CHAPTER 2 MANAGEMENT STRATEGIES: LEGAL CONSIDERATIONS, POLICY, AND PRECEDENT

• Jurisdiction: United States

Idle Mining Properties
(Sep 1998)
CHAPTER 2
MANAGEMENT STRATEGIES: LEGAL CONSIDERATIONS, POLICY, AND PRECEDENT
Frank D. "Bruno" Hegner
Rio Tinto Exploration Group
Vancouver, British Columbia Canada

I. Introduction

A. The Canadian Juniors and Their Impact on the Minerals Industry

B. Historical Impact of Mine Closures

II. Preliminary Considerations

A. Operational

1. Partial or complete shutdown?

B. Financial

1. Loss of cash flows

2. Debt service

3. Loss of NPV

C. Regulatory

1. Quantification

D. Personnel

III. Decision Point

IV. Notices

V. Personnel

A. Warren Act

B. Notice Period

C. Permanent Closure

D. Penalties for Non-Compliance

VI. Regulatory Considerations

A. Bureau of Land Management

1. Nonoperating mode

2. Extended period of time

3. Interim reclamation

B. USFS

1. Temporary cessation

C. State Reclamation Statutes

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D. Interim Reclamation

E. Compliance

1. NPDES

a. Technology based

b. Water quality based

c. Stormwater

2. Air

3. Bonds

4. Monitoring

VII. Land Considerations

A. Trespass and Negligence

B. Leases

C. Joint Ventures

D. Special Problems Related to Unpatented Mining Claims

E. Water

VIII. Operational Considerations

A. Contract Review

B. Power Considerations

C. Equipment

D. Detox

E. Control or Removal of Hazardous Substances

F. Financial Control

IX. Conclusions

MANAGEMENT STRATEGIES: LEGAL CONSIDERATIONS, POLICY AND PRECEDENT

BRUNO HEGNER

DRIVING FORCES OF THE JUNIOR BOOM

• New exploration frontiers in the wake of communism's collapse

• Strong base metal prices fueled by emerging economy demand

• 3 years of gold price stability in $375-$400 range reversing 5 year down trend

• Explosion of institutional interest in Canadian juniors

• Computerization makes Canadian resource stocks more accessible

Today's Situation

• Bre-X and other scandals have affected junior company credibility

• Gold price dropped to 19 year low on Aug. 27

• Many base metals at 20 year lows

• VSE Composite Index hit historic low on July 30 and continues to decline

• Bear market will continue until...?

HECLA / LAKESHORE 1977-78

• Mining operations suspended due to low commodities prices

• All mining rights extinguished

• Supply contracts created ongoing liabilities

• Transfers of interest unsuccessful

• 1,640 person workforce laid off

• Survival of company in question, financial restructuring necessary

HECLA / LAKESHORE 1977-78

• Exploration curtailed

• Several senior staff leave, corporate staff significantly reduced

• Physical plant sold to Noranda for a fraction of original cost

PRELIMINARY EVALUATION

• Operations

What will underlying land agreements allow?

limited production

complete suspension of operations

• Financial

loss of anticipated cash flows

long term liabilities / financing agreements

• Regulatory

compliance

reclamation

• Personnel

FINANCIAL ANALYSIS

• Consideration of commitments

investors

local community

land position

suppliers

employees

• Consideration of long-term liabilities

property, plant and equipment

inventories

long-term debt

reclamation

taxes and salaries

FINANCIAL ANALYSIS

• Asset worth is equal to the discounted value of future net cash...