1992-08-13_GENERAL DOCUMENTS - C1981017 (2)

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ells M E M 0 R A N D U TO: Bob Delaney R G n cc: James Wood, Diane Delaney FROM: Jim Holden AUG 131992 DATE: January 28 , 1992 RE: Mid-Continent Resources ( "Resources" ) / Treatment of Reclamation Liabilities in Bankruptcy In this Memorandum, I assume that Resources ' mine is not sold to a new operator and that the focus of the company will be the salvage of the mine land and equipment. If we liquidate outside of bankruptcy, Resources and Sanwa will be exposed to interference from junior creditors, who may try to gain leverage through writs of execution on personal property, judicial foreclosures on real property, appointment of a receiver, or the filing of an involuntary bankruptcy petition in a manner designed to block a pending sale. Moreover, we will have difficulty assuring purchasers that they are acquiring good title. I therefore believe that an orderly liquidation of land and equipment can best be accomplished in bankruptcy. A bankruptcy trustee will lack the expertise required to liquidate the mine and realize maximum value, and I therefore recommend that the company control the liquidation as a Chapter 11 debtor in possession. Salvage of the mine will trigger Resources ' reclamation obligations to the State of Colorado. This Memorandum addresses those reclamation obligations as they pertain to a bankruptcy proceeding. Before considering the bankruptcy issues, it may be helpful to review reclamation requirements under Colorado law and Resources' current status with the regulatory authorities. Reclamation requirements and Resources ' current status The Colorado Surface Coal Mining Reclamation Act [C.R.S. § 34-33-101 et seq. ] provides the regulatory scheme for reclamation of coal mines in Colorado. The definition of "surface coal mining operations" in S 34-33-103 (26 ) (a) includes "surface impacts incident to an underground coal mine, " and therefore the Act covers reclamation of underground mines despite the title of the Act. A number of reclamation provisions in the Act are relevant to the bankruptcy issues considered below. In order to obtain issuance of a mine operating permit, a mine operator is required to submit to the Mined Land Reclamation Division ( "Division" ) a reclamation plan meeting the requirements of the Act. § 34-33-110 (3) . A mine operator is further required to provide a performance bond to the Division.