DEPARTMENT OF NATURAL RESOURCES REAL ESTATE DIVISION OFFICE OF MINERALS MANAGEMENT

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1 DEPARTMENT OF NATURAL RESOURCES REAL ESTATE DIVISION OFFICE OF MINERALS MANAGEMENT NONMETALLIC MINERALS LEASED ON STATE LANDS LEASING STATE-OWNED NONMETALLIC MINERAL RIGHTS Filed with the Secretary of State on These rules become effective immediately upon filing with the Secretary of State unless adopted under section 33, 44, 45a(6), or 48 of 1969 PA 306. Rules adopted under these sections become effective 7 days after filing with the Secretary of State. (By authority conferred on the department of natural resources by sections 502 and 504 of 1994 PA 451, MCL and ) section 2 of Act No. 280 of the Public Acts of 1909, as amended, section 1 of Act No. 326 of the Public Acts of 1913, as amended, and section 2 of Act No. 17 of the Public Acts of 1921, as amended, being SS , , and of the Michigan Compiled Laws) R , R , R , R , R , R , and R of the Michigan Administrative Code are amended as follows: R Definitions. Rule 1. As used in these rules: (a) "Auction lease" means a lease issued as the result of competitive bidding at public auction that grants the lessee the exclusive right to pursue exploration, mining, or production of the leased nonmetallic mineral rights. (b) "Bonus bid" means a payment by the buyer proposed lessee to the lessor department at the time of sale leasing as part of the consideration for acquisition of a nonmetallic minerals lease. (c) "Department" means the Michigan department of natural resources. (d) Development lease means an auction lease or a direct lease that allows nonmetallic minerals exploration, mining, or production on the surface of the leased land in compliance with the department s standard nonmetallic minerals lease terms. (d)(e) "Direct nonmetallic minerals lease" means a lease issued as the result of individual negotiations with the lessor department that grants the lessee the exclusive right to pursue exploration, mining, or production of the leased nonmetallic mineral rights. (f) Director means the director of the Michigan department of natural resources or the director s designee. (g) Hold action list means a list generated by the department containing persons and entities not in compliance with lease terms or lease rules. (e)(h) "Land" means any property in which the state owns any nonmetallic mineral rights. April 6, 2018

2 2 (f)(i) "Leasable Development with restriction restrictions lease" means an auction lease or a direct lease that allows the lands will be leased for nonmetallic mineral minerals exploration, development, mining, or production on the surface of the leased land in compliance with the department s standard nonmetallic minerals lease terms and subject to special lease restrictions. (g) "Lease sale unit" means the land described and numbered on the lease sale notice. (h)(j) "Lessee" means the working interest owner or owners of a lease as shown in the records of the department person or entity that is responsible for all covenants, express or implied, in the lease regardless of any partial interest assignments. (i) "Lessor" means the Michigan natural resources commission. (k) Nondevelopment lease means an auction lease or a direct lease that does not allow nonmetallic minerals exploration, mining, or production on the surface of the leased land without separate authorization from the department. (j)(l) "Nonleasable lands " means lands that will not be leased for metallic mineral nonmetallic minerals exploration, development mining, or production. (k)(m) "Nonmetallic minerals" or "nonmetallic mineral products includes include any of the following: (i) Andalusite. (ii) Anhydrite. (iii) Asbestos. (iv) Barite. (v) Celestite. (vi) Clay. (vii) Coal. (viii) Feldspar. (ix) Garnet. (x) Gem stones, excluding diamonds. (xi) Graphite. (xii) Gypsum. (xiii) Kyanite. (xiv) Limestone or dolomite. (xv) Marl. (xvi) Mica. (xvii) Natural salines, including iodine, bromine, calcium, and magnesium compounds. (xviii) Potash salts. (xix) Salt. (xx) Sand and gravel, both construction and industrial. (xxi) Sandstone. (xxii) Shale. (xxiii) Sillimanite. (xxiv) Slate. (xxv) Miscellaneous stone, both crushed and dimension. (xxvi) Sulphur. (xxvii) Talc. (l) "Nonmetallic minerals lease" means a lease that allows the use of state lands for nonmetallic mineral exploration, development, or production.

3 3 (m)(n) "Performance bond" means a surety bond, irrevocable letter of credit, certificate of deposit, or cash bond to guarantee that the lessee and the lessee's heirs, executors, administrators, successors, and assigns shall faithfully perform the covenants, conditions, and agreements specified in the lease and the laws and rules of the state of Michigan this state. (n)(o) "Qualified party" means an individual of the age of majority or a copartnership, corporation, or other legal entity qualified to do business in the state of Michigan this state. R Lease sale applications; notice of land location and classification classifications for leasing; manner of leasing approved lands. Rule 2. (1) Any party may submit applications identifying state lands desired requested for nonmetallic mineral minerals leasing. The department may also identify and nominate lands desired available for nonmetallic minerals leasing. (2) Applications for state lands desired requested to be offered for leasing shall be in writing on a form designated by the department and shall be submitted to the Department of Natural Resources, P.O. Box 30028, Lansing, Michigan department at the address listed on the form. An application fee shall accompany the application and shall be in accordance with the fee schedule approved by the department. Applications shall include all of the following specific land descriptions: (a) County. (b) Town and range. (c) Section and fraction thereof, if applicable. (d) All of the following for platted subdivisions: (i) The lot and block numbers. (ii) Subdivision name. (iii) City or township. (iv) County. (3) After receipt of properly submitted lease sale applications, the department shall conduct a field review to determine whether the property should be classified as leasable, nonleasable, or leasable with restrictions. (4) The department shall publish a notice describing the general location of the lands recommended for leasing and the recommended classification in a newspaper, as defined in section 1461 of Act No. 236 of the Public Acts of 1961, as amended, being S of the Michigan Compiled Laws, not less than 30 days before the lessor takes final action on the recommended land classifications. This notice shall be published at least once in a newspaper of general circulation in the county where the lands are situated. (5)(3) The department shall do both of the following: (a) identify Identify all available lands requested or recommended for leasing, shall notify, as appropriate, land surface owners of record and local units of government, and (b) shall recommend Recommend to the lessor its director classifications for leasing as development, nondevelopment, leasable, nonleasable, or leasable development with restrictions. (6)(4) The lessor shall department may offer lands approved by it the director for leasing at public auction, open oral or sealed bid, or may enter into direct leases as defined in R (d) under R

4 4 R Lease sales; notice Notice; list of lands offered for leasing at public auction. Rule 3. (1) A notice of lease sales or direct leases shall be published at least once in a newspaper, as defined in section 1461 of Act No. 236 of the Public Acts of 1961, as amended, being S of the Michigan Compiled Laws, not less than 30 days before the sale. The notice shall be published in a newspaper of general circulation in the county where the lands are situated. A notice shall describe the general location of lands to be offered for lease, and the date, time, and place of sale. For a lease auction, the department shall publish a public notice of the lease auction. The public notice shall be published at least once in a newspaper, as defined in section 1461 of the revised judicature act of 1961, 1961 PA 236, MCL , in the county where the lands are situated not less than 30 days before the lease auction; describe the general location of lands to be offered for lease; and provide the date, time, and place of the lease auction. If a newspaper is not published in the county where the lands are situated, the department shall publish the public notice of the lease auction in a newspaper that publishes in a county adjoining the county where the lands are situated. If no newspaper publishes in the adjoining county, the department shall publish the public notice of the lease auction electronically. (2) For a direct lease request, the applicant shall publish a public notice of the direct lease request. The public notice shall be published at least once in a newspaper, as defined in section 1461 of the revised judicature act of 1961, 1961 PA 236, MCL , in the county where the lands are situated not less than 30 days before the decision is made for the direct lease request and describe the general location of lands to be offered for lease. If a newspaper is not published in the county where the lands are situated, the applicant shall publish the public notice of the direct lease request in a newspaper that publishes in a county adjoining the county where the lands are situated. If no newspaper publishes in the adjoining county, the applicant shall publish the public notice of the direct lease request electronically. (2)(3) Any party may request from the department the form of lease to be used and a list of lands where nonmetallic mineral rights are being offered for leasing at public auction or considered for direct lease. The If a lease auction, the lease sale list shall include all of the following information: (a) The date, time, and place of sale lease auction. (b) Descriptions of lands being offered. (c)(b) The conditions of sale lease auction. R Offer at public lease auction; procedure. Rule 4. (1) Nonmetallic mineral lease rights in state lands may be offered at public lease auction (lease sale). (2) The lessor director shall stipulate the terms and conditions under which lands the nonmetallic mineral lease rights may be offered for lease sale auction. (3) Any qualified party may make a bid on lease sale units any nonmetallic mineral rights offered for lease unless the bidding party has an outstanding balance owed to the department or is on the hold action list. (4) The For open oral lease auctions, the full amount of the bonus bid and the first year s rental or the minimum royalty, as applicable, shall be paid to the lessor department on the same date on which day when the lease rights are bid. For sealed

5 5 bid lease auctions, successful bidders shall pay the full amount of the bonus and the first year s rental or the minimum royalty, as applicable, within 10 business days from the date the department notifies the successful bidder. Bidders who have an established credit rating with the department through prior leasing activity, or units of government, may pay the total amount due by cash, certified check, personal check, or company check. Bidders may also establish a credit rating with the department through prior leasing activity or by filing 3 acceptable credit references relating to the financial performance of its bidder with the department, 1 of which shall be from a bank, in which case total payment may be made by personal or company check. Bidders who do not have an established credit rating with the department shall pay not less than 1/2 of the total bonus bid in cash the entire amount due by cash or by certified check or money order. All remittances shall be made payable to: "State of Michigan." (5) Failure of the successful bidder to pay the total bid at the time of sale shall bonus and the first year s rental or the minimum royalty, as applicable, by the close of open oral lease auctions or within 10 business days from the date the successful bidder is notified by the department for sealed bid lease auctions may result in the forfeiture of the bonus bid and the lease rights to the lease sale unit or units lands involved and may result in the bidder being placed on the hold action list. Placement on the hold action list may bar the bidder from any further leases, assignments, easements, extensions, or other discretionary approvals requested of the department. Lands on which lease rights have been forfeited may be offered to the back-up bidder at the department s sole discretion. (6) The lessor reserves the right to department may reject any bid or stop the sale auction of any lease sale unit when a bid is made that is less than the minimum bid or when the lessor determines that title ownership is in question offered lease rights at any time in the department s sole discretion. (7) Available lands in lease sale units on which bids were not accepted or where the successful bidder defaults shall be offered at the following lease sale unless withdrawn from sale or leased under R R Direct nonmetallic minerals leases. Rule 5. (1) The lessor department may enter into direct nonmetallic mineral leases. for either of the following reasons: (a) Completion of a mining operation area. (b) Consolidation of fractional interests owned or controlled by the applicant. (2) Direct lease sales shall follow the same applicable public notice requirements as for public auction lease sales. R Awarding of leases. Rule 6. (1) Lessor Department approval is required before any lease is issued. (2) The department may group lease sale units for which the issuance of leases has been approved lease rights into 1 or more leases, depending on the location of the lease sale units lease rights and any special lease conditions. (3) Before a lease shall be executed for any state lands approved lease rights, the successful bidder shall file with the department a performance bond acceptable to the lessor, unless waived by the lessor department. The department shall specify the

6 6 amount of performance bond, maximum acreage covered, and when and how the bond may be drawn upon shall be specified by the lessor and shall be in accordance with the bond schedule approved by the lessor on April 10, (4) Two copies of each The department shall provide the original lease instrument shall be provided, by certified mail, to the proposed lessee for signature. Unless otherwise agreed to in writing by the lessor department, the proposed lessee shall return all copies, the properly executed lease instrument and, for direct leases, the bonus and rental due or the minimum royalty, as applicable, with performance bond, within 30 calendar days from the date of receipt shown on the receipt form of the post office department the department sent the lease instrument. (5) If the proposed lessee is unable to return the lease forms and performance bond instrument and amount due within the time specified, the lessor shall department may, upon request of the proposed lessee, authorize additional time if the department determines the delay is not the fault of the proposed lessee. Failure of the proposed lessee to comply within time limits authorized shall result in forfeiture of the entire bid paid bonus and first year s rental or the minimum royalty, as applicable. Lands on which lease rights have been are forfeited shall be offered for leasing at the earliest possible date, unless withdrawn by the lessor or unless leased under R may be offered to the back-up bidder at the department s sole discretion. (6) The department shall return original copy of the properly executed lease instrument shall be returned to the lessee and the duplicate retain a copy of the lease instrument shall be retained by the lessor. (7) The lessee shall not conduct operations Operations on any leased lands shall not be conducted until the lessee receives both of the following: (a) a A fully executed lease, has been received by the lessee and (b) All necessary separate written permissions required by the department or any other local, state, or federal government agency. (8) All leases are shall be subject to all federal, state, and local laws. (9) The lessor shall department may require any lease applicant on any lease sale unit proposed lessee, bidder, or proposed assignee under any lease for a nonmetallic minerals lease to submit all of the following information to verify that the proposed lessee, bidder, or proposed assignee is qualified to conduct business in this state: (a) If an individual, proof of attainment of legal age. (b) If a co-partnership, a certified copy of the registration or a sworn statement signed by l partner setting forth the names and addresses of all partners and the articles of partnership a copy of the Certificate of Copartnership or Certificate of Persons Conducting Business Under Assumed Name approved by the county clerk in the county where the leased lands are located. (c) If a corporation or other legal entity, copies of the incorporation papers showing documentation demonstrating the entity's qualifications to do conduct business in the state of Michigan this state. The lessee shall file these papers with the lessor within 30 days from the date of receipt of the lessor's notice of award as shown on the receipt form of the post office department. (d) If a sole proprietor doing business under an assumed name, copy of the Certificate of Persons Conducting Business Under Assumed Name approved by the county clerk in the county where the leased lands are located.

7 7 R Leases; Lease form; lessor department to determine terms; issuance in name of successful bidder required proposed lessee; responsibility for compliance with terms of lease. Rule 7. (1) A lease shall be on a form prescribed by the lessor director. (2) The lessor department shall determine the royalty and rental rates, minimum bonus, primary lease term, and other lease terms. (3) A lease on land offered at public auction for nonmetallic mineral rights shall be issued in the name of the successful bidder or bidders at the time of sale or in the name of the party or parties proposed lessee designated by them at the time of sale the public lease auction or listed on the direct lease application. (4) The lessee and lessor the department are shall be responsible for compliance with all terms and conditions of the lease.