Revising 1872 law could mean bonanza in mining royalties for US

Bloomberg NewsJanuary 16, 2013 

BOB HALLINEN — Anchorage Daily News archive

WASHINGTON -- The U.S. government could reap hundreds of millions of dollars in the next decade by collecting royalties from gold, silver and other mines exempt under an 1872 law President Ulysses S. Grant signed to promote the frontier.

"It's astounding in this time of trillion-dollar deficits that we aren't looking more closely at revenue off of public lands," Sen. Tom Udall, D-N.M., said in an interview. "This would be a very good place to do it."

He and other lawmakers are seeking to overhaul the General Mining Law of 1872, which was signed by Grant to help populate the West. With that mission long accomplished -- California is the most populous state -- charging royalties from mining on U.S. lands could generate hundreds of millions of dollars in federal revenue over the next decade, Udall said.

Miners say they don't oppose paying royalties, though a proposal to charge a 12.5 percent royalty, the same that's now applied for oil and gas development on federal lands, is too costly, according to Carol Raulston, a spokeswoman for the National Mining Association in Washington, whose members include Rio Tinto, BHP Billiton and Newmont Mining.

"It's always been something that we've been open to discussion on," Raulston said in an interview. She declined to say what would be an acceptable rate. Wages and environmental rules already make it relatively expensive to do business in the U.S., she said.

Oil, gas and coal resources mined on federal land incur royalties on the theory that they are the public's assets. Those royalties aren't applied to so-called hardrock minerals such as gold and silver under the 1872 law, though mining companies pay fees to secure a claim and an annual maintenance charge. Companies paid fees of $64 million in the 2011 fiscal year, the mining association said.

Lawmakers have attempted to overhaul the law in the past, only to be blocked by resistance from mining companies that argue the industry has been an economic bright spot in places like Nevada.

The state is home to Senate Majority Leader Harry Reid, D, and several gold mines, including ones operated by Newmont, based in Greenwood Village, Colo., and Barrick Gold, based in Toronto.

The House passed a royalty bill in 2007. The effort died in the Senate after companies said charging too much could discourage investment and cost jobs.

"Senator Reid is willing to consider any proposal for mining reform that protects the mining industry, doesn't kill jobs and shares revenues with the state," Kristen Orthman, a spokeswoman for Reid, said in an e-mailed statement.

This year, the issue of mining royalties could be wrapped up in a broader push to update laws that relate to royalties for energy development.

With U.S. oil and gas production on the rise, states that are energy-resource rich or lie adjacent to offshore development areas are seeking a greater slice of the pie, arguing they're shouldering a greater risk of environmental harm.

Sen. Ron Wyden, D-Ore., new chairman of the Senate Energy and Natural Resources Committee, plans to write a bill that could increase money from federal royalties to Gulf Coast states and Alaska, Keith Chu, a Wyden spokesman, said in an e-mail.

The subject of revenue sharing with states -- they get a percent of the energy royalties the federal government collects within their borders and off their shores -- has divided members on the panel for more than a year, creating an impasse on other energy issues.

Wyden is still writing the bill and may seek to expand royalties to some types of renewable energy development on public land and on hardrock mining, said Joshua Sheinkman, Democratic staff director on the energy committee, in an interview.

"The goal would be to broaden the base of resources to build support for reform and stabilize revenues so resource- dependent communities would have more of a cushion during downturns," Chu said.

By expanding royalties to new types of developmental activities, Wyden may be able to give states more without adding to the federal deficit.

Newmont backs "reasonable and responsible legislation" that doesn't "hinder domestic mineral production," Omar Jabara, a spokesman for the company, said in an e-mail.

"Maintaining mineral production in the U.S. is not just an economic issue, it is also in the national interest given the increasing global competition for mined products, which are used in everything from electronics to military hardware," he said.

The push for an overhaul may be undercut by uncertainty over how much potential revenue is available. Estimates vary widely. The Government Accountability Office said in a December report that the U.S. doesn't break out how much hardrock mining takes place on public versus private land.

Rep. Edward Markey, D-Mass., estimated the U.S. could generate about $3 billion over 10 years with a 12.5 percent royalty and other fees on hardrock mining.

"It's a lot of money that's on the table, and it's money that we should have been getting a long time ago," Udall said.

In his 2013 budget, President Obama included a royalty rate of 5 percent for new mining operations. The Interior Department estimated would generate only about $80 million over the next decade.

The Interior Department, which oversees mining on federal land, noted in budget documents that strong prices for gold and copper had increased active claims by 10 percent in 2011 compared with 2010. New claims in Nevada had increased by 58 percent in 2011, according to the department.

The Congressional Budget Office estimated the 2007 House bill would generate $310 million over 10 years. That applied an 8 percent royalty to new mines and a 4 percent rate to existing operations.

Velma Smith, a government relations officer at the Pew Environment Group, part of Pew Charitable Trusts, said the CBO estimate doesn't account for the rising price of gold, which has more than doubled since the House passed its bill. Gold prices in futures trading have exceeded $1,640 an ounce this month.

Groups like Pew also want environmental regulations governing mining production updated, along with the imposition of a royalty.

"The way the law works is you're making it lucrative and easy for mining to happen often in the wrong place and often without adequate environmental controls," Smith said in an interview.

Sen. Udall said he would talk to Sens, Wyden and Lisa Murkowski of Alaska, the top Republican on the energy committee, to try to find agreement on a mining royalty bill.

Besides generating more revenue for deficit reduction, some of the proceeds could be used to reclaim abandoned mines, of which there are more than 600 in Udall's home state, according to the Bureau of Land Management, a division of the Interior Department.

Udall said his father, Stewart, also had sought to overhaul the 1872 mining act while serving as Interior Department secretary in the 1960s.

"'After eight years in this office I have come to the conclusion that the most important piece of unfinished business on the nation's resource agenda is the complete replacement of the mining law of 1872,'" Udall said, quoting his father's statement upon his retirement.

"Here we are more than 40 years later, it still hasn't been done," he said.

 

 

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