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Vol. 15, No. 13 Week of March 28, 2010
Providing coverage of Alaska and Northwest Canada's mineral industry

Mining News: Pebble CEO: What the hell is going on?

Shively names redundant regulatory system, abuse of unbalanced judicial as two contributors to declining Alaska, U.S. economies

Shane Lasley

Mining News

A conviction-filled speech delivered by Pebble Limited Partnership CEO John Shively at the March 18 Resource Development Council of Alaska breakfast tackled the question on the minds of many in the audience: “What in the hell is going on in this country?”

Though Alaska has not been hit as hard as the rest of the nation, the longtime Alaskan points to increased unemployment and dropping home sales as indications of the state’s weakening economy.

He said rural Alaska is being hit especially hard as evidenced by a massive migration of people from outlying villages into urban centers.

“Rural Alaska, a place where I have spent a lot of my career, the out-migration is tremendous,” Shively said. “I am pretty well convinced that when we see the results of the 2010 Census you are just going to see a continuation of that.”

Shively said regulatory hurdles and the use of litigation by environmental groups as a tool to delay and stop projects are two issues hampering the economy in Alaska and across the United States.

The mining executive told the crowd that he fears the United States will be degraded to a Second World country in his lifetime if these issues are not resolved.

“Regulatory stupidity” abounds

The former Department of Natural Resources commissioner attributes a portion of the state’s problems to its regulatory framework. He points to a 2009 Fraser Institute study that ranks Alaska behind competitors like Nevada, Mexico and Canada’s Yukon Territory when it comes to its regulations.

“We are behind places like Peru when it comes to regulatory inconsistencies and duplication, which makes business hard to do,” Shively said. “More importantly we are well behind some of the people I consider to be some of our major competition; places like Australia, places like the Canadian provinces, places like Nevada and Wyoming.”

Referring to 2007 and 2008 studies by the Canada-based think tank on the regulatory climate of oil and gas, Shively pointed out that Alaska’s ranking is getting worse compared to other jurisdictions around the globe.

“We have gotten worse, and in some ways significantly worse in just one year. This, in my mind, is what is making it difficult to do business in Alaska, in terms of what’s contributing to the fact that we are losing jobs in this state,” Shively said.

The former Holland America Cruise Line vice president used the water discharge regulations placed on large ships in Alaska as an example of “regulatory stupidity” in the state.

Regulations enacted after Alaskans voted in a ballot measure in 2006 places strict water discharge regulations on large cruise ships in Alaska waters.

“What was, to me, sort of tragic about this is the cruise ship industry has the cleanest discharge of anybody in the state,” Shively said.

He told the audience that the quality of the water discharged from cruise ships far exceeds the wastewater from the municipalities visited by the tourist vessels.

“We need to have environmental standards that make common sense. The standard ought to be: Is it harming the environment? It shouldn’t be some magic number that someone thought up in a voter initiative or in a government bureaucracy,” he said.

Alaska is expected to loose 140,000 visitors in 2010 due to cruise lines pulling ships out of Alaska and redeploying them in less costly waters.

In an effort to turn ships back toward the state, Alaska Gov. Sean Parnell told cruise line executives at a March convention in Miami that Alaska is open for business.

“Hell, we ain’t open for business, when you give people impossible standards for them to meet that aren’t even close to what people who live here (must) meet. It’s just wrong,” Shively exclaimed.

Permit delays a trend

Referring to a Feb. 16 Wall Street Journal article titled, “Permits drag on U.S. mining projects,” Shively said regulatory woes are not just an Alaska issue but also a national problem.

According to the article, “Obtaining the permits and approvals needed to build a mine in the United States takes an average of seven years, among the longest waiting time in the world.”

“We (Pebble Partnership) were hoping on three (years) so my board of directors was a little nervous about that,” Shively quipped.

The piece, written by Robert Guy Matthews, points out that though mining jurisdictions like Australia and Canada have environmental laws on par with the United States, their permitting process is much shorter. One to two years in the case of Australia.

“Australia and Canada have very high standards, but they have a process that allows people to make their investment, get their permits and get on with the job,” the Pebble leader said.

Shively chides Trustees

The Pebble CEO laid into environmental groups and other non-governmental organizations for their use of the judicial system to hamper Alaska’s economy.

Singling out Trustees for Alaska, an Alaska-based environmental law firm, Shively said: “They were certainly set up in business, as far as I am concerned, to shut down the state. Their vision of the state is to have a couple of park rangers, a couple of environmental lawyers and a judge around.”

Shively said a lawsuit filed by Trustees for Alaska against the Alaska Railroad and Usibelli Coal Mine-affiliate, Aurora Energy Services LLC, “could be the end of our coal export program in this state.”

The lawsuit, filed in January, alleges the railroad and Aurora are violating the Clean Water Act due to unpermitted discharges of coal into Resurrection Bay from a ship loading facility in Seward.

Shively chided Trustees for Alaska for its February appeal of a water discharge permit needed to develop the Aqqaluk, the next deposit to be mined at the Red Dog zinc-lead mine. He explained that the appeal centered on total dissolved solids in water discharged from the mine, an issue for which the law firm had previously sued and settled with Red Dog miner, Teck Resources Ltd.

Dumping a bottle of Perrier on the floor, he explained that the expensive mineral water has more calcium carbonate than is allowed to be discharged from the Red Dog Mine.

Shively also was instrumental in the development of Red Dog during 17 years working for NANA Regional Native Corp., owner of the land where the high-grade zinc deposit is located.

“Of all of the things that I have done in my career up here, Red Dog is one of the things I am proudest of,” Shively said. “It is an excellent example of what you can do with mining, and it is an outstanding example of what you can do with local hire.”

Out of balance

Shively said the use of litigation to block projects is not unique to Alaska or the mining industry. From an airstrip at the Seattle-Tacoma International Airport in Washington state to a bridge in Washington D.C., lawsuits are being used as tools by NGOs to block projects across the United States, he said.

The Pebble CEO told the crowd that the litigation and appeals process in the United States is balanced in favor of the NGOs trying to stop development in the country.

He said the only reward a company receives by winning litigation is the right to continue with the project it had in the beginning, yet if the company is defeated in court it stands to lose the project and the money invested in it. On the other hand, the worst case scenario for the NGO is a delay in the project it opposes, and in the best case it stops the project and the litigant gets paid.

The Pebble leader said the groups bringing the lawsuits usually litigate several issues in a single suit in the hopes that one will stick. He said these litigants need to be held financially liable for every issue they lose.

“If someone has 12 issues and they only win one, they ought to get a little compensation for the one, but they also should have to pay the government and the developer something for the other 11. It might make them think twice and it might take some of the clutter out of the judicial system,” Shively said, drawing a round of applause.

He said the groups should be held similarly responsible for permit appeals.

“People get a free ride when they appeal and that should stop,” the mining executive said. “Those of us who go and work on permits; we pay for a lot of what government does when our permits are being processed. There is no reason that people who appeal also should pay.”

In addition to tort reform, Shively said NGOs should be required to report how they are funded.

“If they are public interest groups the public ought to damn well know where their money comes from,” he said, raising another round of applause.

The Pebble CEO said the most important solution to repairing the issues facing the state and national economies is the education of our youth. He said the school systems all too often teach the kids about the evils of resource extraction, but the students are seldom exposed to the importance of those resources to everyday life and the economy.

“I think all these are very serious issues; they are clearly serious for the state, I think they are serious for the nation. I think that if we don’t do something about these kinds of issues, if there aren’t some changes made, in my lifetime we will drive this nation into being a Second World country and that would be tragic,” Shively concluded.

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