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Reclamation Bond

With over $80 billion worth of materials extracted in 2018 according to the US Geological Survey, the American mining industry remains as vibrant as ever. Anyone eager to get involved will need to meet some very specific obligations, one of which may be obtaining a reclamation bond. This easy overview from Viking Bond Service shows you everything you need to know about this important business obligation.

What is a reclamation bond surety bond?

Reclamation bond definition: A Reclamation bond is a type of performance surety bond required by the Bureau of Land Management (BLM) and also by some state government agencies that issue permits for mining type operations. This type of surety bond is typically a requirement for a business that is seeking a permit to start mining or other related operations at a specific site. The reclamation bond provides a financial guarantee that the land being disturbed for the operation of the mine, or related activity, will be returned to either its approximate original state or an acceptable condition agreed upon by the operator and the government agency.

Reclamation bond amounts are not standard. The amount required is usually based on a form of cost analysis used to determine the approximate cost to reclaim the land after mining operations have ceased. The costs of a Reclamation bond for mining can vary greatly depending on what type of mining operation is being conducted and the degree of impact on the land. Some land reclamation cost considerations include tasks such as (but not limited to):

  • Groundwater Restoration
  • Equipment removal and disposal
  • Building demolition and disposal
  • Topsoil replacement
  • Revegetation

Reclamation bonds are not restricted to mining-type activities. Generally speaking, a reclamation bond may be required of any operation that alters the land to a degree that the land may not recover on its own post-operation. A couple of examples of operations that may be required to obtain a reclamation bond are waste recycling plants and wastewater disposal facilities.

What is the Purpose of a Land Reclamation Bond?

Land reclamation bonds serve several important purposes. First, they hold mine operators and others responsible for the damage they cause to land, water, and the environment as a whole. Without reclamation bonds, it would be harder (even impossible in some cases) to hold a business accountable for the damage done to the land. Along those same lines, reclamation surety bonds also provide the BLM a way to pursue and secure damages for unrestored land. Compared to other mechanisms like the courts, bonds provide an efficient and effective way to both hold responsible parties accountable and secure compensation to help fund a solution. That relates to the final purpose of land reclamation bonds: to promote upstanding behavior. Since bonds eliminate the financial incentive to abandon land rather than restore it, companies are less likely to do so.

How does a reclamation bond work?

A Reclamation bond is put in place to guarantee that the land affected by mining or similar permitted operations, is returned back to its approximate pre-mining condition or an agreed acceptable condition. In the instance where a mine operator does not perform the land reclamation, the Surety (the company providing the guarantee behind the bond) may be called upon to uphold its financial responsibility to the reclamation bond. Typically, the Surety would either be able to pay out on the bond or manage the land reclamation operation themselves. In either instance, the mine operator is responsible for the financial expense incurred by the Surety. A Reclamation bond is not insurance and does not work like insurance. The mine operator is ultimately financially responsible for the land reclamation.

In practice, the surety bond process works like this: The BLM files a claim against the reclamation bond seeking compensation equal to the damages caused by an operator that has not restored land as agreed upon. The surety company that issues and backs the bond would then investigate the claim and verify the details. Valid claims receive immediate compensation from the surety. After paying, the surety will then focus on collecting the amount of the claim from the operator that has financial liability for it under the bond agreement.

Who should get a reclamation bond?

The Bureau of Land Management (or another government agency) will inform you if you're required to get a reclamation surety bond. At that point, you probably have many questions, including "what is a reclamation bond?" Since you must have a bond before moving forward with a project, you will want to act quickly and correctly. There are not many advantages to waiting, yet there are significant disadvantages for delaying getting a bond. Therefore, anyone required to get a reclamation bond by the BLM should seek out a trusted surety bond partner as soon as possible. Contact a surety company like Viking Bond Service as soon as possible. We can provide you with expert advice tailored to your situation. We can also provide you with bond options that comply with all applicable government requirements.

Who are the parties involved in a reclamation bond?

Land reclamation bonds involved three equal parties:

  • The mine operator is the principal. They are required to obtain the bond, keep it active for as long as necessary, and pay for any claims filed against the bond. It's important to emphasize that the financial liability for all valid claims rests solely and entirely with the principal.
  • The Bureau of Land Management (or another agency) is the obligee. They set the bond amount and terms, and if the land is not restored as mandated in the contract, they have the right to seek compensation by filing a claim against the bond. As long as the claim proves valid under investigation, the surety agrees to automatically settle it in full.
  • The company that issues the bond is the surety. They agree to pay for any valid claims filed against the bond in the event that the principal does not pay initially. After paying, the surety has the right to collect that same amount from the principal. They can use whatever legal means necessary. The surety will also charge interest and fees on top of the settlement amount.

How much does a reclamation bond cost?

Reclamation bond rates vary greatly depending on the qualification of the bond applicant(s). The rates are determined based on many factors which include the credit and financial strength of the company and its owners. The only way to get an accurate quote for a reclamation bond is to apply and let the underwriter review the request and put a quote together. Based on the information you submit in your application, underwriters will evaluate how likely you are to pay for claims initially or to pay the surety back for any claims it steps in to pay. Applicants with lower credit scores or spotty credit history will pay more, but in most cases, they will not be denied. Viking Bond Service works hard to ensure that anyone who requires a reclamation surety bond has access to one.

How to Keep Reclamation Bond Costs in Check

Bonds create a financial burden for anyone required to get one. Companies can't avoid the cost of the bond itself. However, there are several ways to help manage and even minimize the cost of reclamation bonds over the long term. The first strategy is to achieve a higher credit score. Bond costs and credit worthiness are inversely proportional, meaning the first goes down when the second goes up. Improved credit will lead to lower bond premiums if and when the bond gets renewed. The second strategy to keep reclamation bond costs in check (and the more important one) is to avoid any behaviors that could result in claims filed against the bond. Those behaviors include not making any effort to restore land, or not restoring it to the standards mandated by the BLM. Claims can be extremely expensive to resolve. They can also have long-term financial consequences, including difficulty winning future contracts with the BLM or finding surety agencies willing to extend bond offers. Avoiding claims at all costs is always the best, most economical strategy.

How are claims handled for reclamation bonds?

Before ever filing a claim against the bond, the obligee will work directly with the principal. Companies that manage mining sites are usually well aware of issues with land reclamation and any financial obligations they might have created. In most cases, the obligee files a claim as a last resort because the principal has avoided other forms of compensation. When this happens, the surety investigates the claim, and if it proves valid they compensate the obligee up to the total value of the bond. Even though the debt to the obligee is paid, the principal now owes a debt to the surety.

How to apply for a reclamation bond

The first and most important step is to partner with the right surety company. Moving from one bond company to another creates a significant disruption and may not even be possible in some cases, so it's critical to select the right company from the start. Look for ones like Viking Bond Service that supplies abundant information and assistance, offers you quotes quickly, and works with applicants with credit issues.

To apply for a Reclamation bond there are few items that are needed in addition to the bond application and a credit check:

  • Specific bond forms – The governing agency that is requiring a bond to be put in place will typically require the bond to be written on their specifically worded bond forms. A Surety underwriter will need to review that verbiage as part of the underwriting process.
  • Reclamation plan – This is the documentation that describes the land reclamation requirements.

A Viking agent can give complete details of what may be needed for your specific bond request.

How to get started with your reclamation bond request:

Your bond company is your best asset throughout this process. Before, during, and after you obtain your bond, rely on a company like Viking Bond Service to make the process easy and to give you all the assurances you need. Simply follow these steps:

  1. Contact us to go over your bond request. Our agents will be able to tell you exactly what may be required to get a good quote for your specific reclamation bond request.
  2. Complete an application and send any required documentation.
  3. Once the application is received, an agent will work to get the best quote for the request.
  4. Once the quotes are received, the most favorable quote will be relayed. All Viking Bond Service, Inc. quotes are FREE with No Obligation.
  5. The last step is to simply pay the premium, and receive your Reclamation Surety Bond.

Request a Quote for a Reclamation Surety Bond

When you're ready to move your project forward, complete our easy online bond application. You can also get more information by completing the contact form on this page or by calling us at 1-888-278-7389. For everything you need, rely on Viking Bond Service.

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