DENVER – The state spent more than $49,000 to stabilize mercury-tainted material at an illegal gold mill in Mancos.

Now, the state mining board wants Red Arrow Gold Corp. to repay the money, and it moved Wednesday to revoke the company’s mining permit.

Red Arrow owner Craig Liukko did not attend Wednesday’s hearing in Denver, but in letters to regulators, he blamed the problems on a former business partner and a receiver appointed by a bankruptcy court, who has controlled access to Red Arrow’s property since April.

The state excavated and isolated soil at the mill, and it isn’t currently presenting a hazard, said Loretta Pineda, director of the Division of Reclamation, Mining and Safety.

“I think at the present, we’re good,” she said.

More mercury remains to be removed from the Out West mine north of U.S. Highway 160, mining inspectors said.

Pineda’s division is working with the U.S. Environmental Protection Agency on a permanent cleanup.

And she still does not know the degree of pollution the mill produced in the past. The EPA is testing samples to figure out if there was a past risk, Pineda said.

The state wants to call another town meeting, possibly in mid-December, to tell residents about the test results.

Liukko installed the mill in two rented buildings at the western edge of Mancos and began using mercury to extract gold, all without a permit from the state.

But in letters to the state mining division, Liukko denied wrongdoing, saying his employees at the mill “were experimenting on a minimal and controlled basis.”

A failed three-way partnership is complicating the matter. Liukko wrote that joint-venture partner American Patriot Gold is the one responsible for the mill.

That company is undergoing bankruptcy in Texas.

A New York hedge fund called Maximilian Investors, which partnered with Red Arrow and American Patriot Gold, got a court to put Red Arrow’s assets into receivership last spring.

Liukko wrote that he no longer is responsible for Red Arrow mining operations. He blamed the receiver, Marcie Jaeger of Jaeger Kottmeier Associates, for running the mill and leaving traces of mercury, which shocked state inspectors when they first discovered the mill during the summer.

But Julie Murphy, a lawyer for the mining division, did not buy the argument.

“Craig Liukko and his employees were the ones operating the mine and the mill,” Murphy said.

The receivership is scheduled to end next month.

On Wednesday, the Mined Land Reclamation Board found Red Arrow in violation of its order from August to clean up the site and pay a $100,000 fine.

The board increased the fine to $285,000, increased Red Arrow’s bond and started the procedure to revoke Red Arrow’s mining permit in the next two months.

As part of the cleanup, the state removed mill tailings from a nearby pasture and the Western Excelsior aspen mill, across the street from the Red Arrow operation. Western Excelsior officials thought they were getting sand to patch holes in their lot, said Kyle Hanson, a manager at the aspen mill.

The state did a good job of removing the mill tailings, he said.

“We’re just glad it’s over,” Hanson said.

The mining division spent its entire emergency fund on the initial cleanup, Pineda said. State officials want Red Arrow to repay them.

“If we have another emergency this fiscal year, I’m in a tough spot,” Pineda said.

The Mined Land Reclamation Board also cracked down Wednesday on another Red Arrow property, the Freda mine west of Silverton.

Both portals at the mine have collapsed, and stormwater berms have failed, allowing tainted water and tailings to flow off the site toward Ruby Creek, said Wally Erickson, an inspector for the Division of Reclamation, Mining and Safety.

The board fined Red Arrow $2,500 for the violations at the Silverton mine.

jhanel@durangoherald.com