Will Congress Enact U. S. Hardrock Royalties?

VANCOUVER — These days the refrain “our project is on patented ground” has slipped its way into the sales pitch of the American mineral explorer. The song of the patented owes its inspiration to Congress, where three major bills are alive — two in the House of Representatives and another in the Senate — that propose the federal government take a cut of hardrock mining revenues generated on public, or unpatented, land.

Though the idea is not a new one — over the past couple of decades numerous bills envisioning such royalties have failed to pass through Congress — the mood of industry seems to have shifted to pessimism, and the mood of Congress has become more pro-reform and pro-royalty. The executive director of the Northwest Mining Association (NWMA), Laura Skaer, who for many years has closely followed the progress of legislation in Congress, agrees that change may be in the air.

“Yes, there’s a lot of ‘Bill’ out there,” Skaer says. “And a stronger likelihood that a mining bill will be passed in the next couple of years than there had been in the past. But right now it’s too early to tell what a final one would look like.”

In large part hardrock miners owe their reprieve from federal royalties, which are levied on coal, to a Democratic champion, one Nevadan senator, and majority leader Harry Reid. A modest Reid said as much in an April 2009 position statement on mining law reform. “During my time in Congress, I have fought against and defeated many ill-conceived reform efforts that would have hurt rural Nevada,” Reid wrote.

It will come as no surprise why Reid, who grew up as the son of a miner, in Searchlight, Nev., has vociferously attacked attempts to change what critics call outdated U. S. federal mining laws that do not levy royalties on hardrock mining. Though Reid did not respond to requests for an interview, his April statement on mining reform makes that view clear. “Mining brings crucial jobs to our state,” Reid writes. “It is the number-one industry in rural Nevada and it has always played a central role in our state’s economy. Today, Nevada leads the country in mineral production with a US$9.1-billion annual output. Nearly 14,000 people were directly employed by mining in Nevada last year, with an average wage of just more than US$70,000 per year.”

But where he has in the past stubbornly resisted changes to mining laws, Reid now appears to be willing to bend a little more to the winds of change. Responding to introduction of one bill aimed at reforming the 1872 mining law now winding its way through the Senate, Senator Jeff Bingaman’s

Bill 796, Reid said it was the “more moderate” of proposals that have been made in recent years and, while he added “it still needs work,” he left the door open to potential mining reform, saying he was “ready to engage in this important debate.”

Of the three bills making their way through Congress, Reid’s muted praise makes Bingaman’s bill the most important to watch. Skaer concurs, explaining that the two other bills introduced in the House of Representatives (Bill 699 “Hardrock Mining and Reclamation Act of 2009” sponsored by Democrat Nick Rahall and Bill 3201 “Locatable Mineral Royalty and Reclamation Act of 2009” sponsored by Republican Doug Lamborn) have slim chances of moving forward.

The poor fortune of the two bills in the House of Representatives has to do with both their substance and the current structure of Congress. For Rahall, as related to Skaer by Rahall’s staff, the Senate is the enemy. “And this is my paraphrase,” Skaer says. “Every time he’s introduced a bill in the House — that’s passed the House — and he’s sent it to the Senate, it’s died. The Senate has ignored it, and they don’t even take it up.”

The Senate — or Reid’s — opposition to Rahall is due to substance. While all three bills in Congress approach mining law reform from the same directions, (1) ending the system of patenting in which companies in the U. S. can acquire ownership of mineral rights on federal lands, (2) imposing a royalty in some form on companies mining on federal lands, and finally, (3) establishing a fund where federal mining money raised through the royalty would be pooled and subsequently dispensed on mine reclamation projects, Rahall’s bill would hit hardest the bottom line of hardrock miners. Bill 699 would impose a royalty based on 8% of gross income on future production from federal lands. The royalty would be 4% for those with existing permits.

For Reid, that price is undoubtedly too high — remembering that the Senate ignored Rahall’s previous bill envisioning equally onerous royalties. And Rahall knows it. “Once senator Bingaman introduced a bill (in the Senate),” Skaer explains, “Rahall decided he’d sit back and see what the Senate was going to do before he did anything more about his bill.”

For Lamborn and Bill 3201, politics is the issue. A Republican in the Democratically controlled House of Representatives it is unlikely that he could get enough support to pass his bill. The irony here, however, is that Lamborn’s bill, which sees a royalty of 2% on net proceeds from mining on federal lands, would probably have a chance of grabbing Reid’s support if it could make it to the Senate. In fact, the NMA supports the bill. “We think that’s a pretty responsible approach to amend the mining law,” Skaer says.

With the dubious future of the two House bills, that only leaves Senator Bingaman’s Bill 796 — which Reid says he is willing to discuss — with some possibility of achieving progress. In terms of a royalty, Bingaman’s bill is somewhere in between the other two down in the House. Bingaman envisages a royalty in the range of 2% to 5% on gross income or what he calls “the value of production” and allows for deduction of “reasonable transportation, beneficiation and processing costs.” Bingaman’s bill would also go a step further than any of the other bills and levy a reclamation fee on hardrock mining from production on all lands, not just public ones, that would be between 0.3% to 1% of the value of production, with the same deductions as above.

Given the language in Bingaman’s bill, however, with a target on more than merely net proceeds and more than just public lands, Skaer argues that the senator won’t get far with it. While Reid has shown a willingness to negotiate some kind of mining law reform, Skaer notes that he is already on record as opposing the Bingaman bill as worded. What’s more, Skaer points out, when Bingaman had reached out to Democrats and moderate Republicans seeking co-sponsorship, “he didn’t get any affirmative response with the exception of Tom Udall, the junior senator from New Mexico. That speaks volumes.”

Though Skaer says Bingaman’s bill may provide a starting point for of mining law reform, as it stands she predicts Bingaman’s bill will face stiff resistance. “In order to get a bill that is acceptable to Senator Reid, the royalty’s got to be a net royalty and it can’t apply to existing operations,” Skaer says. “And Senator Reid is not going to say OK unless the large gold companies operating in his state — Barrick, Newmont and Kinross — say OK.”

Skaer also describes several other obstacles that will likely, at least in the short term, keep mining law reform from making leaps and bounds in the Senate. She says Senators Reid and Bingaman, among others, will have more pressing priorities, not the least of which will be protecting their own political necks. “You have health care, you have climate, you have energy, you have financial reforms,” Skaer says. “And with next year being an election year and with both Senator Reid, the majority leader, and Senator Bingaman, the (mining law) committee chairman, being in (the election) cycle, I would be surprised if we saw any serious movement on mining law either this year or next year.”

Much depends on whether the Democrats still control the Senate. “That seemed like a pretty sure bet nine months ago,” Skaer says. “But now the pundits are beginning to salivate.”

As for the NWMA, wh
ich represents miners in a hub of America’s hardrock mining industry, Skaer says it supports some amendments to federal mining laws, including a net proceeds royalty in the 2% range, and an end to patenting, which has since the 1990s been under a moratorium anyway. In place of patenting, however, she says there still needs to be a system for security of tenure “so that once you start making investments, you know the government’s not going to pull the rug out from underneath you as happens in Third World countries.”