New claims tax unfair to Nevada explorers

The following is an open letter from John Gardiner, president and CEO of Nevadafocused junior mineral explorer, Taranis Resources, to the president of the Nevada Mining Association, Tim Crowley.

I recently learned of a decision by Nevada Gov. Jim Gibbons to sequester funds from the mining industry to help pay for the state’s US$870-million budget deficit through a letter dated March 4, 2010, from the Nevada Mining Association (NMA) to the Geological Society of Nevada, of which I am a member.

Apart from the discomfort of having Nevada in this fiscal crisis in the first place, I would like to clarify something for the NMA. There are numerous stakeholders in Nevada’s mining industry, and among those stakeholders I include the mining-extraction industry (represented by the NMA), mineral-exploration companies and the general public, which enjoys the economic benefits of a vibrant and active mining industry. The last two stakeholders apparently had no input into the recent “one-time” mining-tax legislation.

Nevada’s mining history over the past 30 years has been a rather simple flowchart of exploration, permitting, mine development, exploitation and finally reclamation — all to the benefit of Nevada’s residents, as well as various levels of government. In fact, I understand mining is second only to the gaming industry as a source of revenue for the state and is a likely cornerstone of any economic recovery that will happen in Nevada.

In reviewing the NMA’s board of directors, it’s notable that not one individual is employed by a pure mineral exploration company, and I think this had led to a very misdirected piece of legislation in Nevada that will ultimately have crippling effects on any economic recovery.

I have been involved with mineral exploration for over 30 years. As we all know, it’s a very risky business, and it involves raising large amounts of venture capital either privately, or through the issuance of securities in public companies.

Mineral exploration can be thought of as “investment in the future,” as frequently it can take up to eight years to discover, permit and begin commercial production from a large gold mine in Nevada.

When the government starts to sequester funds from those companies that still conduct exploration in Nevada, and makes it prohibitively expensive to hold mining claims in the state, the government is effectively terminating the ability of the exploration companies to raise money for their work in Nevada.

While large companies argue they also conduct exploration, I point out that, in dollar terms, most of the exploration in Nevada is done by smaller publicly-traded and private companies.

It is also a well-known fact that most of the mines in Nevada are initially discovered by these smaller companies, and then bought out by the larger mining companies such as Barrick Gold, Newmont Mining, etc.

Exploration is a “cost centre” — just ask any of the NMA directors. It has inherent risk and companies are reluctant to do it. When you tax risk, it makes it even more unpalatable.

For example, our company recently began a US$1-million financing to undertake exploration in Nevada, and you can well imagine that it is very difficult to raise exploration money these days given the economic downturn.

Unfortunately, there is a perception that since gold prices are over US$1,000 an ounce, exploration companies should be able to easily secure funding to locate gold deposits. The reality is that it’s the hardest I have seen in 30 years to raise exploration risk capital.

And when the government burdens exploration companies with a “one-time tax” on mining claim fees that have just jumped from US$100 per claim to US$140 per claim, the situation is made very undesirable.

What does this mean? In the short term, exploration companies are going to simply drop many of their mining claims in Nevada before paying the one-time levy, meaning less revenue for the governments at the county, state and federal level.

In the long term, it means that exploration will simply approach a standstill. And without exploration, there will be no new mines discovered, and a loss of exploration jobs throughout the state including positions as drillers, geologists, assayers and many other spinoffs jobs.

Nevada will become very non-competitive on the world stage for further exploration, and many exploration companies will simply elect to take their business elsewhere, where there are both tax benefits and less-expensive landholding costs.

For instance, our company also explores in Finland and Canada, and with the recent Nevada mining claim fees, we will likely favour investing our hard-fought exploration money in these areas, where landholding costs are about 20-30% of Nevada’s.

While I find the addition of a tax on mining claims onerous, what I find particularly disturbing is that the only stakeholders really capable of paying this tax are the companies currently producing gold in Nevada, and reaping the windfall from the recent high gold prices. It is unfair to ask exploration companies, prospectors and other claimholders that invest in Nevada’s exploration sector to bear any of these costs.

What has happened here is that the producing Nevada mines have elected to “dump” the burden of paying these taxes onto the exploration sector, and in the process take advantage of the fact that many of these smaller companies will have no choice but to forfeit their claims since they are unable to pay the ever-increasing landholding costs.

It’s a clear case of David and Goliath, and Goliath has influenced Nevada’s governor that the lion’s share of these fees should be passed onto the exploration sector.

At the recent Prospectors and Developers Association of Canada convention in Toronto, the new Nevada fees were the focus of much discussion and created a lot of conjecture that the Silver State will not be as favourable a destination for mineral explorers.

There are far-reaching implications for enacting this tax legislation and I call on all interested parties to urge Gibbons to reconsider this misinformed piece of legislation before it does irreparable damage to Nevada’s exploration industry.

John Gardiner, President, Taranis Resources Lakewood, Colo.