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Gold Firm Loses Lease


A company with plans to mine for gold in the Ortiz Mountains southeast of Madrid says in a lawsuit that it has a better chance of getting the necessary approvals now that New Mexico has a governor with “a pro-business stance.” Also, the Albuquerque-based Santa Fe Gold Corp. says in a federal court complaint, Santa Fe County’s “politically liberal” population may be more willing to support mining operations these days, because of the jobs it could bring during the recession’s economic hard times.

But Santa Fe Gold Corp. has lost the lease to explore for and mine gold and other minerals on about 43,000 acres of the Ortiz Mine Grant.

On Tuesday, the mining company filed suit accusing mineral rights owner Ortiz Mines Inc., of Kansas of breach of contract.

The lawsuit also reveals that Santa Fe Gold – despite losing the lease – has already obtained a state “general mining permit” for preliminary work at the Ortiz Mountain site, issued Aug. 19.

The state Mining and Minerals Division provided a copy of the permit this week. It grants conditional approval for a year for a “mining disturbance” not to exceed two acres consisting of “collecting rock samples by hand and baseline environmental data collection.”

Santa Fe Gold obtained a seven-year mineral lease with Ortiz Mines in 2004 and made the deal public in 2008. Santa Fe Gold says in its lawsuit that it has made $753,224 in lease payments so far.

But Ortiz Mining served notice in June that it was terminating the lease, citing concerns about Santa Fe Gold’s effort to move the project forward.

Among the concerns were over issues such as obtaining surface rights owners’ permission to do ground surveys, completion of a study on the economic viability of the mining operation and “seeking to advance the Project politically at the state and county level,” according to the suit.

Santa Fe Gold, under terms of the lease, had 30 days to “cure any alleged default” and took several steps, including submitting an application that resulted in the general mining permit approved by the state in August. Company representatives also met with state Economic Development Department officials, who were enthusiastic about the gold mining project, according to the lawsuit.

But Ortiz Mines in July reaffirmed termination of the lease. The suit says Ortiz Mining, in a termination letter, said it might be willing to reinstate the lease if Santa Fe Gold paid $50,000 immediately and increased its annual lease payments from $130,000 to $250,000.

The suit maintains Ortiz wrongfully broke off the lease and says Santa Fe Gold met all lease obligations.

Santa Fe Gold also alleges that Ortiz Mine deliberately sought to destroy the mining company’s ability to develop the project “by threatening to publicize” the “wrongful” termination of the lease.

Santa Fe Gold seeks unspecified damages and an order that terms of the lease agreement be enforced.

Calls left at numbers for Anne Russ of Kansas, identified in the lawsuit as Ortiz Mines’ CEO, were not returned.

Political history

Some of the more descriptive parts of the lawsuit are about Santa Fe’s and New Mexico’s political climate and why Santa Fe Gold believes it can get a mining operation going in the same area where another extractive industry proposal – drilling for oil and gas – went down in flames in 2007 and 2008.

The political commentary is intended to show that Ortiz Mines contributed to a negative climate for mining or drilling but that the situation is better now.

The suit revisits the uproar that resulted when Texas-based Tecton Energy announced plans to explore in the Galisteo Basin for oil and gas in 2007, which, as the suit says, “caused an immediate and overwhelming negative public reaction” that was “extensively” covered by the local news media.

Russ, of Ortiz Mines, had leased mineral rights for drilling to Tecton. Ortiz Mines’ actions “created an environment that effectively prevented successful permitting,” says the Santa Fe Gold lawsuit.

It notes that both the county and then-Gov. Bill Richardson imposed drilling moratoriums in reaction to the Tecton plan and that the county adopted a restrictive new oil and gas ordinance.

Tecton eventually abandoned its drilling proposal in the face of the persistent opposition.

Santa Fe Gold decided, according to the lawsuit, that the best plan was to “wait for a more favorable permitting environment” and “put distance” between the Tecton controversy and Santa Fe Gold’s own plan.

This turned out to be prudent strategy, the lawsuit says, because Democrat Richardson’s administration – “which was hostile to extractive industries” – has been succeeded by that of Republican Gov. Susana Martinez, with “a more pro-business stance” and which “encourages oil and gas and mining development.”

The suit goes on to note the current poor economy and record-high gold prices and says the “public fervor over Tecton’s plans to drill for oil and gas has largely abated.”

“While the population of Santa Fe County is politically liberal, current economic conditions make it more likely that public support can be generated for support of the Ortiz Project,” the suit states.

No county application

Santa Fe Gold says it now believes it can get through the state permitting process that would also involve the state Environment Department and the Office of the State Engineer.

But Santa Fe County approvals will be more difficult – in part because of a tough zoning ordinance that was developed “as a direct response to environmental contamination that had occurred at the Ortiz mine under a prior lessee in the 1980s” – the suit says.

Santa Fe Gold has not yet made an application to the county, a county spokeswoman said this week.

Santa Fe Gold says “the prudent and best course of action is to build support for the project without making announcements of taking actions that would provoke political opposition.”

The company says it has built a good reputation with a separate mining operation in southwest New Mexico and commissioned a study by a University of New Mexico professor concluding that the Ortiz mine would be “an important source of employment and tax revenue for Santa Fe County and neighboring counties, and for the state.”

All of this has led to the permit Santa Fe got from the state last month, an initial milestone for the Ortiz project. The company also says it is “ready and able to access the public equity market to fund the project once the necessary permits are in place.”

Santa Fe Gold president Pierce Carson, reached by phone Friday, referred to his comments in a company news release. “We intend to vigorously prosecute this litigation,” Carson said in the release.

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