Publications

"The Resurgence of the U.S. Mining Industry in 2005 and how Our Legal System can Help it Flourish," Crowell & Moring Mining Law Monitor, Vol. 22, Issue 1

Spring 2005

Author: R. Timothy McCrum.

To paraphrase Mark Twain, the much-rumored death of the U.S. mining industry has been greatly exaggerated. About a decade ago, a general counsel of one of the largest metal mining companies in the world confidently predicted to a small private group in Washington, D.C., that there would never be another metal mine opened in the United States. In the late 1990s, another respected general counsel of one of the largest gold mining companies in the world, stated with equal certainty that the major gold mines of Nevada would wind down their operations in less than a decade. During those dark years of the 1990s, such pessimism was equally rampant in the U.S. coal industry. Conventional wisdom held that coal was the fuel of the past, and that all major new electric power plants investments would be shifting away from coal.

The former president of the National Mining Association, General Dick Lawson, would often tell the story of how he and other senior coal leaders were summoned to the White House in 1999 to explain how the coal industry was going to prepare for the anticipated “Y2K” crisis, after the Clinton Administration belatedly had identified coal as a sector critical to the national economy. General Lawson responded to Vice President Gore and the Clinton Administration officials assembled at the meeting that the coal industry truly was pleased to have been identified as a critical economic sector and invited to the meeting, because “it seemed for several years that the Administration was doing everything possible to get rid of the industry.” The combination of high level government policies and actions that were downright hostile to almost all forms of mining in the United States, coupled with adverse market conditions, certainly did take their toll on the industry and the people associated with it in the 1990s.

Resurgent Industry

It is indeed remarkable to see today how conditions have improved so dramatically. In 2005, coal production is expected to exceed a new all time record of 1.138 billion tons, a more than 6-percent increase from 2004. From 2000 through 2005, coal prices have risen dramatically, in many regions by more than 100 percent. More importantly, total demand for U.S. coal is expected to reach 1.183 billion tons, and for the third straight year, demand will exceed production. Coal remains by far the dominant and most economical source of electric power, generating over 52 percent of the nation's electricity, and yet air emissions from burning coal are down significantly over the past decade. Notably, as of late 2004, the cost to generate electricity with natural gas was more than 400 percent higher than the cost using coal. Accordingly, the coal industry is currently attracting enormous capital investments from major banks and venture capitalists. Today, major new coal-based electric power plants are under construction, and many more are being proposed.

Similarly, in the hard-rock mining sector, in 2004, Nevada regained its position as the number two gold producing region in the world, and in the latest 2004-2005 Fraser Institute Survey of over 100 metal mining and exploration companies, Nevada was again named as having the single most favorable governmental policies (state and federal) for mining among 64 jurisdictions in the world. Current mine-life projections for the major gold mines in Nevada are being extended through 2016 and even 2020, and likely beyond. The gold mining industry is investing many hundreds of millions of dollars in capital expenditures this year in Nevada alone. Exploration is increasing dramatically, even if most of it is in connection with existing operating mines. Major new discoveries are being made and announced with increasing frequency. Meanwhile, the cost to mine gold in the United States remains low, in many cases, well below $200 per ounce, as gold prices rise and currently exceed $420 per ounce.

Another indicator of renewed activity is the number of new federal mining claim filings, which exceeded 28,000 in 2004 compared to just 18,000 in 2003. The Nevada State Geologist, Jonathan Price, recently was quoted to say, “I don't know of any geologist who wants to work right now who isn't working.” He added, “It's hard to find drill rigs.” In addition to all of this, major new proposals to open new base metal mines for copper and molybdenum are being proposed in the United States. Perhaps this is not surprising when moly prices are currently over $35 per pound, as contrasted with their past average price of about $5 per pound – a 700-percent increase. Today, some of the most pressing problems faced by the U.S. mining industry include a shortage of giant mining truck tires and qualified mine workers – problems that the industry would have been glad to have just several years ago.

Government Policies

Many in the former Administration used to like to say that mining in the United States was a practice of the past, and not part of the “New West,” but the fact remains that the United States is still well endowed with abundant coal and valuable undeveloped metallic mineral resources. So long as misguided government policies and regulations do not prevent mining activity from occurring, economic conditions will continue to compel increasing mineral production here in the United States – especially if the value of the U.S. dollar remains relatively low, as it is today. The people living in the rural areas across the United States (where our minerals are produced) mostly favor the adoption of governmental policies which will allow mineral resource use to continue. The voting citizens in these mining-dependent rural regions understand that their well-paying jobs cannot be “outsourced,” so long as they are connected with the production of mineral resources located here in the United States.

While many in the industry wish the Bush Administration would do more to enhance governmental policies toward mining, at least the outright hostility to mining reflected in governmental policy prior to January 20, 2001, has disappeared for the most part within the Executive Branch. A similar statement can be made with regard to the U.S. Congress. Although actual legislative relief from the onerous regulatory burdens has been modest, it is at least comforting for the coal industry to know that the current chair of the Senate Environment & Public Works Committee, James Inhofe (R-Okla.), is willing to say publicly (on the Senate Floor and on his web site) that the global warming controversy, which dominated U.S. policy with regard to coal use throughout the 1990s, is, in his opinion, “the greatest hoax ever perpetrated on the American people.” Similarly, the mining industry can take heart in the fact that the Chairman of the House Resources Committee, Richard Pombo (R-Cal.), at least earnestly desires reform of the Endangered Species Act and improvements in the implementation of the National Environmental Policy Act, regardless of whether such legislation can be enacted in the near term. Notably, even the Senate Minority Leader, Harry Reid (D-Nev.), is a staunch supporter of hard-rock mining.

If current governmental policies, in the Executive Branch and the Congress, are favorable, or at least neutral, to continued mining activity in the United States, one might ask whether it is now safe for the industry to simply go about its business producing the vital minerals needed for the U.S. economy, trusting that governmental policies will take care of themselves and not interfere with the industry's activities? Such an approach would be shortsighted and risky, even for an industry that is traditionally willing to take risks routinely as part of its business. The industry must be ever-mindful of the well-organized and well-funded groups (that won't be mentioned specifically by name here), which are funded and operated in many cases with the overt objectives of blocking and shutting down individual mines, companies, and entire sectors of the mining industry (and other natural resource producers) where possible. One need only look at the web-sites of these strident groups to see the twisted pride that they take in having blocked various domestic mining projects over the past – destroying major investments and innumerable jobs in the process.

Mining and the Courts

While the influence of these groups has diminished greatly within the Executive Branch and the U.S. Congress, they are increasingly focusing on the courts to achieve their objectives through litigation. Of course, it defies the conventional public perception that, in many cases, the litigation efforts mounted by these groups are better funded than the defenses mounted by industry. Indeed, it has recently become apparent that in many cases, the partisan environmental groups themselves have been unwittingly funded by hidden and convoluted grants from the federal government itself. Moreover, a persistent problem remains in such litigation that many of the career lawyers and other employees for the government, which will often be a party to such litigation, may have personal sympathies aligned with the environmentalist litigants, regardless of the official positions of the federal agencies involved in these disputes, undermining the integrity of the litigation process.

Are the continued and expanding threats and pursuit of litigation by environmental special interest groups more than the mining industry can withstand? My answer is most certainly no, but the industry must be fully prepared to address these threats with a coordinated response of overpowering force, something akin to the General Schwarzkopf doctrine used with success in the Persian Gulf War. In addition, in this time of robust economic conditions in the mining industry, there is clearly a need for the industry to be even more proactive and vigilant in seeking to preempt adverse regulatory and legal actions which can harm the industry. This may mean taking extra steps during administrative processes to ensure that administrative records are well supported and not vulnerable to challenge, whether in the case of an individual mine approval decision or a favorable regulatory action more broadly affecting mining. Similarly, if the legal system is going to help the industry flourish, it is critically important that regulatory and legislative strategies be designed to form alliances with other natural resource sectors, unions, and other groups that recognize their dependency on a healthy and growing minerals industry, to anticipate potential litigation which may occur down the road.

Public Education

Further, to lay the foundation for future litigation success, it is time to invest more in educating the public, the regulators, and the judiciary about the critical need for minerals in every aspect of our society and the economic benefits of mining. A wonderful example of this is the Montana-based “Provider Pals” organization (www.providerpals.com), which enables natural resource providers such as individual miners and loggers to visit urban and suburban school classrooms to explain how our energy, minerals, and wood products are produced. Speaking of the benefits of mining, it is also time for the industry to perform even more local community and environmental enhancement projects, and then to make sure those activities receive the public recognition that they deserve. Finally, there is a compelling need to expose aggressively the lie of the strident environmental advocacy groups who claim that they alone represent the “public interest.” In short, more mining companies need to engage and participate actively in the governmental and legal processes that directly affect their fate. The investments in these activities are like mineral exploration costs: they create the industry's future. By investing in government relations and litigation, the mining industry will better its chances to survive and thrive in the United States. The economic opportunities for the industry and for the nation itself are too precious to risk by taking merely a passive approach to these challenges.

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R. Timothy McCrum
Partner – Washington, D.C.
Phone: +1 202.624.2752
Email: rmccrum@crowell.com