Commentary: Repeal of Nevada claim fee is good news for explorers

Nevada mining claim owners are celebrating the recent repeal of the onerous mining claims fee that Nevada legislators enacted in February 2010 to help balance the state’s budget. In response to a Nevada district court’s ruling in late May that the fee was unconstitutional, legislators repealed the fee and authorized a refund on the last day of the Nevada State Legislature’s 2011 session.

Exploration companies can now use the $11 million for this fee to fund their exploration projects – which is great news for Nevada mineral explorers and investors.

Nevada mine operators offered to pay the 2010 mining claims fee to fill a hole in the state’s budget. The many Nevada exploration companies, geologists and prospectors who own mining claims but do not have income from a producing mine were collateral damage in this agreement. Exploration companies and individual mineral explorers own more mining claims than the big mining companies, some of whom have substantial private land holdings. Consequently, claim owners that did not operate mines were faced with an enormous fee that ranged from US$70 to US$195 per claim, depending on the number of claims owned.

Immediately following enactment of the 2010 mining claims fee, it became obvious to many in the Nevada exploration community that the interests of the exploration sector needed effective representation in future legislative dialogues about revenue from mining – especially potential fees on mining claims.

In response to this need, Agnico-Eagle Mines (USA), AuEx (now Renaissance Exploration), Franco-Nevada U.S., Fronteer Development (USA), MGC Resources, Western Energy Development and Western Lithium (USA) created the Nevada Mineral Resources Alliance. I am the alliance’s executive director and Laura Granier, a partner at Lionel Sawyer & Collins, is counsel to the alliance.

(A separate group, called the Nevada Mineral Exploration Coalition, was also formed. Dave Shaddrick, president of Rubicon Resources, leads the coalition, which is comprised of smaller companies and individuals.)

The alliance estimated that claim owners without producing mines would be responsible for paying over 60% of the 2010 mining claims fee. Just the seven members of the alliance had an aggregate claims fee liability of approximately $1.6 million.

There was no question that this fee would substantially reduce mineral exploration in Nevada and result in fewer mineral discoveries that could become mines. Armed with these and other facts documenting the importance of mineral exploration, Laura Granier and I had many meetings with Nevada legislators to explain the adverse consequences of the 2010 claims fee, and why this policy should be changed.

These meetings gradually bore fruit as more and more legislators became aware of the disadvantaging and unintended effect of the fee on the many Nevada exploration companies and claim owners who did not have any revenue from mining with which to pay the fee. During these meetings it became clear that Nevada lawmakers did not intend to saddle claim owners who do not have producing mines with a large fee. Their intent when they enacted the 2010 claims fee was to obtain more revenue from operating mines.

The alliance and coalition lobbied on behalf of Senate Bill 492 to amend the structure of the mining claims fee to reflect how a claim is used – for example, how it is used in exploration versus mining – rather than basing the fee on the number of claims owned. By the time the Senate Revenue Committee held a hearing on SB 492, there was widespread, bipartisan support for amending the fee to reduce its impact on claim owners without mineral production.

Despite the level of support for SB 492, we learned in early May that it was unlikely legislators would be able to vote on SB 492 before the June 1 fee payment deadline. In response to this news, we changed course and sought judicial intervention by challenging the constitutionality of the mining claims fee. I put together a group of plaintiffs with Laura Granier and filed a complaint on May 16 in the Carson City District Court. The complaint requested a temporary restraining order to enjoin fee enforcement, and the court set a hearing for May 27 – just a few days prior to payment deadline.

On May 31, 2011, the court held that the 2010 claims fee was an unconstitutional tax on mining claims. The next day, just hours before announcing that a budget deal with legislators had been reached, the governor’s office confirmed that anticipated revenue from a mining claims fee was not included in the budget. Had the court’s ruling come just a day later, the state’s 2011-2013 budget would have included a mining claims fee.

In early June, the Senate Revenue Committee added an amendment to SB 493 to repeal the Special Session Claims fee and provide a refund mechanism for fees paid. SB 493 also created a Mining Oversight Commission and clarified some of the deductions to calculate the Net Proceeds of Minerals tax. The Nevada Senate and Assembly passed SB 493 by a wide margin on the last two days of the 2011 legislative session. Governor Brian Sandoval signed this bill into law on June 16, 2011.

The lawsuit declaring the claims fee unconstitutional and the resulting amendment to repeal the 2010 claims fee and authorize refunds is tremendous news for mineral exploration in Nevada. Nevada claim owners no longer have to divert money from their exploration budgets to pay this fee.

The lawsuit also provides some certainty for exploration companies and mineral investors that legislators cannot re-enact this unconstitutional fee in the future.

During in the 2011 Nevada Legislature, lawmakers also passed Senate Joint Resolution (SJR) 15 to start the process of removing the Net Proceeds of Minerals tax and associated language pertaining to mining claims from Nevada’s Constitution. Before this can happen, legislators would have to pass the same measure in 2013, voters would have to ratify this decision and legislators could then enact a new law governing mining taxation during the 2015 session of the Nevada Legislature. Such future legislation could modify the structure of the tax, change the tax rate or create new kinds of taxes.

SJR 15 is a direct response to Nevada legislators’ and widespread public perception that Nevada mining companies are claiming too many deductions to reduce their net proceeds tax liabilities. Although legislators have taken initial steps to decrease the deductions by enacting SB 493, many lawmakers still want to have more control over how the mining industry will be taxed in the future.

Even though legislators have always had the authority to modify the allowable deductions, this is the first time since 1989 that they have changed the statute governing the Net Proceeds of Minerals tax.

In light of their existing authority, the proposal in SJR 15 to modify the state constitution is an overreaction to their current concerns that mining is deducting too much.

Hopefully the changes to the deductions enacted in SB 493 will produce enough revenue to quell legislators’ passion for removing the Net Proceeds of Minerals tax from the constitution so that SJR 15 can be defeated in the 2013 session of the legislature.

SJR 15 creates uncertainty about how mineral production may be taxed in the future, but it also creates an opportunity for the exploration and junior mining sectors to remain actively engaged in future mineral policy dialogues. The focus of these dialogues should be to increase lawmaker’s awareness of the importance of maintaining – and even enhancing – Nevada’s standing as one of the best places in the world for mineral investment.

Nevada lawmakers have a stated objective to increase venture capital investment in the state. Prior to meeting with the alliance, legislators were largely unaware of the impressive amounts of venture capital that junior exploration and mining companies bring to Nevada. They now
have a much better appreciation for the significant impact that mineral exploration has on Nevada’s economy, and the important role that the junior exploration and mining sector can play in bringing mineral investment venture capital to Nevada.

So, the stage is now set for the Nevada Mineral Resources Alliance to build upon the relationships established during the 2011 legislative session, and to work with Nevada lawmakers and the governor’s office to ensure a bright future for mineral exploration and development in Nevada.

– Based in Reno, Nev., the author is an independent consultant specializing in environmental permitting and government relations. With over 25 years of experience working on mineral development and environmental issues, she provides mining industry clients with customized, executive-level advice on environmental permitting strategies, government relations and stakeholder involvement issues. Ms. Struhsacker holds a bachelor’s degree in geology and French from Wellesley College, and a master’s degree in geology from the University of Montana. She can be reached by telephone at +1 (775) 826-3800 and by e-mail at dstruhsacker@sbcglobal.net.