June 2, 2014

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Inside the Mining Industry: An Arizona Mining Lawyer Discusses Key Challenges, Opportunities & Trends for 2014 and Beyond

1) Can you identify the key challenges and opportunities currently facing the Mining industry?

Other than market forces, Federal permitting processes continue to be a primary cause of delay for new mines and the expansion of existing mines throughout the United States. The federal government manages a significant percentage of available mining lands in the southwestern United States and the federal approval processes are slow and cumbersome. Even on private lands, federal statutory regimes, in particular the Clean Water Act and the Endangered Species Act, create a real barrier to mine development. Unless and until federal agencies are required or incentivized to act more quickly, the regulatory environment will not improve in the near term. The costs of regulatory delays and uncertainty may often be hidden, but they are certainly real.

2) Are there any regulatory reforms or litigation trends which need to be monitored carefully in 2014?

The establishment of new National Monuments is a significant concern. Under the Antiquities Act, the President has the authority to establish National Monuments by Executive Order. President Obama and the current Secretary of the Interior, Sally Jewell, have made clear in recent months that this power will be used to set aside federal lands if Congress does not act itself, which is an unlikely prospect in the near term. There is recent precedent for expansive use of this presidential power as President Clinton set aside millions of acres in the southwestern U.S. Additionally, the withdrawal of over one million acres of public lands in 2012 demonstrates that the current administration will act unilaterally to prevent multiple uses of public property, including mining, in certain areas.

3) How does the tax regime work for mining projects in your jurisdiction?

The mining industry is generally subject to three kinds of state and county taxes: property taxes, sales and use taxes (or the transaction privilege tax in Arizona), and the net proceeds of minerals tax (or the severance tax in Arizona). These taxes are fairly well-established and understood. Changes may be coming to Nevada's tax regime. Currently, the net proceeds of minerals tax (the "NPOM") impose a 5% maximum tax on the value of the mine. The maximum 5% rate was added to the Nevada Constitution in 1989. N.R.S. Const., Art. 10, § 5. Essentially, the NPOM directs the taxpayer to report the value of the mineral sold and identify the costs of extraction, reducing, and refining the mineral into a commercially reasonable form. This calculation provides the taxable value of the mineral, to which the maximum 5% rate is applied. In November 2014, Nevada voters will decide whether to repeal the maximum 5% rate. If the voters decide to repeal, the rate of tax on mines will default to one that is "uniform and equal" to all property in Nevada; however, repealing the "cap" makes it possible to raise taxes on the mining industry.

4) What health, safety & environmental procedures and assessments currently exist as part of the permitting process in your jurisdiction?

Projects that require any federal approval – and virtually all mining projects in the Western U.S. require some federal approvals - must be evaluated under the National Environmental Policy Act. Depending on the scope of the federal action, there are three levels of NEPA analysis: categorical exclusions, environmental assessments, and environmental impact statements. Arizona and Nevada (other than Lake Tahoe) do not have state-equivalent NEPA processes, but many state permitting processes do involve an evaluation of health, safety and the environment. An example of a state-specific program is Arizona's Aquifer Protection Program, which requires mining projects to evaluate and protect groundwater quality.

5) Are there any incentives for organizations which meet compliance with environmental legislation?

Avoiding an enforcement action is always a strong incentive to comply with environmental requirements. Additionally, many states have developed tools such as pollution prevention programs and environmental audit privileges to encourage regulated entities to be proactive with respect to environmental compliance and protection. For example, Arizona's environmental audit privilege, adopted in 2012, provides some enforcement liability protection for any regulated entity that voluntarily conducts an environmental compliance audit and then undertakes appropriate efforts to remedy any identified noncompliance. Nevada's environmental audit program provides a presumption against penalties for violations discovered during an environmental audit undertaken pursuant to an agreement with a regulatory agency.

6) What key trends do you expect to see over the coming year? In an ideal world what would you like to see implemented or changed?

Market forces will continue to dictate the pace and intensity of new mine developments and existing mine operations and expansions. In an ideal world, to promote mining in the southwestern U.S., we would like to see significant and meaningful federal regulatory reforms, particularly to NEPA and the Endangered Species Act, to encourage and require timely analysis and decision-making. Licensing time-frames, which set specific time-frames for permitting processes, are not the sole or perfect solution but would be a great start, particularly for NEPA review. Longer term, federal agencies need incentives, resources, and requirements to make timely decisions. At the federal level, paralysis through over-analysis is the norm. However, states such as Arizona have demonstrated that regulatory processes can be made more efficient while still protecting public health and the environment.