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(Page 2) MINE ID # OR PROSPECTING ID #M-1994-077 INSPECTION DATE 03-16-2006 INSPECTOR'S INITIALS DEG OBSERVATIONS Carl B. Mount and Deb E. Gbnima of the DMG conducted this inspection of Washington County Permit Number M-1994-077. Larry Champ, Washington County District Road Foreman, accompanied DMG employees on this inspection. The pit is located several miles southeast of Last Chance, Colorado, and east of State Highway 71. Since the last inspection performed on October 03, 2002 the mine identification sign has been properly posted and contains the required information. The site is currently active, material has been stockpiled on the permit area and some of it has been removed recently, although there was no equipment on site at the time of the inspection. The mining plan originally submitted and subsequently approved stated that the "top 12 inches of topsoil will be salvaged and set aside and stockpiled for reclamation purposes". Additionally, in an adequacy response from the County to DMG, prior to application approval, Washington County consented to "stabiliz[ing] the topsoil stockpile by establishing grasses on the stockpile during the first growing season following soil salvage" The current site conditions do not fulfill the approved mining plan, since no topsoil has been salvaged to date. This is noted as a Possible Problem No. 2 on page 3 of this report. It is going to be more difficult to reclaim the site without topsoil and the operator must salvage all topsoil encountered. The operator must state where topsoil will be salvaged in the upcoming amendment or conversion application and state where the stockpile will be located. As an alternative the operator can describe how reclamation will take place without the use of topsoil. During this inspection the operator requested additional information to apply for a conversion from a 110 to a 112 for this operation. Directlyfollowing DMG's verbal commitment to provide the necessary materials to guide the operator in his pursuit to convert this 110 to a 112, it came to the attention of the inspectors that the operator is mining (see photos 8, 9, &10) and stockpiling material (see photos 5, 6, & 7) outside of the permit boundary. This is noted as Possible Violation (PV) No. 1 on page 3. Operator has disturbed approximately 0.9 acres outside of the permit area by mining on the southeastern edge and stockpiling material on the western edge of the approved permit boundary in possible violation of C.R.S. 34-32.5-109(1) for failure to obtain a permit prior to engaging in a new operation, or C.R.S.34-32.5-116 (4)(i) and Rule 3.1.5(3) for failure to protect areas outside of the affected land from damage occurring during the mining operation. The Division will schedule the PV item before the Mined Land Reclamation Board antl, in addition, send the operator a Reason to Believe letter outlining the Board dates and times of the hearings. The Division will recommend to the Board that the operator submit a 112 permit conversion application to incorporate all the current permitted acreage and the disturbances outside the permit boundary since the addition of 0.9 acres to the existing permit acreage will increase the size of the permit area beyond the limits of a 110 permit. One additional item of note: There is currently a cut wall of approximately 90 degrees along the southwestern exposures of Vega Creek, and outside of the current permit boundary, that existed prior the start of this operation (see photo 11). Responses to this inspection report should be directed to Deb E. Gonima at the Division of Minerals and Geology, Denver Office, 1313 Sherman Street, Room 215, Denver, Colorado 80203, phone number 303-866-4179. I & E ContactAddress NAME OPERATOR STREET CITY/STATE/ZIP Mr. Larry Chamo -Road Foreman Washington County Road District #3 P.O. Box 32 Anton. CO 80801 cc: Carl Mount, DMG via a-mail cc: ^ CE ^ BL ^ FS ^ HW ^ HMWMD (CH) ^ SE ^ WOCD (CH) ^ OTHER CERTIFIED MAIL No. Return Receipt Requested