Congress eyes a piece of the rock - bill to charge royalties for mining on federal land

Nation's Business, Oct, 1993 by David Warner

Royal Gold, Inc., a mine-exploration company headquartered in Denver, will spend about $1.5 million over the next year developing gold mines for larger mining companies to excavate, mostly on federal land in the West. Ira new 8 percent gross royalty and new regulations included in legislation supported by Sen. Dale Bumpers, D-Ark. and Rep. Nick Joe Rahall, D-W.Va., are approved, the resulting increases in development costs could force Royal Gold to move overseas, the company says.

"If Bumpers-Rahall were actually passed--and I never like to overstate the case--we most likely would work elsewhere outside the U.S.," says Stanley Dempsey,, chief executive officer of Royal Gold, which has five workers but keeps dozens of others employed through subcontractors.

Analysts for the financial-services company of Salomon Brothers, in New York, agree that the Bumpers-Rahall bill could drive mining companies abroad. "Proposed changes in the law would make it increasingly expensive and cumbersome for mining companies to explore for and develop minerals on federal land," a Salomon Brothers analysis says. "We believe passage of these provisions would accelerate and intensify the companies' shift toward exploring and developing projects elsewhere--a trend that already is well under way."

Hard-rock mining companies pump about $32 billion into the nation's economy and directly employ more than 120,000 workers, according to the U.S. Bureau of Mines. In addition, hard-rock minerals, such as gold, silver, copper, and zinc, are used in a host of products, including electronic equipment.

Mining firms pay millions of dollars yearly in state and federal income taxes. The Arizona copper industry, for example, paid $117 million in state and local taxes in 1992, according to the Western Economic Analysis Center, in Marana, Ariz.

States that could suffer the greatest losses in revenue as a result of the bill are Arizona and 11 other Western states: Alaska, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming. Most of the nation's hard-rock minerals are found in these states, and most of the land in these states is owned by the federal government. Nearly 82 percent of Nevada, for example, is federally owned.

The Bumpers-Rahall bill would overhaul the General Mining Law of 1872, which encourages development of hardrock minerals on public lands. The mining industry and the U.S. Chamber of Commerce believe changes are needed in the 1872 law, but they say the Bumpers-Rahall bill, expected to be voted on by the House this fall, goes too far.

The 1872 law allows miners to stake a claim to federal lands containing minerals by paying the federal government a $100 holding fee or performing $100 worth of mining work on the land a year. Claimants may take title to the property five years after staking a claim, when they must prove the minerals are recoverable, file a patent, and pay the federal government $2.50 to $5 an acre, depending on the value of the minerals.

The Bumpers-Rahall legislation would impose a new federal permit process, a new federal reclamation standard, an 8 percent gross royalty on income from finished hard-rock mining products, and higher claim fees. It would also end public laud sales to mining companies.

Proponents of the Bupers-Rahall bill say an 8 percent royalty is warranted because the U.S. taxpayers need a fair return from public lands and that mining companies have been "subsidized" far too long.

The mining industry and the U.S. Chamber of Commerce maintain that a bill passed by the Senate earlier this year is a more reasonable approach. That legislation, sponsored by Sen. Larry E. Craig, R-Idaho, would impose a royalty of 2 percent of the net value of minerals-the minerals' value minus costs of extracting, developing, exploring, and processing--and would require companies to pay fair market value for land they buy.

The Clinton administration had yet to take a position on the Bumpers-Rahall or Craig bills in early September, but the president did propose a 12.5 percent royalty on hard-rock mining in the budget package he offered in March.

The royalty provision was dropped after pressure from Western lawmakers.

According to various economic studies, the 8 percent gross royalty proposed by Bumpers and Rahall would likely be economically infeasible for many mining companies. In addition, a 1992 study done by the accounting firm of Coopers & Lybrand and the law firm of Morrison & Foerster for the American Mining Congress concluded that nearly 50,000 mining jobs would be lost by the year 2000 as a result of the Bumpers-Rayhall royalty provision. Indirect job losses could range from 150,000 to 250,000, and the mining industry would suffer an earnings loss of about $1.2 billion, according to the study.

Proponents of the measure say the 8 percent royalty would raise $400 million for the U.S. government. The Coopers & Lybrand study, however, projected that the federal government would actually lose more than $420 million in revenue as a result of the bill. In addition, Coopers & Lybrand said the U.S. economy would lose about $6 billion in output.