Smoking Gun: ExxonMobil admits plan to take advantage of Fukushima to market gas
As an undergraduate, I was trained to read between the lines and to interpret the words on the page in context with the author’s background and intent. With that in…
I came across an interesting saga yesterday. My introduction came from a May 14, 2015 opinion piece in the Wall Street Journal titled The Greens’ Back Door at the EPA. (Hint: If you don’t have a WSJ subscription, copy and paste the article title into the Google search engine. That should provide you a link to the article via the Journal’s “free pass” program.)
On February 28, 2014 the Environmental Protection Agency (EPA) issued a preemptive veto of the Pebble project, citing its authority under Section 404(c) of the Clean Water Act. That action was initiated even though the developers had not yet filed a permit request; it was ostensibly done in response to a petition filed by native American tribes in the region near the deposit.
It has recently been revealed that EPA staff members, with the assistance of well-funded “conservation” groups, helped the tribes and their legal representatives to draft their petition, internally creating the public pressure to act.
The tale that Kimberly Strassel tells about the EPA’s decision to stop the Pebble mine development was similar in many ways to the story of how the EPA developed the specifics of its state-by-state CO2 emissions rule. It even includes some of the same influencing actors, including the NRDC. The gist is that EPA conducted both a traditional publicly accessible interaction program with certain stakeholders while at the same time accepting far more influential advice and strategy development from selected “green” stakeholders.
While taking action to respond to the government’s decision to prevent it from extracting the minerals from its properly constituted claims, the Pebble Partnership discovered indications of close, non-public cooperation between EPA staff members and activists/lawyers who were fighting the mine development project. It’s worth noting that the Pebble Partnership is led by Tom Collier, who served as Chief of Staff/Chief Operating Officer for the Interior Department from 1993-1995 (under President Clinton).
As indicated by the headline of Strassel’s piece, she believes that the collaboration happened because the EPA staff members share a “green” ideology with the activists that are fighting the mine. Here is her concluding paragraph.
And not soon enough. If the EPA’s Pebble action becomes a model for the agency, it would become the effective zoner of every piece of land in the country—federal, state, private. It’s a terrifying thought, and why we have rules guaranteeing every petitioner a fair and open hearing. Pebble was bulldozed in a secret, ideologically driven collusion between greens and government. That is a scandal worthy of resignations.
As is often the case, my interpretation of the motivating factors behind the stated actions differs from the one offered by the conservative commentator.
I don’t believe ideology is a significant motivating factor in government decisions and I’m pretty cynical about the motives that drive the decision makers at large, well-funded, pressure groups like the NRDC. Thirst for money and the power that it gives those who control it is a more common motive, even if it often takes a little more digging to identify it.
People and organizations loudly proclaim their ideals, but they act on their interests. This particular story does not have much to do with atomic energy, but it is an enlightening analog that would fit into the smoking gun series. It involves actions to limit the supply of valuable commodities by established suppliers of those commodities.
Coordinated private actions that stop competitors from entering a market are illegal under US antitrust laws, but they can provide incredible money-making opportunities. There are big risks associated with taking actions that violate antitrust laws, including the possibility of being forced to pay treble damages. That is what makes green activism so useful to market manipulators; if “environmentalists” place massive resource deposits off limits, few people think about invoking antitrust statutes.
Like Ms. Stassel, they credit ideology, listen to what people say and see the battle as being one of industry versus the greens. They overlook — or purposely obfuscate — the possibility that the real battle is between established suppliers and an enterprising interloper. They fail to see that the new supplier might be working to improve the human condition — and make some money — by developing increased supplies of a useful material.
It’s quite possible that you’ve never heard of the Pebble prospect. (I only learned about it yesterday.)
The Pebble deposit is a copper – gold – molybdenum mineral resource located in a remote area of southwest Alaska, about 200 miles from Anchorage, 65 miles from the nearest tidal water, and 20 miles from the nearest community. It’s on state-owned land that has been specifically reserved for natural resource extraction enterprises.
The Pebble deposit was discovered in 1987. During the subsequent 28 years, an increasingly intensive exploration program has identified the impressive parameters of the prospect. Here is a slide from a recent company presentation that indicates the scope of the deposit in terms of the quantity of its contained resources. The background photo for the slid also provides some indication of the local terrain above the deposit.
The deposit is owned by Northern Dynasty Minerals Ltd., a Canadian publicly traded company (NYSE: NAK, TSX: NDM). This is not an investment advice article, but the 3-year NAK stock price chart is relevant to the story. It’s also worth noting that Northern Dynasty Materials Ltd. has 105 million shares outstanding, which tells you that the market capitalization has dropped by close to half a billion dollars in the past three years, even as the exploration efforts have identified more and more copper, gold, molybdenum and silver.
In September 2013, Anglo American gave up its 50% ownership in the property, even though it had invested $573 million and six years of work in the exploration and development planning program. Anglo American spokesman denied that the pricing trends for gold, one of the more valuable components of the Pebble deposit, had anything to do with its decision.
It’s probably just a coincidence that the price of gold dropped by 25% in the 9 months before Anglo announced its decision. That price collapse occurred after a nearly 10-year period of steadily increasing gold prices — going from $300 to $1800 per ounce. Not only would the product of the Pebble deposit be worth less than expected under the new price trend, but the amount of gold produced by the mine could easily be enough to push the market price down even further.
As an established market leader with existing supplies, Anglo American lost interest in adding to what appears to be a near-term oversupply situation.
At the time of Anglo American’s withdrawal from the project, a spokesman from Northern Dynasty Minerals Ltd. put on a brave face and told reporters that his company believed it had sufficient resources to get the mine permitted, and still had a strong, experienced mining company as a major investor. At that time Rio Tinto, one of the world’s largest mining corporations, still owned 19% of the company’s shares.
In April 2014, soon after the EPA issued its preemptive veto, however, Rio Tinto announced that it was also withdrawing from the project and giving its shares to two Alaskan non-profit organizations. As a huge company with many existing interests in Alaska and a desire to continue maintaining good relationships in the state, that action can be seen as a sensible effort by a good corporate citizen. It can also be seen as recognizing that it’s not worth “fighting city hall” or the federal government.
Rio Tinto, though also a gold producer, is better known for its world wide interest in copper, which is also one of the major sources of value found in the Pebble deposit.
Like gold, copper prices have dropped substantially in the past couple of years.
Analysts provide differing explanations, but a falling price in any commodity can generally be attributed to a shift in the balance between supply and demand to a point where there is more supply chasing an insufficiently growing demand.
In early December 2014, Rio Tinto held an investor’s day. The Economic Times of India carried a Reuters report about that event titled Rio Tinto sees copper market oversupplied in medium term that included the following quote.
Rio Tinto’s head of copper said on Thursday he expects the copper market to remain oversupplied in the medium term and this could put pressure on prices.
“As we move into 2015 the copper industry will continue be oversupplied in the medium term which will drive continued volatility in price,” Jean-Sebastien Jacques, chief executive of the copper division, said during Rio Tinto’s investor day.
A few weeks later, on December 15, 2014, the Financial Post published a story titled BHP Billiton, Rio Tinto move to dominate in copper. Here are the first few paragraphs from that article.
Rio Tinto and BHP Billiton are amassing vast copper holdings in a push to capture a greater chunk of the US$140 billion world market, apparently aiming to squeeze out high-cost producers just as they did in the global iron ore business.
Separately and in joint ventures, Rio and BHP intend to mine millions of additional tonnes of copper, despite seeing an oversupplied market for the next few years.
“For both companies, this is about wielding the greatest influence possible over the global marketplace,” said Gavin Wendt, senior resources analyst for Sydney-based consultants MineLife.
As of April 2014, Rio Tinto no longer had any desire to be a minor partner in a project that would substantially increase the supply of copper and contribute to additional price declines. By December 2014, it was clearly explaining to investors that it would benefit from less copper being put into the market by other players.
Here’s the smoking gun part of this story. One of the non-profit groups that was the beneficiary of Rio Tinto’s munificent decision to give away 19% of the stock in Northern Dynasty Minerals Ltd. was the Bristol Bay Native Corporation Education Foundation. That organization was already a publicly active opponent to the mine’s development; its leader is one of the “Greens” who has been working with the EPA to encourage it to stop the project. Here is a quote from an April 7, 2014 Washington Post article.
Jason Metrokin, chief executive of the Bristol Bay Native Corporation, is a fierce opponent of the mine who has spent more then three years urging the EPA to prohibit the project on the grounds that it could harm the environment and local fishery.
Within months after Rio Tinto gave it almost 10% of the ownership in the project it was fighting, Bristol Bay Native Corporation Education Foundation sold its shares for $6.5 million.
Though the Bristol Bay Native Corporation stated that it would use that money to further its educational programs, money is fungible. Giving a non-profit group $6.5 million for its usual activities frees up the same amount of money that can be directed at saying “no” to development. That kind of “charitable contribution” can be a high rate of return investment for a company with a documented desire to restrict commodity supplies.
Six and a half million dollars can pay a lot of lawyer fees and lobbying expenses. It can buy a huge amount of refreshments for hungry, emotional, sign-carrying activists.
There is one more aspect to this story worth mentioning because it relates to a previous story about the EPA’s odd methods of calculating cost versus benefits. According to the EPA’s Section 404(c) letter of February 2014, the total sales of the fishing industry its veto is designed to protect was $300 million in 2009. A portion of that total sales figure provided income to 11,000 full and part time employees. Even if there were no other expenses involved in fishing other than paying workers, that means that the average take for the workers was about $27,000 for the year in question.
In contrast, a national economic impact study produced by IHS Global Insights in 2013 concluded that developing the Pebble mine would contribute $2.3-$2.7 billion annually to the US GDP and might support as many as 15,000 full time positions. That development phase would last for 25 years with a subsequent additional period of 20 years with increased employment and revenues.
Using logical methods of computing cost and benefits, the possibility of giving up a portion of $300 million for $2.3-$2.7 billion would be a “no brainer.” (It is exceedingly unlikely that developing a mine more than 120 miles upstream of Bristol Bay would lead to a complete collapse of the entire fishery.) Unfortunately, the politicized EPA doesn’t operate logically; it operates to protect politically powerful interests.
PS – Sorry for my recent lengthy silence here.
Among other excuses, I have been working on a much more complicated tale of a particular effort by a group of commodity suppliers, with the help of interested governments, to control a new supplier in order to inflate profits and market prices. This post is part of my practice in learning to tell complex stories without boring people or causing them to issue a dismissive “conspiracy theorist” condemnation.
Rod – Welcome back! I missed your posts, but it’s good to hear you’re still digging into resource business stories. This story reminded me of one of the Thorium Energy Alliance Conference presentations. IIRC it was Joe Sestak (Joe Sestak – Governing, Logistics, Rare Earth Minerals & Thorium @ TEAC5 ) who said “Doing good is not a business plan.” Your work shows that claiming to do good can certainly derail business plans.
The charts of commodity prices reminded me of Gail Tverberg’s analyses at her blog, Our Finite World, and specifically her post Why We Have an Oversupply of Almost Everything (Oil, labor, capital, etc.). Specifically:
She’s built this into a complete thesis, and argues that one of the major problems is declining EROEI in our conventional fuels. We know what to do about that, of course, but Tverberg still doesn’t acknowledge nuclear fission, probably for a variety of reasons.
I would hate to see us lose our civilization because the existing players are getting increasingly defensive of their ever-diminishing turf. But it’s very interesting to watch them do it, thanks to your research and insight.
Your post reminded me of my reaction to something that was floating around the internet a couple years ago – someone wrote an anti-economic-growth article, based around the premise of, “Gee, what happens to the surface temperature of the earth if economic growth (and thus, energy consumption), were projected to grow at 3% per year” or something along those lines. The article was trying to argue that growth can’t be infinite. Well, no duh – growth can’t be infinite. The conclusion of the author of the article was that in a century the surface temperature of the earth would be so hot that it couldn’t sustain life, and that, if you ignored that, and kept economic growth going at the rate of 2 or 3% per year or whatever rate he used, in another century or two the temperature of the earth would be hotter than the sun.
All of that is ridiculous of course – the natural limit to economic growth is when you reach the point where every person living on earth has their needs sufficiently met, at which point, we would expect the economy as a whole to reach, hopefully, some sort of equilibrium. But, with 1/2 the world’s population living in poverty, there’s still plenty of room for growth.
Exponential growth curves bear no relationship whatsoever to any kind of reality. In every case I can think of, growth more closely resembles an ‘S’ curve because there are always some kind of feedback mechanisms that cause the rate to slow and then flatten out.
Ehrlich and other neo-Mathusians were famous for doing the simple math of using a fixed exponent and showing how terrible things could get if that rate of growth continued. It is a meaningless proposition whose only utility is to spread FUD.
I too missed your posts, but guessed that you were devoting your time to a book or family or some such. This is another interesting story demonstrating that the environmental NGOs do not have the interests of the general public at heart.
The habitual penetration of the EPA by ENGOs is especially alarming, but not particularly surprising. We can hope that Tom Collier has the connections and knowledge and desire to pursue this and actually do something effective about it. It’s sad that if the people involved did not have strong political connections/experience, that there would probably be no hope at all.
Rod, do you have any indication that Mr. Collier is aware of the shenanigans that went on in the state by state CO2 rule making? If not, you may wish to drop him a line. It can be helpful to establish a pattern of (mis) behaviour in cases like this.
Most of the citizenry assumes that the ENGOs are acting in their best interests. In any story/situation, it seems that the vast majority of people, and all main-stream journalists, assume that ENGOs are acting to further the public interest, rather than looking for other more nefarious motivations.
I have had little to no success at convincing people of this or even just getting them to question the ENGOs’ motivations. Anyone have any suggestions on the proper presentation to get this idea across without alientating people by too explicitly goring their sacred cow?
Oh, sure there are some folks I talk to who leap straight to ENGOs being evil, but they paint the whole situation with a Tea Party sort of patina. They aren’t open to a more nuanced interpretation and specifically, they don’t get that the true evil behind the ENGOs are those big corporation those conservative folks are in love with.
So Rio Tinto not only chose to no longer be a player in the project, but to give its stake, worth millions, to an opponent of the project? That seems perfectly normal.
Are you being serious? Irony is often hard to express through the written word since it’s impossible to see body language or hear tone of voice.
Sorry, thought the sarcasm was clear, one of the side effects of being an operator.
It seemed pretty obvious to me. Maybe Rod’s time off-line has caused his e-sarcasm meter to be rusty.
Good to have you back, Rod. I am looking forward to reading the (likely even more interesting and intriguing) tale that you have been working on. Also, I am very glad to know that you are putting in a concerted effort to improve telling stories like this in a manner that will avoid the instant dismissals from some folks who are way too quick to cry “conspiracy theorist”.
I saw it as sarcasm, but it never hurts when using sarcasm (in this communications medium) to add a flag at the end of the comment such as “/ sarc off”, “end sarc”, or something like that.
You deserve a break, however I was afraid that I had lost two of my favorate blogs in the space of a month.
The weather channel bought the weather unground. Then on May 4, 2015 they shut down the “classic” weather underground. The classic version make it easy to research the recent climate history of just about any area. It’s another case of acting against the public interest for economic reasons.
First, welcome back – been awhile since you published anything. 😉
Next, I just have one question – if companies wanted to limit supply, why wouldn’t they retain their control over the project? Wouldn’t it make more sense to retain a controlling interest in this parcel of land, in order to make sure that it is not mined until prices are more favorable (for example, eventually their other mines must start to run low on resources, and won’t they want waiting resources ready to start digging?)
There are several reasons why a company might prefer taking action that more permanently takes a potential asset out of play.
1. If the asset is mineable and remains on the books of a competent mining company, investors and traders will count at least some of the resource base as material that can enter the market at some time and some price. That would certainly not keep a lid on spot prices, but it would tend to restrict the magnitude of any price increase in long term markets.
2. Neither of the companies that withdrew from the project held a controlling interest. Rio Tinto, the company that very publicly provided $6.5 million to a dedicated opposition group, only held a 19% share.
3. “Eventually” is a long time when it comes to resource companies. If a mining company already has sufficient mineable resources to last for a few decades, it has no real motive for finding and developing any more.
4. Finally, mining companies know that minerals in the ground aren’t going anywhere. They can “give up” on a particular deposit and allow it to be taken out of the market by regulators. They know that if push comes to shove sometime in the distant future and the material is in high enough demand, they can work their way through the political actions required to enable the resource to be mined. While they are waiting, there are virtually no costs associated with allowing the material to stay where it has been for millions of years already.
I suppose most of your points are good, but regarding #2, you wrote, “In September 2013, Anglo American gave up its 50% ownership in the property,”
As the single largest shareholder, holding 50% of the company, Anglo American was certainly in a position to keep the deposit from being mined. They effectively controlled the company, even if they didn’t have a 50.001% ownership of the company. Between them, Anglo and Rio Tinto controlled 69% of the project.
Regarding #4 – you seem to be contradicting your own point and arguing in favor of mine, which is that if the companies just held on to their positions in the project but mothballed it, then it costs them very little to keep the resource in the ground, under their control, and they can in the distant future, start mining it. The one thing they CAN’T do is ever start mining a resource ever again IF THEY DO NOT OWN IT. You talk about political actions – I agree, they can certainly restart any project in the future, but only if they own the rights to the resource.
The total market capitalization for the entity that owns the resource is now under $50 million.
It’s an easy takeover target for any of the major players.
What you describe seems to be a clear case of ex parte communication that has materially damaged the remaining shareholder. Are there no attorneys in the US willing to sue the EPA and the environmental organizations responsible?
“I don’t believe ideology is a significant motivating factor in government decisions and I’m pretty cynical about the motives that drive the decision makers at large, well-funded, pressure groups like the NRDC. Thirst for money and the power that it gives those who control it is a more common motive, even if it often takes a little more digging to identify it.”
Yet the huge and obscene flow of money into our electoral process is an issue of “free speech”?
I can’t really think of any powerful special interest groups that don’t collude with our politicians and our regulatory agencies in pursuit of legislation thay benefits whatever special interest you choose to discuss. NRA, religious groups, fossil fuel entities, the auto industry……on and on. Heck, AIPAC actually drafts the language of many Israel related bills and resolutions that land before Congress.
Just because someone disdainfully rejects a premise as a “conspiracy theory” doesn’t mean an actual conspiracy doesn’t actually exist.
The Pebble festivities are what the RICO statutes were designed to punish. Collusion between environmental lawyers, EPA officials, green groups has been rampant. Discovery so far has led to the requisite failure of the EPA to produce e-mails during discovery. They were somehow lost.
Add one of the richest men in the state funding the opposition and multiple state and local ballot initiatives attacking the mine, and we have had a lot of fun up here for a while.
The only good thing about the Pebble opposition is that it may put to rest once and for all the perennial salmon vs jobs argument used by greens up here since logging in the Tongass was shut down by Bill Clinton in the late 1990s.
Total value of the find at Pebble is within an order of magnitude what has been pumped out of the Prudhoe Bay oil fields since 1970. Total number of new jobs is about the same as the total number of people who work for the State of Alaska. Interestingly enough, while large, this may not be the largest mineral find in Alaska. Most of that is on the southern flanks of the Brooks Range, locked up by Jimmy Carter in 1980. Cheers –
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