Section R12-5-2007. Common Mineral Materials

A.      Material to be specified. Common mineral materials sales agreements will recite the material or materials covered by

such agreements and the rights of Buyers will pertain only to such materials as specified in the agreement.

1.        It is understood that flora will necessarily be distributed by Buyer’s activities, but such disturbance shall be mini- mal and the Department may so direct Buyer’s activities to assure such minimal disturbance.

2.        Buyer shall not be entitled to keep, give, sell or otherwise dispose of any flora on the premises unless the agreement so provides, in which event such flora shall have been appraised by or for the Department and a separate price therefore set forth in the agreement.

3.        This agreement shall confer the right on the Buyer to extract groundwater from the land area subject to the sale for the purposes stated in R12-5-772, subsection (E) and R12-5-775, subsection (B), and purposes incidental or related thereto which uses and purposes shall be set forth in the Notice of Sale and which shall have been a factor in the establishment of the minimum acceptable unit royalty rate however, groundwater may be separately noted for sale in which event the notice of sale shall specifically so provide.

4.        The granting of a right to extract groundwater shall not constitute a representation or guarantee by the Depart- ment that there is any groundwater available at any level or any quality for extraction.

5.        Any right to extract groundwater conferred hereby is sub- ject to any and all limitations and provisions existing in law or regulation of any agency including any such appli- cable other regulation of this Department.

6.        Nothing herein shall affect any right to the use of ground- water which buyer might otherwise possess by virtue of being a lessee of the Department or having otherwise acquired a groundwater permit through Public Auction Sale by the Department.

B.       Advertising of sale. The advertising of sale of common min- eral materials shall state the location by legal description of the tract or tracts on which the material is being offered, the kind of material, the term, the time and place of auction, the unit, the minimum unit royalty rate, minimum annual production, total bid deposit required, bond requirements, the office where additional information may be obtained and such additional information as the Department may deem necessary.

1.        When the materials to be sold on a basis other than the standard one set forth in these rules, the notice of sale shall so state in specific detail.

C.      Appraisals. Common mineral materials to be sold will  be appraised by the Department when the materials are in their undisturbed natural condition (“in situ”) using acceptable appraisal standards. The appraisal will determine the mini- mum unit royalty rate and minimum annual production.

D.      Annual royalty. Until any reappraisal goes into effect, the annual royalty shall be the higher of

1.        The minimum annual royalty as determined by the bid- ding process as provided in R12-5-777(E),

2.        The number of units of material extracted multiplied by the unit royalty rate.

Upon reappraisal, subsections (D)(1) and (2) shall be adjusted to reflect the reappraisal.

a.         The minimum annual royalty payment shall be due and payable in advance on the anniversary of the agreement. Royalty for any material extracted, sev- ered or disposed of in excess of the minimum annual production shall be due and payable in advance on the anniversary of the agreement. Royalty for any material extracted, severed or disposed of in excess of the minimum annual production shall be due and

payable monthly within 30 days after billing by the State Land Department.

b.        Minimum annual royalty payments shall be applied as a credit to payment for materials for which pay- ment must be made, provided, however, that monies so advanced and not credited against payments for materials shall become the sole property of the state upon termination or expiration of the agreement.

c.         For purposes of determining minimum annual roy- alty payment due in any particular year:

i.         Multiply the original minimum annual royalty by the number of years of the agreement;

ii.        Subtract the royalties thus far paid by (i);

iii.      Divide (ii) by the years remaining and that will give the minimum annual royalty for the year in question.

d.        In no event will the minimum royalty be less than 5% of the original minimum annual royalty.

E.       Bids. Unless otherwise provided by the Commissioner and specifically published in the notice of sale, all bids shall be by the unit royalty rate.

1.        In determining the minimum annual royalty, the Depart- ment shall multiply the unit royalty rate bid by the suc- cessful bidder times the minimum annual production which shall be determined solely by the Department and set forth in the notice of sale.

F.       Reappraisals. The royalty rate established initially shall remain fixed for the first two years of the agreement. For each subsequent year the Department may reappraise in the follow- ing manner:

1.        No later than 60 days before the end of any anniversary date, the Department may reappraise the material to determine the unit rate and/or the acceptable minimum annual royalty; that reappraisal shall be effective for the second year following the one in which the reappraisal is made.

2.        The Department shall notify the Buyer within 30 days of the reappraisal and Buyer shall be obligated for payments based on such reappraisal for the second year following the one in which the reappraisal is made. If any proper appeal is taken by Buyer and not concluded before the effective date of the reappraisal, the prior royalty shall be paid, with any necessary adjustment being made immedi- ately upon the conclusion of such appeal.

3.        The Department is not obligated to reappraise in any par- ticular year and its failure to do so merely means the last appraisal results shall remain in effect until a proper reap- praisal is made.

G.      Provisions of the agreement

1.        Term

a.         The term of a common mineral material sales agree- ment shall not be for more than 20 years.

b.        The Department will set the term of each sales agreement in such manner as to best utilize the resources and provide an economically sound term compatible with the law, the best interest of the trust and of the state.

2.        For contract administration and sales-related expenses, a charge of 2% will be added to the minimum annual roy- alty and to royalties paid for production in excess of min- imum annual production.

3.        The royalty provisions shall be set forth in the agreement.

4.        All common mineral materials removed from the prem- ises shall be measured by volume, weight or truck tally or a combination of these methods or any other form of

measurement the Department determines to be to the best interest of the state.

5.        Buyer’s conduct on premises

a.         The Buyer will conduct its operations in a workman- like manner at all times, to protect the premises and soils thereof and including, but not limited to:

i.         Keeping the premises free of all litter, junk or debris;

ii.        Taking precautions as necessary to protect the safety of persons or property upon the prem- ises;

iii.      Complying with all flood control regulations which may be applicable to the premises;

iv.       Fencing all dangerous workings for the protec- tion of humans and livestock;

v.        Complying with all other rules and regulations prescribed from time to time by the Department or any other agency having jurisdiction over the premises or the activities.

b.        Upon termination of the agreement, the Buyer will restore the surface of the premises to a reasonable condition in accordance with good mining practices, such restoration to include:

i.         The sloping of side banks of the excavation resulting from the operation to a grade of not more than one foot vertical for each two feet of horizontal distance, unless otherwise specified by the Department;

ii.        The backfilling into the excavation of all unused waste materials and overburden result- ing from the operation, and the leveling of such backfill to a reasonably uniform depth on the floor excavation, unless otherwise specified by the Department;

iii.      The removal and restoration of the surface of any new haul roads constructed on state land by Buyer, which roads the Department does not elect to retain, any such election of retention to be made in writing.

c.         The Buyer will indemnify, hold and save harmless, the state of Arizona, the Department and all of their officers and employees, against all loss, damage, lia- bility, expense, costs and charges incident to or resulting in any way from use, condition or occupa- tion of the premises.

6.        Transfers

a.         The Buyer, with prior approval of the Commis- sioner, may assign the agreement.

b.        The application for assignment and the assignment and assumption of the agreement will be on such forms as the Department may prescribe.

c.         Assignment shall not relieve the Buyer from any duties under the agreement but the assignee shall succeed to all of the rights and be jointly and sever- ally liable, along with the assignor, to all of the obli- gations existing under the agreement dating from its inception.

d.        No transfer of the Buyer’s interest or any portion thereof is authorized except as specifically provided in these rules.

7.        Termination of sales agreement

a.         Upon 30 days’ written notice to Buyer, the Depart- ment may terminate the agreement for the failure or neglect of the Buyer to perform any of its provi- sions, including those specified by these rules. Fail-

ure to pay royalties when due is such a failure of performance.

b.        Notices of termination shall be mailed to the address of record at the Department of the Buyer. Such notice shall set forth the reason for the termination.

c.         Provided Buyer is not in default in any of the terms and conditions of the agreement, the Buyer shall have the right to terminate the agreement upon any annual anniversary date thereof by giving the Seller not less than 30 days’ prior notice in writing of Buyer’s intention to do so.

8.        Upon termination or expiration of the agreement, Buyer shall have 90 days, provided it has fully performed under the agreement, to remove any stockpiled material on the premises. The Commissioner may, if the Buyer so requests in writing within ten days before the expiration of any such removal period, or extension thereof, grant a further extension not to exceed 60 days and provided that the cumulative removal period, along with extensions, shall not exceed 210 days. If the Buyer has not fully per- formed or fails to remove the stockpiled material within that specified time, such material will be deemed aban- doned to the Trust. Any subsequent buyer of material on the portion of the premises on which stockpiled will suc- ceed to its ownership and pay the Department the new Buyer’s royalty rate therefor upon removal.

9.        The agreement shall not provide for any renewal thereof.

10.     Bonds

a.         The Commissioner may require the Buyer to post a cash deposit or surety bond to guarantee the perfor- mance of the sales agreement and the payment of all monies due the state under the sales agreement.

b.        Restoration and surface damage bond

i.         The Commissioner shall require the Buyer to furnish bond, in a reasonable amount, to be fixed by the Commissioner, conditioned that the Buyer will guarantee restoration of the sur- face of the land described in the sales agree- ment to a reasonable condition in accordance with good mining practices, upon termination of the sales agreement.

ii.        The Commissioner shall also require the Buyer to include in the above bond an amount set by the Department as a surety bond in the form, amount, and with surety approved by the Com- missioner, conditioned upon prompt payment to the owner or lessee of the surface of state land covered by the common mineral materials sales agreement, or across which the common mineral materials Buyer exercises the right of ingress, for any loss to such owner or lessee for damage or destruction caused by the common mineral materials Buyer or Buyer’s agents or employees, to grasses, forage, crops and improvements upon such land.

iii.      Assignment of the sales agreement will not relieve the assignor of his obligation as princi- pal under the bond. Release of the assignor’s obligation under the bond may be effected through the posting of a replacement bond by the assignee, but only after approval by the Commissioner in lieu of a replacement bond, the bonding company may furnish a bond rider form changing the name of principal.

iv.       The Commissioner, in his discretion reasonably exercised, may reduce or increase the principal amount of any bond.

v.        After determination by the Commissioner that full discharge of the conditions of the obliga- tion under any bond has been effected, he will, in writing, notify the principal and surety held by the bond so that it may be formally termi- nated.

vi.       Surety on the bond shall have the right to can- cel the bond and be relieved of future liability, but not previous liability after the period of notice, by giving 30 days’ notice to the Buyer and the Department of its desire to so cancel. Failure by the Buyer to post a  replacement bond before the expiration of the 30 days, men- tioned next above, shall constitute a default by the Buyer  and  cause for cancellation  of  the sales agreement.

11.     Records and reports

a.         A monthly report of production (either affirmative or negative) shall be submitted by the Buyer of each common mineral materials sales agreement within 15 days after the end of the month in which his sales agreement was issued, and by the 15th of each month thereafter.

b.        The report shall be in such form as the Commis- sioner shall prescribe and shall contain such infor- mation as the Commissioner shall require, including, but not limited to, the type, volumes, weights and classifications of the common mineral materials removed or disposed of.

c.         Each Buyer shall make and keep an accurate account of all operations, showing the sales, prices, dates, purchasers and the total amount of material disposed or removed from the subject premises.

Historical Note

Adopted effective September 16, 1977 (Supp. 77-5). Sec- tion R12-5-2007 renumbered from Section R12-5-777 (Supp. 93-3).