the source controls and waste rock removals that were implemented prove to be 

 inadequate and if further water treatment is determined to be necessary. 



Water Treatment 



The BLM's June 2004 Action Memorandum describes threats to the public health and 

 welfare and the environment that could result if operation of the water capture and 

 treatment systems is not continued at the mines. If the systems fail or cease 

 operation, the BLM maintains that "the release of hazardous substances would 

 increase greatly without the benefit of treatment, creating significant environmental 

 damage. This includes the release of solutions containing metals such as arsenic, 

 cadmium, copper, selenium, and zinc; plus cyanide complexes, nitrates, and solutions 

 having low pH (acidic) levels".^'' The document warns that drinking water supplies or 

 sensitive ecosystems could be contaminated and that human and animal populations 

 could be exposed to the toxic effects of these substances. 



The major problem and most critical financial need at the Zortman and Landusky 

 mines is the fact that there are insufficient funds to maintain the water treatment 

 systems. Pegasus provided two sources of funding for the operation and maintenance 

 of the water treatment plants. Both are considered to be insufficient. 



The first is the $14,626,422 short-term (20-year) water treatment bond that was 

 intended to pay for the maintenance and operation of the Zortman and Landusky 

 water treatment plants from June 30, 1997, until June 30, 2017. One-twentieth of 

 this bond or $731,321 is provided to DEQby the surety each year. Since Pegasus 

 operated the plants during 1997, the actual bond funds provided to DEQwill total 

 $13,895,101. Actual costs to operate and maintain the water treatment plants are 

 shown below. ^^ 



Bond Shortage 



$731,321 (-$468,700) 



$731,321 ($112,066) 



$731,321 ($148,406) 



$731,321 ($174,578) 



$731,321 ($ 26,936) 



$365,660 ( $ 58,483) 



The BLM has provided $500,000 to cover the shortfall for the past few years, but those 

 funds are nearly expended. An August 2004 memorandum of agreement (MOU) 



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