Exploration companies win legal battle

The exploration companies that act as the research-and-development arm of Nevada's mining industry won a key legal battle last week.

District Court Judge James E. Wilson Jr. in Carson City ruled that fees on mining claims levied by the State Legislature are unconstitutional.

In his ruling, which came only a day before the fees were to take effect, Wilson said the fees amount to a tax. The state's constitution allows for taxes to levied only against the net proceeds of mining companies and specifically forbids taxes on the industry's property holdings.

Edie Cartwright, a spokeswoman for the State Attorney General's office, said last week attorneys for the state were assessing the decision and hadn't decided whether to appeal.

The new fees, which were adopted on a one-time basis by the Legislature in 2010 to close an $887 million gap in the state budget, would have ranged from $80.50 per claim for organizations that hold fewer than 200 claims to $205.50 per claim for owners of 1,300 or more claims.

"The Legislature cannot discard the Constitution due to hard times," wrote Reno attorney Thomas Erwin in a brief he filed as a friend of the court in the Carson City case.

Erwin represents Claremont Nevada Mines, an Elko-based exploration company owned by the Buster Hunsaker family. Claremont Nevada had filed a separate legal challenge last summer in Elko County.

The Carson City case was filed by BL Exploration LLC, Desert Pacific Exploration Inc., MGC Resources Inc, Redstar Gold USA Inc., Western Exploration Inc. and Arthur R. Leger, a longtime exploration geologist in Nevada.

The mining industry figures as a rough rule of thumb that about 100 claims are needed to control a potentially attractive mining property.

Nearly 193,000 mining claims were active in Nevada at the end of 2010, says the state's Division of Minerals.

Most of those claims are held by smaller companies.

Erwin last year found that only nine companies that actually operate mines in the state are among the 40 largest holders of mining claims in Nevada.

Executives of the minerals exploration business complained that the new fee would hit companies that typically are cash-strapped because they don't have revenue until gold or other minerals are discovered. Exploration firms also said the money spent on the state fees would be diverted from direct expenditures such as contract geologists and drilling rigs.

The Fraser Institute, a Canadian think tank, cautioned last year that the prospect of higher claims fees threatened to cool the mining industry's interest in Nevada exploration projects.

On the other hand, rising gold and silver prices spurred interest in exploration.

The 192,953 mining claims active in Nevada at the end of 2010 marked a 1.4 percent increase over the 190,375 active at the end of 2009.