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COALEX STATE INQUIRY REPORT – 134

January 3, 1990

Myra Spicker, Esquire

Division of Reclamation

309 W. Washington 

Suite 201

Indianapolis, Indiana 46204

TOPIC: 16 2/3 EXEMPTION (UPDATE OF PRIOR REPORTS)

INQUIRY: What caselaw and administrative decisions are available on the 16 2/3 exemption 

for the extraction of coal incidental to the extraction of other minerals? If the overburden is being 

sold, can it be considered an "other mineral"? Is there any information on the definition of 

"mineral"? 

SEARCH RESULTS: The COALEX Library and other materials in LEXIS were used to 

update existing Reports on the 16 2/3 exemption and the definition of "mineral". 

On December 20, 1989, a new set of regulations were promulgated implementing the exemption 

under SMCRA Sec. 701(28). The preamble to the final rule describes the regulatory history of 

the exemption and a review of the relevant administrative and federal caselaw. Some of that 

material is discussed below. Copies of the significant material are attached. 

FEDERAL REGULATORY HISTORY

From 54 FR 52092 (DECEMBER 20, 1989).

 The initial regulation implementing 701(28) appeared in 30 CFR 700.11(e) (44 FR 15315, 

MARCH 13, 1979). The applicability of the abandoned mine reclamation fee obligations 

appeared in 30 CFR 870.11(d) (1979). 

 In 47 FR 33424 (AUGUST 2, 1982), the exemption located in Sec. 700.11(e) was shifted 

to Sec. 700.11(a)(4). Sec. 700.11(c) was added because the original section did not contain 

"provisions prescribing how those seeking an exemption...could request one". It provided that 

"the regulatory authority may make a written determination, when requested, whether the 

operation is exempt and that the person requesting the exemption has the burden of establishing 

the exemption."

 870.11(d) was revised on June 30, 1982 (47 FR 28574). A "tonnage measurement 

constraint" was imposed "under which operators had to qualify for the exemption during any 

twelve consecutive months." 
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

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49 FR 19336 (MAY 7, 1984). Advanced notice of proposed rulemaking and request for 

public comments. [NOTE: This is part of Report 47, incorporating Report 24.]

 Additional regulations were needed to clarify the issues which had arisen since the 

promulgation of the "two preconditions" required for an operation to qualify for an exemption 

("incidental" and "16 2/3 percent"). These issues were:

"(1) the criteria for determining when an operation qualifies for the exemption; (2) the 

procedures to be used by the regulatory authority in making a determination that an operation is 

exempt; (3) the consequences which ensue if an operation fails to meet the exemption 

qualifications; and (4) the procedures and criteria required by the regulatory authority for an 

operation to requalify for the exemption after loss of that status." 

Pending promulgations of new rules, OSM developed the following guidelines:

1. Operators had to request a written exemption from the regulatory authority. 

2. The regulatory authority determined whether an operation was "incidental" based on the 

information required to be submitted by the operator. The documentation could include: 

volumetric calculations, the physical layout of the mine site, stockpiles and production 

records. 

3. Proof of the commercial value of the "other minerals" removed was required. 

4. The definition of the term "other minerals" did not include topsoil and fill dirt. 

52 FR 20546 (JUNE 1, 1987). Proposed rule.

 This proposed rulemaking added a new part - 702. The purpose of the new part was to 

provide "specific guidance for determining whether an operation [wa]s exempt" under SMCRA 

Sec. 701(28). The provisions of the proposed regulation included:

1. Requirement to file a "notice of exemption for each mining area." 

2. "A list of the other minerals to be extracted for commercial use or sale, annual and total 

tonnages of all minerals including coal, and the basis of such tonnage estimates." 

3. Description of potential markets or a summary of sales commitments. 

4. Three requirements had to be satisfied "in order for an operation to be exempt from 

SMCRA": 

a. The 16 2/3 percentage test would apply to the total coal and other mineral 

production "achieved over the life of the mining at each individual excavation." 

[The "tonnage" test.] 

b. Coal must be "produced from a geological stratum lying above or immediately 

below the deepest stratum from which other minerals are extracted for purposes of 

bona fide sale or reasonable commercial use." [The "stratigraphic" test.] 

c. "[E]ach of the other minerals upon which an exemption...is claimed is a 

commercially valuable mineral." [The "commercial value" test.] 

53 FR 5430 (FEBRUARY 24, 1988). Reopening of the public comment period.

 Two modifications were proposed to the June 1, 1987 proposed rules. They were: 
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1. An amended rule requiring operators to apply for an exemption and "receive approval 

from the regulatory authority before being allowed to begin operations based upon the 

exemption." 

2. The addition of an annual reporting requirement "relating to the proposed tonnage test...to 

assure that the operation is proceeding as contemplated in the approved application." 

53 FR 13415 (APRIL 25, 1988). Reopening of the public comment period.

 The proposed rules were further modified to add a revenue test: the operator had to establish 

that the revenue derived from the coal extracted would not exceed 50 percent of the total revenue 

derived from the coal and other minerals extracted from the same mining area. Initial and annual 

reporting requirements for revenue were also proposed.

"[O]perators would also have to demonstrate compliance with either a revenue or an 

economicviability test to establish the coal extraction is incidental to the extraction of other 

minerals." 

The "economic viability concept" was added in response the MCNABB ruling, discussed below.

54 FR 52902 (DECEMBER 20, 1989). Final rule.

 The purpose of adopting regulations concerning the extraction of coal incidental to the 

extraction of other minerals is to "establish criteria and procedures for determining whether an 

operation qualifies initially and on a continuing basis for the exemption. This action is necessary 

to halt and prevent abuse of the exemption. The final rule is intended to provide a fair and 

consistent basis for determining the applicability of the Act to operations producing both coal 

and other minerals in order to ensure that the mining of coal is appropriately regulated." 

The main requirements for obtaining an exemption under SMCRA Sec. 701(28) include the 

"tonnage" test and "two straightforward and easily measured criteria to define incidental mining, 

the stratigraphic test and the revenue test." (See 54 FR 20546, above.)

Some additional requirements of the new Part 702 - Exemptions for Coal Extraction Incidental to 

the Extraction of Other Minerals follows. (For explanations on how the final rule differs from the 

various proposed rules, see the attached Federal Register item.)

1. A complete application for exemption must be filed for each mining area. Mining may 

not commence until the regulatory authority approves the application for the exemption. 

Existing operations must also apply for an exemption. 

2. The application must include: 

a. Estimates of the annual production of coal and other minerals within each mining 

area over the anticipated life of the mining operation. 

b. Estimated annual revenues to be derived from bona fide sales of the coal and 

other minerals to be extracted. 

c. Where coal and other minerals are to be used rather than sold, the estimated 

annual fair market values at the time of projected use. 

d. Submittal of the basis for the above estimates. 
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e. A summary of sales commitments and agreements for future delivery. 

3. Requirements for exemption. 

a. The "tonnage" test is based on the "cumulative production...determined annually" 

and reported in an annual report. The original proposal called for the "total 

tonnage" over the life of the mine. 

b. The "revenue" test is based on the "cumulative revenue...determined annually" 

and reported in an annual report. 

c. Each of the other minerals upon which the exemption is claimed must be a 

"commercially valuable mineral". Either "a market presently exists or the mineral 

is mined in bona fide anticipation that a market will exist...within a 12-month 

period." 

4. OSM is authorized to inspect and enter sites to verify the validity of claimed exemptions. 

5. Up to a 12-month supply of stockpiled coal and other minerals may be excluded from the 

calculation of cumulative production until the time of its sale. 

6. The annual report will include: 

a. Annual production of coal and other minerals and annual revenue derived from 

them during the preceding 12-month period. 

b. Cumulative production of coal and other minerals and cumulative revenue derived 

from them. 

c. Annual and cumulative figures are to be included for coal and other minerals sold, 

coal and other minerals used or transferred by the operator as well as for coal and 

other minerals stockpiled. 

d. "Other minerals" is defined as "any commercially valuable substance mined for 

its mineral value, excluding coal, topsoil, waste and fill material." This definition 

allows regulatory authorities "the flexibility to consider local conditions in 

determining whether the mineral has commercial value." 

NOTE: For states with federal programs and on Indian lands, the effective date of this rule is 

April 1, 1990. In primacy states, the rule does not become effective until each primacy state 

modifies its own program to incorporate regulations "promulgated pursuant to this final rule". 

Until a state program is modified, "operations and regulatory authorities should rely on the 1984 

guidelines, as interpreted by recent legal decisions, particularly MCNABB [see discussion 

below], in implementing the incidental mining exemption." 

FEDERAL DECISIONS

"In recent court decisions and administrative hearings before the DOI, the requirement that the 

incidental mining exemption is based on more than just the relative tonnages of coal and other 

minerals extracted has been upheld." 54 FR 52092, 52093 (DECEMBER 20, 1989). 

S & G EXCAVATING, INC. v U.S., 15 Cl Ct 157 (1988).

 S & G claimed that their production of coal was "incidental" to that of sand, gravel and 

topsoil; they were, therefore, exempt from the provisions of SMCRA and were due a refund of 

reclamation fees which had been collected. OSM had at times claimed the coal production was 
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greater than 16 2/3% and at times claimed it was less than 16 2/3%. The court granted S & G's 

motion for summary judgment, ruling as follows on the issues:

a. "In the absence of a regulation on this subject topsoil should be included as an 'other 

mineral.'" 

b. OSM could not retroactively apply the June 30, 1982 amended version of the regulation, 

30 CFR 870.11(d), which required S & G to "account for its mineral production on a 

twelve consecutive month basis." The Secretary's amendment "was published three 

months after S & G ceased all mineral production". 

c. "The distinction between accounting for the minerals when sold rather than when 

removed is critical due to the different market demands for the minerals....The express 

statutory language of Surface Mining Act specifically provides that the exemption is 

based on minerals removed for commercial use or sale, not on minerals actually sold." 

Thus, stockpiles of sand and gravel, which had not been sold as quickly as the coal, were 

to be included in calculating the production figures and coal percentages. 

UNITED STATES v BEAIRD COAL CO. AND CORDOVA CLAY CO., INC., slip op. (N 

D Ala 1986), rev'd on other grounds, 825 F2d 1471 (11th Cir 1987). [NOTE: Both decisions 

are attached.]

 The court ruled that the "extraction of coal" by Beaird Coal "was not incidental to the 

extraction of other minerals", shale and clay. The court also held that Cordova Clay "could not 

aggregate the clay and shale" produced at a pit where "no coal was extracted" with the clay and 

shale taken from the coal producing pit, located across the river.

ADMINISTRATIVE DECISIONS

MCNABB COAL CO. v OSM, 101 IBLA 282, IBLA 86-1559 (1988). [MCNABB COAL 

CO. v OSM, Docket No TU 6-34-R (July 23, 1986 {amended by May 23, 1988 Order}).]

 McNabb failed "to sustain the burden of establishing an exemption from SMCRA." The 

primary issue, the court stated, was "whether the production of coal was incidental to the 

production of other minerals [limestone and shale] for commercial use and profit at the McNabb 

mine, notwithstanding the fact the tonnage of coal produced was less than 16-2/3 percent." 

In its ruling, the court referred to the preambles to the Advanced Notice of Proposed 

Rulemaking, 49 FR 19336 (MAY 7, 1984), and the Proposed Rules 52 FR 20546 (JUNE 1, 

1987): "The extraction of coal is not incidental to the extraction of other minerals where the 

mining of coal is essential to the economic viability of the mine; the coal is the deepest strata 

mined for commercial use or sale; the acreage of the shallower deposits extracted for commercial 

use or sale is less than 50 percent of the acreage of the coal deposit extracted; the acreage of the 

mineral deposit immediately above the coal seam is less than 5 percent of the acreage of coal 

extracted; and the decision to mine the deposit immediately above the coal is based on the 

decision to mine the coal."
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CORDOVA CLAY CO. v OSM, Docket No NX 5-3-R (1986). 

 The ALJ ruled that the operator was entitled to an exemption because he showed that his 

primary intent was the removal of clay and shale. 

"The fact that the value of the coal mined approaches the value of the clay, or for that matter may 

exceed the value of the clay, does not prove that the Applicant is primarily mining coal as 

opposed to the clay." 

OSM, in the preamble to the new rules, interpreted the CORDOVA decision in light of the new 

regulations: "OSM's opinion is that the ALJ was correct in perceiving that the Act requires a 

two-part test for the incidental mining exemption [primarily seeking clay and no more than 16 

2/3 percent of the material removed for commercial purposes was coal] However, the ALJ`s 

application of a 'primary intention' test in this case points out the benefits of establishing 

objective criteria. In the CORDOVA case, the ALJ relied on peripheral issues, such as the 

operator's longevity and credibility as a witness, instead of the fact that the operator mined 

through relatively worthless rock and clay to reach marketable coal." 54 FR at 52110.

EARLIER COALEX REPORTS

STATE INQUIRY REPORT - 47 (June, 1985), incorporating STATE INQUIRY REPORT 

24 (December, 1984). Topic: 16 2/3 exemption. 

 REPORT 24 provides legislative history on SMCRA 701(28) and includes the May 7, 1984 

notice of proposed rulemaking from the Federal Register. REPORT 47 updates the prior report.

STATE COMPARISON REPORT - 113 (June, 1989). Topic: Definitions of soil and 

mineral.

 This report contains a table summarizing state code sections (as searched using LEXIS) which 

define "mineral", "soil", and "dirt". Also included are some relevant federal and state opinions.

ATTACHMENTS

A. 54 FR 52092 (DECEMBER 20, 1989). Final rules. 

B. STATE INQUIRY REPORT - 47, June, 1985 incorporating STATE INQUIRY REPORT 

- 24 (December, 1984). REPORT - 24 includes legislative history information and the 

"Advance notice of proposed rulemaking" published in the Federal Register, 49 FR 

19336 (MAY 7, 1984). 

C. 52 FR 20546 (JUNE 1, 1987). Proposed regulations relating to the exemption contained 

in SMCRA Sec. 701(28). 

D. 53 FR 5430 (FEBRUARY 24, 1988). Notice of reopening of public comment period on 

proposed rule relating to the exemption for coal extraction incidental to the extraction of 

other minerals. 

E. 53 FR 13415 (APRIL 25, 1988). Notice of reopening of public comment period on 

proposed rule relating to the exemption for coal extraction incidental to the extraction of 

other minerals. 

F. S & G EXCAVATING, INC. v U.S., 15 Cl Ct 157 (1988). 
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G. UNITED STATES v BEAIRD COAL CO. AND CORDOVA CLAY CO., INC., slip op. 

(N D Ala 1986), rev'd on other grounds, 825 F2d 1471 (11th Cir 1987). [NOTE: Both 

decisions are attached.] 

H. MCNABB COAL CO. v OSM, 101 IBLA 282, IBLA 86-1559 (1988). 

I. MCNABB COAL CO. v OSM, Docket No TU 6-34-R (July 23, 1986 [amended by May 

23, 1988 Order]). 

J. CORDOVA CLAY CO. v OSM, Docket No NX 5-3-R (1986). 

K. STATE INQUIRY REPORT - 113, June, 1989. Definitions of soil and mineral.