2014-04-29_INSPECTION - C1981012

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April 21, 2014 C- 1981- 012/New Elk Mine LDS Inspection Topic Summary NOTE: Y= Inspected N =Not Inspected R= Comments Noted V= Violation Issued NA =Not Applicable Y - Air Resource Protection R - Availability of Records Y - Backfill & Grading R - Excess Spoil and Dev. Waste NA - Explosives R - Fish & Wildlife R - Hydrologic Balance R - Gen. Compliance With Mine Plan N -Other R - Processing Waste R - Roads N - Reclamation Success R - Revegetation N - Subsidence N - Slides and Other Damage R - Support Facilities On -site Y - Signs and Markers R - Support Facilities Not On -site Y - Special Categories Of Mining Y - Topsoil COMMENTS This was a complete inspection by Leigh Simmons of Colorado Division for Reclamation, Mining and Safety, (the Division). The inspection was accompanied by Vince Masarotti of New Elk Coal Company, (NECC). The weather was mostly fine, although there were light afternoon rain showers and the ground was still wet in places from recent heavy rain and snow storms (including a storm that dropped 12" of wet snow on the mine site the preceding week). Several permitting actions are in progress, these are detailed under the heading GENERAL MINE PLAN COMPLIANCE. Two recent enforcement actions have been abated and terminated; a third has since been issued and is in the process of being abated. Details are given under the heading ENFORCEMENT ACTIONS. The New Elk Mine continues in Temporary Cessation, however Louis Head and Jeff Johnson were optimistic that a small contract with a local customer could be agreed in the near future. This would necessitate a change of status of the mine (from "Temporary Cessation" to "Active "), but little else since the mine has been maintained as if it had been active. If the sales contract were to be signed it would see NECC sell raw coal (i.e. the wash plant would not be used and refuse would not be generated), with the point of sale being at the mine (i.e. the customer would take care of transportation). An unrelated press release concerning Cline Mining (the parent company of NECC) was published at http: / /www.marketwatch.com /store /cline- announces - settlement - with -bc- government- 2014- 04 -21- 171734648 ?reflink =MW news_stmp, and is copied below: TORONTO, ONTARIO, Apr 21, 2014 (Marketwired via COMTEX) -- Cline Mining Corporation ( "Cline" or the "Company ") announced today that it has entered into a Settlement Agreement (the "Agreement ") with the Province of British Columbia pursuant to which the Company has agreed to abandon certain coal licences as well as certain coal applications in return for the payment of $9.8 million in cash. The Agreement is a final settlement of claims Cline had outstanding against the Province of British Columbia. The Company is currently operating under forbearance agreements with its senior lenders, which expire on the earlier (i) April 30, 2014 and (ii) the occurrence of a Forbearance Termination Event as such term is defined therein. The use of proceeds from the settlement referenced above is subject to the terms of the forbearance agreements and the underlying indentures to which they relate. Number of Partial Inspection this Fiscal Year: 6 Number of Complete Inspections this Fiscal Year: 4 Page 2 of 23