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Buried treasure; federal law, controversy flaw commercial mining prospects at Crater of Diamonds State Park.

Buried Treasure

Federal Law, Controversy Flaw Commercial Mining Prospects At Crater Of Diamonds State Park

Would the federal government ever agree to get rid of a piece of property if it was found to be loaded with precious minerals?

That question may be the biggest of several that are buried in the controversy surrounding commercial mining at the Crater of Diamonds State Park in Murfreesboro where drillers have been cooling their bits for over a month.

Test drilling to study the prospect of mining had hardly begun when U.S. District Judge Susan Webber Wright halted the operation Aug. 6. But even if testing eventually is resumed and plans are approved for mining, developers will face a major legal snag regarding the park property itself.

Federal law states that the park land can be used only for recreational purposes and the state will have to substitute another recreational property of the same fair market value and with the equivalent usefulness and location. Since 1987, an amendment to the guidelines has permitted wetlands as a substitute.

Bill Adair of the U.S. attorney's office in Little Rock offered this example:

"The state could say, `Here are your wetlands; we're taking the diamond mine.' It's their park and our jurisdiction."

The government's 6F3 rule, according to those who have studied it, may present the greatest obstacle to commercial development of the park. If the pipe is found to contain hundreds of millions of dollars in diamonds, for example, then the value of the park land may appreciate accordingly.

Valuable Trade-Off

In order to conform to 6F3, however, a property of equivalent value would have to be substituted for the park land.

"The joke around here," says a source at the state Parks, Recreation and Tourism Commission, "is that we could buy Louisiana and trade it." The other alternative is for lobbyists to pressure Congress to change the law.

Dale Aclin, spokesman for Stephens Inc. which is interested in the mine, says it's up to the federal government to decide the equivalent value and use of land.

"The question becomes, `What is 80 acres worth?' If you can't mine it, what's it worth?"

Aclin claims that, in such an eventuality, the federal government would have to decide if a mine on the park land constituted a conversion from recreational use. He believes that a mining operation and tourist attraction could co-exist without violating 6F3.

Richard Davies, director at PRT, says that 6F3 frequently is used for a variety of reasons. "In the park business, this law is a fact of life and you've got to deal with it."

About ten years ago, 6F3 was used to arrange for a new bridge on Highway 300 in Pinnacle Mountain State Park, which was developed largely with government funds and remains under federal jurisdiction.

"The state Highway Department swapped some land and another older bridge for us to use as part of the Ouachita Trail," Davies says. Mine developers, he claims, will have to cross the 6F3 bridge when they get to it.

Lack Of Appeal

Recently, the PRT voted not to appeal Wright's order to have test drilling at the park. The commission's vote angered at least one representative of the four companies who are interested in commercial diamond mining.

"We were brought in by the state to do (the testing) and now we feel like we've been left at the altar," says Doug Duskin of Kennecot Exploration Co. in South Carolina. "We thought the state had the guts to hold up its end of the bargain."

Meanwhile, Judge Wright's decision in the suit by the environmentalists is in no immediate danger of being challenged. The state and the Department of Interior were named in the suit while Kennecot and Capricorn Mining Co. of Perth, Australia later intervened on the defendant's side.

The first of three phases of testing called for 30 holes to be drilled into the "pipe" or area thought to contain kimberlite, a diamond-bearing ore. Only five holes had been drilled at the time the testing was halted.

The tests were part of an effort by Kennecot, Capricorn and two other companies to determine whether commercial mining would be feasible. The other companies include Continental Diamonds Inc. of Canada and Arkansas Diamond Development Co. (Arkansas Diamond is a partnership that includes Stephens Inc. of Little Rock and Sunshine Mining and Exdiam, both of Dallas). Results from drilling the first few holes, however, provided only limited information.

The companies are interested in finding out more about the kimberlite content in the pipe, a funnel-shaped area in the ground. The ore is found on 70 acres of the 800-acre park, but only 30 acres have actually produced diamonds.

Hopes For Reconsideration

Duskin says he doesn't know if his company will try to appeal the ruling before the opportunity to do so expires Oct. 6. The Department of the Interior, which had granted permission for the tests, also could file an appeal although a source close to the U.S. Attorney's office in Little Rock says he thinks this is unlikely.

"(The issue) was very hastily considered," Duskin claims of the commission ruling. "That's why you have 60 days to consider these things."

Duskin is hopeful that the commission will reconsider the issue in another meeting later this month.

Davies, the commission chairman, says the issue was discussed thoroughly for three-and-a-half hours and feels that the commission has "done its bit for this thing."

"If these other people appeal and win, then we crank (the testing) back up," Davies notes. He says it is possible that a commission member might request further discussion and call for another vote on the issue in the September meeting.

Adair, who represents the Dept. of the Interior through the U.S. Attorney's office in Little Rock, says he doesn't know if the government plans to appeal the decision.

Adair says that even if commercial mining eventually is approved at the site, a number of other matters would need to be resolved. An environmental impact statement would be required and the state also would have to settle the matter of reimbursing the federal government for the park land.

For now, diamond mining in Arkansas is a pipe dream in which as many as three hundred employees head out each morning for their jobs at the Crater of Diamonds where their boss has spent around $100 million to build the facility, and the annual payroll runs around five million.

The mine itself is a pit-type operation with sloped walls to protect against cave-ins. A series of circular roads are built into it so trucks can carry the ore to a processing plant where it is crushed, washed and moved into a settling pond.

From there, the ore moves on a conveyor belt beneath an x-ray unit where diamond fragments are identified, then blown down a tube to await handsorting. Nearby, tourists get a chance to find their own diamonds in a covered area where freshly-mined dirt is brought in each day. No longer do they have to slog through a plowed area in the hot sun.

This scenario reads more like fluff from a public relations department, yet companies are standing in line to make it come true. Legal hassles aside, results from limited test drilling haven't helped them much either. According to project manager John Morgan, a geologist based in Lexington, Ky., the tests revealed only enough information to pique further interest about the contents of the pipe.

Phase II testing would be used to locate the larger concentration of diamonds and also could reveal such information as the number of carats per 100 tons of diamonds. Testing also could approximate the value of those specific diamonds.

In a recent report used by Arkansas Diamond, an economic forecaster assumed diamond reserves at Murfreesboro to be about $600 million. Based on that figure, the state would enjoy a return of $4 million annually from severance taxes and royalties.

"This is a very big chance for the Murfreesboro area and its economy," claims Duskin, the Kennecott representative. "We have a gold mine in South Carolina that has 195 people working there. Our gold mine is pouring out gold and providing jobs."

The recent closing of a chicken processing plant in Pike County put 265 people out of work. Prior to that, employment was hovering at ten percent.

Morgan, the project manager, says he was surprised by Wright's ruling because he claims that the test drilling had no link to the possibility of commercial mining. Morgan says that international companies like the De Beers Cartel are spending fortunes around the world in order to find kimberlite areas and that the efforts of such companies generally are kept secret.

"The situation in Arkansas is pretty amazing," he claims. "It's one of the most open, non-secret programs I've seen. And these companies have spent a lot of money with no guarantees that they can go ahead."

Early this year, the four exploratory companies agreed to pool more than $300,000 to fund the testing effort. In February, three environmental groups, including the 6,000 member Arkansas Wildlife Federation, asked for a temporary restraining order on the testing. The companies interested in the area for its commercial promise claim that mining would provide jobs and money for the park.

Morgan says that both during and after the testing, his company took exemplary measures to protect the environment. While sensitive to environmental concerns, Morgan says that commerce and tourism exist side by side at other working mines.

"The tourist nowadays is wanting more attraction than he can get from a passive mine," he notes. The Kimberley diamond mine in South Africa and the Llechwydd slate mine in North Wales have both commercial and tourist functions.

"I think the reserve is substantial enough to hold people's interest. It's definitely a target worthy of further exploration."

PHOTO : DIGGING FOR DIAMONDS: Commercial mining proponents say tourism can successfully co-exist with a full-fledged mining operation at Crater of Diamonds State Park.
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Author:Lorenzen, Rod
Publication:Arkansas Business
Date:Sep 10, 1990
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