Local stakeholders and new CEO would all love a “final” solution to mine question

by Mark Reaman

The company with mining rights to the molybdenum in Mt. Emmons and responsibility to operate the water treatment plant on Coal Creek has gone through a major corporate shake-up.

Larsen family members who founded and have run U.S. Energy Corp. for 49 years have stepped down from top management positions and the company headquarters will be moving from Riverton, Wyo. to Denver.

Both the board of directors and company workforce will be streamlined and the changes will be implemented before the end of the year.

Local stakeholder groups feel this could present another opportunity to resume serious discussions with the company to perhaps reach a final solution over the mining quandary on Mt. Emmons, also known as Red Lady. New U.S. Energy chief executive officer David Veltri said he too would like to see a final solution to the mining question on Mt. Emmons and the company will continue to pursue a variety of options toward that end.

“There have been some major changes within the company and it will mean a lot more work from my end,” Veltri said Tuesday afternoon. “Our view as a company in regard to the Mt. Emmons project hasn’t changed. We want to first continue running the water treatment plant and the operation there at the same quality standard it has been. We are trying to get into a financial position to handle it comfortably. It sounds like it has probably gotten more complicated with the Gold King mine situation but we are looking for a finality to the mine question.”

Veltri said U.S. Energy is “constantly negotiating with potential partners” but no agreement has been reached on a future mining project. “We want a final solution to the mine whatever that final solution could be,” he said. “Whether it is a mine, plugging it, development, whatever. We will continue to look at all options but there is nothing final at the moment.”

The company announced several major changes on Wednesday, September 23.

According to a press release from the company:

“During a recent meeting, the Company’s Board of Directors has approved the following initiatives to be implemented prior to the end of the year:

“—Relocation of the Company’s corporate headquarters to Denver, Colorado.

“—Reduction of current staff from eleven to four employees.

“—Reduction of the current number of directors from seven to five.

“Subsequent to the board meeting the following additional actions have taken place:

“—The Board of Directors appointed Mr. David Veltri, President & Chief Operating Officer to the additional position of Chief Executive Officer. Mr. Veltri will implement and oversee the Company’s transition to Denver.

“—The Board accepted the resignation of Mr. Keith G. Larsen, Chief Executive Officer and Chairman of the Board, effective September 25, 2015.

“—The Board accepted resignations from Mr. Steven Richmond, Chief Financial Officer, and Mr. Bryon Mowry, Principal Accounting Officer and Corporate Secretary, effective year end 2015 or earlier contingent upon transition timelines.”

Veltri’s past experience appears focused on oil and gas operations. He was appointed president and chief operating officer of U.S. Energy last January.

Red Lady Coalition president Bill Ronai said the corporate shake-up could present a new chance to re-open talks with the company. “These changes must have been a tough decision for both the Larsen family and the board of directors. I trust that under the new leadership, fresh eyes will be taking a look at the Mt. Emmons situation,” he said. “There’s the liability for the water treatment plant versus the mining rights, particularly in light of the outlook for moly. I would hope that all interested parties can come together and find a realistic solution that protects our water and amenity-based economy while preserving some value for U.S. Energy shareholders.”

High Country Conservation Advocates public lands director Alli Melton said no matter who is sitting in the company’s executive seat, the community needs some assurance that the town and the watershed will be protected.

“A lot of the concerns voiced over the summer remain true,” Melton said. “We need some sort of financial surety or bond to make sure the water treatment plant continues to operate to ensure our community is protected regardless of the financial status and ownership of U.S. Energy. What these recent changes mean for the company’s bottom line is something we will have to wait and see about once the company makes its quarterly financial report. HCCA remains concerned about the continued operation of the water treatment plant and our community shouldn’t be put at risk as a result of their tenuous financial situation.”

Attorneys from the town of Crested Butte and Gunnison County met with the Colorado Water Quality Control Division and Colorado Division of Reclamation Mining and Safety on Tuesday. Town attorney John Belkin said the meeting was very productive. “They are keenly aware of the changes at U.S. Energy and are looking at all options in regards to ensuring that the water treatment plant continues to run as it has,” he said. “We are pleased with the meeting and we look forward to working closely with the State in both the short and long term to ensure that the community’s water is protected.”

Veltri emphasized the company will be pursuing the same goals it always has in terms of the molybdenum mine project. While the company has certainly pivoted toward more oil and gas development, Veltri is a mining engineer, so not unfamiliar with hard-rock mining. The Mt. Emmons project is the company’s only physical mining property on the U.S. Energy books.

Veltri stated in the company announcement, “While difficult, we believe that in light of the current commodity price, that these reductions in staff and cost cutting measures are a necessary step in order to continue to assure the viability of the Company during these times. We intend for the move to enhance the Company’s opportunity to grow the Company and enhance shareholder value through attracting qualified technical personnel and to increase our networking within our industry, with an emphasis on deal flow and banking opportunities.”

Former CEO Keith Larsen said, “Riverton has been home for the Company and its employees since its inception. I, along with Steve and Bryon have chosen to remain in the community where we and our families have deep roots. I would like to thank our community for its support over the years, as we’ve had a good run. I am optimistic for the opportunities that the move will bring and I look forward to rooting for the team as they enter into a new era of U.S. Energy Corp.”

It costs U.S. Energy about $1.8 million per year to operate the water treatment plant. Its oil and gas operations have declined with lower energy prices and put a squeeze on the company. Its stock price is now at under 50 cents per share. Veltri has no current plans to visit Crested Butte but the company headquarters will be relocated to Denver before the end of the year.

Despite some information on recent financial blogs that says U.S. Energy has an approved plan of operations for the mine, Forest Service Spokesperson Lee Ann Loupe said that is not the case. “The Forest Service does not have any approved Plans of Operations from U.S. Energy for mine development,” she said. ”We have a proposal for geotechnical testing and monitoring wells proposed by U.S. Energy that will have to go through environmental analysis (NEPA). The Forest hopes to begin “scoping” for this project proposal sometime this fall.”

Council to take in-depth look at situation July 20

by Mark Reaman

The Crested Butte Town Council will discuss the evolving Mt. Emmons molybdenum mine and water treatment plant situation at its next council meeting, July 20.

Councilman Shaun Matusewicz wants to focus on a request from the Red Lady Coalition (RLC) and High Country Conservation Advocates (HCCA) to ask state and federal agencies to impose a bond on the plant in case the mining company controlling the proposed mine, U.S. Energy, folds.

But Crested Butte mayor Aaron Huckstep wants the council discussion to be much more broad and look at potential unfolding opportunities to take control of the mineral rights and subsequent land use possibilities.

Town attorney John Belkin said he and the town staff would put together a comprehensive history of talks and negotiations held over the years between the town and U.S. Energy in light of a fading company.

RLC chairman Bill Ronai gave the council some background on recent developments with the company. He said the stock had gone to 47 cents from $4 a share in less than a year, giving it a market cap of just $13.1 million. He said the price of molybdenum sat at about $6 a pound and Thompson Creek, a one-time partner with U.S. Energy with a heavy moly background, was mothballing two of its major molybdenum mines. The cost of running the water treatment plant on Coal Creek and holding the mineral rights was costing U.S. Energy millions of dollars every year.

HCCA public lands director Ali Melton said all that was adding up to potential trouble. “This information emphasizes something we have pushed for a long time and that’s that we need the water treatment plant to be bonded,” she said. “That helps protect the community. I would ask the council to let the three primary agencies know of the situation and put it on record that you want a bond that’s big enough to operate the plant if something happens to the company.”

Melton said the Colorado Water Quality Control Division, the state Mine Reclamation Board and the U.S. Forest Service all “have some skin in the game and could demand a bond. HCCA strongly encourages the town to draft a letter and put it on the record that the town needs protection.”

Huckstep asked the staff to come up with a town-specific analysis for the next council meeting.

Ronai said an operating bond was not the only concern. He said given that the plant was more than 30 years old, “It will need some serious maintenance sooner rather than later. So an endowment fund to cover the $1.8 million annual operating costs on top of some maintenance and capital improvements money is likely needed.”

Belkin promised the council would receive a thorough background memo of previous discussions.

It is hot and it is crowded in Crested Butte and estimates are now that between 15,000 and 20,000 people will be on Elk Avenue Saturday morning for the Fourth of July parade. All of July will carry the double-edged sword of busyness.
That was prompting me to write a piece on the need for patience by everyone out there and ask the question: Is more always better? Look for that in another paper in July.

Instead I was emailed a pretty in-depth analysis that was posted on the financial website SeekingAlpha. The article focused on U.S. Energy, the company that owns the mining rights to the molybdenum beneath Red Lady, the mountain that overlooks the town of Crested Butte to the west. The idea of a moly mine has always been perceived as a major threat in this community. Hard rock mining and tourism are not naturally compatible.
A little over a year ago, U.S. Energy stock was worth more than $4. This week it dipped below 50 cents. You don’t have to be a financial guru to know that is not good for the company. A big reason the stock has plummeted is that it is a relatively small company that pivoted toward oil and gas production. They got slammed hard when energy prices started falling. They have not recovered.

Last week, the Riverton, Wyo. company let stockholders know that it cut its workforce by 15 percent. Those remaining took a cut in salary. “All officers and directors of the Company have agreed to take a 20 percent cut in salaries and fees, respectively,” the announcement stated. “The total compensation savings is in excess of $600,000 on an annualized basis… We believe that cutting our general and administrative costs is a prudent business decision in light of the current price of oil. We will also continue to evaluate other cost-saving measures going forward, which should have meaningful impact to our bottom line,” said Keith Larsen, CEO of the company. “These measures are part of our forward looking plan that will allow us to continue to participate in our ongoing drilling programs…”

Larsen and his company seem to have an emotional attachment to the moly deposit in Mt. Emmons. Despite the costs of carrying a site with no production, the boys just don’t want to let it go.
Based on everything I’ve read, I do not believe in an immediate threat of a molybdenum mine in the near future. The high cost and the intense regulation it would take to get a mine up and running is prohibitive in this country unless the price of moly shot up significantly. It currently sits just above $6 a pound. There is a fair amount of molybdenum all over the world, so it is not a rare mineral. In my opinion, it would not be worth a high mortgage for the community to try to say, buy the mine for tens of millions of dollars. But it might be worth trying to help U.S. Energy and figure out a way to get a liability off their books while at the same time eliminating a cloud that hangs over Elk Avenue.

The big issue is that U.S. Energy is legally required to operate a water treatment plant on Coal Creek that treats the water running through Crested Butte. Before the treatment plant was constructed, the creek ran orange. There are old mines up there and believe it or not, the mining companies didn’t always restore the environment to the way it was before a mine.
In doing more research after the SeekingAlpha article, I found some analysts believe the company can weather this storm for at least a while longer. U.S. Energy has operations with proven oil reserves and the upcoming financial quarters should show they could hang in there as the price of oil rises.

But…given this latest red flag, it might be time to once again focus on a contingency plan. Those that monitor the situation—the Red Lady Coalition, the High Country Conservation Advocates and the town of Crested Butte—should huddle up and determine if there is opportunity. Could they finally convince the U.S. Energy boys that this mine is indeed a long-term liability and it might be worthwhile to find a way to hand it over, with some operating cash, to this community? Is there a way that U.S. Energy can focus on what should be its money-making ventures in the Bakken oil shale fields? Is there a way the community could control its destiny in terms of the potential mine by taking a liability off the hands of U.S. Energy and getting some financial assistance to keep the water clear? Is the stock so cheap, the “community” could buy the company and sell a few lots to pay for it and the treatment facility expense? I don’t know. But given the timing of this financial shake-up with the company, it might be time to again look into it.
That water treatment plant needs to be protected. At the very least, the community watchdogs should have some sort of plan on how to keep the water treatment plant going if U.S. Energy does fold. That responsibility would ultimately fall either to the state or the feds but that minimum contingency plan should be in place sooner rather than later.

In the meantime, it is hot and busy and looks like it will be that way for a while. Have a wonderful Fourth everyone—and stay patient out there.

—Mark Reaman

U.S. Energy Corp. announced Tuesday that the company’s president and COO Mark Larsen has notified the board of directors that he will retire, effective December 31, 2014.     Read More »

Too many hurdles to overcome…

U.S. Energy has withdrawn its application with the state to enter into a Voluntary Cleanup Plan (VCUP) at the old Keystone mine.
Doug Jamison, the Superfund/Brownfields unit leader of the Colorado Department of Public Health and Environment (CDPHE), said that after looking at the water treatment situation with USE and considering the fact that contaminated water coming from the mine was currently being treated with a wastewater treatment plant on Mt. Emmons, the VCUP “might not have been the appropriate tool. There were a lot of hurdles to overcome and a lot more information was needed for the VCUP route.”

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Too many hurdles to overcome…

U.S. Energy has withdrawn its application with the state to enter into a Voluntary Cleanup Plan (VCUP) at the old Keystone mine

Read More »

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Local stakeholders ask: Is three years of monitoring enough?

U.S. Energy, the mining company with mineral rights beneath Mt. Emmons, submitted additional information to the Colorado Department of Public Health and Environment (CDPHE) last week concerning its proposed VCUP (voluntary clean-up plan) for the old Keystone mine on Red Lady. The local stakeholders are reviewing the new proposal and will comment on the plan to the state by next month. No official timeline for comments and review has been established by the state but they hope to have a completed analysis in July.

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“There is some risk…”

The Crested Butte Town Council has agreed to sign a confidentiality agreement with U.S. Energy in regard to the mining company’s plan to pursue a voluntary cleanup plan (VCUP) at the historic Keystone Mine on Mt. Emmons.
The agreement will allow the town to receive some proprietary information from U.S. Energy that must be kept confidential. According to the agreement, the information can be used “for the purpose of evaluating the acquisition of certain properties and related clean up activities.” Read More »

Willingness on both sides to move forward

Local representatives concerned with the potential of a molybdenum mine on Mt. Emmons sat in a U.S Energy boardroom for several hours with the top executive of the mining company and his attorneys, last Thursday, March 6. While there was no magic solution, the participants came away from the Riverton, Wyo. meeting optimistic that there could be a chance to find a permanent solution to the threat of a mine on Red Lady.

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