FORM 10-K

42

MDU RESOURCES G ROUP, INC.

PART I

The following table summarizes Knife River's aggregate reserves at December 31, 2007, 2006 and 2005, and reconciles the changes

between these dates:

2007

2006

2005

(000's of tons)

Aggregate reserves:

Beginning of year

1,248,099

1,273,696

1,257,498

Acquisitions

29,740

7,300

53,495

Sales volumes*

(31,594)

(36,195)

(35,923)

Other**

(30,992)

3,298

(1,374)

End of year

1,215,253

1,248,099

1,273,696

* Excludes sales from other sources.

** Includes revisions of previous estimates.

Lignite Deposits The Company has lignite deposits and leases at its former Gascoyne Mine site in North Dakota. These lignite deposits are

currently not being mined and are not associated with an operating mine. The lignite deposits are of a high moisture content and it is not

economical to mine and ship the lignite to other distant markets. However, should a power plant be constructed near the area, the Company

may have the opportunity to participate in supplying lignite to fuel a plant. As of December 31, 2007, Knife River had under ownership or

lease, deposits of approximately 10.1 million tons of recoverable lignite coal.

Environmental Matters Knife River's construction materials and contracting operations are subject to regulation customary for such

operations, including federal, state and local environmental compliance and reclamation regulations. Except as to what may be ultimately

determined with regard to the Portland, Oregon, Harbor Superfund Site issue described later, Knife River believes it is in substantial

compliance with these regulations.

Knife River's asphalt and ready-mixed concrete manufacturing plants and aggregate processing plants are subject to Clean Air Act and

Clean Water Act requirements for controlling air emissions and water discharges. Some mining and construction activities also are subject

to these laws. In most of the states where Knife River operates, these regulatory programs have been delegated to state and local regulatory

authorities. Knife River's facilities also are subject to RCRA as it applies to the management of hazardous wastes and underground storage

tank systems. These programs also have generally been delegated to the state and local authorities in the states where Knife River

operates. No specific permits are required but Knife River's facilities must comply with requirements for managing wastes and underground

storage tank systems.

Some Knife River activities are directly regulated by federal agencies. For example, gravel bar skimming and deep water dredging

operations are subject to provisions of the Clean Water Act that are administered by the Army Corps. Knife River operates gravel bar

skimming operations and deep water dredging operations in Oregon, all of which are subject to joint permits with the Army Corps

and Oregon Department of State Lands. The expiration dates of these permits vary, with five years generally being the longest term.

None of these in-water mining operations are included in Knife River's aggregate reserve numbers.

Knife River's operations also are occasionally subject to the ESA. For example, land use regulations often require environmental studies,

including wildlife studies, before a permit may be granted for a new or expanded mining facility or an asphalt or concrete plant. If

endangered species or their habitats are identified, ESA requirements for protection, mitigation or avoidance apply. Endangered species

protection requirements are usually included as part of land use permit conditions. Typical conditions include avoidance, setbacks,

restrictions on operations during certain times of the breeding or rearing season, and construction or purchase of mitigation habitat.

Knife River's operations also are subject to state and federal cultural resources protection laws when new areas are disturbed for mining

operations or processing plants. Land use permit applications generally require that areas proposed for mining or other surface

disturbances be surveyed for cultural resources. If any are identified, they must be protected or managed in accordance with regulatory

agency requirements.

The most comprehensive environmental permit requirements are usually associated with new mining operations, although requirements vary

widely from state to state and even within states. In some areas, land use regulations and associated permitting requirements are minimal.

However, some states and local jurisdictions have very demanding requirements for permitting new mines. Environmental impact reports

are sometimes required before a mining permit application can even be considered for approval. These reports can take up to several years

to complete. The report can include projected impacts of the proposed project on air and water quality, wildlife, noise levels, traffic, scenic

vistas and other environmental factors. The reports generally include suggested actions to mitigate the projected adverse impacts.