Cline Mining sues BC government for $500 million

Cline Mining (CMK-T) is suing the B.C. government for $500 million in compensation for the coal licences it lost when the government banned mining in the Flathead valley.

The B.C. government made the surprise announcement in February 2010 that it was banning all mining and exploration in the 1,600-sq.-km area of southeast B.C.

The move came after intense local and international lobbying, especially from just south of the border in Montana. The pressure came not just because the area is home to the largest population of inland grizzlies, but because it was the missing piece of protected land between Glacier National Park in Montana to the south and Waterton International Park to the north.

Environmentalists welcomed the announcement, but resource companies working in the area, including Cline and Max Resource (MXR-V), were frustrated by a decision made with little to no public consultation and no clear provision for compensation.

At the time, the province indicated it was open to some form of compensation, and has since settled with six of 10 mineral tenure holders in the Flathead area for a total of $4.9 million. The settlements include $655,000 in compensation paid to Max Resources for the $733,000 it had spent on its two projects there.

Cline, however, had by far the most advanced projects in the area, with its 157.8-million-tonne Lodgepole coal project at the permitting stage and its Sage Creek project hosting 154.8 million tonnes of potentially open-pittable coal. A feasibility study on the Lodgepole project had outlined an initial 20-year mine plan to produce 40.6 million tonnes of high-quality, pulverized coal-injection coal, and the company was working to get its Lodgepole project permitted for a 2-million-tonne-per-year, open-pit mine when the ban was announced.

The looming approval of the large open-pit mining project was one of the reasons for the timing of the mining ban, with politicians in Montana particularly concerned about the mine’s potential downstream effects.

Cline stated soon after the ban was announced that it was writing off the $4.5 million it had spent advancing its Lodgepole project, and was studying its options. Later the company filed a claim for compensation for the fair value of the coal properties, valuing the Lodgepole project at $274 million and $235 million for the Sage Creek property.

With the B.C. government pushing for compensation of sunk costs, and Cline seeking the projects’ full value, it appears the two have come to an impasse. In response to Cline’s $500-million suit, the B.C. government stated that “we are far apart on negotiations with Cline . . . and have been trying to come to a reasonable settlement.”

With no settlement on the horizon between Cline and the B.C. government the company is going ahead with a civil claim, which it filed with the Supreme Court of British Columbia early this month. The notice of claim seeks a declaration that its properties were expropriated, taken or injuriously affected by the ban, as well as full compensation.

In defending its decision to ban mining in the area, the government stated that “there are cases where government makes decisions to balance development with environmental values and land resource-management initiatives. The establishment of the Flathead Watershed Area Conservation Act is one of these decisions.”

This is not the first time the B.C. government has got itself in trouble with regards to a mining ban. Last year the province settled with Boss Power (BPU-V) for $30 million after a botched ban enactment on uranium mining and exploration in B.C.