Posted by on August 30, 2019 7:00 am
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By Larry Reaugh, CEO, American Manganese, Inc.

 

 

 

 

 

 

 

In my previous piece published by The Economic Standard, I recommended that the U.S. introduce “Flow-Through Funding” to kick start exploration of critical and rare earth metals, for which the U.S. is presently dependent on imports, most notably from China.

 

 

But some in the U.S. Congress have other ideas.  Members in the Democratic-led House of Representatives have introduced a bill aimed at reforming the nation’s mining law that will undoubtedly shut down all exploration and mining of any metals.  A proposed 12.5% royalty on new production from federal lands – and federal land ownership in the American West is widespread — is extremely negative for an industry struggling to make profits in real-world conditions.  

 

 

I’m not parading a hypothetical horrible here.  I have firsthand experience of what happens when governments impose punitive super royalties on mining, practically destroying a crucial domestic industry. British Columbia (B.C.), my home province, enacted a super royalty on mining production – at the time, the second largest employer and profit center for the province.  In 1972 under the B.C. Socialist New Democratic Party (NDP), I made the decision to leave a comfortable executive position with a copper mining company to incorporate an exploration drilling contract company to service the mining industry.  I had obtained contracts with eight mining and exploration companies totaling over $1 million dollars.  Halfway through constructing three drills at a cost of close to $150,000, the NDP introduced a bill calling for a royalty of 2.5% of the “net value of every unit of a designated mineral” in 1974, rising to 5% in 1975, and a “super royalty” of 50% of the amount by which the gross value of a unit of a designated mineral exceeded 120% of the “basic value” of the unit – and left the definition of “basic value” to the provincial Cabinet.

 

 

Investors didn’t stick around to see how that 50% “super royalty” would be applied.  Capital said goodbye to British Columbia, and British Columbia said goodbye to the mining industry.

 

 

Needless to say, my million dollars in contracts melted to less than $100,000 as major and junior mining companies alike shut down all exploration in B.C., opting to go south or offshore.  That one government action destroyed the province’s mining industry for a generation.  It took changes of government and 30 years for the companies to return to conduct exploration in B.C.

 

 

It also took six to seven years for me to dig myself out of a hole.  I was forced to contract outside the province in the U.S. and Yukon.  In order to survive, I had to change my business plans and utilize my drills for drilling and blasting roads for highway and forestry road building and quarrying open pit material for private companies.  For me, it was a great learning experience in business survival, but it cost resource-rich British Columbia untold billions in wealth-creation, with all of the social benefits that would have flowed from it.

 

 

And as for the new revenues bill sponsors claim will come from a super royalty?  If mining activity follows the British Columbia precedent, 12.5% of zero is…  well, you do the math.

 

 

So let me predict the future:  If the U.S. goes through with additional heavy royalties, they can kiss their mining industry goodbye.

 

 

And unlike British Columbia, the U.S. mining sector might never recover.  Because right now, the world is at an inflection point:  More and more minerals and metals are required by the tech sector – the rare earths, the EV battery metals my company is recycling and scores more – and all too often the U.S. is dependent on China and other nations for these critical minerals.  If a new super royalty causes U.S. mine development to dry up, that dependency will only deepen.  Good luck reviving U.S. manufacturing – and building the businesses driving next generation technology – when the metals and minerals required are coming from China.  Supply chains created now will be hard, perhaps impossible, to displace later.

 

 

And so, back to that Chinese threat to suspend rare earths exports:  If the U.S. goes forward with this misguided mining “reform,” China will have a lot more metals and minerals to use as leverage.

 

 

U.S. lawmakers, take it from someone who’s lived through a super royalty fiasco:  You’ve been warned.

 

 


Larry Reaugh is CEO of American Manganese, Inc. which has developed RecycLiCo, its patented EV battery recycling process.