g s area. I t was discussed that Standard Metals is responsible for the reclamation of this borrow pit. It should be noted that ta ilin g s have been used as road embankment and backfill m aterial.

8. Much trash has been disposed dn th is sTEeT^^SSme^of the trash has" beerr from the town of Sllverton, in fact^the town of Silverton was permitted at one time to dispose trash'-at'th4s site. It was- discussed that the town trash is no longer disposed at the mill site. However, mine related refuse is being disposed on the inactive Tailings No. 1 pile. I t appears that th is refuse p ile was constructed with some engineering concern.

9. The tailings ponds were inspected. Numerous test plots on the outslopes of Tailings Pond No. 2 have successful revegetation. These plots have been irrigated. The plots on the top of this pile were not as successful.

10. Tailing ponds No. 3 and No. 4 (active areas) both have undiverted spring inflow. Tailings Pond No. 3 had approximately 30 gpm inflow and standing water on top of the pile. Tailings Pond No. 4 had approximately 20 gpm Inflow and approximately 10 feet of standing water. It was discussed that these springs could be diverted to minimize effects to water quality. Tailings have been cycloned for p a rtic le separation (+200 and -200). See Recommendation No. 4. 11. As previously mentioned, mine water treatment pond sludge has been disposed in the settling pond near the Engineering office. This pond is not permitted for disposal of this sludge. The pond is located in the flood plain of the Animas River. In addition, it is unclear if this pond is adequately lined or sealed to protect alluvial groundwater. This sludge disposal site is not permitted in the Mined Land Reclamation Division Permit. There is concern fo r high water possible washing out th is area. This was discussed in the f ie ld . See Recommendation No. 5.

Terry Tunnel/Lake Emma Site

12. This site was discussed and no field inspection was made. The site was inaccessible because of unmelted snow on the access road* Mr* Murray stated th at i t should be accessible in early August* Mr. Murray stated that he believed that the Terry Tunnel site had been previously permitted* He also stated that underground mining in this area dewatered Lake Emma after a major cave-1n occurred 1n stopes mined below and close'to the Lake Bottom. This lake area which is apparently now a glory-hole has not been addressed 1n terms of reclamation or mining in the permit document. I t was cMscussed- llral- a "inirring and r e c l a m a t i o n - plan should be submitted fo r,th is area* I t was discussed that th is may be considered off-s1te damagerjito aceas outside of ¿he-permitted affected lands. The Division will atteiiip.t-to inspect this site during late August. See Recommendation No. 5.

13. The Division appreciates the operator's cooperation during this inspection.

RECOMMENDATIONS:

1. Investigate the fe a s ib ility and submit an adequate surface drainage control plan for the American Tunnel s ite . This should be submitted prior to August 16, 1985.

2. Take sample of the mine water treatment pond sludge and analyze for a complete suite of trace metals, sulfate, chloride or other possibly toxic elements or compounds which may be in the sludge. Samples should be sent to an EPA certified laboratory. Analyses from samples previously taken could be submitted. Submit this data prior to August 16 1985. £------3. Submit an adequate plan (technical revision) fo r the disposal o f mine and m ill refuse and trash p rio r to September 1, 1985. This plan should p a rtic u la rly address the existing refuse in the"American Tunnel Waste Rock Dump.

4. Submit a plan to divert spring water away from Tailings Ponds No. 3 and No. 4.

5. Immediately discontinue disposal of sludge in the Engineering office settling pond along the Animas River. Construct a protection berm upstream of and around th is pond to assure that th is pond w ill not be washed out during high water. Construct th is berm/pond embankment prior to August 16» 1985. Submit a plan fo r adequate disposal of the pond sludge prior to August 16, 1985.

6. Submit an amendment application to address any fu rther mining and reclamation at the Terry Tunnel/Lake Emma site prior to August 16, 1985.

7. Please be advised that the Division will be presenting information to the Colorado Mined Land Reclamation Bolira^tPikt^tfF&re is reason to ' believe violations exist on this sit$*_-._The Division will present this information to the Board on 'August-20-21, 1985, not at the July 24-25, 1985 meeting as originally discussed. The Division encourages Standard Metals to respond to the above concerns and requested and recommended compliance dates. Your cooperation 1n this matter is appreciated.

cc: Mr. Ed Bishchoff

CMF/mis 2096F STANDARD METALS CORPORATION P.O. Box 247 Silverton, Colorado 81433 (303) 387-5533

August 5, 1985

Mr. Philip C. Saletta Mined Land Reclamation Division 423 Centennial Building 1313 Sherman Street Denver, Colorado 80203

Re: Response to Recommendations of July 10, 1985, Site Inspection

Dear Mr. Saletta:

Due to Standard Metals Corporation's fifteen month bankruptcy situa tion and the furloughing of all other engineering staff members other than myself, it will not be possible to adequately address the recom- - mendations in your July 10, 1385, Inspection Report. I will comment on the recommendations of th%?Inspaction Report and submit copies of my comments and recommendations .to:

Mr. Greg Sparks, Vice President, Standard Metals Corporation Mr. Raymond E. Grant, Vice President, Fulcrum Management, Inc. (Prospective merger client) Any other party that may receive control of Standard Metals Corporation pending the September 4, 1985, bankruptcy court hearing.

Assuming that the September 4, 1985 bankruptcy court hearing instates a viable operator of the Silverton facilities, with a complete en gineering staff, I cannot foresee any further delays with an expedient and adequate technical investigation, together with remedial actions to fulfill the recommendations of your July 10, 1985, Inspection Report.

Sincerely,

STANDARD METALS CORPORATION

Douglas S. Murray Environmental Engineer

DSM:mb

Enel RESP0NSE TO JULY 10, 1985 SITE INSPECTION REPORT FROM MINED LAND RECLAMATION DIVISION

Adequate funding must become appropriated by the operator so as to in vestigate the feasibility and institute a surface drainage control system for the American Tunnel site. The surface drainage control system should consist of bar ditching, culvert piping, rip-rapping and (French) drains. Alleviation of surface drainage is critical at the following American Tunnel locationss

A. Above and below the mine refuse (garbage) dump. B. Above and adjacent to the mine water treatment settling ponds. C. Above' and adjacent to the ore stockpile area, storage yards and mine dry room/warehouse yards. D. All roadways at the American Tunnel site.

Adequate funding must become available so as to sample mine water treat ment pond sludges from the American Tunnel and Terry Tunnel pond sites. Each site should be composite sampled!., and the samples should be analyzed for the full complement of heavy metals, sulfates, chlorides and other potentially toxic elements.. These samples may be sent to the EPA certified Grand Junction Laboratories.

Adequate funding must become available, so as to institute the cleaning and future disposal of mine and tnilj refuse 'dumps at the. American Tunnel, Terry Tunnel and Mayflower Mill (tailings"pond No. 1) sites.

AMERICAN TUNNEL The American Tunnel refuse dump approximately consists of:

Wood - spent timbers, pallets, etc. 50% Metal - rail, pipe, cable,miscellaneous 30% Oil drums 5% Miscellaneous - paper, cans, bags, spent clothing, boCts, gloves 10% Other 5%

The first phase of the American Tunnel refuse program would consist of:

A. The cleanup and containment of all materials that have migrated from the dump proper. B. The existing dump proper should then be covered to an adequate depth with barrow material. C. The posting of "NO PUBLIC DUMPING” signs. D. Revegetation of the covered slopes and toe of the dump area. E. The construction and maintenance of the surface drainage control system. The second phase of the American Tunnel refuse program should consist of:

A, The institution of a refuse segregation plan that would separate wood, metal and other materials. B- The excavation of a suitable pit for the containment, compaction and burial of wood and paper waste. C. The stockpiling of all metal materials for sale as scrap, re-use or burial. D. All other material should be compacted and contained for shipment to the mill refuse site.

MAYFLOWER MILL The Mayflower Mill refuse dump approximately consists of the following materials:

Spent tires 20% Wood - timbers, pallets, etc. 15% Metal - beams, pipe, miscellaneous 10% Oil drums 8% Reagent containers 10% Other - paper, glass, cans, plastic 37%

The first phase of the Mayflower Mill refuse program would consist of:

A.. The cleanup and containment^ of materials that have migrated from the dump proper. ' ' B. The existing refuse should be compacted and buried to an adequate depth with barrow material from the adjacent hillside. C. Surface drainage control by bar ditching should be implemented above and adjacent to the refuse site.

The second phase of the Mayflower Mill refuse program should consist of:

A. The posting of a "NO PUBLIC DUMPING" sign. B. The segregation of metal materials vs. all other materials. Note: metal may be sold and/or used. C. The construction of wind fencing so as to alleviate the migration of materials. D. The excavation of a suitable pit for the containment, compaction and burial of all materials. E. The construction of a reagent container decontamination station within the mill proper. F. Maintenance of all site components of the Mayflower Mill refuse program.

TERRY TUNNEL The Terry Tunnel refuse approximately consists of the following:

Wood - spent timber 60% Metal - rail, pipe, etc. 40% The first phase of the Terry Tunnel refuse program would consist of the following:

A. The cleanup and containment of all materials that have migrated from the site. B. The wood and metal materials could be buried on site and/or trans ported to the mill refuse site for disposal.

The second phase of the Terry Tunnel refuse program should consist of the transportation of all materials to the mill refuse site for disposal.

4. Adequate funding must be appropriated by the operator so as to investigate the feasibility, institute and maintain surface drainage control systems for the No. 3 and No. 4 tailings pond sites. Surface drainage control diversions should primarily consist of the maintenance of old ditches and the excavation of new bar ditches above and adjacent to the ponds.

Alleviation of surface drainage is critical and interactive with operations at the following locations:.

A. Above and below active tailings pond No. 4, potential site for mine water treatment sludge disposal. B. Above and adjacent to inactive tailings pond No. 3, potential sludge disposal. ,jT -

5. As of this time Standard MetalSTv Corporation has discontinued disposal of mine water sludge in the engine“ering“~affice settling’pond along the Animas River. *■

Upon adequate funding, the excavation of a protection berm, pond capping and revegetation should be adequate for the disposal of the existing mine water sludge at this inactive tailings pond site.

6. Due to Standard Metals Corporation bankruptcy situation and the subsequent furloughing of all other technical engineering staff members, I respect fully regret that I cannot reasonably or responsibly formulate an adequate Amendment Application to address further mining and reclamation at the Terry Tunnel/Lake Emma sites prior to August 16, 1985.

R U L E 8. INSPECTIONS, MONITORING, ENFORCEMENT

121 8.1 Inspección and Monitoring

8.11 (1) Entry upon lands for Inspección: the Board, the Division of Mines of the State of Colorado, the chief Inspector of coal mines» or their authorized representatives may enter upon the lands of the operator at all reasonable times for the purpose of Inspection to determine whether the provisions of this article have been complied with. (2) Persons authorized under this article to conduct inspections shall, prior to entry onto any lands, notify the operator of their intent to enter and Inspectors shall comply with all federal, state, local and company safety rules.

8.12 Any state official or employee associated with the Mined Land Reclamation Division shall promptly report to the Board any possible violation of a permit, law or these Rules of which he has knowledge, whether obtained from personal inspection or from written reports on mining operations.

8.13 Upon receipt of notice of possible violation(s) the Board shall determine whether the operator should be cited or further Investigation is required.

6.14 All Inspections shall include a written report, which:

(1) Describes every possible vldlation of the permit, law, or these Rules; (2) Is personally signed by the inspector; and (3) Within ten (10) days is mailed to or filed at: (a) The Mined Land Reclamation Division; and (b) The mine office, or other suitable location designated by the operator.

8.15 A report of how and when a violation is resolved and a report of any subsequent inspection to verify compliance shall be filed as required In Section 8.13.

8.16 All operations applying for a regular permit, conversion, or amendment thereto shall be inspected after the application 1s filed and prior to Board consideration. Other applicants shall be so Inspected as tine and staff resources permit.

8.17 Mining operations shall be inspected a sufficient number of times each year to Insure compliance with the permit, law, and these Rules.

The frequency of inspection shall be determined by the extent of the operation, rate of mining, degree of actual or potential environmental Impact, and the operator's past record of com pliance. 113(8) 8.18 The Board, or its authorized representative, is authorized to inspect any ongoing prospecting opera tion or any prospecting operation prior to the request for release of performance and financial warranties, in order to determine compliance with these Rules and Regulations. 8.21 Operating without a Permit - Penalty

(1) Whenever an operator or prospector fails to obtain a valid permit or file a Notice of Intent under the pro visions of this article, the Board may issue an immediate Cease and Desist Order. Concurrently with the issuance of such an order, the Board may seek a restraining order or injunction. (2) Any operator who operates without a permit or a prospector who prospects without filing a Notice of Intent shall be subject to a civil penalty of not l c s 3 than one hundred dollars per day nor more than one thousand dollar^ per day during which such violation occurs; except that any operator eligible for a permit under Rule 3 shall be subject to a civil penalty of not less than fifty dollars nor more than two hundred dollars per day during which such violation occurs.

8.22 Operating with a Permit - Failure to Comply.

(1) When the Board has reason to believe that a violation of any order, permit, notice of intent,.law or Rule has occurred: (a) The Board shall give written notice to the operator or prospector of the possible violation. Such notice shall be served personally or by certified mail, return receipt requested, upon the possible violator or his agent for service of process. The notice shall state the provision alleged to be violated and the facts alleged to constitute the violation and may include the nature of any corrective action proposed to be required. The Board shall hold a hearing on whether or not there is a violation; (b) The Board may order the modification, suspension or revocation of the permit. (If the Board suspends or revokes the permit of an operator, the operator may continue mining operations only for the purpose of bringing the mining operations into satisfactory compliance with the provisions of the operator's permit and all applicable safety regulations. Once such operations are completed to the satisfaction of the Board, the Board shall reinstate the permit of the operator); (c) The Board may issue a Cease and Desist Order. (i) In the event the operator fails to comply with the Cease and Desist Order, the Board may request the Attorney General to bring suit for injunctive relief; (ii) The Board may require the alleged violator to appear before the Board no sooner than twenty * (20) days after the issuance of such Cease and Desist Order, except that an earlier date for hearing may be requested by the alleged violator © 1979, T H ! PUBLIC RECORD CORPORATION A l l r ig h t s r e s e r v e d JCR9, 9*79 Page 43

124(2) (2) Notice of such orders shall: (a) contain the provisions alleged to be vioLated; (b) contain the facts alleged to constitute the violation; (c) set forth the time by which the alleqed violation, acts or prartl~es must be terminated; (d) contain, at the Board's dircretlon, proposed corrective action; (e) be served upon the operator or his ¿«gent for service, personally or by certified mail ’•eturn receipt requested. 12 4(7) (3) Any pe.-son who violates any provision of any permit issued under this article shall be subject to a civil penalty of not less than one h.indred dollars per day nor more than one thousand dollars per day for each day during which such violation occurs; except that any operator who operates under a remit issued under Rule 3 shall be subject to a civil penalty of not less than fifty dolLars nor more than two hundred dollars per day.

124(3) 8.23 Injunctive Relief

(1) In the event any operator fails to comply with a Cease and Desist Order, the Board may request the Attorney Ceneral to bring suit for a temporary restraining order, a preliminary injunction, or a permanent injunction to present any further or continued violation of such crier. (2) If the Board determines that the situation is an emergency, the emergency shall be given precedence over all other matters pending in such court.

8.24 If a hearing is held pursuant to the provisions of this section, it shall be open to the public and conducted in accordance with the provisions of the "State Administrative Procedure Act", Article 4 of Title 2i, C.R.S. 1973. The Soard shall permit ail parties to respond to the notice served, to present evidence and arguments on all issues, and to conduct cross-examination required for a cull disclosure of the facts.

8.3 Surety Forfeiture

The Attorney Ceneral, upon request uf :he Soard, shall institute pro ceedings to have the surety of the operator forfeited for violation by the operator of an order entered pursuant to Section 3.2. Before making such rpiiuest of the Attorney Gfencral, the Soard shall r . o t i : ” the operator in writing of the alleged violation of or noncompliar.ee with such order and shall afford the operator the right to appear before the Board at a hearing to be held not lesn than thirty days after the receipt of such notice by the operator. At the hearing the operator may present tot- “he consideration of the Board state ments, documents, and other information with respcct to the alleged violaticn. After rh»4 conclusion of the hearings, the Board shall either withdraw the notice of violation or shall request the Attorney General to institute proceedings to ’*.ave the surety of the operator forfeited as to the land involved.

'I >*N < i-. ^ r \ '< iz £ s ‘ J WELBORN, DUFFORD, BROWN 8 TOOLEY ROBERT F. WELBORN ATTORNEYS AT LAW RANDALL J. FEUERSTEIN PHILIP G. DUFFORD 1700 BROADWAY S. KIRK INGEBRETSEN THOMAS O.BROWN DIANE L.BURKHARDT DALE TOOLEY (1933*1985) DENVER,COLORADO 60290-1199 STEPHEN J. SULLIVAN DAVID W. FURGASON JOHN M. SPILLANE WILLIAM C.ROBB (303) 861-8013 ELLEN TOLL JOHN F. WELBORN DOUGLAS P. RUEGSEGGER WILLIAM A.McLAIN EDWARD D. WHITE BEVERLY J. QUAIL PEGGY J. ANDERSON RICHARD L.FANYO KATHRYN L.POWERS JOHN F, MECK THEODORE B. AT LASS COUNSEL PHILLIP D. BARBER GREGORY A.RUEGSEGGER November 19, 1985

HAND DELIVERED

Zach C. Miller, Esq. Davis, Graham & Stubbs 370 17th Street Suite 4700 Denver, Colorado 80202 Re: Sunnyside Mine—Permit Transfers

Dear Zach: Enclosed are the originals of the four documents which need execution by Standard Metals before they can be filed with the Water Quality Control Division and the Mined Land Reclamation Division.

If you could have the transfer documents executed on behalf of Standard Metals Corporation, including notarization on the Mined Land Reclamation Division document, I would appreciate it.

Please give me a call when they are signed so that I can hand deliver them to the agencies for expeditious transfer of responsibility. As we discussed, if the Water Quality Control Division insists upon a further waiting period before the effective date of transfer, I will advise you so that any necessary arrangements can be considered.

Yours very truly,

WELBORN, DUFFORD, BROWN & TOOLEY

M William C. Robb

WCR/jjb Encl. DEPARTMENT OF NATURAL RESOURCES David H. Getches, Executive Director MINED LAND RECLAMATION Dl\ DAVID C. SHELTON, Director

, Lamm

IRREVOCABLE LETTER OF CREDIT

The Bank of LETTER OF CREDIT NUMBER:

P.O. Box , Colorado

Amount U.S. $

Beneficiary: Appiicant:

STATE OF COLORADO MINED LAND RECLAMATION BOARD 423 CENTENNIAL BUILDING 1313 SHERMAN STREET DENVER, COLORADO 80203

Date of Issue: In itia l Expiration Date:

Gentlemen:

We hereby issue and establish our irrevocable le tte r of credit, the amount of which is available by beneficiary's draft or drafts drawn upon us, which shall be paid at sight, when accompanied by the following document:

A written statement of the Director ("the Director") of the Mined Land Reclamation Division of the State of Colorado ("the Division") certifying that he is a duly authorized official acting on behalf of the State of Colorado and that the amount of the accompanying sight draft is due and payable to the State of Colorado pursuant to applicable provisions of Colorado statutes governing mined land reclamation and that ______Company or its successor has neglected, fa ile d , or refused to pay such amount although requested to do so by the Director. Each sight draft so drawn and presented shall be honored by us if presented prior to the close of ousiness on the expiration date of this letter of credit. This credit refers to ______company's application for a permit to engage in mining and reclamation activities within the State of Colorado.

It is an express condition of this letter of credit that it shall be automatically extended for successive additional periods of one year each, from the in itia l and each future expiration date unless the ______Bank o f ______("the Bank") shall notify the Director at least 60 days prior to an expiration date in writing by registered mail, at the above address, that the Bank elects not to extend the credit for such additional period. In such event, in addition to his power to draw hereon under the preceding paragraphs, the Director may draw the fu ll or any lesser amount hereof at any time prior to such expiration date by sight draft, or drafts, accompanied by the written statement of the Director certifying that the amount drawn w ill oe held as a cash deposit in lieu of financial warranty, as provided in applicaole Colorado statutes governing mined land and reclamation.

Tne original signed le tte r of credit w ill be presented to the Bank by the beneficiary along with any draft presented pursuant to this le tte r of credit, and w ill be surrendered to the Bank with any draft which draws the fu ll amount, or the balance remaining availaole, under this le tte r of credit.

If any expiration date specified herein shall fall upon a day other than a regular business day of the Bank, the expiration date shall ipso facto oe extended to the close of business on the next successive business day of the Bank.

The Bank of

B y______Authorized signature

(Rev. 2/83) ATTORNEYS AT LAW

W AS H INGTON D.C. OFFICE SUITE 4700 COLORADO NATIONAL BUILDING OFFICE 370 SEVENTEENTH STREET S U IT E 5 0 0 SUITS 2400 IOOI TWENTY-SECOND STREET, N.W. POST OFFICE BOX 185 950 SEVENTEENTH STREET WASHINGTON, O.C. 20037-1803 DENVER. COLORADO 60201-0135 POST OFFICE BOX ISS TELEPHONE 202-822-8660 DENVER, COLORADO 80201-0185 TELEPHONE 303-595-4949 TELEPHONE 303-892-9400

TELECOPIER 303-893-1379 SOUTHEAST DENVER OFFICE TELEX 240451 DGS DVR CABLE DAVGRAM, DENVER S U IT E 3 0 0 7800 EAST UNtON AVENUE ZACH C. MILLER DENVER, COLORADO 80237-2753 892-7391 TELEPHONE 303-694-4464

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ö , . u Echo Bay Inc. 3300 Manulife Place 10180-101 Street Edmonton, Alberta, Canada T5J3S4

November 19, 1985

Standard Metals Corporation 645 Fifth Avenue New York, NY 10022

Re: Transfer of Water Discharge Permits Sunnyside Mine San Juan County, Colorado

Gentlemen:

In connection with the sale of Sunnyside Mine and related assets by Standard Metals Corporation ("Standard Metals") to Sunnyside Gold Corporation ("Sunnyside"), a wholly owned subsidiary of Echo Bay Inc. ("Echo Bay"), on November 19, 1985, Standard Metals requested the transfer to Sunnyside of Water Quality Discharge Permit Nos. CO-0027529 (American Tunnel), C0-0000426 (Mayflower Mill), and CO-0036056 (Terry Tunnel) issued by the State of Colorado jthev"Permits"),

5 C.C.R. 1002-2-6.9.6 of the^regulations of the Colorado Water Quality Control BivlalGh J (l;ht!'- ""D±vxsioiiJI->— require that 30 days' notice be given before a permit transfer may become effective. Accordingly, unless the requested transfer is specifically made effective on an expedited basis, by Lha— D i v i r ri o » ^ Standard Metals twill remain the permitee of record and will remain responsible for permit compliance and liable for permit violations until December 19, 1985.

In order to allow Sunnyside immediately to commence operations at the Sunnyside Mine and related facilities, in consideration for the right to assume Standard Metals1 rights under the Permits, Echo Bay hereby agrees to indemnify and hold harmless Standard Metals for any and all penalties, orders and other responsibilities, duties or liabilities stemming from or related to the Permits which are attributable to conditions, events or omissions occurring within the period from November 19, 1985 until December 19, 1985, or until such other time as the transfer of the Permits officially becomes effective.

ECHO BAY INC.

By: __ Title: Approved this 19th day of November, 1985, by STANDARD METALS CORPORATION

By WELBORN, DUFFORD, BROWN 8 TOOLEY ROBERT F. WELBORN ATTORNEYS AT LAW RANDALL J. FEUERSTEIN PHILIP G. DUFFORD 1700 BROADWAY S. KIRK INGEBRETSEN THOMAS G. BROWN DIANE L.BURKHARDT DALE TOOIEY (1933-1985) DENVER,COLORADO 60290-1199 STEPHEN J. SULLIVAN DAVID W. FURGASON JOHN M. SPILLANE WILLIAM C. ROBB (303) 861-8013 ELLEN TOLL JOHN F. WELBORN DOUGLAS P, RUEGSEGGER WILLIAM A.MCLAIN EDWARD D. WHITE BEVERLY J. QUAIL PEGGY J, ANDERSON RICHARD L.FANYO KATHRYN L. POWERS J O H N F, M E C K THEODORE B.ATLASS COUNSEL PHILLIP D. BARBER GREGORY A.RUEGSEGGER

November 15, 1985

HAND DELIVERED

Zach C. Miller, Esq. Davis, Graham & Stubbs 370 17th Street Suite 4700 Denver, Colorado 8020 2

Res Sunnyside Mine Dear Zach:

Enclosed for your review are copies of the transfer requests for water quality permits and for the Mined Land Reclamation permit. I have already had these signed by John Azlant, but they will need signatures by an appropriate official for Standard Metals.

The performance warranty and financial warranty for Sunnyside Gold is being completed in Edmonton and will be here on Monday evening. They must be appended to the Mined Lana Application before it is filed.

We have been advised that the Mined Land Reclamation Board will meet on November 25 and that this can be presented to them for approval at that time if it is submitted to the staff before the 20th. Unless you consider it necessary, we would not feel that this needs to be a subject of the closing on Tuesday, but could be executed by Standard Metals and filed as soon as possible.

I am sorry I was unable to get through to you by phone on Wednesday or today, and would hope that you could review these as soon as possible.

Best regards,

/M William C. Robb

WCR/jjb Sunnyside Gold Corporation 3300 Manulife Place 10180-101 Street Edmonton, Alberta* Canada T5J3S4

November 13, 1985

Mr. Gary G. Broetzman Director, Water Quality Control Division Colorado Department of Health 4210 East 11th Avenue Denver, Colorado 80220 Re: CPDES Permit No. C0-0027529 American Tunnel Standard Metals Corporation

Dear Mr. Broetzman: Pursuant to paragraph 6.9.6 of the Regulations for the Colorado Discharge Permit System, notice is hereby given that the water quality permit No. CO-0027529 for the American Tunnel, which is a part of the Sunnyside Mine, will be transferred to Sunnyside Gold Corporation, a Delaware corporation and a wholly-owned subsidiary of Echo Bay, Inc., upon the purchase of all of the Sunnyside Mine assets from Standard Metals Corporation. The anticipated date of closing for the purchase of assets is November 19, 198b. By their signatures on this notice, Standard Metals Corporation and Sunnyside Gold Corporation hereby agree that from and after the date of closing of the purchase of assets, Sunnyside Gold Corporation will have responsibility, coverage and liability for meeting the obligations of the permit. Because of our prior meeting and conversations with your staff regarding this proposed purchase of assets, and because the purchase has now been approved by the United States Bankruptcy Court in the reorganization proceedings of Standard Metals Corporation, we would request that the transfer be accomplished on an'expedited basis. The cooperation of you and your staff in this is very much appreciated* STANDARD METALS CORPORATION

Date: SUNNYSIDE GOLD CORPORATION Sunnyside Gold Corporation 3300 Manulife Place 10180-101 Street Edmonton, Alberta, Canada T5J3S4

November 13, 1985 —

Mr. Gary G. Broetzman Director, Water Quality Control Division Colorado Department of Health 4210 East 11th Avenue Denver, Colorado 80220 Re: CPDES Permit No. C0-0000426 Mayflower Mill Standard Metals Corporation

Dear Mr. Broetzman: Pursuant to paragraph 6.9.6 of the Regulations for the Colorado Discharge Permit System, notice is hereby given that the water quality permit No. C0-0000426 for the Mayflower Mill, will be transferred to Sunnyside Gold Corporation, a Delaware corporation and a wholly-owned subsidiary of Echo Bay, Inc., upon the purchase of all of the Sunnyside Mine assets from Standard Metals Corporation. The anticipated date of closing for the purchase of assets is November 19, 1985. By their signatures on this notice, Standard Metals Corporation and Sunnyside Gold Corporation hereby agree that from and after the date of closing of the purchase of assets, Sunnyside Gold Corporation will have responsibility, coverage and liability for meeting the obligations of the permit.

Because of our prior meeting and conversations with your staff regarding this proposed purchase of assets, and because the purchase has now been approved by the United States Bankruptcy Court in the reorganization proceedings of Standard Metals Corporation, we would request that the transfer be accomplished on an expedited basis. The cooperation of you and your staff in this is very much appreciated. STANDARD METALS CORPORATION

Date:______SUNNYSIDE GOLD CORPORATION

Date: November 14, 1985 • Vice-President Sunnyside Gold Corporation 3300 Manulife Place 10180-101 Street Edmonton, Alberta, Canada T5J3S4

November 13, 1985

Mr. Gary G. Broetzman Director, Water Quality Control Division Colorado Department of Health 4210 East 11th Avenue Denver, Colorado 80220 Re: CPDES Permit No. CO-0036056 Terry Tunnel Standard Metals Corporation

Dear Mr. Broetzman: Pursuant to paragraph 6.9.6 of the Regulations for the Colorado Discharge Permit System, notice is hereby given that the water quality permit No. CO-0036056 for the Terry Tunnel, which is a part of the Sunnyside Mine, will be transferred to Sunnyside Gold Corporation, a Delaware corporation and a wholly-owned subsidiary of Echo Bay, Inc., upon the purchase of all of the Sunnyside Mine assets from Standard Metals Corporation. The anticipated date of closing for the purchase of assets is November 19, 1985. By their signatures on this notice, Standard Metals Corporation and Sunnyside Gold Corporation hereby agree that from and after the date of closing of the purchase of assets, Sunnyside Gold Corporation will have responsibility, coverage and liability for meeting the obligations of the permit. Because of our prior meeting and conversations with your staff regarding this proposed purchase of assets, and because the purchase has now been approved by the United States Bankruptcy Court in the reorganization proceedings of Standard Metals Corporation, we would request that the transfer be accomplished on an expedited basis. The cooperation of you and your staff in this is very much appreciated. STANDARD METALS CORPORATION

Date: SUNNYSIDE GOLD CORPORATION DEPARTMENT OF NATURAL RESOURCES David H. Getchea, Executive Director M1NED LAND RECLAMATION DIVISION DAVID C. SHELTON, Diractor

Richard 0. Lamm Governor

REQUEST FOR TRANSFER OF MINERAL PERMIT AND SUCCESSION OF OP I.

RECITALS

A. On J a n u a r y 2 5 ______* 1 9 7 8 » the Mined Land Reclamation Board of the Colorado Department o fN atu ral Resources (the "State") granted to Standard Metals Corporation ______, address P.O. Box 247/ silverton. Colorado. R143A. ("Permittee") permit number m-77-378 (the "Penult") pursuant to which Permittee has been conducting a mining and reclamation operation in the County of S a n J u a n State of Colorado.

B. Permittee wishes to assign the permit to Sunnyside Gold Corporation , address 3300 Manulife Place, 10180-1 m. R f r p a h Edmonton. Alberta, ranaria , as Successor Operator ("Successor") and Successor wishes to become Successor Permittee under the permit.

C, Successor understands that the reclamation plan (the "Plan") required by the permit and by applicable State laws and regulations has not been completed and is willing to assume full responsibility for the completion of the Plan.

II.

AGREEMENTS

Permittee and Successor hereby agree, for th eir own benefit and for the benefit of the State, such agreements to be effective ipso facto upon the approval by the State of the transfer of the Permit from Permittee to Successor, as follows:

1. Successor has inspected the mining and reclamation operations to .its entire satisfaction and is fully aware of the condition thereof. Successor understands and accepts a ll of the conditions of the Permit.

2. Successor w ill complete the reclamation plan, and hereby assumes lia b ilit y for completing such plan as to a ll areas neretofore disturbed, as well.as to all areas hereafter disturbed. Successor w ill perform all of the obligations of the Permittee under the Permit which have not heretofore been performed by Permittee. 3* Successor hereby tenders to the State its attached Performance and Financial Warranties*, which are to be substituted for the Performance and Financial Warranties heretofore filed by the Permittee, effective upon the release of the latter Warranties.

4. Successor represents to the State that, to the best of 1ts_, knowledge, information and belief, It is not 1n violation of any of the provisions of the Colorado Mined Land Reclamation Act with respect to any other operation conducted oy it in the State of Colorado.

Permittee and Successor hereby request the State to consent to the assignment of the Permit, to recognize Successor as Successor Operator under the Permit, and to accept the tendered suostltute Performance and Financial Warranties in place of the Warranties presently on file with the State.

* Attach executed Performance and Financial Warranties.

EXECUTED this 14thday of November______, 1995

Standard Metals Corporation Sunnyside Gold Corporation Name of Permittee " Name of Successor

Signature of Officer Vice-President/

Title Title Permittee Successor Operator

NOTARY FOR PERMITTEE

STATE OF ’) ss. COUNTY OF The foregoing instrument was acknowledged before me this day of b y ______as ot

NOT AM Pu ¿LIT

My Commission expires PROVINCE OF 3WEW ALBERTA, SS CANADA .)

The foregoing Instrument was acknowledged Defore me this 1 4 th day of November 1985, by John L.Az l a n t ______as Vice-President ______of " Sunnyside GolcL-Corporation

. „Vy*^______NOTARY PUBLIC ¡IN ÄND* FOR TH^ PROVINCE ¡OF ALBERTA My Commission expires; NO TIME LIMITATION n

CONSENT OF STATE

(a) Consent is hereoy granted to the transfer of the Permit aoove referred to from ______to

(a) is hereDy recognized as Successor Operator unaer such Permit.

STATE OF COLORADO DEPARTMENT of natural resources MINED LAND RECLAMATION BOARD MINED LAND RECLAMATION DIVISION

D a te :______, By Uivision Director

(Rev. 8/83)

Doc. No. 4986 S u n n y s i d e Gold Corporation 3300 Manulife Place 10180-101 Street Edmonton, Albecta, Canada T5J3S4

November 13, 1985

Dear Mr. Broetzman: Pursuant to paragraph 6.9.6 of the Regulations for the Colorado Discharge Permit System, notice is hereby given that the water quality permit No. C0-0027529 for the American Tunnel, which is a part of the Sunnyside Mine, will be transferred to Sunnyside Gold Corporation, a Delaware corporation and a wholly-owned subsidiary of Echo Bay, Inc., upon the purchase of all of the Sunnyside Mine assets from Standard Metals Corporation. The a£tic*Pat®£Q^ate of closin9 for the purchase of assets is November 19, 1985. By their signatures on this notice, Standard Metals Corporation and Sunnyside Gold Corporation hereby agree that from and after the date of closing of the purchase of assets, Sunnyside Gold Corporation will have responsibility, coverage and liability for meeting the obligations of the permit. Because of our prior meeting and conversations with your staff regarding this proposed purchase of assets, because the purchase has now been approved by the states Bankruptcy Court in the reorganization proceedings of Standard Metals Corporation, we would request that the transfer b accomplished on an expedited basis. The cooperation of you and your staff in this is very much appreciated. STANDARD METALS CORPORATION

Date: SUNNYSIDE GOLD CORPORATION Sunnyside Gold Corporation 3300 Manulife Place 10180-101 Street Edmonton, Alberta, Canada T5J3S4

November 13, 1985

Mr. Gary G. Broetzman Director, Water Quality Control Division Colorado Department of Health 4210 East 11th Avenue Denver, Colorado 80220 Re: CPDES Permit No. C0-0036056 Terry Tunnel Standard Metals Corporation

Date:______—— ------SUNNYSIDE GOLD CORPORATION Sunnyside Gold Corporation 3300 Manulife Place 10180-101 Street Edmonton, Alberta, Canada T5J3S4

November 13, 1985

Mr. Gary G. Broetzman Director, Water Quality Control Division Colorado Department of Health 4210 East 11th Avenue Denver, Colorado 80220 He: CPDES Permit No. CO-0000426 Mayflower Mill Standard Metals Corporation

Dear Mr. Broetzman: Pursuant to paragraph 6.9.6 of the Regulations for the Colorado Discharge Permit System, notice is hereby given that the water quality permit No. CO-0000426 for the Mayflower Mill, will be transferred to Sunnyside Gold Corporation, a Delaware corporation and a wholly-owned subsidiary of Echo Bay, Inc., upon the purchase of all of the Sunnyside Mine assets from Standard Metals Corporation. The anticipated date of closing for the purchase of assets is November. 19, 1985. By their signatures on this notice, Standard Metals Corporation and Sunnyside Gold Corporation hereby agree that from and after the date of closing of the purchase of assets, Sunnyside Gold Corporation will have responsibility, coverage and liability for meeting the obligations of the permit.

Date:______;______- SUNNYSIDE GOLD CORPORATION DEPARTMENT OF NATURAL RESOURCES David H. Getches, Executive Director MINED LAND RECLAMATION Dl\ DAVID C. SHELTON, Director

Richard D. Lamm Governor

PERFORMANCE WARRANTY

Operator: Sunnyside Gold Corporation______

Operation: Sunnyside Mine and Mayflower Mill

Permit No: M-77-378

KNOW ALL MEN BY THESE PRESENTS, THAT:

WHEREAS, the Colorado Mined Land Reclamation Act, C.R.S. 1973, 34-32-101 et se£, (the "Act"), as amended, provides that no permit may be issued under THe Act until the Mined Land Reclamation Board (the "Board") receives a performance warranty (or warranties) that is a written promise to comply with all applicable requirements of the Act.

WHEREAS, Sunnyside Gold Corporation (the "Operator"), a Delaware ______corporation, has applied for a permit to conduct a mining operation known as Sunnyside Mine ______(the "Operation") on certain lands in San Juan ~ County, Colorado. These lands are described in Exhibit A, attached hereto, and are referred to herein as the "Affected Lands."

WHEREAS, in its application for the permit, the Operator has agreed to be bound by all requirements of the Act and a ll applicable rules and regulations of the Board, as amended from time to time.

WHEREAS, the Board has determined, in accordance with the Act, that the estimated costs of reclamation with regard to those affected lands in San Juan County which are now or may become subject to the permit are those amounts for the stated periods of time as set forth in the financial warranty, which may be amended from time to time to reflect revised estimates of said costs of reclamation.

WHEREAS, the Operator hereby gives the Board a performance warranty pursuant to Section 34-32-117(2) of the Act, and herein promises the Board that i t w ill comply with all applicable requirements of the Act with regard to those Affected Lands.

NOW, THEREFORE, the Operator hereby promises the Board that i t w ill comply with all applicable requirements of the Act with respect to the Affected Lands. The Operator further promises the Board, pursuant to 34-32-112(1)(d) of the Act, that it has the lawful authority to enter upon the Affected Lands to conduct mining operations, including, but not limited to, reclamation.

The description of lands herein Is for convenience of reference only, and no error in such description, nor any revision of the permitted mining area, nor the disturbance by the Warrantor of lands outside of the permitted mining area shall alter or diminish the Operator's obligation hereunder, which shall extend to the reclamation of all such lands disturbed.

The obligation of the Operator hereunder 1s such that, i f the Operator shall successfully comply with the requirements of the Act, applicable rules and regulations, and the permit, then the Board, upon a finding that the Operator has so complied, shall release this performance warranty, and the Operator from Its obligation hereunder, to the extent that the Board determines that such compliance has been accomplished. The obligation of the Operator hereunder shall continue until released In whole or 1n part by the Board in accordance with applicable law.

In further satisfaction of the requirements of the Act, the Operator has attached hereto its financial warranty, which may be amended from time to time. The Operator agrees that i t w ill maintain a financial warranty (or warranties) for the estimated costs of reclamation 1n good standing for the entire life of the permit.

I f the Board determines that the Operator is in default under this performance warranty and has failed to cure such default, although written notice of such default and ample time to cure such default have been given, the Operator's financial warranty shall be subject to forfeiture.

This performance warranty may be executed in multiple copies, each of which shall be treated as an original, but together they constitute only one agreement, the valid ity and interpretation of which shall be governed by the laws of the State of Colorado.

The provisions hereof shall bind and inure to the benefit of the parties hereto and their successors and assigns.

Signed and dated t h is ______day o f ______, ____ .

Sunnvside Gold Corporation Operator NOTARIZATION OF OPERATOR'S ACKNOWLEDGMENT

STATE OF _

COUNTY OF

The foregoing instrument was acknowledged before me this day of , ____by as oF

NOTARY PUBLIC

My Commission expires:

APPROVED:

State of Colorado Mined Land Reclamation Division Mined Land Reclamation Board

By Date Director

Doc. No. 1856 Financial Warranty

Exhibit A

File No*:

Operation Name:

Legal Description:

Acreage:

County:

State:

34*32-101 et seq.. C.R.S. 1973, as amended

(Rev. 8/83)

Doc. No. 4983 "AFFECTED LANDS"

Lands described in the Permit as:

The Mayflower Mill site, the American Tunnel, the Terry Tunnel and the Lake Emma site specifically located in an unsurveyed area protracted to be in parts of Sections 9 and 10 of T41N, R7W and Section 14, 15, 30 and 31 of T42N, R7W of the N.M.P.M., San Juan County, Colorado. DEPARTMENTOF NATURAL RESOURCES David H. Getcnea, Executive Director MINED LAND RECLAMATION DIVISION DAVID C. SHELTON, Director chard D. Lamm Governor

REQUEST FOR TRANSFER OF MINERAL PERMIT AND SUCCESSION OF OP

RECITALS

A. On January 25 M . the ?lne2 1 Joard of the Colorado Department of Natural Resources (the State ) granted to Standard Metals Corporation ______* address P .O . Box 2 4 7 , -----

S i l v e r t o n. r* C o li o r a n ^ n 01m8143.^------v ("Permittee") ' permit number m-77-378 (the "Permit") pursuant to which Permittee has been conducting a mining and reclamation operation in the County of San J u a n ------> State of Colorado.

8. Permittee wishes to assign the permit to Sunnyside Gold .Corporation , address 3300 Manulife Place/ 10180-101 S t r e e t Edmonton. Alberta. ^,-ns4 . ^Successor ?5?rnp™it"SlJCCe$SOr"5 and Successor w i s h e s to become Successor Permittee under the permit.

C. Successor understands that the reclamation plan (the "Plan ) required by the permit and by applicable State laws and regulations has n°t been completed and is willing to assume full responsibility for the completion of the Plan.

II.

AGREEMENTS

Permittee and Successor hereby agree, for their own benefit and for the benefit of the State, such agreements to be effective l£So facto upon the approval by the State of the transfer of the Permit from Permittee to Successor, as follows:

1. Successor has inspected the mining and reclamation operations to its entire satisfaction and is fully aware of the condition thereof. Successor understands and accepts a ll of the conditions of the Permit.

2. Successor w ill complete the reclamation plan, and hereby assumes lia b ilit y fo r completing such plan as to a ll areas Heretofore disturbed, as well as to a ll areas hereafter disturbed. Successor w ill perform a ll of the obligations of the Permittee under the Permit which have not heretofore been performed by Permittee. i i s ^ ira u rr^ s ,:"“ w t>e ...... s “ •»«

4. Successor represents to the State that, to the best of Its knowledge, Information and belief, It 1s not 1n violation of anv of the provisions of the Colorado Mined Land Reclamation Act with respect to any other operation conducted by 1t in the State of Colorado. pe * co any

Permittee and Successor hereby request the State to consent to the the Permit ar^t Penn1t; recognize Successor as Successor Operator under the Permit, and to accept the tendered suostitute Performance and Financial Warranties 1n place of the Warranties presently on file with the State.

* Attach executed Performance and Financial Warranties.

EXECUTED this day of

Standard Metals Corporation Sunnyside Gold Corporation Name of Permittee ’ Name of Successor “

dy By Signature of Officer Signature of Officer

Title TTtTe------Permittee Successor Operator

NOTARY FOR PERMITTEE STATÉ UF _ ss. COUNTY UF .)

The foregoing Instrument was acknowledged before me this „ day of ______,» _____ , b y ______"as of

ircrAkv public My Commission expires NOTARY FOR SUCCESSOR

ss. COUNTY U F ______j

The foregoing Instrument was acknowledged before me this day of ------» ----- » _------as ______of ------—

NOTARY PUBLIC My Commission expires:

CONSENT OF STATE

(a) Consent 1s hereoy granted to the transfer of the Permit aoove referred to from to

(Dj ______is hereoy recognized as buccessor Operator unaer such Permit.------

STATE OF COLORADO DEPARTMENT OF NATURAL RESOURCES MINED LAND RECLAMATION BOARD MINED LAND RECLAMATION DIVISION

Date: ______, _____ By Division Director

(Rev. 8/83)

Doc. No. 4986 f'-s c&L

1 « 7 PermL t Transfers

Where one operator succeeds another at any u n c o m p leted operation, the Board shall release the first operator from all liability as to that par ticular reclamation operation and shall release all applicable performance and financial warranties as to such operation if the successor operator assumes, as part of his obligation under this article all liability f or the reclamation of the affected ''land, and his obligation is covered by appropriape per formance and financial warranties as to such affected land. All permits issued herein are transferable only with the approval of the Board. Such approval shall be given if the Board is satisfied that the successor operator agrees to and is capable of assuming all responsibility for the conditions included under the original permit.

112( 6) 1, B Amendments An amendment is defined as: A change in the permit which increases the acreage of affected land, or which has, in the judgment of the Board, a significant effect on reclamation, Where applicable, there shall be filed with any application for amsndment a map and an application with the same content as required for an original application, except that no operator will be reguired to submit any information which duplicates applicable previous submittals. The amended application shall be accompanied by a basic fee of twenty-five dollars plus seven dollars and fifty cents p e r acre for the first fifty acres, five dollars per acre for the second fifty acres, two dollars and fifty cents per acre for the third fifty acres, and fifty cents per acre for each additional acre. In no case shall the amendment fee be less than one hundred dollars or more than one thousand dollars. A fraction of an acre shall be considered a full acre for the purpose of computing the fee. If the operator is a unit of county government, no amendment fee is required. In addition, supplemental performance and financial warranties, as determined by the Board, for any additional acreage shall be submitted. Appli cations for amendment of a permit shall be reviewed by the Board in the same manner as applications for new permits, IJ) U.4 33 ZftKevfc« SD*KS4 Kttk

10* 4*tnrt* r m If1* Kroger 17% 7 KuNm 45 K*K«*)C By Jo h n E. V arnum I3Vi V* Kvacr , and G ail L. Achterman LFE Special »n The National Law Journal 7«% IP* U T CO 5^4 7* UCCd 13!* 7 UCCpf* 7XÌ I I V j 4 P * tt* 17* LTV DESPITE THE recent trend toward ternatively, it can order the responsible 32 l»W 1 8 * «Ô C LTV f* deregulation, toxic waste regulation parties to do the clean-up. » 7 1 JOT* 22 1J*LGuinf « rapidly is becoming a huge federal J4W 1 6* LacOen As of Dec. 31, 1984, EPA had identi Î1 7V> T k M* » LamSe; program. The expense of decontami fied 19,368 hazardous-waste sites po nating the average toxic waste site tentially subject to CERCLA. Of these, was almost $12 million last year. The 780 have been designated as priority U.S. Environmental Protection Agency clean-up targets. spent an average of $800,000 studying The Resource Conservation and Re each toxic waste site, $7.2 million .... MM0*™>6%77H4 * WHUeCrt covery Act establishes a comprehen .. . 3 1» I?* mi !?*♦ 23* im u ^ K i . cleaning up each site and $4.1 million sive "cradle-to-grave” hazardous tJO 6 .T3 71* 71 21 . V» I letiVal in post-cleanup operational costs. & . J Î3 247 37 37 ♦ \V t Wh 17* Lehmn waste management program to pre ...... • 9 3V? J * a f * ...... 26* lOHUmor $ Hazardous substances management vent releases of hazardous waste into .W rW Ji... «28 t'>* £’>>♦ *i» 44 7 M U K K is now a central concern In many cor* I J ¡2 ¿ 4 7 Ì9 Ì JO*, 30* TO *../... T% Lr-fay the environment and avoid the cre 190 S I 7 K4d porate acquisitions. Negotiations over ation of future abandoned sites. Fail the financial risks posed by the poten ure to comply with EPA’s complex tial presence of toxic substances on the regulatory procedures exposes compa seller's property are often critical. Lend nies to potential criminal as well as ers are scrutinizing property mortgaged civil sanctions. .15 17 12 tfe 8W * * »7* in these transactions for fear that they Finally, Securities and Exchange Y.44 3 0 9 4 « i P : m n iw%ubmtn may eventually face the choice of writ- Ì é0 * t 9 131 39 33 ‘« 35* »Î11* ...... Uwr* % Commission regulations require the .74 3.5 8 410 77W ? ? v , 79W - V* 61% 45k LiHyCIi disclosure of three kinds of Informa A — i ImrHi tion regarding hazardous-waste mat ters: (1) m aterial effects of compliance Strict liability applies, with hazardous waste regulations on earnings, competition and capital ex whether or not the new penditures; (2) material hazardous- waste litigation; and (3) corporate haz- property owner actually ardous-waste policy, if it is likely to result In substantial fines, penalties or other adverse effects on the company. helped in disposing of The SEC enforced its disclosure rules on hazardous-waste liabilities in the contaminated matter. the case of the Love Canal contamina By C linton A. Stuntebeck tion at Niagara Falls, N.Y. The SEC and L arry B. L auback found that Occidental Petroleum Cor Special to The National Law Journal ing off a bad loan or foreclosing on a poration failed to disclose the exis parcel of contaminated property. tence of pending or contemplated THE BUSINESS judgment rule has Th Attorneys should study carefully governmental proceedings against it, gone a long way in protecting boards of press “how to allocate this new risk In corpo* the effect of its violations-of hazard- directors. It presumes that in making à ber- rate acquisitions. The question of envi- ous-waste regulations on corporate business decision, directors have acted office ronmental risk allocation will be earnings and the extent of potential li on an informed basis, In good faith and ing c important in many negotiations. In a ability from its improper hazardous- in the honest belief that their actions are abili few, it will be a “deal breaker” if the waste disposal practices. The SEC in the best interests of the corporation. these seller's objective is to rid Itself of any found that the statement filed by Occi The Delaware Supreme Court re tors : future headaches based on the toxic dental, I.e., “there can be no assurance cently went several steps further in wher skeletons in its closet. that [it] will not incur m aterial liabil holding that directors will be protected avail Key merger and acquisition trea ities in the future as a consequence of only if they have informed themselves Ing f tises published in the late 1970s did not the impact of its operation upon the of all material information reasonably press discuss the allocation of known and un environment," was patently inade available to them prior to their mak kom known environmental risks on ac quate under the SEC’s disclosure rules. ing decisions. Be- quired property. Times have changed. The Statutes* Perils In Smith v. Van Oorkom, 488 A.2d 858 whlcl Love Canal and other notorious con its st< Several factors make potential toxic* (Del. 1985), the directors of Trans taminated sites have made everyone Union Corporation were held personal firme substances liability particularly signifi proce aware that environmental risk is a vi cant In negotiating corporate acquisitions. ly liable for approving a cash-out tal factor in corporate acquisitions. m erger of TU into a corporation owned infon First, under CERCLA and RCRA, liabil Ap: The Statute ity follows land ownership. Strict liability by Jay Pritzker at a price of $55 per share. Even though there was no bad held The Comprehensive Environmental applies without regard to whether the becai property owner actually participated In faith, self-dealing or fraud on the part Response, Compensation and Liability of the directors, the directors were form Act (CERCLA or Superfund) was en the disposal activities causing the con (2) tl tamination. The customary “asset deal" held liable for the amount by which the acted in 1980 to provide authority and fair value of TU stock exceeded $55 per form money to respond to the problems pre designed to limit assumption by the buy Van i er of the seller's liabilities does not work share because they had been grossly sented by inactive or abandoned hazard-, negligent in falling to inform them Exec ous-waate sites. CERCLA authorizes the under these statutes. The unfortunate TU a firm that bought a $400,000 warehouse selves of all m aterial information (pri EPA to establish a National Priorities marily the fairness of the price) prior and < List of sites where releases of hazardous and later discovered that the property direc was contaminated with solvents as a re to approving the merger. Although substances present the most danger. Van Gorkom has been criticized as bad provl The EPA may clean up the sites itself sult of the prior owner's recycling opera houri tion had to pay a $6 million clean-up bilL law, boards of directors and their coun using Superfund money and seek reim sel would be well advised to analyze tlce ( bursement from responsible parties. Al* Real estate developers in New York and out t California have recently learned the hard carefully the court’s conclusions in this case. Adeq Mr. Varnum is a partner in the way that the mere purchase of property can lead to major clean-up liability. Th Washington, D.C., office of Stoel, Rives, Mr. Stuntebeck is a partner in the cern< Boley, Fraser A Wyse. Ms, Achterman Second, compliance standards under RCRA in many instances have not Philadelphia office of Schnader, Harri ' lnfor is a partner in the firm's Portland, Ore., son, Segal <€ Lewis, Mr, Laubach is an •ordei office. Continued on page 18 associate at the firm. *Cont Continued from preceding j. Contaminated Property Poises Risks in Acquisitions Mr. Schutzman points cases in which false at claims have been used to ! Continued from page 15 The buyer will demand representa sible. Any audit inevitably will involve plaint fall within the coverage of the market retailers who are been established by the EPA. Existing tions that a seller will be very reluc disclosure of information regarding indemnity agreement, the indemnitor senting the existence of a m regulations are very complex and tant to provide. These representations plant design, manufacturing processes must defend. er’s warranty or the size of sometimes vague. Congress further will focus on the existence of hazard and technology, products and related off an inflated “suggested complicated things in November 1984 ous substances at the property to be matters, and an analysis of the legal This is so even if the ultimate out And when a trademark is when it enacted comprehensive new acquired and compliance with regula implications of the resulting informa come of the third party’s claim against too prominently In a gray requirements that are just now being tory requirements. The seller m ay feel tion. The audit could injure a compa the indemnitee is favorable to the in advertisement, Mr. Schütz fleshed out by the EPA. As a result, that it is impossible to represent that ny’s competitive position if made demnitor, i.e., no duty to indemnify the tradem ark owner can cl; very few RCRA permits have actually there are no hazardous substances on public. Public disclosure of an audit arises. Accordingly, an obligation to leads consumers into believii been issued. Businesses don’t really its property. Given the uncertain state report may also have adverse labor defend can be considerably broader in dealing with an authorized < know whether they are In compliance. of the regulations, the seller will be management, regulatory or public re scope than an obligation to indemnify. Unequal Resources Third, RCRA noncompliance penal* reluctant to make any representation lations consequences. This is especially important in hazard "I’ll admit that til ,ray ties are harsh, ranging up to $25,000 a regarding regulatory compliance. The Although complete confidentiality ous waste suits, which frequently are have won the big battles,” seller will no doubt want to limit his cannot always be assured, steps can be complex and consume enormous Schutzman. “However, in pri day. Under. CERCLA, if a mandatory amounts of lawyer time. clean-up order is violated, the courts representations with the qualifier “to taken to protect confidentiality. These litigation against retailers the best of my knowledge." The “knowl include using an attorney to oversee may impose penalties of up to three Finally, insurance or bonds should gray market importers, the times the clean-up costs — in essence, a edge" qualifier will, at the very least, the audit, carefully organizing reports distributors have by and lar put off the buyer and may kill the deal. and data and limiting distribution of' be considered. Requiring the seller to quadruple penalty because the clean-up carry environmental impairment in ery case.** costs may also be levied against the firm. Any dispute over representations the report. can be avoided if there is time for the Beyond representations and investi surance for the protection of both the But if that is so, lawyer Toxic waste regulation is a minefield buyer and the seller (waiving subroga marketers answer, it is be< of unknown and unquantlfiable liabil buyer to do a hazardous-substance au gations, risk allocation for potential li dit of the seller’s property. A hazard abilities must focus on the tion) not only eliminates double insur maldistribution of resource ities for any company’s best-laid busi ance but convinces courts of the force a small importer or ness plans. What can be done? ous substance audit is a review of indemnification provisions of the pur activities àffèeting the environment to chase agreement. CERCLA recognizes parties’ intentions regarding indemni litigate ineffectively or r Risk Allocation determine the status of a corporation’s that private parties may shift risk fication. Consideration should also be name of a supplier — whlc) compliance with federal, state and lo through indemnity agreements, but given to having the indemnitee named be used to track down the gr An informed buyer has two main as an additional insured on the seller’s leak in a manufacturer’s d concerns: (1) the unforeseen environ cal laws. It is essentially a manage CER.CLA and RCRA m ake parties ment tool for taking inventory of a strictly liable for remedial costs. The policy. Careful drafting will provide system — in return for a t mental liabilities acquired along with the buyer with an effective way of allo “In part the economic i thé corporate assets and (2) the possi seller’s environmental liabilities. courts closely scrutinize indemnifica The basic steps in any audit include: tion clauses that purport to indemnify cating risk to the seller. ability to litigate of somt bility of shifting the risk of unknown small guys is limited.” say: potential liability to the seller (since he (1) questioning federal, state and local ja party against strict liability. Indem In many situations, unknown and un- authorities concerning the seller’s en nification clauses should contain ex quantifiable potential hazardous-waste dericker of Olwine ' se. has created or at least is in present cus “Of course they’re «—ove tody of the lurking “toxic” monster). vironmental compliance; (2) review plicit references to strict liability to liabilities are conveyed along with as ing SEC filings; and (3) visiting the ensure proper interpretation. sets in an acquisition. Wherever time the little guys,” Mr. Steele s: Obviously, thé^ seller has different site, which should include questioning 'Consideration should also be given to permits, the buyer should conduct a [trademark owners] are say concerns*,Foreinost in the seller’s the seller’s personnel. A thorough in using indemnification clauses that re hazardous-substance audit. Full repre when there’s major consider mind «iç, -desires to (1) get paid vestigation of seller's facilities by inde quire the indemnitor to defend the in sentations and indemnifications are case, they have lost. They’r and (2) avoid the long-term risk asso pendent investigators should be demnitee against actions brought by fine, but if the buyer is negotiating to where there is less consider ciated with this potential liability. undertaken, if time allows, to evaluate regulatory bodies and other third par buy a toxic pig in a poke, it should less significance, and I ac • .Given the conflicting interests of the the company’s compliance with the ties. When drafting such an indemnity know th at before the purchase price is they’re winning. But that’s n pàrties, the representation and indem hazardous substance laws. agreement attorneys should remem fixed. After all, toxic waste on the the law should be deterroin nification provisions of the purchase The parties will wish to keep théir ber that pleading rules state that if the property may make an asset today a Gray marketers’ lawyers a agreement arè critical. internal affairs as confidential as pos* negations of the third party’s com major liability tomorrow. simpler answer to the quest is winning the litigation wt “The gray market goods ; market,” notes 47th St PI Lewin. “We win some, and some. But the flow remains Auto Imports Outside the litigation aren test gray market issues in\ D a v i s , G r a h a m 6z S t u b b s

ATTORNEYS AT LAW

WASHINGTON O.C. OFFICE SUITE 4700 COLORAOO NATIONAL BUILOtNG OFFICE 370 SEVENTEENTH STREET S U IT E SO O SUITE 2400 IOOI TWENTY-SECOND STREET, N.W. POST OFFICE BOX ISS 950 SEVENTEENTH STREET WASHINGTON. D.C. 30037-1803 DENVER, COLORADO 60201-0185 POST OFFICE SOX 185 TELEPHONE 202-822-6660 OENVER. COLORADO e020t-0l85 TELEPHONE 303-595-4949 TELEPHONE 303-892-8400

TELECOPIER 303-893-1379 SOUTHEAST DENVER OFFICE TELEX 240451 OG5 DVR CABLE OAVGRAM. OENVER S U IT E 3 0 0 7800 EAST UNION AVENUE ZACH C. MILLER 092-7391 DENVER, COLORADO 00237-2753 October 23, 1985 TELEPHONE 303-694-4464

HAND DELIVERY

Mr. Philip C. Saletta Mined Land Reclamation Division 423 Centennial Building 1313 Sherman Street Denver, Colorado 80203

Re: Standard Metals Corporation Water Treatment Sludge Analyses

D e a r P h i l

I am enclosing for your records a copy of the draft chemical analyses of the mine water treatment sludge from the American Tunnel and the Terry Tunnel of the Sunnyside Mine, which Doug Murray inadvertently omitted from the materials which he submitted to you this morning. Doug will be forwarding the final results to you as soon as they are available.

As I indicated this morning, it would be very helpful at Standard's bankruptcy court confirmation hearing next Monday if we could get a final copy of the Board’s findings and conclusions relating to this morning's hearing before commencement of the confirmation hearing. In addition, if at all possible, Bill Robb and I would appreciate the opportunity to review the language of your proposed draft of such findings before that document is finally signed by the Board chairman. Please give me or Bill a call at your earliest convenience if such a review is feasible.

Thanks again for your cooperation throughout this proceeding.

Very truly yours,

for DAVIS, GRAHAM & STUBBS 2 C M : I b c E n c l o s u r e cc: |/^illiam Robb, Esq Douglas S. Murray CDS LABORATORY STX irnr\ CDS IDS 4471

75 S'JTTLE STREET SAMPLE DESCSipilON: AMERICAN TUNNEL PO m 2635 SILVERTON, CQ SI433 DURANG3 CO 813S2 DATE TAKEN: TIME: a .s. (333) 247-4223 OCTOBER 21, 1985 DATE RECEIVED IN LA3:

TRACE METALS ON EXTRACT CHEMICAL PARAMETERS PHYSICAL PARAMETERS

TOTAL DISSOLVED rcg/L ng/L Acidity sig/L AluAinufi Bicarbonate as CaC03 Alkalinity as CaCC3 mg/L Antimony Hydroxy as CaC03 Color

Arsenic Carbonate as CaCu3 Conductivity at 25 1922 Bariu.i Carbon Dioxide Dissolved Oxygen ag/L Beryl line COD Hardness (CaCG3) mg/L Bisnuth Chloride < 1 pH 6.66 units Boron < C.S4 Chlsrine Specific Gravity mg/L Cad»iuj Chlorine Demand Temperature decrees C. Calciun Col if ora Total Constables cig/L

Chroiiua Cyanide Total Dissolved Solids 1?43 ag¡1 Total Flusrida Total Solids sg/L

+3 Fora MBAS Total Suspended Solids sg.'L +6 Fan Nitrogens Turbidity ias NTU) sig/L Cobalt fiflssonia Copper 0.747 Nitrate as N Iran < 3.5 Nitrite RADIOMETRIC ANALYSIS Lead Total Kjeldahl (TO pCi/L Ragnssiu* Oil and Srsase Gross Alpha Manganese . Phenols Gross Beta Mercury < 0.021 Phosphate as P Radius 226 Kolybdenui Silica Radius 223 Nickel Sulfate 1183

Phosphorus Sulfide (S 1 < 0,825

Pfltassiui H2S < 3.214 This laboratory report say not be published or used for Seleniui ACID POTENTIAL < 3.03? * advertising or in connection with advertising of any

Silver *T0iJS CaC03/1333 TONS kind without prior written permission froa CDS Laboratories. Scdiu Results are based on analysis eiade at the tise saiples

Thalliui OIL & 3REA3E 0.057. are received at the laboratory.

Tin PCB'S (TOTAL) NO < 1 ppn Uriniua as U333 Vanadiu.i line DR. JOE BOUDEN, DIRECTOR ME/' CCS LABGRATORY CDS ¡Oft 4472/-, (' 75 S’JTTLE STREET SAMPLE DESCRIPTION! TERRY TUNNEL FQ BOX 2635 SÏLVERTCN, CO 81432 PCM 1 DURANGO CO 01332 DATE TAKEN: TIME: (323) 247-4223 GCT2EER 21, 1955 DATE RECEIVED IN LAB;

TRACE HETALS ON EXTRACT CHEMICAL PARAMETERS PHYSICAL PARAMETERS TOTAL DISSOLVED ffig/L 019/1 Acidity sg/L Aluninui Bicarbonate as CaC03 Alkalinity as CaCC3 -q/L Antinony Hydroxy ¿5 CaC03 Color

Arsenic Carbonate as CaCQ3 Conductivity at 25 868 Ban w Carbon Dioxide Dissolved Oxygen flig/L B srylli.ii CCD Hardness (CaC03) ag/L

Bisauth Chloride < 1 pH 7.37 units Boron < 3.24 Chlarine Specific Gravity ag/L

Cadiiius Chlorine Deaand Temperature degrees C. Cdlciua Coliforra Total Conbustables ag/L Chrciiua Cyanide Total Dissolved Solids 725 «g/L Total Fluoride Total Solids rag/L +3 Fon MBAS Total Suspended Solids ¡ng/L +6 For# Nitrogen: Turbidity (as MTU) ag/L

Cobalt Copper 4,31 Nitrate as N Iron < 3.5 Nitrite RADIOMETRIC ANALYSIS lead Total Kjeldahl (TKN) pCi/L Hagnesiui Oil and 6rease Gross Alpha Hanganese . Phenols Gross Beta Mercury < 0.E01 Phosphate as P Radius 22£ Holybdanua Silica Radius 223

Nickel Sulfate 443

Phosphorus Sulfide IS ) < 3.825 Potassiui H2S < B.C07 This laboratory report nay not be published or used for SeUniuii ACID POTENTIAL < 3.239 * advertising or in connection with advertising of any

Silver ♦TONS CaC03/1238 TONS kind without prior written peraission froa CDS Laboratories,

Sodiui Results are based on analysis fiade at the tias sables Thalliua OIL 4 GREASE 3.117. are received at the laboratory.

Tin PCB'S (TOTAL) < 1 ppn u Ursr Vanadiui APPROVED BY: -- feO—’ --- Ajj Zinc OR. JOE BOWDEN, DIRECTOR S TA N DARD METALS CORPORATION P.O. Box 247 SHvertofi, Colorado Ä1433 U 03) 387-5533'

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ntiwummrrm...... 1iwimmmnmniiwimii P o t ential Slndg« Disposal Sites T a i ling» V onü Ko. 3 Standard Kataln Corporation Silverton operations DATE Application f or t he utie o f th e tailings Pond flo* 3 as a permanent insitu nine sludge disposal si to.

Rationale ■

1* The engineering office sludge disposal cite has becogrc inactive.

2. The Jubilate need to ccnanence dredging of the Jtaiarican Tunnel sludga settling ponds to acMeve winter coopliimeevith effluent discharge limitations enforced by the Colorado Departib&nt of Health at the American Tunnel site.

3- The use of the currently nan-operational but active tto* 4 failings Pond site nay significantly degrade the water

1. 'The analysis of nine sludges to assess potential for permanent disposal.

2. Analysis and gaetbodblogy of standing water on the Ho- 3 site. (See enclosed usesaos JUHterican Tunnel Sludge Disposal-}

Upon evaluation of the analysis issues »entioned above, the use of the I>o. 3 Tailings Pond site for a pem&nent insitu disposal site would adhere to the following guidelines:

1. Ttoe excavation and Bdintenance of adequate surface drainage control ditches (see surface drainage control plan, enclosed).

2* The decanting of standing waters on the sit« to the ftninaa River.

Contingency; To pursp standing water« to the active Mo- 4 Tailing Pond»

3. The inaitu disposal of existing Town refuse oh tb& northeast comer of U » site.

4. T o adhere« where feasible, to the guidelines and recosi&endations set forth in the April 20, 1976, Geo technical Investigation of Tailings Pond BJo- 3 by F.R. Fox and Associates, Inc., and the October 9, 1906/ American Tunnel Sltrlge Disposal Report by Dave Moody» P o t e ntial Slodcps Disposal sitea P a g © 2

5» The final reclamation of the site by inisitu burial (capping) with approximately two feet of suitable earthen material.

6* Hie revegetation of the entire site with the appropriate grads div5 for b species.

Contingency?

1. v o line site vith bentonite clay or $e<>^fiibrane layer.

2. To relocate sludge material if necessary to note permanent disposal site,

3. Vo utilise the potentially active Tailings Pond No* 4 site.

DATE

niiniiiiw iiiiTiiiiM niiiiiiM ^ ifiiiiiiiiw nDiM'H""»" !*'■■■' tM iiiraniiiiiiiinrm nfm rTM iiM W iiTTnM iniiiiiiiiiM Tinw M iiiiiiiiiiiiBiw if—iw iiiiin w iiiiiiM iiiM iiiiiiin K iin « — i i 'w w ihiibiiiii ftefofetf and Trash Disposal Plan Standard Ketalc Corporation Sil Verton Operations American Tunnel, Terry Tunnel,

American Tunnel The Aia&rican Tunnel refuse dnap site approximately consists of:

flood - Spent timbers, pallets, etc. 50% Netal-■ Rail, pipe» cable oil druas, micc. 35% Garbage - Paper, cons,'-spent clothing, trash 10% Tli« American Tunnel refuse and trash plan would consist of two phases* The first phase of the plan would incorporate tbe following»

1, Tlte posting of *Bo Public DuMping’* signa» . 2„ The cleanup, compaction and containment on site of all refuse and trash that has migrated from the dump proper. 3. The insitu burial of all existing refuse and trash at the American Tunnel site. The iiisitu burial would adhere to the following guidelines* A. The approxigmte ¿Tf/ cm square foot elope area would be buried with approximately one foot to t w feet of rock waste and ‘10 inches to 18 inches of soil podium, lit» T&e excavation of an access road and V-typa toe drain for surface drainage control. C, Tbe construction and maintenance of a surface drainage control «ysteo to enccopasa the entire refuse and trash disposal site. Refer to Surface Drainage Control map American Tunnel*

4- The revegetation of the »oil medium covered slopes and toe area oE the site with a grass epecles mis. The following revegetation criteria would be fallemK?di

A. i v o applications o£ 300 lb/ocre o f -34-9-9 fertiliser, once-at time of planting and a follow up application later that season; yearly mintenance applications if needed. to * Rate of seeding, approximately 15 lb PtS par acre. C. Adequate conmerciat alpine mix and/or custom mi* -consisting of* Idaho fescue festuca ovina inter, wheatgrass Agroi*yron intermedium slender whatgraso Agropyron trachydaulu» Canada bluogras» roa corapressa Tentucky bluegrass Poa pratensis smooth brome Brorous iner&iis orchard grass Dactylis gjomerata Tufted hairgrass Deschaoipsia caespitósa Tinothy Phleusi pratense Western yarrow Archillea lanulosa lupine Uipifiuü Bpp Cover« Melilotos spp Vetchs Various epp D- JNulching rate of appro*i»afcely 1,509 Jb wood fiber «raid» p e r a c r e - J5, Seeding nothod - Bydrosaeder

The second phasft of the laerican Tunnel xefuse and trash Ai«pos«l plan would i coofllnt of thn followings

1. Tit$ c*cav*tlan of a suitable pit (cell) adjacent to the existing aite for the future contaiitnent, compaction and insitu burial i of wood and trash. The fiicavation w u l d primarily consist of an earthen containment dike. See map. 3 , H w Institution of a refuse and trash segr^atioft program that would initially »eparate netal refuse from other totefiala. This program H0*al4 can»iet of the following:

JU The stockpiling of all wetal for sale as scrap metal and/or i«“OW . B. The innitu burial of all other staterials.

3. The future cootain&ent capping and revegfctation of the proposed pit

Kayftowftf Kill ■ The Mayflower Mill r«ft»e wtd trash dutp primarily consists of the following materials;

Spent tires 20% Wood - Tiisbcrsf pallet«, etc 15% fietal “ Beams, pipes, Biscellweows lOt O i l d r u s s 8% Itoa^Dt containers 10% Garbage - Paper, glass, c a n s , p l a s t i c 37*

The Kayflowur Will refuse and trash plan would consist of tvo phases. The first phafift of the plan would incorporate the following* i

X* The posting of "«o Public Duwping" sign. i 2. The cleaatipr cawpacfcion and containment o n fitte of all refuse and i trash that has ailgrated from the dump proper. 3. Tbe incitu burial Of all easting refuse and traehfrom Kayflover Hill and Engineering office areas* The insitu burial would adhem to the following guidelines:

XV. itta e x i s t i n g / g f / W isquaro foot area wauld be cowered w i t h approaiiaitely one foot to two feat of barrow material from ^ adjacent Mllsidft. 8« Ytws construction and BAktcnanco of a surface drainage control eystaa adjacent to the refus« and crash disposal site- Peter to surface Drainage Ouatrol map, Mayflower Hill.

Ttos aewwvl phase of the Mayflower Mill refuse *rvï trash disposal plan would consist ofs

1. The excmtíon of a suitable ewttoi coatAtwaent dike adjoining th® exL$tin9 refttso area; refer to nap* IIkî burial cell this dike could eraste would be »aitablc for tlie qoatafcnilifint, (supaction and final buriel of future «ill ïefuse» The ifiatttctJoo of a refuse and trash sefftegation program that irt.ll initially «aparate facstalo# wood, reagent containers ax*d othnr «Raterial»*

This progirtóa woold consist of the i fûilowlngî

A. The stockpiling of all ratal for tho calc as scrap ratal, burial 1 and/or r^nse* I b , The a m s t m t i o n off a reagent contninftr dficontwinatioo station within the »ill proper« i C. the in*itu burial of all other »ateríais vithin the proposed cell area. 1 a 3. The construction of wind fencing so as to alleviate the nitration of vtôterials» Í . * 4, The saint«oaAce of all site wwponeató of the Mayflower Kill refuse and trash plan« 5 The future contaiitfnent earthen capping and revegetation of the proposed eell. This vould follw ôitoilar criteria already stated in the Atterlcan Tunnel Hfifuse and Trash Plan.

Tterry Tunnel This Terry Tunnel refuse approximately consists of the following:

Wood - SïKsnt timber Metal ~ Rail, pipe, etc- The Terry Tunnel refuse program would conaist of the following;

i. i The cleanup, cpntdipent and insitu burial of all refuse on the site* The fiistipg i*ine pits would be utilised for this purpose. 2* The e*c**ation of a suitable pit for future wifiitu disposal of «toed and K «ta l 3„ The transportation to the Mayflower Hill refuse disposal site any oth&r statjfcrialis not suitable for burial at the Terry Tunnel «it« proper.

metSNS R eclamation Plan Engineer Office inactive Hlne sludge Disposal Site ft A T C Standard Metals corporation U n i t SilVerton Operation

Engineering OfficeSludge Disposal Site A» of July 10» 1985, Standard Kota Is Corporation has discontinue disposal of nine water sludge in tha engineering offloe Battling pond along'the ftnittas Kiwer. ■ . “ ..... ‘

Upon evaluation of the Haerican Tunnel mine water sludge analysis now being conducted at COS Laboratories in Durango, Colorado, the following reclamation plan could be isspleufcsnted by the 1986 ekcavation season for the* inactive iKinc water sludge disposal site. The reclamation plan would incorporate the following: 1* The insitu burial (capping) of the entire site with approximately two to three feet of suitable earthen material (glacial moraine deposit) frcot the adjacent hillside»

2. The construction of an ade

3. An approximate final slope of 3tl or 4 e 1 of the entire site from bocTov area to river enibantanent»

4- The placement of rip-rap, where needed« on the existing ewbanfcwent river interface*

5. The revegetation of.the entire site with appropriate grass and forb species for tho particular site»

6. Contingencyi if the analysis of the American Tunnel wine water sludge is unacceptable for insitu containment on the existing inactive tailings pond feite, the mine .water sludge will be eventually “removed to an adecpiate final disposal site. Surfaces Drainage Control Plan Mayf3.a>tfuz? Hill TdiXinga Ponds Standard Ratals Corporation date fiilverton Operations

The surface drainage control for the Mayflower Mill and tailings pond» would adhere to the following guidelines* :

1. To follow the rectxanendationB set forth in the 1976 Hydrological Design Data report by F.M* Vox and Associates, Inc. (copy enclosed).

2. To maintain the exi»ttng surface drainage control ditches on cite# i.

3. To construct and Maintain surface drainage control ditches as propose on the enclosed surface drainage control plan map.

4- To att^aapt to control seepage water entering the NO. 4 Tailing« I*ond l>y containment and contour piping to an offsite drainage (see map). JteserlcAn Tunnel Standard liatAla Corporation Silvertim Operations DATE

The surf&cii drain-age control for the American Tunnel will adhere to the following guideliness

1 * To pd-intajn existing surface drainage control ditches oh site,

2. To construct and naintain surface drainage control ditches as proposed On the enclosed surface drainage control plan map*

3. to follow, where applicable, the criteria set forth in the1976 Bydrological Design Data report by F.H. Fo* and Associates, Inc., for, the tailings pood Bite, copy enclosed.

4. The placement of 18-inch to 36-inch diameter culverts where needed to allow access «*d drainage control- n

L o n g "term Sludge Disposal Aaandasent for the American Tunnel, Terry Tunnel ' Standard-Metals Corporation * Standard Metals Corporation will submit a Long Term Sludge Disposal Araend- *sent no later than April 29, 1986.

Permit Amendment Application ! Terry Tunnel# Lake Bama

A preliminary Addendum, Exhibit D, and surface nap of Lake Eocna are enclosed with this report, standard Matais Corporation will euhsnit a complete ment Application for Lake Euaaa and the Terry Tunnel no later than April 29, 1086.

Entire Operation Permit A*aendment Eeyietf and Bgyjsion

Standard Metals Corporation will submit a preliminary Permit Amendment Revision no later than April 2 9 , 19B6. Mining Mgtitod Araemlmenfc

Tbo mining method employed for extracting targeted ores is shrinkage atoping, sublevel open 3toping and blasthole stoping» depending upon the geometric eonfigxiration of the ore.

Occasionally waste is mined in the development of target orfs, and.where possible, the ore pass will be used for transferring - the.was16 rook.to tho waste duntp at the American Tunnel via rail haulage.

LaXe Emma Amendment

In June of 1978, Standard Metals Corporation's Bunnyside Mine experienced the "Collapse .of. Emma* • which inounflated the Sunnysidc Mine with mud and water,

Thfi mine was reopened in 1978, 1979 and 1980 by cleaning out the mine and disposing of the mud at the Terry Tunnel and American Tunnel surfaceareas* The majocity of all muds and wafst« that entered the mine have already been removed.

In the summer season of 1901, Standard Metals conducted the following reinfHiial actions:

X» Excavation of mud from the now dry lake bed and disposal in Mmud disposal area-. 2. Excavation of rock from a 72-foot deep trench and disposal in rock disposal areas. 3. leading and road haulage of approximately 20,000 tons of ore from two old ore dumps in Sunnysiti? tiasin. 4. Construction of a ring dike around the hole through which Lake EmTia entered the mine ai\d tying into the 72-foot trench in an attempt to capture 86% of the surface drainage in Sunnyside Basin before the water entered the mine. The construction material was borrowed from construction borrow arrta as shown on map of l*akc Emma affected lar»ds.

Car« and maintenance of the dam an& site was conducted in 1982, 1983 and 1904. Annual care and maintenance incl\>1ed cleaning sediments from the tiench and reestablishing the grade in the trench and ring dike to 1% grade and doing any repairs necessary to the dike. The area of disturbance including the major, mMcrate and minor disturbance categories is 29.99 acres. Jtôdenâum, Rahüilt I) W 2 DATE tga faCTfl Peclaaation Plan ' '"" 1

1tns possibility of future vniivlpg in 1007 or 1908 exists,'; perking further . eooaogic evaluation. tf t M s occurs« it. i« forfisecQ that we shall open the hole to 25 feet by 250 feet in plan view and take the or«* through the nine for processing. 11« final reclamation plan will Include saving surface allaviun a M » vhexe passiible, the old mine duapa into the hole to backfill the hole to the 12,170 tttmtour line. 'To s Hr. Greg Sparks Rtf. D o u g M u r r a y I’ï t o e fr&Vtfi Moody, Minerals Ocmtsultant DATE CafrjfîJït s American Tunnel SludKga Di&po&al

I 4ubv* reviewed the gcotcchnical investigation of Tailings pood No- 3 ti&t&d A p r i l 2 8 1 1976» a u t h o r e d b y F. rt. foie &nc\ Associates, Inc./ and directed that an apd&ted curvey be conducted to shot# final constructed configuration» £he tailings eeabaiifcfiient. factor of safety is currently in excess of 1*1.5 And up to 5.47 feet can Us addftd to the enbanksoent and still naiutain this factor of safety.

Ute Tailings Pood Mo- 3 tit*; appears to be the beat short tcrw di&po»al area; howeverr several issues still need to be addressed prior to temporary disposal, including

1» Msthodology of rfi&aval of standing water (pmp 5 days). 2. Analytic off »lodge to assess a permanent disposal Aito (iw October 19) • 3* Methodology of resioval of si vige if it is required disposed on a geoH&easbrdne liner (sea 3.0 below).

Stawgry of Observations

1.0 Carrent configuration of eofomtanotnt

»arch 1978 April 1976 Surveyed Locat i o n Data Point* Jussuaied 10/2/65 A d d e d 1,1 Dam Crest »7 - .-9455.90 9457.90 9464.20 6 . 3 ft 1.2 Dam Crest #5 and *11 9457.97 9459.97 9 4 6 0.50 0 . 5 3 ft 1.3 Hater elevation 9453 Est 9454.0 1 .0 ft

1.4 The current estbanks&ent at Sections AH and RB (10/2/05 survey) is at 1.50 to 1 and 1.67 to 1 respectively (horizontal to vertical), and F* K. Post recosvaends that this should be at a 2*5 to 1 slope. Physical inspection and review indicate that Section && can achieve a clopG of'2.26 to 1 and BB can achieve a 2.76 to 1 slope without highway relocation by earthen construction. Mr* Greg gpartos/tfr. Doug Murray H I f “1« fjk ! “• I Page 2 Aflt&rican Tunnel Sludge Disposal *L^ fi * f I October 9, 1935

1*5 Assuming that Section EB is at the low point of the daitt and assuming a. 2*0" final sludge freeboard, the volumes are presented below;

* Volume of contained water 1*5000,000 gallons 7460 cy • Volw&e of filling-water level to crest ninua two feet 280,x446,x4V 18540 cy

Total Volutae Existing 10/2/05 36000 cy

Add 5.47 ft to data as allowed by F. M, Fox 25300 cy

Potential Total volume 51100 cy

1-6 Current geotech date Permeability of Tailings Pond No*i 3 is 321 ft to 1607 ft per year. Six feet is maximum additional height allowed due to slimes under clam at teat bole f7.

2.0 Voluffifi of sludga to be niov&ds

Pond IJo. 1 8,000 cy Pond No. 2 41900 cy Pond No* 3 3,700 cy Pond no* 4 1,400 cy Total late 198S Volume to Move IS,000 cy

The 18,000 cy is probably a 50% solid slurry or less and soa^t shrinkage 1 can be expected due to solar dicing and field tests would.be required to assess this amount on the existing sludge at the engineering fronds.

3.0 Future Liability

i 1Cbc temporary disposal of sludge at any site may incur a future liability against Standard Hetals Corporation's estate. ,

Conceptually, a aeries of cello could be constructed along the dam by the highway and the sludge can be retrievable by dragline; however, only 2,000 to 3,000 cy can be retrieved within reach of a reasonably sized dragline (50 ft boot» reach),

Itw? decision to rove the sludge and place it in an Irretrievable location could run up hundreds of thousands of dollars of liability which would further impair creditors and could further impair the corporate reorganisation efforts. pon S V RFAce 0HAWA&S CMTAOL

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UNITED STATES OF AMERICA \ *' M A N ^ « K E R W A » > _ clerk Plaintiff, ) 7 “, l ( CIVIL ACTION NO. 81-C-4fl<î STANDARD METALS CORPORATION Ì ABT,rt4 «rüKATION, ) ^ E RFOR DISMISSAL Defendant. J WITH pREJl®ICE ------) ■

^ C0Urt' ««• «i approved che stipulation e part es for the purpose of settling this case and

ng Cm3ldered 311 and matters of record in this case, and good cause aPPearing therefor, OOES HEREBY ORDER that this action is dismissed „ith p e d i c e , in accordance h said stipulation, each part, to bear its own costs and attorneys Is pimmR 0RDEm_ ^ ^ retains Jurisdiction upon »ticn of any party to c o ^ i performance with th*» terms of the .«wlatlon and to grant other appropriate relief, ^ E Dated t h i s ^ day of BY THE COURT, * /'/ ’

( D ' / A i / ' K , PiCTaitff m ar------ZZ?7 ai$2n?32

JAMES R. MANSPEAKER UNITED STATES OF AMERICA, ) ) CLERK Plaintiff, ) ) V. ) CIVIL ACTION NO. 81-C-489 STANDARD METALS CORPORATION, STIPULATION FOR ENTRY OF JUDGMENT Defendant.

This civil action was filed by Plaintiff United States of America against Defendant, Standard Metals Cor poration (Standard) on April 8, 1981. The United States and Standard now consent to the entry of this Stipulation for’Entry of Judgment for purposes of settlement. No trial has been held. Good cause appears for the Court to approve the settlement, and it is hereby approved in accordance with the following stipulation. 1. The Complaint alleges violations of the Federal Clean Water Act, 33 U.S.C. Section 1251, et seq.. and Stan dard's National Pollutant Discharge Elimination System ("NPDES") permit Numbers C0-0000462; CO-0027529, which implement the Act. Standard does not admit to any of the alleged violations. 2. This Court has jurisdiction over this matter pursuant to 33 U.S.C. Section 1319 and 28 U.S.C. Section 1345. 3. This stipulation is a settlement only of those issues raised in the Complaint. It is not and shall not be Interpreted to be a permit, or modification of existing permits under Section 402 of the Clean Water Act, 33 U.S.C. 1342, nor shall in any way relieve Standard from its obliga tions to comply with the provisions of any permits which have been issued to it or may be issued in the future pursuant to Section 402 of the Clean Water Act. Any new permits, or modif ication of existing permits, must be accomplished in accord ance with applicable federal and state laws and regulations. 4. Standard shall pay co Che United States, the sum of $25,000.00 in setclement of all claims of che United States asserted in this action or which could have been asserted through Che date of approval by the Court and entry of this stipulation. Standard shall pay $12,500.00 of this amount within fourteen days of approval and entry of this Stipulation, and the remaining $12,500.00 on or before January 15, 1983. An additional $25,000.00 payment by Standard to the United States shall be suspended and waived conditioned upon the provisions of paragraphs 5 and 6 of this Stipulation. Potential liability for the suspended amount shall end on the dates specified in paragraph 5. All payments due under this paragraph shall be made by check payable to the United States Treasury which shall be delivered to the United States Atcorney for the District of Colorado. 5. For the purposes only of the suspension of the $25,000 payment set forth in paragraph 4, Standard, from the date of approval and entry of this Stipulation by Che Court and up to and through July 1, 1983,. shall not exceed the fol lowing conditions, unless excusable or allowable under the applicable permit then in effect: American Tunnel Discharge 30 day average daily maximum- mg/1 mg/1 Total zinc - 9 15.0 pH - shall be greater than 6 Mayflower Mill Discharge 30 day average daily maximum mg/1 mg/1 Total Copper - 0.4 1.0 Total Lead - 0.6 1.2 Total Cyanide - 0.3 0.5 Terry Tunnel From May 1, 1983, up to and through July 1, 1983, Standard shall not exceed the following condition, unless excusable or allowable under the applicable permit then in effect: 30 day average daily maximum mg/1 og/1 Total Zinc - 4.0 7.0 pH - shall be greater than 6 6. Should Standard violate any of the effluent limi tations specified in paragraph 5 of this stipulation, the United States shall notify Standard Metals in writing of the intention to collect the $25,000.00 suspended amount. Such notification shall state the date(s), times, and circumstances of the alleged violation or violations, and provide Standard with all information known to the Regional Administrator, Region VIII, EPA, regarding the alleged violations. Standard may, within 14 days of the receipt of such notification, request in writing a meeting with the Regional Administrator, Region VIII, EPA, and the United States Attorney to rebut the alleged violation or explain any mitiga ting circumstances. The United States shall decide within 60 days of such meeting whether to enforce the suspended pen alty provisions, and shall promptly notify Standard of this decision. The content of any discussion with the Regional Administrator and the U. S. Attorney regarding collection of the suspended amount shall not be admissible in any judicial proceeding before this Court concerning this Stipulation. Payment of the suspended penalty shall be due and payable by delivery of a check to the United States Attorney made payable to the United States Treasury, within 60 days of the decision by the United States to enforce the suspended penalty provision. 7. The State of Colorado and EPA shall not be pre cluded from any action to enforce any applicable NPDES permit limitations for violations occurring after the date of entry of the stipulation except that EPA will not bring an action with respect to any violation occurring prior to approval and entry of this stipulation by the Court, or any violation for which the suspended amount has been collected, or any alleged violation which has been the subject of a conference under paragraph 6 that resulted in a decision not to collect the suspended amount. 8. Standard shall develop operating procedures for the tailings wastewater treatment system at the Mayflower Mill that will maintain compliance with permit effluent limitations during intermittant as well as normal mill operation periods. Standard shall submit a plan outlining such procedures to the EPA Regional Administrator, Region VIII, within 60 days of the entry of this Stipulation. The plan shall include consideration of: (a) Maintenance of tailings pond pH during mill shut down periods. (b) Monitoring of pond water prior to start-up of milling operation. (c) Monitoring of effluent quality in relation to mill feed characteristics and blending of ore to minimize pond upsets. 9. Standard shall undertake a study to evaluate optimization of the performance of the American Portal and Terry Portal wastewater treatment systems. As experience is gained from this study, the system variables, pH and flocculant addi tions, shall be evaluated to ensure that the systems are being operated as efficiently as practicable. As part of this evalu ation, the relationship between pond Ph and total zinc concentra tion shall be established. A target level of 1.5 mg/1 total zinc shall be utili2*d during this evaluation. standard shaU submit its outline describing the optimization study to the Regional Administrator, within 60 days of the entry o£ this

stipulation. HO later than November 1, 1982, Standard shall submit a report to the EPA Region VIII, Regional Administrator which contains the results of the o p e r a t i o n evaluation I M S provision is for the purpose of an evaluation and shall not impose a requirement on Standard to operate its

treatment system at 1.5 mg/1 total zln= on a continuous basis. 10. The parties agree that upon approval of this stipulation by the Court, the Court may enter an order dismis sing the complaint of the United States „1th prejudice, but retaining Jurisdiction upon motion of the parties to coapel compliance or grant other appropriate relief to insure com pliance With the provisions of this.stipulation. U. Each party shall bear„its own costs Daced thi* Q2d..^y

Approved: (/) f- ’

The foregoing Stipulation for Entry of Judgment is approved as to form and contents.

Carol i/Angins ff«iSCa2C AtCorney General clyde 0^ Martz ------^ 2 Â BSrîLScTrcM Dlvi8i0* Gregory J. Hobbs, Jr. Washington, D. C. 20530 DAVIS, GRAHAM & STUBBS P. 0. Box 185 Denver, Colorado 80201 Robert N. Miller (303) 892-9400 United States Ay:omey Attorneys for Defendant Standard Metals Corporation W f f p n f U n l t ’d'd “States’ / united States Courthouse attorney Denver, Colorado 80294 Attorneys for Plaintiff ©1983 TH E PU BLIC RECORD CORPO. ION ALL RIGHTS RESERVED

6.9.5 DURATION OF PERMITS

The duration of a permit shall be for fixed tern and shall not exceed five (5) years.

6.9.6 TRANSFER OF OWNERSHIP

A permit may be transferred to a new permittee (unless the Division determines otherwise under federal regulations) if:

(1) The current permittee notifies the Division in writing 30 days in advance of the proposed transfer date in paragraph (2) of this section; and

(2) The notice includes a written agreement between the existing and new permittees containing a specific date for transfer of permit responsibility, coverage and liability between them.

6.10.0 OTHER TYPES OF PERMITS

6.10.1 TEMPORARY PERMITS

(1) All temporary permits shall contain such conditions as are necessary to protect the public health and shall not be less restrictive than required by state and federal effluent guidelines unless a schedule of compliance or a variance is set forth therein. A temporary permit shall'be issued for a period not to exceed two (2) years and shall expire as provided in the Issuance or denial of the final permit.

6.10.2 • GENERAL PERMITS

(1) The Director may issue a general permit to cover a category of discharges, except those covered by individual permits, within a geographic area which shall correspond to existing geographic or political boundaries. The general permit shall be written to regulate, either:

(a) separate storm sewers; or

(b) a category of point sources other than separate storm sewers if the sources all:

(I) involve the same or substantially similar types of operations;

(II) discharge the same types of wastes; j !

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J U C Ä t M Áte t.¿ic * ¿*/¿£v r^u^rC -/y&K’jfinj & C) and certain of its officers, ground and (2) entry of monetary judgment ed in negligence and breach of contract. against debtor is distinguished from en These claims were properly dismissed forcement of monetary judgment which since the federal claims were dismissed government would have to seek in Bank before trial. Jones v. Community Redevel ruptcy Court. opment Agency, 733 F.2d 646, 651 (9th Cir. 1984).

VII. Conclusion On bankrupt corporation’s - motion that government’s attempt to levy fine We have considered the other jurisdic for Clean Water Act violation be post- tional grounds urged on appeal by the poned; motion denied. City. We find them without merit. Joseph F. Dolan, U.S. Atty, and An We affirm the district court’s dismiss thony C. Liotta, Acting Ass’t Atty Gen, al of the claims brought under the due Washington, D.C., for plaintiff. process clause of the Fifth and Four Clyde O. Martz, Denver, Colo., for teenth Amendments, the CWA and 42 defendant. U.S.C, § .1983, for lack of jurisdiction. Before Jim R. Carrigan, District We affirm dismissal of the claim Judge. brought under the Consent Decree on the .alternative ground that the City’s Full Text of Order complaint fails to state a claim upon ORDER which relief can be granted. CARRIGAN, J. We do not reach the issue whether the district court properly abstained under The United States brought this action Burjord. against Standard Metals Corporation al leging violations of the Clean Water Act, AFFIRMED. 33 U.S.C. §§1251 el seq. The parties, on August 23, 1982, entered into a stipula tion and settlement whereby Standard paid $25,000 to the United States. An additional $25,000 fine was suspended, provided that Standard did not exceed certain effluent limitations set forth in U.S. V . STANDARD METALS the stipulation “unless excusable or al lowable under the applicable permit.” I CORP. retained jurisdiction over this action to conduct further proceedings “upon mo U.S. District Court tion of the parties to compel compliance District of Colorado or grant other appropriate relief to in sure compliance with the provisions of UNITED STATES OF AMERICA, this stipulation.” Plaintiff, v. STANDARD M ETALS On December 16, 1983, the United C O R P O R A TIO N , Defendant, Civil States demanded payment from Stand Action No. 81-C-489, May 24, 1985 ard of the $25,000 suspended fine. The United States alleges that Standard vio WATER lated the stipulated limitation on zinc Liability by industry — In general discharges. On January 24, 1984, (§11 .01 ) Standard requested a de novo hearing to determine whether the United States Court jurisdiction and procedure — may collect the suspended payment un In general (§15.01) der the terms of the stipulation. On May 2, 1984, Standard advised [1] Government’s attempt to fine this court that it had petitioned for bankrupt corporation for discharge of bankruptcy under Chapter 11, and that pollution in violation of Clean Water it believed the collection of the suspend Act may not be postponed by U.S. dis ed penalty was automatically stayed un trict court while Bankruptcy Court re der 11 U.S.C. §362(a)(l). On August views company’s case, because: (1) ac 28, 1984, I ordered the United States to tion taken under government’s show cause why 11 U.S.C. §362(a)(l) regulatory power is exempt from post should not be applied to automatically ponement provision of Bankruptcy Code, stay collection of the penalty. Both par- U.S. v. Standard Metals Corp. ties have now thoroughly briefed this issue. Mass 1983); In re Greenwald, 34 B.R. 954, 956 (Bankr. S.D.N.V. 1983); see, Decision of this matter turns on inter also 1978 U.S. Code Cong. & Ad. News pretation of the automatic stay provision at 6444-45 (remarks of Rep. Edwards) of the Bankruptcy Code and its excep and 1978 U.S. Code Cong. & Ad. News tions. 11 U.S.C. §362 provides in perti at 6513 (remarks of Sen. DeConcini). nent part: Upon careful review of the file and “(a) Except as provided in subsec the briefs submitted by the parties, I tion (b) of this section, a petition filed conclude that this is the classic regula- under section 301, 302, or 303 of this ^ ^ I f e? ent action contemplated by title, .. . operates as a stay, applicable §362(b)(4). See, e.g., United States v. Ener. to all entities, of — gy International, Inc., 19 B.R. 1020 (S.D, (1) the commencement or continu Ohio 1981) (where Department of the ation, including the issuance or em Interior sought a civil penalty for viola ployment of process, of a judicial, ad tions of the Surface Mining Control and ministrative, or other proceeding Reclamation Act of 1977, 30 US.C. against the debtor that was or could §1201 et seq.\ held: the action was ex have been commenced before the com cepted from the automatic stay provision mencement of the case under this title, as an action to enforce regulatoiy pow or to recover a claim against the debt ers of the United States). or that arose before the commence Environmental laws are enforced in a ment of the case under this title; variety of ways. The Third Circvm held (2) the enforcement against the in Penn Terra Limited v. Department of En debtor or against property of the es vironmental Resources, Commonwealth of tate, of a judgment obtained before the Pennsylvania, 733 F.2d 267 (20 ERC commencement of the case under this 2185] (1984), that an action to enjoin title; the operator of a coal mine to correct * * * violations of state environmental protec tion statutes came within the police (b) The filing of a petition underpower exception, §362(b)(4). Section section 301, 302, or 303 of this title 362(b)(5) makes it clear that a court *•.. does not operate as a stay — may both enter and enforce an injunc tion obtained in a regulatory enforce * # * ment action, even though the injunction will require the debtor to spend money (4) under subsection (a)(1) of this in order to remedy the problem. Id. section, of the commencement or con Injunctive relief, however, is not al tinuation of an action or proceeding ways an appropriate remedy. In the in by a governmental unit to enforce stant case, the parties chose, and I ap such governmental unit’s police or proved, a monetary penalty as the regulatory power; enforcement mechanism. The suspended (5) under subsection (a)(2) of this fine was obviously designed to provide section, of the enforcement of a judg Standard an incentive to exercise care to ment, other than a money judgment, prevent releases of pollutants. Once a obtained in an action or proceeding by pollutant is released from Standard’s fa a governmental unit to enforce such cility, as the government alleges oc governmental unit’s police or regula curred, it is carried downstream and tory power; ... harm is done immediately. The United States asserts that this is If consideration of the fine mechanism an action to enforce its regulatory power is confined to the time after the release under the Clean Water Act, and, there occurred, it may appear that the govern fore, is excepted from the automatic stay ment is merely trying to protect a pecu provision by §362(b)(4). Standard ar niary interest in collecting the fine. gues, on the other hand, that the govern Standard argued in its brief in response ment merely seeks to protect its pecuni to the plaintiff’s show cause statement ary interest in a private contract. It has that “unlike in the Penn Terra case, the been established that an action by a gov United States here is not seeking to en ernmental unit to protect a pecuniary join or compel any action by Standard interest is stayed by §362(a)(l). in re Metals which would abate, alleviate or Farmers Markets, Inc., 36 B.R. 829, 833 remedy any circumstances relating to the (Bankr. E.D. Cal. 1984); In re Aegean public health or safety.” I find this view Fare, Inc., 35 B.R. 923, 927 (Pankr. D. unduly circumscribed. One must consid- Missouri v, Independent Petrochemical Corp, V..-' 22 ERC 1109 er the deterrence function of the fine pri or to the release. If one in precarious tered, along with other creditors, in the financial condition knows that any ac Bankruptcy Court proceedings. tion to assess a fine will be stayed by Accordingly,. filing for bankruptcy, he will have little *sl ^ess. 343, reprinted in [1J Federal district court lacks juris 1978 U.S. Code Cong. & Ad. News diction over non-resident defendant in 5963, 6299. Missouri’s suit to recover costs for This is an action to fix damages for vio cleanup of hazardous waste site under lation of environmental protection laws Comprehensive Environmental Respon clear*y falls within the ambit of se, Compensation, and Liability Act, be §362(b)(4). cause: (1) CERCLA does not authorize jurisdiction over non-resident defendants ■ ^ . e |e8'slative history also illuminates who lack minimum contacts with state the distinction between entry of a money where federal court sits, and (2) evi judgment and enforcement of a money dence shows that state named wrong judgment. See Penn Terra, 733 F.2d at party when alleging activities in Missou 274-79. The United States seeks entry of ri by defendant that would establish a money judgment in this action. It will minimum contacts needed for court to seek enforcement of any judgment en- assert jurisdiction under state law. DIVISION 7 ABANDONMENT OBJECTIONS

Dist. 29 9/5/85, 9:00a.m. 84CW143, Howe Ditch/ Westfork .9/5/85, 9:30 a.m.. 84CW201, Chapson Ditch/ Coors Co. Dist. 34 9/5/85, 10:00 a.m. 84CW164 & 246, McGrew Ditch, Bauer Lakes Water Cjd. S Ben Shaw Dist. 69 9/5/85, 11:00 a.m. 84CW171,. ftàmmónd & Clark, Mountain Gravel & Const, and Richard Tibbits 9/5/85, 11:30 a.m. 84CW172, Sebastian-Tam Ditch, same objectors as 84CW171 Dis t. 71 9/5/85, 1:30 & 2:00 84CW177, Turkey Creek Ditch, Summit Rés, Co, 84CW178 Summit Ditch, Summit Ditch, Summit Res. Co. 9/6/85, 1:30 p.m. 84CW203, D. D. Williams Ditch, John Black 9/6/85, 2:00 p.m. 84CW2Ó4, Lone Dome pitch, John Black Dist. 30 9/6/85, 2:30 p.m. 84CW2Ó8, Cascade Canal, Colorado Ute Electric. 9/6/85, 2:30 p.m. 84CW2Ó9, Power Canal No. 1, Colorado Ute Electric Dist. 78 9/26/85, .9:00 a.m. 84CW221, Woodhouse No. 1 Ditch, Grevey-Libermann, Inv. Dist, 31 9/26/85, 9:30 a.m. 84CW222, Klondike Park Spring, N .'A. Mueller Dist, 30 9/26/85, 10;00 a.m. 84CW237, Golf Host West Well D-l, Golf Host West Dist. 29 9/26/85, 10:30 a.m. 84CW247, John'T. Tiernan No. 1, United Dairy Farmers Dist. 71 9/26/85, 11:00 a.m. 84CW229, Stoner Ditch, U.S.A. John Hill Dist. 29 9/26/85, 1:30 p.m. 84CW238 & 84CW239 Archuleta Ditch, C S F Chavez *■ 9/26/85, 1:30 p.m. 84CW240, Chavez Ditch, C 8 F Chavez 9/26/85, 1:30 p.m. 84CW241, Chavez Ditch if2, C & F Chavez Dist. 33 9/27/85, 2:00 p.m. 84CW244, Fry No. 2, Donald Harris i Dist. 30 9/27/85, 2:30 p.m. 84CW112, Stephens Creek Pipeline, Ed Bradford ! Dist. 32 9/27/85, 3:00 p.m. 84CW120, Hightower Ditch, Ed, Latham Dist. 71 10/10/85, 9:00 a.m. 84CW263, 84CW264, George P., Moore Ditch, CO. Div. of Wildlife 10/10/85, 9:00 a.m. 84CW265, Lone Dome Ditch, Wildlife' Dist. 69 10/10/85, 9t00 a.m. 84CW262„.JtQung Ditch No. 2, Wildlife Dist, 30 10/10/85, 9t00 a.m. 84CW261, Haviland Lake Inlet, Wildlife Dist. 71 10/10/85, 11:30 a.m. 84CW131, Frank Robinson Ditch, Rosemary E. Hopkins Dist. 30 10/10/85, Is30 p.m. 84CW136, Chastain Well, Lawrence Chastain Dist. 71 10/10/85, 2:00 p.m. 84CW148, Lyons Ditch, Cordy Englehart 10/10/85, 2:30 p.m. 84CW157, Bankston Ditch, Vernon Bankston 10/10/85, 3:00 p.m. 84CW159, Sulphur Gulch Ditch, Charlotte A. Aiken Dist. 32 10/11/85, 1:30 p.m. 84CW169, Wilson Ditch, Vance McCabe Dist. 30 10/11/85, 2:00 p.m. 84CW145, Mineral Point Ditch, Warren Gibbs Dist. 33 10/11/85, 2:30 p.m. 84CW179 Crustal Springs, John E. Harris Dist. 34 10/11/85, 3:00 p.m. 84CW183, Mancos Canyon Ditch, J & P Sheek Dist. 30 10/18/85, 1:30 p.m. 84CW190, Turner Diversion Pump, Rod SRobin Turner Dist. 34 10/18/85, 2:00 p.m. 84CW2Ó5, B.C. Smith Ditch, Light, Pennington & Smith Dist* 30 10/18/85, 2:30 p.m. 84CW2Ó7, Forbes Ditch No. 5 PS, Durango Inn Dist. 77 10/18/85, 3:00 p.m. 84CW2Ì9, Elmer Ditch, Harold Schütz Dist. 30 10/18/85, 3:30 p.m. 84CW227, Durango Res. 1,2,3,4, City of Durango 10/18/85,~4j00 p.m. 84CW228, Blodgett Eastside, Westside D, City of Durango Dist. 78 10/23/24,25 9:00 a.m. 84CW235, Cruther Ditch, U.S.A. for So. Ute Tribe Dist. 33 10/23,24,25 9:00 a.m. 84CW232, 251, Spring Gulch Ditch, Ute Mountain Utes 10/23,24,25 • f ; “ 9:00 a.m. 84CW233, 249, Cherry Creek Mesa Ditch, Ute Mtn. Utes 10/23,24,25 9:00 a.m. 84CW234, 250, Spring Creek Ditch, Ute Mountain Utes Dist., 32 10/31/85, 9:30 a.m. 84CW226, Toelle Ditch, R S M Kelley Dist , 30 10/31/85, 10:00 a.m. 84CW236, Forbes Ditch No. 3 PS, Robert O’Brien Dist , 33 10/31/85, 10¡30 p.m. 84CW242, Moss Ditch, James Jackson Dist , 71 10/51/85, 11:00 a.m. 84CW165, Everett Ditch, Leroy Everett Dist , 30 10/31/85, 11:30 a.m. 84CW248, Highland Mary PL. & Rés., Lorenz/Hugins 10/31/85, 1:30 p.m. 84CW252, Thompson Irrigating Ditch, Falls Creek Ranch Dist . 34 10/31/85, 2:00 p.m. 84CW253, A.P.Camp Ditch, LeBolt, Keating & Altman Dist , 33 10/31/85, 2:30 p.m. 84CW256 B i g Hill Ditch, Elmer Thompson Dist , 30 10/31/85, 3:00 p.m. 84CW257, Jakino Ditch, Checkshani Homeowners 10/31/85, 3:30 p.m. 84CW259, Dwyer Diteli, La Plata County 10/31/85, 4:00 p.m. 84CW220, Dwyer Ditch, Earl Barker 10/31/85, 4:00 p.m. 84CW260, Barnes No. 2D., Dorothy Barnes Liddy Dist . 77 10/31/85, 4s30 p.m. 84CW301, Eaklor Ditch, Crowley Brothers # Dist , 33 9/26/85, 1:30 p.m. 84CW243, Fry No. 1, Donald Harris p T 0 f t f / / R c / J s > F R O M ' u AREA CODE . NUMBER H

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t?APORMJOTO-12 |T.«t> D a v i s , G r a h a m & S t u b b s ATTORNEYS AT LAW

2600 COLORADO NATIONAL BUILDING S U IT E 5 0 0 950 SEVENTEENTH STREET 1001 TWENTY-SECOND STREET, N.W, POST OFFICE BOX Ids WASHINGTON. D.C. 20037 TELEPHONE 203-322-6860 DENVER, COLORADO 80201 TELECOPIER 202-293-4794 TELEX 24-6260 DOSW TELEPHONE 303-692-9400 S U IT E 3 0 0 TELECOPIER 303-893-1379 DENVER CORPORATE CENTER, TOWER TELEX 45-0239 OGS DVR 7800 CAST UNION AVENUE CHRISTOPHER L. RICHARDSON CABLE OAVGRAM, OENVER OENVER, COLORADO 80237 692-4420 TELEPHONE 303-694-4464 TELECOPIER 303-771-6592

August 15, 1985 S U IT E 6 0 0 821 SEVENTEENTH STREET POST OFflCE SOX 185 DENVER, COLORADO 60201 TELEPHONE 303-298-9664 TELECOPIER 303-293-2918

William C. Robb, Esq. Welborn, Dufford, Brown & Tooley 1700 Broadway, #1100 Denver, Colorado 80290-1199

Re: Standard Metals

Dear Bill:

Enclosed are the two title opinions by Dufford, Waldeck & Williams that were not included in the package of information previously delivered to Mr. Dufford. X will contact you as soon as I have the water materials from Silverton.

Very truly yours,

Christopher L. Richardson for DAVIS, GRAHAM & STUBBS CLR/jag E n c l o s u r e s

HAND DELIVERED with the most attention given to those displaying large ecologic amplitude, capable of desired results in a number of micro-sites.

Upon selecting the best species for achieving reclamation objectives, reclamation plans originally proposed were modified to reflect species selection. In addition, the plan was modified to more effectively* ameliorate inimical environmental conditions on disturbed sites such that a larger number of species possessed potential for success in revegetation efforts. ■ - Following is a description of the modified reclamation plan prepared for disturbed lands at the Silver.ton operation based on originally submitted plans, and revegetation test plot results. The reclamation plan is divided into four phases: I. Site preparation

II. Pioneer community

III. Successional community

IV. Maintenance Each phase of the plan is anticipated to require five years

to complete. Although some disturbance sites will require less

time for completion of each phase, five'years is placed on all

sites to compensate for unknown factors resulting in failure. .

The subsequent reclamation plan description addresses performance

•standards outlined in Rule 6. I. Site Preparation .

The objective of the site preparation phase is to modify

edaphic factors on disturbed sites which limit plant establish

ment. Efforts teffected during this phase of the reclamation

plan will increase the potential for revegetation efforts to

attain a diverse self-sustaining plant cover on affected lands.

Activities conducted during this phase are presented below.

1. Dismantlement

Where necessary to successfully apply reclamation procedures,

permanent or temporary structures related only to mining and milling operations (i.e., utility installations) located on

disturbed sites will be dismantled as a first step- ' Dismantle ment of the structures will occur to ground level and foundations will be covered to a depth of 36" to 48" with suitable soil cover

permitting uninhibited extension of plant root systems. Building

components of the structure will either be removed from the site

or stockpiled until maximum return from possible resale is realized

Structures which fall into the dismantlement category on

affected lands include the mill facility (80,000 ft^}, the mine

portal facility (12,000 ft ), and mine supply warehouse (5,000 ft )

See Hap lb and tc fer-itrucd In addition to raised structure dismantlement, this step of

the site preparation phase will include sealing the mine portal

adit. The adit will be sealed in a manner to prohibit entry,

minimize air flow to reduce acid drainage formation, but still

allow mine drainage discharge. No attempt will be made-to seal

the adit in a manner eliminating mine drainage discharge due to the danger of unplaced release. See Figure £ - 2 oposed

adit seal design.

2. Topsoiling

All mineral extraction activities are conducted underground,

consequently no overburden removal operations are connected with

this phase of the mining operation. The only activity at the Silver-

ton operation in which topsoil removal has occurred was preparation

of the No. 4 Tailings Dam location. During construction of the pond

foundation a significant volume of peat material was excavated and

stockpiled for use in reclaiming the pond site upon abandonment. The

topsoil material was stockpiled in a location undisturbed by mining or milling activities, and then graded and seeded to prevent wind and water erosion and leaching of essential nutrients. Woody materials

in the peat area, primarily willow (salix sp.) were removed and trans

planted on previously disturbed sites. No other overburden or topsoil

removal for mineral extraction has occurred.

Topsoil placement for reclamation purposes will be conducted where possible due to availability, slope, etc., by passive or active deposition methods. Where implemented topsoil placement activities will be conducted in a manner to maximize success of subsequent

reclamation activities. .. * , * i 3. Ripping and Grading

Where necessary and possible, affected lands will be ripped and

graded to achieve a substrate with favorable plant establishment

characteristics. Disturbed areas which have been compacted by

heavy use will be ripped to increase pore density. All areas will be graded to achieve maximum slopes of 2:1.

On some sites such as inactive tailings ponds and sharply inclined lands a 2:1 minimum will not be possible to attain due to physical or structural limitations involved in deploying grad

ing equipment. These areas will be worked to achieve the minimum .

slope possible, surface water diverted to mitigate erosional

potential, and particular attention given to rapid vegetation

establishment. * Permanent impoundment of surface waters on reclaimed lands

is not planned, and grading work will be implemented with!.this..in

mind. Minimal impact will occur to ground water systems due to

grading activities since no well water use is planned on reclaimed

lands, and natural infiltration will be improved by revegetat'ion

practices.

4. Soil Conditioning Appropriate soil conditioning techniques will be applied to

disturbed sites to achieve substrate conditions amenable to vegeta'

tion establishment. Soil conditioning activities will include: .

Leaching substrate on disturbed areas which contain levels

of substances toxic to plants or high levels of salts inhibitory

to sustained plant growth;

Liming disturbed substrate with low pH.to prohibit leaching

of primary nutrients and reducing the availability of toxic material

Lime addition will be accomplished to achieve a soil pH of 5.5 to .

7.5; and Aerating'tight substrate by ripping or harrowing to achieve . ^

favorable pore densities for air and water infiltration. 5. Soil Stabilization. ■ ■■■■ i • i Substrate existant on specific affected lands, notably

tailings deposition sites, are highly amenable to erosion by

hydrologie and aeolian forces. This condition produced cyclic

periods of scouring and deposition of tailings material at different

locations, resulting in a highly unstable seedbed. Further, these

sites have a predominantly southwest aspect which limits snowpack .

accumulation, promoting winterkill from lack of insulation during

the winter, and droughty conditions in the spring. In order to

ameliorate these conditions two activities of the Reclamation Plan

site preparation phase are implemented.

- Snow fence installation - Four foot snow fence is erected

on required sites to reduce wind velocities across the surface and

mitigate scouring, or deposition on planned seedbed areas. In addi

tion, winter snowpack in increased on the fenced sites reducing potential

losses due to winterkill. The snow fence is erected perpendicular to

prevailing wind patterns and placed at intervals commensurate with

effective height.

- Irrigation system - A gravity feed irrigation system is con

structed on tailings deposition sites only, where drought is a severe

problem. Irrigation provides adequate moisture on the seedbed to promote

high germination rates, and maintenance of good growth during critical

drought periods.

- Surface water control - Waters originating from precipitation events or surface water courses accessing disturbance sites with steep slopes

possess the potential for causing severe erosion, inhitibing reclamation efforts. Surface, water diversion is considered mandatory for successful

perpetuation of reclamation efforts on such sites. In addition surface '

control is deemed necessary on large flat disturbance areas such as * tailings impound?,er* ~ surfaces from which run-off wf"^rs have been diverted but collection of direct precipitation results in ponding and submergence of planted vegetation with the potential for seeding failures. Drainage or other forms of water control will be implemented on these sites.

II. Pioneer Community Establishment

Upon completing site preparation activities as necessary on affected lands, intrinsic factors will be beneficially modified’, increasing the potential for establishment of introduced species as well as adventitious indigenes. Due to the low diversity index and low sexual reproductive capacities of native plants in adjacent communities, the type and number of dissemules available for natural invasion of disturbed lands is limited, resulting in slow immigration rates.

The second phase of the reclamation plan employes applied cultural techniques to promote establishment of a diverse pioneer community on disturbed lands. The objective of this phase is to further modify edaphic factors on affected lands, to increase site potential for ultimate establishment of a self-sustaining pererrial cover, and accelerate the rate of invasion by native species.

Activities involved in implementing this phase of reclamation are presented below.

1. Seeding

A seed mix is employed in initial seeding to achieve a diverse plant cover with varying periodicity, taking maximum advantage of climatic rhythms within the habitat, and effectively utiliziing all available resources (i.e., nutrients, moisture, photoperiod).

A list of the species mix is presented in Table 1 . The.seed mix consists of indigenous and introduced grasses and legumes. Annual and perenm'a. species are applied in order W achieve

rapid cover and moderate inhibitory factors on the seeding site

such as solar insolation levels, and sandblasting. The slower

growing perennials are then allowed to germinate in a more favor

able environment, yielding higher seedling survival rates,.and a more permanent cover. -

The seed mix is applied to all accessible, affected acreages

with a hydroseeder at rates varying between 5G,and/oo pounds live

seed per acre, with actual application rate dependent on site

specifics (I.e.; slope, aspect, moisture retention, etc.). Sites

which are not accessible to hydroseeding equipment are seeded with

hand held broadcasters. High seeding rates are applied on harsh

sites in which germination rates are known or expected to be low.

In general, high seeding rates which result in competition among

plants for available resources are considered beneficial rather

than detrimental for reclamation purposes, because available re

sources are controlled initially resulting in significant nurse

crop growth. As extrinsic resources are slowly removed promoting

dominance by species better adapted to intrinsic conditions, the

species supported by cultural manipulation will die out, adding

humus to the substrate, increasing the rate of soil formation.

Best results are obtained at the Silverton site if seedings

occur between June 1 and June 15. This period is just prior to

the most favorable summer moisture events and allows the young

plants ample time for growth prior to the ground freezing and and severely depressed temperatures which occur in October. ‘ An.-, alternate seeding period is late October, which is*late enough in.

- ' ' • ... r‘ ‘ Page 47 . • • the year that germii.. ¿ion does not take place untf>-the following spring, when substrate moisture content is adequate for a consistent amount of time for germination to occur- Seeding times for affect ed acreages depends on characteristics of the site and plant material availability.

2. Fertilization

Primary plant nutrients, nitrogen, phosphorous, and potassium, are applied to all seedbed sites in conjunction with hydroseeding operations. Assay results for tailings substrates, .Table 3 r e V e a ltd secondary nutrients, and micronutrients, required by plant species in the seed .mix were not lacking. The primary nutrients are ini tially applied in a blend of 20-20-9 at a rate to achieve 120 lbs available nitrogen, 120 lbs available phosphorous, and 50 lbs of available potash per acre. Upon applying initial plant nutrient amendments, the seeded sites are monitored throughout the growing season for nutrient deficiencies, and subsequent nutrient applica tions are" conducted as necessary during the first three years after seeding. •’

Due to-the mobility of available nitrogen, rapid leach rates and nutrient sterility existent on tailings sites, annual applica tions of primary plant nutrients are applied at the initial ferti lization rate for the first three years after seeding. Available nitrogen is then applied at monthly intervals throughout the growl ing season at a rate to achieve an additional 40 lbs per acre with ammonium nitrate (34-0-0). Fertilizer applications are re duced to 40 lbs available nitrogen, 40 lbs available phosphorous ~ and 20 lbs potash, on revegetated areas during the fourth and ’ fifth years of the i(oneer community phase to proL.Ze less nutrient

dependant, self-sustaining plant species.

3. Mulching

After seeding prepared areas, mulch is applied to provide

adequate cover for the seed, improve germination characteristics

of the soil (moisture retention, solar insolation reduction), and

provide erosion control. Mulching is conducted'only on areas in

which beneficial results will occur such as tailings areas, and

steep slopes on disturbances other than tailings. The majority

of the moderate and minor disturbance sites contain soils which,

if the. seed bed is property prepared, provide germination amenities

equivalent to mulching.

Mulches used in this step of the reclamation plan are straw

at 2,000.to 2,500 pounds per acre, or a wood fiber at 1,800 to

2,400 pounds per acre, with mulch type and application rates de

pendent on site characteristics and accessibility. Wood fiber

is applied on accessible sites with hydromulching equipment, while the straw^is applied by hand on sites inaccessible to heavy equip ment. An erosion control netting is laid over the straw mulch to prevent migration from the site by wind or water erosion. The wood fiber is applied in conjunction with a tackifier to prohibit erosion.

4. , Irrigation

A gravity feed irrigation system is used to provide supple mental moisture to the seedbed on xeric tailings sites only, to ■ - \ insure proper moistureis maintained on seeded areas during ger mination periods. Supplemental water is supplied.to the seeded areas through the irrigation system as needed the first three

years after planting to achieve maximum growth rates. Irrigation

water is slowly removed in the subsequent two years of the pioneer

community phase. Available moisture on seeded sites is then

dependent solely on natural precipitation to promote dominance

of the revegetation species better adapted to the precipitation

regime of the region.

Upon completing the pioneer community establishment phase

of the reclamation plan, intrinsic factors on disturbed sites will

have been altered to a point where the sites are capable of sup

porting serai communities of nativeand introduced plant species

of forbs, shrubs, and trees, which place more demand on site

resources. Also, with the establishment of a stable vegetative

cover on affected acreages, the opportunity for immigration and

settlement of the disturbed sites by native floral and faunal

species from adjacent, unaffected lands is increased due to the

creation of required niches. Successful immigration, establish

ment, and multiplication of native floral and faunal species on

disturbance areas will promote greater diversity and persistence

in the vegetative cover achieved through autogenic influences

on soil evolution, increased nutrient and mineral cycling, and

favorable light reception and temperature factors, which are

important objectives of this phase of the reclamation plan. An

accelerated successional rate for serai communities will ulti

mately result upon attaining these objectives.

Control of wildlife species on acres revegetated during this

phase of the reclamation plan to prevent failure due to grazing \ / v ' ■

■ Page $ 0 ^ ' V ' 7 ; " * * • • * * • \

, ^. —— - .».r.-» ■ -? " TC-T.-- ‘'w. is not comsidered necessary because of the low frequency of oc

currence. Elimination of domestic stock such as sheep, cattle

and horses is considered mandatory for the first three years after

planting however, due to the intensive grazing pressure applied

by these species.

III. Successsional Community Establishment

Establishment of a successional vegetative community.on affected acreages refers to natural and applied techniques for achieving vegetative cover consisting of higher vasculares, or woody plants (i.e.; herbs, shrubs, and trees). These lack the ecologic amplitude necessary for pioneering disturbed sites but offer greater potential for perpetuity and increased, beneficial modifications of intrinsic environmental factors by autogenic influences. Serai community establishment, consisting of multiply 4 synusiae as desired, will create additional habitat for native faunal and floral species on disturbed sites which will ultimately promote a diverse, stable climax community reflecting species compositlon'and .cover found in contiguous undisturbed communities.-

Although successional community establishment proposed for affect ed lands, consisting of shrub and ultimately tree cover is desired, tree sere establishment or persistence on some sites such as tailings areas may not be attainable due to substrate character- istice limiting rooting depth. Reclamation efforts on these sites will be directed to attain the most stable vegetative community Activities required to implement this phase of the Reclamation

Plan are presented below. Plant materials employed for this revegeta tion phase will be introduced by overseeding or transplantation procedures using containerized or bare root stock. 1. Overseeding will be accomplished with hydroseeding equipment at application rates deemed necessary for adequate success....

2. Transplant Preparation A small bare area in existent vegetation will be created with

shovel or spade to eliminate competition for resources. A hole suited

to the size of the transplanted material will then be dug.

3. Transplants Transplanted stock is introduced to the prepared site, in a

manner to mitigate erosional and dessication impacts. A slow release

fertilizer pellet is placed in each transplant hole, along with water,

and natural soil if needed (tailings sites). The transplant hole is

then filled and packed firmly. A list of plant materials proposed

for transplantation during this phase of the Reclamation Plan is pre

sented in Table 4 . The most favorable period for transplanting

materials at t'he Silverton site is commensurate with fall or spring

seeding dates, late October and early June respectively. Seeding re

quiring special measures for survival, such as lowered exposure to

solar insolation levels, will be attended to as such.

4. Maintenance Transplanted materials will be monitored throughout the growing .

season for progress, and remedial measures initiated as necessary

to achieve maximum survival rates. The final phase of the Reclamation Plan involves a monitor ing and maintenance program on revegetated areas to insure maxi mum success is being achieved and sustained. Activities performed during this phase of the Reclamation Plan are presented below.

This phase will be implemented simultaneously with pioneer com munity# and successional community establishment phase, but will not extend beyond.

1. Supplemental Seeding and Transplants

Areas on which seedings or transplants display failure after two years will receive repeat treatments upon determining failure cause and appropriate remedial actions.

2. Supplemental Treatment

Revegetated areas displaying poor vigor or vitality symptoms will be analyzed for causes, and remedial actions implemented as required, if feasible.

A major concern regarding successful completion of presented reclamation plans on affected lands at the Silverton site, restora tion of forest habitat, is that the majority of disturbances oc curred prior to 1976, preceding reclamation planning requirements.

Consequently, inventory work to ascertain preexisting status of air quality, water quality, vegetative types, soil types, or wild life activity on affected lands was not implemented. In lieu of base data availability the Reclamation Plan was formulated by observing baseline parameter conditions existent on adjacent undisturbed lands and assuming the locally observed conditions ■: were continuous across disturbance boundaries. •; Upon completing the Reclamation Plan as presented, the environmental health of affected lands, arrd adjacent undisturbed lands indirectly impacted by disturbance sites, is expected to

be restored to a state commensurate with lands unaffected by mining and milling operations. Successful establishment of a perennial vegetative cover on disturbed sites, reflecting

species composition and cover percentage of floristic associations

dominating the area will improve air quality, water quality and wildlife habitat. Specifically, these include the following:

1. Air quality in the area which is detrimentally affected

by fugitive dust, or particulate emissions from controlled and

uncontrolled sources will be improved.

2. On-site and downstream quality of surface water systems will be improved due to reduction in the amount of pollutant materials which are eroded from disturbance sites by hydrologic

and aeolian forces, and ultimately deposited in the surface waters

3. Wildlife activity on the disturbed sites will increase

upon establishment of required habitat, which in turn will pro mote perpetuation of the vegetative cover.

4. Unstable substrate conditions will be stabilized by

vegetative cover promoting soil formation which will prevent

slump, and erosion, and further loss of essential soil materials

for plants. '

5. Existent vegetation will benefit from the elimina

tion of disturbed or bare areas which allow erosional forces

to destabilize the community through edge effects of blow down,