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December 17, 2014 C- 1981- 012/New Elk Mine LDS <br />Inspection Topic Summary <br />NOTE: Y= Inspected N =Not Inspected R= Comments Noted V= Violation Issued NA Not Applicable <br />Y - Air Resource Protection Y - Roads <br />N - Availability of Records Y - Reclamation Success <br />Y - Backfill & Grading Y - Revegetation <br />R - Excess Spoil and Dev. Waste NA - Subsidence <br />NA - Explosives Y - Slides and Other Damage <br />Y - Fish & Wildlife R - Support Facilities On -site <br />R - Hydrologic Balance Y - Signs and Markers <br />R - Gen. Compliance With Mine Plan N - Support Facilities Not On -site <br />NA -Other Y - Special Categories Of Mining <br />R - Processing Waste Y - Topsoil <br />COMMENTS <br />This was a partial inspection by Leigh Simmons of Colorado Division for Reclamation, Mining and <br />Safety, (the Division). The inspection was accompanied by John Terry of New Elk Coal Company, (NECC). The <br />weather was cloudy but dry. Several permitting actions are in progress, these are detailed under the heading <br />GENERAL MINE PLAN COMPLIANCE. <br />The status of the New Elk Mine is Active, though will likely be changed to Temporary Cessation soon. <br />As was detailed in earlier inspection reports, NECC were not successful in their attempts to negotiate a <br />sales contract for their coal and have begun to prepare for cessation of mining operations. Progress on this work <br />has continued since the last inspection. <br />Two important, and related, events have also occurred since the last inspection: <br />I. Cline Mining, New Elk Coal Company and North Central Energy have begun bankruptcy <br />proceedings. The original notice was filed on December 3, 2014, in Ontario, Canada. The <br />proceedings will be handled in Ontario, under Canada's Companies' Creditors Arrangement Act. <br />Notice was filed with the District Court of Colorado seeking to recognize the foreign proceeding <br />as pursuant to Chapter 15 of the US bankruptcy code and is intended to recapitalize Cline (and its <br />subsidiaries). The predicted outcome of the process is that the main stock holder and creditor <br />(Marret Asset Management) will become the owner of Cline and its subsidiaries. Louis Head was <br />steadfast in his assurance that the bankruptcy would have no effect on the ability of NECC to <br />conduct maintenance and reclamation operations. <br />2. NECC was issued with a citation from the Mine Safety and Health Administration (MSHA) on <br />December 3, 2014 (citation number 7290086) for violation of 30 CFR 75.1711. That rule concerns <br />the sealing of mines and states that "On or after March 30, 1970, the opening of any coal mine that <br />is declared inactive by the operator, or is permanently closed, or abandoned for more than 90 days, <br />shall be sealed by the operator in a manner prescribed by the Secretary... ". In order to abate the <br />violation NECC must seal the Allen portals; and the East, West and Apache Canyon airshafts. <br />Number of Partial Inspection this Fiscal Year: 4 <br />Number of Complete Inspections this Fiscal Year: 2 <br />Page 2 of 11 <br />