A. Surety Bonds.

1. (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. (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. (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. (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. (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. (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. (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. (1) Valuation of Collateral.

   1. (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.
   2. (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.
   3. (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. (2) Collateral bonds, except for cash accounts and real property, shall be subject to the following conditions:

   1. (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;
   2. (b) the director shall value collateral at its current market value, not at face value;
   3. (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;
   4. (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;
   5. (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. (3) Real property provided as a collateral bond shall meet the following conditions:

   1. (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;
   2. (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;

   3. (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:

      1. (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;
      2. (ii) the fair market value as determined by a current appraisal conducted by an independent qualified appraiser, previously approved by the director;
      3. (iii) proof of ownership and title to the real property;
      4. (iv) a current title binder which provides evidence of clear title containing no exceptions, or containing only exceptions acceptable to the director; and
      5. (v) phase I environmental assessment.
   4. (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. (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. (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. (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. (3) Certificates of deposit may be substituted for a cash account with the approval of the director.
4. (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. (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. (2) The trust fund is also subject to the following conditions:

   1. (a) the initial payment into the trust must be made by the date established by the director;
   2. (b) the trust shall be funded in accordance with the terms of the permit;
   3. (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;
   4. (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;
   5. (e) the trustee may be compensated under terms defined by the director, upon approval of the director;
   6. (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;
   7. (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;
   8. (h) any disbursement of funds from the trust shall be approved by the director in writing.

F. Insurance.

1. (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. (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. (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. (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.

(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.

1. (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.
2. (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.
3. (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.
4. (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.
5. (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.
6. (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.
7. (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.
8. (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.

9. (8) The guarantor must demonstrate financial soundness by meeting either alternative I or alternative II soundness tests.

   1. (a) Alternative I financial soundness test:

      1. (i) guarantor has a tangible net worth of at least ten million dollars ($10,000,000);
      2. (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;
      3. (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
      4. (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.

   2. (b) Alternative II financial soundness test:

      1. (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.;
      2. (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
      3. (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.
10. (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.

11. (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.

    [7-12-94, 2-15-96, 12-14-96, 6-30-98, 12-29-2000; 19.10.12.1208 NMAC - Rn, 19 NMAC 10.2.12.1208, 05-15-2001; A, 10-15-03; A, 12-30-03]