Hardrock Mining Reform Would Hurt US Economy, Not Expected to Pass

By Melissa Pistilli — Exclusive to Gold Investing News

In an effort to increase federal government revenues, the Obama administration’s 2013 budget plan calls for overturning a 140-year-old mining law that exempts gold, silver, and copper miners operating in the US from paying royalties; the move is expected to garner nearly $75 million for federal coffers over the next ten years.

The proposed budget plan would require hardrock mining companies operating on both public and private lands to pay a royalty payment of at least five percent of gross proceeds and end claim rights in favor of leasing agreements with the federal government. The plan also includes the creation of a hardrock abandoned mine reclamation fund by charging fees similar to what coal companies currently pay. US Interior Secretary Ken Salazar estimates that such a fund will save the federal government approximately $500 million over the next ten years.

The General Mining Act of 1872 exempts most hardrock miners, including precious metals companies, from the same royalty payments that result in billions of dollars of government revenue from oil, natural gas, and coal companies each year by allowing prospectors to stake claims to surrounding public lands on which minerals are discovered.

Under federal law, any US citizen at least 18 years of age (including corporations as of 1886) has the right to locate a hardrock or placer mining claim – platinum, gold, silver, copper, lead, zinc, uranium and tungsten mineralization amongst others – on federal lands open to mineral entry.

Prior to 1920, non-metallic minerals that could be used for fuel, such as petroleum and coal, were included under the General Mining Act; however the passing of the Mineral Leasing Act that year made these and others, including oil shale, natural gas, and phosphates, subject to royalty fees and a leasing agreement with the federal government.

The Obama administration is seeking to add “select hardrock minerals” such as gold, silver, and copper to the list of natural resources for which companies must pay compensation to the government for the privilege of extracting from public lands – thus ending the rights granted to citizens under the General Mining Act of 1872.

The current push toward further reform of the 1872 act is several years old. Those in favor, including environmentalists, say funds are needed to help clean up and restore the lands, vegetation, and water bodies damaged by mining activities, and in particular to decrease human health and environmental dangers. Of course, the move to end claiming rights and impose royalties is hotly contested. Both the Hardrock Mining and Reclamation Act of 2007 and that of 2009 died on the Senate floor under pressure from mining-supportive senators.

Hardrock miners are strongly against the proposal, saying it would harm the competitiveness of the US mining industry, local and state economies, and the livelihoods of numerous families that depend upon hardrock mining.

“I do not think that Congress will pass the proposed royalty given the current state of the economy,” Bill Wagener, President and CEO of Calico Resources (TSXV:CKB) told Gold Investing News. “The National Mining Association has reviewed various studies on the matter and concluded that such royalties would discourage new mine openings and result in mine closures, significant job losses, and substantial state and federal revenue losses.” Calico’s flagship property is the Grassy Mountain Project, located in Malheur County, Oregon. The company said it will incorporate a comprehensive reclamation plan into the mine design for the project.

Gold, silver, and copper miners operating in the US already pay higher fees, taxes, and wages than their foreign counterparts. The abolishment of the claim rights system in favor of leasing would increase costs further and complicate an already strict process for obtaining mining rights.

Placing these companies at a huge disadvantage and deterring future exploration of untapped resources is short-sighted, say industry leaders. “It’s the wrong direction for the highest cost mining region in the world,” said Luke Popovich, a spokesman for the National Mining Association.

The five percent gross royalty leasing requirement for federal land and the fees for the abandoned mine fund “all together would certainly hurt the competitiveness of the US,” said Carol Raulston, senior Vice President of communications for the National Mining Association. “I don’t think these will be seriously considered. We’ll just have to see how it works out going forward.”

Adella Harding, Mining Editor at the Elko Daily Free Press, reported that the mining industry “has been willing to pay a net royalty that allows deductions for such things as equipment and reclamation costs, but opposes any gross royalty.”

Harding, reporting from Nevada, where the economy greatly depends upon the hardrock mining industry, quoted Nevada Republican Senator John Ensign and Democrat Senate Majority Leader Harry Reid, as well as House Representative Dean Heller, who all made statements supportive of the mining industry.

“Mining has been one of the few bright spots in Nevada’s economy and it would be a mistake to take any action that could cost mining jobs. Instead of looking for new ways to tax businesses and create bigger government, the administration should work with Congress on pro-growth policies that will help get Americans back to work,” said Heller.

“Mining is the reason why some communities in our state have managed to stay afloat during this economic crisis,” said Ensign. “Any proposal that threatens the economic stability of our state’s mining industry or costs the high-paying jobs that this industry provides, does not and will not have my support.”

“I’m willing to consider any proposal for mining reform that protects the mining industry, doesn’t kill jobs and shares revenues with the state. I will carefully study the president’s proposal to determine whether it meets these criteria and ensures that one of the pillars of the state’s economy can continue to create jobs and strengthen the economy,” said Reid. Although Reid struck a more ambiguous stance on the issue than Ensign and Heller, the Democrat and son of a gold miner has been a major force in blocking such proposals in the past.

“Most in the industry are confident this won’t pass in Congress, David Wolfin, President and CEO of Coral Gold Resources (TSXV:CLH) told Gold Investing News, “Heller, who sits on the House Ways and Means Committee, and Senator Reid, who is not in a position to lose support in his home state, are not likely to let Obama’s budget proposal pass in Congress with any drastic overhaul to hardrock mining laws.” Coral’s flagship property, the Robertson project, lies along the Cortez gold trend in north-central Nevada and adjoins Barrick Gold’s Cortez mine.

This move by the Obama administration is clearly about grasping at any source of revenue available, and seems counter-productive to the government’s other natural resource policies, which are aimed at increasing the domestic supply of certain strategic minerals in an effort to reduce reliance on foreign imports.

“This would really stifle new investment. In our case what’s particularly short-sighted about it – the United States has enormous mineral resources but we are increasingly importing the minerals,” said Popovich.

Securities Disclosure: I, Melissa Pistilli, hold indirect interest in Coral Gold Resources.