U.S. companies aim to fight new 8% royalty legislation

While mining companies with U.S. interests may be investing more in offshore opportunities, they are nevertheless determined to fight legislation that would make it next to impossible for them to explore and mine deposits at home.

Indeed, H.R. 322, the mining law reform bill that recently passed the U.S. House of Representatives, was anathema to delegates of the 99th annual convention of the Northwest Mining Association (NWMA), held here last week. The bill, described by NWMA as “an announcement of Armageddon,” would impose an 8% royalty on gross sales without taking into account the enormous expenditures required for locating, mining and processing minerals. The industry is throwing its support behind a more moderate reform bill introduced by Senator Larry Craig of Idaho. Recently passed by the U.S. Senate, it would impose a 2% royalty on net profits.

Both bills will go to a conference committee early next year, when a compromise law will be drafted. In the meantime, the industry intends to continue driving home the message that jobs and tax revenues will be lost, particularly in western states, if the final legislation developed by the committee is too onerous. The NWMA, for example, points to recent studies which show that an 8% gross royalty would result in a potential loss of about 35% of the industry’s current workforce.

“Any royalty needs to acknowledge an ability to pay, and to recognize that mining is a very capital-intensive industry,” said Joe Danni, spokesman for Placer Dome U.S.

The issue is of particular concern in Nevada, which hosts 70% of all U.S. gold production and where discoveries over the past decade have made the U.S. the second-largest gold producer in the world.

Nevada’s potential for further discoveries was the subject of a technical discussion which focused on the theory that the state is one of the best places in the world to explore for deep, mesothermal gold deposits — “not the rootless, epithermal scabs envisioned by the shallow-minded thinking of the 1980s,” according to one expert. It was suggested that deep deposits similar to the Porgera deposit in Papua New Guinea are awaiting discovery below the known Carlin-type gold systems.

The technical sessions also featured talks on new discoveries in North America and elsewhere. Lac Minerals’ Red Mountain gold project, near Stewart, B.C., attracted considerable interest in light of recent re-interpretive work which enabled geologists to upgrade the geological resource to the 1-2-million-oz. range from 375,000 oz. Mineralization within the structurally controlled Marc, AB, JW and 141 zones is associated with altered porphyry, sediments and volcanoclastics.

William Threlkeld, also of Placer Dome, shed some light on the company’s Las Cristinas gold project in Venezuela, though he noted the geology is still poorly known because of deep, tropical weathering. The Proterozoic deposit is hosted within an Archean greenstone belt often compared with Eastern Canada’s Abitibi belt. Work has focused on the Conductora and Cuatros Muertos areas where gold is hosted in both oxidized and unoxidized saprolite and bedrock. Recent drilling is expected to upgrade the current resource of 124 million tonnes grading 1.3 grams gold per tonne (at a 0.7-gram cutoff). An interesting aside is that a 1-kg gold nugget was recently found on the property.

The conference also featured sessions on international opportunities. Delegates the world over came looking for Americans, Canadians and others who might be interested in developing their countries’ deposits. A delegation of Russian geologists, fed up with “putting caviar on the tables of Moscow bureaucrats,” expressed strong interest in developing closer ties with Western companies under a new economic framework. Toward that goal, details were released of a project involving Russian, Canadian and American scientists. They are researching the metallogenesis and tectonics of the Russian Far East, Alaska and the Canadian Cordillera. (The open-file report is available from the U.S. Geological Survey).

Theirs is the first study published in the West that documents the significant deposits of northeast Russia. (The Russian deposits and mineral belts are related to similar belts in Alaska and Western Canada.) Prior to this report, Russian data were classified as state secrets and geologists working in one area would usually have little knowledge of the geology of neighboring regions.

The mineral potential of Greenland was featured, as was that of countries as diverse as Vietnam, Bolivia, Mongolia, China and the Philippines. Companies interested in these opportunities should not ignore the expectations of their host countries, warned Donald Gentry, 1993 president of the Society of Mining, Metallurgy and Exploration.

“As discussions for change in mining codes and the land acquisition-tenure process begin, the trend has been for speculators, both domestic and international, to tie up large amounts of land along perceived trends, known areas of mineralization, or areas expected to become available as a result of privatization efforts.”

Gentry added that this tends to result in little money being made available for meaningful exploration and squeezes out the larger companies. The net result is that foreign governments that targeted mining as a source of economic prosperity are beginning to realize that insufficient funds are flowing into exploration areas.

His comments were dismissed as “sour grapes” by some junior companies, while others pointed out that the risk-averse majors will benefit over the longer term from the opportunities brought to them for development by the more adventurous juniors.