May 20, 2008

Mining law reform stalls

By Kim Chi Ha

The General Mining Act of 1872 turned 136 this month, despite a hard push by environmental groups and congressional Democrats to replace the measure.

Reform supporters had high hopes the Old West-era law would be updated and royalties would be placed on mining operations for the first time. One bill passed by the House would generate about $40 million annually to clean up abandoned mines that pose environmental hazards in the West.

“We’re in a period now with exceptionally high metal prices; companies are making billionaire dollars,” said Dusty Horwitt, public lands senior analyst for the Environmental Working Group.

“Now is the time for change,” he said.

A dispute over how much the royalty should be and who should pay, however, continues to bedevil reform efforts in the Senate.

Although a number of Senate Democrats back broad reform, Senate Majority Leader Harry Reid (D-Nev.) has opposed efforts to impose royalties on existing mine operations, as the House bill would do. Few issues are as personal for Reid: His father was a gold miner and his state’s economy depends heavily on the industry.

“One of the elements of the House bill is to set royalties on existing operations, and that is something that Sen. Reid will not support,” said Jon Summers, a spokesman for Reid.

“We’re paying very close attention to the work that’s being done with this bill, and he’s going to move forward with mining reform but in a way that protects Nevada’s industry and all the jobs that come with it.”

An employee at a mining operation makes on average $69,000 a year. The industry employs more than 52,000 workers, according to the state mining agency.

Reid also collects a significant amount of campaign cash from the industry. Mine operations contributed more than $100,000 to Reid from 2001 to 2006, according to the Center for Responsive Politics.

Reform advocates know they won’t be able to get much done without Reid’s help.

“The road of reform needs to go through Nevada, where 85 percent of hard-rock mining takes place,” said Jane Danowitz, director of the Pew Campaign for Responsible Mining.

“Sen. Reid is probably the No. 1 person to provide the kind of leadership needed here to get this done.”

Originally signed into law during the Indian Wars, when Ulysses S. Grant was president, the Mining Act enables mining companies to buy public lands for as little as $5 an acre and to operate on those lands without paying a royalty. It was designed to bring both economic development and settlers to the West.

Over the subsequent administrations of 35 presidents, mining companies have extracted an estimated $245 billion worth of minerals from public lands without having to pay royalties.

Oil and gas and coal producers, by contrast, already pay royalties to federal coffers.

Like those other commodities, prices for hard rocks have skyrocketed in recent years, creating an old-fashioned boom time for the industry.

Revenues of Barrick Gold Corporation and Newmont Mining Corporation, two of the largest claim holders in Nevada, jumped in the first quarter of 2008. Barrick Gold, which reported a $1.12 billion profit in 2007, reported first-quarter net income of $514 million.

The House passed a bill last year that would impose an 8 percent royalty on new mines and a 4 percent royalty on existing operations.

Industry representatives contend that an 8 percent royalty would be the highest in the world and would discourage companies from opening new mines in the United States. The 4 percent royalty on current operations could push companies to shift more operations overseas.

“We’re already operating in the highest-cost region in the world; therefore, that would be very punitive on mining investments in the U.S.,” said Luke Popovich, spokesman for the National Mining Association, the industry’s main lobbying arm.

“A royalty on current operations would penalize the industries that have already been in operation and didn’t base their business plan on having to give up more of their earnings, or we’re just going to drive another industry offshore.”

Some companies would accept royalty payments, Popovich said. But the royalty should only be applied to future mine operations, he said. Another condition is the royalty should be taken off of profits, not gross revenues, to accommodate for rising “input costs” like labor, steel and energy, Popovich said.

Environmental groups contend the industry can afford to pay more.

“That 8 percent royalty doesn’t affect the mining industry at all, it doesn’t limit their access, and it doesn’t cut their revenue,” said Keren Murphy, spokeswoman for the Sierra Club.

Popovich said the revenues companies are now getting may be temporary, but a royalty would be forever. The mining industry is cyclical, and despite the current demand for minerals on the world market, there is nothing to prevent the market from crashing should China or India slow its growth, Popovich said.

According to the Environmental Protection Agency (EPA), there are more then 500,000 abandoned mines that will cost $50 billion to reclaim.

The Bureau of Land Management, Office of Surface Mining, the Forest Service and the EPA often fund the cleanup for these sites. The EPA has spent about $2.2 billion to reclaim abandoned mines.

The royalty in the House bill would generate only $40 million a year.

The bill also imposes new environmental safeguards on mining operations. The industry contends that they are duplicative to current laws like the Clean Water Act, Resource Conservation and Recovery Act and National Environmental Policy Act.

“The current environmental laws in place to regulate the industry for hard-rock mining aren’t working, and we can see that,” said Lauren Pagel, spokeswoman for Earthworks.

The Senate Energy and Natural Resources Committee has held a series of hearings to examine the hard-rock mining industry, but a draft bill remains under discussion.

“A big part of our work at this stage right now is finding a consensus on certain provisions such as royalties and environmental protections,” said Bill Wicker, spokesman for the Senate committee.

“When you look at the law and see how antiquated it is, there’s no reason why Congress should not be tackling this issue. If the Senate fails to take action, it will serve as yet one more example of why many believe Washington is broken.” said Danowitz of the Pew Campaign.