The U.S. Forest Service is requiring that a Canadian company post bonds before exploring or expanding a gold mine in Idaho.

Toronto-based Atlanta Gold (TSX:ATG) will be required to put up a US$1.3 million bond before drilling exploration holes for its proposed underground gold mine in the Boise River watershed.

Before the Forest Service will issue a permit, it wants Atlanta Gold to provide the bond for 18 months and another $7.3 million bond after the exploration period ends.

Atlanta Gold said requiring a bond for its voluntary efforts to clean up arsenic-laced water from an old mine is an unfair infringement of its right to mine on public lands under the 1872 Mining Act.

“We are offering to do this voluntarily and we are being penalized for it,” said Ernest Simmons, Atlanta Gold’s chief operating officer in Boise.

The company will continue talks with the Forest Service to seek a resolution, Simmons told the Idaho Statesman.

Linking the exploration to water bonding sets an unacceptable precedent, he asserted.

Doug Gochnour, the district ranger for the Boise National Forest, disagreed.

“I believe that these issues are clearly connected and the Forest Service has the responsibility to ensure that the public’s interests are protected,” Gochnour said May 12 in announcing the bond requirement.

Environmentalists were pleased with the Forest Service’s actions but want the agency to require the entire $8.6 million before exploratory drilling begins.

“We already know that the water will have to be treated indefinitely, so the Forest Service should require the full bond now,” said Liz Paul of Idaho Rivers United. “Bonding for known problems should not be linked to future profits and potentially more water pollution.”

Atlanta Gold began treating the arsenic-laced water running out of an old mine tunnel on its claim in 2006 after talks with the Forest Service and the Environmental Protection Agency. The treated water flows into Montezuma Creek, a tributary of the Boise River.

In January, the company announced that instead of an open-pit mine with a cyanide refining plant, it would build an underground mine and refine the ore with a process that does not use cyanide.

Company officials said the mine could generate $40 million annually for the state’s economy. Despite strong local opposition, the project remains afloat because of high gold prices, which earlier this year exceeded $1,000 an ounce.

As a part of its exploration plan, Atlanta Gold proposed installing a new, more effective water treatment system.

Simmons planned to use the same technology used to treat polluted water at the Blackbird Cobalt Mine near Salmon. Heavy metal run-off from the Blackbird killed off an entire salmon run in Panther Creek, a tributary of the Salmon River, in the 1950s.

Today, the river has been cleaned up and salmon spawn in the tailrace of the water treatment system.

“We wanted to demonstrate to the Forest Service that this application can work here and elsewhere,” Simmons said.