What Lies Beneath

The effort to reclaim a historic mining district has consumed years and millions of dollars. But will it hold water?

Comments (0) By Alan Prendergast Thursday, Sep 1 2005

...continued from page 3

"We expect a 50 percent reduction of metal-loading in our bulkheads," he adds. "Sunnyside promised more, and the state bought into it. Everybody bought into the program. We did have comments, and some of them weren't heeded."

But seepage from the bulkheads wasn't the problem plaguing Hennis; it was all that sludge coming out of the Mogul. "It was a large water flow that contained a lot of metals," he says. "I knew that would put me on the state's hit list."

Anthony Camera

Oh, sludge: Todd Hennis suffered a "near-fatal" in the Mogul.

More About

In 2002, shortly after finding the "smoking gun" memo, Hennis decided to sue Sunnyside Gold in San Juan County. "One day after we filed the lawsuit, their lawyer called my lawyer," he says. "This was after stalling us for close to a year, saying this was a totally natural phenomenon, blah, blah, blah. He said, 'We can settle this.'"

The deal Sunnyside offered wasn't quite what Hennis had hoped for. But he thought about the hundreds of thousands of dollars it would take to go to trial and try to prove that Sunnyside was responsible for the toxic water invading the Mogul. He thought about a man he knew who'd been handed a million-dollar check for his mine back in the crazy Eighties and turned it down, and later ended up changing sheets in Telluride for six bucks an hour when the mine went sour on him.

Hennis took the deal.

The deal was a complicated three-way swap between Sunnyside, Hennis's San Juan Corporation and another local operator, Gold King Mines. Hennis gave up his mine, and Sunnyside agreed to pay $500,000 to bulkhead the Mogul and another mine, the Koehler. In return, Hennis received title to property Sunnyside owned near the American Tunnel, including part of the ghost town of Gladstone. Gold King took over title to the Mogul and was paid by Sunnyside to do the bulkheading.

Hennis says he received no cash in the deal, just a $199,000 note on the Mogul. And there was a crucial catch: He was required to lease back to Gold King the four settling ponds on the land that his company had received. The ponds were an essential component of the water-treatment plant next door, which Gold King was taking over from Sunnyside. In effect, Sunnyside was ridding itself of the requirement to treat the water still flowing out of the American Tunnel by transferring its discharge permit to Gold King, along with $172,000 in "startup funds."

Gold King president Steve Fearn is a longtime Silverton resident with an engineering background; he's also been active in local economic development plans and has sought to bring mining back to the county. Fearn, who took over the Gold King mine six years ago, says the deal with Sunnyside brought him closer to reviving an operation that hasn't been in commercial production since 1925; the deal allowed him to pipe Gold King's discharge to the American Tunnel for treatment.

"The Gold King has a discharge that's relatively small, but it needs to be treated," he explains. "We saw this as an opportunity. There was an existing plant, and we could treat the Gold King that way. We thought it was going to be a win-win situation, but not all of the players stayed in position."

One local describes Fearn as a "dreamer." Others regard him as more of a promoter than a mine operator, without the kind of backing needed to sustain a full-scale mining venture. Hennis says he had his own reservations about Fearn's ability to take over Sunnyside's water-treatment requirements. But the state didn't object to the move, and in early 2003 Sunnyside handed its water-discharge permit to Gold King. Within a few weeks, Sunnyside had reclaimed its $5 million bond and been declared in full compliance with its obligations under the court settlement.

WQCD's Johnson says her division has little recourse under the law to prevent such a permit transfer, even if the new operator offers nothing in the way of a track record or financial guarantees. "Unfortunately, we don't have a means test," she says. "We ask a lot of questions and explain about the liabilities. But we don't have the authority to refuse on the basis that we just think it's going to be a bad risk. In this case, it looked like it was going to be a go."

But disputes arose among the parties almost from the start. Hennis demanded that Fearn produce proof of liability insurance as part of the deal to lease back the ponds to the treatment-plant operation; when the proof wasn't forthcoming, Hennis went to court seeking to evict Gold King from his property. "I can't have that site uninsured," Hennis says. "It's endless liability."

Gold King eventually produced proof of insurance, forestalling the eviction. But the company also ran afoul of the state for failing to keep current on its bonding obligations. The Division of Minerals and Geology has since assessed $11,000 in civil penalties against the company and revoked its reclamation permit, essentially barring any active mining on the property.

Fearn attributes his problems to the unfavorable terms of the deal with Hennis's company and the difficulties in obtaining bonds from insurance companies in the wake of September 11. "If you want a bond now, it's basically cash," he says. "Unfortunately, we signed a very bad lease with [Hennis]. He started trying to terminate the lease within a month of our getting it. It cost us a lot of money, and we had other things in our business plan that weren't working, so we were getting hit on both sides."