November 16, 2015

CRESTED BUTTE, COLORADO – Concern for water quality and the uninterrupted operation of a nearly $2 million per-year water treatment plant that treats acid mine drainage in the Upper Gunnison River watershed, continues to rise after the release of U.S. Energy Corp’s (USE’s) third quarter financial statement. USE is the company that owns and operates the water treatment plant on Mt. Emmons above Crested Butte.

Over the past year, USE’s financial health has continued to decline due to the dramatic downturn in the price of oil. This past July, the company received a warning that it could be delisted from the NASDAQ stock exchange and recently had its borrowing base with Wells Fargo significantly reduced.

This has not gone unnoticed in the Upper Gunnison River Valley. “As U.S. Energy’s finances continue to decline, the community’s concerns about what this means for the necessary water treatment plant’s operation on Mt. Emmons is only heightened,” said Michele Simpson, Executive Director of High Country Conservation Advocates. Simpson continued, “right now the Forest Service, which has oversight responsibility for the water treatment plant, refuses to require the necessary bond to cover the operational cost of the water treatment plant. There is no contingency plan in place. The recent lawsuit High Country Conservation Advocates filed seeks to require the Forest Service to obtain a bond from U.S. Energy to cover the full cost of operating the water treatment plant.”

High Country Conservation Advocates (HCCA) is a nonprofit grassroots conservation organization based in Crested Butte. The lawsuit it filed last month is against the U.S. Forest Service for the agency’s failure to have an approved Plan of Operations (PoO) and a bond or financial assurance in place for the Water Treatment Plant (WTP) on Forest Service lands that is owned by USE. A PoO and bond are necessary to guarantee that the operation and maintenance of the WTP will continue without interruption. The WTP currently operates year-round to prevent untreated highly contaminated acid mine drainage from entering local streams. The WTP treats about 350 gallons per-minute of contaminated waters.

While USE’s finances have continued to decline, the company has undergone a recent leadership change and revealed that it is looking to divest its interest on Mt. Emmons. The proposed mine project, known as the Mt. Emmons Project, has been the subject of heated opposition for over 38 years, due to its location directly west and upstream of Crested Butte and location within the drinking watershed and because it would degrade three different Upper Gunnison River headwaters that provide the lifeblood for the local ranching and tourism based economy. Last month, USE’s new CEO, David Veltri, shared with the Crested Butte News that the company “want[s] a final solution to the mine whatever that final solution could be.”

During last week’s nation-wide call with investors, Veltri elaborated on the Company’s efforts to divest itself from its interest on Mt. Emmons: . . . we are continuing to work towards finding the proper path forward for the Mount Emmons project in Colorado. With the current price of oil, it’s imperative to evaluate all options for a permanent solution to the project although we believe there’s considerable value of the project if molybdenum prices improve, we will attempt to transfer the project and the associated environmental obligations to another party. We anticipate that this will require some consideration about a company and exchange for the other party’s assumptions of these obligations associated with the project. We continue to work through multiple avenues for divestiture of the project and we remain optimistic that we will be successful on our efforts in due course. However, I can provide no assurance that these efforts would be successful under proposed terms at all.

U.S. Energy Corp.’s (USEG) CEO David Veltri on Q3 2015 Results – Earnings Call Transcript, Nov. 10, 2015 available here.

It is not clear how USE’s divestment efforts will play out with existing molybdenum mines, like the Henderson Mine under Berthoud Pass in CO, recently announcing employee and production cutbacks.

“We’re encouraged U.S. Energy is looking for a ‘permanent solution’ and are always willing to discuss in conjunction with the other stakeholders, including the Town of Crested Butte, Gunnison County, and appropriate state and federal agencies, what this may look like,” said Alli Melton, HCCA’s Public Lands Director. “Ultimately, we need a solution that permanently protects our clean water, pristine air, and ranching and recreation based economy now and in the future from the devastating impacts of hardrock mining.”

USE’s third quarter statement was also released on the heels of western lawmakers’ (which included Senator Michael Bennet) introduction of a Bill to Reform the 1872 Hardrock Mining Law. Contamination causing mines, such as the one that USE treats discharged water from, is a problem across Colorado and the West that has affected communities as well as human and environmental health for over the last 150 years. This Reform effort calls for, among other things, the collection of a small production fee to pay for unreclaimed mine cleanup, which is similar to the fee paid by the coal industry to cleanup contamination from coal mines. Click here for New Mexico Senator Udall’s statement during the introduction of this bill and a press release can be found here.

“USE’s downward spiral highlights the necessity of effective and legitimate reform of the 1872 General Mining Law,” said Laura Yale, an avid local back-country explorer. “For too long companies have skirted by leaving communities to deal with the environmental and human health problems left in the wake of hardrock mining. At the same time, too often it’s the taxpayers left picking up the clean-up tab. These companies need to internalize their environmental costs and not rely on taxpayers to subsidize them while they make millions and even billions in profits. The introduction of this law is a step in the right direction.”

For more information about HCCA’s 38-year long effort to Save Red Lady (Mt. Emmons), and a copy of the Complaint filed in federal court last month click here.