Learn more about reclamation bonds, and apply today. Absolute Surety offers surety bonds nationwide through a convenient online application system.
What Are Reclamation Bonds?
Reclamation bonds are commonly used in the mining industry to ensure that funds will be available to pay for land and water reclamation efforts when mining operations cease in an area. It can be very costly to restore the land and water to support a healthy ecosystem. These bonds hold the mining company responsible for the cleanup, a process that typically takes years to complete.
Who Needs Them?
Mining activities in the United States are governed by the Surface Mining Control and Reclamation Act, which spells out the long-term land management and reclamation responsibilities of companies applying for mining permits. Permit applications must include detailed reclamation plans, and a reclamation bond must be posted before a mining permit will be issued. The bond guarantees that the company that purchased it will complete the plan as stated.
Mining is not the only activity that can require these kinds of bonds. Surface mining, oil well drilling and plugging, recycling facilities, and hazardous materials storage all require a reclamation bond before a permit will be granted.
How Do They Work?
A government agency typically is the obligee requiring the bond, but is taking into account the needs of potentially many landowners and their concerns regarding the quality of the water, soil, and ecosystem.
If the bond principal, the company holding the land use permit, fails to reclaim the site according to the reclamation plan approved with the permit, the surety company will pay the entire bond amount to the obligee. However, the obligee has the option of letting the surety perform the reclamation instead, but it must be done in compliance with the approved reclamation plan. The surety has the right to pursue the principal for repayment.
What makes many surety companies reluctant to underwrite these bonds is the timeframe involved, which can stretch out for years or even decades. The reclamation is not considered complete until the revegetation responsibility period has elapsed, and that alone can extend for years. Another obstacle for surety companies is the fact that these bonds cannot be cancelled, even if the principal fails to pay premiums or becomes insolvent.
What Do They Cost?
The regulatory authority serving as obligee determines the bond amount required. This amount is based on an estimate of costs associated with executing the reclamation plan and what it would cost to have another party carry out the reclamation in the event that the principal forfeits the bond.
The premium rate the principal will pay depends on the owner’s personal credit history and business financials. The rate typically falls within the 2%-10% range. In some cases, the surety may require collateral to secure the bond. The surety may also require premiums to be prepaid for some period of time.
Use our convenient online system to apply for a reclamation bond today.