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In Reply Refer To: <br />3485(CO-921) <br />COC61357 <br />COC70615 <br />CERTIFIED MAIL — Return Receipt Requested <br />Oxbow Mining, LLC. <br />3737 Highway 133 <br />Somerset, CO 81434 <br />DRAFT DECISION <br />Royalty Rate Reductions Granted <br />On November 8, 2012, Oxbow Mining LLC. (OML) submitted a Category 1 a Expanded <br />Recovery - adverse geologic conditions - Royalty Rate Reduction Application. OML is <br />requesting a royalty rate reduction for the remaining recoverable coal in leases COC61357 and <br />COC70615 pursuant to section 39 of the Mineral Leasing Act of 1920, as amended, and the <br />implementing regulations at 43 C.F.R 3485.2(c). A Category 1 royalty rate reduction may be <br />granted when a lessee shows that adverse geologic conditions make the coal reserves identified <br />in the application economically unrecoverable at the lease royalty rate using current standard <br />industry operating practices. <br />At the time of the application the subject leases were being developed by longwall mining <br />methods using standard industry operating practice in accordance with the approved Resource <br />Recovery and Protection Plan for the Elk Creek Mine. Adverse geologic conditions affecting the <br />remaining Elk Creek Mine reserves included: <br />1. Ground Control. As mining operations are conducted at increasing depth, controlling ground <br />pressure becomes increasingly challenging and expensive. Recent MSHA policy requires that if <br />any blockage due to stress related issues occurs, the operator must cease longwall operations, <br />abandon reserves and move the longwall to a new area. In the current District 4 area of the mine, <br />such stress related problems have occurred twice, each time forcing longwall moves, as well as a <br />loss of resource, productivity, and revenue. <br />2. Sand Channels. The application accurately indicates that sand channels are difficult to <br />predict and are discovered during mining. Elk Creek has experienced sand channels in the past <br />