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A recently released study that shows that the US is tied with Papua New Guinea as having the longest approval process among the 25 top mining countries in the world.
As US-based rare earth mining companies continue to battle a market monopoly out east, they are also facing big challenges on their very own doorstep.
While most developed countries are constantly seeking to improve the length of time it takes to get a mine to production, the US continues to struggle in this regard.Obtaining the permits and approvals needed to build a mine in the US takes an average of seven years — that is one of the longest waiting times in the world. In a ruthless market environment where timing is everything, more and more rare earth mining companies (as well as other commodity-focused firms) are struggling as a result of seemingly endless delays related to permitting.
An unwanted ranking
This point was underlined recently whenBehre Dolbear Group, an international mining and mineral advisory group, released its latest report, 2013 Ranking of Countries for Mining Investment: “Where Not to Invest.” It states that of the top 25 mining countries in the world, the US and Papua New Guinea are tied for having the longest permitting process. Putting that into context, Australia, another large mining center, takes an average of one to two years to process permitting approvals.
Of increasing concern to producers, as well as investors, is that little is being done to rectify the issue. In an interview with Rare Earth Investing News last month, Daniel McGroarty, president of US Rare Earths (OTCBB:UREE), a US-based rare earth development company, underlined his concerns by noting that other industrialized democracies run permitting processes that are far less lengthy and Byanztine. Commenting on the latest findings, he told the American Resources Policy Network, “[j]ust 4 years ago, in 2009, the same study found that the U.S. permitting process took an average of 5 to 7 years. Today, it’s 7 to 10 years – a 40 percent increase in delays. Thanks to onerous federal rules on U.S. mine permitting, we are mired in last place with Papua New Guinea for the second year in a row. Meanwhile, other mining nations are leveraging their mineral resources to fuel manufacturing, drive economic growth, and create jobs without sacrificing environmental protections.”
The consequences are dire
This mindset is not reserved for investors and mining executives. At the 2012 Alaska Strategic and Critical Minerals Summit last November, Senator Lisa Murkowski (R-Alaska) advised attendees that it was time to make a “yes” or “no” decision on permit applications, adding, “[i]t has persisted as an unfortunate reality for nearly every project in the country and the consequences are really dire.”
“Rare earths garner many of the headlines, but we need to look at the bigger picture,” said Murkowski. “We are 100-percent-dependent on foreign sources of 18 other minerals and more than 50-percent-dependent on foreign sources for some 25 others.”
What makes this scenario even more puzzling from an investor standpoint is that these increased delays have come at a time when many in Washington are expressing concern about the potential risks of the United States’ overreliance on other countries to supply rare earth elements (REEs).
That was highlighted in the Department of Energy’s (DOE) December 2011 Critical Materials Strategy document, which notes that supply challenges for five rare earth metals (dysprosium, terbium, europium, neodymium and yttrium) are likely to affect clean energy technology deployment in the coming years. That proved to be such a real concern that the DOE announced earlier this year that it will allocate up to $120 million for the creation of a rare earths research facility aimed at decreasing the country’s dependence on REEs from China.
A benefit to all
While investors continue to be frustrated by drawn-out wait times, a new study suggests that streamlining these processes would benefit REE producers and investors, as well as taxpayers. A study commissioned by the National Center for Policy Analysis (NCPA) suggests that states with rare earth resources could improve revenue by $724 million, add approximately 3,600 well-paid jobs and increase gross state domestic product by almost $40 billion.
“With economic and military demand likely to grow in the next few years, the United States must reform its mine permit process and safety regulations to take advantage of the vast underground store of raw materials that could drive growth, add jobs and bring revenue to state budgets,” Tom Tanton, author of the report, told the NCPA.
“Non-governmental organizations and environmental groups create additional challenges, which delay project approval,” states the report. “Currently, mines in Arizona, California and Wyoming are facing multiyear delays in the development of rare earth resources.”
It adds that the US should be trying to model Australia and Canada’s successful regulations and should aim to dramatically reduce domestic permitting times.
“The federal government should consider a trade mission to both countries to discover how they permit mines in one-fourth the time it takes in the United States, while meeting similar worker safety and environmental protection goals,” it notes. Among the potential benefits of rare earth mining in the US, the report named the creation of 1,000 potential jobs and state revenue of $160 million in Alaska; 1,150 jobs and state revenue of $250 million in Nebraska; 430 jobs and $116 million in state revenue in Illinois; and 600 jobs and state revenue of $90 million in Wyoming.
“A key issue for the country’s future economic growth”
The issue of delays came to a head recently when the National Mining Association (NMA) came before a congressional subcommittee to question whether US mining really needs HR 761, the National Strategic and Critical Minerals Production Act of 2013. Hal Quinn, CEO of the NMA, told the House Subcommittee on Energy and Minerals Resources that the measure “addresses a key issue for the country’s future economic growth and manufacturing revival: the painfully slow permitting process for the miners that supply metals and minerals essential for our basic industries, our national defense and the consumer product we use,” according to a report by Mineweb.
“Overall, when view through the lens of resource potential, the U.S. is underperforming, a fact that will have increasing consequences as global demand for minerals becomes more competitive due to the demands of development economies, where millions are being propelled into a rising global middle class,” he noted.
“In fact, the length, complexity and uncertainty of the permitting process are the primary reasons investors give for not investing in U.S. minerals mining,” he added. Quinn also noted that in 1993, the US attracted 20 percent of global exploration investment dollars, adding, “[t]oday, our share has eroded to just 8 percent.”
This issue has become particularly potent as REE prices continue to slide. While there are a number of great opportunities presenting themselves within the US REE landscape, such as Ucore Rare Metals’ (TSXV:UCU) Bokan Mountain heavy rare earth element project in Alaska, investors will be viewing these projects with a degree of skepticism when weighing them up against competitive projects based in countries with more efficient regulation processing regimes.
An example of how delays are affecting the sector is the fact that Molycorp’s (NYSE:MCP) Mountain Pass mine in California was closed from 2002 to 2012, despite having completed the required Environmental Impact Statement in 2004. Similarly, Rare Element Resources (TSX:RES,AMEX:REE) has an exploration permit to expand its test drill programs at its Bear Lodge project in Wyoming, but is still facing at least three more years before final federal permits are issued.
The hope is that US-focused rare earth mining firms, and indeed the mining sector as whole, will generate momentum for reform. For that to occur, the process will need a significant shift in public policy aimed at advancing resource development.
That does not necessarily mean the sector will need to increase risks in areas such as environmental reviews. An example of a country on the right track is Sweden, where extractive industries account for roughly 20 percent of its annual exports. The country is simultaneously ranked in the top 10 of Yale University’s Environmental Performance Index for 2012.
The mining sector, and indeed the open market, will not wait around forever. Mines delayed in the US will simply be built elsewhere. The US mining sector needs a more efficient resource development strategy and it needs it now.
Securities Disclosure: I, Adam Currie, hold no direct investment interest in any company mentioned in this article.
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