A few months ago I posted about a situation in Arizona USA where a junior exploration company apparently expected to receive drill permits in short order (a few months). Unfortunately for them and their shareholders, the project is located on unpatented mining claims in the Coronado National Forest managed by the U.S. Forest Service. I have already hinted where people could do research ("real due diligence") on the U.S. Forest Service review process, and I suspect many readers were able to figure out for themselves that the company in question is Barksdale Capital Corp. (TSX-V: BRO, OTCQB: BRKCF). Now at long last I will follow up on a few of the issues contemplated in my initial post. There is of course much more to this and perhaps I'll find time in the future to post further thoughts.
But first a quick comment about Barksdale Capital itself. I actually like both their key projects (Sunnyside and the adjacent San Antonio claim package they picked up recently) in terms of the geological potential. I believe that once (if) permits for a substantial drill program are issued, then the company could become a solid speculative exploration story. But, a very important consideration with these things is timing. To wit, any investor who was aware of the Coronado National Forest's process for permit issuance should have known the likely consequences of buying the stock earlier this year (when the company gave the impression that drilling could start later in 2019). Those who didn't know this -- the ignorant ones include brokers, analysts and many other industry players supposedly capable of conducting "real due diligence" -- hadn't actually done their homework. The following chart is offered for context:
Certainly not a disaster or one of the worst performers among the juniors in 2019. More or less dead money, unless you traded the chart (in which case you could have just as easily gained as lost). And it could continue to be dead money for at least another 18 months if receipt of drill permits in the Coronado National Forest is the main catalyst. Now let me just say that many times there is nothing wrong with dead money, such as when the rest of the sector is getting beaten up real bad. In the case of Barksdale though, you are speculating on a drill play. So it matters whether and when the company is actually, you know, drilling.
Anyway, here is the deal in a larger sense. Proper, real due diligence for mining projects that are in permitting (at any stage) requires identifying the jurisdiction and government entities responsible for environmental review and permit issuance. In particular, the past and current practice of how that government entity or agency issues permits is important to understand. The due diligence can often be started by reviewing historical activities with respect to the company's own project or other projects in the same permitting jurisdiction.
Besides news releases, regulatory filings, technical reports, news stories, blogs, etc., sometimes documents are made available by, or can be requested/ordered from, a government agency. This is especially true for projects based in the U.S., where drill programs must often undergo a more rigorous environmental review such as the one being conducted at Sunnyside. But by no means is even a very exploration friendly place like Canada immune from the necessity to conduct due diligence around the permitting of drill programs as this recent example shows. On the other hand, some places not typically known as mining friendly, such as the state of Wyoming, have a relatively permissive and simple drill permit process. This explains in part why a company like GFG Resources has been drilling in certain parts of its Rattlesnake Hills Gold Project and not others: the project consists of both state land leases and unpatented mining claims administered by the Bureau of Land Management (BLM).
In some instances it may be necessary to personally speak with government employees or local community representatives in order to obtain a complete picture of the situation. Merely talking to the company's investor relations or management will not get the job done in most cases. Even assuming that inquiries are being answered fully and honestly (unlikely), the company itself may not be fully aware of the situation unless it already has substantial experience in the particular jurisdiction.
Getting back to our Barksdale example, the U.S. Forest Service (USFS) has separate web pages for each National Forest and maintains an updated list of pending projects ("Schedule of Proposed Action" or "SOPA"). The navigation link is here: https://www.fs.fed.us/sopa/nav-page.php.
From there, you can drill down to an individual project (called "Plan of Operations", appropriately abbreviated as a "PoO"). Barksdale's Sunnyside is located in the Coronado National Forest and the latest SOPA for the first quarter of 2020 states it is currently undergoing scoping with an Environmental Assessment (EA) process expected to be completed by June 2021: https://www.fs.fed.us/sopa/components/reports/sopa-110305-2020-01.pdf. There is even a project page on the USFS website where you can review documents and public comments (see the SOPA for links).
"Scoping" as used in the context of a PoO is the process to determine what path the review takes:
(1) Categorical Exclusion (CE). No study or detailed review is required due to extremely minor, if any, impacts. Approval may contain specific conditions in addition to the regulations normally applicable to the operation. A description is here: https://www.fs.fed.us/emc/nepa/nepainbrief.shtml
(2) Environmental Assessment (EA). A limited environmental review to determine if significant environmental impacts could result from implementation of the PoO. Here is a good discussion identifying many inherent problems with the EA process: https://www.npi.org/environmental-assessment. Note the frequent mention of how the process is not consistently applied. This is key to understanding how the same set of policies could result in vast differences in review complexity and duration across government agencies. In fact, there can be large variations even between agency districts and field offices. For example in Nevada there are many more PoO's involving mining activities in comparison to Arizona. Consequently the field offices have greater resources and experience resulting in more efficient and faster reviews. A finding of no significant impacts (a "FONSI", again an appropriate abbreviation) will result in a PoO being approved. Alternatively, the scope could be changed to a full Environmental Impact Statement if significant (or cumulative, see below) negative impacts are identified.
(3) Environmental Impact Statement (EIS). The whole shebang including a detailed evaluation of cumulative impacts. Note that a cursory review of the scoping comments for the Sunnyside project will reveal that most opponents are demanding the PoO should undergo a full EIS instead of an EA due to the alleged cumulative impacts (based mainly on being adjacent to the Hermosa development project of South32). An EIS is comprehensive and requires evaluation of alternatives and/or mitigation of negative impacts.
As just mentioned above, South32's Hermosa project (acquired from Arizona Mining in 2018) sits right next to Sunnyside in the Coronado National Forest. Even though mining facilities at Hermosa are being constructed on patented (private) land, site access is via forest roads and almost certainly some infrastructure will have to be located on unpatented mining claims. This is contrary to Richard Warke's suggestion (prior to the South32 acquisition) that production could be started quickly on the patented land requiring only state permits. The authors of the technical report issued in January 2018 were at least willing to admit that:
It's likely that South32 performed some actual due diligence on jurisdictional and permitting issues (i.e. they didn't simply take Warke's words at face value) before acquiring Hermosa. Their disclosures about permitting challenges are certainly more circumspect, even negative, compared to the above excerpt from Arizona Mining's technical report. In some ways they are probably still too unrealistic that an EA blessed by a FONSI might be sufficient, but unlike Warke & Co at least they haven't promoted any potential development timelines lately. On the other hand, the cynic (and realist) in me suspects that they simply didn't understand the magnitude of the permitting challenge facing Hermosa (especially given some of the statements in their presentation justifying the acquisition, such as "pathway to development identified" and "commencing exploration on unpatented land" among others). No doubt they understand more today than they did back then, or at least now their public face is more in line with their understanding.
In any case, a few other companies have acquired U.S. projects with uncertain development and permitting paths in recent years similar to Hermosa. Are mining companies actually comfortable taking these types of risk bets on permitting hurdles for potential Tier 1 (and maybe even some Tier 2) projects even if it means enduring years or decades of delays in NEPA and legal hell? Could be, I suppose.
Having to wait 10 years or more for permits to build a mine is probably a fatal flaw for most juniors (their share structure and market cap will probably not withstand a cycle low) but it is perhaps within the strategic purview of large(r) companies like Rio, Vale, South32, even Sandfire. No doubt some of these "permitting bets" will pay off eventually, while others never will. It is better for all involved to have such projects in a multi-asset portfolio where they can be labeled something like "development option", which is what South32 now calls Hermosa.
Of course this probably applies only to Tier 1/2 projects with certain qualities making them attractive to acquirers, things like size, grade and resource expansion potential (a topic for another day). Failure to appreciate that projects can sometimes be very attractive even when daunting permit challenges are present means missing out as I did on Arizona Mining in 2016 and 2017 while the Taylor deposit was drilled and advanced toward Tier 1 status. Similarly, if and when Barksdale receives permits to drill in 2021 or later, it may be unwise to focus on the difficult permitting regime. There is a time for that, which is now ... but maybe not later. And perhaps it will be time again to focus on permitting much later, e.g. if Barksdale makes a discovery but gets orphaned on the Lassonde Curve because it isn't compelling enough to be acquired.
Let's now meander back on point and try to finish the main topic, understanding the permitting timelines and processes for different jurisdictions and agencies using the U.S. as our example. We have now seen where to research the NEPA reviews conducted by the Forest Service, but there is also the BLM, the U.S. Army Corps of Engineers as well as some other federal, state and local agencies. Similar to the USFS but not as user friendly, the BLM maintains a database of NEPA projects including dedicated pages for each project. These can be a bit tricky to find sometimes, starting at: https://eplanning.blm.gov/epl-front-office/eplanning/lup/lup_register.do.
For example, the environmental review for the expansion of the Northern Vertex Moss Mine can be found here. This mine is in Arizona just like Barksdale's Sunnyside project. But importantly, it's on BLM not USFS land. Also important is that it is not in an area targeted by environmentalist or competing interests such as the local wineries that have teamed up with "ecotourism" advocates to oppose mining activities near the southeastern corner of Arizona where Sunnyside is located. You learn this, unsurprisingly if you've paid attention to this lecture, by reading the public comment section for the Sunnyside scoping.
By contrast, the BLM project page for the Moss Mine expansion shows how quickly the scoping and EA have progressed for that project. Initiated with the BLM in April 2019, PoO documents published in August, public scoping completed in September, and the EA already completed and open for public comment. The Record of Decision (a "RoD", yet again apropos) should be issued in the next couple of months. Notably the Moss Mine expansion includes a very large drill program with over 500 drill sites and clearly has a greater potential for a negative environmental impact compared to the relatively small drill program planned for Sunnyside (a few dozen holes at a small handful of drill sites). Although the Moss Mine is an existing operation while Sunnyside is greenfield exploration, this doesn't account for the vast difference in the duration and outcome certainty of the respective NEPA reviews. What does account for the contrast is the directive, process, experience and resources of each agency (BLM vs. USFS) and field office (Kingman vs. Sierra Vista).
There are so many other things we could discuss, such as the potential impact of a recent court ruling regarding the greater sage-grouse on certain* projects in the Northwestern U.S. Perhaps another time as I've blathered on long enough for now. Hopefully I can write future installments on permitting as there are so many sidetracks and the issue doesn't really get any coverage. I'd also like to pursue some of the jumping off points identified above. Don't hold your breath though. It's a bit harder than it looks and the pay sucks. In the meantime if there is a particular project or company you'd like to discuss, leave a comment and I'll try to get you started on the path to "real due diligence".
But first a quick comment about Barksdale Capital itself. I actually like both their key projects (Sunnyside and the adjacent San Antonio claim package they picked up recently) in terms of the geological potential. I believe that once (if) permits for a substantial drill program are issued, then the company could become a solid speculative exploration story. But, a very important consideration with these things is timing. To wit, any investor who was aware of the Coronado National Forest's process for permit issuance should have known the likely consequences of buying the stock earlier this year (when the company gave the impression that drilling could start later in 2019). Those who didn't know this -- the ignorant ones include brokers, analysts and many other industry players supposedly capable of conducting "real due diligence" -- hadn't actually done their homework. The following chart is offered for context:
Certainly not a disaster or one of the worst performers among the juniors in 2019. More or less dead money, unless you traded the chart (in which case you could have just as easily gained as lost). And it could continue to be dead money for at least another 18 months if receipt of drill permits in the Coronado National Forest is the main catalyst. Now let me just say that many times there is nothing wrong with dead money, such as when the rest of the sector is getting beaten up real bad. In the case of Barksdale though, you are speculating on a drill play. So it matters whether and when the company is actually, you know, drilling.
Anyway, here is the deal in a larger sense. Proper, real due diligence for mining projects that are in permitting (at any stage) requires identifying the jurisdiction and government entities responsible for environmental review and permit issuance. In particular, the past and current practice of how that government entity or agency issues permits is important to understand. The due diligence can often be started by reviewing historical activities with respect to the company's own project or other projects in the same permitting jurisdiction.
Besides news releases, regulatory filings, technical reports, news stories, blogs, etc., sometimes documents are made available by, or can be requested/ordered from, a government agency. This is especially true for projects based in the U.S., where drill programs must often undergo a more rigorous environmental review such as the one being conducted at Sunnyside. But by no means is even a very exploration friendly place like Canada immune from the necessity to conduct due diligence around the permitting of drill programs as this recent example shows. On the other hand, some places not typically known as mining friendly, such as the state of Wyoming, have a relatively permissive and simple drill permit process. This explains in part why a company like GFG Resources has been drilling in certain parts of its Rattlesnake Hills Gold Project and not others: the project consists of both state land leases and unpatented mining claims administered by the Bureau of Land Management (BLM).
In some instances it may be necessary to personally speak with government employees or local community representatives in order to obtain a complete picture of the situation. Merely talking to the company's investor relations or management will not get the job done in most cases. Even assuming that inquiries are being answered fully and honestly (unlikely), the company itself may not be fully aware of the situation unless it already has substantial experience in the particular jurisdiction.
Getting back to our Barksdale example, the U.S. Forest Service (USFS) has separate web pages for each National Forest and maintains an updated list of pending projects ("Schedule of Proposed Action" or "SOPA"). The navigation link is here: https://www.fs.fed.us/sopa/nav-page.php.
From there, you can drill down to an individual project (called "Plan of Operations", appropriately abbreviated as a "PoO"). Barksdale's Sunnyside is located in the Coronado National Forest and the latest SOPA for the first quarter of 2020 states it is currently undergoing scoping with an Environmental Assessment (EA) process expected to be completed by June 2021: https://www.fs.fed.us/sopa/components/reports/sopa-110305-2020-01.pdf. There is even a project page on the USFS website where you can review documents and public comments (see the SOPA for links).
"Scoping" as used in the context of a PoO is the process to determine what path the review takes:
(1) Categorical Exclusion (CE). No study or detailed review is required due to extremely minor, if any, impacts. Approval may contain specific conditions in addition to the regulations normally applicable to the operation. A description is here: https://www.fs.fed.us/emc/nepa/nepainbrief.shtml
(2) Environmental Assessment (EA). A limited environmental review to determine if significant environmental impacts could result from implementation of the PoO. Here is a good discussion identifying many inherent problems with the EA process: https://www.npi.org/environmental-assessment. Note the frequent mention of how the process is not consistently applied. This is key to understanding how the same set of policies could result in vast differences in review complexity and duration across government agencies. In fact, there can be large variations even between agency districts and field offices. For example in Nevada there are many more PoO's involving mining activities in comparison to Arizona. Consequently the field offices have greater resources and experience resulting in more efficient and faster reviews. A finding of no significant impacts (a "FONSI", again an appropriate abbreviation) will result in a PoO being approved. Alternatively, the scope could be changed to a full Environmental Impact Statement if significant (or cumulative, see below) negative impacts are identified.
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| A Fonzie, not always given to PoO |
(3) Environmental Impact Statement (EIS). The whole shebang including a detailed evaluation of cumulative impacts. Note that a cursory review of the scoping comments for the Sunnyside project will reveal that most opponents are demanding the PoO should undergo a full EIS instead of an EA due to the alleged cumulative impacts (based mainly on being adjacent to the Hermosa development project of South32). An EIS is comprehensive and requires evaluation of alternatives and/or mitigation of negative impacts.
As just mentioned above, South32's Hermosa project (acquired from Arizona Mining in 2018) sits right next to Sunnyside in the Coronado National Forest. Even though mining facilities at Hermosa are being constructed on patented (private) land, site access is via forest roads and almost certainly some infrastructure will have to be located on unpatented mining claims. This is contrary to Richard Warke's suggestion (prior to the South32 acquisition) that production could be started quickly on the patented land requiring only state permits. The authors of the technical report issued in January 2018 were at least willing to admit that:
By far, the most involved permitting effort will be the preparation of an Environmental Assessment (EA) or Environmental Impact Statement (EIS) by the U.S. Forest Service (USFS), in order to comply with the National Environmental Policy Act (NEPA). A NEPA-compliant analysis may be required of the potential involvement of the USFS Coronado National Forest (CNF) in the permitting process for the project ... To minimize the environmental permitting timeline, a Plan of Operations (POO) should be submitted to the CNF, should it be necessary, as soon as possible after completion of a Pre-Feasibility Study or Feasibility Study.
It's likely that South32 performed some actual due diligence on jurisdictional and permitting issues (i.e. they didn't simply take Warke's words at face value) before acquiring Hermosa. Their disclosures about permitting challenges are certainly more circumspect, even negative, compared to the above excerpt from Arizona Mining's technical report. In some ways they are probably still too unrealistic that an EA blessed by a FONSI might be sufficient, but unlike Warke & Co at least they haven't promoted any potential development timelines lately. On the other hand, the cynic (and realist) in me suspects that they simply didn't understand the magnitude of the permitting challenge facing Hermosa (especially given some of the statements in their presentation justifying the acquisition, such as "pathway to development identified" and "commencing exploration on unpatented land" among others). No doubt they understand more today than they did back then, or at least now their public face is more in line with their understanding.
In any case, a few other companies have acquired U.S. projects with uncertain development and permitting paths in recent years similar to Hermosa. Are mining companies actually comfortable taking these types of risk bets on permitting hurdles for potential Tier 1 (and maybe even some Tier 2) projects even if it means enduring years or decades of delays in NEPA and legal hell? Could be, I suppose.
Having to wait 10 years or more for permits to build a mine is probably a fatal flaw for most juniors (their share structure and market cap will probably not withstand a cycle low) but it is perhaps within the strategic purview of large(r) companies like Rio, Vale, South32, even Sandfire. No doubt some of these "permitting bets" will pay off eventually, while others never will. It is better for all involved to have such projects in a multi-asset portfolio where they can be labeled something like "development option", which is what South32 now calls Hermosa.
Of course this probably applies only to Tier 1/2 projects with certain qualities making them attractive to acquirers, things like size, grade and resource expansion potential (a topic for another day). Failure to appreciate that projects can sometimes be very attractive even when daunting permit challenges are present means missing out as I did on Arizona Mining in 2016 and 2017 while the Taylor deposit was drilled and advanced toward Tier 1 status. Similarly, if and when Barksdale receives permits to drill in 2021 or later, it may be unwise to focus on the difficult permitting regime. There is a time for that, which is now ... but maybe not later. And perhaps it will be time again to focus on permitting much later, e.g. if Barksdale makes a discovery but gets orphaned on the Lassonde Curve because it isn't compelling enough to be acquired.
Let's now meander back on point and try to finish the main topic, understanding the permitting timelines and processes for different jurisdictions and agencies using the U.S. as our example. We have now seen where to research the NEPA reviews conducted by the Forest Service, but there is also the BLM, the U.S. Army Corps of Engineers as well as some other federal, state and local agencies. Similar to the USFS but not as user friendly, the BLM maintains a database of NEPA projects including dedicated pages for each project. These can be a bit tricky to find sometimes, starting at: https://eplanning.blm.gov/epl-front-office/eplanning/lup/lup_register.do.
For example, the environmental review for the expansion of the Northern Vertex Moss Mine can be found here. This mine is in Arizona just like Barksdale's Sunnyside project. But importantly, it's on BLM not USFS land. Also important is that it is not in an area targeted by environmentalist or competing interests such as the local wineries that have teamed up with "ecotourism" advocates to oppose mining activities near the southeastern corner of Arizona where Sunnyside is located. You learn this, unsurprisingly if you've paid attention to this lecture, by reading the public comment section for the Sunnyside scoping.
By contrast, the BLM project page for the Moss Mine expansion shows how quickly the scoping and EA have progressed for that project. Initiated with the BLM in April 2019, PoO documents published in August, public scoping completed in September, and the EA already completed and open for public comment. The Record of Decision (a "RoD", yet again apropos) should be issued in the next couple of months. Notably the Moss Mine expansion includes a very large drill program with over 500 drill sites and clearly has a greater potential for a negative environmental impact compared to the relatively small drill program planned for Sunnyside (a few dozen holes at a small handful of drill sites). Although the Moss Mine is an existing operation while Sunnyside is greenfield exploration, this doesn't account for the vast difference in the duration and outcome certainty of the respective NEPA reviews. What does account for the contrast is the directive, process, experience and resources of each agency (BLM vs. USFS) and field office (Kingman vs. Sierra Vista).
There are so many other things we could discuss, such as the potential impact of a recent court ruling regarding the greater sage-grouse on certain* projects in the Northwestern U.S. Perhaps another time as I've blathered on long enough for now. Hopefully I can write future installments on permitting as there are so many sidetracks and the issue doesn't really get any coverage. I'd also like to pursue some of the jumping off points identified above. Don't hold your breath though. It's a bit harder than it looks and the pay sucks. In the meantime if there is a particular project or company you'd like to discuss, leave a comment and I'll try to get you started on the path to "real due diligence".
Bad blood generated during the Rosemont permitting is an important piece of the permitting puzzle in the Coronado. The opposition became well-organized and learned how to work the system during the long, painful, and ongoing, permitting process for Rosemont. I’m not sure how the fact that both Hermosa and Rosemont were out of Warke’s shop plays into things. Regardless, both projects were picked up by majors and therefore should be considered successes in the Jr. market.
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