Mineral Royalties Would Undermine US Mining Industry

WHAT you hear is not necessarily what you'll get, despite the Clinton administration's recent decision not to seek congressional approval of a 12.5 percent mineral royalty in the federal budget.

The White House continues to say it's committed to mining-law reform over the long haul. As an advocate of drastic change in current mining law - changes that would include royalties and an increased fee structure - the new administration should review the history of the mining industry. As early as 1807, a 10 percent royalty on lead production was established. It was later reduced to 6 percent. Even so, by 1835, neither miners nor smelters could pay the royalty. Production stopped until the royalty prog ram was terminated.

Production in Midwestern copper mines was stalled until the 1850s, when 20 percent royalties, which were imposed in 1843, were dropped and land fees reduced. During debate on the predecessor of the current mining law, the Quartz Act of 1866, Congress again rejected imposing a royalty. Ever since, when debating mining law, Congress has decided against royalties on hard-rock mining.

Congress's concern through the years has been that imposing a royalty would unduly harm the mining industry. In the current competitive world mineral market, where most hard-rock mineral prices are determined, this concern takes on added significance.

No major mineral-producing country that competes with the United States in mineral production imposes a federal royalty. Mexico has recently repealed a 7 percent royalty to encourage its mining industry. A 12.5 percent gross royalty, as suggested by President Clinton, would place the US hard-rock mining industry at a substantial competitive disadvantage. Small mining companies - or one-person or family operations like those we have in Alaska - would bear the harshest effects of a gross royalty program. M any mines in Alaska don't return 6 percent over their lifetime.

Just this year, the Green's Creek Mine - Alaska's silver, lead, and zinc mine of world-class production capacity - shut down production because of inability to compete with world prices. In addition, a royalty program would not be the sure, steady source of federal revenue that the administration seeks. In fact, some economists predict a net loss to the federal government, when lost tax base and lost jobs are taken into consideration, if royalties are imposed.

There is also the misunderstood issue of the $2.50-an-acre patenting fee. Critics of current mining law maintain that a $2.50 patenting fee is all it costs to begin production of a mine. They're wrong; costs are substantial for would-be miners. Miners are so highly scrutinized under federal law that before they can obtain title to a mining claim they are required to prove that the claim can be economically developed. I can point to mines in Alaska that have incurred initial expenses of more than $5,500 p er acre over a period of years, in the effort to prove the minerals can be economically mined. Some miners spend more to generate the geologic information needed to get title to the land.

In addition, mines are so highly regulated by federal law that before mining operations begin, miners are required to have a mine plan, a reclamation plan, a special-use permit, a reclamation bond, an Army Corps of Engineers wetlands permit, a solid waste management plan, an explosives storage permit, a mine safety and health administration plan, and a national pollution discharge emission permit - and the list goes on. All of these permits cost a good deal of money. Only after complying with regulations

like these could a miner begin to mine on property claimed years before.

Almost all Americans, regardless of political affiliation, agree that controlling the federal deficit is the responsible thing to do. But changes in the mining law, such as a 12.5 percent royalty, will cause US miners to lose their ability to compete and jeopardize our remaining mining industry. These "reforms" are not the way to solve our nation's fiscal problems. The answer is in spending restraint.

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