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US Mining Industry Outlook Brighter
Prospecting and Mining Journal
June 2004

Smaller exploration and development companies, many of which were international, were driven out of the U.S. during the Clinton era and are now looking for signs that it's safe to come back. Policy changes, rising metal prices, a weakened dollar and a more positive hiring forecast may be the most attractive set of signs the industry has seen in years. These factors have combined to make it a good time for mining exploration outfits to consider returning to the U.S. and for investors to return to the metals market.

Policy changes ease regulatory pressure

Recent Bush administration reversals of Clinton policy, although slower than expected, have diminished regulatory pressure enough to give the domestic mining industry a long needed boost. Troubling to the Bush administration was the rich resources available domestically that were not being mined due to unnecessary government restrictions.

Permitting issues have been cited as a primary obstacle keeping domestic and foreign companies from exploration here. As a result of public policy decisions during the Clinton years, federal agencies began imposing greater restrictions on mining ventures, which created financial impossibilities for new projects. In some cases, the federal permitting process took as long as eight years or more, making it a burden few companies could withstand. According to the National Mining Association, over the past 10 years, the number of active mining claims decreased by nearly 80% and the number of operations declined by over 60% in the past 10 years.

The Bush administration's policy directives are meant to encourage a reliance on domestic resources rather than an increasing dependence on foreign sources. Besides having a positive impact on the industry and the economy, mining metals abundant in the U.S. would minimize the disruption of raw materials due to circumstances that may occur abroad. For instance, a disruption in the gold supply alone could have a considerable impact on industries as diverse as medical products, telecommunications and computers.

Despite a stable economic and political environment, the country has been at a disadvantage due to regulatory barriers. The end result was that policy usurped geology in the United States. In a 2003 survey conducted by mining consulting firm Behre Dolbear & Co. Inc., of the 25 countries with large investments in mining and exploration activity, the U.S. ranked disturbingly low in terms of permitting expense and time investments. Of the 25 countries surveyed, only two countries ranked lower and four other countries ranked the same as the U.S. The ranking represented a modest gain in permitting ability. The Catch-22 is that the U.S. is one of the top five nations for quality metals and minerals.

The net effect of the policy reversals will be a more inviting permitting situation, which will reduce the complexity, time delays and excess costs. Projections are already encouraging, showing a 13% increase in the mining market by 2007, although this follows a 31% decline between 1998 and 2002. An October 2003 report by Datamonitor Industry Market Research also indicates a "strong underlying demand for metals and minerals from several major U.S. industries will ensure the long-term survival and strength" of the industry.

Favorable Factors Stimulate Investment Climate

In addition to more favorable political and regulatory climates, increasing metal prices and a weaker dollar help to strengthen the investment environment. Although the capital markets seem to be recovering, metal prices are reaching long-time highs.

This contradiction is being created by a falling U.S. dollar, inflation fears and continued uncertainty about the global economic recovery process. Surging metal prices offer investors a means to stabilize their portfolios, while the cash infusion helps financially strengthen industry players. Whether they invest in actual metals or mines, it is a good hedge against inflation.

In a December 2003 report, Datamonitor stated, "investment managers are expected to offer clients an increasing exposure" to equities in mining companies to capture the impressive rise in precious metals.

In the Fraser Institute's annual survey of mining companies, Nevada was rated the best North American mining area in terms of investment climate. Utah also showed an upward trend in overall investment attractiveness.

When denominated in U.S. dollars, metals are attractive commodities in the international market. As a result, strong demand in China for high quality metals is also invigorating the industry.

Hiring Projections Complete The Picture

Over the past 10 years, the industry has lost nearly 30% of its domestic jobs. An indication that mining jobs are returning to the U.S. is the final signal that the industry is on the rebound. A Manpower Employment Outlook Survey for the second quarter of 2004 stated hiring in the mining industry was expected to be consistent with the first quarter, which was more positive than a year ago.

The U.S. is one of the most enriched nations for metals and minerals and the one of the lowest cost gold producer in the world. This administration's policy decisions, along with favorable market conditions, are creating a new excitement for the future of domestic mining.

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Daniel Jensen is a shareholder with the law firm Parr Waddoups Brown Gee & Loveless (Salt Lake City, UT). He has practiced natural resources law since 1988, with emphasis on mining, oil and gas, water, public land and administrative law. He previously worked as a mining engineer for Shell Oil Company. He can be reached at (801) 532-7840.