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(Page 2) <br />MINE ID # OR PROSPECTING ID # M-1989-024 <br />INSPECTION DATE 06/17/10 INSPECTOR'S INITIALS PSH <br />OBSERVATIONS <br />The Shangri La Pit, File No. M-1989-024, was inspected by Peter Hays with the Division of Reclamation, Mining <br />and Safety (Division) in advance of a possible revocation of the reclamation permit and forfeiture of the <br />reclamation bond. The Division attempted to contact and left messages for Mr. Edward Yaklich, permittee <br />and landowner and Mr. Ronald Yaklich, son of Edward Yaklich and permitting contact for the site prior to the <br />inspection but was not able to reach either party. <br />The Shangri La Pit is located approximately 1.5 miles southwest of Westcliffe, Colorado in Custer County. The <br />site was previously inspected by the Division on August 29, 2005. On November 19, 2009, the Division mailed <br />a letter informing the Operator that Pueblo Bank & Trust Company notified the Division of the cancellation of <br />the Letter of Credit for the site effective July 19, 2010. On May 20, 2010, the Division notified Pueblo Bank & <br />Trust Company of the Division Director's intent to draw on the Letter of Credit and the amount drawn is now <br />held as a cash deposit in lieu of financial warranty by the Division. Per Rule 4.1(7), Financial Warranties shall <br />be maintained in good standing for the entire life of any permit issued under the Act and Rules. <br />The Division has made numerous unsuccessful attempts to contact Mr. Edward Yaklich regarding the Letter of <br />Credit cancellation. The Division was able to contact and discuss the issue with Mr. Ronald Yaklich, but to <br />date the Division has not received a replacement financial warranty. The Division recommends the Operator <br />or his representative contact Ms. Elizabeth Merry, Program Assistant with the Division, immediately to discuss <br />options for posting the replacement financial warranty. Failure to replace the financial warranty before July <br />19, 2010 may result in revocation of the Shangri La Pit permit and forfeiture of the financial warranty. <br />No mining activity was observed during this inspection. As indicated in the 2009 Annual Report, the mine site <br />remains undisturbed. As noted in the previous inspection report, there is no entrance gate installed in the <br />fence adjacent to Macy Lane, no access road has been constructed across the field to the site and the site <br />remains a hay field. The entrance sign and permit boundary markers were not observed as required by Rule <br />3.1.12. This is not considered a problem by the Division, since the site has never been mined. If the Operator <br />has decided to not mine the site, the Division recommends the Operator contact the Division immediately to <br />discuss replacement of the financial warranty and the process, per Rule 4.17, to release the performance and <br />financial warranties for the Shangri La Pit. <br />Inspection Contact Address <br />NAME Edward W. Yaklich <br />OPERATOR <br />STREET 1180 CR 129 <br />CITY/STATE/ZIP Westcliffe, Colorado 81252 <br />Cc: Steve Shuey; DRMS <br />Edward Yaklich; Canon City address <br />Ronald Yaklich; Attorney <br />Enclosures: Forfeiture Letter dated May 20, 2010 and Notice of Cancellation letter dated November 19, 2009.