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Federal Document Clearing House Congressional Testimony

June 15, 1999


LENGTH: 4634 words


HEARING BEFORE THE SUBCOMMITTEE ON FORESTS AND PUBLIC LAND MANAGEMENT ENERGY AND NATURAL RESOURCES COMMITTEE UNITED STATES SENATE With respect to Issues Surrounding The Interior Department Letter of March 25, 1999, Concerning The Crown Jewel Mine JUNE 15, 1999 STATEMENT OF STEPHEN D. ALFERS ALFERS & CARVER, LLC THE EQUITABLE BUILDING 730 SEVENTEENTH STREET SUITE 340 DENVER, COLORADO 80202 Stephen D. Alfers is a partner in the law firm of Alfers & Carver, LLC. Mr. Alfers is a 1976 graduate of the University of Virginia School of Law. He served as a U.S. Naval officer between 1969 and 1973. He also holds a Master of Arts degree in economics. Mr. Alfers' practice is concentrated in mining and public lands law. He has served as an Adjunct Professor of Mining Law at the University of Denver College of Law for many years. In 1990, he was named the Distinguished Practitioner in Residence at that institution. Mr. Alfers has numerous publications to his credit in the fields of mining and public land law, including "Coping With Mining Law Reform," 37 Rocky Mtn. Min. L. Inst. Surface Use, Paper No. 2 (Rocky Mtn. Min. L. Found. 1994). He was the co- author with Coopers & Lybrand of a study commissioned by the American Mining Congress in 1992, "The Economic Impact of Mining Law Reform," and another study comparing federal royalty proposals in 1993, "A Comparative Analysis of Mining Fees and Royalties" (Morrison & Foerster/Coopers & Lybrand, 1993). Mr. Alfers has served as Trustee of the Rocky Mountain Mineral Law Foundation and as a member of the Board of Directors of the Colorado Mining Association for many years. Since 1998, he has been the Vice Chairman for Hard Rock Mining of the Colorado Mining Association. Mr. Alfers has been active in the Colorado Bar Association. Since 1989, he has been named in Best Layaers in America. INTRODUCTION In January 1997, after five years of scrutiny, the Bureau of Land Management and the United States Forest Service issued a Record of Decision approving the proposed activities for the Crown Jewel Mine in Okanogan County, Washington. To date, Battle Mountain Gold (BMG) has invested approximately 80 million dollars in the project, about 16 million dollars of that in reliance upon the 1997 Record of Decision. On March 25, 1999, the Solicitor of the United States Department of the Interior rendered a decision' stating that the BLM and the Forest Service were unable to approve the proposed Plan of Operations for the Crown Jewel Mine because the plan did not comply with the requirements of the Mining Law of 1872. Battle Mountain Gold's Plan of Operations proposed to develop 4 patented and 11 unpatented lode mining claims. BMG proposed to use 117 unpatented millsites for ancillary mining facilities. In his decision, the Solicitor stated that that the BLM and the Forest Service had to reject the Plan of Operations because the millsite acreage in the plan exceeded five acres of millsite land for each associated mining claim. The Crown Jewel Decision stated that "The Mining Law allows claimants to locate up to five acres of non-mineral land for millsite use in association with each valid mining claim. ,2 The Decision further stated "any millsite acreage in excess of five acres per valid mining claim is not valid."' The Crown Jewel Decision provided that Battle Mountain Gold may locate a maximum of 75 millsite acres, depending on whether all of the fifteen lode claims in the Plan are valid. Based on information in the Plan, the Decision stated, the Crown Jewel Mine exceeds the allowable amount of millsites by at least 490 acres. The Solicitor advised BMG that they could still develop the mine by seeking a land exchange for the National Forest and BLM administered land, if the federal agencies, in their sole discretion, determine that an exchange would be in the public intereSt.4 The Decision stated that the BLM indicated that use of excess millsite. acreage on BLM land could be authorized through approval of a plan of operations under 43 C.F.R. 3809.1-6, if the lands are still open to the location under the Mining Law.' The Decision also stated that the BLM was examining the extent to which it may authorize such use through a lease under FLPMA or the BLM's implementing regulations. In rejecting BMG's proposed Plan of Operations, the Solicitor relied on his previous Memorandum issued in November 1997 limiting the patenting of millsites.' In his Solicitor's Memorandum, the Solicitor reversed years of Interior Department practice and opined that, under the Mining Law of 1872, no applicant may obtain more than five acres of patented millsite land for every one mining claim. The Solicitor's Memorandum dealt mainly with the patenting of millsites. It directed the BLM to reject those portions of millsite patent applications exceeding the acreage limitation. However, the Solicitor's Memorandum also included the following statement, unsupported by any citation to authority: "In addition, the Bureau should not approve plans of operations which rely on a greater number of millsites than the number of associated claims being developed unless the use of additional lands is obtained through other means."' The Crown Jewel Decision, which dealt entirely with the approval of a Plan of Operations, relied on that one unsupported sentence of the 1997 Solicitor's Memorandum to reject BMG's Plan of Operation submitted in 1992.9 After news of the vacated Record of Decision became public, on March 29, 1999, Battle Mountain's market cap was reduced by more than $ 1 00 million in one day, Battle Mountain's stock reached an all time low, and the stock price of Crown Resources Ltd., Battle Mountain's joint venture partner, plunged 46% in one day. Against this backdrop, the 1999 Emergency Supplemental Appropriations Act 10 passed on May 21, 1999, revoking the Crown Jewel Decision as to that project for any fiscal year. Section 3006(c) of the Act further provided that no patent application or plan of operations submitted prior to the date of the enactment of the Act shall be denied pursuant to the opinion of the Solicitor of the Department of the Interior dated November 7, 1997. It is not clear, the extent to which the Crown Jewel decision otherwise applies to other projects." The Solicitor's Memorandum instructs the BLM to "not approve Plans of operations which rely on a greater number of millsites than the number of associated claims being developed unless the use of additional lands is obtained through other means." The Solicitor's command to disapprove plans of operations with millsites outside its 1: I ratio is extraordinary for a number of reasons. First, it appears without discussion or citation to authority in a memorandum entirely devoted to patenting of millsites. Second, it confuses patentability with surface use and occupancy by interposing the Solicitor's new test for millsite patentability as a threshold determination to be made before approval of a plan of operations. The inquiry into validity or patentability has never been part of surface management under 43 C.F.R. Part 3809. The BLM implemented the Solicitor's Memorandum in an Instruction Memorandum, IM 98-158 (Aug. 17, 1998). Where there is "excess" millsite acreage in lands that have been withdrawn from entry under the mining laws , the BLM will now require surrender of the millsites as a condition to consideration of the plan of operation. However, where there is "excess" millsite acreage in lands open to location, the BLM asserts a new authority to make a determination of an "unacceptable conflict with other resources." If there is none, the BLM may approve the plan, treating the plan approval as a discretionary surface use permit under Sec. 302(b) of FLPMA." If there is an unacceptable conflict, the BLM asserts discretion to subject the plan approval to conditions for addressing the resource conflicts. The Crown Jewel Decision did not apply IM 98-154. 16 It did, however, reject the Plan of Operation on the grounds of the millsite limitation. Crown Jewel represents a major policy shift in the surface management of mining activities under the mining laws. Crown Jewel applies the Solicitor's Memorandum, and in doing so, it introduces claim or millsite validity as a threshold test for plan approval under surface management regulations. Surface management regulations are to regulate access to public lands for activities authorized under the mining laws. The mining law not only authorizes the use of valid mining claims, but it also permits access to public lands to prospect for valuable mineral deposits, stake mining claims, prove up discoveries to validate claims, and then develop and mine them. The Crown Jewel Decision raises a number of legal and policy questions about access and surface use under the mining law, which, if left to stand, call into question whether mines can be developed on public lands. There are two discrete legal issues: first, whether Congress intended to limit miners' use of non- mineral land to five (5) acres per mining claim; and, second, whether Congress intended to restrict the use of the surface of a mining claim to the support of only that claim. This statement addresses these two issues. 1. The Five Acre Limitation In his Solicitor's Memorandum, the Solicitor reached the conclusion that the plain language of the General Mining Law of 1872 limited the acreage of non- mineral land which may be patented to a single five (5) acre millsite per mining claim." The statutory language itself contains no such limitation; the rather sparse history of Interior Department decisions on the topic does not support such a limitation; and the long standing practice of the Department of the Interior is clearly in conflict with the Solicitor's limitation. A. The Plain Language of the Statute The plain language is as follows: (a) Vein or lode and millsite owners eligible Where nonmineral land not contiguous to the vein or lode is used or occupied by the proprietor of such vein or lode for mining or milling purposes, such nonadjacent surface ground may be embraced and included in an application for a patent for such vein or lode, and the same may be patented therewith, subject to the same preliminary requirements as to survey and notice as are applicable to veins or lodes; but no location made on and after May 10, 1872 of such nonadjacent land shall exceed five acres .... 30 U.S.C. 42(a). Section 42(a) places no acreage limitation whatsoever on the amount of land which may be used, occupied, and eventually patented. Instead, the language provides that no single millsite location may exceed five acres. The language does not limit the number of millsite locations that may be used, occupied, and eventually patented. B. Cases and Interior Decisions We have found no court decisions discussing the 1: I ratio, and the Solicitor's Memorandum cites none. Interior Department decisions from the beginning are, if anything, directly contrary to the notion of an arbitrary acreage limitation. In Alaska Copper Co., the Department held that the lode proprietor in that case had no inherent entitlement to any millsites in the absence of a showing of necessity, use, and occupancy. The Department not only did not establish a 1: I ratio or acreage limitation, it rather called for flexibility, limited by the needs of operations: Whilst no fixed rule can well be established, it seems plain that ordinarily one millsite affords abundant facility for the promotion upon a single body of lode claims." Significantly, the Department used the word "claims" in the plural. It clearly eschewed a 1: I ratio in favor of a test of demonstrated need. Indeed, in Alaska Coppe , the Department believed that in many cases a single millsite location might well serve an entire group of claims. At the same time the Department rejected a "fixed rule," recognizing the importance of flexibility to respond to need. The Solicitor's Memorandum cites a number of Interior Department decisions in support of his 1: I ratio." None of those cases support the 1: 1 ratio. The clear import of Interior decisions has been that the mining law limits the amount of non-mineral land that may be patented by actual necessity, use and occupancy, not an arbitrary acreage limitation or a 1: 1 ratio of millsites to mining claims." C. Interior Department Practice In our extensive experience as mining lawyers, we have never encountered action by federal land managers applying the acreage or ratio limitation either to millsite patents or to approvals of plans of operations." The first articulation of such a limitation, so far as we know, was in the Solicitor's Memorandum. The Solicitor's Memorandum grew out of the Solicitor's review of grandfathered patent applications and the Interior Department's search for grounds on which to reject groups of patent applications with common legal issues. There are approximately 67 grandfathered patent applications pending in the Interior Department that include millsites. Fifty-seven (57) of those seek patents for multiple millsites exceeding the number of mining claims in the application. One must remember that each of these patent applications have in their case files signed first half final certificates, evidencing that they have completed adjudications from the State offices of the BLM determining, in the case of each patent application, compliance with the mining laws. These FHFCs are persuasive evidence that at least until the 1994 Moratorium Act, the Department did not recognize a 1:1I ratio. The practice of the BLM for many years has been to issue patents to blocks of millsites" and to approve plans of operations for the use and occupancy of millsites, both without regard to acreage limitations or the ratio of millsite locations to mining claims. Indeed, necessity, use and occupancy appears consistently as the limit upon the extent of millsite patents. The conclusion we draw is that the Solicitor is simply wrong. Section 42 does not establish an arbitrary acreage limitation or ratio limitation on the non- mineral land necessary to support mining operations. The limitation, instead, is a flexible one depending on actual necessity, use and occupancy. III.Does The Mining Law Limit Use of The Surface For Mining Purposes? Although the validity of the mining claims was not an issue in Crown Jewel, the agencies in a gratuitous broadside questioned the validity of twenty-two (22) lode claims: "While the Mining Law does permit the use of a valid lode claim for facilities that are ancillary to mining on that claim, it does not permit the use of a lode claim for facilities to support mining solely on other lode claims. For this reason, the lode claims BMG has identified for mill site use likely are invalid. The only authority for that assertion cited is Teller v. United States, 1 13 F. 273 (8 th Cir. 1901). Teller involved the criminal prosecution for the cutting of timber on an unpatented placer claim for commercial purposes. The issue before the Eighth Circuit Court of Appeals was whether the defendant could use the surface for non- mining purposes. The Court affirmed the conviction and stated that the claimant only had " 'the right of present and exclusive possession' for the purpose of mining." Teller at 281. The court stated "Possession of a mining claim ... by well settled authority, confers the right, subject to certain limitations and conditions, upon a locator, to work the claim for precious metals for all time, if he desires to do so, but confers no right to take timber, or otherwise make use of the surface of the claim, except so far as it may be reasonably necessary in the legitimate operation of mining." Id. at 280. Neither Teller, nor any other case we have found, holds that the owner of a mining claim can use the surface solely on that claim. Crown Jewel, of course, was decidedly not about proposed use of mining claims for non-mining purposes. The mining law, 30 U.S.C. 26 grants the locator of a mining claim the exclusive right of possession and enjoyment" of the surface. The Surface Resources Act, 30 U.S.C. 612 (a), prohibits the use of unpatented claims for any purposes other than "prospecting, mining, or processing operations and uses reasonably incident thereto," but specifically assures rights to the surface for mining purposes. There is no indication in 612 (a) that such use is limited to support of a single claim. The language of the Surface Resources Act, the relevant regulations, 28 and commentary dealing with this issue, demonstrate that the owner of an unpatented mining claim can use the surface for mining-related purposes. Cases dealing with the surface use of a mining claim focus on whether the use is reasonably related to a legitimate mining operation. We have found no case holding that the surface of a mining claim can be used only to support mining on that one claim. Surface Resources Act legislative history demonstrates that one of the purposes of the act was to correct abuses under the mining laws by persons who located claims on public lands for purposes other than that of legitimate mining activity, i.e. obtaining title to timber, blocking access to Federal land, and building summer homes on the land, among other things." in reference to what is now 30 U.S.C. 612(a), the Committee on Interior and Insular Affairs House Report stated: "In short, this subsection recognizes essential rights - mining claims can, in the future, be used for activities related to prospecting, mining, processing and related activities, though not for unrelated activities. 1531 An author who examined the issue of use of an unpatented claim stated: A question may arise whether reduction mills and related facilities or other uses such as tailings ponds and dumping grounds, all of which have been held to be within the purview of the millsite statute, may be erected or placed on unpatented lode claims. There appears to be no clear authority that the millsite statute provides the exclusive method by which lands may be appropriated for such purposes. However, Congressional authorization for the construction of mill buildings on mineral claims may be inferred from the Multiple Surface Use Act which prohibits the use of unpatented claims for any purposes other than 'prospecting, mining, or processing operations and uses reasonably incident thereto.' It seems reasonable to conclude, therefore, that under most circumstances it would be proper for the holder of an unpatented claim to use the surface of his claim for millsite purposes. (Citations omitted.) It is interesting to note that the Surface Resources Act uses the word "reasonably incident thereto" and does not say "therein" or "thereon." Also, the list of uses prohibited by 43 C.F.R. 3712.1 are uses that are not mining related. "On the other hand, a detailed list of permissible mining related uses could not be found. Whether a particular use is permitted on an unpatented claim appears to be governed by the 'reasonableness' standard set forth in the Multiple Surface Act of 1955: mining claims may be used only for 'prospecting, mining, or processing operation and uses reasonably incident thereto. The Surface Resources Act prohibits the use of unpatented claims for any purposes other than "prospecting, mining, or processing operations and uses reasonably incident thereto," and the unsupported assertion in the Crown Jewel decision that a mining, claim can't be used for facilities to support mining solely on other lode claims is plainly wrong. V. Conclusion The Solicitor's Memorandum purports to interpret 42 of the mining law, but Crown Jewel makes clear that in reality it changes the mining law in two fundamental ways. First, together the Solicitor's Memorandum and the Crown Jewel Decision dramatically reduce surface rights under the mining law. Second, the Solicitor's Memorandum and the Crown Jewel Decision, by introducing "validity" determination to the surface management approval criteria, replace miners' rights to self initiate mining rights with agency discretion to approve or disapprove the activities necessary to obtain property rights. A. Surface Rights For mining, surface is essential. Without room for processing and other support facilities, a mine cannot be developed. The Mining Law of 1872 expressly provided for complete ownership of the surface of mineral lands by granting broad property rights to the surface, and the Surface Resources Act of 1955 confirmed those property rights for mining purposes and other purposes related to mining. The Solicitor's Memorandum drastically limits miners' rights to surface use of non-mineral land, and dubious language found in the Crown Jewel Decision could be stretched to drastically constrain miners' surface use of mining claims. B. Self Initiation The mining law opens the public lands to all citizens to enter upon unoccupied public land to prospect for mining purposes. That includes prospecting for minerals, and the use and occupancy of non-mineral land for millsites. So long as public land remains open to location under the mining laws, these prospectors do not have to first locate a valid mining claim in order to lawfully carry out these activities. These pre-location or pre-discovery activities are, of course, subject to the lawful regulation of the federal land managers through 43 C.F.R. Part 3809 and 36 C.F.R. Part 228. If the prospector is successful, the prospector might locate mining claims and millsites. The act of "locating" involves work on the ground, including prospecting and discovery (in the case of mining claims) and establishing use and occupancy for mining purposes (in the case of millsites). Performance of these acts can take many years, but all of this activity is, of course, also subject to surface use regulation by the federal land managers under 43 C.F.R. Part 3809 and 36 C.F.R. Part 228. If the locator enjoys continued success, it may open a mine, also subject to the regulatory authority of the federal land managers. All of this activity from pre-discovery work (such as prospecting, claim staking, and exploration) to development and mining is specifically authorized by the mining law in 30 U.S.C. 22. It is what is commonly called the "right to mine." It is entirely self-initiated by miners under the law, and it is not subject to discretion by the land managers. Regulation, yes, but discretion, no. The Solicitor's Memorandum and the Crown Jewel decision resting on it amount to a direct assault on the self-initiating premise of the mining law. The Solicitor's Memorandum starts with interpreting a statute that deals with the patentability of non- mineral land. It purports to interpret the statute to hold a five acre limitation, in the face of long-standing, contrary interpretation by the federal land managers themselves. In one unsupported statement, the Solicitor's Memorandum then implicates the approval process for plans of operations, a process that has nothing to do with the patenting of millsites. The ink was hardly dry on the Crown Jewel Decision before the Forest Service circulated a draft memorandum revamping its procedures for approval of plans of operations. The Forest Service draft guidance resting solely on the Solicitor's Memorandum, would require the Forest Service to first determine validity of millsites and mining claims, before approving plans of operations. The Forest Service draft referred to its action as its "new policy." The Forest Service draft memorandum totally ignored 3006(c) by requiring this validity determination, even for protects with existing approved plans of operations. The Crown Jewel Decision, of course, has nothing to do with patenting, and everything to do with the approval process for plans of operation. It rejected a plan of operations for an advance stage project on the grounds of perceived invalidity of millsites, and it did so, relying on the Solicitor's Memorandum. The result is that the plan is rejected, and so long as the Decision stands that applicant lacks sufficient surface necessary to carry out operations. In the end, the right to carry out mining activity depends on the favorable discretionary treatment of requests for a special use permits or land exchanges. As concerning is the impact of the Solicitor's Memorandum and the Crown Jewel reasoning on other projects, both advance stage projects like Crown Jewel with approved or pending plans of operations, and earlier stage exploration projects. These projects typically have discoveries on core claims, and very promising targets on others. They typically have unpatented millsites. These protects typically require more work to prove discoveries and to establish use and occupancy of non-mineral land. These must have approved plans of operations to validate" these claims and millsites. When the Solicitor interposes "validity" as a new criterion in the approval process, he arrogates discretion either to pen-nit perfecting rights under the mining law or not to permit it. VI. A Recommendation In 3006(a) the 1999 Emergency Supplemental Appropriation Act clearly removed the millsite limitation and assured approval of the Crown Jewel plan of operations. However, a more comprehensive and permanent response is warranted. Section 3006(c) merely grandfathered pending patent applications and plans of operations. The Solicitor's Memorandum has a broad, if not universal impact. All advance stage mining protects and nearly all exploration or development projects are comprised mainly of patented and unpatented mining claims and milisites. Recent public land statistics show that there are on file nearly 250 approved plans, and nearly 390 notices of surface activity under the mining laws. These approved plans and notices include the nearly 60 pending multiple millsite patent applications. Unless permanently protected by Sec. 3006(c), the millsite patent applications are likely to face scrutiny and probably contests or third-party protests under the Solicitor's Memorandum. One can expect that most, if not all of the 250 projects with approved plans, will in the future face scrutiny of proposed modification of plans. In addition, many of the same 390 earlier stage operations under notice will require in the future approvals of plans of operations. It is not clear whether the Solicitor's Memorandum, the BLM Instruction Memoranda, and the reasoning of the Crown Jewel decision might be asserted against future proposed plans of operations or future proposed modifications of existing plans of operations, and Congress should act to make certain that they do not. If Congress does not act, then the issues discussed here must be left to the courts. Even though the interpretation of the mining law in the Solicitor's Memorandum should be rejected by courts as unreasonable and in conflict with the text of 30 U.S.C. 42, the uncertainty, delay, and cost of litigation itself would be a gross injustice. Congress should act to disavow permanently the millsite limitation in the Solicitor's Memorandum, and it should extend the prohibition to all patent applications and all future plans of operations. It should make clear that the "validity" of claims or millsites cannot be used to hold hostage the approval of proposed plans of operations. Further, Congress should assure, contrary to the dictum in the Crown Jewell decision, that valid lode claims can be used for mining purposes beyond the boundaries of that one claim. I want to thank the Committee for this opportunity to appear here today. In addition, I want to assure the Committee of my continued support in the event the Committee requires further assistance.

LOAD-DATE: June 16, 1999

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