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Mr.KrisHeftonChiefOperatingOfficerandDirector

VANEMinerals(US)LLC

TestimonyBeforetheSubcommitteeonEnergyandMineralResourcesMiningInAmerica:TheAdministration’sUseofClaimMaintenanceFees

June13,2013ChairmanLamborn,RankingMemberHoltandmembersoftheSubcommittee,thankyoufortheopportunitytoprovidetestimonyonBLM’sMiningClaimFee.MynameisKrisHefton,andIamChiefOperatingOfficerandDirectorofVANEMinerals(US)LLCofTucson,Arizona.Bywayofbackground,mycompanyholds675unpatentedminingclaimsintheKaibabNationalForestandtheBLM’sArizonaStripDistrictwithintheareawithdrawnfrommineralentrybytheObamaAdministrationonJanuary9,2012.Ibeganmycareerasauraniumgeologistinthisarea34yearsagoandamoneofonlyahandfulofpeoplehavingdetailedknowledgeofarea’suraniumresources.BeforeIfocusonminingclaimholdingfees,Iwouldliketosharewiththesubcommittee,abriefhistoryofthebackgroundofthepoliticalagreementpertainingtomininginnorthernArizona,theimpactsonminingandtheeconomyandwhatournorthernArizonaprojectwouldhavehadifwehadbeenallowedtoproceedtofullyexploreanddevelopourminingclaims.In1983,thelateChairmanofthisCommittee,Arizona’sMorrisUdallinstructedtheuraniumindustrytositdownwithenvironmentalistsandotherimpactedgroupstodeterminewhichlandsshouldbemadewildernessandwhichshouldremainopentouraniummining.Afterayearoftortuousnegotiations,anagreementwasreachedwhichledtothesigningofPublicLaw98‐406,theArizonaStripWildernessActof1984.Thatbillsetaside387,000acresforBLMandForestServiceWildernessandspecificallyreleased540,000acresformultipleuseactivitiesincludinguraniummining.ChairmanUdallontheflooroftheHousehailedtheagreementashistoricandatruecompromisewhereneithersidereceivedeverythingtheywanted,butbothsidesbenefited.AllsidesunderstoodthatMiningofthesebrecciapipeswouldgoforward.FreshmanHousememberJohnMcCainwaspartofthatagreementwhichstoodthetestoftimerightupuntilthisAdministrationabrogatedit.ItwasbasedonthislawandthesuccessfultrackrecordofyearsofsuccessfuluraniumminingthroughtoreclamationinthisareathatIrecommendedmycompanyinvestintheArizonaStripdistrict.Nowmovingtoourday.HadVANEandtheotherexplorationcompaniesbeenallowedtogoforward,wewouldhavecollectivelyemployed400peopledirectlyandbeenresponsibleforindirectlyemployingsome700otherswiththeeconomicmultiplierthataccompaniessuchprojects.Thesearehigh‐paying,skilledjobsthatwouldprovideaboontoanareadominatedbytouristjobsthataverageclosetothenationalpovertylevel.Themineralvalueoverthelifeoftheprojectedminingactivityisestimatedat$2.3billion.TheironyofthewithdrawalisthatthegeologicformationsfoundinnorthernArizonaknownasbrecciapipesprovideforthemostenvironmentallybenignminingofuraniumanywhere.Effectively,whattheAdministrationdidwastowithdrawthemostenvironmentallyclean

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uraniumminesthatalsohappentocontainthehighest‐gradeoresofanyoftheuraniumminesfoundintheUnitedStates.Inresponsetothehueandcryofenvironmentalgroups,theAdministration,throughitswithdrawaloftheselandsmadeAmericaevenmoredependentonforeignsourcesofuraniumeventhoughtheyknewourdomesticutilitiesalreadyimportover90%oftheuraniumcurrentlyusedinAmerica’s102operatingreactors.TheNuclearEnergyInstitute(NEI)estimatesthatthewithdrawnnorthernArizonabrecciapipedepositsat375millionlbsofuraniumoxide,containtheenergyequivalenttopowerallthehomesinColoradofor115yearsandNewJerseyforover74years.Mr.Chairman,theUnitedStateshasmorethanenoughuraniumtoprovideforallitsneeds.Infact,30yearsago,America’snuclearreactorsuseddomesticuraniumtoprovidefor100%(ALL)ofourdomesticneedsforvirtuallythesamereactorsweoperatetoday.Ithasbeenapolicydecision,thatis,apoliticaldecisiontoimportover90%ofoururanium.TheObamaAdministration’swithdrawalofthesemorethan1millionacreshastogodownas one of the dumbest moves ever made for public policy. However, an EnvironmentalImpactStatement(EIS)waspreparedaspartoftheprocesstowithdrawaloftheselands.TheNationalParkService’sownscientificstaffitselfconcluded;“It ismy opinion that the DEIS grossly overestimates the potential for impacts towaterresourcesofGrandCanyonNationalParkandtheColoradoRiverfromuraniumminingandexplorationon landsadjacent to thepark. The reality is that theorebodiesare relativelysmalland isolated, surroundedby low‐permeabilitygeologic formations. It isunlikely thatthere couldbeanymigrationofdissolvedmineralsorother contaminants frommine sites,particularlyviaagroundwaterflowpath.Previousstudieshavebeenunabletodetectsignificantcontaminationdownstreamofcurrentorpastminingoperations,e.g.theHackCanyonmines.(TheexceptionstothisstatementistheOrphanMineandHornCreek.TheOrphanMineisanold,unclaimedminesiteatthesouthrimofthecanyon.Waterflowsthroughtheabandonedmine,flushingmineralsintoHornCreek.ThisisinnowayasuitablecomparisontothehydrogeologicsettingorconditionsexpectedatpotentialminesitesevaluatedintheDEIS.)TheorebodiesoccurinassociationwiththeHermitFormationandareabout1000feetabovetheregionalwatertable.GeologicformationsbetweentheorebodyandthewatertableareprimarilysiltstoneandmudstoneoftheHermitFormationandSupaiGroup.Theseformationshaveverylowpermeability.Thereisnoexplanationofhowpotentialcontaminantsmighttravelfromthemineareastotheregionalwatertable,butitisassumedthatsomehowthatoccursandthencontaminantsflowmanymilesthroughtheregionalaquiferwithnodilution,nodegradation,andnoattenuationtodischargeatsprings.Evenunderthoseconditions,thereisonlyaminusculechangeinconcentrationofthemostlikelycontaminants(arsenicanduranium)atspringsthatdischargefromtheregionalaquifer;andthesechangesarefurtherdilutedbymixingwithsurfacewatersdownstreamfromthedischargeareas.

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Theremaylegitimatereasonstobeconcernedaboutpotentialuraniumminingoperationsinareasadjacenttothepark,butadverseimpactstowaterresourcesisnotoneofthosereasons.Thisisobviouslyatouchycasewherethehardsciencedoesn’tstronglysupportapolicyposition.Probablythebestwayto“finesse”thiswouldbefallbackonthe“precautionaryprinciple”andtakethepositionthatinabsenceofevenmorecompletecertaintythatthereisnoconnectionbetweenuraniumminesandregionalgroundwater,weneedtobecautious??ItsoundsliketheDEISisbasicallyheadinginthatdirection.”WhilethereisnoscientificbasisintheEIStoprovethatanenvironmentalemergencyexistedorthatawithdrawalofthismagnitudewasjustified.TheEISevenleftouttheArizonaStripWildernessActof1984whenitlistedallthelawsandstatutesbywhichthiswithdrawalwouldbejustified.TheEISimpliedthatthesuddenappearanceofthousandsofnewminingclaims,over5,000tobeexact,wascauseforsomethingtobedone.WhenIwasinvolvedinexplorationearlyinmycareertherewereover20,000miningclaimsinthisarea.WeconcludedfromourworkatthattimetheareawherewethoughthadthebestpotentialandIincludedamapthatdepictsthisarea.IalsoincludedamapfromtheEIS(Figure3.4‐1)thatillustratesthedensityofminingclaims.ItisinterestingtonotethattheboundaryoftheEISisdrawnaroundthoseclaims.ThereisnoindicationthatabufferzonewasbeingconsideredastheGrandCanyon‐ParashantNationalMonumentwascompletelyignored.Anothermapincluded(Figure3.15‐2),illustratesbythenumberofexistingroadswithintheboundary,thatitisnotparticularlyremoteorinaccessible.And,whereisthescientificevidencethatjustifiesthisboundarydecision?Bytheway,the$2.3billionfigurementionedearlier,wasquotedfromtheDraftEIS,butwasremovedfromtheFinalEIS.ItisappallingthatSecretaryofInteriorKenSalazar,noranyonefromtheObamaAdministration,whowereinvolvedinmakingadecisiontowithdrawover1millionacresoflandthatwouldimpactthelivesofmanyindividualsaswellasimpactthegovernment’sowntaxbase,botheredtovisitthearea,speakwiththepeopleandindustrywhoweregoingtobeimpactedbythisdecision,andverifywhethertheenvironmentalgroups’claimshadanyscientificbasis.Andfinally,thewithdrawalwasannouncedevenbeforetheFinalEISwasreleased.ItisafactthatanumberofthesebrecciapipeuraniumdepositslocatedonlandsalreadyclosedtominingincludingGrandCanyonNationalParkareerodinguraniumintotheaquiferandColoradoRiverwatershed.Thebrecciapipeslocatedonlandsnotclosedareslowlyleachinguranium.ConsideringthattheprimaryconcernisabouturaniumleachingintotheaquiferandColoradoRiverwatershed,cananyoneexplaintomewhyitissobadthatthesedepositsarebeingmined,theuraniumremoved,andhauledoutofstate?Thisisaremediationprojectthatdoesn’tcostthetaxpayeracent,butevengeneratesrevenue.Andtotopitoff,noone,ortheenvironmentisbeingharmed.Thesefactsdidn’tstoptheAdministrationfromcarryingoutitspoliticalagenda.Sadly,weallshouldhavelearnedthestoryaboutChickenLittle.FortheObamaInteriorDepartment

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togrosslyexaggeratetheimpactsofuraniumminingontheGrandCanyonNationalParkinthiswayandyetignoreitsownscientificfindings,showsthatChickenLittlestilllives.ItbegsthequestionastowhyweshouldweeverbelievetheDOIandthisAdministration?Mr.Chairman,SecretarySalazarissuedasegregationorderonJuly21,2009,whicheffectivelyshutdownallactivitiesexceptforongoingminingatafewlocations.Thelanguageoftheorderstated;“Neitherthesegregationnoranywithdrawal,however,wouldprohibitongoingorfutureminingexplorationorextractionoperationsonvalidpre‐existingclaims.”ThetruthofthismatteristhattheDOIvieweda“valid”claimasoneonwhichaneconomicdepositwasalreadyprovenandthatitplannedtoconduct,attheclaimowner’sexpense,avalidityexamonanyclaimwhereaprojectwasproposed.DOIclearlystatedinadvancethatifeconomicquantitiesofmineralcouldnotbedemonstrated,theclaimwouldbedeclaredinvalid.Inotherwords,youhadtoproveyouhadaminewithoutbeingabletodotheworkrequiredtoshowproof.Exceptforthefewlocationsmentioned,alltheprojectsonalltheotherclaimswereinthecorroborationorconfirmationstagetodetermineifaneconomicdepositexisted.Therefore,explorationactivitiesceasedandemployeesandcontractorswerelaidoff.However,theselandsremainopentothemineralleasing,geothermalleasing,andmineralmaterialslaws.Asyouknow,thiswithdrawalhastriggeredanumberoflawsuitschallengingthelegalityofthewithdrawalaswellassuingformonetarydamages.VANEandtheotherclaimholdersinnorthernArizonawererequiredbyBLMtocontinuetopaytheannualmineclaimholdingfeesbyeachSeptember1st.Thewithdrawalitselfdidn’tformallyoccurforanothertwoandahalfyears,butwehaveallbeenrequiredtopaysinceJulyof2009,tohaveanyhopeofrecourseandsincethatdate,paymentshavetotaled$2.75million.Ifweholdontoourclaimsthroughtheentire20yearwithdrawalperiodplustheearlierperiodheredescribed,VANEandtheothercompanieswillhavebeenrequiredtopay$8.3millioneventhoughwewillhavebeenprohibitedfromminingtheseclaimsanddeposits.Tounderstatewhatseemsobvious,thisseemsinequitabletous.WerespectfullyrequestthattheCongresstakeactiontoremedytheinequity.Onewaytorepairthisinequitywouldbetosuspendallminingclaimholdingfeeswithinwithdrawnareasaswellascost‐recoveryfeessuchasvalidityexamsconnectedwithminingclaims.Anotherquestionhere,whichtheCommitteeshouldaddress,ishowBLMmanagesminingclaimreceipts.Oftheapproximately$60milliondollarsgeneratedannuallybyminingclaimpayments,BLMspends$38milliontoadministerthemininglaw.Mindyou,Iamnottalkingabouttotalgovernmentreceiptsfromhardrockmining,evenwithoutroyalties,thatamountisinthebillionstakingintoaccountcorporateandpersonalincometaxespaidtothetreasury.

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Thecurrentprogramgeneratessufficientrevenuetoprocessfederalexplorationandminingpermits,yettheBLMandForestServicearenotoriouslyslowinprocessingtheseapplicationsandencourageapplicantstocovertheseexpensesinordertoobtainpermitsinatimelymanner.ThishaslargerimplicationsontheminingclimateintheU.S.Forexample,aninternationallyrespectedmineralsindustryadvisoryfirm,BehreDolbear,preparesanannualreportrankingthetwenty‐fivelargestmineralproducingcountriesintheworld.Thelatestreportisentitled2012RankingofCountriesforMiningInvestment‐‐Where“NottoInvest”andisattachedandincorporatedbyreference.BehreDolbearconsiderssevencriteriainrankingcountries:

Thecountry’seconomicsystem Thecountry’spoliticalsystem Thedegreeofsocialissuesaffectingmininginthecountry Delaysinreceivingpermitsduetobureaucraticandotherdelays Thedegreeofcorruptionprevalentinthecountry Thestabilityofthecountry’scurrency Thecountry’staxregime

WhiletheUnitedStatesrankshigh(eightoraboveonaonetotenscale)foritseconomicandpoliticalsystem,theUnitedStatesreceivedarankingofthreewithrespecttosocialissuesaffectingmining;rankedlastwithPapuaNewGuineainpermittingdelays(scoring2ontheonetotenscale)andaratingoffourwithrespecttoitstaxregime.BehreDolbearconsidersthetotaltaxesapplicabletoaminingproject,includingincometaxes,severanceandexcisetaxes,dutiesandimposts,androyalties.TheUnitedStatescorporatetaxrateis35%plus,which,whencombinedwithstatelevieseffectivelymakeitthehighestcorporatetaxrateintheworld.ThishighcorporatetaxrateprovidesasignificantdisincentiveformineralinvestmentintheUnitedStates.Agrossroyaltywouldonlyexacerbatethisdisincentive,andanynetroyaltymusttakeintoconsiderationtheoverall“governmenttake.”Thebenefitsofagrossroyaltywouldlikelyendupbeingcancelledoutbecauseincometaxpaidwoulddecreaseaccordinglywhenthisroyaltyisdeductedasanoperatingexpense.AccordingtotheDolbearstudy,whenthe“governmenttake”fromcombinedtaxesandroyaltyreaches50%,aminingproject’seconomicviability,duringperiodsofnormalcommoditypricing,isthreatened.

Inaddition,theAdministrationdoesn’tseemtounderstandthatourlifestyleandstandardoflivingismadepossiblebymining.Furthermore,itdoesn’tunderstandthattheproductionofsolar,windandgeothermalelectricitycapacityrequiresminerals.TheAdministrationproposeskeyfundingincreasesforrenewableenergydevelopmentwhileproposingnewfeesandtaxesonmineralproduction,proposinganewleasingsystemandenactingpoliciesthatwilladverselyimpactthesecurityoftenurenecessarytoattractmineralinvestment,andfailingtoaddresssignificantworkforceissuesintheMiningLawprogram.AsImentioned,Iamoneoffewpeopleknowledgeableonthebrecciapipedistrictandasweretiresogoestheexpertise.Thebottomlineisthatallenergyproduction,includingrenewableenergyrequiresminerals,andlotsofthem.AndtheyneedAmerican

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minerals–unless,ofcourse,wearewillingtotradeourunhealthydependenceonforeignoilforadangerousdependenceonforeignsourcesofcriticalminerals.In1995,theUnitedStatesGeologicalSurveyreportedthattheUnitedStateswasimportrelianton43nonfuelmineralswitha$51billionvalue.In2011,theU.S.hadbecomeimportrelianton67minerals(anincreaseof4over2010),and100%relianton19mineralswithavalueof$90.4billion.TheU.S.ismoreimport‐dependenton43non‐fuelmineralsthanitisoncrudeoil.Unfortunately,thePresident’sbudgetandlegislativeproposalswilldiscouragemineralproductionintheUnitedStatesandfurtherincreaseourNation’srelianceonforeignsourcesofminerals.IcanspeaktothedisincentivetoinvestinminingintheU.S.firsthand:

(1) Ispentover10yearsofmygeologycareerlivingandworkingoverseasbecauseIcouldnotfindworkintheU.S.AndImadebettermoney!

(2) ThisincidentIspokeofinnorthernArizonahasallbutclosedVANE’soperationsintheU.S.andwenowfocusonMexicowherewehavesuccessfulminingandmillingoperationsandminingisprotectedbyMexico’sconstitution.(VANEisofcoursenotaloneinitsviewtooperateoutsidetheU.S.)

(3) TheabilityofpoliticstosonegativelyimpactbusinessasinthecaseofthewithdrawaloflandsinnorthernArizonathatsobadlyimpactedmycompany.ThemandateoftheBLMistoresponsiblydevelopthemineralresourcesonpubliclands,yetapoliticaladministration,asinthecaseofthenorthernArizonawithdrawal,cancircumventlawtoadvanceitspoliticalagendaandwithnoapparentaccountability.

IwanttoworkintheUnitedStates.Thisismyhome.Iwouldliketoseethepolicyonminingchangetoencouragedomesticinvestment.Mr.Chairmanandmembersofthesubcommittee,thankyouforthisopportunitytotestifyonanimportantissueforourcountry.‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐Attachments:3maps

Comparison of Withdrawal Area to Resource Potential

St George

Fredonia

Kanab

• Past exploration has shown that < 1/2 of the district has pipes with uranium mineralization

• The rest of the pipes are probably barren

• Current exploration is focusing on blind or unmapped pipes

OPEN

OPEN

Not all of the district has mineralized pipes

AREA OF KNOWN URANIUM MINERALIZATION

Chapter 3 Northern Arizona Proposed Withdrawal Final Environmental Impact Statement

3-228 October 2011

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Northern Arizona Proposed Withdrawal Final Environmental Impact Statement Chapter 3

October 2011 3-43

Figure 3.4-1. Regional location map.