`Unsuitability’ clause could trigger litigation —

Concern over proposed changes to the U.S. Mining Law lent a tone of apprehensiveness to a major mining conference held recently in this southwestern American city.

More than 3,700 delegates attended the 123rd annual convention of the Society for Mining, Metallurgy and Exploration (SME). And while hundreds of corporate exhibits were on view and a variety of technical papers presented, The Northern Miner could not help but notice that most of the informal talk centred around the proposed legislation and what effect it might have on the future of mining in the U.S.

Two separate bills have been passed — one by the U.S. Senate and the other by the House of Representatives — and both are expected to go before a conference committee this year. The committee is made up of appointees from both the Senate and the House, with the objective of reworking and combining the two bills into a single proposal.

The new bill, provided the Senate and the House conferees approve it, would then be returned to both the Senate and the House for approval. The Senate has already appointed seven conferees, three of whom are believed to support the Senate bill. The House has not yet appointed its conferees, although this group is expected to be larger, consisting of 30-40 members. The Senate-appointed conferees and those appointed by the House must each return a majority vote.

Joseph Danni, vice-president of government affairs for the American division of Placer Dome, said he hopes the process can be completed sometime this year but conceded that there is no way of knowing how long it will take. The bill proposed by the Senate (S-775) is viewed as generally workable by the mining community, while the House bill (HR-322) is considered highly destructive.

The Senate bill includes a 2% profit-based royalty from production on federal lands, whereas the House bill calls for an 8% gross royalty (on revenue). The latter also contains various clauses seen as highly punitive by mining companies.

Perhaps the most disturbing of these pertains to “suitability.” The House bill includes a provision which would allow the government to remove land from potential development at any time, based on a qualitative measure of its suitability.

Robert Schafer, regional manager of western U.S. exploration for BHP Minerals, noted in a recent letter to Senator Orrin Hatch of Utah that an “unsuitability study” is already carried out with each submission of a plan of operation during the permitting process. If a plan does not conform to prescribed standards and if no suitable change can be effected, it is modified or denied.

The mining industry’s concern about the suitability question is that the government may use it arbitrarily to disallow mining in a given area and that such a manoeuvre may be based on emotional factors (such as pressure from environmental protectionists), rather than on sound, technical grounds. This could open up the potential for a flood of mining company lawsuits against the government. Compensation could be demanded if claims are suddenly deemed “unsuitable” for mining.

On the other hand, Philip Hocker, president of the Mineral Policy Center (an independent, conservationist group), supports the House bill. Moreover, he does not see potential compensation as being a concern, since any claims in an area deemed unsuitable would, by definition, be impossible to permit and therefore worthless.

This Catch 22 view is not necessarily shared by the U.S. Justice Department, which issued an internal memorandum (subsequently leaked) that was highly critical of many of the key provisions in the House Bill, particularly the issue of seizing private property (in this case, mining claims) without providing adequate compensation.

The memo also warned of a “strong risk” of lawsuits by holders of unpatented claims since the proposed legislation “would be perceived as the taking of a property interest of some magnitude.”

Idaho Senator Lawrence Craig, who backs S-775, also expressed concern over the suitability question, noting that mining companies should be given clear boundaries as to where they can and cannot explore. If exploration is permitted and a deposit is found, the company should be allowed to develop it, provided all regulations are met, Craig stressed.

Regarding the proposed royalties, he said the 2% net profit royalty in S-775 would allow companies to remain profitable while providing additional revenue to the federal government.

He added that the House bill could be revenue-negative. A study by Coopers and Lybrand estimates that an 8% gross royalty would eliminate 44,000 jobs and result in $5.7 billion in lost economic activity, as well as remove $420 million per year in personal and corporate taxes.

By comparison, the Senate bill would raise an estimated $50 million per year, according to the study.