New Mexico Administrative Code
Title 19 - NATURAL RESOURCES AND WILDLIFE
Chapter 10 - NON-COAL MINING
Part 12 - FINANCIAL ASSURANCE REQUIREMENTS
Section 19.10.12.1208 - FINANCIAL ASSURANCE MECHANISMS
Universal Citation: 19 NM Admin Code 19.10.12.1208
Current through Register Vol. 35, No. 18, September 24, 2024
A. Surety Bonds
(1) A surety bond shall be executed by the
applicant or the permittee and a corporate surety licensed to do business in
the state of New Mexico.
(2) Surety
bonds shall be noncancellable during their terms, except that surety bond
coverage for lands not disturbed may be cancelled with the prior written
consent of the director. The director shall advise the surety, within 30 days
after receipt of a notice to cancel bond, whether the bond may be cancelled on
an undisturbed area.
(3) Surety
bond terms shall be established for a minimum of five years. One hundred and
twenty (120) days prior to the expiration of the term, the operator must
provide the director with evidence that the current surety bond will be
continued, another surety company is to provide a financial assurance, or
another form of financial assurance will replace the surety bond. Upon
receiving notification, the director shall respond to the permittee within 30
days, in writing, indicating whether or not the proposed form and amount of
financial assurance will be acceptable. If adequate financial assurance is not
provided 30 days prior to the expiration of the term of the original surety
bond, the permittee shall cease operations and shall forfeit the existing
surety bond. Mining operations shall not resume until the director has
determined that an acceptable replacement financial assurance has been
provided. If an acceptable financial assurance is provided within a time frame
specified by the director, not to exceed 180 days, the forfeited funds, less
any costs associated with the forfeiture, will be refunded to the surety
company. If adequate financial assurance is not provided within the specified
time frame, the director will authorize reclamation of the mining operation
using the forfeited funds.
B. Letters of Credit
(1) The letter of credit must be issued by a
bank organized or authorized to do business in the United States. The director
may require an independent rating of the proposed bank and the cost of any such
rating shall be paid by the applicant or permittee.
(2) Letters of credit shall be irrevocable
during their terms. A letter of credit used as security in areas requiring
continuous financial assurance coverage shall be forfeited and shall be
collected by the state of New Mexico if not replaced by other suitable
financial assurance or letter of credit at least 30 days before its expiration
date.
(3) Mining operations shall
not resume until the director has determined that an acceptable replacement
financial assurance has been provided. If an acceptable financial assurance is
provided within a time frame specified by the director, not to exceed 180 days,
the payment amount, less any costs associated with the demand for payment, will
be refunded to the bank. If financial assurance is not provided within the
specified time frame, the director will authorize reclamation of the mining
operation using the payment from the letter of credit.
(4) The letter of credit shall be payable to
the state of New Mexico upon demand, in part or in full, upon receipt from the
director of a notice of forfeiture issued in accordance with 19.10.12.1211
NMAC.
C. Collateral Bonds
(1) Valuation of Collateral
(a) If the nature of the collateral proposed
to be given as security for financial assurance is subject to fluctuations in
value over time, the director shall require that such collateral have a fair
market value at the time of permit approval in excess of the financial
assurance amount by a reasonable margin. The amount of such margin shall
reflect changes in value anticipated over a period of five years, including
depreciation, appreciation, marketability and market fluctuation. In any event,
the director shall require a margin for legal fees and costs of disposition of
the collateral in the event of forfeiture.
(b) The annual report filed by the permittee
must indicate the current market value of any collateral accepted by the
director pursuant to this part.
(c)
The financial assurance value of collateral may be evaluated at any time, but
it shall be evaluated as part of permit renewal and, as necessary, its amount
increased or decreased. In no case shall the value attributed to the collateral
exceed its market value.
(2) Collateral bonds, except for cash
accounts and real property, shall be subject to the following conditions:
(a) the director must have custody of
collateral deposited by the applicant or permittee until authorized for release
or replacement as provided in this part;
(b) the director shall value collateral at
its current market value, not at face value;
(c) the director shall not accept as
collateral shares of stock issued by the following: applicant or permittee; an
entity that owns or controls the applicant or permittee; or an entity owned or
controlled by the applicant or permittee;
(d) the director shall require that
certificates of deposit be made payable to or assigned to the state of New
Mexico, both in writing and upon the records of the bank issuing the
certificates; if assigned, the director shall require the banks issuing these
certificates to waive all rights of setoff or liens against those certificates
prior to the director's acceptance;
(e) the director shall not accept an
individual certificate of deposit in an amount in excess of one hundred
thousand dollars ($100,000) or the maximum insurable amount as determined by
the federal deposit insurance corporation or the federal savings and loan
insurance corporation.
(3) Real property provided as a collateral
bond shall meet the following conditions:
(a)
the real property must be located in the state of New Mexico. The real property
cannot be within the permit or affected area of a mining operation;
(b) the permittee shall grant the state of
New Mexico a first mortgage, first deed of trust, or perfected first-lien
security interest in real property with a right to sell in accordance with
state law or otherwise dispose of the property in the event of forfeiture under
19.10.12.1211 NMAC;
(c) for the
director to evaluate the adequacy of the real property, the permittee must
submit the following information for the real property, unless the director,
for good cause, waives any of the requirements:
(i) a description of the property, which
shall include a site improvement survey plat to verify legal descriptions of
the property and to identify the existence of recorded easements;
(ii) the fair market value as determined by a
current appraisal conducted by an independent qualified appraiser, previously
approved by the director;
(iii)
proof of ownership and title to the real property;
(iv) a current title binder which provides
evidence of clear title containing no exceptions, or containing only exceptions
acceptable to the director; and
(v)
phase I environmental assessment.
(d) in the event the permittee pledges water
rights, the permittee shall provide such additional information as may be
required by the director to meet any additional conditions prescribed by him
for accepting water rights as collateral.
(4) Persons with an interest in collateral
provided as financial assurance who desire notification of actions affecting
the collateral shall request the notification in writing to the director at the
time collateral is offered.
D. Cash accounts shall be subject to the following conditions.
(1) The director may
authorize the applicant or permittee to meet its financial assurance
obligations through the establishment of a cash account in one or more
federally-insured or equivalently protected accounts made payable upon demand
to, or deposited directly with, the state of New Mexico.
(2) Any interest paid on a cash account must
be retained in the account and applied to the account unless the director has
approved the payment of interest to the permittee.
(3) Certificates of deposit may be
substituted for a cash account with the approval of the director.
(4) The director shall not accept an
individual cash account in an amount in excess of one hundred thousand dollars
($100,000) or the maximum insurable amount as determined by the federal deposit
insurance corporation or the federal savings and loan insurance corporation,
unless the cash account has been deposited with the state of New
Mexico.
E. Trusts shall be subject to the following conditions.
(1)
The director may approve the use of a trust to hold and manage funds for the
purpose of implementing reclamation as prescribed in the closeout plan. The
trustee must be an entity which has the authority to act as a trustee and whose
trust operations are regulated and examined by a federal or state agency and
which has been approved by the director. The director must be notified of any
change of trustee and any successor trustees must be approved by the
director.
(2) The trust fund is
also subject to the following conditions:
(a)
the initial payment into the trust must be made by the date established by the
director;
(b) the trust shall be
funded in accordance with the terms of the permit;
(c) investments of the trust shall be
reviewed and approved by the director and may include fixed income investments
such as U.S. treasury obligations, state issued securities, time deposits and
other investments of similar risk as approved by the director;
(d) income accrued on trust funds shall be
retained in the trust, except as otherwise agreed by the director under the
terms of an agreement governing the trust;
(e) the trustee may be compensated under
terms defined by the director, upon approval of the director;
(f) the trust may be terminated by the
permittee only if the permittee substitutes, with the approval of the director,
alternate financial assurance as specified in this section or the permittee has
completed reclamation in accordance with Subsection E of 19.10.12.1210
NMAC;
(g) a copy of the trust
agreement, as well as quarterly and annual reports of the trustee on the trust
fund balance shall be provided to the director upon request;
(h) any disbursement of funds from the trust
shall be approved by the director in writing.
F. Insurance
(1) The insurer must be authorized to
transact the business of insurance in the state of New Mexico and a licensed
carrier or a registered carrier of surplus lines of insurance or reinsurance
and authorized to transact business of insurance in the state of New Mexico,
and have an AM BEST rating of not less than A- or the equivalent rating of
other recognized rating companies.
(2) The insurance policy shall be issued for
the amount equal to the closeout plan cost estimate as approved by the director
or for a lesser amount if used in conjunction with other forms of financial
assurance and approved by the director.
(3) The insurance policy shall guarantee that
funds will be available for reclamation in accordance with the closeout plan
and that the insurer will be responsible for paying out funds, up to an amount
equal to the face amount of the policy, upon direction of the director. Actual
payments by the insurer will not change the face amount, although the insurer's
future liability may be reduced by the amount of the payments, during the
policy period.
(4) The permittee
must maintain the policy in full force and effect until the director approves
termination or replacement of insurance with another form of financial
assurance acceptable to the director.
G. Third party guarantee
(1) A third party guarantee is a written
agreement from a guarantor, which provides that if the permittee fails to
complete the performance requirements of the permit, including closure and
reclamation, the guarantor shall do so or, upon forfeiture in accordance with
19.10.12.1211 NMAC, shall fund such account(s) as the director may instruct in
the full amount of that portion of the financial assurance covered by the third
party guarantee.
(a) A third party guarantee
may not exceed seventy-five percent of the total amount of the financial
assurance for a permit established pursuant to 19.10.1205 NMAC. Any permittee
with a third party guarantee in place at the effective date of this
subparagraph shall meet the limitation within one year after the effective date
of this subparagraph.
(b) A third
party guarantee may not include any type of self-guarantee or self-insurance.
The director may investigate to determine whether a sham relationship exists
between the guarantor and the permittee. The director may reject a third party
guarantee as a form of self-guarantee if the director concludes that
substantial evidence supports a finding that either the guarantor or the
permittee exercises dominion and control over the other so pervasive as to
render the one a mere instrumentality of the other.
(2) The permittee or applicant shall submit
financial information as requested by the director unless doing so would place
guarantor in violation of an applicable legal requirement.
(3) The third party guarantee shall be signed
by an authorized representative, and legal counsel of the guarantor shall
certify that the guarantor can legally engage in the guarantee and shall
certify the amounts and names of beneficiaries of all other guarantees for
which the guarantor is obligated.
(4) If the guarantor is a corporation, the
authorization documentation will include a board of directors' resolution or
shareholder's vote or similar verification and proof that the corporation can
validly execute a guarantee under the laws of the state or country of its
incorporation, and its bylaws and articles of incorporation.
(5) If the guarantor is a partnership, joint
venture, syndicate, or other business entity, each party or an authorized
representative for the party with the beneficial interest, direct or indirect,
shall sign the agreement.
(6) The
guarantor's financial statements shall be audited by an independent certified
public accountant and the accountant's certification provided to the director.
All costs and fees for such audit and certification shall be paid by the
applicant or permittee. If the accountant gives an adverse opinion of the
financial statements, the guarantor cannot qualify for the third party
guarantee. The permittee shall also pay for any evaluation and analysis by an
independent reviewer selected by the director to evaluate and analyze for the
director any information regarding the guarantor provided to the director or
requested by the director to evaluate the guarantor's financial ability to
provide a guarantee.
(7) The
guarantor as well as its successors and assignees agree to remain bound jointly
and severally liable for all litigation costs incurred in any successful effort
to enforce the third party guarantee against the guarantor.
(8) The guarantor must demonstrate financial
soundness by meeting either alternative I or alternative II soundness tests.
(a) Alternative I financial soundness test:
(i) guarantor has a tangible net worth of at
least ten million dollars ($10,000,000);
(ii) guarantor's tangible net worth and
working capital are each equal to or greater than six times the sum of the
proposed financial assurance and all other guarantees for environmental permits
issued in the U.S. for which the guarantor is obligated;
(iii) guarantor's assets located in the
United States amount to at least ninety percent of its total assets or its
total assets in the United States are at least six times the sum of the
proposed financial assurance and all other guarantees for environmental permits
issued in the U.S. for which the guarantor is obligated; and
(iv) guarantor meets at least two of the
following three financial ratios: the ratio of total liabilities to net worth
is less than 2:1; the ratio of the sum of net income plus depreciation,
depletion, and amortization to total liabilities is greater than 0.1:1; the
ratio of current assets to current liabilities is greater than
1.5:1.
(b) Alternative II
financial soundness test:
(i) guarantor's
most recently issued senior credit obligation are rated "BBB" or higher by
standard and poor's corporation, or "Baa" or higher by moody's investors
service, inc.;
(ii) the guarantor
has a tangible net worth of at least ten million dollars ($10,000,000) and is
greater than six times the sum of the proposed financial assurance and all
other guarantees for environmental permits issued in the U.S. for which the
guarantor is obligated; and
(iii)
guarantor's assets located in the United States amount to at least ninety
percent of its total assets or its total assets in the United States are at
least six times the sum of the proposed financial assurance and all other
guarantees for environmental permits issued in the U.S. for which the guarantor
is obligated.
(9) The director may require monitoring of
the guarantor's financial condition by a contractor with the state during the
time that a third party guarantee is used for financial assurance. The costs of
such monitoring shall be paid by the permittee. The frequency of such
monitoring shall be determined by the director.
(10) At any time that the guarantor's
financial condition is such that the guarantor no longer qualifies pursuant to
this part, the permittee shall be deemed without financial assurance coverage.
The director shall specify to the permittee in writing a reasonable period, not
to exceed 90 days, to replace the financial assurance coverage. If adequate
financial assurance is not provided by the end of the period allowed, the
permittee shall cease mining and shall immediately begin to conduct reclamation
or closeout measures in accordance with the reclamation or closeout plan. The
director may, for good cause shown, grant up to two 30-day extensions. Mining
operations shall not resume until the director has determined that an
acceptable replacement financial assurance has been provided.
Disclaimer: These regulations may not be the most recent version. New Mexico may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.