Here is a story of what happens when you take over a mine and forget to do due diligence. And even if you did good due diligence, you may still get caught in the jaws of the United States environmental liability laws. In this case, the story revolves around the State of Maine, an old mine by the name of Black Hawk, Blue Hill, Maine and successive takeovers by over-eager mining companies. Each of the parties, no doubt, believes they are innocent and should not pay. But the State of Maine believes they should pay, and pursued them all the way through the courts and won. I tell this story by means of extracts from news reports, technical reports, Annual Reports of the companies involved, and EPA files.

In summary, the story goes thus. Mining began in 1880. Copper and zinc were mined intermittently until 1977 by various companies. Kerramerican, a subsidiary of Noranda, now Xstrata, operated the mine preceding closure. Dennison did some exploration in the area. A Company called Black Hawk entered into a “joint venture” with Kerramerican. I think they took a forty percent stake in Kerramerican. Some time later Glencairn took over Black Hawk.

Mine closure involved placing 12 inches of soil over the tailings impoundment. As you would expect this cover has eroded away. There is surface water and groundwater contamination as a result.

The State of Maine decided to sue all responsible parties for more money to fix things up at the site. The litigation begun around 2004. It seems the State finally won and now Glencairn owes the State $1 million. I cannot find out if any of the other companies (or their successors in title) owe the State money.

Regardless, it appears that all the mining companies are cross suing each other in terms of indemnity agreements, operating agreements, and joint venture agreements. No news on that front either. But it is probably still ongoing.

For Glencairn, struggling with problems at its Costa Rica Bellavista mine, this verdict could not have come at a worse time. For the other bigger companies, any monies owing are probably small change.

Here are all the details I could ferret out from the web and InfoMine files.

From the news

Glencairn Gold Corp. has reached a final settlement of litigation in both the state of Maine and in Ontario regarding remediation of the Blue Hill site in Maine. Under this settlement, Glencairn will pay $1-million (U.S.) by Oct. 31, 2007, and will be entitled to benefit from the settlement previously reached between Kerramerican Inc. which operated the former zinc mine in the 1970s and the State of Maine, pursuant to which approximately $12-million was paid into a single purpose entity established to carry out remediation on the site.

Glencairn was joined in a complaint filed by the State of Maine in 2004 and in turn initiated a court proceeding in Ontario for indemnification under the 1970s joint venture agreement.

Glencairn expects to finance this settlement through the sale of marketable securities held by the company. "The Blue Hill litigation has been ongoing since 2004 and this settlement represents an important conclusion as Glencairn continues to resolve outstanding issues," said Peter Tagliamonte, president and chief executive officer. "We are continuing on our program throughout the company of reducing expenditures and managing our cash flow in a prudent and responsible manner."

From Carleton Stream TMDL Maine Department of Environmental Protection

Carleton Stream is a small coastal stream located in the town of Blue Hill, Hancock County, Maine. The entire stream drains approximately 10.3 square miles and flows through forested hills and four Great Ponds before reaching Salt Pond, which flows into Blue Hill Bay.

Landuse in the watershed is dominated by forest with sparse residential development along the shoreline of the Great Ponds. The channel form of the stream varies between low gradient sandy areas to moderate gradient areas with boulder and cobble substrate that are capable of supporting native brook trout (Salvelinus fontinalis). The channel width ranges from 4 – 17 meters, with a depth that ranges between 0.5- 1.5 m in depth.

Historical landuse in the watershed included farming, tree harvesting and copper mining. The first mines were opened in the 1879 and shaft mines proliferated in the area until 1883, when ore prices dropped. Commercial mining for copper was revived briefly in 1917 and for periods during the 1960s.

The Black Hawk mine was a large underground mine that operated from 1972 until 1977 to produce an estimated 1,000,000 tons of zinc-copper-lead ore. The Black Hawk Mine (now known as the Kerramerican Mine) is located adjacent to Second Pond and Carleton Stream. The legacy of mining includes the export of toxic metals into the aquatic environment.

From Denison Mines Corp March 31, 2007 Report

Specific Legal Matters

The Company is a defendant in an action filed by the State of Maine against Kerramerican, Inc., (“Kerramerican”) a subsidiary of Noranda Inc., Black Hawk Mining Ltd. (“Black Hawk”) and the Company, regarding potential liability for clean-up costs at a zinc mining site in the state of Maine known as Blue Hill. In addition, Black Hawk and Kerramerican have each asserted cross-claims against the Company for contribution. The Company is defending these actions and has counter-claimed against Black Hawk and Kerramerican for indemnity.

The activities of Denison Mines Limited (“DML”), a predecessor to the Company, at this site consisted only of limited exploration that did not involve the disposal of any waste and which occurred prior to 1964. Mining activities at the site occurring between 1964 and 1970 were conducted by Black Hawk, a public company in which DML had a financial interest but did not control.

Black Hawk entered into a joint venture with Kerramerican in 1970. Kerramerican was the operator of the joint venture, built processing facilities and operated the mine until it was closed in 1977.

Kerramerican was responsible for the decommissioning and reclamation of the site, which was completed in 1983. The site is now the source of some heavy metal contamination of the ground water in the area and further reclamation work is required. DML has an indemnity from Kerramerican and Black Hawk in an agreement among the parties dated July 1, 1971.

The Company has thoroughly examined this issue and believes it has no liability related to the costs of any clean up of the contamination and has made no provision for any costs other than those incurred to date to investigate the matter. Furthermore, the Company believes that, to the extent that liability is determined, Kerramerican and Black Hawk are liable therefore pursuant to the July 1, 1971 indemnity agreement.

From Glencairn 2003 Annual Report

The Company has recently received formal notice from the State of Maine that it will be filing a complaint against its recently acquired subsidiary, Black Hawk Mining Inc., and a third party. Black Hawk held a 40% interest in a former base metal mining operation near Blue Hill, Maine. The mine closed in 1977 and was rehabilitated in accordance with the approved mine closure plan by the major mining company which was the operator and holder of a 60% interest in the operation.

The Company’s management understands that the State of Maine has provided the notice as a procedural step and that the filing of the complaint is not imminent. The notice indicates that the complaint will allege that the mine site is a hazardous waste treatment, storage or disposal facility and that each of the named parties has or is contributing to past or present handling, storage, treatment or disposal of hazardous wastes.

The State has indicated that its objective is the additional remediation of the mine site. The entire cost of remediation has been estimated at $10 million. The Company’s management believes that it is not responsible for the additional remediation because its subsidiary was fully indemnified by its joint venture partner.

From Glencairn 2004 Annual Report

In November 2004, a complaint was filed by the State of Maine against Black Hawk; Kerramerican, Inc. (“Kerramerican”), a subsidiary of Noranda Inc. (“Noranda”); and Denison Energy Inc. (“Denison Energy”) in respect of the remediation of a former base metal mining operation near Blue Hill, Maine in which Black Hawk held a 40% interest.

The mine closed in 1977 and was rehabilitated in accordance with the approved mine closure plan by Kerramerican, who was the operator and holder of remaining 60% interest in the operation.

The complaint alleges that the mine site is a hazardous waste treatment, storage or disposal facility and that each of the named parties has or is contributing to past or present handling, storage, treatment or disposal of hazardous wastes. The State of Maine has indicated that its objective is the additional remediation of the site. The entire cost of remediation is estimated to be $10 million at December 31, 2004.

In January 2005, Kerramerican, Keradmex, Inc., a subsidiary of Noranda, and Noranda issued a counterclaim against Black Hawk, the Company, Denison Mines Inc., and Denison Energy claiming damages in the amount of $15,000,000, contribution and indemnity and a declaration that the defendants by counterclaim are liable under Maine common law and U.S. statutory law for the contamination of the Blue Hill property. The counterclaim is being defended on the grounds that the Company is not a proper party and that Black Hawk has no liability given the indemnity.

In February 2005, Kerramerican joined the Company and Denison Mines Inc. in its pleadings. It is not possible to predict the likelihood of recovery by the Attorney General from the Company; however, under applicable federal and state law, any potentially responsible party is jointly and severally liable for 100% of all required remediation. It is then up to the potentially responsible parties to negotiate or obtain an adjudication of their respective allocable shares of such responsibility.

Glencairn believes that it is not a proper party to the action and that Black Hawk is not responsible for the additional remediation because Black Hawk was fully indemnified in the joint venture agreement by Kerramerican. Proceedings have been commenced in Ontario by Black Hawk to enforce the indemnity. The outcome of litigation cannot be determined at this time.

From the Glencairn 2006 Annual Report

A subsidiary of the Company was named in a complaint, filed in November 2004 by the State of Maine, naming it as a potentially responsible party in respect of additional remediation of a former base metal operation near Blue Hill, Maine in which the subsidiary held a 40% interest. While the Company believes that it and its subsidiary are not responsible for additional remediation because the subsidiary was fully indemnified by the operator, the outcome of this litigation cannot be determined at this time. On March 6, 2007, the United States District Court granted a motion for summary judgment against the subsidiary in which it concluded that it has liability at the mine site and, unless otherwise excused, is responsible for damages at the site. The remaining issue for the second phase of the case will be the amount of damages assessed to each party, and the extent to which the contractual indemnity applies to the Company’s subsidiary.

From the U.S. EPA files

The Kerramerican Mine property is located along Route 15/176 in Blue Hill, Hancock County, Maine. An on-site access road forms the border between a mill process area and a waste disposal area on the property. The 53-acre waste disposal area consists of two former tailings ponds that have been covered with till and vegetation. The mill process area is occupied by a hoist house, former service and concentrator buildings, foundations of former thickener units, and the headframe of a mine shaft. Three unnamed intermittent streams and Carleton Stream flow through the property. The property is bordered by Second Pond to the west; Carlton Stream to the south; and undeveloped land to the east and north.

In 1880, mining operations began in the area surrounding the property known as the Blue Hills Copper Mining District. Mine tailing wastes, such as copper slag from mining operations in the area, were disposed of along the shore of Second Pond. In 1964 and 1965, Black Hawk Mining Ltd. (Black Hawk) and Dennison Mines Ltd. of Toronto conducted extensive underground development of the ore body located directly beneath Second Pond.

In 1971, Kerramerican Inc. (Kerramerican) constructed a mining facility on the property to produce zinc and copper from ore extracted from the mine located beneath Second Pond. The on-site streams were dammed to construct two tailings ponds. Reportedly, waste slag material from Second Pond was used in the construction of the Kerramerican facility and a dike separating the two tailings ponds. Between 1971 and 1977, operations at the property included the following: concentrating of raw material by crushing and grinding ore; adding water to produce a fine slurry; and extracting mineral concentrates using an alkaline floatation process.

Historically, reagents used in the milling process included unknown quantities of sodium sulfate, copper sulfate, lime, and other unknown reagents. Wastewater and tailings were discharged to the tailings ponds which served as primary and secondary settling basins. Water flowing from the tailings ponds was either recycled in the milling process or discharged to Carleton Stream. In 1975, untreated mine tailings were released directly to Carleton Stream through broken pipes and valves.

When mine operations ceased in 1977, the tailings ponds were covered with 12 inches of fill material and seeded. In 1981, Kerramerican covered all exposed mine tailings to prevent contamination of surfacewater and groundwater in order to comply with an administrative enforcement agreement made previously with the Maine Department of Environmental Protection (ME DEP). Since 1981, some of the soil covering waste metal deposits has eroded to expose waste tailings. During a visit to the property in 1994, water with a pH of 2.8 was observed on the tailings pond and leading toward the auxiliary pond. Analytical results of source samples collected from the property in 1995 and 1999 indicated the presence of arsenic (As), silver (Ag), mercury (Hg), iron (Fe), cadmium (Cd), lead (Pb), zinc (Zn), copper (Cu), and chromium (Cr). Previous investigations of the property include: periodic surface water sampling by the Environmental Improvement Commission (EIC) and ME DEP between 1971 and 1982; a Preliminary Assessment (PA) completed in 1995; a Site Inspection (SI) completed in 1996; and an Expanded Site Inspection (ESI) completed in 1999.

An estimated 2,565 people are served by public and private groundwater drinking water supply wells located within 4-radial miles of the property. The nearest public drinking water supply well is located between 1- and 2-radial miles of the property. The nearest private groundwater drinking water supply well is located approximately 0.2 miles east of the property. Groundwater occurs in overburden at a depth of between approximately 0 and 28 feet (ft) below ground surface, and is expected to flow northwest to Carleton Stream or Second Pond. Analytical results of groundwater samples collected in 1995 from two on-site monitoring wells located in the vicinity of the former tailings ponds have indicated the presence of metals, including Cd, Ag, Cr, Zn, Pb, barium (Ba), and Cu below State Drinking Water Standards. Based on the proximity of nearby groundwater drinking water supply wells to the property, and groundwater flow direction, no impacts to nearby groundwater drinking water supply sources are suspected.

Stormwater runoff from the property is expected to enter on-site culverts or drainage ditches that discharge to Second Pond or Carlton Stream. Additional surface water bodies located along the 15-mile downstream surface water pathway include First Pond, Salt Pond, Blue Hill Bay, East Penobscot Bay, and the Atlantic Ocean. No known surface water drinking water intakes are located along the surface water pathway. All water bodies located along the 15-mile downstream surface water pathway are recreational fisheries. Sensitive environments located along the 15-mile downstream surface water pathway include a Clean Water Act (CWA)-protected water body, approximately 4.35 miles of wetland frontage, a Federally-listed threatened/endangered species habitat, a national park, and coastal zone management areas. Analytical results of surface water and sediment samples collected in 1999 from the surface water pathway as far as Salt Pond have indicated the presence of As, Cd, Cr, Cu, Fe, Pb, Hg, nickel (Ni), Ag, and Zn. Based on analytical results, impacts to a CWA-protected water body, fisheries, and wetlands as far downstream as Salt Pond have been documented.