Understanding Reclamation Bonds

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Learn more about reclamation bonds, and request a quote from Surety Bond Professionals today.

What Are They?

Mining operations can significantly alter the land. Government agencies with jurisdiction over the land where mining occurs require mining companies to obtain reclamation bonds to guarantee that the land will be restored to its original condition when their work is done. Reclamation bonds protect the environment and public safety by ensuring that the land will be reclaimed at the expense of the mining companies that profited from its use.

Who Needs Them?

Federal or government agencies routinely require mining companies to purchase reclamation bonds as a condition for obtaining permission to conduct mining operations within their jurisdiction. Any kind of mining company may be required to purchase a reclamation bond, whether it’s engaged in petroleum exploration or digging sand or gravel out of the ground.

How Do They Work?

As with all surety bonds, there are three parties involved in a reclamation bond:

  • The government entity requiring the bond is the obligee.
  • The mining company is the principal.
  • The company underwriting and issuing the bond is the surety.

The obligee requires the principal to purchase a reclamation bond in a certain dollar amount, known as the penal amount of the bond. That amount is calculated to be enough to cover the cost of reclaiming the land.

The bond is the principal’s pledge to preserve the land, water, and wildlife in the area and restore them to their original condition. If the principal fails to do that, or causes environmental damage such as water contamination, the obligee can file a claim against the bond, up to the full penal amount.

What Happens If A Claim Is Filed?

The surety will first determine the validity of the claim, and will then try to negotiate a settlement. If no agreement is reached that results in the reclamation of the land, the surety will pay the obligee’s claim. That money can then be used by the obligee to cover the cost of having the land reclaimed by another company.

The surety’s payment to the obligee is essentially a loan to the principal, because it’s the principal’s legal obligation to reimburse the surety. An indemnification clause in the surety bond contract places the responsibility for paying claims squarely on the principal’s shoulders.

What Do They Cost?

The surety’s main concerns in underwriting a reclamation bond are the likelihood of a claim being filed against the bond and the principal’s ability to reimburse the surety for claims paid in advance on behalf of the principal.

The premium you will pay is only a small percentage of the required bond amount. The surety determines the premium rate based on the principal’s personal credit score, financial strength, industry experience, and other factors. Because of the long-term nature of mining operations, the principal may be required to put up collateral in addition to paying the annual bond premium. A lot can happen in the years that a company’s mining operations are ongoing, including the

Get A Quote

If you’ve been informed by a government agency that you need to obtain a reclamation bond as a condition for being granted the right to conduct mining operations, Surety Bond Professionals is here to help. Our experienced agents can get you the best deal possible on a bond that meets the government’s requirements. Contact us today.