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s <br />Mr. Michael Cunningham - February 15, 2011 <br />Page Four <br />address certain identified deficiencies relating to water storage, use, and discharge (and <br />other non-permitted but inter-related project components) in a manner that addresses <br />current (inherited) site conditions while also incorporating planned AGC project <br />requirements. Thus, AGC has had contact and entered into dialogue with the Office of <br />the State Engineer as well as the CDPHE Water Quality Control Division and U.S. EPA <br />Region VIII. In the interim, AGC has undertaken efforts in a diligent manner to bring the <br />subject non-permitted well into full compliance and accordingly, AGC has not operated <br />the non-permitted well for purposes other than sampling since assuming ownership. <br />The Cash Mine well is but one component of a Section 37-92-308(5) Substitute Water <br />Supply Plan (SWSP) that is being prepared by AGC while in consultation with the Office <br />of the State Engineer. The SWSP incorporates a water balance that includes water <br />derived from the Cash Mine well and procurement of sufficient water to support both <br />operational (to include depletions attributable to process and evaporative losses) and <br />seasonally-mandated augmentation needs. The approval/issuance of the SWSP will <br />presumably culminate in the ability to obtain well permits for the Cash Mine well and <br />other wells that are onsite and which will be incorporated into future operations. <br />One component necessary prior to submittal of the SWSP application is the procurement <br />of sufficient water rights to offset the anticipated operational depletions on a year-round <br />basis (the current water right associated with the property is through 20 shares pro rata <br />of Left Hand Ditch water; however, the right is conditioned upon seasonal withdrawal <br />limitations). AGC is actively seeking supplemental augmentation sources, and when <br />procured, the SWSP application will be ready for submittal. At this juncture, AGC does <br />not know the period of time necessary to obtain the required water rights; however, we <br />would anticipate that it could take up to three months to complete the procurement and <br />subsequent submittal process, followed by a short duration (estimated 1 to 2 month) <br />time window for approval (assuming the SWSP application is not challenged or any <br />ensuing challenge can be resolved in a timely manner). <br />Accordingly, it is AGC's position that this deficiency is being addressed in a diligent <br />manner, and AGC respectfully requests extension of the corrective action date to <br />September 30, 2011. In the interim, AGC commits to continued non-use of the onsite <br />well(s), and to providing monthly updates on progress in this regard (via letter) and/or <br />documentation of related permitting activities commencing on or about April 1, 2011 and <br />every 30 days thereafter. <br />2) Problem (Hydrologic Balance): The Mount Royale Adit No. 1 is discharging water <br />from the Cash Mine pool. Rule 3.1.6 states disturbances to the hydrologic balance <br />of the affected land and of the surrounding area and to the quantity or quality of <br />water in surface and groundwater systems both during and after the mining <br />operation and reclamation shall be minimized. <br />Corrective Action: The Operator shall obtain a discharge permit from the <br />Colorado Department of Public Health and Environment or demonstrate the Mount <br />Royale Adit No. 1 is no longer discharging by the corrective action date.