First I can tell you from my experience it doesn't seal off the surface, or seal off the mulch. The mulch does still break down over time. I still expect every couple years to have to place new mulch, but this might work as an every other year cost savings for the customer, and increased profit (less competition) item for me.
Made another call to the manufacturer and learned more than I ever want to know about mulch color. In addition to construction, this is the same base pigment used in cosmetics (including lipstick), pills, and coloring plastics. The polymer is basically glue, that makes it adhere to the mulch instead of just running through into the ground. The product is a modified version of the same stuff they sell to the big mulch processors that color the mulch we already buy.
You got me thinking about this so I also went out and found this on a couple of cosmetic sites which I think we can translate into our industry for safe usage. "The FDA also includes Iron Oxides on its list of indirect food additives considered Generally Recognized As Safe (GRAS)." The questions here have helped me get further educated, hope this settles your concerns.