Mineral and Mining Legislation Highly Likely to Hamper US Business

Strategic Minerals Business Team 10 October 2012

About This Document: The Business Group created this report over a 10 day period from 27 September - 10 October 2012. Research was conducted using open source materials available on the internet. After completing a normative collaboration exercise, the business group decided to address the question: How will mineral and mining legislation affect United States businesses in the next three to five years? The team utilized the Dax-Norman scale to evaluate the reliability of sources used. The reliability scores ranged from medium to high for all of the source material. In addition, the team worked with the Peterson Table of Analytic Confidence Assessment to determine the teams overall confidence of the predictive elements contained in the report. While the team worked collaboratively on the final summary and project, each subsection was created individually. The overall confidence for the document is moderate. All facts contained in the report have been sourced and can be accessed by clicking on the corresponding hyperlink.

It is highly likely that mineral and mining legislation will hamper the US business sector in the next three to five years. Key Findings: Re-opening dormant mines will likely remain the most attractive method to procure strategic minerals domestically Mining industry must adhere to over 80 laws through 20 agencies Opening mines in the US takes, on average, seven years It is likely that the effects of the Dodd-Franks bill on conflict minerals will be farreaching, across many industries. Dodd-Franks legislation creates a competitive disadvantage for US public industries Some US industries could incur between USD 3 and 4 billion to implement DoddFranks It is likely that passage of US Congressional bills relating to strategic and rare earth minerals would improve the job market; however it is unlikely legislation will be implemented No more than 29 percent of bills sent to the floor for a vote pass the US Congress Ten strategic mineral-related bills have been introduced to the 112th Congress In spite of growing non-Chinese supply of minerals, US businesses are likely to remain heavily dependent on Chinese rare-earth sources. A number of strategic minerals, including Rare Earths, are 100 percent imported China supplies 79 percent of the rare earths used by US industries, increasing trade tensions

Table Of Contents About This Document Key Findings Highly Likely Mineral and Mining Legislation Will Hamper US Business Sector Over Next Three to Five Years Despite Extensive Legislation, US Mining Operations and Employment Likely to Slowly Grow Current Legislation, Specifically Dodd-Franks Conflict Mineral Clause, Likely to Create Competitive Disadvantage for US Industries Despite Introduction of Congressional Strategic Mineral Bills that Would Likely Spur Job Growth, Passage Unlikely Despite Trade Disputes Between US and China, US Legislation Unlikely to Pass Significant Import Restrictions on Strategic Minerals Due to Heavy American Reliance on Chinese Imports Annexes Methods and Process Charts and Figures Collaborative Intelligence Class Ranking of US Strategic Minerals US Strategic Mineral and Mining Areas by State US Strategic Mineral Exports by Quantity and Value Peterson Table of Analytic Confidence Assessment

Highly Likely Mineral and Mining Legislation Will Hamper US Business Sector Over Next Three to Five Years Executive Summary: While the US mining industry is likely to continue growing by bringing dormant mines back online, it is impeded by myriad regulations and legislation. It is likely that the Dodd-Franks legislation on conflict minerals will leave the US domestic market uneven and give foreign companies a competitive advantage. For those industries not specifically exempt from the legislation, the implementation costs is estimated between USD 3 and 4 billion. Despite further legislation having the potential to improve the job market and US businesses, it is unlikely that any of these bills will be enacted. Furthermore, even with trade-related tensions between the US and China, it is unlikely that we will see any changes in the US reliance on China for rare earths. Discussion: While the US mining industry is likely to continue growing, it is impeded by regulations and legislation. Currently, over 80 laws, overseen by 20 agencies, govern the operation of mines within the US. Both Canada and Australia have mining regulations similar to those found in the United States, but are able to bring mines online faster and cheaper than in the US. The dispersion of regulatory responsibility across different agencies, along with active protests over current and proposed mines, is likely the reason it often takes up to 10 years to get a mining permit in the US. Activists protesting new mines slow the permitting process, which discourages investment in US mining operations. However, current mines have seen an increase in production and employment over the last five years. Since opening new mines is a daunting task, it is likely mines that were shuttered are the only ones likely to open. Regulations that impact mining are not only hurting domestic mines. The US legislation, DoddFranks, affects international mines and how US businesses can utilize resources. It is likely that the Dodd-Franks legislation will leave the US domestic market uneven as there are a number of loopholes that allow companies to escape the reporting element to the SEC. As a result, some companies will lose business as they have to declare the conflict minerals they use, or incur greater costs as the use conflict free minerals. The companies that take advantage of loopholes will have an advantage over those that cannot. Furthermore, foreign companies will have a competitive advantage over US companies as they do not have to comply with the legislation and report to the SEC, which will hamper the US business sector in the next three to five years. While enacted legislation obviously impacts US business, proposed legislation is hampered by a divisive Congress. The Domestic Energy and Jobs Act has the potential to benefit small businesses by helping to address the high energy prices that are increasing the cost of doing business. The Small Business Association (SBA) claims that small business represents 99.7 percent of all employer firms that support support this bill. Additionally, passage of the National Strategic and Critical Minerals Production Act likely has the potential of recovering 22,000 rare earth related jobs. Due to the statistical percentages of favorable bills passing congress, it is unlikely that these bills will be enacted within the next three to five years.

Adding to the difficulties facing industries that utilize strategic minerals, trade-related disputes between China and the US are likely to continue. The US has filed a complaint against China at the World Trade Organization, as China has restricted its rare earth exports, which is harmful for US businesses. Although there are new rare earth production plants in the US and Malaysia, it is likely that the US will remain dependent on Chinese sources as China produces 79 percent of US rare earth metal imports. The US is now dependent on imports between 50 and 100 percent of 61 minerals to meet domestic demand. Authors: Dean Atkins | email | twitter Ivan Nemeth | email | twitter Karen Omniewski | email | twitter Leslie Guelcher, MBA | email | twitter Analytic Confidence: Analytic confidence for this assessment is moderate. Source reliabilities range from medium to high, sources were corroborated, the analysts had low expertise and worked collaboratively. The subject is moderately complex and the time available for the task was adequate.

Despite Extensive Legislation, US Mining Operations Likely to See Slow Growth Executive Summary: The United States mining industry is faced with a myriad of regulations from over 20 different agencies, which is likely to impede significant increases in mining operations. While some of the strategic minerals used by US industries are produced in and exported from the country, several of the most important minerals, including rare earths, are 100 percent imported. Mining in the US has been growing over the last three years, indicating an increased awareness of both the national dependence on critical imports and the industrys impact to GDP. While regulations impede significant growth in the industry, mines will likely continue to come online as long as it is financially feasible to profit from the operation. Discussion: Many of the issues facing the mining industry involve environmental legislation. The industry is regulated by 80 different laws that are enforced by 20 different agencies. For example, the Environmental Protection Agency (EPA) requires a lengthy permit process to expand or open any mining operation within the United States, with over a dozen regulations in place. The laws surrounding the environment include the type and amount of toxics that can be dispersed in the air, water, or as waste. Mining operations also are required to plan for reclamation of sites which adds to the number of laws that impact the industry. Because of the laws and permitting requirements, new mining operations take an average of seven years to open. The lengthy process impacts the financial feasibility for new mines to come online to remedy the net importation of many of the countrys strategic minerals. One of the main issues surrounding the legislation, is not the law itself, it is more often the opposition to new mines by activists that delay the permitting process. The vocal opposition to mining also impacts the legislation that is passed. Currently, the Mining Act of 1872 is being reviewed to potentially change the royalty payment regulations as they apply to hardrock mining, specifically gold, silver and copper. By changing these rules, the government hopes to save over USD 500 million over the next ten years. While environmentalists applaud the changes, industry experts say that adding royalty payments to hardrock mining will place the US at a competitive disadvantage by increasing costs. Considering that both Canada and Australia have similar environmental laws for mining operations as the US and are able to permit and open mines faster, it becomes apparent that activism significantly impacts mine openings in the US. Although the US imports a significant amount of its strategic minerals, the country is able to export minerals, including large quantities of both gold and vanadium. However, from 2002 through 2010 the US moved its rare earths from an export mineral to importing all needed materials. Overall, the US exported USD 86,800 billion worth of minerals in 2010. Of those exports, strategic mineral accounted for just over USD 9 trillion. The mining industry is one of the bright points in US employment with a 16 percent increase from December 2007 to May 2012. Not including coal, mining in the United States directly employed over 625,000 people in 2010, while indirectly employing an additional 1,353,405.

Employees earned nearly USD 120 billion; which, in turn, contributed to over USD 225 billion to the Gross Domestic Product (GDP). All 50 states contributed to the growth in mining through 2012. The states most directly impacted by mining of strategic minerals were Utah, New Mexico, Nevada, California and Idaho. Mineral Barite Copper Gold Lithium carbonate Magnesium compounds Magnesium metal Peat Perlite Phosphate rock Platinum-group Potash Tungsten 44 9 41 26 Class Ranking 35 27 28 14 11 45 Principal States NV and GA AZ, UT, NV, NM, MT, ID, MO NV, AK, UT, CO, WA, AZ, CA, ID, MT, NM, SD NV MI, UT, FL, DE, CA UT FL, IL, IN, IO, ME, MI, MN, NJ, NY OH, PA, WA AZ, CA, ID, NV, NM, OR FL, NC, ID, UT MT NM, UT, MI CA

Nevada is the top-ranked mining state, producing 11.6 percent of nonfuel minerals produced in the US. Of the strategic minerals identified in class, Nevada mines barite, perlite, gold and copper. While Utah ranks third in total US nonfuel mining, it mines the highest number of strategic minerals including copper, gold, magnesium metal, magnesium compounds, phosphate rock, and potash.

Analytic Confidence:
Analytic confidence for this assessment is moderate. Source reliabilities range from medium to high, sources were corroborated, analyst had low expertise and worked alone. The subject is highly complex and the time available for the task was adequate.

Current Legislation, Specifically Dodd-Franks Conflict Mineral Clause, Likely to Create Competitive Disadvantage for US Industries Executive Summary: It is likely that the effects of the Dodd-Franks bill on conflict minerals will be far-reaching, across many industries. The clauses relating to conflict minerals are highly likely to leave an uneven playing field domestically and chances are better than even that foreign competitors of US companies will end up benefitting. Despite an estimated cost of USD 3 to 4 billion in the US, retailers such as Wal Mart are unlikely to be directly affected. Discussion: The Dodd-Frank legislation is a huge bill that encompasses a huge amount of financial regulation. Its affects a predominantly to federal financial regulatory agencies and every part of the nations financial services industry. However, there are a number of clauses that spread further afield. The conflict minerals disclosures, finalised later on, spread even further than just the financial services industry. Unlike some specialized disclosure proposals; whose impacts are usually limited to certain industries, the conflict mineral provisions are expected to be farreaching. The conflict minerals in question are used in production in many industries, including; technology, telecommunications, automotive etc. Furthermore, the SEC proposed that both manufacturers and companies that contract should be covered under the bill. The SEC has estimated that 6,000 US public companies could be affected. While some companies that disclose their financial statements regularly to the SEC through 10Ks etc, a lot of private companies and those that have secured loopholes, will not have to do so. This is going to leave an uneven playing field in the US as some companies are forced to disclose their vices of mining in the conflict torn DRC, while others dont have to do anything to comply. The idea is to have companies disclose if their use of Tungsten, Tantalum, Tin and Gold comes from slave driven mines. In disclosing this fact, consumers will surely switch to products that are not exploiting others. However, there is a gaping loophole which legislators have shied away from. Instead of specifying that manufacturing companies must disclose the information with no exceptions, they state that it doesnt apply if a company affixes its brand, mark, logo or label to a generic product. Therefore, as long as the supplier of Tungsten or Tantalum is not listed in the US stock exchange and required to report and companies source from a third party, there will be no need to disclose anything - as it is a generic product. As a result, this will leave the playing field uneven in the US unless everyone can take advantage of this loophole by sourcing from a third party. The Dodd-Frank legislation means that foreign competitors of US companies might end up gaining an advantage. The legislation mainly affects those that file 10-K's and 8-K's to the SEC. Therefore, companies that do not file these reports will not have to disclose the source of their minerals and whether they are conflict minerals from the DRC or not. Take General Motors for example, they file 10-K's with the SEC and will be required to state where their minerals are sourced from; whereas Volkswagen and Daimler will not have to do so. Meaning that they will

not be shamed publicly into finding alternate sources. The automotive industry is not the only industry affected. US companies who file fully with the SEC in the technology, jewelry and aerospace industries may suffer as their competitors are not necessarily having to file and disclose. Further to the third party manufacturer loopholes that are available; retailers also have their own escape route. Retailers lobbied to be exempt from disclosing conflict minerals in a range of products including; smartphones, light bulbs and footwear. Originally, the SEC said the legislation would apply to any products that are sold under the retailers brand name. But eventually this was mitigated down to exempt retailers from the legislation. The Dodd-Frank legislation will be costly and retailers such as Wal Mart, Target and Best Buy have escaped unharmed from this new bill. Analytic Confidence: Analytic confidence for this assessment is moderate. Source reliabilities range from medium to high, sources were corroborated, analyst had low expertise and worked alone. The subject is highly complex and the time available for the task was adequate.

Despite Introduction of Congressional Strategic Mineral Bills that Would Likely Spur Job Growth, Passage Unlikely Executive Summary: It is likely that passage of US Congressional bills relating to strategic and rare earth minerals would improve the job market and related US businesses in the next 3 to 5 years. Three bills currently under review include, but are not limited to; H.R.4402: National Strategic and Critical Minerals Production Act of 2012, H.R. 4480: Domestic Energy and Jobs Act, and S. 710: Hazardous Waste Electronic Manifest Establishment Act. Despite the fact that as many as ten strategic mineral-related bills have been introduced into the 112th Congress, it is unlikely that these bills will be enacted during the current administration. Discussion: On 9 November 2011, Congressman MIke Coffman (R-CO) established a rare earth caucus to promote Congressional awareness of, and solutions to, the issues concerning rare earth minerals. The 15 bipartisan caucus members aim to educate their colleagues in order to boost domestic rare earth production, restart US mining projects, and set policies to boost related industries. On 19 April 2012, H.R.4402:National Strategic and Critical Minerals Production Act of 2012, co-sponsored by Coffman, was introduced in the House and passed the House on 12 July 2012. According to the president and CEO of The Association For Rare Earth (RARE) Adam Falkoff, The National Strategic and Critical Minerals Production Act is perhaps the most significant job creation bill to be brought to the floor this year. Passage of this legislation is an important step toward recovering the 22,000 rare earth-related jobs the US lost since the 1980s. In the Senate, S.710: Hazardous Waste Electronic Manifest Establishment Act was passed with changes on 11 September 2012. The Environment Protection Agency (EPA) has required carbon copy documents to accompany waste materials when transported for storage or disposal. S.710 will implement an electronic system for tracking this waste, cutting red tape and providing safe accounting for hazardous materials. According to Representative G.K. Butterfield, the Congressional Budget Office (CPO) estimates that this program will yield net annual savings for industry and states of more than USD 100 million. According to the EPA, the United States generates almost 2.5 million tons of electronic waste per year. Used electronics have materials in them that can be recovered and recycled, reducing the economic costs and environmental impacts of securing a processing new materials for new products. According to Kevin McCarthy (R-CA), The Domestic Energy and Jobs Act (DEJA) will help job creators in the energy industry invest more in American-made energy and American-made jobs. The DEJA is a package of bills, all which passed the House with bipartisan support. It is intended to encourage job growth and lower energy costs. Included in the DEJA, section 301, Planning for American Energy Act of 2012 are strategic minerals that are necessary for the Nations energy infrastructure. The aforementioned Acts that have been presented and passed with bipartisan support in the corresponding Congress all would likely spur job growth in the US However, it is unlikely that

these bills will pass based on the statistic outlook of previous bills. According to govtrack.us, just 29 percent of all House bills and 21 percent of all Senate bills reported favorably by committee in 2009-2012 were enacted. Analytic Confidence: Analytic confidence for this assessment is moderate. Source reliabilities range from medium to high, sources were corroborated, and analyst has low expertise and worked alone. Subject is complex, and the time available for the task was adequate.

Despite Trade Disputes Between US and China, US Legislation Unlikely to Pass Significant Import Restrictions on Strategic Minerals Due to Heavy American Reliance on Chinese Imports Executive Summary: Rare earth related trade disputes between US and China are likely to continue to focus on Chinese export restrictions on these elements. US legislation is unlikely to restrict imports from China or increase import duties on Chinese rare earth elements. In spite of growing non-Chinese supply of minerals, US businesses are likely to remain heavily dependant on Chinese rare earth sources. Discussion: Rare earths are exceptions in the Chinese and American trade disputes as these products are never related to anti-dumping charges. The relations between the two countries became tense because the US has levied anti-dumping and anti-subsidy duties on energy-related products. China did not hesitate to file a complaint against the US at the World Trade Organization (WTO) claiming that the anti-subsidy measures negatively affected USD 7.3 billion in Chinese goods. Conversely, the US filed a WTO complaint against China for limiting exports of rare-earth elements and for levying import duties on American cars. Refined rare earth imports to the US increased from USD 161 million in 2010 to USD 696 million in 2011. The import tariffs on rare earths range between 0 and 5.9 percent. Currently, there are no initiatives to increase these tariffs or impose any import restrictions. Conversely, Chinese export restrictions affect US businesses harmfully; the US business interest is to secure the continuous flow of rare earths from China. The US Congress has called for an increase of domestic rare earth production to decrease dependence on China. There are new production plants like US Molycorp in California - the biggest outside China - and Australias Lynas in Malaysia. Still, China accounts for 79 percent (the second place France for 6 percent) of US imports of rare earth metals, compounds, etc. The US is now dependant on imports for 100 percent of 18 minerals and it is 50 percent reliant on import on 43 minerals to meet domestic demand.

Selected critical minerals US net import reliance, 2010

Analytic Confidence: Analytic confidence for this assessment is moderate. Source reliabilities range from medium to high, sources were corroborated, analysts had low expertise and worked alone. The subject is highly complex and the time available for the task was adequate.

Annex A -- Methods And Processes: Using Gmail - our group shared contact information among ourselves. This included e-mail address, phone numbers, twitter handles and google plus information. That way, we had multiple methods of communication. We chose to follow the normative collaboration method for flushing out the the mineral-related legal issues impacting US businesses. Upon completion of the collaboration in Mindmeister, we split the topic into four segments, one for each team member. We then used Google Docs to create, share and work on our individual topics, or SFARs, while also allowing our team members to follow our work and collaborate where necessary. We then used Google Docs collaboratively to compile our LFAR. While this was done in person, by simultaneously using a collaborative tool allowed us to work at a fast pace. The document evolved quickly and was then edited and formatted for consistency. We planned to have everyone review each SFAR for content quality control, while using one person to act as the formatting editor for the LFAR. The use of these collaborative tools was essential as we have very different schedules. The ability to work on things separately was useful but the ability to work simultaneously without being in the same room was essential. The combination of Google Docs and working in person were perfect for our needs and allowed us to work without any communication delays that we would have found with e-mail or texting. We also utilized the Comment feature within Google Docs to communicate questions with each other, allowing for each of us to review the other team members work efficiently. We set up a template for the project to ease the formatting process, which helped make the final editing move quickly.

Annex B -- Charts and Figures Collaborative Intelligence Class Ranking of US Strategic Minerals Percentages derived from Mineral Commodities Summaries 2012 Class rank 1 2 3 4 5 6 7 9 10 11 12 15 16 17 19 20 21 22 23 24 25 26 27 28 30 31 32 35 36 37 38 39 40 41 42 43 Mineral Yttrium (RE) Cerium (RE) Erbium (RE) Samarium (RE) Terbium (RE) Lutetium (RE) Lanthanum (RE) Platinum-group Gallium Manganese Indium Cobalt Thorium Vanadium Germanium Rubidium Selenium Rhenium Cesium Strontium Quartz crystal (industrial) Tungsten Copper Gold Antimony Arsenic (trioxide) Thallium Barite Asbestos Bismuth Tellurium Perlite Iodine Potash Nickel Nitrogen (fixed), ammonia % import 100 100 100 100 100 100 100 88 99 100 100 75 100 80 90 100 N/A 87 100 100 100 36 35 36 87 100 100 78 100 89 N/A 27 99 83 47 41

44 45 46 47 48 49

Phosphate rock Magnesium metal Peat Chromium Calcite Aragonite

13 35 63 60 N/A N/A

Based on 2010 numbers

US Strategic Mineral Mining Areas by State Compiled from the 2010 Minerals Yearbook Statistical Summary Mineral Gold Copper Gold Perlite Gold Magnesium compounds Perlite Tungsten Gold Magnesium compounds Magnesium compounds Peat Phosphate rock Barite Copper Gold Perlite Phosphate rock Peat Peat Peat Peat Peat Potash Peat Copper State Alaska Arizona Arizona Arizona California California California California Colorado Delaware Florida Florida Florida Georgia Idaho Idaho Idaho Idaho Illinois Indiana Iowa Maine Michigan Michigan Minnesota Missouri Mineral Copper Gold Platinum Barite Copper Gold Perlite Peat Copper Gold Perlite Potash Peat Phosphate Rock Peat Perlite Peat Gold Copper Gold Magnesium metal Magnesium compounds Phosphate rock Potash Gold Peat Peat State Montana Montana Montana Nevada Nevada Nevada Nevada New Jersey New Mexico New Mexico New Mexico New Mexico New York North Carolina Ohio Oregon Pennsylvania South Dakota Utah Utah Utah Utah Utah Utah Washington Washington Wisconsin

US Strategic Mineral Exports Compiled from the 2010 Minerals Yearbook Statistical Summary 2009, 2010 Export Quantities 2009 Quantity 2,095 59 49,300 41,427 3,003 1,336,000 3,788,889 1,288 19,640 69,893 69,870 128,695 77 33,000 8,192 82,640 705,450 9,185,000 2,761 12,801,700 2010 Quantity 2,547 171 109,000 67,147 3,044 1,544,000 5,315,200 1,512 14,791 70,848 55,010 129,300 69 42,000 7,111 99,240 812,990 7,880,000 4,627 13,772,200 Change in Quantity 452 112 59,700 25,720 41 208,000 1,526,311 224 -4,849 955 -14,860 605 -8 9,000 -1,081 16,600 107,540 -1,305,000 1,866 970,500

Mineral or product Antimony Asbestos, includes re-exports Barite Chromium Cobalt Copper Gold Iodine Magnesium Magnesium compounds Manganese Nickel Peat Perlite Phosphate rock Platinum-group metals Potash Rare earths Tungsten Vanadium In thousands of metric tonnes

2009, 2010 Export Value Change in Value 30,050 57,920 -8,498 459,200 2,820 2,320 7,600 38,100 1,170 724 6,010 10,731 -1,340 256,600 3,899 44,422 2,552 1,120,000 2,570

Mineral or product Antimony Asbestos, includes re-exports Barite Chromium Cobalt Copper Gold Iodine Magnesium Magnesium compounds Manganese Nickel Peat Perlite Phosphate rock Platinum-group metals Potash Rare earths Tungsten Vanadium In thousands of dollars

2009 Value 57,950 100,770 96,600 2,271,200 6,250 5,820 10,200 79,900 NA 70,720 3,694 25,620 54,080 8,570 2,745,000 49,526 86,644 24,569 1,351,800 11,660

2010 Value 88,000 158,690 88,102 2,730,400 9,070 8,140 17,800 118,000

NA NA 71,890 4,418 31,630 64,811 7,230 3,001,600 53,425 131,066 27,121 2,471,800 14,230 9,097,423

Derived from the 2010 Minerals Yearbook Statistical Summary data

Peterson Table of Analytic Confidence Assessment Analytic Confidence: Moderate Use of structured analytic method(s) in analysis No structured analytic methods were used Overall source reliability All sources were rated either medium or high Source corroboration/agreement Source were corroborated Level of expertise on subject/topic and experience Analysts expertise is low Amount/type of collaboration Analysts worked in a team Perceived task complexity Task was moderately complex Perceived time pressure Time to complete the project was adequate