RENEWAL DECISION Usibelli Coal Mine, Inc. ADL Surface Lease AS (e)

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1 STATE OF ALASKA DEPARTMENT OF NATURAL RESOURCES DIVISION OF MINING, LAND AND WATER RENEWAL DECISION Usibelli Coal Mine, Inc. Surface Lease AS (e) : Per AS (e), the Department of Natural Resources (DNR), Division of Mining, Land and Water (DMLW), Southcentral Region Office (SCRO) has made the decision to renew the existing surface lease () issued to Usibelli Coal Mine, Inc. (UCM) for a one time 25-year term. The purpose of this lease is to support UCM to provide access for the processing, storage, and transportation of coal associated with the Wishbone Hill coal leases. This lease is situated within the S1/2 of Section 27, the N1/2 and E1/2 of Section 34, and the SW1/4 of Section 36, Township 19 North, Range 2 East, Seward Meridian and is approximately 7 miles north of Palmer. UCM will be subject to the similar terms and conditions as found within the original lease dated April 16, As established under the original lease, the development plan is the Wishbone Hill coal permit # which specifically authorizes the infrastructure referred to in Attachment A, UCM s comprehensive. History: Coal mining in the Wishbone Hill area dates back to the early 1900s. The demand for coal declined in the 1960s and mine operations were put on hold for economic reasons. Interest began building again in the late 1980s and all of the necessary permits to mine there were obtained by the early 1990s. The current Wishbone Hill coal leases encompass most of the historically disturbed lands. UCM's lease () is part of the Wishbone Hill Project, which is one of four coal districts in the overall Matanuska Coal Field. According to UCM, "the Wishbone Hill district has the greatest coal development potential of the four coal districts because of its relatively simple structure, good coal quality, close location to existing infrastructure, and surface mineable reserves." Full coal production was initially predicted to begin in the fall of 1991 and the project was expected to hire 200 full time employees. On April 16, 1990, DMLW issued a 25-year land lease for to Idemitsu Alaska, Inc. (Idemitsu), with an expiration date of April 15, On October 5, 1995 the lease was assigned to North Pacific Mining Corporation (NPMC). In 1996 DNR conveyed 95 acres of this lease footprint to Mental Health Trust (MHT) but agreed to continue with the management of the acreage until the end of lease term. On December 23, 1997 this lease was assigned from NPMC to UCM. Lease Renewal Authority: In 1990 the original lease issued to Idemitsu was subject to an AS (e) decision process and public noticed in accordance with AS (a)(3). This written finding determined that it was in the State s best interest to issue a lease agreement to Idemitsu for 25 years. Leasing this land for a 25-year term for the legal access to DMLW-permitted mining activities met the general criteria of AS , and was issued under this same statutory authority. Upon lease expiration, subsection AS (e) allows the Director to renew a lease previously issued under section AS if the lease is in good standing and the lease renewal is determined to be in the best interest of the State. Renewal Decision Page 1 of 19

2 Lease Renewal Qualifications: In order to qualify for a lease renewal, a lessee must be in good standing. A review of DNR records indicates the following: UCM is in good standing with the terms and conditions of their lease; there are no outstanding compliance issues, and their accounts are current. In addition, UCM has significantly developed a route for the access road into the project area, constructed a protected area for studying future land reclamation, and UCM has continued to renew the necessary authorizations at both the State and Borough levels. Based upon these findings, SCRO has determined that UCM is in good standing and is eligible for a lease renewal per AS (e). Lease Renewal Discussion: Since UCM acquired this surface lease in 1997, development and operational challenges have included litigation, depressed coal prices, and public opposition to the development of the Wishbone Hill project. Beginning in 1990, during the initial lease term, litigation and subsequent depressed world coal prices prevented the lessee from establishing coal production 1. In their 1990 development plan Idemitsu initially planned to start processing coal beginning in the fall of The September 9, 1991 issue of Alaska Economic Report claimed Idemitsu had Japanese buyers lined up to purchase coal. However, production delays began with an MHT court injunction in 1990, which was not settled until 1994 (House Bill 201, House Bill 371, Chapter 5 & 6 FSSLA). Eventually prolonged litigation forced potential buyers to consider other markets while depressed coal prices meant any development and production of coal was not economically beneficial to UCM. Despite this early litigation difficulty DMLW agreed to grant a series of mining permit renewals under AS State surface lessees are required to make substantial use of the land consistent with the development plan, within 5- years to demonstrate they are being utilized per 11 AAC Failure to demonstrate utilization of a lease may be grounds for lease termination. The purpose of this regulation is to ensure that State land and resources are being used for the intended purpose authorized, within a given timeframe, and that resources are being developed for the maximum benefit of the State per the Alaska Constitution. SCRO recognizes the challenges UCM has articulated with fully utilizing the existing lease, however the renewed lease will include utilization requirements outlined in 11 AAC UCM s failure to make substantial use of the leasehold in accordance with utilization requirements within 5 years may result in corrective action or the termination of this lease. Additionally, if the Alaska Surface Coal Mining Control and Reclamation Act (ASCMCRA) mining permit becomes invalid, or if UCM is not able to acquire a new mining permit within 5 years, SCRO may impose corrective action or move to terminate the lease. Construction of the proposed infrastructure outlined in the mining permit is necessary for the processing of coal and must commence in accordance with the requirements set out in the ASCMCRA permit # ASCMCRA holds UCM accountable for the development, maintenance and reclamation of infrastructure directly related to all mining activates. DMLW s Coal Regulatory Program staff will continue to conduct field inspections to ensure permit terms and conditions are satisfied and mining operations are in compliance with the permit. UCM recently cleared a path for the proposed access road which is anticipated to be operational in According to UCM, commencement of mining operations will begin after completion of the access road and before the summer of The latest projection is that development of the Wishbone Hill project is estimated to support between new jobs in the Mat-Su Valley. SCRO has determined UCM is in good standing per requirements within AS (e) and will move forward with the issuance of an Entry Authorization (EA). Administrative Record: Case files ADL 17103,, ADL , and ADL ; DNR Department Orders 142 and 143; the Matanuska Valley Moose Range Management Plan; and the Susitna Matanuska Area Plan constitute the administrative records for this case. 1 The Alaska Economic Report, September 9, Issue No. 18/19, Page 2. Renewal Decision Page 2 of 19

3 Title and Third Party Interest: The State of Alaska holds fee title to the subject lands and mineral estates for the project area. Sections 27, 34, and 36 were conveyed to the State under U.S. Patent dated January 26, 1962 and U.S. Patent dated June 16, 1964, which is designated as General Selection lands (GS 823). The State acquired the south half of Section 35 under Tentative Approval dated February 12, Soon after the conclusion of the MHT court injunction DNR subsequently quitclaimed the south half of Section 35 to Alaska Mental Health Trust Authority under Quitclaim Deed No dated September 20, UCM acquired a Revocable License from the MHT (MHT ) for the continued use of the 95 acres within the S1/2 of Section 35 on March 24, The Department of Corrections (DOC) existing lease (ADL 17103) for the Palmer Correctional Center, covering all of Section 36 on School Trust Land (SCH 61) will be converted into an Interagency Land Management Assignment (ILMA). It is important to recognize Parcel B of the new lease () will be subject to the management conditions outlined in the ILMA, as well as the terms and conditions agreed to between DOC and UCM for the concurrent uses within the overlapping 15 acres within Section 36 (Attachment D). Uses within Section 36 are also subject to conditions for operating on School Trust Lands per AS and Department Order 143. Alaska Department of Environmental Conservation has issued Minor Air Permit AQ1227MSS04 (Revision #1, Feb. 5, 2015) for the Usibelli Wishbone Hill project. A title report (No. 7333) was issued by DMLW's Realty Services Section on January 27, Legal Description (See Attachment B): Due to a change in land ownership within the lease boundary since the issuance of the original lease in 1990, approximately 95 acres within the S1/2 of Section 35, Township 19 North, Range 2 East, Seward Meridian are now owned and managed by MHT. Since MHT retains management authority of the lands within the S1/2 of Section 35, a Revocable License from MHT (MHT ) for the continued use of the 95 acres within the S1/2 of Section 35 was issued to UCM on March 24, The new lease boundary is located on State-owned lands managed by DMLW within the S1/2 of Section 27, the N1/2 and E1/2 of Section 34, and the SW1/4 of Section 36, within Township 19 North, Range 2 East, Seward Meridian. The new lease configuration partitions into two parcels as described below: Parcel A: 160 acres within the S1/2 of Sec acres within the N1/2 and E1/2 of Sec. 34 Parcel B: 15 acres within the SW1/4 of Sec. 36 The total land area for, including Parcel A and Parcel B, is approximately 285 acres. Planning and Classification: The project area is located within the Susitna Matanuska Area Plan (SMAP), Glenn Highway Region, Units G-05 and L-05 (see Attachment C). The primary land classifications are Coal Land, Wildlife Habitat Land, and Reserved Use Land. Land lease authorizations and coal development are allowed in this unit, and the proposed lease is consistent with the SMAP. In addition, this site is subject to the Matanuska Valley Moose Range Management Plan. This plan was adopted in 1986 and complements the SMAP. The management plan further clarifies that coal mining is an acceptable use of these lands and that the reclaimed lands will be "directed towards producing habitat that is primarily beneficial to moose". Renewal Decision Page 3 of 19

4 Site Access: A year-round access road, connecting the Wishbone Hill facilities site to the Glenn Highway at approximately milepost 56 has been constructed. Most of the road will be located within the leasehold, and does not require an additional easement. According to the development plan, the road "will be surfaced with a layer of crushed gravel or pit-run gravel", and will have a shoulder-to-shoulder width of 40-feet and an approximate length of three miles. Authorization and Term Length: Pursuant to AS (e), a lease may only be renewed once and for a duration no longer than the original lease term. As such, this renewal lease will be issued for an additional 25-year term under the original authority of AS (b) and renewal authority AS (e). Entry Authorization (EA): SCRO will issue a 5-year EA to UCM for the purposes of conducting the required survey and appraisal. The survey and appraisal must be approved by DMLW prior to issuance of the lease which will be backdated to the effective date of the EA. Failure to meet these requirements may result in a default which will be grounds to initiate the process of lease termination. Survey: Per AS , UCM shall submit an Alaska State Land Survey of the leasehold to DMLW after receiving instructions from DMLW's Survey Section. A copy of the preliminary survey is due within 2 years of the issuance of the EA and must clearly outline the new lease configuration of the leasehold (Parcels A and B) as depicted on Attachment B of this renewal decision. Appraisal: Per AS , UCM shall conduct an appraisal of the leasehold after receiving instructions from the review appraiser, per the minimum rent determination dated February 11, 2015 submitted by DMLW's Appraisal Unit. Annual Fee: The annual land use fee of $33, is to be paid before April, 16, Subsequent annual payments of $25,080 are due each April 16, until a new appraisal is approved by DMLW. This reduction in annual fees reflects the reduced footprint of the original lease and the conveyance of 95 acres within the S1/2 of Section 35 to MHT. Annual fees will be due each April 16, throughout the EA and lease terms. In accordance with AS , the lease is subject to periodic rent adjustments every five years. Bonding: The existing phased performance bond submitted to DMLW's Mining Section under the requirements of ASCMCRA will be sufficient to satisfy 11 AAC for the lease. Continuance of the lease will be contingent upon UCM's compliance with the requirements of ASCMCRA. Noncompliance with ASCMCRA shall be treated as noncompliance with the lease, and is sufficient cause for canceling the lease. DMLW's Coal Regulatory Program is the authorizing entity responsible for enforcing ASCMCRA compliance. Insurance: In accordance with the terms of the original lease and 11 AAC , UCM will be required to submit proof of liability insurance to SCRO, with the State of Alaska listed as a NAMED insured party. UCM will be responsible for maintaining such insurance throughout the term of the renewed lease. Failure to meet this requirement may result in a lease default which will be grounds for cancelation. Public Access: UCM s project overview states that, "in the interest of public safety, public access will need to be restricted to the leased land during mine operations, with the exception of public Rights-of-Way ADL and ADL ". ADL is a 50-foot public easement issued to the Department of Fish and Game. ADL is a public easement issued to the Division of Forestry. Per the project overview, "those portions of the [easements] within the Renewal Decision Page 4 of 19

5 active mining area will be relocated to the south of the mining area" as authorized in the original lease issued in The project overview states that following the mine's closure, "the mine access road will be opened to the public and additional access will be developed using the remnants of mine roads." Should this re-route become permanent after coal mining operations have ceased, UCM will be required to provide SCRO an As-built of the new trail segment. Any relocation of ADL or ADL shall be built to equal or better standards of the existing right-of-way. Notice: This renewal decision will be distributed to approximately 285 groups and individuals who previously requested to be informed of any developments or updates regarding the Wishbone Hill Project. Notices will also be delivered to local post offices in Palmer and Sutton, and a notice will be posted on the State Public Notice website located at Signature page follows: Renewal Decision Page 5 of 19

6 Recommendation: DML W has completed a review of the information provided by the applicant, examined the relevant land management documents, and has found that the proposed lease renewal is consistent with all applicable statutes and regulations. Renewal of this lease is in the best interest of the state because it continues to provide access for the development of the Wishbone Hills coal leases which will provide the local economy with jobs and provide additional income to the state thru the development of its natural resources. It is therefore recommended that SCRO issue Usibelli Coal Mine, Inc. a new 25-year surface lease under the authority of AS (e) as shown in the following attachments: Attachment A - Attachment B - Alaska Mapper Boundary Map Attachment C - Susitna Matanuska Area Plan Map 3-4 Attachment D - DOC letter of non objection David Driscoll, Natural Resource Manager I '3-26- /2 Date Decision: The findings presented above have been reviewed and considered. The case file has been found to be complete and the requirements of all applicable statutes and regulations have been satisfied. I find that it is in the best interest of the state to proceed with this renewal action. It is therefore decided that SCRO will grant the 25 year lease renewal to Usibelli Coal Mine, Inc. pursuant to AS (e). Clark nager Land Office, Division of Mining, Land and Water Appeal: A person affected by this decision may appeal it, in accordance with II AAC 02. Any appeal must be received within 20 calendar days after the date of issuance of this decision, as defined in II AAC (c) and (d) and may be mailed or delivered to Commissioner, Department of Natural Resources, 550W. 7th Avenue, Suite 1400, Anchorage Alaska 99501; faxed to (907) ; or sent by to dnr.appeals@alaska.gov. If no appeal is filed by the appeal deadline, this decision goes into effect as a final administrative order and decision of the Department on the 31 st day after issuance. An eligible person must first appeal this decision in accordance with II AAC O:Z-before appealing this decision to Superior Court (II AAC (a) and (b)). A copy of II AAC 02 may be obtained from any regional office of the Department of Natural Resources. Renewal Decision Page 6 of 19

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17 Attachment B Alaska Mapper Boundary Map Attachment B - Alaska Mapper Boundary Map Page 17 of 19

18 Attachment C Susitna Matanuska Area Plan Map 3-4 Attachment C Susitna Matanuska Area Plan Map 3-4 Page 18 of 18

19 Attachment D DOC Letter of Non-Objection Attachment D DOC Letter of Non-Objection Page 18 of 18