Monday, March 9, 2015

Jay Mtn Wilderness Mining: Appraising Lot 8’s Value

NYCO's open pit mine as seen from Bald Peak in 2013Now that the issue of mineral exploration on “Lot 8” in the Jay Mountain Wilderness by NYCO Minerals has left the courts, it remains for the mining company to complete its exploratory drilling, ongoing since the turn of the year. Changes in the DEC’s temporary revocable permit for the exploratory test drilling, announced on February 18, are as follows:

“The TRP will be amended to reduce the total pad locations from 21 to 10 and eliminate the third phase. The maximum number of holes drilled will decrease from 21 to 18. Elimination of the third phase will result in a substantial reduction in the number of trees cut for access corridors and pad sites. Other amendments to the TRP include relocation of two pad sites and changes in the water system to allow winter operation.”

Naturally, Adirondack Wild and other parties to the last year’s litigation are pleased that the permit has reduced the overall footprint and extent of test drilling and resulting damage on the public’s Forest Preserve, and we took this into account in deciding not to appeal the Essex County Supreme Court decision that went against us in December.

In speculating about the reason for fewer test holes required to conduct the exploration, one is led back to the rationale for NYCO’s, Governor Andrew Cuomo’s and DEC’s intense public lobbying in 2012-2013 – to gain the authority to determine the concentrations of the mineral wollastonite on Lot 8 sufficient to persuade NYCO to proceed with a land exchange and full scale mining on Lot 8 – or not. NYCO will only spend money on the minimum amount of test drilling it needs to spend to reach a determination of value.

What will the test drilling reveal? Who will interpret it? Will that information and data be made public? To review, here is a summary of the provisions of Senate 4688 that passed by both chambers of the State Legislature in 2013 and which preceded the public’s vote on the constitutional amendment Proposition 5:

“NYCO would share the data and information derived from the exploratory drilling   with   the  Department   of   Environmental  Conservation. The Department would then appraise the value of Lot 8. The State would then convey Lot 8 to NYCO and  in  exchange  therefore NYCO  would  then convey to the Department for inclusion in the Forest Preserve at least the same number of acres as is contained in  Lot  8, provided  that the legislature would be required to determine that the lands to be received by the state would be equal to  or  greater  than the  value  of Lot 8, and provided that in no event would the value of the land to be conveyed to the State be less than one million dollars. The Department’s appraisal of Lot 8 and the one million  dollar  floor value  will  ensure  that  the  exchange parcel coming into the Forest Preserve will total significantly more than 200 acres.

If  exploratory  drilling  occurs  but  the  land  exchange  does  notultimately  occur,  NYCO  would be required to convey to the State for incorporation into the Forest Preserve acreage that would be at  least the  same  number  of  acres  that  was  disturbed  by the exploration activity, provided that the legislature would be required to determine that the lands to be received by  the  state  would  be  equal  to  or greater than the value of disturbed acreage, and such conveyance would be subject to legislative approval.”

So, we are left with the apparent assurance that all test drilling information and data will be delivered to DEC which is charged with the job of conducting an appraisal of Lot 8 to determine its value. It may conduct two separate, independent appraisals and we are told DEC will probably outsource the appraisal job. There are dozens of variables to be sifted in reaching a fair market valuation of Lot 8. Factors probably include the concentration of the mineral within the ore which increases revenue and the amount of waste rock that must be disposed of, which reduces revenue. Will the public know all the methods and assumptions applied to that valuation? That remains to be seen, but rest assured Adirondack Wild and others will actively seek it.

During the legislative discussion of the amendment in 2013, NYS DEC assured members of the Legislature in a white paper that:

“The exact acreage to be received will depend on DEC’s independent, thorough appraisals of both Lot 8 (which will factor in the value of wollastonite under the property) as well as the property to be provided to the State in the exchange, and the adoption of legislation by the State legislature authorizing the actual exchange. The State would likely receive well more than 1,000 acres of land in any exchange. The land to be received for inclusion in the Forest Preserve would be in the vicinity of Lot 8 and provide greater natural resource, recreational and environmental value than Lot 8. The land to be received would also improve access to the Forest Preserve in the area of the Jay Mountain and Hurricane Mountain wilderness areas and Taylor Pond Wild Forest.”

So, we have DEC’s assurance that the value of wollastonite under Lot 8 will be a factor in the appraisal, along with other factors .  And we have the assurance in legislation that the value of lands to be received in exchange must be no less than $1 million.

Is it likely that there’s one million dollars worth of wollastonite under the surface of Lot 8? I’d say that’s a safe bet and a low estimate, or NYCO would never have agreed to the legislative language.

But how much more is there?

Valuing the wollastonite ore under those trees on Lot 8 is a tricky, specialized business, one that depends on many assumptions and factors. Some of those factors are business plans known only to the nonmetallic mining industry and to NYCO’s parent company, S&B Industries headquartered in Greece, which in turn is owned by Imerys, “the world’s largest industrial minerals miner.”

Yet, we know something about the factors involved in establishing value at NYCO Minerals because the company took the Town of Lewis to court some years ago contesting the taxable assessed value of its open pit mining operation. NYCO got its assessment lowered considerably in Supreme Court, and then the Town appealed that decision to the Appellate Division Third Department. In upholding the lower court in 2007 (Matter of NYCO Minerals v. Town of Lewis, AD3d, 2007) the Appellate Court reviewed the relevant factors in valuing the property for tax purposes:

  1. amount of ore reserves; 2. annual sales of finished product in tons and the amount of ore mined to produce that tonnage; 3. sales price per ton and total gross sales per year; 4. a royalty rate applied to the sales numbers to project annual royalty income; 5. an appropriate discount rate applied to the future annual royalty income to derive a present value of that income; 6. the value of the property at the end of the holding period and discounting the proceeds of the resale to present value; 7. calculating the property value by adding up the present value of each annual royalty payment and the resale proceeds.

It comes as no surprise that the assessment disagreement between the Town of Lewis and NYCO centered mostly on factor # 1, the amount of wollastonite ore in the ground. Each party had their own geology experts who arrived at very different amounts of reserve and thus very different values. The Town’s expert put the value north of $5.5 million at the end of a ten year holding period (2012) based on the remaining wollastonite reserve. NYCO put the value at $120,000 based on zero reserves after the ten year holding period and a simple $600 per acre rate for rural land in Essex County.  NYCO argued that the Town failed to take into account the economic feasibility to extract the ore. NYCO’s geologist explained that “wollastonite is found in bands of varying thickness separated by layers of other minerals (interburden) and covered by caprock and soil (overburden) and that, since wollastonite does not separate neatly from the layers of inter and overburden, the top and bottom three feet are routinely removed from each band extracted, considerably reducing the actual usable reserves.” NYCO also argued that the Town failed to account for property set-back requirements which reduced the amount of recoverable ore.

The Appellate Court admitted that “conflicting evidence was presented on these as well as the other contest issues,” but deferred to the lower court and to NYCO’s experts. The result was that good neighbor NYCO Minerals got its taxable assessed value cut by about ¾ at the expense of the Town of Lewis (for the contested tax years of 2000-2002) because its geology experts apparently appeared more impressive than the Town’s.

Valuation for appraisal purposes is different than for assessment purposes, of course, and comparable sales information is usually a fundamental ingredient in an appraisal. But what if the one million dollar minimum value required by the law is actually, to pick a number, a five million dollar appraised value ?  Like the Town of Lewis decision, the issue may well revolve around the estimate of recoverable wollastonite reserves. NYCO may vigorously fight a larger estimate. In a negotiation, will DEC stand up for the public or for NYCO?  A fair appraisal could result in much more than the 1000-acre minimum guaranteed to the Legislature by the DEC in 2013.

Given all the complexities of this appraisal, the State Legislature cannot fail but call on the State Comptroller’s office for guidance since the Comptroller will ultimately have to sign off on the valuations. Under no circumstances should discovered mineral reserves under Lot 8 be undervalued and the public’s Forest Preserve come out as losers in an appraisal and resulting land exchange.  The Legislature should not hesitate to expect that additional lands be added to an exchange if a proper appraisal of Lot 8 significantly exceeds the one million dollar minimum appraised value.

Equally important is an evaluation of the natural resource and wilderness values of any lands to be received in exchange. It turns out that Lot 8 has tremendous natural resource and wilderness values and that these values were either dismissed or significantly discounted by NYS DEC prior to passage of the amendment. Every possible effort should be made during the implementation phase to assure the public that lands to be conveyed by NYCO are competently and independently assessed and certified to have equal or greater ecological value than those on Lot 8.

Photo: NYCO’s open pit mine as seen from Bald Peak in 2013.

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Dave Gibson, who writes about issues of wilderness, wild lands, public policy, and more, has been involved in Adirondack conservation for over 30 years as executive director of the Association for the Protection of the Adirondacks, executive director of Protect the Adirondacks and currently as managing partner with Adirondack Wild: Friends of the Forest PreserveDuring Dave's tenure at the Association, the organization completed the Center for the Forest Preserve including the Adirondack Research Library at Paul Schaefer’s home. The library has the finest Adirondack collection outside the Blue Line, specializing in Adirondack conservation and recreation history. Currently, Dave is managing partner in the nonprofit organization launched in 2010, Adirondack Wild: Friends of the Forest Preserve.

5 Responses

  1. Ed Zahniser says:

    Thanks, Dave, for this very careful laying out of the issue of valuation and the need to keep an eye trained on the NY DEC to see whose interests they will see fit to protect in this rare instance of setting aside the historic constitutional protection of forest preserve lands and of designated Wilderness.

  2. Chris says:

    As demonstrated in Lewis, and every other resource-from-the-government deal across the country (and Indian reservations) they will never pay fair value for what they take. That’s the beauty of their business.

  3. Chris says:

    Underpayment is part of their business model. See any other resource-from-the-government deal anywhere.

    • Paul says:

      Sure, they have a fiduciary duty to maximize value for their shareholders, they certainly can’t overpay. The amendment has the term “at least 1 million dollars” to deal with that issue.

  4. Victor Forbes says:

    There’s a word for this I learned in Jamaica — “F**kery” — and who, may I ask, controls the Greeks in this one? Would love to follow that money chain.

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