Pricey mining delays
SNL investigates costs of notoriously long mine-permitting process in U.S.
Last updated 7/5/2015 at Noon
Permitting delays are becoming the bane of companies endeavoring to develop mines in the United States, a country that is otherwise considered a stable and richly endowed mining jurisdiction. SNL Metals & Mining has published a report that shows a notoriously lengthy process is resulting in U. S. mines losing up to half their value before receiving final approvals for development.
"The longer the wait, the more the value of the investment is reduced, even to the extent that the project ultimately becomes an unviable investment," the mining research firm penned in its report: "Permitting, economic value and mining in the United States."
The National Mining Association, which commissioned the investigation, hopes the findings will supply U. S. lawmakers with the impetus to approve critical minerals legislation aimed at facilitating a timely permitting process.
"For years, we have witnessed U. S. mines' struggle to move forward due to an inefficient permitting system plagued by duplication, uncertainty and delays." National Mining Association President and CEO Hal Quinn said. "This study now confirms the connection between the delays and their effect on companies' decisions to invest in domestic mining projects. Hopefully, it will strengthen the resolve of Congress to fix a broken permit system that threatens to break down a minerals supply chain that is critical for U.S. manufacturing."
20-year Kensington permit
SNL detailed three mines - HudBay Minerals' Rosemont copper-gold-molybdenum mine in Arizona, Coeur Mining's Kensington gold mine in Southeast Alaska and Antofagasta's Twin Metals copper-nickel-platinum group metal project in northeastern Minnesota - as case studies for permit delays in the United States.
Of the three, only Kensington is currently in operation - albeit, it took 20 years for permit approvals.
When Coeur Mining turned its permit applications for Kensington in 1990, the company anticipated receiving final approvals to begin developing the moderate-sized underground gold mine in 1993.
At the time, Coeur estimated it would cost US$195 million to build a mine at Kensington that could churn out about 200,000 ounces of gold per year at about US$225 per ounce.
Once the project was on the cusp of receiving its permits, however, the authorizations were appealed. This tactic delayed the project to the point that Coeur threw in the towel and wrote down the project in 1995 due to low gold prices at the time.
In 2003, the company revived the idea of developing Kensington, and re-entered the permitting process.
Once again, the project became the target of legal challenges. This time around, Coeur Mining engaged the environmental groups in a five-year legal battle that culminated in a 2009 U.S. Supreme Court ruling in favor of Coeur at its plan to develop the Southeast Alaska gold mine.
While prevailing in the high court was a major achievement, the two-decade permitting and legal process was costly.
"By the time the mine opened, the capital cost of building the mine had increased by 49 percent, and the company had reduced planned gold production by nearly a third, to focus mining operations on the most profitable part of the deposit only," SNL summarized.
Challenged Rosemont permits
While the permitting process for the Rosemont Copper project has yet to drag on as long as Kensington, key permits needed for development are tied up in court.
Situated about 30 miles southeast of Tucson, Ariz., Rosemont is expected to produce 243 million pounds of copper per year.
"It is expected to be one of the largest copper mines in the U. S. and, as currently designed, could account for 10 percent of current U. S. copper production," according to SNL Metals & Mining.
In its study, SNL found that Rosemont is losing value as the permitting process drags on.
In 2010, which is when the mine was originally slated for production, the value of the project to investors was calculated at US$18 billion. Five years on, the value of the project has dropped to US$15 billion and the permits continue to face significant challenges.
In March, Arizona Superior Court Judge Crane McClennen sided with environmental groups that challenged the legality of an air quality permit issued by Arizona regulators.
The court ordered the Arizona Department of Environmental Quality to reconsider the permit using proper criteria.
Adding to the permitting issues, the U.S. Environmental Protection Agency asserts that state water quality permits do not ensure stream protections.
EPA expressed its concerns in an April letter to the U.S. Army Corps of Engineers, the agency charged with issuing the water permits. Even if the Corps ignored the letter, the EPA could use its authority under Section 404(c) of the Clean Water Act to veto any water permits issued.
Slower not better
While not every mining project will face the same challenges as Kensington or Rosemont, SNL found that the U. S. permitting process is unduly long.
"The sheer number of permits required and the lack of coordination among the relevant agencies results in a seven- to 10-year permit timeframe for mining projects in the U. S.," the mining researcher wrote.
Like other research firms that have looked into the United States' laggard permitting system, SNL found that more time does not necessarily result in stronger environmental protections.
"Like the U.S., the environmental permitting process in other developed world mining countries, such as Australia and Canada, is very stringent. These countries also require consultation with local communities and give stakeholders the right to raise objections and appeals. However, in both countries, the processes for obtaining permits are swifter than those observed in the U.S.," the research firm wrote.
Both of these top mining countries limit the permitting process to around two years.
SNL said a clearly defined timeline and making it the mine proponent's responsibility to complete the environmental impact statement contribute to the more compact permitting process in Canada and Australia.
The more efficient process in other developed and mineral rich countries contributes to the risks a long timeline poses to mineral projects in the United States, such as Twin Metals Minnesota.
With its prefeasibility study finalized in 2014, Twin Metals is in the early stages of permitting. Antofagasta, which finalized a deal to gain full ownership of the copper-nickel-PGM project earlier this year, said it plans to try to gain the permits needed to develop a mine. Twin Metals, however, must compete with the company's projects in Australia, Canada, Chile, Mexico and Portugal.
If permitting the Minnesota project becomes too cumbersome, Antofagasta shareholders may pressure the publically traded company to focus its resources on other jurisdictions where the risks are less and the rewards are more quickly attained.
"While the (U.S.) project pipeline is strong for early stage projects, a bottleneck exists, slowing the progression to full functioning mines. For the U. S. to maintain security of supply in the future, it needs to address this bottleneck," concluded SNL.
Arduous, tortuous process
Two bills currently on Capitol Hill are aimed at addressing the mine bottleneck created by the long permitting process in the United States.
On the House side, the "National Strategic and Critical Minerals Production Act of 2015," was introduced by Rep. Mark Amodei, R-Nevada, in April. A similar piece of legislation introduced by Sen. Lisa Murkowski, the "American Mineral Security Act of 2015," is being considered on the Senate side.
Amodei's legislation, H.R. 1937, was the subject of a hearing before the House Natural Resources Committee.
"What we found is that on average, a typical mining project loses over one-third of its economic value as a result of protracted delays in receiving the numerous permits needed to begin production. The longer the wait, the more the value of the investment is eroded," testified Mark Fellows, SNL Metals & Mining director and author of the mine permitting report.
Luke Russell, vice president of external affairs, Hecla Mining Co., told the committee that in his 30 years of permitting mines internationally he has not encountered a jurisdiction with a more "arduous and tortuous process" than the United States.
"The U.S. process is fraught with duplication, inefficiencies, a lack of reasonable timeframes/sideboards, a lack of coordination among federal agencies and multiple, never-ending litigation," he said.
Russell pointed to Alaska's Large Mine Permitting Team "as an example of a state process that works to help streamline the permitting timeline while maintaining the integrity of the process."
He explained that Alaska's system streamlines the permitting process by ensuring the various components are run in parallel. The coordinated approach reduces the timeline without compromising the integrity of the permitting process.
Among other measures targeting inefficiencies and duplication, Amodei's bill would put "sideboards" on permitting by limiting the total review process for issuing permits to 30 months.
The legislation also addresses the "never-ending litigation" by setting a 60-day time limit to file a legal challenge to a mining project; limiting injunctive relief to what is necessary to correct the violation of a legal requirement; and prohibiting the payment of attorney's fees, expenses and other costs by the U.S. taxpayer.
H.R. 1937 has 47 Republican co-sponsors and govtrack.us gives the minerals bill about a six percent chance of being enacted.
Murkowski's legislation, S.883, also addresses key bottlenecks in the United States' minerals supply chain by establishing timelines for critical mineral projects and making the mine permitting process more efficient.
The Senate Committee on Energy and Natural Resources held a hearing on S.833 in May. The bill currently is favored to move out of the natural resources committee and GovTrack.us gives the bill a 30 percent chance of being enacted.