The government agency with jurisdiction over an area where mining exploration or mining will occur will require a reclamation bond from the mining company before granting a permit.
Reclamation Bonds for Site Restoration
Mining, drilling, and land-use operators need a reclamation bond when an agency requires site restoration assurance. Surety Bonds Agent provides nationwide quote support with high expertise. Request a reclamation bond quote today.
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What Are Reclamation Bonds?
Much of the mining for mineral resources in this country takes place on publicly owned land. If you’ve been in an area that is being mined, you know how significantly mining operations can change the face of the land. A reclamation bond serves as a mining company’s guarantee to restore the land after wrapping up their work in the area.
The bond not only protects the environment and public safety but also protects the government agency with jurisdiction over the land, who would otherwise pay to restore it to its original condition. It ensures that the cost of reclamation is paid for by the company that profited from the use of the land and the resources beneath it.
Who Needs Them?
How Do They Work?
In the lingo of surety bonds, the three parties to the legally binding agreement behind every bond are known as the bond’s obligee, principal, and surety.
- The obligee is the government agency with jurisdiction over the land to be explored and/or mined,
- The principal is the company applying for a permit or lease to conduct mining exploration or mineral extraction on the land, and
- The surety is the company guaranteeing the principal’s payment of valid claims.
What Happens if a Claim is Filed?
The obligee sets the required bond amount, the maximum amount that will be paid out on a claim, based on the estimated cost of reclamation. If the principal ceases its operations on the land managed by the obligee and fails to restore the land to its original state, the obligee can file a claim against the bond to pay for the reclamation.
The surety will investigate the claim and perhaps attempt to negotiate a settlement between the principal and the obligee. If there is no settlement of a valid claim, the surety will go ahead and pay the claim on behalf of the principal. That initial payment by the surety is an extension of credit to the principal, and the principal is legally obligated to repay the debt to the surety.
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What Do They Cost?
The annual premium for a reclamation bond is a small percentage of the required bond amount that was established by the obligee. The surety determines what that percentage (the premium rate) will be based largely on the principal’s creditworthiness. As you can imagine, the surety’s main underwriting concern is the risk of not being repaid without having to take legal action against the principal.
The best indication of a creditworthy principal is a high credit score, which typically results in a low premium rate, usually in between 1% and 3%. The reverse is also true. A principal with a low credit score presents a greater risk to the surety, and may be assigned a premium rate as high as 10% to 15%.
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