(1) Upon the filing of any such application, the department shall forthwith investigate the character of the lands applied for, and if, from such investigation, it deems it to be in the best interests of the state, it shall enter into an option contract with the applicant.
(2) The holder of any option contract shall be entitled, during the period of one year from the date thereof, to:
(a) Enter upon the lands and carry on such work of exploration, examination, and prospecting for coal as may be necessary to determine the presence of coal upon the lands and the feasibility of mining the same; and
(b) Use such timber found upon the lands and owned by the state as may be necessary for steam purposes and timbering in the examination and prospecting of such lands. However, this provision shall not be construed to require the state to withhold any such timber from sale.
(3) No coal shall be removed from such lands during the period of such option contract except for samples and testing.
(4) At the expiration of the option contract, the applicant shall fill or cover in a substantial manner all prospect holes and shafts, or surround the same with substantial fences, and shall file with the department a report showing in detail the result of the applicant's investigation and prospecting.