No. 20-16401 UNITED STATES COURT OF APPEALS FOR THE …

No. 20-16401

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

GRAND CANYON TRUST, et al., Plaintiffs-Appellants,

v.

HEATHER PROVENCIO, et al., Defendants-Appellees,

ENERGY FUELS RESOURCES (USA) INC., et al., Intervenor-Defendants-Appellees.

Appeal from the United States District Court for the District of Arizona No. 3:13-CV-8045 (Hon. David G. Campbell)

INTERVENOR-DEFENDANTS-APPELLEES’ ANSWERING BRIEF

GALLAGHER & KENNEDY, P.A. Bradley J. Glass (Ariz. Bar No. 022463) 2575 East Camelback Road Phoenix, Arizona 85016-9225 (602) 530-8000 [email protected]

Counsel for Intervenor-Defendants-Appellees

Case: 20-16401, 04/05/2021, ID: 12064308, DktEntry: 25, Page 1 of 237

i

CORPORATE DISCLOSURE STATEMENT

Pursuant to Federal Rule of Appellate Procedure 26.1(b), Intervenor-

Defendants-Appellees Energy Fuels Resources (USA) Inc. and EFR Arizona Strip

LLC state that they both are wholly-owned by Energy Fuels Holdings Corp., which

is wholly-owned by Energy Fuels Inc., a publicly-held corporation.

RESPECTFULLY SUBMITTED this 5th day of April, 2021.

GALLAGHER & KENNEDY, P.A.

By: /s/ Bradley J. Glass Bradley J. Glass (Ariz. Bar No. 022463) 2575 East Camelback Road Phoenix, Arizona 85016-9225 (602) 530-8000 [email protected]

Counsel for Intervenor-Defendants-Appellees


TABLE OF CONTENTS

Page

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CORPORATE DISCLOSURE STATEMENT ......................................................... iTABLE OF AUTHORITIES ...................................................................................ivSTATEMENT OF THE ISSUES.............................................................................. 1STATEMENT ABOUT THE ADDENDUM ........................................................... 2INTRODUCTION .................................................................................................... 2SUMMARY OF THE ARGUMENT ....................................................................... 8ARGUMENT .......................................................................................................... 11

I. Standard of Review....................................................................................... 11

II. Statement of the Case ................................................................................... 11A. Factual and Procedural Background .................................................. 11B. The Mining Law and VER ................................................................. 15C. EFR established VER. ........................................................................ 19D. FLPMA did not change the Mining Law or VER. ............................. 19E. The Withdrawal is subject to VER. .................................................... 20F. Mineral Examinations and Reports .................................................... 22G. The Mine Review and VER Determination ....................................... 23

III. The VER Determination was not required; has no legal impact on the approved Plan; and therefore, the Trust is not entitled to injunctive relief. ............................................................................................................. 24

IV. USFS considered all relevant costs and completed the VER Determination consistent with the Mining Law, federal case law, and guidance for mineral examiners. .................................................................. 27

A. The VER Determination properly concluded the Mining Law’s prudent person test was satisfied. ....................................................... 271. The Prudent Person Test .......................................................... 272. The VER Determination properly concluded the Mine

satisfies the discovery test. ....................................................... 28

B. The Trust’s challenges to the VER Determination are without merit. ................................................................................................... 301. EFR properly estimated, and USFS considered, all

environmental costs. ................................................................ 31


TABLE OF CONTENTS(continued)

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a. USFS considered the costs of environmental safeguards. ..................................................................... 31

b. Monitoring costs were considered. ................................ 33c. Wildlife conservation measures were considered. ........ 34d. USFS is not required to consider speculative,

potential future mitigation costs. ................................... 36e. Any error was harmless. ................................................ 36

i. The District Court applied the harmless error rule correctly. ....................................................... 37

ii. The VER Determination did not involve a procedural error. .................................................. 38

iii. Any error did not affect the conclusions in the VER Determination. ...................................... 39

C. USFS considered sunk costs consistent with the Mining Law, federal case law and guidance for mineral examiners, and economic theory. ................................................................................ 401. The Handbook excludes sunk costs. ........................................ 402. Sunk costs are ignored in economic based decision-

making. ..................................................................................... 423. The District Court ruled correctly on sunk costs. .................... 48

a. The VER Determination is consistent with federal case law and the Mining Law. ....................................... 48

b. Any error was harmless. ................................................ 54

THE DISTRICT COURT'S REDACTION AND SEALING ORDERS WERE PROPER. .......................................................................................... 58

CONCLUSION ....................................................................................................... 59CERTIFICATE OF COMPLIANCE ...................................................................... 60CERTIFICATE OF SERVICE ............................................................................... 61ADDENDUM ......................................................................................................... 62


-iv-

TABLE OF AUTHORITIES

Page(s)

Cases

Alaska v. Thorson, 83 IBLA 237 (1984) ..................................................................................... 17, 20

Aleknagik Natives, Ltd. v. United States, 806 F.2d 924 (9th Cir. 1986) .............................................................................. 20

Alenco Commc’n, Inc. v. FCC, 201 F.3d 608 (5th Cir. 2000) .............................................................................. 43

Andrus v. Shell Oil Co., 446 U.S. 657 (1980) ............................................................................................ 42

Best v. Humboldt Placer Mining Co., 371 U.S. 334 (1963) .......................................................................... 18, 26, 27, 28

Cal. Wilderness Coal. v. U.S. Dep’t of Energy, 631 F.3d 1072 (9th Cir. 2011) ................................................................ 37, 38, 39

Cameron v. United States, 252 U.S. 450 (1920) .......................................................................... 18, 28, 49, 50

Castle v. Womble, 19 L.D. 455 (1894) ....................................................................................... 27, 29

In re Ctr. for Biological Diversity, 162 IBLA 268 (2004) ............................................................................. 19, 25, 27

Davis v. Nelson, 329 F.2d 840 (9th Cir. 1964) ............................................................ 16, 17, 18, 19

Food Mktg. Inst. v. Argus Leaders Media, 139 S. Ct. 2356 (2019) ........................................................................................ 58

In re Goergen, 144 IBLA 293 (1998) ................................................................................... 20, 24


TABLE OF AUTHORITIES(continued)

Page(s)

v

Havasupai Tribe v. Provencio, 876 F.3d 1242 (9th Cir. 2017) ............................................................................ 14

Havasupai Tribe v. Provencio, 906 F.3d 1155 (9th Cir. 2018) ...................................................................... 14, 24

Havasupai Tribe v. United States, 752 F. Supp. 1471 (D. Ariz. 1990), aff’d, 943 F.2d 32 (9th Cir. 1991) ............................................................................................................. 12, 19

High Country Citizens All. v. Clarke, 454 F.3d 1177 (10th Cir. 2006) .................................................................... 15, 16

Ideal Basic Indus., Inc. v. Morton, 542 F.2d 1364 (9th Cir. 1976) ................................................................ 49, 50, 57

Kamakana v. City & Cty. of Honolulu, 447 F.3d 1172 (9th Cir. 2006) ............................................................................ 58

Lara v. Sec’y of Interior of U.S., 820 F.2d 1535 (9th Cir. 1987) ................................................................ 22, 23, 40

Ludwig v. Astrue, 682 F.3d 1047 (9th Cir. 2012) ...................................................................... 37, 40

Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871 (1990) ............................................................................................ 19

MCI Commc’n Corp. v. Am. Tel. & Tel. Corp., 708 F.2d 1081 (7th Cir. 1983) ............................................................................ 43

McMaster v. United States, 731 F.3d 881 (9th Cir. 2013) ........................................................................ 17, 20

Mt. Royal Joint Venture v. Kempthorne, 477 F.3d 745 (D.C. Cir. 2007) ............................................................................ 21

Nat’l Mining Ass’n v. Zinke, 877 F.3d 845 (9th Cir. 2017) .............................................................................. 21

Nw. Res. Info. Ctr., Inc. v. Nw. Power & Conservation Council, 730 F.3d 1008 (9th Cir. 2013) ............................................................................ 38



Page(s)

vi

O’Connell v. Pinnacle Gold Mines Co., 140 F. 854 (9th Cir. 1905) .................................................................................. 18

Organized Vill. of Kake v. U.S. Dep’t of Agric., 795 F.3d 956 (9th Cir. 2015) .............................................................................. 37

Rawls v. Sec’y of Interior, 460 F.2d 1200 (9th Cir. 1972) ............................................................................ 27

Seldovia Native Ass’n Inc. v. Lujan, 904 F.2d 1335 (9th Cir. 1990) ...................................................................... 18, 21

Shinseki v. Sanders, 556 U.S. 396 (2009) ...................................................................................... 37, 39

Stockley v. United States, 260 U.S. 532 (1923) ............................................................................................ 21

Tongass Conservation Soc’y v. U.S. Forest Serv., 455 F. App’x 774 (9th Cir. 2011) ....................................................................... 40

United States v. Armstrong, 184 IBLA 180 (2013) ......................................................................................... 52

United States v. Clouser, 144 IBLA 110 (1998) ............................................................................. 36, 42, 51

United States v. Coleman, 390 U.S. 599 (1968) .....................................................................................passim

United States v. Collord, 128 IBLA 266 (1994) ............................................................................. 51, 52, 53

United States v. Dwyer, 175 IBLA 100 (2008) ......................................................................................... 36

United States v. Garner, 30 IBLA 42 (1977) ....................................................................................... 42, 51

United States v. Highsmith, 137 IBLA 262 (1977) ......................................................................................... 36



Page(s)

vii

United States v. Mannix, 50 IBLA 110 (1980) ....................................................................................passim

United States v. Martinek, 166 IBLA 347 (2005) ......................................................................................... 19

Verizon Commc’ns, Inc. v. FCC, 535 U.S. 467 (2002) ............................................................................................ 42

In re W. Shoshone Def. Project, 160 IBLA 32 (2003) ........................................................................................... 26

Watt v. W. Nuclear, Inc., 462 U.S. 36 (1983) .............................................................................................. 28

Wilbur v. United States ex rel. Krushnic, 280 U.S. 306 (1930) ............................................................................................ 17

In re Wilson, 35 IBLA 349 (1978) ........................................................................................... 21

Statutes

5 U.S.C. § 552(b)(4)................................................................................................. 58

5 U.S.C. § 706 .................................................................................................... 13, 37

30 U.S.C. §§ 22-54......................................................................................... 2, 11, 15

30 U.S.C. § 26 .......................................................................................................... 17

43 U.S.C. § 1701 ................................................................................................ 19, 20

43 U.S.C. §§ 1701-87................................................................................................. 2

43 U.S.C. § 1712 ...................................................................................................... 19

43 U.S.C. § 1714 ...................................................................................................... 21

43 U.S.C. §§ 1731-85............................................................................................... 20



Page(s)

viii

Regulations

36 C.F.R. pt. 228A ................................................................................................... 12

36 C.F.R. § 228.4 ............................................................................................... 12, 19

36 C.F.R. § 228.5 ..................................................................................................... 19

36 C.F.R. § 228.6 ..................................................................................................... 58

36 C.F.R. § 228.10 ................................................................................................... 12

43 C.F.R. § 3809.100 ......................................................................................... 23, 25

43 C.F.R. § 3832.1 ............................................................................................. 11, 21

43 C.F.R. § 3832.11 ........................................................................................... 11, 21

65 Fed. Reg. 41,724, 2000 WL 877957 (July 6, 2000) ........................................... 49

65 Fed. Reg. at 41,725, 2000 WL 877957 (July 6, 2000) ....................................... 50

74 Fed. Reg. 35,887, 2009 WL 2143370 (July 21, 2009) ................................. 12, 21

77 Fed. Reg. 2563, 2012 WL 122658 (Jan. 18, 2012) ........................................................................................................... 13, 20, 21, 24

Other Authorities

American Law of Mining 2D ED. § 4.11 ......................................................... 15, 16

American Law of Mining 2D ED. § 9.02 ................................................................ 16

American Law of Mining 2D ED. § 14.01 .............................................................. 20

American Law of Mining 2D ED. § 14.04 ........................................................ 20, 21







Page(s)

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Bancroft G. Davis, Fifty Years of Mining Law, 50 HARV. L. REV. 897, 897-98 (1937)...................................................................................................... 15

Dep't of Interior, Solicitor's Op. M-36584 at 2 (Oct. 20, 1959) .............................. 16

Dep't of Interior, Solicitor's Op. M-37010 (Oct. 7, 2003) ........................................................................................................... 11, 16, 17, 21

Lindley on Mines, 3d ed. §§ 54-56 (1914) .................................................. 15, 16, 17

Richard A. Posner, Economics Analysis of Law § 1.1, at 7 (9th ed. 2014) ................................................................................................................... 44

Steven Nickolas, “Why You Should Ignore Sunk Costs in Decision Making,” INVESTOPEDIA (Oct. 15, 2018), https://www.investopedia.com/ask/answers/ 042115/wh-should-sunk-costs-be-ignored-future-decision-making.asp ........................................... 44

Title VII Effect on Existing Rights, Pub. L. No. 94-579, § 701(h), 90 Stat. 273 (1976) ................................................................................................... 20

William E. Colby, Mining Law in Recent Years, 33 CAL. L. REV. 368, 370-71 (1945)...................................................................................................... 15


1

STATEMENT OF THE ISSUES1

1. The U.S. Forest Service (“USFS”) considered all relevant costs in

analyzing whether the Pinyon Plain Mine (“Mine”) satisfied the Mining Law’s

prudent person test and EFR had valid existing rights (“VER”).2 As a result, the

VER Determination3 complied with federal authority, case law, and guidance for

mineral examiners and should be upheld.

2. USFS properly excluded sunk costs when analyzing the Mine in the

VER Determination consistent with the Mining Law’s prudent person test,

Supreme Court and federal case law interpreting that test, and federal guidance for

mineral examiners.

3. The District Court entered an appropriate order protecting EFR’s

confidential business information from public disclosure.

1 Pursuant to FRAP 28(b), EFR coordinated briefing with USFS, and incorporates its statements of the issues, case, standard of review, summary of arguments, and arguments by reference. 2 EFR changed the name of the Mine from the “Canyon Mine” to the “Pinyon Plain Mine” to clarify that the Mine is not located in the Grand Canyon. The Mine is located in a naturally cleared plain that is approximately nine miles from the South Rim of the Grand Canyon and six miles from the boundary of the Grand Canyon National Park. 3 A mineral examiner performs a mineral examination and documents her findings in a mineral report. The VER Determination at issue is a mineral report. EFR will refer to that mineral report as the VER Determination consistent with the District Court’s use of that term.


2

STATEMENT ABOUT THE ADDENDUM

An addendum containing pertinent statutes, treatises, and legal authorities is

attached.

INTRODUCTION

EFR files this response to the Appellants Grand Canyon Trust, Sierra Club,

and Center for Biological Diversity’s (together, the “Trust’s”) Opening Brief.

The Trust alleges the VER Determination was not performed consistent with

the General Mining Law of 1872, 30 U.S.C. §§ 22-54 (2020) (“Mining Law”). As

a result, it is important to understand the Mining Law’s intent and framework; the

role of a mineral examination within that framework; the Federal Land Policy and

Management Act, 43 U.S.C. §§ 1701-87 (1976) (“FLPMA”) and its impacts on the

Mining Law; and the VER Determination at issue before turning to the Trust’s

specific arguments.

The law regarding mining by private parties on public lands is well-

established. The Mining Law recognizes two types of self-initiated rights: (1) free

access to federal lands, and (2) the right to establish property rights to that land.

Mining rights are statutorily conferred after the miner goes onto public lands,

explores for minerals, and stakes and records a claim (i.e., locating (or

establishing) an unpatented mining claim). Mining rights give the miner exclusive

possession and enjoyment to mine the land. An approved plan of operations


3

authorizes the use of mining rights on public lands. By 1986, EFR’s predecessor

had mining rights and a USFS-approved Plan of Operations for the Mine (“Plan”).

The Mine has been authorized to mine ever since.

The Trust originally asserted that, after the U.S. Department of the Interior

(“Interior”) withdrew certain public lands from location and entry under the

Mining Law in 2012 (“Withdrawal”), EFR could not continue mining until USFS

validated EFR’s existing mining rights through a mineral examination. From this,

it contends USFS’s decision to conduct an internal review of the validity of EFR’s

claims constituted a required approval for EFR to mine that triggered compliance

with the National Environmental Policy Act (“NEPA”) and National Historic

Preservation Act (“NHPA”). The Court rejected these claims.

The Trust now contends that the VER Determination is invalid because

USFS allegedly failed to consider all relevant costs in conducting its analysis of the

Mine. It claims USFS failed to consider certain environmental monitoring,

wildlife conservation, future environmental mitigation costs, and sunk costs. This

claim is not supported by the plain language, purpose, and intent of the Mining

Law, Interior’s interpretation and implementation of the Mining Law, the findings

within the VER Determination and the record, or the federal case law, regulations,

and guidance for mineral examiners.


4

As detailed below, established unpatented mining claims are presumed to be

valid until proven invalid. The Bureau of Land Management (“BLM”) has plenary

authority to administer the Mining Law, and is the only agency authorized to

declare mining claims invalid.4 To do so, BLM must initiate a claim contest (i.e., a

formal hearing challenging the claims). For a mining claim to withstand challenge,

it must demonstrate validity: a properly located claim upon which a discovery of

valuable minerals exists. BLM defines a discovery as when minerals are found

that a prudent person likely could mine, mill, and market at a profit, and it

developed the prudent person test to confirm a discovery. This interpretation and

the test have been affirmed by the Supreme Court.

An unpatented mining claim provides a miner with the right of present and

exclusive possession to mine, but fee title remains with the United States. As long

as it does, BLM or USFS may check to see if the claim is valid. This process

begins with a mineral examination, which is an internal assessment to see if the

claim was properly located and if a discovery was made. The mineral examination

does not confer or terminate any rights, or validate, invalidate, approve, or

disapprove anything – it simply represents the examiner’s opinion as to the merits

of the claim at the time of the examination. Mineral examinations inform future

4 USFS follows BLM’s rules and guidance when it performs Mining Law-related tasks on land it administers.


5

actions by BLM or USFS regarding the claim (e.g., whether to contest it), and may

be evidence in a claim contest.

A withdrawal of public lands under FLPMA is subject to VER, and operates

prospectively only to prevent the location (i.e., establishment) of new mining

claims in the withdrawn areas. It does not prevent mining on existing claims, or

require existing claims to be validated. Under applicable guidance, BLM requires

a mineral examination before approving a new plan of operations or a material

amendment to an existing plan of operations for claims on withdrawn lands. BLM

and USFS do not require a mineral examination for existing claims on withdrawn

lands with an approved plan of operations, such as is the case for the Mine, unless

a material amendment is sought or is necessary.

After the proposed Withdrawal, EFR informed USFS that it was resuming

active mining at the Mine after being on standby status. To determine if changes

to EFR’s Plan were necessary since the Mine last operated actively, USFS

performed an internal review of the Mine and the Plan (“Mine Review”).

Simultaneously, it performed a mineral examination documented in a mineral

report, which is referred to as the VER Determination, which would have been

required under BLM and USFS guidance if (and only if) the Mine Review

concluded that a material amendment to the Plan was necessary. EFR remained

authorized to operate the Mine, and proceeded with activities to prepare for the


6

resumption of active mining. To accommodate USFS, EFR voluntarily agreed to

defer shaft sinking until USFS performed its internal reviews.

In the Mine Review, USFS concluded that no amendments to the Plan were

necessary, and mining could continue without further approvals. Because no

amendments were necessary, the mineral examination proved unnecessary under

applicable BLM and USFS regulations and guidance and had no legal effect. In

any event, the VER Determination concluded that the Mining Law’s discovery test

had been met.

The VER Determination was completed by certified mineral examiners after

they conducted a comprehensive review of the Mine. The VER Determination was

completed consistent with all applicable regulations and guidance, including the

U.S. Department of the Interior, Bureau of Land Management’s H-3890-Handbook

for Mineral Examiners (the “Handbook”), the standard and guidance for their

work. The VER Determination used reasonable and conservative assumptions,

included a $1.7 million contingency, and concluded the Mine would make a profit

of $29,350,736. The VER Determination concluded EFR could mine, remove,

transport, mill, and market uranium from the Mine at a profit; the Mining Law’s

discovery test had been met; and EFR had VER.

The Trust argues the VER Determination is invalid because USFS failed to

consider all relevant costs in conducting its profitability analysis of the Mine. In


7

addition to explaining that the VER determination was unnecessary and had no

legal effect, USFS and EFR demonstrated to the District Court that USFS

considered and included in its cost estimates all relevant environmental monitoring

and wildlife conservation costs and properly excluded future environmental

mitigation measures and sunk costs when completing the VER Determination. To

the extent any costs were not identified or considered, there was a $1.7 million

contingency in EFR’s cost estimates that would cover these costs. This

contingency, along with the Mine’s profitability of $29,350,736, are far greater

than the collective costs identified by the Trust, rendering their alleged errors

harmless.

The District Court analyzed the costs and alleged errors identified by the

Trust and determined it could not confirm from the record whether certain

environmental monitoring and wildlife conservation costs were considered, so it

gave the Trust the benefit of the doubt and assumed they were not considered for

the purpose of its analysis. To the extent costs were not considered, the District

Court concluded that any such error was harmless because the costs would not

have changed USFS’s conclusions regarding the Mine’s profitability. The District

Court also held that speculative future environmental mitigation measures and

costs were properly not considered by USFS, and it rejected the Trust’s challenges

to the price and ore assumptions used in the VER Determination. Regarding sunk


8

costs, the District Court determined the Trust did not apply the correct standard of

review, its argument was not supported by federal authorities and case law, and,

even if correct, the Trust did not show any error was harmful. The District Court

granted EFR’s motion to seal certain of its confidential cost information that is

exempt from public disclosure under federal law.

For the reasons set forth in the District Court’s thorough and well-reasoned

decision and below, EFR requests the Court uphold the District Court’s decision in

its entirety and reject the Trust’s challenge to the VER Determination.

SUMMARY OF THE ARGUMENT

The VER Determination at issue in this appeal was unnecessary, was not

legally required, and had no legal effect because USFS’s Mine Review determined

no material changes to EFR’s Plan were required. Pursuant to applicable BLM and

USFS regulations and guidance, this alone should end the Trust’s challenge to the

VER Determination.

Notwithstanding this fact, USFS voluntarily completed the VER

Determination consistent with the Mining Law and BLM’s guidance for mineral

examinations and reports. BLM guidance follows the Mining Law and its prudent

person test. As set forth below, the test is rational, follows basic business and

economic principles, and has been affirmed and applied by the Supreme Court and

federal courts on numerous occasions.


9

The Trust complains USFS did not consider all relevant costs when

evaluating the Mine. The Trust is wrong. EFR is uniquely situated as the only

mining company that has successfully mined breccia pipe mines on the Colorado

Plateau, including the recently mined Arizona 1 Mine, and owns the only domestic

uranium mill. As a result, EFR provided USFS with comprehensive cost estimates

that included all costs of mining, transporting, milling, and marketing uranium

from the Mine. These cost estimates should have ended the Trust’s challenge to

the VER Determination. However, in light of the Trust’s 35-year effort to shut

down the Mine, it is not surprising they did not.

The Trust claims EFR should have itemized the Mine’s costs in a level of

detail and minutia not included in EFR’s cost estimate. The Trust’s argument is

absurd and not supported by the record. EFR provided, and USFS considered and

independently verified, all costs relevant to the VER Determination in the same

level of detail EFR uses for its own mine development and production decisions

for similar mines. EFR demonstrated to the District Court that all relevant costs

were included in its cost estimates and considered in the VER Determination.

Notwithstanding that the VER Determination was not legally required, had

no legal effect, and all costs were considered, the District Court reviewed the costs

identified by the Trust and determined it could not conclusively determine whether

they were considered because they were not specifically delineated in the VER


10

Determination. The District Court gave the Trust the benefit of the doubt and

evaluated the costs identified by the Trust, ultimately concluding they were

harmless and would not have impacted the outcome of the VER Determination.

The District Court also rejected the Trust’s arguments that speculative future costs

regarding potential environmental harms should be considered.

The District Court next rejected the Trust’s claim that USFS should have

quantified and considered sunk costs in the VER Determination. It did so because

the Mining Law, relevant Supreme Court and federal case law, and federal

guidance confirm sunk costs should not be considered as part of the Mining Law’s

prudent person test, which is a forward-looking test consistent with prudent

economic business decision-making.

EFR believes that, even though the VER Determination was not required,

USFS completed it consistent with the Mining Law, Supreme Court and federal

case law, and federal guidance for mineral examiners, and that the District Court

properly affirmed the VER Determination. EFR requests the Court affirm the

District Court.


11

ARGUMENT

I. Standard of Review

Pursuant to FRAP 28(b), EFR coordinated briefing with USFS and

incorporates its statement of the standard of review and its arguments relating

thereto.

II. Statement of the Case

Before turning to the Trust’s argument, EFR believes it is important to

understand the Mine; the Mining Law’s intent and framework; the role of a mineral

examination within that framework; FLPMA and its impacts on the Mining Law

and mineral examinations; and the VER Determination.

A. Factual and Procedural Background

The Mine is a breccia pipe uranium mine located in a natural clearing on

unpatented mining claims on USFS-managed lands in the Kaibab National Forest

in northern Arizona. 2-ER-213.5 The mining claims were located6 in 1978 under

the Mining Law, 30 U.S.C. §§ 22-54. 2-ER-213. Exploratory work from 1978 to

1985 discovered a major deposit of uranium. 2-ER-213, 231-32.

5 Unlike open pit mines, breccia pipe mines result in minimal surface disturbance with the Mine’s surface footprint totaling 17 acres. 3-ER-395. 6 Location involves staking the claim’s boundaries and recording the claim. 43 C.F.R. §§ 3832.1, 3832.11 (2021); Dep’t of Interior, Solicitor’s Op. M-37010 at 4 n.5 (Oct. 7, 2003) (“2003 Op.”).


12

In 1986, after a NEPA review of an Environmental Impact Statement

(“EIS”), USFS approved EFR’s Plan to operate under its mining regulations. 36

C.F.R. pt. 228A (2021); 3-ER-360-74, 386-457. The Havasupai Tribe (“Tribe”)

challenged the Plan, asserting religious, cultural, and environmental claims. All

claims were rejected and the decision was affirmed. Havasupai Tribe v. United

States, 752 F. Supp. 1471 (D. Ariz. 1990), aff’d, 943 F.2d 32 (9th Cir. 1991). The

Plan remains valid and is not at issue here. 2-ER-172-201.

After Havasupai, EFR’s predecessor constructed the Mine’s surface

facilities and sank the shaft fifty feet. 2-ER-213. In 1992, due to unfavorable

market conditions, the Mine was placed on standby and operated under the Plan’s

interim management plan. 2-ER-213.7

In 2009, Interior proposed to withdraw public lands in northern Arizona

managed by USFS and BLM from location and entry under the Mining Law.

Notice of Proposed Withdrawal & Opportunity for Public Meeting, 74 Fed. Reg.

35,887, 2009 WL 2143370 (July 21, 2009) (“Segregation”). Interior finalized the

Withdrawal in January 2012. Withdrawal of Public & National Forest System

7 Mines may be placed on, and taken off, standby as the operator sees fit; interim management plans govern operations during standby. 36 C.F.R. §§ 228.4(c), 228.10.


13

Lands in the Grand Canyon Watershed, 77 Fed. Reg. 2563, 2012 WL 122658

(Jan. 18, 2012) (“Withdrawal”). The Withdrawal is “[s]ubject to [VER].” Id.

After the Segregation but before the Withdrawal, EFR notified USFS that it

was returning the Mine to active operations under the Plan. 2-SER-349-50. USFS

informed EFR that it intended to conduct a Mine Review to determine if any

approvals or modifications to the Plan were necessary. 2-SER-356. USFS also

conducted a mineral examination of EFR’s mining claims. 2-ER-208-53. USFS

informed EFR that its Plan was valid and EFR was authorized to operate the Mine,

but requested that EFR voluntarily postpone shaft sinking (but not other

operations) to provide USFS time to perform its internal reviews. 1-ER-6. EFR

agreed. 1-ER-6. On April 18, 2012, USFS issued the VER Determination. 2-ER-

208-53. On June 25, 2012, USFS issued the Mine Review and concluded no

modification to the Plan was necessary. 2-SER-356-401.

The Trust asserted four claims challenging the VER Determination and

seeking declaratory and injunctive relief under the Administrative Procedure Act, 5

U.S.C. § 706 (“APA”). 2-ER-172-201. In Claims 1 and 2, the Trust argued USFS

violated NEPA and NHPA by not performing an environmental review or historic

preservation consultation, when preparing the VER Determination. 2-ER-194-97.

In Claim 3, the Tribe asserted USFS applied the wrong NHPA consultation

requirement for previously approved and ongoing undertakings. 2-ER-197-98. In


14

Claim 4, the Trust alleged USFS violated several statutes by failing to consider

certain costs when preparing the VER Determination. 2-ER-198-99. The District

Court granted summary judgment to USFS and EFR in April 2015, and the Trust

appealed.

This Court rejected Claims 1 and 2, finding the VER Determination did not

trigger NEPA or NHPA review because, among other reasons, it was not a required

approval. Havasupai Tribe v. Provencio, 906 F.3d 1155 (9th Cir. 2018). The

Court rejected Claim 3, finding USFS’s application of the NHPA consultation

requirements was consistent with the plain terms of the governing regulation. Id.

Regarding Claim 4, the District Court found the Trust did not state a cause of

action because its interests were outside of the zone of interests of the Mining Law,

and FLPMA had no relevant law to apply. 1-ER-8. The Court initially affirmed

the District Court on Claim 4, Havasupai Tribe v. Provencio, 876 F.3d 1242 (9th

Cir. 2017), but then vacated its decision and held the Trust had standing under

FLPMA to bring Claim 4 and remanded that Claim to the District Court for

consideration on the merits. Havasupai Tribe v. Provencio, 906 F.3d 1155, 1166-

67 (9th Cir. 2018). The District Court granted USFS and EFR summary judgment

on the merits of Claim 4, which the Trust has appealed.


15

The Trust’s challenge involves a mineral examination performed by USFS

pursuant to the Mining Law and consistent with its own guidance. As a result, it is

important to understand the Mining Law’s intent and framework.

B. The Mining Law and VER

The Mining Law is rooted in the California Gold Rush, where miners staked

claims to minerals within public lands and extracted them without permission from

the government.8 Miners developed their own rules and customs regarding rights

to locate and develop claims. Facing pressure to sanction mining not legally

authorized but deemed socially valuable, Congress enacted the Lode Law of 1866,

which codified miners’ “rules and customs of the mining districts and gave the

congressional stamp of approval for self-initiated, protected mining rights on the

public domain.” 1 American Law of Mining, § 4.11 (2d Ed. 2020) (“Am.

Mining”); see High Country Citizens All. v. Clarke, 454 F.3d 1177, 1184 (10th Cir.

2006). This law confirmed that public lands were open for mineral exploration and

appropriation, and property rights obtained thereunder were cognizable and

enforceable. Lindley on Mines, 3d Ed. §§ 54-56 (1914) (“Lindley”); Davis, supra,

at 898-99. In 1872, Congress enacted the Mining Law, 30 U.S.C. §§ 22-54, to

clarify aspects of the Lode Law of 1866. Am. Mining § 4.11.

8 William E. Colby, Mining Law in Recent Years, 33 CAL. L. REV. 368, 370-71 (1945); see also Bancroft G. Davis, Fifty Years of Mining Law, 50 HARV. L. REV. 897, 897-98 (1937).


16

The Mining Law “is an exercise of Congress’ power under the Property

Clause of the Constitution to ‘dispose of and make all needful Rules and

Regulations respecting the Territory or other Property belonging to the United

States.’” 2003 Op. at 12 (quoting U.S. Const. art. IV, § 3); Am. Mining § 9.02.

Property disposal laws, or “general laws,” “secure public advantages by inducing

individuals to engage in costly operations on public lands.” 2003 Op. at 12;

Lindley §§ 202-03. The Mining Law’s inducement is an acquisition of property

rights in publicly owned lands and minerals if certain statutory requirements are

met – namely, location and discovery of valuable minerals. 2003 Op. at 12. The

Mining Law is a property rights transfer statute, with the United States as the

grantor and miners as grantees. High Country, 454 F.3d at 1182-87; Davis v.

Nelson, 329 F.2d 840, 843-46 (9th Cir. 1964); Dep’t of Interior, Solicitor’s Op. M-

36584 at 2 (Oct. 20, 1959). The Mining Law incentivizes and encourages mining

on public lands. United States v. Coleman, 390 U.S. 599, 602 (1968).

Property rights under the Mining Law are self-initiated and obtained: “If the

land is open for location and the prospector is qualified, she may seek ‘valuable

minerals’ and, if she finds them, may initiate a vested right without the approval of

anyone else, including representatives of the government that own the land.” Am.

Mining § 4.11; id. § 30.01 (“The fundamental basis of the mineral location system


17

is the right of self-initiation.”); see McMaster v. United States, 731 F.3d 881, 885

(9th Cir. 2013); Davis, 329 F.2d at 845-46; 2003 Op. at 12; Lindley § 204.

The Mining Law property disposal scheme follows the sequence of

exploration, location, discovery, and patent. Am. Mining § 30.01. The miner’s

own actions unilaterally establish property rights. Id. Prior to discovery, a miner

obtains possessory rights when that miner has possession of a defined portion of

public land and is exploring for valuable minerals (called pedis possessio). These

rights can be used to exclude third parties. Id. § 30.05; see Davis, 329 F.2d at 845.

A location supplements pedis possessio by providing color of title to mining rights,

and establishes the boundaries of the claim. Davis, 329 F.2d at 845; Am. Mining

§ 34.02. Location gives rise to the right of exclusive possession and enjoyment to

mine and market the minerals. 30 U.S.C. § 26; Wilbur v. United States ex rel.

Krushnic, 280 U.S. 306, 316-17 (1930). A discovery combined with location

perfects the claim and creates “vested property rights in [it].” Am. Mining

§§ 30.05, 36.01; see Davis, 329 F.2d at 845. Through perfection, the miner “has a

[VER] by his actions under” the Mining Law. Alaska v. Thorson, 83 IBLA 237,

243 (1984) (quoting Dep’t of Interior Solicitor’s Op. M-36910 (Oct. 5, 1981)

(“1981 Op.”)). The Supreme Court noted that acquired property is “property in the

fullest sense of that term; and may be sold, transferred, mortgaged, and inherited

without infringing any right or title of the United States.” Wilbur, 280 U.S. at 316-


18

17 (citations omitted); O’Connell v. Pinnacle Gold Mines Co., 140 F. 854, 855 (9th

Cir. 1905) (mining rights confer the “right to extract and convert to his own use all

the ores and precious metals which may be found within the borders of his claim”).

These rights are good against the United States and third parties. Am. Mining §§

30.05, 36.01, 36.03; see Davis, 329 F.2d at 844-45.

The administration and enforcement of the Mining Law rests with Interior,

which it has delegated to BLM. Best v. Humboldt Placer Mining Co., 371 U.S.

334, 336-37 (1963). Interior has “plenary authority” under the Mining Law. Id.

(following Cameron v. United States, 252 U.S. 450, 459-60 (1920)). Until claims

are patented, BLM, as the representative of the title owner, may evaluate whether

unpatented claims are valid; and, if not, clear the title from an invalid claim.

Cameron, 252 U.S. at 460; Davis, 329 F.2d at 846. To do so, BLM must initiate a

claim contest; BLM “has no power to strike down any claim arbitrarily,” and must

provide notice and an opportunity to be heard before declaring a claim invalid.

Best, 371 U.S. at 335-38; Seldovia Native Ass’n Inc. v. Lujan, 904 F.2d 1335, 1345

(9th Cir. 1990).

Under the Mining Law’s system of conferring statutory rights based on the

unilateral actions of miners and the requirement of notice and opportunity to be

heard before a claim is invalidated under Best and Seldovia, a miner’s unpatented

claims and the rights attendant thereto must be recognized and honored until the


19

claims are invalidated (i.e., unpatented mining claims are presumed valid until

proven otherwise in a claim contest). See, e.g., United States v. Martinek, 166

IBLA 347, 352-53 (2005). USFS’s policy and guidance confirms that principle.

3-ER-336-39; see also Davis, 329 F.2d at 845-47. Until a claim contest “renders a

final determination of invalidity, it is well established that the claimant will be

permitted to engage in mining and processing operations.” In re Ctr. for

Biological Diversity, 162 IBLA 268, 281 (2004).

C. EFR established VER.

Consistent with the Mining Law, the Mine’s Canyon 74 and 75 claims were

located in 1978 and have been maintained ever since. 2-ER-213-17. Valuable

minerals were discovered in a major deposit of uranium following exploratory

drilling from 1978 to 1983 and delineation from 1983 to 1985. 2-ER-213. VER in

the mining claims were established no later than 1985. USFS approved EFR’s

Plan in 1986. 3-ER-360-74. The Plan was upheld against administrative and

judicial challenges, remains valid today, and authorizes EFR to exercise its mining

rights on USFS-managed public lands. Havasupai, 752 F. Supp. at 1471; 36

C.F.R. §§ 228.4, 228.5. By 1986, EFR had established VER.

D. FLPMA did not change the Mining Law or VER.

FLPMA is BLM’s organic act and guides its management of public lands.

43 U.S.C. §§ 1701(a)(1), 1712; Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 877


20

(1990). The bulk of FLPMA focuses on the administration of public lands, range

management, grazing, rights-of-way, and designated management areas. 43 U.S.C.

§§ 1731-85. With four exceptions, FLPMA does not alter the Mining Law or

rights created thereunder. Those exceptions are not relevant here and FLPMA did

not impact EFR’s VER.

E. The Withdrawal is subject to VER.

A withdrawal is the setting aside of “certain lands from operation of

particular public land laws” for the purpose of maintaining the status quo or

reserving the land for a specific purpose. Am. Mining § 14.01. Withdrawals

almost always “protect and preserve all [VER] or claims upon the public domain.”

Id. § 14.04. Under FLPMA § 701, all actions of Interior, including withdrawals,

are “subject to [VER].” 43 U.S.C. § 1701; see Title VII Effect on Existing Rights,

Pub. L. No. 94-579, § 701(h), 90 Stat. 273 (1976). Thus, the Withdrawal is

“[s]ubject to [VER].” Withdrawal, 77 Fed. Reg. at 2563.

The phrase “subject to [VER]” shields VER from the withdrawal, and

subjects the withdrawal to a superior right. McMaster, 731 F.3d at 889-90;

Aleknagik Natives, Ltd. v. United States, 806 F.2d 924, 926-27 (9th Cir. 1986); In

re Goergen, 144 IBLA 293, 297 (1998) (the withdrawal does not become effective

on lands with valid mining claims until such claims are terminated); Alaska, 83

IBLA at 243, 250 (“subject to” means subordinate to; existing claims are not


21

extinguished); In re Wilson, 35 IBLA 349, 352-54 (1978) (existing rights are to be

deferred to; “[a] valid location gives a claimant established rights”); cf. Stockley v.

United States, 260 U.S. 532, 538, 544 (1923) (same); Seldovia, 904 F.2d at 1343-

44 (same); Am. Mining § 14.04 (A “[VER] provision is an acknowledgment that

property rights established at the time of a withdrawal will be recognized and

honored.”).

In January 2012, Interior, acting under FLPMA, withdrew for 20 years

approximately one million acres of public land from mineral location and entry

under the Mining Law. Withdrawal, 77 Fed. Reg. at 2563; see 43 U.S.C. § 1714;

Nat’l Mining Ass’n v. Zinke, 877 F.3d 845 (9th Cir. 2017). The Withdrawal

covered the location of the Mine. 2-ER-262. The Withdrawal operates

prospectively. It did not extinguish VER to claims, or prohibit mining thereon; it

only prohibited new “location and entry.”9 2-ER-262-63. Before approving the

Withdrawal, Interior prepared an EIS. 3-ER-386-457; Segregation, 74 Fed. Reg. at

35,887-01. The EIS noted the existence of the Mine and assumed it would resume

operations in the future. 2-ER-262-63, 267-68.

9 Location and entry refers to the acts of going on public land to establish a claim’s boundaries and recording the claim. 43 C.F.R. §§ 3832.1, 3832.11; 2003 Op. at 4 n.5; see Mt. Royal Joint Venture v. Kempthorne, 477 F.3d 745, 750 n.3 (D.C. Cir. 2007).


22

F. Mineral Examinations and Reports

In light of the Mining Law, FLPMA, and the Withdrawal, it is important to

understand the role of mineral examinations and reports. A mineral report

documents the conclusions and recommendations of a mineral examiner following

a mineral examination (i.e., an investigation of whether a mining claim is valid

under the Mining Law). 3-ER-314. A mineral report prepared by USFS may

support a recommendation to BLM to initiate a claim contest to invalidate an

unpatented mining claim.10 It is an internal, investigatory document that reflects a

mineral examiner’s opinion on whether a discovery has been made under the

Mining Law’s discovery test, discussed below. The test is used to inform later

agency decision-making. A mineral report is not a formal determination and has

no legal effect. 3-SER-500-768 (mineral reports are “statements of belief and not

formal determinations” that are used as a “basis for a decision on whether or not to

contest the claim.”). Mineral reports play an important role as evidence in a claim

contest because BLM bears the burden of presenting a prima facie case that the

claims are invalid. Lara v. Sec’y of Interior of U.S., 820 F.2d 1535, 1542 (9th Cir.

10 Because BLM has plenary power to administer the Mining Law, no adjudicative power has been given to USFS. 3-ER-337. USFS prepares mineral reports under a memorandum of understanding with BLM, and if it concludes, based on the mineral examination, that a claim contest is appropriate, it may refer the matter to BLM to determine whether to institute a claim contest. 3-ER-332-39.


23

1987). BLM must meet this burden to shift the burden to the claim holder to show

that the claims are valid. Id.

G. The Mine Review and VER Determination

As noted above, a withdrawal under FLPMA is subject to VER, and operates

prospectively to prevent the location of new mining claims in the withdrawn areas.

It does not prevent mining on existing claims or require existing claims to be

validated. Under 43 C.F.R. § 3809.100, BLM requires a mineral examination

before it will approve a new plan of operations or an amendment to an existing

plan of operations for claims on withdrawn lands. 2-ER-262-63. BLM does not

require a mineral examination for existing claims on withdrawn lands with an

approved plan of operations unless a material amendment is sought or is necessary.

1-SER-226. Therefore, unpatented mining claims that constitute VER under BLM

regulations do not require a mineral examination. While it does not have a similar

regulation, USFS’s guidance also does not require a mineral examination in this

scenario.

After the proposed Withdrawal, USFS performed the Mine Review and VER

Determination. In the Mine Review, USFS concluded no material Plan

amendments were necessary, and mining could continue without further approvals.

2-SER-356-401. Because no amendments were necessary, the VER Determination


24

proved unnecessary. In any event, it concluded the claims were valid. 2-ER-208-

53.

The VER Determination was completed by certified USFS mineral

examiners after a comprehensive analysis of the Mine. 2-ER-213-14. It was

completed consistent with the Mining Law and the Handbook. 2-ER-209. It used

reasonable and conservative assumptions and concluded the Mine’s profitability is

$29,350,736. 2-ER-231. It concluded EFR could mine, remove, transport, mill,

and market uranium at a profit and the Mining Law’s test for the discovery of a

valuable mineral had been met and EFR had VER. 2-ER-232.

III. The VER Determination was not required; has no legal impact on the approved Plan; and therefore, the Trust is not entitled to injunctive relief.

The Court examined the legal effect of the Withdrawal and concluded it did

not extinguish existing mining rights, including EFR’s rights to its mining claims,

and existing mines, such as the Mine, could continue to operate regardless of

whether the VER Determination was completed. Havasupai Tribe, 906 F.3d at

1166-67. The Withdrawal’s EIS acknowledged the Mine and assumed it would

continue operations. 2-ER-262-63, 267-68.

The Court’s reasoning remains sound because the Withdrawal is prospective

and forbids only the future location and entry of new mining claims under the

Mining Law. Withdrawal, 77 Fed. Reg. at 2563; see In re Goergen, 144 IBLA at


25

297 (withdrawals forbid only future locations and entries). The Withdrawal did

not impact previously located mining claims, except to restate FLPMA’s required

language that it is subject to VER. The Withdrawal had no legal impact on EFR’s

mining rights or the approved Plan. See 3-SER-584 (“Plans of Operations that

were in place prior to the withdrawal or segregation are not subject to the

mandatory [VER] determination procedures at 43 C.F.R. § 3809.100(a).”).

Instead, the Mine’s “operations . . . do not require a validity examination unless

there is a material change in the activity.” Id. (emphasis added).

In addition to the VER Determination, USFS assembled a 13-member

interdisciplinary team with expertise in minerals and geology, surface and

groundwater, air quality, transportation, tribal consultation, heritage resources,

vegetation, NEPA, and socioeconomic issues to conduct a Mine Review and

determine if there was new information or material changes in circumstances.

2-SER-356-401. That team determined there were no material changes at the

Mine; no amendment or modification of the Plan was required; and EFR could

resume operations under the Plan without the need for any additional approvals,

including a validity examination. 2-SER-356-401. Consequently, the VER

Determination was not legally required, had no legal effect, and the Trust is not

entitled to injunctive relief. See Biological Diversity, 162 IBLA at 281 (until a


26

claim contest “renders a final determination of invalidity, it is well established that

the claimant will be permitted to engage in mining and processing operations”).

Additionally, a mineral report does not provide authority to conduct mining

operations; the relevant approval for those activities is a plan of operations. USFS

and BLM routinely approve plans of operations without conducting VER

determinations. See, e.g., In re W. Shoshone Def. Project, 160 IBLA 32, 56-57

(2003). There is nothing in USFS’s or BLM’s regulations to prevent previously

approved mining from occurring during a VER determination. To the contrary,

BLM regulations and guidance says that it may occur, even in the context of a

withdrawal. See 3-SER-584 (Handbook § 8.1.5). Thus, USFS’s decision to

perform the VER Determination did nothing to adversely impact the presumptively

valid and ongoing rights of EFR to conduct its mining operations. It was

undertaken as an internal procedure to provide USFS with additional comfort; and,

at most, constituted a first step toward the possibility that USFS could potentially

refer the matter to BLM to determine whether to bring a contest hearing. See Best,

371 U.S. at 335-37 (explaining BLM’s role); 1-SER-200, Forest Service Manual

(“FSM”) § 2814.11 (explaining USFS’s right to test the validity of mining claims);

1-SER-226-28, FSM § 2819 (explaining that “[n]o adjudicative power has been

given to [USFS]” with respect to mining claims: “Thus, [USFS] statements about


27

validity are statements of belief and not formal determinations”); 1-SER-228, FSM

§ 2819.1-.2 (explaining USFS’s and BLM’s roles in validity contests).

In light of these authorities and the Court’s prior decision, there is no legal

basis to enjoin operations at the Mine even if the VER Determination was set

aside. Cf. Biological Diversity, 162 IBLA at 281. Accordingly, EFR requests the

Court affirm the District Court’s ruling on this issue.

IV. USFS considered all relevant costs and completed the VER Determination consistent with the Mining Law, federal case law, and guidance for mineral examiners.

A. The VER Determination properly concluded the Mining Law’s prudent person test was satisfied.

1. The Prudent Person Test

The administration and enforcement of the Mining Law, including

determination of the validity of mining claims, rests in the discretion of Interior,

which it has delegated to BLM. Best, 371 U.S. at 336-37; Rawls v. Sec’y of

Interior, 460 F.2d 1200, 1200-01 (9th Cir. 1972). For more than 100 years,

Interior has applied a “prudent person” test to assess claim validity. See Castle v.

Womble, 19 L.D. 455, 457 (1894). Under the prudent person test, a mineral

deposit is considered “valuable,” and a discovery has been made as required by the

Mining Law if the mineral deposit is “of such a character that ‘a person of ordinary

prudence would be justified in the further expenditure of his labor and means, with

a reasonable prospect of success, in developing a valuable mine.’” Coleman, 390


28

U.S. at 602 (quoting Castle, 19 L.D. at 457) (emphasis added). The Supreme

Court “has approved the prudent-man formulation and interpretation on numerous

occasions.” Id. (citing Chrisman v. Miller, 197 U.S. 313, 322 (1905)); Cameron,

252 U.S. at 459; Best, 371 U.S. at 335-36; see also Watt v. W. Nuclear, Inc., 462

U.S. 36, 58 n.18 (1983).

In Coleman, the Supreme Court examined another Interior discovery test

known as the “marketability test.” 390 U.S. at 600. This test requires a mine

claimant to show “that the mineral can be extracted, removed and marketed at a

profit.” Id. The Supreme Court confirmed “the marketability test [as] an

admirable effort to identify with greater precision and objectivity the factors

relevant to a determination that a mineral deposit is “valuable.” Id. at 602. It

found that “the prudent-man test and the marketability test are not distinct

standards, but are complementary in that the latter is a refinement of the former.”

Id. at 603.

2. The VER Determination properly concluded the Mine satisfies the discovery test.

The VER Determination was completed after a thorough investigation and

analysis. 1-ER-13-18, 2-ER-208-53. It took a conservative approach, erring on

the side of understating the Mine’s potential profitability. 1-ER-19. Specifically,

it used conservative assumptions for the amount of ore, uranium price, and a

contingency of $1.7 million. 1-ER-19-20. It also included “several independent


29

discounted cash flow analyses” using APEX software, which is “well-accepted as a

reliable evaluation tool by the mining industry for a variety of commodities and

mine designs.” 1-ER-20, 2-ER-230-31. This independently confirmed the detailed

cost information provided by EFR.

USFS determined that after all costs and taxes were considered, the net sum

of cash flow at the Mine (i.e., the profit) was $29,350,736. 2-ER-231. That results

in an internal rate of return (“IROR”) of 78%, which is 6.5 times greater than the

USFS conservatively estimated minimum mining industry IROR of 12%. 2-ER-

231. This means the Mine is very profitable and, based on USFS’s calculations,

the Mine could withstand a drastic increase in costs or decrease in uranium price

and remain profitable.

USFS concluded the Mine easily satisfied the prudent person test. 2-ER-

232. The prudent person test provides that a mineral deposit is considered

“valuable” as required by the Mining Law if it is “of such a character that ‘a person

of ordinary prudence would be justified in the further expenditure of his labor and

means, with a reasonable prospect of success, in developing a valuable mine.’”

Coleman, 390 U.S. at 600-03 (emphasis added); Castle, 19 L.D. at 457. The plain

language of the test includes the phrases “further expenditure” and “his labor and

means” making it clear that the test is a prospective, forward-looking analysis (i.e.,

can the mineral be mined, milled, and marketed at a profit considering current


30

economic conditions). As noted above, the Supreme Court “has approved the

prudent-[person] formulation and interpretation on numerous occasions.”

Coleman, 390 U.S. at 602. This confirms that the test is consistent with the Mining

Law, which focuses on the mineral deposit and whether it is valuable – not on any

past expenditures or decisions relating to that mineral deposit. Given the

$29,350,736 profit, conservative assumptions, and contingency of $1.7 million,

USFS properly concluded that the Mine satisfies the prudent person test.

It is worth noting the Mine also satisfied the marketability test, which

requires a mine claimant to show “that the mineral can be extracted, removed, and

marketed at a profit.” Id. at 600 (emphasis added). Again, this language requires a

forward-looking analysis and does not require the consideration of past exploration

or development costs. It only requires the consideration of whether a mineral can

be extracted, transported, milled, and marketed for a profit from the marketability

date. Considering these costs, the VER Determination determined the Mine would

generate a $29,350,736 profit and satisfied the test.

B. The Trust’s challenges to the VER Determination are without merit.

The Trust argues the VER Determination is invalid because (1) USFS

allegedly did not consider: environmental costs for monitoring radiation, surface

water, and groundwater, costs of wildlife conservation, and costs of future


31

environmental mitigation measures;11 and (2) USFS did not consider sunk costs.

The Trust is wrong. The record demonstrated that EFR provided, and USFS

independently verified, all costs to implement the Plan and operate the Mine. And

as the District Court concluded, to the extent these costs were not considered or it

could not determine if the costs were considered, any such error was harmless and

did not change the conclusion that the Mine satisfied the Mining Law’s discovery

test.

1. EFR properly estimated, and USFS considered, all environmental costs.

a. USFS considered the costs of environmental safeguards.

The Trust alleges USFS failed to consider the costs of environmental

monitoring, mitigation, and wildlife-conservation measures. It is wrong. USFS

requested, and EFR submitted, comprehensive capital and operating cost

information regarding the development and operation of the Mine under the Plan

consistent with applicable laws. See 2-ER-215. USFS requested this information

because EFR is the only uranium mining company that has mined breccia pipe

uranium mines on the federal lands subject to the Withdrawal (i.e., the Arizona 1,

Pinenut, and Kanab North Mines). 2-ER-215. It also owns and operates the White

11 While the Trust focuses largely on sunk costs, it alleges costs of any potential, unspecified, future environmental mitigation measures also were not considered, and if they were, the Mine would not satisfy the discovery test. Accordingly, EFR addresses all costs identified and addressed by the District Court.


32

Mesa Mill, the only operating uranium mill in the United States. 2-ER-224-25. As

a result of these unique mining experiences and assets, EFR provided extremely

reliable and detailed cost information that accounted for all costs of mining a

breccia pipe uranium mine and of milling uranium-bearing ores in the level of

detail and specificity typically used by EFR in making its development and

production decisions for similar mines. Upon receipt of this information, USFS

independently confirmed that EFR’s costs were accurate and verified the costs

against the costs EFR experienced at the Arizona 1 Mine. 2-ER-226-27. In light

of this information, USFS and EFR considered all relevant costs in the VER

Determination.

With respect to the costs identified by the Trust, USFS considered all of

them in the following costs in the VER Determination: mining and site general and

administrative (“G&A”) costs (i.e., the cost of operating under the Plan at

$110.42/ton) of $9,298,136.94; indirect operating costs at $36.56/ton, which is

$3,078,607.92 and includes costs for permitting and land-related issues; capital

costs related to required surface facilities of $508,000.00; capital costs of

permitting and engineering of $218,000.00; reclamation costs of $450,000.00; and

a contingency of $1.7 million. 1-ER-22-23, 2-ER-226-28. The Mine’s costs

totaled $15,252,744.86. 2-ER-227. These estimates included all the costs

identified by the Trust.


33

b. Monitoring costs were considered.

The Trust claims USFS and EFR did not consider the costs of a year of pre-

operational sampling to establish baseline radioactivity values, a groundwater well,

and subsequent monitoring. These claims are untrue. EFR provided the District

Court with citations to the record demonstrating the costs had been considered.

Regarding pre-operational sampling, the record includes several documents

demonstrating that the required monitoring was completed before the VER

Determination was completed. See, e.g., 3-ER-373 (“Baseline measurements of

radiation values in soil, air and water have been taken.”); 2-SER-356-401 (Mine

Review). Additionally, the cost information that EFR provided to USFS included

costs associated with EFR’s ongoing environmental monitoring obligations under

the Plan and its federal and state permits and authorization, which were performed

by EFR’s employees. 2-ER-225-28. Finally, the Trust continues to complain

about potential groundwater impacts at the Mine. There is absolutely no support

for this allegation. The Mine Review thoroughly evaluated potential groundwater

impacts associated with the Mine and concluded the Mine would not cause any

adverse impact to groundwater. 2-SER-388. The Trust offered no citations to the

record demonstrating otherwise, and the allegations were properly rejected.

Despite the record and the Trust having the burden of proof, the District

Court concluded it could not resolve the dispute between the parties regarding


34

whether monitoring costs not specifically listed in the costs provided by EFR to

USFS were considered. 1-ER-22. As a result, for the purpose of its analysis, the

District Court gave the Trust the benefit of the doubt and assumed that monitoring

costs were not considered in the VER Determination. 1-ER-20. The District Court

then estimated the monitoring costs as $112,000 (i.e., $70,000 for radiation

monitoring of air, soil, and water and $42,000 for groundwater sampling). 1-ER-

21. It then analyzed and concluded any error in failing to consider these costs was

harmless.

c. Wildlife conservation measures were considered.

The Trust claims USFS failed to consider the costs of certain wildlife

conservation measures. The Plan requires EFR to replace 32 acres of big-game-

foraging habitat and a watering source. 3-ER-371. However, the Plan does not set

a deadline for this work to be completed, and EFR has undertaken several wildlife

mitigation measures including contributing $12,000 for the reconstruction and

sealing of nine earthen wildlife and livestock tanks. 1-SER-187. Additionally, the

costs of replacing foraging habitat were included in EFR’s costs provided to USFS.

2-ER-226-27. EFR demonstrated that wildlife mitigation measures were included

in EFR’s cost estimates and considered by USFS.

Regarding the California condor, the Arizona population of that species is

“nonessential and experimental.” USFS received a recommendation from U.S.


35

Fish and Wildlife Service regarding measures to protect California condors. 2-

SER-351. USFS decided only to make recommendations to EFR regarding the

California condor, which are not required but which EFR has largely completed or

included in its cost estimates. 2-SER-351-55, 2-ER-226 (“Surface facilities, rehab,

impoundment, ore pad”). A net, which is one possible mitigation method, has not

been installed over the impoundment because no California condor has been seen

at the Mine, and there are concerns that netting can cause more harm than good.

Should a net be required, the estimated cost is well within EFR’s $1.7 million

contingency. 2-ER-226-27.

The District Court also concluded it could not resolve the dispute regarding

whether elk habitat restoration and a potential condor net or other mitigation were

considered, based on the way the costs are delineated in the VER Determination.

1-ER-21. As a result, for the purpose of its analysis, the District Court gave the

Trust the benefit of the doubt and assumed they were not considered. 1-ER-21.

The District Court estimated the elk habitat restoration would cost $14,420 (i.e.,

$8,250 for a new water tank and $6,170 for a new 32-acre foraging area). 1-ER-

20, 3-ER-371. It could not determine the cost of the net. The District Court then

analyzed and concluded any error in failing to consider these costs was harmless.


36

d. USFS is not required to consider speculative, potential future mitigation costs.

The Trust alleges USFS failed to consider several speculative, potential

costs, including the cost of any additional future mitigation measures, potential

remediation of groundwater, an additional potential impoundment, and unspecified

wildlife mitigation measures. The Trust did not quantify or provide any cost

estimates to the District Court. It could not because the costs are pure speculation,

and it is well-established that USFS is not required to speculate as to unknown,

potential future costs when preparing a mineral examination. United States v.

Dwyer, 175 IBLA 100, 118 (2008); United States v. Clouser, 144 IBLA 110, 130

(1998) (“[W]e agree with [the ALJ] that . . . speculative cost reductions do not alter

the Government’s profitability determination.”); United States v. Highsmith, 137

IBLA 262, 278 (1977). The District Court’s ruling that USFS properly excluded

speculative, unknown, future costs identified by the Trust should be affirmed.

e. Any error was harmless.

The District Court gave the Trust the benefit of the doubt by assuming, for

purpose of its analysis, that the VER Determination omitted certain costs

associated with environmental monitoring, elk habitat restoration, and a net to

protect California condors. It analyzed those costs and properly concluded that,

even if considered, they would not make the Mine unprofitable, and any error was

harmless. 2-ER-26.


37

i. The District Court applied the harmless error rule correctly.

Section 706 of the APA requires that “the court shall review the whole

record or those parts of it cited by a party, and due account shall be taken of the

rule of prejudicial error.” 5 U.S.C. § 706 (1966) (emphasis added). The Supreme

Court interpreted this language to impose a harmless error rule like that adopted by

courts in civil cases. Shinseki v. Sanders, 556 U.S. 396, 406 (2009) (describing §

706 as an administrative law harmless error rule); see also Ludwig v. Astrue, 682

F.3d 1047, 1054 (9th Cir. 2012) (“Sanders establishes that administrative

adjudications are subject to the same harmless error rule as generally applies to

civil cases.”). The Trust had the burden of showing that any alleged errors were

harmful. Shinseki, 556 U.S. at 409; Organized Vill. of Kake v. U.S. Dep’t of

Agric., 795 F.3d 956, 969 (9th Cir. 2015) (“[N]ot every violation of the APA

invalidates an agency action; rather, it is the burden of the opponent of the action

to demonstrate that an error is prejudicial.”); Cal. Wilderness Coal. v. U.S. Dep’t of

Energy, 631 F.3d 1072, 1092 (9th Cir. 2011) (“Sanders clarifies that the burden of

showing an agency’s deviation from the APA was not harmless rests with the

petitioner[.]”). Applying this rule, the District Court correctly concluded that any

error in omitting costs was harmless in USFS’s overall analysis of the Mine.


38

ii. The VER Determination did not involve a procedural error.

To avoid the application of the harmless error rule, the Trust cites to Ninth

Circuit cases holding an agency error is harmless where it “clearly had no bearing

on the procedure used or the substance of [the] decision reached.” Cal. Wilderness

Coal., 631 F.3d at 1091-92; see Nw. Res. Info. Ctr., Inc. v. Nw. Power &

Conservation Council, 730 F.3d 1008, 1020 (9th Cir. 2013). The Trust argued that

USFS’s alleged failure to address the identified environmental costs was a

procedural error sufficient to overcome the harmless error rule, regardless of the

amount of costs omitted or their effect on the Mine’s profitability. 2-ER-27. To

support their argument, the Trust relied upon cases focusing on procedural errors in

administrative rulemaking, an area of law where procedure matters greatly. 2-ER-

27. The Ninth Circuit has held that the harmless error rule should be applied to

congressionally-mandated rulemaking procedures only rarely. See Cal. Wilderness

Coal., 631 F.3d at 1020-21 (courts “must exercise great caution in applying the

harmless error rule in the administrative rulemaking context” because “[h]armless

error is more readily abused there than in the civil or criminal context”). The

Trust’s challenge does not involve administrative rulemaking. Instead, it involves

the determination of whether USFS considered all relevant costs when evaluating

the Mining Law’s prudent person test. As a result, the District Court correctly

rejected the Trust’s argument regarding procedural error and turned to whether the


39

alleged omission had a harmful effect on the application of the Mining Law’s

prudent person test. The Trust has provided the Court with no reason to overturn

the District Court’s decision.

iii. Any error did not affect the conclusions in the VER Determination.

The second part of the Ninth Circuit’s harmless error doctrine in APA cases

asks whether the error affected “the substance of [the] decision reached.” Cal.

Wilderness Coal., 631 F.3d at 1091-92. In this case, USFS concluded the Mine

would be very profitable, making $29,350,736 in profit, a rate of return more than

six times the industry minimum, after using conservative assumptions and

including a $1.7 million contingency. 1-ER-29. Given this large profit,

conservative assumptions, and contingency, it “makes sense to ask the party

seeking reversal to provide an explanation [of why the errors were harmful], say,

by marshaling the facts and evidence showing the contrary.” Shinseki, 556 U.S. at

410. The District Court concluded the Trust made no attempt and did not quantify

the costs that it alleged were errors. 1-ER-30. The Trust’s failure was fatal, and it

cannot cure it on appeal.

Notwithstanding the Trust’s failure, the District Court reviewed the record

and estimated the costs of environmental monitoring, assuming contrary to EFR’s

position that the costs were included in its cost estimates, at $112,000 and of

wildlife habitat restoration at $14,420 for a total of $126,420. 1-ER-30. It then


40

took judicial notice to account for inflation and assumed that the total in 2012

would be $261,000. It then assumed a four-fold increase to $1,000,000 to account

for uncertainties. Even with this assumption and the costs being within the $1.7

million contingency, the alleged error did not come close to making the Mine

unprofitable. Similarly, the Trust provided no reason to believe a net for the

California condor, should that ever be considered necessary or desirable, would

come close to eliminating the Mine’s profit. Ultimately, the Trust has not carried

its burden to show the alleged errors were harmful. See Tongass Conservation

Soc’y v. U.S. Forest Serv., 455 F. App’x 774, 777 (9th Cir. 2011); Ludwig, 682

F.3d at 1054. EFR requests the Court affirm the District Court.

C. USFS considered sunk costs consistent with the Mining Law, federal case law and guidance for mineral examiners, and economic theory.

1. The Handbook excludes sunk costs.

The VER Determination is a mineral report, which documents the

conclusions and recommendations of USFS mineral examiners following a mineral

examination. A mineral report is an internal, investigatory document that reflects a

mineral examiner’s opinion on whether a discovery has been made under the

prudent person test, which is used to inform later agency decision-making. It is not

a formal determination and has no legal effect. However, mineral reports play an

important role as evidence in a claim contest because BLM bears the burden of

presenting a prima facie case that the claims are invalid. Lara, 820 F.2d at 1542.


41

BLM created the Handbook to ensure that mineral reports are completed

uniformly, consistently, and in full compliance with the Mining Law and Supreme

Court, federal, and IBLA case law. 2-SER-230-346. The Handbook sets forth the

required methods and procedures for a mineral examination and the form and

content of a mineral report. It has long served as guidance for mineral examiners.

EFR is unaware of any challenges to the Handbook. And notably, the Trust does

not challenge the Handbook here.

The Handbook confirms that a mineral examination is a forward-looking

economic evaluation of whether mining on a claim or set of claims can reasonably

be expected to make a profit going forward. The evaluation does not look back at

or consider sunk costs by the claimant or other former owners of the mining

claim.12 As noted below, sunk costs do not relate to the question of whether

mining from the date of the mineral examination or “marketability date” can

reasonably be expected to make a profit going forward. Recognizing this, the

Handbook explains how to treat sunk costs:

Sunk costs are the unrecoverable past capital costs of certain types of equipment that the claimant already owned or the costs of improvements already made before the marketability date. Do not include as expenses in the operation’s cash flow those capital costs that were sunk before the date of marketability.

12 The question is simply whether the miner can make a profit going forward; not what the miner or other unrelated parties spent in the past developing the mine. If one could mine or sell for a profit or value today, a prudent person would mine or make the sale regardless of what originally went into creating that value.


42

3-ER-325 (footnotes omitted). This guidance is straight-forward and clear.

Sunk costs incurred before the marketability date are irrelevant and not to be

considered by mineral examiners when performing mineral examinations.

The Handbook also is consistent with the Mining Law’s prudent person test.

See Clouser, 144 IBLA at 131 (“To the extent that there are existing tracks and

lighting, the costs attributable to them need not be considered.”) (citation omitted);

United States v. Mannix, 50 IBLA 110, 119 (1980) (“There is no case law of which

we have knowledge, nor has the Government adduced any, that compels

consideration of the above-mentioned development costs in determining if an

ongoing operation is profitable.” Cf. Andrus v. Shell Oil Co., 446 U.S. 657

(1980)); United States v. Garner, 30 IBLA 42, 67 (1977). The Handbook

accurately reflects these cases. Consistent with the Handbook and IBLA cases,

sunk costs are not relevant and USFS properly excluded them from the VER

Determination. USFS’s reliance was reasonable and appropriate.

2. Sunk costs are ignored in economic based decision-making.

The Handbook’s treatment of sunk costs is consistent with economic theory,

in which a “sunk cost” is a cost that has already been incurred and cannot be

recovered. See Verizon Commc’ns, Inc. v. FCC, 535 U.S. 467, 499 n.17 (2002)

(“‘Sunk Costs’ are unrecoverable past costs; practically every other sort of

economic ‘cost’ is forward looking, or can be either historical or forward


43

looking.”). In economic based decision-making, a sunk cost is independent of any

future event and should not be considered when deciding whether to invest in or

continue a project. See, e.g., Alenco Commc’n, Inc. v. FCC, 201 F.3d 608, 615-16

(5th Cir. 2000) (recognizing that historical investments in legacy infrastructure are

“sunk costs” and have no relevance to contemporary business decisions); MCI

Commc’n Corp. v. Am. Tel. & Tel. Corp., 708 F.2d 1081, 1116-17 (7th Cir. 1983)

(“The historical costs associated with the plant already in place are essentially

irrelevant to this decision since those costs are ‘sunk’ and unavoidable and are

unaffected by the new production decision.”).

Economic theory prescribes a simple response to sunk costs: ignore them

because businesses and economists evaluate costs on a wholly prospective basis

and costs already incurred do not affect decisions on price and quantity. Judge

Richard A. Posner explained this as follows:

The distinction between opportunity costs and transfer payments, or in other words between economic and accounting costs, helps show that cost to an economist is a forward looking concept. “Sunk” (incurred) costs do not affect a rational actor’s decisions on price and quantity. Suppose that a life-sized porcelain white elephant cost $1,000 to build ($1,000 being the alternative price of the inputs that went into making it) but that the most anyone will pay for it now that it is built is $10. The fact that $1,000 was sunk in making it will not affect the price at which it is sold, provided the seller is rational. For if he takes the position that he must not sell it for less than it cost him to make it, the only result will be that instead of losing $990 he will lose $1,000.


44

The discussion of sunk costs should help explain the emphasis that economists place on the ex ante (before the fact) rather than ex post (after the fact) perspective. Rational people base their decisions on expectations of the future rather than on regrets about the past. They treat bygones as bygones. If regret is allowed to undo decisions, the ability of people to shape their destinies is impaired. If a party for whom a contract to which he freely agreed turns out badly is allowed to revise the terms of the contract ex post, few contracts will be made.

Richard A. Posner, Economics Analysis of Law § 1.1, at 7 (9th ed. 2014). These

concepts are fundamental business concepts:

A sunk cost is a cost that cannot be recovered or changed and is independent of any future cost a business might incur. Because a decision made today can only impact the future course of business, sunk costs stemming from earlier decisions should be irrelevant to the decision-making process. Instead, decision makers should base strategies on how to proceed with business or an investment based on future costs.

See Steven Nickolas, “Why You Should Ignore Sunk Costs in Decision Making,”

INVESTOPEDIA (Oct. 15, 2018), https://www.investopedia.com/ask/answers/

042115/wh-should-sunk-costs-be-ignored-future-decision-making.asp.13

13 The Trust argues that “profit” must include “all costs” and this is somehow an accounting concept. This is not true. Past capital expenditures are subject to impairment testing (i.e., analysis to determine whether long-lived assets are recoverable and should continue to hold value on financial statements). The basis of impairment testing is a comparison of actual capital cost expended net of accumulated depreciation or amortization, or the asset group’s carrying value compared to the value of future cash flows expected to result from the entity’s continued use of the asset group. This approach is consistent with the economic position of ignoring sunk costs and focusing on future cash flows.


45

The following example further demonstrates why sunk costs are properly

excluded. Assume that Company A spends $10 million on exploration and

development costs on a mining claim. Despite its best efforts, Company A is

unsuccessful and does not discover a valuable mineral deposit. However, its

efforts created value (i.e., drilling information, infrastructure, equipment, and

buildings) so it sells the mining claim to Company B for $1 million. Company B

then spends $1 million on additional exploration and discovers a valuable mineral

deposit. USFS then conducts a mineral examination, which confirms the discovery

and determines Company B can make a profit of $8 million.14 Under the prudent

person test, Company B can move forward with its mining. Under the Trust’s

argument, Company B cannot move forward with mining because of Company A’s

sunk costs incurred in failing to discover the mineral deposit.

This cannot be correct. Company B has a valuable discovery, which it paid

a total of $2 million for (i.e., $1 million in purchase price and $1 million in further

development costs). It can mine the mining claim and make $8 million, or it can

sell it to another party for $8 million, who can then mine it. Simply put, the project

is worth $8 million at the time of the examination. To take the position that

historical costs are somehow relevant and should be applied against this $8 million

14 Generally, this means that if someone pays $8 million for a project, they will expect to earn a profit stream over the life of the project, and the profit stream will have a current value of $8 million.


46

value, such that the total value of the project is somehow worth only negative $3

million at the time of the examination (i.e., $10 million spent by Company A plus

$1 million spent by Company B for total development costs of $11 million

compared to a current value of $8 million, for a negative value of $3 million)

would be absurd. USFS would never tell Company B that its mining claim cannot

be sold for $8 million today (i.e., that it is not marketable) and that Company B

would be imprudent to proceed to mine in these circumstances. To invalidate

Company B’s mining claim would amount to a taking from Company B in the

amount of $8 million, which Congress surely intended to avoid by making any

withdrawal subject to VER. A mining claim worth $8 million is a VER.

Further, it would not make any difference had Company A decided not to

sell the mining claim to Company B, but instead to hold it and further develop and

mine. Company A would have spent a total of $11 million (i.e., its $10 million

original expenditure plus an additional $1 million in further development

expenses) creating a value at the time of the mineral examination of $8 million.

Company A then could either continue to mine and make $8 million, or sell the

mining claim to a third party to mine. A prudent person would mine or sell the

mining claim. It would be irrational and imprudent of a person to abandon the

mining claim on the basis that $11 million in sunk costs exceeds the current

marketable value of $8 million. If Company A were to abandon the mining claim


47

(or if BLM were to invalidate it), Company A would suffer a total economic loss

of $11 million. If Company A were to proceed with mining, it would earn $8

million from mining, which would partially offset Company A’s total development

costs, resulting in a total loss to Company A of $3 million, which would be much

better than the $11 million loss Company A would suffer if it did not mine. A

prudent person would always either expend the funds required to mine in these

circumstances or sell the mining claim to a third party.

As for a third party, Company C, that would spend $8 million to purchase

the developed mining claim from either Company A or B, should Company A or B

choose to sell, the mining claim would still be worth $8 million to Company C.

Company C could either mine and recover its $8 million purchase price and make

a return, or sell the mining claim to another purchaser for $8 million. The purchase

price is a sunk cost: once paid, it does not affect the decision whether or not to

mine. If the purchase price were factored into the analysis of whether or not a

valuable discovery has been made, as the Trust suggests, the mining claim would

be worth $0 to Company C. That makes no sense, as Company C just spent $8

million to acquire the mining claim. USFS cannot determine the claim to be

invalid when Company C just paid $8 million to acquire it and could sell it to

another purchaser for $8 million. The inherent value of the mining claim is $8

million, which is always determined based on future cash flows. How that value


48

was arrived at, either through $2 or $20 million in prior development costs or

purchase price paid, is irrelevant under the Mining Law’s prudent person test and

determining whether a person “would be justified in the further expenditure of his

labor and means, with a reasonable prospect of success, in developing a valuable

mine.”

In an effort to make the Mine unprofitable, the Trust asks the Court to ignore

rational, economic decision-making and to force USFS to track and consider every

single expense incurred by every party on a mining claim when applying the

prudent person test.15 It further asserts these costs must be imposed on a

subsequent mining claimant regardless of the business rationale and decisions

behind expenses. This makes no sense and is fundamentally unfair. The language

and examples above demonstrate the Trust’s argument is not rational, and sunk

costs are properly excluded under the Mining Law’s prudent person test.

3. The District Court ruled correctly on sunk costs.

a. The VER Determination is consistent with federal case law and the Mining Law.

The Trust relies on several authorities to argue that USFS should have

considered sunk costs in the VER Determination. The District Court considered

15 The Trust’s argument is not practical. Property rights under the Mining Law are self-initiated, and a miner’s actions establish property rights. As a result, USFS has no way of knowing or tracking mining costs for individual mining claims.


49

these authorities and rejected the Trust’s arguments. EFR asks the Court to do the

same.

The Trust first relies on the Supreme Court’s precedent in Cameron, 252

U.S. at 459, Coleman, 390 U.S. at 602, and Ideal Basic Indus., Inc. v. Morton, 542

F.2d 1364, 1369 (9th Cir. 1976). These authorities do not support the Trust’s

argument, and they do not address whether sunk costs must be considered as part

of a mineral examination. The Trust argues the cases somehow imply a

requirement that sunk costs be considered, but these cases do not say or require

this. In fact, the cases support excluding sunk costs. As noted above, the cases

considered and affirmed the Mining Law’s prudent person test, which includes

definitions and language referring to present marketability, not past or future

prospects. None of the language and definitions in the test refer to past

expenditures, only to present and future potential. As a result, in determining

whether a discovery has been made, past expenditures are irrelevant. Since the

future is speculative, the determination must be made on present facts and cost

factors, which is exactly what USFS did.

This is further confirmed because the valuation of a mine is made on a

marketability date. See Coleman, 390 U.S. at 602; Notice of Policy on Mineral

Commodity Pricing & Opportunity for Comment, 65 Fed. Reg. 41,724, 2000 WL

877957 (July 6, 2000) (“MCP”). For mining claims on withdrawn lands,


50

marketability is addressed “both as of the date of the withdrawal and the date of the

mineral examination.” MCP, 65 Fed. Reg. at 41,725, 2000 WL 877957 (July 6,

2000). The language in the cases relied on by the Trust interpreting the Mining

Law’s discovery test suggests that the comparison of costs and revenue to

determine profitability looks forward from the marketability date. See Coleman,

390 U.S. at 602 (a mineral deposit is valuable if it is “of such a character that a

person of ordinary prudence would be justified in the further expenditure of his

labor and means, with a reasonable prospect of success, in developing a valuable

mine.”)(emphasis added); Cameron, 252 U.S. at 459 (“[T]he discovery should be

such as would justify a person of ordinary prudence in the further expenditure of

his time and means in an effort to develop a paying mining”)(emphasis added);

Ideal Basic, 252 F.2d at 1369 (asking whether “deposits were of such a character

as to justify a man of ordinary prudence in expending further labor and means

with a reasonable prospect of success in developing a valuable mine”)(emphasis

added). None of the authorities cited by the Trust support considering sunk costs

as part of a mineral examination.

The Trust next relies on the text and intent of the Mining Law to argue sunk

costs must be considered. The Mining Law does not support this position.

Regarding its purpose, the Mining Law encourages mining on public lands and

rewards the discovery of valuable minerals with property rights. Coleman, 390


51

U.S at 602 (“The obvious intent was to reward and encourage the discovery of

minerals that are valuable in an economic sense.”). Forcing USFS to consider

every sunk cost incurred would effectively encumber mining claims with past

costs. This is not consistent with the Mining Law’s intent as it would make it more

difficult to explore and locate minerals on federal lands. It could also close off

many public lands to mining due to costs incurred by prior owners, which is not

consistent with the Mining Law’s purpose. Regarding its text, the Mining Law’s

property disposal scheme was carefully crafted and follows the sequence of

exploration, location, discovery, and patent. Mineral examinations evaluate the

discovery phase of this framework. The Mining Law’s discovery test and the

policy of ignoring sunk costs is consistent with this framework. The Trust has

cited no authority that says otherwise.

The Trust then cites to several IBLA cases in support of its argument. None

support the consideration of sunk costs. In fact, IBLA cases have universally

concluded that sunk costs should be excluded when evaluating whether a valuable

mineral deposit has been discovered under the Mining Law. See Clouser, 144

IBLA at 131; Mannix, 50 IBLA at 119; Garner, 30 IBLA at 67. In light of these

IBLA authorities, USFS properly excluded sunk costs.

To avoid these authorities, the Trust relies on United States v. Collord, 128

IBLA 266 (1994). The Trust’s reliance on Collord is misplaced. The three-judge


52

majority opinion in Collord actually relied on the Mannix decision cited above and

held the following when considering capital costs: “Not included are development

and capital costs that have already been spent before the date on which a valuable

mineral deposit must be shown to exist. See United States v. Mannix, supra at

119.” Collard, 128 IBLA at 288 n.24. While the concurring opinion in Collord

attempted to draw some distinctions with the Mannix decision, it was not the

majority opinion in the case, so it does not support the Trust’s argument.

Additionally, the Trust’s citation to United States v. Armstrong, 184 IBLA 180

(2013) also does not help it. In Armstrong, the claimant tried to argue that certain

portable equipment and machinery that had already been purchased by the claimant

was a “sunk cost” and need not be included in its capital costs and related

operating costs for purposes of calculating profitability. The IBLA disagreed and

determined that the claimant had failed to account for certain machinery in its

capital costs. Armstrong, 184 IBLA at 219. This holding is entirely consistent

with the definition of sunk costs identified in the Handbook. It is also

distinguishable from EFR’s sunk costs, which relate to sunk costs only at the Mine,

not portable equipment which can be used elsewhere and for which a usage fee

would be applied for use at the Mine going forward. EFR prepared and submitted

detailed cost information to USFS, demonstrating EFR’s sunk costs are

distinguishable from those in Armstrong.


53

Finally, the Trust argues the term “absent a withdrawal” in Mannix, 50

IBLA at 119, somehow creates an exception for withdrawals requiring mineral

examiners to consider sunk costs in those, but not other, cases. There is no such

exception for several reasons. First, the sunk cost approach of Mannix has existed

for over 40 years; has not been contradicted by any federal court decision

addressing sunk costs; and is consistent with the forward-looking language in

Supreme Court and federal cases. The Trust’s alleged exception is discussed in no

IBLA cases or the Handbook. Second, a review of Mannix reveals that the phrase

was added because withdrawals present a unique situation for mineral examiners.

The Mannix language simply reflects the practical effects of a permanent

withdrawal: a claimant must have VER prior to the withdrawal to proceed under

the Mining Law. Without VER, the claimant cannot proceed. The Mannix

language simply reflects this and does not create any exception for withdrawals.

Third, the Trust cites to the concurring opinion in Collord, 128 IBLA at n.24, to

attempt to create an exception and distinguish Mannix. However, that decision

was not the law in that case and has not been cited as the proposed approach in any

other IBLA cases. However hard the Trust may try, Mannix did not create an

exception. Fourth, the Trust attempts to draw a distinction between claims located

on open and withdrawn public lands, noting that claims on open lands can be

relocated if invalidated, whereas claims on withdrawn lands cannot. This


54

distinction does not exist for the Mine, as the Withdrawal only has a 20-year

duration and expires in 2032. As a result, the lands within the Withdrawal area

will reopen again to location under the Mining Law in 2032 unless a permanent

withdrawal occurs. As a result, if EFR were to abandon or lose its rights to its

mining claims, another claimant could relocate those claims in 2032. Even if it

existed, the Trust’s exception would not help it here. Finally, as discussed above,

it would not be prudent for a person to base his or her mining decision on sunk

costs, regardless of whether claims are subject to a withdrawal, so a requirement

that sunk costs be included in withdrawal situations is inconsistent with the Mining

Law’s prudent person test. For these reasons, the Court should reject the Trust’s

arguments.

b. Any error was harmless.

The District Court concluded USFS properly excluded sunk costs from the

VER Determination. Alternatively, it concluded the Trust failed to show that sunk

costs would render the Mine unprofitable. The Trust did not suggest, argue, or

provide any record citations showing EFR’s sunk costs would come close to

offsetting the Mine’s profit of $29,350,736. The District Court correctly

determined the Trust failed to meet its burden and any error was harmless.

In an attempt to create harm, the Trust cites to the Fourth Affidavit of Muril

D. Vincelette submitted in response to a stay request in 1987 (“Affidavit”). 3-ER-


55

340-59. The Affidavit contains general cost estimates for the Mine’s exploration,

permitting, site preparation, shaft sinking, and underground development phases.

The Affidavit does not support the Trust’s claim for several reasons. First, the

Affidavit is not information that a mineral examiner would rely upon or use in a

mineral examination. It contains extremely general estimates – not close to the

detailed estimates required by the Handbook. As a result, even if a mineral

examiner reviewed the Affidavit, it could not be used to reach any conclusions.

Similarly, the Court should not rely on the Affidavit to draw the Trust’s requested

conclusions. Second, the Affidavit identifies exploration and permitting costs that,

as noted above, are clearly excluded by the plain language of the prudent person

test. Third, the Affidavit’s estimates include costs associated with future site

preparation, shaft sinking, and underground development that were included in

EFR’s cost estimates provided to USFS. As a result, the Trust double counts these

costs in its effort to eliminate the Mine’s profitability. The Court should reject this

running-up of costs to defeat the Mine’s profitability. Fourth, the Affidavit

references sunk costs that do not belong to EFR, but rather, to a prior owner of the

Mine.16 As a result, the District Court properly excluded these costs. Fifth, even if

16 Gulf Mineral Resources and Energy Fuels Nuclear, Inc. were prior owners of the Mine and are not related to EFR. In 1997, International Uranium (USA) Corporation and IUC Arizona Strip, LLC (renamed Denison Mines (USA) Corp. and Denison Arizona Strip, LLC in 2007 following a merger) purchased the Mine. 2-ER-205. In 2012, after a merger, Denison Mines (USA) Corp. and Denison


56

the Court were to consider the costs identified in the Affidavit, they do not exceed

the Mine’s profit of $29,350,736 even with adjustments for inflation. Finally, the

Trust raised the Affidavit with the District Court, which properly evaluated it and

concluded that it did not demonstrate harm. EFR asks the Court to do the same.

The Trust next cites to a 2013 Declaration of Harold Roberts in Support of

Motion to Intervene (“Declaration”) to claim that EFR has incurred $6 million in

sunk costs. Again, the Declaration contained very general financial estimates and

information to support EFR’s intervention. Like the Affidavit, the Declaration

included very general cost estimates, some of which duplicated the costs in the

Affidavit, and some of which were covered by EFR’s cost estimates submitted to

USFS. The District Court concluded that the Declaration was not part of the

record and properly did not consider it. The Court should similarly ignore it. But

even if the Court considers the $6 million in sunk costs identified in the

Declaration, that total does not offset the Mine’s $29,350,736 profit.

The Trust next complains the record does not contain information allowing it

to prove excluding sunk costs was harmful. This complaint rings hollow. This

case has been pending since 2013. The parties have worked collaboratively

together and with the District Court to assemble and complete the record. Other

Arizona Strip, LLC remained the owners and operators of the Mine, but were renamed the EFR entities before the Court. 2-ER-205.


57

than a dispute about a single citation to EFR’s confidential business information,

the parties were able to resolve all issues. The Trust never complained about

deficiencies in the record, sought to supplement the record, or asked the District

Court to conduct discovery on the issue of sunk costs. The Trust’s complaints are

untimely and should be rejected. Further, it is worth noting the Trust’s arguments

regarding sunk costs arose very late in this litigation. Sunk costs are not identified

in the Amended Complaint; they were not at issue in the first merits briefing; and

they only become an issue after the Trust realized its allegations regarding its other

identified costs were without merit and would not offset the Mine’s profit.

Finally, EFR notes that the law “does not require a guaranteed profit to

constitute a discovery” under the Mining Law. Mannix, 50 IBLA at 117-18. It

requires only “a reasonable prospect of success in developing a valuable

mine.” Id. at 112; see also Coleman, 390 U.S. at 602 (requiring only a “reasonable

prospect of success”); Ideal Basic, 542 F.2d at 1369 (requiring “reasonable

prospect of success”). Despite its best efforts, the Trust has not identified omitted

or sunk costs remotely close to the Mine’s profit of $29,350,736. This

demonstrates EFR has a reasonable prospect of success in developing a valuable

mine.


58

THE DISTRICT COURT'S REDACTION AND SEALING ORDERS WERE PROPER.

Finally, the Trust argues the District Court’s order allowing a single

redaction of EFR’s confidential business information was in error and warrants a

remand. The Court should reject this argument for several reasons. First, the

District Court properly protected EFR’s confidential information that is exempt

from public disclosure under the Freedom of Information Act, applicable USFS

regulations, 5 U.S.C. § 552(b)(4) and 36 C.F.R. § 228.6, the Handbook, and Food

Mktg. Inst. v. Argus Leaders Media, 139 S. Ct. 2356 (2019). 1-ER-38, 40. EFR

laid out in detail why each of these authorities supported the District Court’s

redaction and sealing. See 1-SER-4-22. The District Court agreed and found there

was a compelling reason to allow the redaction and seal the confidential

information. See Kamakana v. City & Cty. of Honolulu, 447 F.3d 1172, 1179 (9th

Cir. 2006). The Court should affirm this well-reasoned decision. Second, as noted

above, the Trust’s complaints regarding deficiencies in the record are untimely and

there is no reason for a remand. This matter has been pending since 2013. The

Trust had ample opportunity to conduct discovery or supplement the record; the

Trust chose not to do so; and the Court should not give the Trust an additional

opportunity. Finally, the Trust relies on the District Court’s alternate ruling

finding any failure to consider sunk costs was harmless in seeking a remand. If the

Court agrees with the District Court regarding sunk costs, it need not disturb the


59

District Court’s rulings regarding EFR’s confidential information. And should the

Court find that sunk costs should have been considered (or if it simply wants to see

behind the redaction), EFR can lodge the unredacted document identifying EFR’s

sunk costs in camera for the Court to review and confirm the failure to consider the

costs was harmless error. For these reasons, the Court should affirm the District

Court’s redaction and sealing orders.

CONCLUSION

EFR requests the Court affirm the District Court’s decision, 1-ER-4-39, in

its entirety and dismiss the Trust’s appeal.

RESPECTFULLY SUBMITTED this 5th day of April, 2021.

GALLAGHER & KENNEDY, P.A.

By: /s/ Bradley J. Glass

Bradley J. Glass 2575 East Camelback Road Phoenix, Arizona 85016-9225 (602) 530-8000 [email protected]

Attorney for Intervenor-Defendants-Appellees


60

CERTIFICATE OF COMPLIANCE

9th Cir. Case Number(s) __20-16401___________________________________

I am the attorney or self-represented party.

This brief contains _13,909____________ words, excluding the items

exempted by Fed. R. App. P. 32(f). The brief’s type size and typeface comply with

Fed. R. App. P. 32(a)(5) and (6).

I certify that this brief (select only one):

complies with the word limit of Cir. R. 32-1.

[ ] is a cross-appeal brief and complies with the word limit of Cir. R. 28.1-1.

[ ] is an amicus brief and complies with the word limit of Fed. R. App. P. 29(a)(5), Cir. R. 29-2(c)(2), or Cir. R. 29-2(c)(3).

[ ] is for a death penalty case and complies with the word limit of Cir. R. 32-4.

[ ] complies with the longer length limit permitted by Cir. R. 32-2(b) because (select only one):

[ ] it is a joint brief submitted by separately represented parties; [ ] a party or parties are filing a single brief in response to multiple briefs; or [ ] a party or parties are filing a single brief in response to a longer joint brief.

[ ] complies with the length limit designated by court order dated _____________.

[ ] is accompanied by a motion to file a longer brief pursuant to Cir. R. 32-2(a).

Signature ___/s/Bradley J. Glass_______________ Date __April 5, 2021 _


61

CERTIFICATE OF SERVICE

I hereby certify that I electronically filed the foregoing with the Clerk of the Court for the United States Court of Appeals for the Ninth Circuit by using the appellate CM/ECF system on April 5, 2021.

I certify that all participants in the case are registered CM/ECF users and that service will be accomplished by the appellate CM/ECF system.

/s/ Bradley J. Glass Gallagher & Kennedy, P.A. Bradley J. Glass 2575 East Camelback Road Phoenix, Arizona 85016-9225 (602) 530-8000 [email protected] Attorneys for Intervenor-Defendants Appellees


62

ADDENDUM


Table of Contents

Document Addendum Page Number

AMERICAN LAW OF MINING, 2D ED. § 4.10 000001 AMERICAN LAW OF MINING, 2D ED. § 4.11 000003 AMERICAN LAW OF MINING, 2D ED. § 9.02 000006 AMERICAN LAW OF MINING, 2D ED. § 14.01 000011 AMERICAN LAW OF MINING, 2D ED. § 14.04 000013 AMERICAN LAW OF MINING, 2D ED. § 30.01 000018 AMERICAN LAW OF MINING, 2D ED. § 30.05 000021 AMERICAN LAW OF MINING, 2D ED. § 34.02 000032 AMERICAN LAW OF MINING, 2D ED. § 35.14 000039 AMERICAN LAW OF MINING, 2D ED. § 36.01 000043 AMERICAN LAW OF MINING, 2D ED. § 36.03 000047 Richard A. Posner, Economic Analysis of Law, 9TH ED. § 1.1 (2014)

000057

Dep’t of Interior, Solicitor’s Op. M-37010 (Oct. 7, 2003) 000070 Dep’t of Interior, Solicitor’s Op. M-36910 (Oct. 5, 1981) 000114 Dep’t of Interior, Solicitor’s Op. M-36584 (Oct. 20, 1959) 000118 LINDLEY ON MINES, 3D ED. § 54-56 (1914) 000123 LINDLEY ON MINES, 3D ED. § 68-69 (1914) 000127 LINDLEY ON MINES, 3D ED. § 202-204 (1914) 000129 LINDLEY ON MINES, 3D ED. § 335 (1914) (EXCERPTS) 000135 Senate Report, No. 84-554 (1955) 000138


























































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No. 20-16401 UNITED STATES COURT OF APPEALS FOR THE …