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(Page 2) MINE ID # OR PROSPECTING ID # M-1988-112 INSPECTION DATE 2/15/07 INSPECTOR'S INITIALS WHE OBSERVATIONS This inspection occurred as part of the Division's review of Amendment No. 2 (AM-02). AM-02 addresses an increase in permit acreage associated with an amended West Pit water management plan, modification to the approved hydrologic monitoring plan, and revision to reclamation details at the tailings disposal area. During the public comment period, the Division received numerous objections to AM-02, most of which focused on the proposed West Pit water management plan. Many of the objecting parties had stated a concern for potential adverse impact to the quality and quantity of surface and ground water resulting from the utilization of West Pit drainage to irrigate alfalfa fields at the Shalom Ranch site. Four photos accompany this report. The existing West Pit water management plan includes pumping of groundwaterfrom the West Pit and treatment of that groundwater prior to discharge to the Rito Seco. The water treatment plant was active during the time of this inspection. Untreated seepage from the West Pit to the Rito Seco was not observed. Several of the irrigation ditches for the Shalom Ranch were briefly inspected. The potential for adverse impact to the quality and quantity of waters in these ditches was an issue raised by the objecting parties. According to the objection from John McClure, Esq., submitted on behalf of the Costilla County Conservancy District and the Board of County Commissioners of Costilla County, there are four irrigation ditches which draw water from the Rito Seco at the Salazar Ditch headgate and distribute the irrigation waters throughout the Shalom Ranch and to lands beyond the Shalom Ranch. The four irrigation ditches include the Espinoza Ditch, the Acequia Chiquita, the San Luis People's Ditch, and the Montez Ditch. During the time of this inspection, the Salazar Ditch headgate was closed and none of the irrigation ditches were conveying water. On May 10, 2007, the Operator requested an extension to the decision date for AM-02, to allow additional time to respond to the adequacy issues raised by the Division. The Division has approved the extension and as of the signature date of this report, July 24, 2007, is awaiting an amendment to AM-02. The Division anticipates that the amended AM-02 will address many of the jurisdictional issues raised by the objecting parties. Responses to this inspection report should be directed to the Division of Reclamation, Mining and Safety, 701 Camino del Rio, Room 125, Durango, Colorado 81301, Attn: Wally Erickson, phone no. 970-247- 5469. I & E Contact Address NAME William Lyle OPERATOR Battle Mountain Resources. Inc. STREET P.O. Box 310 CITY/STATE/ZIP San Luis, CO 81152 cc: Tony Waldron, DMG ^ CE ^ BL ^ FS ^ HW ^ HMWMD (CH) ^ SE ^ WOCD (CH) ^ OTHER