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Terms & Conditions of a Lease

Does the lease require that I have all the required permits for development and operation of a coal mine?
The lessee or the operator cannot construct or operate a coal mine without the appropriate licenses and permits from OSM or the affected state and local governments, as required by the Surface Mining Control and Reclamation Act of 1977 (SMCRA).

Do I have to have a bond for the lease?
Yes, before a lease may be issued, the lessee must furnish a bond in an amount determined by BLM to ensure compliance with all the lease terms and conditions. At a minimum, a bond is required to cover the remaining balance of the bonus bid, one year of advanced rental, and one year of advanced royalty if the lease is in production. Bonding for reclamation is required under the lessee's mining permit. Your bond with BLM could include provisions for protection of the environment. BLM may require a change, either increase or decrease, of the bond amount at any time conditions warrant such a change.

What are the acceptable instruments for the bond?
The bond requirement may be met by corporate surety bonds, cash bonds, or personal bonds that are secured by negotiable Treasury securities, accomplanied by a power of attorney executed on a form approved by the director.

What are the rental fee requirements for a federal coal lease?
All leases require payment of an annual rental fee of not less than $3 an acre or fraction thereof. Rental fees for the subsequent year are due on the anniversary date of the lease. Failure to timely pay annual rental fees can result in termination of your lease. All rental payments are paid to MMS.

Does the lease require payment of royalties?
Yes. The royalty for surface mined coal has been established by statute at 12.5 percent of the gross value of coal produced. For coal mined by underground mining methods, the royalty rate has been established by regulation at 8 percent of the gross value of coal produced. All royalty collections are managed by MMS. Royalty receipts are shared equally with the State from which the mineral was extracted.

How long will a federal coal lease be in effect?
A Federal coal lease has an initial term of 20 years. At the end of its initial 20 year term, and every ten years thereafter, the stipulations of the lease may be "readjusted" by BLM. At readjustment, the BLM may add, modify, or change the stipulations of the lease to meet current statutory or policy requirements.

Last updated: 06-16-2008