[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
   THE ROLE OF STRATEGIC AND CRITICAL MINERALS IN OUR NATIONAL AND 
                           ECONOMIC SECURITY

=======================================================================

                           OVERSIGHT HEARING

                               before the

                       SUBCOMMITTEE ON ENERGY AND
                           MINERAL RESOURCES

                                 of the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                        Thursday, July 17, 2003

                               __________

                           Serial No. 108-42

                               __________

           Printed for the use of the Committee on Resources



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                         COMMITTEE ON RESOURCES

                 RICHARD W. POMBO, California, Chairman
       NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska                    Dale E. Kildee, Michigan
W.J. ``Billy'' Tauzin, Louisiana     Eni F.H. Faleomavaega, American 
Jim Saxton, New Jersey                   Samoa
Elton Gallegly, California           Neil Abercrombie, Hawaii
John J. Duncan, Jr., Tennessee       Solomon P. Ortiz, Texas
Wayne T. Gilchrest, Maryland         Frank Pallone, Jr., New Jersey
Ken Calvert, California              Calvin M. Dooley, California
Scott McInnis, Colorado              Donna M. Christensen, Virgin 
Barbara Cubin, Wyoming                   Islands
George Radanovich, California        Ron Kind, Wisconsin
Walter B. Jones, Jr., North          Jay Inslee, Washington
    Carolina                         Grace F. Napolitano, California
Chris Cannon, Utah                   Tom Udall, New Mexico
John E. Peterson, Pennsylvania       Mark Udall, Colorado
Jim Gibbons, Nevada,                 Anibal Acevedo-Vila, Puerto Rico
  Vice Chairman                      Brad Carson, Oklahoma
Mark E. Souder, Indiana              Raul M. Grijalva, Arizona
Greg Walden, Oregon                  Dennis A. Cardoza, California
Thomas G. Tancredo, Colorado         Madeleine Z. Bordallo, Guam
J.D. Hayworth, Arizona               George Miller, California
Tom Osborne, Nebraska                Edward J. Markey, Massachusetts
Jeff Flake, Arizona                  Ruben Hinojosa, Texas
Dennis R. Rehberg, Montana           Ciro D. Rodriguez, Texas
Rick Renzi, Arizona                  Joe Baca, California
Tom Cole, Oklahoma                   Betty McCollum, Minnesota
Stevan Pearce, New Mexico
Rob Bishop, Utah
Devin Nunes, California
Randy Neugebauer, Texas

                     Steven J. Ding, Chief of Staff
                      Lisa Pittman, Chief Counsel
                 James H. Zoia, Democrat Staff Director
               Jeffrey P. Petrich, Democrat Chief Counsel
                                 ------                                

              SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES

                    BARBARA CUBIN, Wyoming, Chairman
              RON KIND, Wisconsin, Ranking Democrat Member

W.J. ``Billy'' Tauzin, Louisiana     Eni F.H. Faleomavaega, American 
Chris Cannon, Utah                       Samoa
Jim Gibbons, Nevada                  Solomon P. Ortiz, Texas
Mark E. Souder, Indiana              Grace F. Napolitano, California
Dennis R. Rehberg, Montana           Tom Udall, New Mexico
Tom Cole, Oklahoma                   Brad Carson, Oklahoma
Stevan Pearce, New Mexico            Edward J. Markey, Massachusetts
Rob Bishop, Utah                     VACANCY
Devin Nunes, California              Nick J. Rahall II, West Virginia, 
Richard W. Pombo, California, ex         ex officio
    officio


                                 ------                                
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on July 17, 2003....................................     1

Statement of Members:
    Cubin, Hon. Barbara, a Representative in Congress from the 
      State of Wyoming...........................................     1
        Prepared statement of....................................     3
    Gibbons, Hon. Jim, a Representative in Congress from the 
      State of Nevada, Prepared statement of.....................     6
    Kind, Hon. Ron, a Representative in Congress from the State 
      of Wisconsin...............................................     4
        Prepared statement of....................................     5

Statement of Witnesses:
    Carpenter, Ann, Advisor, Women's Mining Coalition............    31
        Prepared statement of....................................    32
    Groat, Dr. Charles G., Director, U.S. Geological Survey, U.S. 
      Department of the Interior.................................     7
        Prepared statement of....................................     9
    Hanes, Hugh, Consultant, Brush Wellman Inc...................    20
        Prepared statement of....................................    22
    Noel, Robert J., Advisor, Metals Availability Initiative 
      Consortium.................................................    26
        Prepared statement of....................................    28
    Silver, Douglas B., President, Balfour Holdings, Inc.........    44
        Prepared statement of....................................    46

Additional materials supplied:
    Mineral Policy Center, Statements and articles submitted for 
      the record.................................................    58


 OVERSIGHT HEARING ON ``THE ROLE OF STRATEGIC AND CRITICAL MINERALS IN 
                 OUR NATIONAL AND ECONOMIC SECURITY.''

                              ----------                              


                        Thursday, July 17, 2003

                     U.S. House of Representatives

              Subcommittee on Energy and Mineral Resources

                         Committee on Resources

                             Washington, DC

                              ----------                              

    The Subcommittee met, pursuant to call, at 10:11 a.m., in 
room 1334, Longworth House Office Building, Hon. Barbara Cubin, 
Chairman of the Subcommittee, presiding.
    Present: Representatives Cubin, Gibbons, Cole, Nunes, Kind, 
Napolitano, and Tom Udall.
    Mrs. Cubin. The oversight hearing by the Subcommittee on 
Energy and Mineral Resources will please come to order.
    The Subcommittee is meeting today to hear testimony on the 
role of strategic and critical minerals in our national and 
economic security. Under Rule 4(g) the Chairman and the Ranking 
Minority Member can make opening statements. Any other members 
who have statements can have their statements included in the 
record under unanimous consent. Excuse me, they can always have 
their statement included in the record, but if you want to say 
something, Mr. Gibbons, then you will have to have unanimous 
consent for that.
    Mr. Gibbons. Feeling generous.
    Mrs. Cubin. Yes, that is right, and I am feeling tough.
    [Laughter.]
    Mr. Gibbons. I noticed you picked on me.
    Mrs. Cubin. Well, you were the only one over there.
    [Laughter.]
    Mrs. Cubin. Mr. Kind is over here.

   STATEMENT OF THE HON. BARBARA CUBIN. A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF WYOMING

    Mrs. Cubin. The Subcommittee meets today to discuss a 
subject with both economic and national security implications. 
Our Nation is facing a dwindling production of strategic and 
critical minerals and a growing reliance on foreign imports to 
supply minerals to our defense, aerospace and high-tech 
industries. America is blessed with an abundant supply of 
metals and other minerals. That mineral supply has played a 
critical role in America's economic development, our success in 
technological development and our national security.
    Our domestic mineral supply comes from our domestic hard 
rock mining industry. Historically the U.S. has been a world 
leader in the mining of a variety of minerals, and continues to 
be one of the largest producers of copper, gold, lead, zinc and 
silver. We have substantial reserves of these and many other 
important minerals. Minerals are key to any manufacturing 
economy and used extensively in modern industries such as 
aerospace, communications, robotics and information processing. 
If our Nation is going to be the leader in technology, it must 
have access to critical minerals, preferably a secure supply 
produced domestically. Minerals have a profound effect on our 
Nation's economic security.
    Minerals availability is also crucial to America's ability 
to defend itself, maintain its position as a global superpower 
and carry out the war on terror. As several of our witnesses 
will testify today, the United States is becoming increasingly 
dependent on foreign sources for strategic minerals that are 
used by our defense, security and aerospace industries. Nations 
such as China, Russia, Morocco and South Africa are now 
providing minerals that are key to our national security. This 
is a disturbing situation.
    Our Nation is becoming ever more dependent on minerals 
imports because our current policies discourage domestic 
production. There are some alarming trends occurring in our 
domestic mining industry. The United States' share of worldwide 
hard rock minerals exploration dropped 10 percent in 2000 
alone. Also, since the mid 1990's there has been a sharp 
decline in mining claims. Further, since 1997 there has been a 
66 percent increase in exploration spending in the United 
States. These companies are investing abroad. I said increase. 
A 66 percent decrease in explorations spending in the United 
States. Pardon me. These companies are investing abroad.
    Why are we losing our domestic industry? First, political 
risk for mining companies is higher in the United States than 
in almost all other countries, including those nations many in 
this room would not travel to themselves. Second, regulatory 
changes in policies that have been initiated over the past 
decade are destroying our domestic mining industry. The 
Millsite opinion issued in 1997 and the rewrite of the 3809 
regulations in 2001 created massive uncertainty for anyone 
developing a mine plan in the United States. Third, the land 
withdrawals, such as the California Desert Protection Act and 
the Roadless Rule, have jeopardized exploration and development 
of mineral resources adjacent to withdrawn areas and has locked 
up millions of acres with promising mineral potential. 
Uncertainty in the permitting process and frivolous litigation 
are delaying projects for up to 10 years. Finally, an extended 
crisis in the surety bond industry has made it virtually 
impossible for mining companies to obtain reclamation insurance 
bonds, thus making it exceedingly difficult to obtain permits. 
All of these factors are destroying our domestic mining 
industry. Once again, our Federal lands policies are running 
counter to America's economic health and national security.
    If we want to remain a strong and vibrant economic and 
military force, we need to evaluate our current minerals 
policies and develop one based on common sense. We need 
policies that promote American industries and American jobs.
    I thank you all for coming today and look forward to the 
testimony of our witnesses.
    [The prepared statement of Mrs. Cubin follows:]

          Statement of The Honorable Barbara Cubin, Chairman, 
              Subcommittee on Energy and Mineral Resources

    The Subcommittee meets today to discuss a subject with both 
economic and national security implications. Our Nation is facing a 
dwindling production of strategic and critical minerals and a growing 
reliance on foreign imports to supply minerals to our defense, 
aerospace and high-tech industries.
    America is blessed with an abundant supply of metals and other 
minerals. That mineral supply has played a crucial role in America's 
economic development, our success in technological development and our 
national security.
    Our domestic mineral supply comes from our domestic hardrock mining 
industry. Historically, the U.S. has been a world leader in the mining 
of a variety of minerals, and continues to be one of the largest 
producers of copper, gold, lead, silver and zinc.
    We have substantial reserves of these and many other important 
minerals. Minerals are key to any manufacturing economy and are used 
extensively in modern industries such as aerospace, communications, 
robotics and information processing.
    If our nation is going to be the leader in technology, it must have 
access to critical minerals, preferably a secure supply produced 
domestically. Minerals have a profound affect on our nation's economic 
security.
    Minerals availability is also crucial to America's ability to 
defend itself, maintain its position as global superpower and carry out 
the War on Terror. As several of our witnesses will testify today, the 
U.S. is becoming increasingly dependent on foreign sources for 
strategic minerals that are used by our defense, security and aerospace 
industries.
    Nations such as China, Russia, Morocco, Gabon and South Africa are 
now providing minerals that are key to our national security. This is a 
disturbing situation.
    Our nation is becoming ever more dependent on minerals imports 
because our current policies discourage domestic production. There are 
some alarming trends occurring in our domestic mining industry. The 
U.S. share of worldwide hardrock minerals exploration dropped 10 
percent in 2000 alone.
    Also, since the mid 1990s there has been a sharp decline in mining 
claims. Further, since 1997 there has been a 66 percent decrease in 
exploration spending in the United States. These companies are 
investing abroad.
    Why are we losing our domestic industry? First, political risk for 
mining companies is higher in the U.S. than in most other countries, 
including those nations many in this room would not travel themselves.
    Second, regulatory changes and policies that have been initiated 
over the past decade are destroying our domestic mining industry. The 
Millsite Opinion, issued in 1997, and the rewrite of the 3809 
regulations in 2001, created massive uncertainty for anyone developing 
a mine plan in the U.S.
    Third, land withdrawals such as the California Desert Protection 
Act and the Roadless Rule, have jeopardized exploration and development 
of mineral resources adjacent to withdrawn areas and has locked up 
millions of acres with promising mineral potential. Uncertainty in the 
permitting process and frivolous litigation are delaying projects for 
up to ten years.
    Finally, an extended crisis in the surety bond industry, has made 
it virtually impossible for mining companies to obtain reclamation 
assurance bonds thus making it exceedingly difficult to obtain permits. 
All of these factors are destroying our domestic mining industry. Once 
again, our federal lands policies are running counter to America's 
economic health and national security.
    If we want to remain a strong and vibrant economic and military 
force, we need to evaluate our current minerals policies and develop 
one based on common sense. We need policies that promote American 
industries and American jobs.
    I thank you all for coming today, and look forward to the testimony 
of our witnesses.
                                 ______
                                 
    Mrs. Cubin. I now would like to recognize our Ranking 
Member, Mr. Kind, for any statement that he may have.

 STATEMENT OF THE HON. RON KIND, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF WISCONSIN

    Mr. Kind. Thank you, Madam Chair. I will try to be brief.
    First of all I want to welcome the witnesses today, the 
Director of USGS, Chip Groat, I appreciate your attendance and 
the work that you and everyone at USGS has been doing on behalf 
of our Nation. Thanks for coming, as well as the other 
witnesses.
    And I commend the Chair for holding this very important 
hearing. I think it is something we need to delve into and keep 
an eye on from time to time. It is an issue, obviously, of 
geopolitical significance for our Nation, capabilities abroad 
and access to supply overseas as well.
    But I also believe that the central question to the 
Subcommittee must be what role can our public lands play in 
securing our strategic and critical mineral supplies for the 
future? This is not simply a question of whether the United 
States contains such minerals. Oftentimes we don't, not in the 
size, the quantity that we need. It has been typically we don't 
have them, we have to seek them abroad, and what can we do to 
ensure that supply line. But inevitably it is also a question 
of economic viability based on what we do have available and 
how do we obtain it in a cost effective but also an 
environmentally minded fashion?
    As witnesses will testify today, based on some of the 
written comments that you have already submitted, most 
strategic metal ores found in the United States are of such low 
quality that it is far more economical to buy them abroad. 
There are some exceptions, two mines, the beryllium operation 
in Utah and the platinum group of metals mine in Montana stand 
out. Consequently, our Nation has been and will continue to be 
dependent on various foreign supplies of strategic metals for 
the foreseeable future, not unlike what Chairman Greenspan was 
testifying just a couple of short weeks ago, that it is not all 
together bad that we try to diversify our sources of natural 
gas, recognizing we have natural gas supplies here but we are 
going to be dependent on imports from other countries, and the 
more diversified we can get, the less dependent we will be on 
supply disruptions.
    There are those that assert the United States should 
encourage and facilitate the development of our public domain 
for these critical metals, while others say the geology is 
simply inadequate for these types of production and would not 
want the environmental consequences that would come with such 
development. Most experts would agree, however, that the bulk 
of the mineral supply of the United States imports for national 
defense purposes cannot be economically produced in the United 
States, whether it is from a lack of mineral resources or 
facilities needed to process the raw ore. Nevertheless, today's 
hearing will inevitably focus on increased domestic production 
on Federal lands, but before we consider that option to any 
great extent, we must also look at the current state of the 
hard rock mining industry in the United States. The hard rock 
mining industry is the Nation's most toxic polluter according 
to EPA's 2003 toxic release inventory. Moreover, the General 
Mining Law of 1872 has remained largely unchanged since 
President Grant signed it into law, and the industry remains 
exempt from paying royalties on minerals extracted on public 
lands, nor are completely responsible for the environmental 
consequences that come from production on these public lands.
    My colleague, the Ranking Member of the full Committee 
here, Mr. Rahall, has once again introduced bipartisan mining 
reform law of which I am an original cosponsor and which we 
hope will receive serious consideration by this Committee and 
by the Congress as a whole.
    As with the supply debates and other matters under the 
jurisdiction of this Subcommittee, a discussion of increased 
domestic hard rock minerals production on public lands is not 
complete without considering alternatives to activities that 
have been potentially hazardous environmental implications. 
Conservation of minerals through recycling is one area where 
technological advancements can offset concerns about new 
production increasing supply.
    I am looking forward to perhaps hearing some testimony in 
regards to what the industry itself is doing in order to reduce 
the dependence on some of these strategic minerals and sources, 
and there has been some market forces at play there. Also 
interested in hearing from any of the witnesses, your insight 
on recycling efforts and if more can be done in this area in 
order to reduce our foreign dependence on these crucial 
supplies.
    So once again I commend the Chair for holding the hearing. 
I thank the witnesses for attendance. I will apologize ahead of 
time because I have a meeting with Ambassador Zoellick to talk 
about some trade issues, that I am going to have to step out 
for, but hopefully return in short order.
    Thank you, Madam Chair.
    [The prepared statement of Mr. Kind follows:]

        Statement of The Honorable Ron Kind, Ranking Democrat, 
              Subcommittee on Energy and Mineral Resources

    Ongoing U.S. military activity abroad along with nationwide efforts 
to ensure our homeland security here at home has drawn the attention of 
our Subcommittee to the issue of the Nation's strategic and critical 
minerals supply.
    To understand the issue, it is useful to consider the history of 
the Nation's critical and strategic mineral supply and its relation to 
geopolitics.
    From the end of World War I through the end of the Cold War, the 
military was concerned about U.S. dependence on foreign nations for 
supply of certain metallic minerals necessary for military equipment 
and operations.
    Today, the situation is different. The Cold War is over. The 
nations of the former Soviet Union and Africa are more stable and 
economically reliant on exports of these strategic minerals.
    Technology and geological knowledge have dramatically increased, 
causing world reserves of these minerals to grow, at times by as much 
as 700 percent.
    In response to these trends, Congress has authorized the sale of 
many of the Nation's stockpiled minerals, siting the availability of 
world markets to provide necessary supplies. At this time, only 
beryllium, mica, and quartz crystals are actively stored for future 
use.
    So, today, the Subcommittee asks the question, ``what role can our 
public lands play in securing our strategic and critical minerals 
supply for the future?'' This is not simply a question of whether the 
United States contains such minerals. Inevitably, the question of 
economic viability comes into play.
    And, as witnesses will testify today, most strategic metal ores 
found in the United States are of such low quality that it is far more 
economical to buy them abroad. There are some exceptions--as evidenced 
by two mines: a beryllium operation in Utah and a platinum group metals 
mine in Montana.
    Consequently, our Nation has been and will continue to be dependent 
on various foreign supplies of strategic metals beyond the foreseeable 
future. As in the case made by Fed Chairman Greenspan for multiple 
sources of natural gas, from a geopolitical perspective, this is not a 
bad thing.
    There are those that assert the United States should encourage and 
facilitate the development of our public domain for these critical 
metals. While others say the geology is simply inadequate for these 
types of production and would not warrant the environmental 
consequences.
    Most experts would agree, however, that the bulk of the mineral 
supply that the U.S. imports for national defense purposes cannot be 
economically produced in the United States, whether it is from a lack 
of mineral resources or facilities needed to process the raw ore.
    Nevertheless, today's hearing will inevitably focus on increased 
domestic production on federal lands. But before we consider such an 
option, we must first look at the current state of the hardrock mining 
industry in the United States.
    The hardrock mining industry is the nation's most toxic polluter 
according to the EPA's 2003 Toxics Release Inventory. Moreover, since 
the General Mining Law of 1872 has remained largely unchanged since 
President Ulysses S. Grant signed it into law, the industry remains 
exempt from paying royalties on the minerals it extracts from the 
public domain. In comparison, coal, oil and gas producers are all 
required to pay 8 to 12 percent royalties on production from federal 
leases. To put this into perspective, since 1872, more than $245 
billion in metals and minerals has been extracted without any payment 
to the owners.
    My colleague, the Ranking Member of the Resources Committee from 
West Virginia, Mr. Rahall, has, once again, introduced a mining law 
reform bill this Congress, of which I am an original co-sponsor.
    Mr. Rahall's bill is designed to bring the Mining Law of 1872 into 
the 21st Century. If enacted, H.R. 2141, ``The Mineral Exploration and 
Development Act of 2003,'' would permanently abolish the use of patents 
in hardrock mining, place an 8 percent royalty on minerals extracted 
from federal lands, create an abandoned mine lands fund to reclaim 
abandoned mines, and proscribe new operation and reclamation standards 
for operators.
    As with supply debates in other matters under the jurisdiction of 
the Subcommittee, a discussion of increased domestic hardrock minerals 
production on public lands is not complete without considering 
alternatives to activities that have potentially hazardous 
environmental implications.
    Conservation of minerals through recycling is one area where 
technological advancements can offset concerns about new production and 
increasing supply.
    I am glad to see Mr. Robert Noel has come to testify on behalf of 
the Metals Affordability Initiative, a consortium of aircraft and 
engine manufacturers and key material and component-supplier companies 
that, among other things, works to reduce the amount of metal used in 
military and aerospace products.
    In addition to industry efforts, Congress must work harder to 
encourage the recycling of these critical metals.
    Whether it is for increased domestic supply, national security, 
environmental protection, or political purposes, continued research and 
development of recycling technologies can help us maintain our 
strategic and critical metals stockpiles and preserve our scenic public 
lands and waters for future generations to enjoy.
    I would like to thank the panelists for their presence today and I 
look forward to hearing your testimony.
                                 ______
                                 
    Mrs. Cubin. Thank you, Mr. Kind.
    Would any other members like to make an opening statement? 
Mr. Gibbons?
    Mr. Gibbons. Madam Chairman, in view of the time and the 
need to hear from our witnesses, I do have an opening 
statement, but I will submit it for the record.
    [The prepared statement of Mr. Gibbons follows:]

 Statement of The Honorable Jim Gibbons, a Representative in Congress 
                        from the State of Nevada

    Madam Chairwoman, thank you for holding this hearing today to 
discuss an issue of utmost importance to our Nation's independence, 
prosperity, economic stability, and most importantly, our safety and 
security.
    We are truly blessed to live in a county rich in natural resources.
    As a result of developing our natural resources, not only have we 
have raised our standard of living exponentially but created the 
strongest, most technologically advanced military in the world.
    Having both a mining and military background, I understand the 
intricate link between the minerals and metals that our mines extract 
and the development of the world's most sophisticated technology.
    The availability of various materials equates to the most 
technologically advanced military in the world.
    Unfortunately, misinformed environmental groups are incessantly 
attacking our domestic mining industry.
    They work to over-regulate the mining industry to a point where 
mining operations just cannot bear the burden and flee the United 
States for business environments that are more fair and predictable.
    We have seen this pattern before.
    For example, through regulatory burdens we have completely shut off 
the majority of our public lands from oil drilling, and consequently, 
we are dependent on foreign nations for this resource.
    Because oil is an absolute necessity, we often must ally with 
countries that do not have our best interests in mind or with nations 
that are politically unstable.
    This puts us in a very vulnerable position.
    It is our responsibility as policy makers to ensure that we do not 
willfully put this country in a position in which we are dependent on 
other nations for resources that are an absolute necessity for our 
safety-resources that can be produced domestically.
    Furthermore, it is our job to ensure that we protect the basis of 
our economy which is unarguably our domestic mining industry.
    I look forward to hearing from our witness today and I hope that as 
a result of each of your recommendations, we can make policy which will 
promote our domestic mining industry and further advancements in 
technology.
                                 ______
                                 
    Mrs. Cubin. Thank you. All opening statements will be 
submitted.
    Now, I would like to recognize the first panel, Dr. Charles 
Groat, the Director of the United States Geological Survey with 
the U.S. Department of the Interior. Would you please approach 
the table?
    It is policy for this interior Committee to swear all of 
the witnesses, so would you mind rising and raising your right 
hand.
    [Witness sworn.]
    Mrs. Cubin. Thank you. The Chairman now recognizes Mr. 
Groat to testify for 5 minutes. The timing lights on the table 
will indicate when your time has concluded, and if you are not 
able to present your entire testimony orally, then your entire 
testimony will be included in the record.

   STATEMENT OF CHARLES G. GROAT, DIRECTOR, U.S. GEOLOGICAL 
            SURVEY, U.S. DEPARTMENT OF THE INTERIOR

    Mr. Groat. Thank you, Madam Chairman, and thank you for the 
opportunity to testify. I will submit my full testimony for the 
record and just paraphrase and run through the high points.
    I was asked to comment on the U.S. Government's involvement 
in critical and strategic minerals from a historical point of 
view to kind of set the framework for how we have been dealing 
with those.
    If we really want to go back to true history, we can go 
back all the way to Lewis and Clark, when 200 years ago 
President Jefferson wrote to Merriwether Lewis concerning 
exploration in the Pacific Northwest and told him to observe, 
quote, ``mineral production of every kind.'' So the Government 
has recognized for a long time that mineral resources are a 
critical part of its economy and of its well-being. 
Unfortunately, in the early parts of the 19th century the 
ability to understand those resources, their production and 
their likelihood for future development wasn't very great 
because it was spread around in different kinds of reporting 
mechanisms, so in 1879 the Congress created the U.S. Geological 
Survey and consolidated much of the activity that it was 
carrying out in the area of minerals within the USGS. One of 
the first things the USGS did was to set up a mining statistics 
division, so that the flow of information about mineral 
resources in the United States would be adequate.
    The creation of the Bureau of Mines in 1925, that function 
was transferred to them, and then with the abolition of the 
Bureau of Mines in '96, it was turned back to the United States 
Geological Survey.
    If we look historically at the concern of the Government 
and its activities in critical and strategic minerals, we 
really see an ebb and flow of interest and activity. After 
World War I it was pretty clear that the United States was not 
going to be and was not at the present time self-sufficient in 
all the minerals it needed, and by the time World War II came 
along, the country was really clear in its concern about 
vulnerability to disruptions in the supply of critical 
commodities.
    As we moved into the atomic age, by that time the United 
States had become a net importer of many minerals, and it was 
evidence to all in the industry and those concerned about our 
economy that this trend posed serious threats for this country 
in many ways.
    In response to that concern the Federal Government took a 
number of steps to address that. One of them was to create a 
loan program to encourage exploration on public lands, and 
second, created the stockpile that has continued to the present 
of critical and strategic minerals, and put together the Paley 
Commission, which in '52 produced a report that documented the 
Nation's mineral position, and developed recommendations about 
how we ought to deal with our mineral problems.
    The ebb comes up again following the Korean Conflict. By 
that time it was perceived that we were in a surplus situation 
in most cases, and the interest in doing anything of 
consequence about critical and strategic minerals wasn't very 
high.
    But there again the flow picks up again as concerns about 
the Soviet Union and its expanding influence around the globe 
grew, and there were concerns that we might even end up in a 
resource war in a sense with the Soviet Union, and even more 
so, the fact that they might deny us access to some of the 
foreign supplies, that we were becoming increasingly reliant 
on, of critical minerals as they extended their influence.
    So that at that time, we published in 1973 the first 
general assessment of the mineral resources of the United 
States that covered the whole country. This was the first one 
in 20 years since the Paley Commission, and reported on 
geologic studies and estimates about that resource base.
    In the '70's we tried to develop an approach to helping the 
country in a probabilistic sort of way understand what the 
potential was for undiscovered resources. It is one thing to 
chronicle what is there and what we know about. The question 
always remains what is the potential of this country to develop 
more resources? So in 1973 we did such a study, and at that 
time in the '90's by the time that was completed, we concluded, 
and I will quote in a sense, that in this first ever report to 
determine the potential undiscovered deposits of gold, silver, 
copper, lead and zinc, we concluded, quote, ``That there is 
every reason to believe that, for conventional-type deposits 
that contain gold, silver, copper, lead, zinc, about as much 
left to be discovered in the United States as has already been 
discovered.'' And we reported what the estimates of those total 
resources were. This kind of activity will continue to be 
updated as conditions surrounding the economics and the 
accessibility to those deposits or potential deposits 
continues.
    In recent concerns, the cold war ebbed in a sense those 
concerns and we had much less interest in Government action in 
this sort of thing. Nonetheless, the United States continues to 
import 100 percent of some very critical resources, indium, 
manganese, vanadium. We are highly dependent on foreign sources 
for chromium, cobalt, platinum group minerals and tantalum. In 
addition, we are increasingly depending on some resources that 
we at one time were significant producers of, and so we are 
importing significant amounts of beryllium, copper, lead, 
lithium, magnesium metal, rare earths and titanium.
    Globalization, and I will close with some comments about 
that. Clearly it is a global market in many ways, and the same 
is true, as you have pointed out, with our critical and 
strategic minerals. We are seeing patterns that increase the 
understanding of our dependence on global supplies. We tried to 
be a participant by initiating in 2002 the first global 
assessment of the potential for undiscovered resources which 
will help us guide policy in our development and ability to use 
those kinds of resources in a global sense.
    Finally, let me close as I started, with the importance of 
information. It is clear that we need sources of objective, 
unbiased information about existing resources and the potential 
for additional resources on both a national and global scale, 
and as we do that the USGS hopes that it can continue to play 
that role in providing you, to the private sector, other parts 
of Government, important information about existing and 
potential mineral supplies, the information which will help 
shape a reasonable domestic and global policy on mineral 
resources.
    Thank you, Madam Chairman. Be happy to answer questions.
    [The prepared statement of Mr. Groat follows:]

 Statement of Dr. Charles G. Groat, Director, U.S. Geological Survey, 
                    U.S. Department of the Interior

    Madam Chairman and distinguished Members of the Subcommittee, thank 
you for the opportunity to participate in this hearing and to discuss 
the role of strategic and critical minerals in our national and 
economic security. The broad importance of these minerals is often 
overlooked and misunderstood. Minerals are important to our security 
and economy. They are the stuff of which our material infrastructure is 
built.
    There is a common misperception that minerals can be found anywhere 
and that there will never be a problem with sources of these 
fundamental commodities. I'd like to talk with you today about the U.S. 
history of mineral supply-and-demand issues and the work the U.S. 
Geological Survey (USGS) does to provide the Nation's policymakers with 
reliable, current information that helps sustain the economy and 
maintain security.
    The United States government has a long history of concern about 
access to the minerals necessary to the functioning of its economy and 
maintaining a strong national defense. Two hundred years ago, when 
President Jefferson wrote Merriwether Lewis concerning his exploration 
mission to the Pacific Northwest with William Clark, he instructed them 
to observe ``mineral production of every kind.'' Twenty years later, in 
1833, George Featherstonhaugh, an English-born geologist, wrote a 
letter to Secretary of War Lewis Cass expounding on the benefits of 
dedicating public funds to expand the Nation's knowledge of its mineral 
resources. He wrote, ``It is difficult to form an estimate of the great 
disadvantages any country lays under, precluded from a correct 
knowledge of its own mineral resources; and this remark may be 
especially applied to the United States.''
    Congress recognized the importance of strategic and critical 
minerals when it enacted The Domestic Minerals Program Extension Act of 
1953, which remains in force. This Act states, ``It is recognized that 
the continued dependence on overseas sources of supply for strategic or 
critical minerals and metals during periods of threatening world 
conflict or political instability within those nations controlling the 
sources of supply of such materials gravely endangers the present and 
future economy and security of the United States. It is therefore 
declared to be the policy of the Congress that each department and 
agency of the Federal Government charged with responsibilities 
concerning the discovery, development, production, and acquisition of 
strategic or critical minerals and metals shall undertake to decrease 
further and to eliminate where possible the dependency of the United 
States on overseas sources of supply of each such material.''
    The difficulty in gaining an understanding of the mineral 
production of the United States during the first half of the 19th 
century is the legacy of multiple independent government reports on the 
mineral resources of individual mining districts. At the close of the 
19th century, the United States was largely thought to be abundantly 
endowed with mineral resources. By the first decade of the 20th 
century, this view was changing and the country began to focus on 
managing and conserving its natural resources. In 1879, Congress 
created a single organization, the U.S. Geological Survey, to provide 
the Nation with knowledge about its mineral resources and the state of 
their development. Among its first activities, the USGS created a 
Mining Statistics Division to collect and disseminate information about 
the Nation's mineral production and to investigate the geology of and 
the technology employed at several important mining districts.
    This vital mining statistics function was transferred from USGS to 
the U.S. Bureau of Mines (USBM) in 1925 and returned to USGS by the 
U.S. Congress in 1996. The mineral statistics program was expanded at 
the USBM as demand increased for minerals data, particularly by defense 
and emergency preparedness agencies.
    Significant concerns about access to strategic and critical 
minerals arose after World War I when the Nation recognized that it was 
not self-sufficient in all of the minerals it needed. The implications 
of being a net importer of minerals and the need to develop elements of 
a national mineral policy gained the attention of government decision 
makers and scholars. The onset of World War II brought home to the 
country its vulnerability to disruptions in the supply of critical 
mineral commodities. These concerns were heightened by the dawning of 
the atomic age, as the United States had become a net importer of many 
minerals. The rise of a communist government in China and the 
termination of access to Chinese tungsten, as well as the onset of 
hostilities in Korea, which was also a significant source of that 
metal, raised concerns about the vulnerability of the United States to 
disruptions of minerals supplies.
    The Federal Government took a number of actions to address the 
fears about access to strategic and critical minerals. These actions 
included creating a program of Government loans to encourage 
exploration for such minerals (the Grubstake Loan Program of the 
Defense Production Act of 1950, the Defense Minerals Exploration 
Administration, and successor programs in the USGS), establishing 
government stockpiles of a wide variety of minerals, and appointing the 
President's Materials Policy (Paley) Commission. In 1952 the Commission 
produced a report that documented the Nation's mineral position and 
made recommendations to address mineral-supply problems.
    Following the Korean Conflict, however, minerals were in surplus 
rather than shortage, and public interest in assuring sources of 
mineral supplies ebbed. By 1956, even uranium was in oversupply, thanks 
in part to government efforts to spur exploration and production of 
that mineral.
    However, access to minerals remained a concern of the United States 
throughout the Cold War. In the late 1970s, guerrilla activity in Shaba 
Province, Republic of Congo (then Zaire), caused cobalt prices to rise 
precipitously. Heightened tensions with the Soviet Union in the early 
1980s fueled apprehensions about a ``resource war'' and global 
competition for resources. Some experts cited mineral resources as one 
of the dominant factors that led the Soviet Union to invade 
Afghanistan. This view reflected the broader concern that, if the 
Soviet Union were in a position to do so, it would deny the United 
States access to foreign supplies of minerals critical to defense 
systems or to the U.S. economy.
    In 1973, USGS published the first overall assessment of mineral 
resources of the United States since the 1952 Paley Commission report. 
Planning by the U.S. Government again focused on access to strategic 
and critical minerals, support for geologic studies of particular 
strategic and critical minerals, and the maintenance of adequate 
stockpiles of materials to meet projected national emergencies.
    In addition to undertaking geologic studies of strategic and 
critical minerals, USGS began in the 1970s to develop consistent, 
probabilistic techniques for estimating potential for as-yet 
undiscovered deposits of essential minerals. These techniques were 
first applied in the United States and used to assist Federal land 
managers in considering mineral values as a part of land management 
plans. In the 1990s, USGS conducted the first-ever probabilistic 
assessment of the entire United States to determine potential for 
undiscovered deposits of gold, silver, copper, lead, and zinc. The 
study concluded that ``there is every reason to believe that, for 
conventional-type deposits that contain gold, silver, copper, lead, or 
zinc, about as much is left to be discovered in the United States as 
has already been discovered'' and reported the estimated total 
resources of these five metals. USGS will update this assessment 
periodically as changes occur in minerals utilization, adding economic 
and environmental analyses when feasible.

Recent Developments and the Present Situation
    The end of the Cold War and the breakup of the Soviet Union in 1991 
resulted in a lessening in concerns about access to strategic and 
critical minerals and a decrease in the size and composition of 
stockpiles. This was based on the assumption that in future 
emergencies, the United States would have ready access to foreign 
sources of minerals. Recent events have called that assumption into 
question. The Federal government continues to maintain stocks of a 
large number of critical mineral materials such as such as bauxite, 
chromium, cobalt, columbium, diamond, fluorspar, germanium, graphite, 
iodine, manganese, mica, palladium, platinum, and tantalum.
    The United States imports 100% of such important mineral materials 
as bauxite, columbium, indium, manganese, and vanadium; and is a net 
importer of chromium, cobalt, platinum-group metals, and tantalum (see 
tables 1 and 2). In addition, the United States imports an increasing 
quantity of mineral materials we once exported. Many of these materials 
are important components of defense systems or are used in technically 
sophisticated products, including super alloys in jet aircraft, 
electronic components, such as capacitors for personal computers and 
cellular telephones, and semi-conductors. Data collected since 1978 
demonstrate that the value of imports of mineral materials has 
increased faster than the value of exports (figure 1).
    Just as the end of the Cold War prompted major changes in defense 
planning and foreign policy, it also marked a major change in global 
economies, including the United States. Increased globalization will 
likely increase global interdependence on mineral supplies, as minerals 
are mined in one country, processed in another country, and turned into 
manufactured goods in yet other countries.
    Information about both our domestic and global mineral resources 
remains vital to meeting the economic and national security challenges 
that the Nation faces. In response to this need, USGS provides 
information on production and consumption of 100 mineral commodities 
domestically and in 180 countries. At the same time, USGS conducts 
research and assessments designed to provide a scientific basis for 
understanding the Nation's domestic and global mineral resource 
position. The information provided by USGS is a public good, providing 
valuable information to market participants that would not be obtained 
in a private market. Such information is also important should foreign 
sources become prohibitively expensive in a time of crisis.
    In 2002, USGS scientists began a USGS-led, internationally 
coordinated project to assess potential for undiscovered nonfuel 
mineral resources on a global scale. The primary objectives of this 
multi-year project are to outline the principal land areas in the world 
that have potential for selected undiscovered mineral resources and to 
estimate the probable amounts of those resources to a depth of 1 
kilometer below the Earth's surface. The first priority for the project 
has been identifying and formalizing relations with other countries and 
multinational organizations around the world. In addition, USGS is 
preparing reports on regional geology, recent exploration, significant 
mines and mineral resources, major past and current production, and 
supply-demand conditions. These reports will be available beginning in 
early 2004.

Future Concerns
    As developing nations grow, demand on known resources will increase 
rapidly. For example, among the most dramatic recent changes has been 
the emergence of the Peoples Republic of China as a major participant 
in minerals markets. China currently supplies the United States a large 
number of mineral commodities including: antimony, barite, fluorspar, 
graphite, indium, magnesium, niobium, rare earths, tantalum, tin, 
tungsten, and yttrium. However, China's internal consumption of 
minerals is rising rapidly. China's consumption of copper recently 
exceeded 1 million tons per year and China will likely be the largest 
consumer of copper in the world before 2020. China is changing from a 
country that exports many minerals to one that imports increasing 
amounts and varieties of minerals. As China and other developing 
nations grow, trade balances in many mineral materials will shift. The 
U.S. needs to anticipate these shifts and be prepared with long-term 
strategies.
    Many organizations and agencies need information concerning mineral 
resources provided by USGS. These organizations include: land 
management agencies, the Federal Reserve Board, numerous Department of 
Commerce agencies, and the Departments of State and Defense. Private 
sector groups, such as industry trade organizations and non-
governmental agencies, are also frequent customers and partners. In 
closing, I would like to reiterate how important minerals are to our 
security and our economy. They are the stuff of which our material 
infrastructure is built.
    Thank you for this opportunity to testify. I will be pleased to 
respond to any questions you may have.
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    Mrs. Cubin. Thank you, Dr. Groat. The Minerals Information 
Team collects and disseminates information on the domestic and 
international supply and demand of minerals essential to the 
U.S. economy and national security. Are there other sources of 
this information, and how is the information used by the 
Federal Government and the private sector?
    Mr. Groat. I think clearly the most comprehensive source of 
that kind of information comes from the Mineral Information 
Team. We report on over a hundred commodities in 80 different 
countries around the world. While the function is with the 
Bureau of Mines and with us, it has been recognized as probably 
the single most public authoritative source. There are 
estimates made by various consulting firms and foundations 
about mineral resource potential, but I think that remains the 
most commonly used, and it has access to the most forms of 
data, because as a neutral source, companies and others are 
willing to provide information sometimes on a confidential 
basis that can be aggregated and reported to an organization 
like the Bureau of Mines at one time and us now that they might 
not report to the private firms that they would have some 
concern about.
    Mrs. Cubin. What is the current budget for the Minerals 
Information Team?
    Mr. Groat. Let me ask Kate Johnson, who heads our minerals 
program. Do you have that number, Kate? $16 million, Madam 
Chairman.
    Mrs. Cubin. And that is the 2003?
    Mr. Groat. 2003 enacted.
    Mrs. Cubin. Right. The fiscal year 2004 budget proposes 
$750,000 cut in the program. Considering the importance of the 
program to our national security, why were these cuts proposed?
    Mr. Groat. Well, we had to make some difficult choices in 
meeting our targets with the budget and we had some significant 
cuts to be taken in various areas. Mineral Information Team 
shared in some of those cuts. We were not about to remove that 
program. We recognized its importance, but we are seeking 
economies where possible.
    Mrs. Cubin. I just can't help but wonder if the 
administration, if there is a break in the thought process with 
some people in the administration in that we need energy for 
our national security and we need these minerals for our 
national security. The Interior Department is one of the only 
agencies that actually brings revenue into the Government, and 
yet the Interior budget was hit pretty hard. It doesn't make 
sense to me. Do you have any remarks on that?
    Mr. Groat. I can comment on the USGS aspects of that, and I 
think what we have learned is that it is important for us to do 
as good a job as we can in helping people including 
administrations and constituents and folks that use 
information, appreciate the importance of the kind of 
information in the sense of the Mineral Information Program 
that we develop, and to the degree that we can increase that 
appreciation, as you and this Subcommittee try to do for 
mineral resources in general, expand the appreciation for the 
importance of the resource and information about it, hopefully 
those kinds of decisions won't have to be made in the future 
and the country will support them to the degree that you and I 
seem to think they should be.
    Mrs. Cubin. In what daily operational or concrete ways will 
that $750,000 affect USGS, or the Information Team I should 
say?
    Mr. Groat. I don't think at that level of cut that we will 
stop doing anything that is currently done in the sense of what 
we report on, the countries that we report on and that sort of 
thing. I think we will be forced to seek some economies in how 
we do that. Whether that will mean sacrifices in the quality of 
data, I certainly hope not, but we will do everything we can to 
make sure that what we are dependent on for good information 
continues to be provided.
    Mrs. Cubin. In your opinion, are our current policies 
toward access to Federal lands affecting our ability to produce 
strategic and critical minerals?
    Mr. Groat. I think you probably, Madam Chairman, with all 
due respect, got the wrong guy to be asking the question about 
access. We are in the science business, the resource estimation 
business, and don't really get involved in policy questions 
regarding access. We certainly do get involved in assessing 
potential resource on Federal lands and recognize that there is 
certainly potential there, but decisions about whether or not 
there should be access to them is beyond my scope.
    Mrs. Cubin. I wasn't asking whether or not there should be 
access. I guess I was asking more about the presence of 
minerals on the lands, and obviously there is some reason that 
they are not being explored. You are right, that is not in your 
job definition, but it is in mine. So your testimony says that 
there are minerals out there that could be, all things being 
right, that could be produced.
    Mr. Groat. We certainly can say that, based on our geologic 
work, that there are potential mineral resources under Federal 
land surfaces.
    Mrs. Cubin. Thank you.
    I would like to recognize Mr. Kind.
    Mr. Kind. Thank you, Madam Chair.
    And thank you again, Director Groat, for your testimony, 
your presence here today. Unfortunately, I think the budgetary 
decisions that you and your department have had to make are 
consequences of the fiscal policies being pursued. I mean it is 
the classic tradeoff between the tax cuts that are being 
enacted right now and the critical resources that are needed in 
order for us to develop these types of strategic plans for the 
sake of national security in our country, and you have to deal 
with the fact that we are operating under very tough, tight, 
budgetary circumstances, a deficit this year of $460 billion 
and projected deficits for many years to come. I think, 
unfortunately, it is going to put a further squeeze on your 
department and other agencies in your ability to meet the needs 
that we are asking of you. It is an unfortunate situation, but 
it is a reality of the fiscal management right now that we see 
here in Washington.
    I believe I heard that you have initiated a global study on 
strategic minerals that started in 2002; is that correct?
    Mr. Groat. Yes, I did.
    Mr. Kind. When do you expect to complete that?
    Mr. Groat. That will be a multiple year effort, as was our 
global assessment of undiscovered conventional energy 
resources, and it is intended to be based on the same sort of 
pattern where we have a group of experts that work 
collaboratively with comparable experts in other parts of the 
world and receive information from a variety of sources, and 
try, in the sequence of groups of critical minerals, to proceed 
through. We are starting with one group now, and I think, Kate, 
that total program is estimated to last at least 6 years, isn't 
it? Yes, 2008.
    Mr. Kind. Will there be period reports or reports updating 
the progress of the study that we can have access to?
    Mr. Groat. Yes, we will release reports as they are 
generated in sequence rather than waiting to the end, and then 
do updates as well.
    Mr. Kind. I know it is very new. You have just embarked on 
this global study, but are there any red flags presenting 
themselves right now that this Committee and this Congress 
needs to be aware of?
    Mr. Groat. I don't think red flags. I think we will find, 
as industry is well aware and as we believe we are as well, 
that the distribution of most mineral resources around the 
globe is adequate for consumptive use for some time to come. 
The real challenges get to be in whether they are geologically 
or in an engineering sense accessible. And as you have 
struggled with questions, how access to them is available, 
whether for political, physical or other means. So we hope to 
be able to identify potential for the resource being there 
within a kilometer's depth, which in most cases would be 
accessible, and then that will allow it to be overprinted with 
other interests and issues about access and availability.
    Mr. Kind. Your agency will do an assessment on all that 
though, not only the presence of these minerals in foreign 
lands but also the geopolitical consequences, our foreign 
policy, our relationship with these nations and the potential 
access that we may have?
    Mr. Groat. No. We will just deal with the resource 
potential estimates and then with characterization of those 
resources. Some of the characterizations may affect 
environmental aspects related to their development, but we 
won't get into the geopolitical aspect.
    Mr. Kind. In your testimony that you submitted there is a 
Table 1 listing the import reliance on a lot of the minerals, 
which is quite a variety. The question I have is how many of 
these minerals are currently available in the United States at 
significant levels where we could further explore and produce 
them and reduce our reliance on the imports of these minerals?
    Mr. Groat. I think there are really a couple categories of 
minerals that you see high reliability on imports. One is those 
in which this country has very little potential, particularly 
some of the alloy metals in the steel business, some of the 
specialty metals, where the geology of this country just isn't 
really suited for them to be there, and then the other is where 
economic or other kinds of conditions make it cheaper or more 
prudent in a sense to obtain them from foreign sources, so it 
is a mixture of those sorts of things.
    We can provide you for the record, Mr. Kind, if you would 
like, some assessment of which of those is which.
    Mr. Kind. Again, just to reiterate your testimony, we 
basically have a good grip on what mineral sources we have 
available domestically here; it is not a question of trying to 
explore or discover new mineral holds in some areas that we are 
not familiar with; is that right?
    Mr. Groat. Well, I wouldn't say that we have done a uniform 
assessment job for understanding potential for new resources, 
particularly in Alaska, for example, where there are vast areas 
that are inadequately geologically mapped, inadequately 
assessed for the potential for minerals. There are pieces of 
territory like that that we can't say that for. There are other 
parts where we have and others have done a lot of work, and we 
have a fairer degree of certainty what at least the potential 
is, but geology always is full of surprises, and if the 
conditions are right, there is always a good chance of 
geologists and mining engineers proving that they will find 
something.
    Mr. Kind. Got it. Thank you.
    Thank you, Madam Chair.
    Mrs. Cubin. Before I recognize Mr. Gibbons for his 
questioning, I have to remind the gentleman from Wisconsin that 
the $20 billion last night that he voted to send to Africa 
would have gone a long way in meeting the needs of the Interior 
Department.
    Mr. Kind. [Off microphone.]
    Mrs. Cubin. Yes, you did.
    I would like to recognize Mr. Gibbons now for his 
questioning.
    Mr. Kind. I am glad someone is paying attention.
    Mr. Gibbons. Thank you, Madam Chairman.
    Dr. Groat, thank you very much for your testimony here 
today. Of the selected metallic minerals that you have listed 
in your appendix to your remarks, which ones of those are 
strategic?
    Mr. Groat. That is a definition that has never really been 
pinned down. I think you could argue on the one hand that every 
mineral commodity that we use in any quantity is strategic in 
the sense that our economy can't survive without them. 
Strategic is usually kind of hinged around whether we have 
domestic supplies or access, free access, not free, but open 
access to their supplies in other places. I would tend to say 
that they are all strategic in that sense.
    Mr. Gibbons. Would you agree that our mining industry is 
much like, and our minerals industry, is much like our 
manufacturing industry; as we tend to rely more on the 
dependence outside of this country, our own institutional basis 
for being able to discover, explore and develop minerals here 
is decreased just as it would if it was a manufacturing base 
where we lose the institutional and educational value of what 
we have within our own boundaries?
    Mr. Groat. I think there is no question that that is true, 
Mr. Gibbons. I think one sign of that in the realm we operate 
in the science area is as we see the closings of schools of 
mines at places like the University of Nevada and other places, 
we see even a falling off of commitment of educating people to 
prepare themselves for careers in that critical area, so that 
is going to hurt us as well.
    Mr. Gibbons. I noticed when Mr. Kind asked a question you 
were quick to say that we haven't yet looked at the geology of 
all of the United States to discover whether these supplies of 
minerals are adequate or even discoverable. Is it true also to 
say that we haven't discovered all of the mineral potential yet 
in the lower 48 that could be of value to us in some of these 
strategic mineral cases?
    Mr. Groat. No. I think that is definitely true. I think we 
have a history of proving that, of Carlin gold in Nevada, for 
example, of new kinds of deposits that are unearthed, and then 
we look for their potential as something we hadn't looked at 
before, and there is always that possibility.
    Mr. Gibbons. The geology is an evolutionary cycle and 
educational evolutionary cycle, and therefore mineral 
development in these areas would also be subject to new 
technologies, new educational discoveries about how we produce 
minerals, how we discover minerals, and how we define minerals 
as economic for recovery purposes.
    Mr. Groat. I think that is correct, and I think the 
parallel with our energy resource where technology and 
increased capabilities have allowed us to extract and process 
and use beneficially sources or resources that we wouldn't have 
thought about decades ago, the same thing is true in the 
mineral industry if we continue to develop the capability to 
develop that technology and to do the exploration. As you said, 
that concern that we are not doing that is a legitimate one.
    Mr. Gibbons. It is sort of like water, it seeks its own 
level, and in other words, where it is easier to find them, we 
tend to focus our concentration, focus our attention and 
sponsor where it is easier to find them. If that happens to be 
overseas, if it is easier to find them, if it is easier to 
develop them over there, companies are going to go over there.
    I was interested, having just returned from Chile, having 
looked at some of the mines in Chile, because I was constantly 
hearing the banter from the environmental groups that mining 
companies are leaving the United States to go to Chile, to go 
to Third World countries, because they don't have to concern 
themselves with the environmental issues. May I say that while 
I was there, I learned a great deal about IOC 14001, which is 
an international standard that mining companies have to adhere 
to, which even in those countries they adhere to, which is the 
same sort of or even greater standards than some of our 
companies here as well, so that doesn't help.
    Real briefly, what minerals do we stockpile?
    Mr. Groat. I don't know. Kate, do we have a list with us?
    I don't know, Mr. Gibbons, what the list is.
    Mr. Gibbons. And if we stockpile them, why do we stockpile 
them?
    Mr. Groat. I can give you a few, a large number of mineral 
commodities such as bauxite, chromium, cobalt, columbium, 
diamonds, fluorspar, germanium, graphite, iodine, manganese, 
mica, palladium, platinum and tantalum. We stockpile them 
largely because they are commodities for which we are largely 
dependent on foreign sources, and therefore, should there be 
some interruption in that supply, that we would have the 
ability to get by for a reasonable period of time, much as we 
do with the strategic petroleum reserve in storing oil and gas, 
oil I mean.
    Mr. Gibbons. Finally, are our stockpiles adequate?
    Mr. Groat. I think that ebbs and flows as does our concern 
about those minerals. They were depleted after the period of 
the Korean War and have not been rebuilt up, as far as I know, 
since that time. Are they adequate to meet a flourishing 
economy for, I guess the question would be for what period of 
time? And I think that is where the debate would come, and I 
don't know the answer to what time they are expected to fill.
    Mr. Gibbons. Thank you, Madam Chairman.
    Mrs. Cubin. Thank you, Mr. Gibbons.
    I must correct for the record a statement I made that the 
amendment to send money to Africa was $10 billion, rather than 
20. I want to get that straight for the record.
    The Chair would now recognize Mr. Udall if he has any 
questions for Dr. Groat.
    Mr. Tom Udall. Just a couple of questions. First of all, 
Dr. Groat, thank you for being here today and thank you for 
your expertise in this area.
    As you are probably aware, New Mexico has a molybdenum mine 
in Questa, New Mexico, that has been operating for a number of 
years. I think it is run by Unical. I was just wondering, do we 
stockpile molybdenum?
    Mr. Groat. I didn't see it on the list. Maybe someone from 
the industrial panel would know. I don't believe that we do. 
Molybdenum is one of the steel alloy kinds of minerals that we 
have been largely self-sufficient in historically, and I would 
be surprised if we did stockpile it.
    Mr. Tom Udall. So the mine we have in New Mexico supplies 
you think a major portion of the molybdenum needed in the 
United States?
    Mr. Groat. I think mines in New Mexico and Colorado have 
historically played a large role in that, yes.
    Mr. Tom Udall. So we are in a better situation there than 
some of these other strategic minerals that are there.
    Mr. Groat. Definitely.
    Mr. Tom Udall. I don't have anything else. Yield back. 
Thank you very much. Thank you.
    Mrs. Cubin. Thank you.
    I would like to thank you for your valuable testimony, and 
tell you that members of this Subcommittee may have some 
additional questions if they would like. We would submit those 
to you in writing and hold the record open for 10 days if you 
could add to those following questions.
    Mr. Groat. Be pleased.
    Mrs. Cubin. Thank you very much.
    Mr. Groat. Thank you, Madam Chairman.
    Mrs. Cubin. And thank you for your testimony, Dr. Groat.
    Mrs. Cubin. I would now like to recognize the second panel 
to testify.. Mr. Hugh Hanes, Consultant with Brush Wellman, 
Inc.; Robert J. Noel, Advisor, Metals Affordability Initiative 
Consortium; Ann Carpenter, Advisor of Women's Mining Coalition; 
Douglas B. Silver, President of Balfour Holdings, Inc.,
    If you would please rise and take the oath.
    [Witnesses sworn.]
    Mrs. Cubin. I will once again remind the panel that if they 
can hold their oral testimony for 5 minutes, their entire 
testimony will be submitted to the record. I will begin by 
recognizing Hugh Hanes, Consultant with Brush Wellman, 
Incorporated.

 STATEMENT OF HUGH D. HANES, FASM, CONSULTANT TO BRUSH WELLMAN 
      INC. AND METALS AFFORDABILITY INITIATIVE CONSORTIUM

    Mr. Hanes. Good morning, Madam Chair and distinguished 
members of the Subcommittee. I appreciate the opportunity to 
testify on what I consider to be a critical issue relative to 
the industrial base of the United States.
    The purpose of my testimony will be to demonstrate the 
linkage between hard rock minerals and strategic and critical 
metals. I will also give examples where these strategic metals 
are enabling, both to the aerospace defense and critical 
civilian infrastructure. And obviously, within 5 minutes I 
don't have time to deal with all those examples, but they are 
in the written testimony.
    All of these metals, strategic and critical metals are 
derived from hard rock minerals, whether domestically or of 
foreign source. These strategic metals are found both in the 
defense, aerospace and critical civilian infrastructure. The 
critical civilian infrastructure, at least as I define it, 
includes automotive, commercial aircraft, computers, 
telecommunications, electronics, electrical transmission and 
medical applications. In other words, these are the 
applications that maintain this country's world leadership as 
well as the quality of life in this country. These metals have 
some common characteristics. They are mainly found in high-
performance applications. They are used for high reliability 
because of their unique properties. They become enabling. In 
other words, they make equipment work better or even work at 
all. They tend to be pervasive and unrecognized in the 
infrastructure, and in all cases because they are expensive 
materials, then tend to be materials of choice.
    The manufacturing of beryllium and its alloys is a case 
with which I am quite familiar, is a case study which 
demonstrates the independence of mining and specialty metal 
manufacturing in this country. As was previously noted, 
beryllium is mined and extracted for minerals in Utah by Brush 
Wellman, my former company. Many in Congress consider this to 
be a ``western issue,'' and I use that in quotes. The ore 
concentrate is shipped to Ohio, our primary production plant. 
All of a sudden it becomes now an eastern issue. The secondary 
fabrication occurs in states ranging literally coast-to-coast, 
Arizona, Massachusetts, New York, Pennsylvania, Rhode Island, 
and distribution centers around the country and around the 
world. So it truly is a national issue and it is something that 
needs to be recognized nationally, not on a regional basis.
    Deputy Secretary of Defense, Paul Wolfowitz, when he 
described to Congress the transformation of the armed services, 
indicated a list of six goals that the armed services were 
pursuing, and in that list of six goals the metal beryllium 
plays an enabling role in equipment and hardware that allows us 
to accomplish four of those six goals. Then he went further to 
describe systems under development, and in all cases beryllium 
played an enabling role. If you look at the Iraqi situation and 
the weapons that were employed there, beryllium is employed 
everywhere from strategic surveillance satellites down to the 
fire control system of the individual tank commander.
    Thus, beryllium processing clearly demonstrates that 
linkage and it also epitomizes what needs to happen within the 
industrial base.
    Precious metals are another example. Between 25 and 55 
percent of the so-called noble metals mined and produced 
domestically, depending on the commodity, are used in critical 
high reliability electronic applications. For example, they are 
found in automotive electronics. Computerized ignition systems, 
automatic transmissions, cruise control devices, anti-lock 
braking systems, the new generation of electronic suspension 
systems, are all made better because of the presence of these 
precious metals, and in effect, society benefits extensively 
from this because of the increased safety, the increased fleet 
mileage and decreased emissions in modern automotive equipment.
    Silver is another example. Best electrical conductor of all 
the metals, it finds uses in conductor switches, contacts, 
circuit breakers and fuses. It not only enhances the quality of 
life, but it enhances the safety even in our own homes. And as 
some do, to portray the usage of precious metals as trivial, I 
think it is totally to ignore the benefits and the increased 
quality of life that we all enjoy from the judicious 
application of precious metals in the critical civilian 
infrastructure.
    We support the value of the USGS Minerals Information Team. 
That has been well covered.
    We think that these metals demonstrate the linkage between 
hard rock minerals and the pervasive use of strategic and 
critical metals in the domestic industrial base, and we have 
great concern that a mineral policy not only address the issue 
of critical minerals, but also the industrial manufacturing 
base of the critical metals that are derived from these 
minerals is essential in maintaining the quality of life in 
this country.
    My time is up, Madam Chair, and I am available for 
questions.
    [The prepared statement of Mr. Hanes follows:]

Statement of Hugh D. Hanes, FASM, Consultant to Brush Wellman Inc. and 
               Metals Affordability Initiative Consortium

    Good morning Madam Chair and distinguished Members of the 
Subcommittee. Thank you for the opportunity to testify on this critical 
issue relative to the industrial base of the United States.
    My name is Hugh Hanes. I am a retired Brush Wellman Inc. executive 
with over 45 years experience in the strategic metals business, 
including general management of Brush's mining and metallic beryllium 
operations. Since retirement in December 2000, I have continued as a 
government affairs consultant to both Brush Wellman and the Metals 
Affordability Initiative Consortium.
    The purpose of my testimony will be to demonstrate the linkage 
between hardrock minerals and strategic and critical metals. I will 
also give examples where these strategic metals are enabling to both 
the aerospace/defense and critical civilian infrastructure.
    The importance of these strategic and critical metals is described 
in the ancient saying, ``For Want of a Nail,'' by some unknown author:
        For want of a nail, the shoe was lost,
        For want of the shoe, the horse was lost,
        For want of the horse, the rider was lost,
        For want of the rider, the battle was lost,
        For want of the battle, the kingdom was lost,
        And all for the want of a nail.
    It would be easy to modernize this homily by substituting mineral, 
metal, turbine engine disk, plane, warfighter, etc. into the text 
above.
Strategic and Critical Metals: the Hidden Commodities
    Strategic and critical metals are often referred to as hidden 
commodities. Metals availability is usually assumed by those in the 
user base who are dependent on the specialty aerospace metals industry. 
Usually, they're only noticed when either they become unavailable, 
e.g., the cobalt shortage of the 1970's, or a component fails.
    However, they have similar characteristics. All of these metals are 
derived from hardrock minerals. Furthermore, many of these minerals are 
no longer domestically mined, as is shown in Table 1. As has already 
been discussed in this hearing, the domestic mining and minerals 
industry is declining. As my colleague, Mr. Noel, will describe in his 
testimony that the domestic specialty metals manufacturing base is 
declining as well.
    These strategic metals are found in both the defense/aerospace and 
critical civilian infrastructure. For the purpose of this testimony, 
the critical civilian infrastructure can be defined as automotive, 
commercial aircraft, computers, telecommunications, electronics, 
electrical transmission, and medical applications. In other words, 
these are market sectors which help maintain this country's world 
leadership and quality of life.
    In many instances, the applications are hidden, or buried deeply in 
the systems where these metals perform critical functions. Examples 
would include beryllium in aerospace/defense systems, precious metals 
in high-performance electronics, and rare earth metals in electro-
optics.
Characteristics of Strategic and Critical Metals
    Strategic and critical metals have common characteristics. They are 
most often found in high-performance applications, where there are 
requirements for combinations of high temperature resistance, high 
strength requirements, and corrosion resistance, etc. These classes of 
metals are used for high reliability, e.g., nickel-based superalloys 
for aircraft turbine engines, gold-plated connectors in automotive 
ignition systems, and silver-plated contactors in electrical 
transmission. Furthermore, they are enabling in their applications, 
e.g., beryllium optics in surveillance satellites, precious metals in 
electronic components for computer, and copper beryllium and precious 
metals in automotive electronics. Usually, they are the most expensive 
solution, because competitive materials have already been eliminated 
for non-performance in the particular application.
    As shown in Table 2, these metals are pervasive in systems that 
serve both aerospace/defense and the critical civilian infrastructure. 
In all cases, they are the material of choice, i.e., they are used 
because of performance requirements. In most of the cases, they are 
enabling to the operation of the particular system.
Beryllium and Its Alloys: Case Study
    The manufacturing of beryllium and its alloys is a case study which 
demonstrates the interdependence of mining and specialty metals 
production. Beryllium is mined and extracted from minerals in Utah by 
Brush Wellman (a ``Western issue''). The ore concentrate is shipped to 
their primary metals production plant in Ohio (now it becomes an 
``Eastern issue''). Brush does secondary fabrication of its beryllium 
products in plants in Arizona, Massachusetts, New York, Pennsylvania, 
and Rhode Island. They have distribution centers in California, 
Illinois, Michigan, and New Jersey (it's really a ``Domestic issue''). 
Brush also has distribution centers globally, serving over 5,000 
customers for beryllium products globally.
    In his testimony to Congress 1, Deputy Secretary Paul 
Wolfowitz stated, ``The Department of Defense is undergoing a 
substantial transformation of the Armed Services. ... by pursuing a 
host of transformations including precision, surveillance, networked 
communications, robotics and information processing.'' That beryllium 
is critical to 4 out of 6 of the Secretary's goals can be demonstrated 
by examples of both current and developmental systems that use 
beryllium because of its unique properties. Specific examples are shown 
in Figures 1 to 4.
---------------------------------------------------------------------------
    \1\ ``Prepared Statement for the Senate Armed Services Committee 
Hearing on Military Transformation'', by Deputy Secretary of Defense 
Paul Wolfowitz, April 9, 2002.
---------------------------------------------------------------------------
     Homeland Security--``U.S. forces must protect critical 
bases of operations and defeat weapons of mass destruction and their 
means of delivery.'' Beryllium is a key structural element in both the 
PAC-3 system and those interceptor systems under development.
     Deny Enemies Sanctuary--``Space denial capabilities, such 
as ground-based lasers ... require the development and acquisition of 
robust capabilities to conduct persistent surveillance of vast 
geographic areas and long-range precision strike.'' Beryllium is used 
in long-range surveillance systems, guidance, and is in development as 
seekers in new missile and ground-based lasers systems.
     Projecting and Sustaining Forces--``increasing U.S. 
advantages in stealth, standoff, hypersonic and unmanned systems for 
power projection; and developing ground forces that are lighter, more 
lethal, more versatile, more survivable, more sustainable, and rapidly 
deployable.'' Beryllium is used extensively in reconnaissance 
satellites, FLIR's, improving stand-off ranges for virtually every new 
generation targeting device, and battlefield surveillance, including 
the tank commander's sight on the M1A2 Abrams.
     Enhancing Space Capabilities--``become more dependent on 
space systems for communications, situational awareness, positioning, 
navigation, and timing.'' Applications of beryllium include instruments 
and critical structures in reconnaissance and surveillance satellites, 
defense weather satellites such as NPOESS, and the new generation of 
military communications satellites.
    Mr. Wolfowitz goes on to describe systems under development, and in 
all cases, beryllium plays an enabling role:
     Joint direct attack munitions (JDAM's) and other 
precision guided munitions
     Stealthy F-22's
     Development of missiles defenses, including the Airborne 
Laser program
     Enhanced electro-optical capability for Global Hawk and 
other UCAV upgrades
     Precision weapons--weapons that are precise in time, 
space, and in their effects
     Missile defense--pursuing parallel technologies to meet 
the same objectives--for example, the kinetic kill boost vehicle and a 
space-based laser (beryllium is critical to both concepts)
    Thus, beryllium processing clearly demonstrates the linkage between 
mineral resources in the Western U.S. and metals manufacturing in the 
Domestic industrial base.
Precious Metals Perform Critical Functions in the Civilian 
        Infrastructure
    Precious metals are often portrayed by opponents of hardrock mining 
as unnecessary metals, but they perform critically enabling functions 
in the civilian infrastructure. Between 25 and 55% of the so-called 
noble metals mined and produced domestically are used in critical, 
high-reliability electronic applications because of their combination 
of oxidation resistance, electrical and thermal conductivity, and their 
resistance to corrosive environments. These high-reliability 
requirements dictate the selection of precious metals for many 
applications in a wide variety of industries, including the electrical, 
electronics, automotive, telecommunications, semiconductor, computer 
and medical industries. Examples of typical applications can be found 
in Table 3 and are illustrated in Figure 5 of this testimony.
    Because of their high intrinsic cost, precious metals are often 
plated or laminated onto base metals to give added strength and to 
lower the cost of the component. Although gold remains the industry 
standard in many of these applications, gold and gold alloys as a cover 
over palladium and palladium-silver alloys are often used.
    One of the major uses of high-reliability components containing 
precious metals can be found in automotive electronics. Under-hood 
interconnects for computerized ignition systems, mass air flow sensors, 
automatic transmissions, cruise control devices, anti-lock braking 
systems, and new generation suspension control systems all are made 
more reliable by employing precious metal containing components. 
Society benefits extensively from the use of these electronic 
components because of the increased safety, increased fleet mileage, 
and decreased emissions of the modern automobile.
    Silver finds many used in both medicine and in electrical 
transmission. While silver's importance as a bactericide has been 
documented only since the late 1800's, its use in purification has been 
known throughout the ages. Silver also has a variety of uses in 
pharmaceuticals forming the most powerful compounds for burn treatment, 
for example. Silver is the best electrical conductor of all metals and 
is hence used in many electrical applications, particularly in 
conductors, switches, contacts, circuit breakers, and fuses. Thus, 
silver enhances the quality of life and safety even in our own homes.
    To portray the usage of precious metals as trivial, as has been 
done by opponents of mining, is to totally ignore the benefits and 
increased quality of life we all enjoy from the judicious application 
of precious metals in the critical civilian infrastructure.
The Value of the USGS Mineral Information Team
    The USGS Mineral Resource Program's Mineral Information Team is the 
only comprehensive source of statistical data on Mining and mineral 
commodities both domestically and internationally and is critical to 
the mining industry and to the nation as a whole. As a net importer of 
minerals, including many strategic minerals, the United States' ability 
to develop and implement global mineral-related strategy could be 
severely compromised without the availability of reports produced by 
this program. In addition, the analytical expertise of the program's 
mineral commodity and country specialists is vital to answering mineral 
related questions of a domestic and an international nature. A loss or 
reduction in expertise for tracking the world ``hot spots'' with 
respect to strategic and critical materials could negatively impact 
U.S. intelligence and national security. As a world leader, the U.S. 
must have a comprehensive and essential understanding of the worldwide 
commodity markets necessary for strategic and critical materials 
necessary to a healthy economy.
    Summary and Conclusions
    The purpose of this paper has been to demonstrate the linkage 
between hardrock minerals and the pervasive use of strategic and 
critical metals in the Domestic industrial base
    1. Strategic and critical metals are derived from hardrock 
minerals, both domestic and foreign.
    2. Component manufacturing is located across the country but 
primarily in Eastern (non-mineral) states and is dependent on hardrock 
minerals as the source of primary metals.
    3. Both domestic aerospace and defense and critical civilian 
industries are dependent on a shrinking industrial base for their 
strategic and critical metals.
    4. Continuation of the USGS Mineral Information Team will assure a 
comprehensive and essential understanding of the worldwide commodity 
markets necessary for strategic and critical materials necessary to a 
healthy domestic economy.
    A well-conceived minerals and metals policy should protect and 
encourage maintaining both the development of domestic mineral 
resources and the strategic and critical metals industry. We have lost 
or are losing these capabilities as we speak. They have been 
precipitated by a series of unwise political decisions largely over the 
last 10 years which discounted the importance of a U.S. minerals base.
    I look forward to working with Resource Committee members and my 
mining colleagues to reconstruct these vital elements of our national 
infrastructure.
    Madam Chair and distinguished Members of the Subcommittee, I 
sincerely appreciate the opportunity to testify before you and would be 
glad to answer any questions you may have.
                                 ______
                                 
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    Mrs. Cubin. Thank you.
    I would now like to recognize Robert J. Noel, Advisor of 
the Metals Affordability Initiative Consortium.

 STATEMENT OF ROBERT J. NOEL, EXECUTIVE ADVISOR TO THE METALS 
              AFFORDABILITY INITIATIVE CONSORTIUM

    Mr. Noel. Good morning, Madam Chair and distinguished 
members of the Subcommittee. The purpose of my testimony is to 
discuss aerospace metals, the Metals Affordability Initiative 
Consortium, and the need for Government support of the 
industrial base.
    The key defense metals are aluminum beryllium, nickel base 
superalloys and titanium. The unique basic metal properties are 
further enhanced by key elemental alloying additions. All these 
metals are derived from hard rock minerals, either domestic or 
foreign. Metals by weight are 67 percent of our military 
aircraft structures, and on the average 80 percent of the gas 
turbine propulsion systems.
    The U.S. industrial base that produces these systems 
consists of supply chain of metal producers, component 
producers and original equipment manufacturers of both 
propulsion and aircraft systems. The MAI consortium of 15 
companies has manufacturing facilities throughout the United 
States and is not concentrated in any one region. The aircraft 
OEMs are Boeing, Northrop Grumman and Lockheed Martin. The 
engine OEMs are Pratt-Whitney, General Aircraft Engines, Rolls 
Royce and Honeywell.
    In the recent economic conditions the impact has been most 
severe on the metal and the metal parts producers. In the 
category of metal producers we have Allegheny Technologies in 
their Oremet Division, Brush Wellman, Carpenter, Special 
Metals, Timet; and the component producers are Howmet, PCC and 
Ladish.
    Two examples of consolidation in the industry. One is in 
the area of titanium which is a very important aerospace metal. 
The manufacturing of titanium sponge is the initial step in 
making this crucial metal. In 1990 there were three or less 
sponge producers with a total capacity of 30,000 metric tons. 
Today there is one domestic sponge producer, Timet, with a 
capacity of 8,600 metric tons.
    A second example is Ladish, my former employer. It supplies 
aerospace metal components for gas-driven engines, aircraft and 
space. Peak employment was 5,300 employees in 1979. Current 
employment level is less than 800.
    In addition to the consolidation that is occurring in these 
industries, there are other factors. Obviously, there are huge 
global issues that have resulted in intense competition. There 
is also foreign government industry investment.
    We also have technology issues. Company-funded research and 
development is declining. We see workforce and skills eroding. 
We definitely have a concern for the availability of 
engineering talent to support our industrial base.
    There is a perception that the aerospace specialty metals 
businesses are performing well, but in truth the five metal 
producers lost money in 2002, and additional losses are 
expected in 2003. These metal producers supply 90 percent of 
the specialty metals for the aerospace and defense industry. 
The other aspect of the financial situation is there is on the 
average a 35% reduction in R&D expenditures. We feel one of the 
answers to the problem is emphasis on technology, and that 
feeling was supported by the Commission on the Future of the 
U.S. Aerospace Industry.
    MAI was a consortium formed in 1998. Our theme is ``Using 
technology innovation to transform and sustain the specialty 
metals industrial base.'' The collaborating Government agency 
is the Air Force Research Laboratories at Wright Patterson Air 
Force base.
    We consider this as a template for Government-industry 
collaboration. The objective of MAI is to take core 
technologies through the manufacturing development, and then 
work with the systems offices to insert those in military 
systems. The technology work that has been done to date has 
yielded a return of $650 million on the Government investment. 
This effort is cost shared by the industry at a minimum rate of 
25 percent, and they have contributed $16 million.
    MAI currently has 14 active projects with total value 
Government funded component of 39 million which came largely 
from congressional additions to the DOD budget. We are 
currently working with the C-17 systems, the F-15 and C-130 to 
insert key technologies. We are also working with the key 
propulsion systems offices to insert technologies as well.
    In summary, aluminum beryllium, nickel base superalloys and 
titanium are essential for U.S. military aircraft and space 
systems. These metals and their alloying elements are all 
derived from hard rock minerals.
    Both domestic aerospace and defense and critical civilian 
industries are dependent upon a shrinking industrial base for 
strategic and critical metal components.
    The specialty metals producers showed financial losses in 
2002 that are projected to continue in 2003.
    The Metals Affordability Initiative Consortium has 
demonstrated technology successes, a significant return on 
Government investment, which has come largely from 
congressional additions to the DOD budget, and is working to 
insert these technologies in defense systems.
    In our opinion, the keys to transforming the specialty 
metals industrial base are technology innovation, Government-
industry collaboration, and a metals policy that includes 
financial support for core technology programs and technology 
investment.
    Thank you, Madam Chair, and distinguished members of the 
Subcommittee.
    [The prepared statement of Mr. Noel follows:]

         Statement of Robert J. Noel, Executive Advisor to the 
               Metals Affordability Initiative Consortium

    Good morning Madam Chair and distinguished Members of the 
Subcommittee. Thank you for the opportunity to testify on this critical 
issue to the United States Aerospace Specialty Metals Industrial Base.
    My name is Bob Noel. I am a retired Ladish Co., Inc. executive with 
39 years experience in the specialty metals business with the most 
recent position being Vice President of Business Development/
Technology. I have also served as a Trustee of the Forging Industry 
Education and Research Foundation since 1989 and am currently Chairman 
of the Technology Roadmap Committee. Since February of 2002, I have 
served as Executive Advisor of the Metals Affordability Initiative 
(MAI) Consortium.
    The purpose of my testimony will be to discuss Aerospace metals, 
U.S. specialty metals industrial base, the importance of technology, 
and the Metals Affordability Initiative (MAI) Consortium performance, 
and the need for government support of the industrial base.
Metals and Applications
    The key defense metals are aluminum beryllium, nickel base 
superalloys and titanium. The unique basic metal properties are further 
enhanced by key elemental alloying additions. All of these metals are 
derived from hardrock minerals, either domestic or foreign. As Hugh 
Hanes described in his testimony, metals represent the major portion of 
U.S. military propulsion, aircraft, and space systems. Typical 
applications are shown for the F-22 aircraft, F-135 engine and a space 
rocket engine in Figures 1 though 3.
U.S. Aerospace Specialty Metals Industrial Base
    The industrial base that produces military systems consists of a 
supply chain of metal producers, component producer's, and original 
equipment manufacturers of propulsion and aircraft systems. The Metals 
Affordability Initiative (MAI) Consortium of 15 companies is most 
representative of the specialty metals industrial base. The member 
companies are Allegheny Technologies, Boeing, Bush Wellman, Carpenter 
Technologies, General Electric Aircraft Engines, Honeywell, Howmet 
Castings, Ladish, Lockheed Martin, Northrop Grumman, Pratt and Whitney, 
PCC, Rolls Royce, Special Metals and Timet. A minimum of two companies 
represents every element of the supply chain. These companies have 
manufacturing facilities through out the United States and are not 
concentrated in one region. The companies and their position in the 
supply chain are shown in Figure 4.
Industrial Base Consolidation
    The entire specialty metals industrial base is affected by 
consolidation, downsizing to fit available business volume, 
globalization, and high capital cost needs. The impact has been most 
severe on the following metal and parts producers:
Metal Producers
     Allegheny Technologies (Oremet Titanium)
     Brush Wellman
     Carpenter
     Special Metals
     Timet
Component Producers
     Howmet Castings (An Alcoa Business)
     PCC Structurals (Acquired Wyman Gordon)
     Ladish
    Titanium is a very important Aerospace metal. Manufacturing of 
Titanium sponge is the initial step in the metal production process. In 
1990 there were three U.S. sponge producers--Timet, RTI and Allegheny 
Technologies (Oremet) with combined capacity of 30,000 metric tons. 
Currently there is one domestic sponge producer B Timet with a capacity 
of 8600 metric tons. The U.S. sponge capacity growth and decline are 
illustrated in Figure 5.
    Ladish is a metal forging producer that was founded in 1905. It 
forges Aerospace metals for gas turbine engines (Propulsion), aircraft 
and space applications. Peak employment was 5300 employees in 1979. The 
current employment level in less than 800. Their business is focused on 
the high technology segment and is very capital intensive. The 10,000 
ton isothermal press shown in Figure 6 is used primarily to produce 
nickel base superalloys for gas turbine engines and is used to 
illustrate the high equipment capital needs.
Industrial Base Perspective / Economic Performance
    The Aerospace metal industry from 1990 to 2003 was affected by the 
following conditions:
    1. U.S. Aerospace Industrial Base Reductions
          OEM's reduced with very significant consolidation
          Metal suppliers and component producers also reduced
    2. Global Factors
          Intense competition
          Foreign government industry investment
    3. Technology Issues
          Company funded Research and Development declining
          Workforce/skills eroding with engineering talent 
        availability concern
    A general economic perception is that the Aerospace specialty 
metals businesses are performing well. A review of the metal and 
component producer's financial performance is illustrated in Table 1. 
The results show significantly lower stock prices caused by 
deteriorating financial performance. The five metal producers lost 
money. These suppliers produce 90% of the specialty metals for 
aerospace and defense industry. The declining financial performance has 
resulted in an average 35% reduction in Research and Development 
expenditures.
    In an analysis of the industry and the competitive threats, an 
essential element is technology innovation. The Commission on the 
Future on the United States Aerospace Industry findings on the role of 
technology was ``A recurring message we hear from the inputs the 
commission received is that investments in technology will provide the 
KEY enablers to our nation's future aerospace capability...''
Metals Affordability Initiative Consortium
    The Metals Affordability Initiative (MAI) Consortium was formally 
started in 1998. The objectives were to provide a source of funding to 
advance Metals Technology and maintain the U.S. Defense Aerospace 
Specialty Metals Industrial Base. The theme is ``Using Technology 
innovation to transform and sustain the Specialty Metals Industrial 
Base.'' The collaborating government agency is the Air Force Research 
Laboratories at Wright Patterson Air Force Base. The MAI consortium has 
grown to fifteen companies.
    The Technology programs have been very successful with a projected 
return on government investment of over $650-million which exceeds 15 
to 1. The government investment is supplemented by a minimum cost share 
of 25% or $16-million through FY03. A key to the technical success is 
collaboration. We also consider MAI as the template for Government-
Industry Collaboration.
    MAI currently has 14 active projects with the government funded 
component at $39-million, largely from Congressional additions to the 
DOD budget. The key technology projects with system interest and 
opportunities are:
     Electron Beam Melting of Titanium Slabs
     Friction Stir Welding
     Laser Additive Manufacturing
     Thin Wall structural Castings
     High Yield Casting of Turbine Airfoils
     Roll Forming of Engine Casings
    The objective of MAI core technologies is to take metals and 
process technology concepts through manufacturing process 
demonstrations. The mature core programs are demonstrating technical 
success and meeting business case goals. The next step is insertion 
into military systems. The four technologies selected for insertion 
into the C-17 are illustrated in Figure 7. Each technology offers a 
total systems cost benefit. The application of these technologies is 
pervasive and can be applied to other systems such as the F-15 and C-
130.
    Airframe and propulsion systems have different engineering design 
considerations. Gas turbine engine components operate at higher 
temperatures and there is significant use of nickel base superalloys. 
The two processes identified for insertion into the F-135 are shown in 
Figure 8. The roll forming process can be used for titanium and 
superalloy cases. The casting process innovation being applied to 
airfoils will also result in a system performance improvement.
Summary and Conclusions
    1. Aluminum, beryllium, nickel base superalloys, and titanium are 
essential for U.S. military aircraft and space systems. These metals 
and their alloying elements are all derived from hardrock minerals.
    2. The U.S. Specialty Metals industrial base consists of metal 
producers, component producers, and OEM's with operations located 
throughout the US.
    3. Both domestic aerospace and defense and critical civilian 
industries are dependent on a shrinking industrial base for their 
strategic and critical metal components.
    4. The specialty metal producers showed financial losses in 2002 
that are projected to continue in 2003.
    5. The Metal Affordability Initiative (MAI) Consortium has 
demonstrated technology successes, a significant return on government 
investment obtained largely from Congressional additions to the DOD 
budget, and is working to insert the core technologies in defense 
systems.
    6. The keys to transforming/sustaining the U.S. specialty metals 
industrial base are technology innovation, government-industry 
collaboration, and a metals policy that includes financial support for 
core technology programs and technology investment.
    Madam Chair and distinguished Members of the Subcommittee, I 
sincerely appreciate the opportunity to testify before you and would be 
glad to answer any questions you may have.
                                 ______
                                 
    Mrs. Cubin. Thank you, Mr. Noel.
    I would like to now recognize Mr. Gibbons to introduce our 
third witness.
    Mr. Gibbons. Thank you, Madam Chairman.
    Indeed, we are all pleased when one of our constituents has 
an opportunity to visit the Hill, but we are even more pleased 
when they take time to testify before the Committee, and Ann 
Carpenter, a constituent of mine from Reno, Nevada has a 
longstanding association with the mining industry, as advisor 
to the Women's Mining Coalition, brings I think not only a new 
perspective but a new view or vantage of how important the 
mining industry is, not just to the industry or the industrial 
base but to the population base that we have that works these 
industries, and I am very pleased to welcome Ann Carpenter to 
our Committee, and certainly look forward to her testimony.
    Thank you, Madam Chairman, for allowing me to say a few 
words about our next witness.
    Ms. Carpenter. If I can just take a minute before my time 
starts and we could put the graphs up. I have a couple of 
graphs that illustrate some alarming trends that I would like 
to talk about.
    Mrs. Cubin. Could you either raise that or pull it out more 
so the panel can see it? And if Mr. Renzi and the folks back 
there would like to move over someplace, they can do that, or 
you can stay and we won't look at your faces any more.
    [Laughter.]

    STATEMENT OF ANN S. CARPENTER, CONSULTANT, DOMESTIC AND 
 INTERNATIONAL MINERAL DEVELOPMENT, ADVISOR AND PAST PRESIDENT 
                  OF WOMEN'S MINING COALITION

    Ms. Carpenter. Thank you, Madam Chairman, and members of 
the Committee, for this opportunity to testify.
    My name is Ann Carpenter. I am a current Advisor of the 
Women's Mining Coalition and a past President. This is a grass 
roots organization with members nationwide, representing the 
broad spectrum of jobs and the industry diversity.
    I am a professional exploration geologist with over 20 
years of experience doing mineral and exploration development 
both here in the U.S. as well as internationally in a number of 
different companies overseas. My testimony will discuss the 
alarming downward trends that we see in mineral development 
here in the U.S., and the long-term impacts.
    The downward trends include a drastic decrease in 
exploration spending since 1997, translating to fewer new 
discoveries here in the U.S. Both of these figures are compiled 
from using some USGS data. Figure 1 is on the bottom and it is 
also page 5 in my testimony. Figure 2 is on the top and that is 
page 6 in my testimony.
    Exploration for mineral resources has continued globally 
even through the low gold market, but what we do see instead 
here in the U.S. is a radical decrease in exploration spending 
here. Investing here in the U.S. is one of steady decline. Our 
market share, the expenditure of exploration budgets here. In 
1997 and pre-1997 they were 30 to 50 percent and they have 
decreased to less than 10 percent expenditures. In other words, 
if I spend $10 million in exploration expenditures, I am 
spending less than a million here and over 9 million overseas.
    Why is this occurring? I try to detail in my testimony five 
different issues that are important to me, but these are not 
the only issues that are contributing to it. There is a lot of 
uncertainty in operating here in the U.S., and a lot of it is 
due to many different factors, but these five I am going to 
summarize:
    Revision to the 3809 regulations started in 1996, taking 
all the way to 2001; the Millsite opinion further fueled this 
uncertainty; inconsistencies in the interpretation and 
implementation of regulations; the bonding crisis; and access 
issues.
    From my personal perspective I was negotiating in 1997 to 
have a $2 million budget to spend in the U.S. developing 
mineral projects. The company that I was working with, they 
were a little bit tenuous because of the revisions of the 3808 
regulations, but they were ready to go ahead. As soon as the 
Millsite opinion came out by the former Solicitor Leshy, they 
left this country faster than anybody I have ever seen. The 
negotiations ended, and instead the investing company perceived 
that it would be less risky from a regulatory perspective to 
work in Africa than here. Well, I have worked in Africa. I 
understand risks there, and that spoke volumes to me.
    Other uncertainties are wrapped up in access. Conservation 
restrictions from the Federal and State have grown roughly from 
about 10 percent in the 1960's to better than 45 percent today, 
and as much as 55 percent when we include the Roadless 
Initiative. These impeded mineral development on Federal 
ground, and a lot of what we see is that these impediments come 
and these restrictions come without doing full detailed mineral 
assessments.
    I worked overseas, like I have indicated, and there has not 
been a place that I haven't worked where this one recurring 
question comes up. ``Why are you here taking my minerals?'' 
They understand that there is economic development that goes 
with it, but it is an important question to me because then I 
question both our mineral policy and our foreign policy. A lot 
of times they will answer that question by saying, ``We 
understand you can't really access or permit your resources.'' 
But another thing that they make statements around is that they 
perceive that we are developing minerals there while we are 
saving ours here at home.
    Mining is difficult and mineral resource development is 
difficult no matter where you go in the world, but at least in 
other countries, as one senior mining executive says, and a lot 
of us feel in the field, I know that if I meet the regulatory 
and the legal requirement, I will get a permit. I do not know 
that in the U.S. I never know if or when I will finally get a 
permit even if I can demonstrate that the mine will be in full 
compliance.
    A mineral economist concluded recently that the most recent 
threat and the most serious threat to the mining industry's 
long-term sustainability in the U.S. is the regulatory changes 
in the final 4 years of the Clinton administration, including 
the revisions of the 3809 regulations and the Millsite opinion.
    I implore you, let us work together to reverse these 
radical decreasing trends, these downward trends. Let us 
develop and implement a working mineral policy here in the 
U.S., and let us provide for the national and economic security 
now and into the future.
    I appreciate the time and the opportunity to speak before 
you. Thank you, Madam Chairman.
    [The prepared statement of Ms. Carpenter follows:]

 Statement of Ann S. Carpenter, Consultant, Domestic and International 
    Mineral Development, Advisor and Past President, Women's Mining 
                               Coalition

    Chairman Cubin and members of the Committee:
    Thank you for the opportunity to testify before this Subcommittee 
today. My name is Ann Carpenter. I am an advisor to and past president 
of the Women's Mining Coalition and work as a professional exploration 
geologist in the domestic and international mineral development arena. 
Today I will discuss impediments to mineral exploration and development 
in the U.S. and impacts to our domestic mining industry. I am here 
representing the Women's Mining Coalition.
    The Women's Mining Coalition was organized in 1993 and is a 
grassroots coalition supporting environmentally responsible mining. WMC 
membership is diverse and nationwide, representing many sectors of the 
mining industry, including coal, energy, metals, construction 
materials, stone, industrial minerals, and the vendors and 
manufacturers who provide goods and services to the mining industry.
    I have a bachelor's degree in Geology from Montana State University 
in Bozeman, Montana and have more than 20 years of experience in the 
mining industry. I have worked throughout the Western U.S.--from Alaska 
to Southern California and east to Colorado. Additionally I have worked 
in the international exploration arena--in Mexico, Peru, Argentina, 
Chile, and Africa--evaluating mineral properties and company 
acquisition opportunities, and assessing the mineral potential of 
several countries for various companies. My work experiences have 
focused on the exploration for and development of metal deposits (gold, 
silver, copper, lead, zinc), with some additional ventures into the 
industrial mineral sector.

BACKGROUND
    Today I would like to discuss the impediments to mineral 
exploration and development here in the U.S., and concerns for the 
long-term viability of our domestic mining industry from the 
perspective of an exploration geologist. Exploration is the ``research 
and development'' arm of the mining industry. It is crucial and 
necessary in order to keep a flow of projects in the production 
pipeline, supplying us with the raw materials we need.
    The mining industry is an important part of the U.S. industrial 
base. This industry provides many of the raw materials required for 
housing, transportation, power generation and transmission, 
communications, the tech-industry, health care, agriculture, and the 
arts. Mined materials are also used to create and maintain a clean 
healthy environment. Mining contributes to the nation's overall 
standard of living, contributing to the health and well being of not 
only all Americans, but people the world over.
    The U.S. has seen a drastic decrease in the exploration for and 
development of mineral resources since 1997, not all of which is 
attributable to decreases in metals prices. Exploration for mineral 
resources has continued globally even through low metals prices, yet 
the U.S. has lost market share in mineral development. At an ever 
increasing rate, investment dollars are being spent on projects 
overseas instead of here in the U.S. This has occurred even though the 
U.S. is highly regarded for its diverse geologic terrains and related 
mineral resource potential.
    Exploration for mineral resources is a very risky business--the 
statistics for success are staggeringly low. Approximately 1 out of 
1000 projects reviewed will progress to an advanced-stage exploration 
and development phase. Making a mine out of an advanced-stage project 
is dependent on many variables, and mine decisions do not come easily 
or cheaply.
    Investment capital to advance exploration properties generally 
comes from what is termed the ``junior market''. Historically, these 
have been small companies who secure their funding from the venture 
capital markets in Toronto, Vancouver, London, and other places around 
the globe. Investors assess properties and investment opportunities 
based on many factors, two of which are key--the mineral potential of 
any given area and the political stability of the country where the 
property is located. Both are considered when reviewing for investment 
attractiveness (to determine if investment dollars will be well spent). 
The exploration projects of the small companies today often become the 
development projects of larger operators tomorrow.
    The Fraser Institute (an independent Canadian economic and social 
research and educational organization) has conducted an annual survey 
of metal mining companies since 1997, assessing how mineral endowments 
and public policy factors affect exploration and development 
investment. Since 1998, the survey has expanded from just reviewing 
Canadian provinces to also include a number of states in the U.S. and a 
growing number of nations globally. In 2002, the survey was expanded to 
review the investment attractiveness of 45 jurisdictions including the 
Canadian provinces and territories (except Prince Edward Island), 
selected U.S. states (this year Alaska, Arizona, California, Colorado, 
Idaho, Minnesota, Montana, Nevada, New Mexico, South Dakota, Utah, 
Washington, Wisconsin, and Wyoming), Argentina, Australia, Bolivia, 
Brazil, Chile, China, Columbia, Ecuador, Ghana, India, Indonesia, 
Kazakhstan, Mexico, New Zealand, Papua New Guinea, Peru, Philippines, 
Russia, South Africa, Venezuela, and Zimbabwe.
    Many in the mineral exploration community use this survey when 
considering investment risks and where best to spend exploration 
dollars regarding mineral resource development globally. Over the last 
3-5 years, states in the U.S. have lost ranking in this survey. For 
instance, in 1998, Nevada ranked number 1 in the Policy Potential 
Index, number 4 in the Mineral Potential Index, and number 1 overall 
(Investment Attractiveness Index--IAI). By 2002, Nevada's ranking 
fell--to number 2 in the Policy Potential Index, to number 8 on the 
Mineral Potential Index, and to 4 overall. Table 1 compares the 
Investment Attractiveness Index for the 1998-99 Survey to that of 2002. 
In almost every case, the states lost ranking in the 2002, losing out 
to other Canadian provinces and countries around the world. Three 
states (ME, MI, MO) are not being considered in the 2002 survey.

[GRAPHIC] [TIFF OMITTED] T8357.006


    Appendix A has figures and brief summaries from the Fraser 
Institute 1998-99 Survey. Figure 5 in Appendix A illustrates how the 
states ranked against one another. Appendix B has some of the figures 
from the 2002 survey, and Chart 1 illustrates how the states ranked 
against one another (from the 2002 survey data).
    Some have suggested that the mineral potential of the U.S. has been 
tapped out, as stated by one Department of Interior official who 
suggested in 1999 that all of the gold in the U.S. had already been 
found (personal communication, 2003, John Dobra, Associate Professor of 
Economics, UNR). As an exploration geologist, I find this statement 
lacking reason or scientific basis. Several new discoveries in Nevada 
were made in 2001, well after this statement was made. These have 
mainly been at or near existing mine sites where most exploration 
dollars are being spent.
    New discoveries are the result of focused scientific investigation, 
committed investment dollars, and ever changing and evolving 
technologies. These help to advance the understanding of geologic 
processes and mineral deposition, leading to mineral resource 
discoveries. Mineral deposits continue to be found in newly discovered, 
grassroots areas, as well as in ``mature'' geologic settings where 
mineral deposits have been previously discovered and defined. Advances 
in the geologic and exploration-related sciences during my career, have 
led me to revisit historic mining districts I had previously explored 
because they are ``prospective'' once again as a result of the advances 
in geologic sciences, data collection techniques and new technologies.
    As an example, Nevada has been a world leader in gold production 
from surface open-pit mining operations since the 1970s. These are 
typically large, lower grade deposits, produced utilizing 
technologically advanced techniques. More recently with newer 
technologies and advances in the geologic understanding of mineralized 
areas, significant higher-grade underground deposits have been 
identified and developed--in areas where modern underground mining has 
not been the norm.
    Despite these new discoveries, mining companies are investing less 
money in the U.S. and instead spending their research and development 
(exploration) dollars off shore.
    I have personally experienced a drastic decrease in the funding of 
U.S.-based mineral exploration and development projects. My experiences 
are but a small window into the larger decreases seen in the 
exploration sector of the mineral development industry. Companies I 
have worked with since 1996 have chosen to cancel budgets here in the 
U.S. and re-channel their funds to ``less politically risky places'' 
such as Africa. That was a chilling statement, made to me by an 
investment client in 1997 in the face of the controversy surrounding 
the revisions of the 3809 Regulations and the Millsites Opinion--both 
of which created such an unstable investment climate that my client and 
others in the investment community decided to take their exploration 
and development dollars overseas. That exodus has not stopped since 
1997.

TRENDS-IMPACTS
    Regulatory and policy uncertainties initiated by the revisions of 
the 3809 Regulations and fueled by the Millsite Opinion, regulatory 
inconsistencies, bonding crisis, and access issues continues to deter 
the development of new mines in the U.S., with investment dollars being 
spent overseas at an ever increasing rate. The Fraser Institute 2002 
survey reports that senior mining companies are now spending only 7% of 
their exploration budgets here in the U.S., while junior companies 
might be spending 10% on U.S. exploration projects. This is a radical 
decrease--seriously down from highs of roughly 50% of budgets being 
spent in the U.S. in the recent past (Figures 1 and 2).

[GRAPHIC] [TIFF OMITTED] T8357.007

[GRAPHIC] [TIFF OMITTED] T8357.008


    During the 1990's while the rest of the U.S. economy was booming, 
there was a serious decline in U.S. mining activity, a decline that 
continues today with some of the trends and impacts illustrated below:
     Since 1996, there has been a 73% decline in new claims.
     Exploration expenditures have continued to steadily 
decrease and grassroots exploration has virtually disappeared in the 
U.S. More money is consistently being spent on overseas projects.
     Mid-size producers and ``juniors'', generally where most 
exploration investment dollars come from, have chosen to invest 
overseas rather than in comparatively equal opportunities in the US.
     Large mining companies are replacing depleted domestic 
reserves by acquisition of producing properties through mergers rather 
than exploration for new prospects.
     Mining schools are being lost outright; some are being 
closed, and others are being consolidated and assimilated into other 
programs at universities--losing their mining focus and expertise.
     Greater challenges related to economic and national 
security issues.
    The results--U.S. is exporting mining investment dollars and 
engineering talents and innovations to countries where metal mining is 
expanding at an ever increasing rate. As well, other losses include tax 
and related revenues and jobs at the local, state, and national levels; 
an increase in foreign reliance on foreign produced minerals and 
products; and other related negative economic impacts to rural American 
communities where mineral resources are generally, and more likely to 
be developed.

An Exploration Geologist's View
    As an exploration geologist, I am particularly sensitive to this 
decrease in exploration funding here in the U.S.--not only when 
considering my own ability to make a living, but more importantly when 
considering the severe impact on rural communities due to this 
downturn. Mineral exploration activities are commonly focused in remote 
regions of the American west. Decreases in exploration spending here in 
the U.S. directly impact rural communities in these areas. Below are 
some of the very basic expenditures ``in the day of the life'' of an 
exploration geologist:
[GRAPHIC] [TIFF OMITTED] T8357.009


    Taking this a step further, in a good year I might work in the 
field approximately 200 days, living and working away from my home and 
staying in rural communities throughout the west. That equates to 
approximately $28,000 in expenditures funneled into rural communities. 
If 100 geologists were working regularly to explore the nation's 
mineral resources, this number might jump to roughly $2.8Million 
dollars. These are dollars that would likely be spent in rural 
communities if exploration and development were being encouraged here 
in the U.S.--based on just 100 geologists working. This is a very 
conservative estimate of exploration spending.
    The calculations above only include the most basic of expenditures, 
and do not begin to summarize the truly large expenses related to 
additional exploration investments--rock sampling, assaying, drilling, 
engineering evaluation, metallurgical testing, to name but a few--and 
are further examples of jobs and revenue possibilities in a strong 
exploration climate, for many communities across the west.

IMPEDIMENTS TO DEVELOPING MINERAL RESOURCES
    ``Mining is difficult no matter where you go in the world. But at 
least in other countries I know that if I meet the regulatory and legal 
requirements, I'll get a permit ... I don't know that in the U.S.--I 
never know if or when I'll finally get a permit--even if I can 
demonstrate the mine will be in full compliance.'' Senior Mining 
Executive, 2003
    I have been witness to a declining mineral development business 
here in the U.S., while watching and participating in a relatively 
stable minerals exploration and development industry overseas. I have 
personally experienced radical decreases in funding and eliminations of 
budgets for U.S.-based exploration programs due to the 
``uncertainties'' that are associated with U.S. laws, regulations, and 
policies regarding mineral development. Most companies willing to 
invest in mineral properties worldwide regard the U.S. as highly 
prospective for mineral discovery, but highly risky regarding 
regulatory processes and policies, with an increasingly cumbersome and 
negative permitting regime.
    The perceptions of ``uncertainty'' are and continue to be 
aggravated by many factors. I will discuss five, including: the 
revisions to the ``3809'' regulations; the release of the former 
Solicitor's Millsite Opinion; inconsistent interpretation and 
implementation of existing regulations; the bonding crisis, and access 
issues.

Negative Impact of the 3809 Revisions
    The Bureau of Land Management's October 2001 revisions to its 
Section 3809 regulations were necessary to achieve consistency with the 
recommendations of the National Academy of Sciences (NAS) in its 
report, ``Hardrock Mining on Federal Lands,'' completed in 1999. The 
NAS study, requested by the governors of the Western States and 
mandated by Congress, established a clear and scientifically based 
benchmark for appropriate environmental protections associated with 
hardrock mining on federal lands. Importantly, the revised 3809 
regulations include improved bonding provisions, ensuring that adequate 
funds be guaranteed for reclamation of mining operations, a change that 
was supported by the mining industry. One of the key findings by the 
NAS team was that the existing regulations were generally adequate in 
providing environmental protection. The NAS team also indicated the 
greatest improvements that could be realized regarding the 3809 
regulations would be if there were more consistent interpretation and 
implementation in the field, as well as better agency management and 
staff training. These recommendations have yet to be implemented in the 
field.
    Although the U.S. mineral industry was supportive of updating the 
3809 regulations and worked with DOI and others to achieve this, the 
revision process initiated a climate of uncertainty regarding 
regulations. This was then followed by the 1997 Millsite Opinion, which 
fueled the exodus of mining-related investment dollars from here in the 
U.S. to properties overseas, which continues today.

Negative Impact of the Millsite Opinion on U.S. Mining
    The General Mining Law authorizes staking mining claims on public 
lands for the purpose of exploring for and developing ``locatable'' 
mineral deposits, including base metals (copper, lead, and zinc); 
precious metals (gold, silver, and platinum group metals); uranium; and 
certain industrial minerals including gypsum, lithium, borates, barite, 
diatomite, and some clays and limestones. This law also defines several 
different types of claims including lode, placer, millsites, and tunnel 
sites that are used for different applications in specific situations.
    In 1997, the Department of the Interior (DOI) Solicitor issued an 
opinion on the use of millsite claims, applying a maximum allowable 
ratio of one-to-one between lode claims (approximate 20-acre claim 
staked on valuable mineralized land), and millsite claims (5-acre claim 
staked on non-mineralized ground, to be used for mining facilities and 
infrastructure). The Millsite Opinion is wrong and has no basis in law 
or policy; this arbitrary ratio is a radical departure from the way in 
which the Department of Interior interpreted and administered the 1872 
Mining Law since its inception. In 125 years of judicial 
interpretation, not one case has addressed or discussed or implied a 
ratio between lode claims and millsite claims. Furthermore, the opinion 
is expressly contrary to long-standing BLM and USFS policy:
     1991 BLM Manual at Section 3864.1.B provides ``A millsite 
cannot exceed 5 acres in size. There is no limit to the number of 
millsites that can be held by a single claimant.''
     1990 USFS Manual at Section 2811.33 provides ``The number 
of millsites that may legally be located is based specifically on the 
need for mining or milling purposes, irrespective of the types or 
numbers of mining claims involved.''
     The California State BLM office has records indicating 
that multiple millsites have been the practice since at least as far 
back as 1903.
    Nothing in the 1872 Mining Law suggests a one-to-one millsite-to-
lode claim ratio. Rather, the criteria used by federal land managers to 
evaluate the appropriate use of millsite claims was that the land 
should not be mineralized and there should be a demonstrated need for 
the land upon which the processing and ancillary facilities were built. 
The Millsite Opinion is a back-door administrative attempt to change 
the U.S. mining law to remove the existing right to use as much of the 
surface of non-mineralized public land (millsite claim) as is 
reasonably needed to support the development of a mineralized claim 
(lode or placer)

An Example--Exploration Stopped
    The 1997 Millsite Opinion has helped to fuel the perception of 
regulatory uncertainty here in the U.S., contributing to shifting 
mining investments overseas. I personally had $2 Million U.S. pulled 
from a proposed U.S. exploration budget and channeled to Africa--
because the exploration company perceived that it would be less 
``risky'', from a regulatory perspective, to work in Africa than here 
in the U.S. This occurred in 1998, and was the direct result of the 
unease caused first by the revision process of the 3809 Regulations, 
and seriously exacerbated by the 1997 Millsite Opinion.

An Example--Mine Development Stalled
    According to Greg Hahn, President and CEO of Summo USA Corporation, 
the company's initial goals prior to 1999 were the development of 
copper resources in the U.S. that were too small for the major copper 
producers. Their current focus has shifted to copper projects primarily 
outside of the US. This shift is a direct result of the adverse 
investment impacts created by the former Solicitor's Millsite Opinion. 
As well, the uneven leverage afforded anti-mining groups in opposing 
and appealing projects, and the uncertainties in the regulatory and 
permitting arenas creates a negative investment climate here in the US, 
further prompting this company to seek investments offshore. The table 
below in part illustrates this:

[GRAPHIC] [TIFF OMITTED] T8357.010


Inconsistent Interpretation & Implementation of Existing Regulations
    The USA needs a dose of ``environmental realism based on good 
scientific/ engineering policies.'' Evaluations Manager, senior mining 
company (Fraser Institute 2002 Survey)
    Mining is a modern, high-tech, environmentally responsible industry 
providing minerals essential to the nation's economic growth, to its 
national security and to American's quality of life. Laws and 
regulations governing mining should provide clear and consistent 
environmental guidelines, facilitating compliance efforts by 
exploration and mine operators. This would begin to reduce regulatory 
uncertainties, helping to attract needed capital to the domestic mining 
industry.
    I have first hand experience managing permitting requirements on 
exploration projects (Notices of Intent and Environmental Assessments). 
As well, I was the company lead in 1997 on a team completing a detailed 
Environmental Impact Statement (EIS) through the Bureau of Land 
Management on a proposed mining project within 50 miles of Reno, 
Nevada. This EIS was completed in less than 18 months on a complex mine 
proposal.
    Through my various permitting experiences, and comparing notes with 
my peers addressing similar permitting concerns, the mounting 
inconsistencies surrounding interpretation and implementation of 
existing laws and regulations creates a major hurdle in mineral 
development here in the U.S. This translates to serious permitting 
delays and related elevated costs to projects. One result is a 
lengthened permitting process, with an EIS taking at least by 2-4 times 
longer to complete now than it did 5 years ago. This does not factor in 
the possible lengthy delays brought on by lawsuits--which has become a 
``next step'' by groups opposing mining here in the U.S.
    Other areas of uncertainties in the permitting process include:
     Uncertainty and legal confusion over recent developments 
involving Native American sites
     Endangered Species Act
     Uncertainty regarding possible new Mining Law legislation
     Uncertainty of legal appeals
     Transparency issues--agencies not operating to the same 
transparent standards as the industry is required to, such as was seen 
at the Crandon Mine Project, WI (``Under the Guise of Environmental 
Protection'' EPA Revealed, National Wilderness Institute report, 2000).

Bonding--Predicaments & Impediments
    Some form of financial assurance is a prerequisite to obtaining 
permits, and this has traditionally been in the form of a surety bond. 
Mining companies, both large and small, are experiencing increased 
difficulty in securing the necessary bonds to satisfy financial 
assurance requirements under various regulatory programs. Today, surety 
bonds for mining related obligations are virtually unavailable at any 
price, with or without collateral. Below are some reasons for this 
downturn:
     The Enron, K-Mart, Global Crossing and W.R. Grace 
bankruptcies
     September 11, 2001 terrorist activities (insurance 
industry lost about + of its $150 billion pre 9-11 capital)
     The surety industry is experiencing increasing losses on 
non-mining obligations
     Mine reclamation bonds represent less than 1% of the 
surety business line, but have the longest tails
    Regulatory impediments have contributed to the surety industry's 
decision to place its capital in businesses other than mining, ones 
with more favorable risk/reward profiles. Such impediments include:
     Large bond amounts, inflated due to excessive 
contingencies, speculative assumptions, and other cost factors (3d 
party, Davis Bacon, excessive overhead, etc.). All of this results in 
an increase of approximately 40% above the actual cost of reclamation. 
This includes exploration projects as well.
     Glacial pace at which BLM (at least in NV) reviews and 
approves bonds
     Severe reluctance to release bonds once the reclamation 
work has been completed
     Complex and constantly changing regulatory schemes
    The mineral development industry needs assistance in addressing 
bonding impediments toward finding a workable solution.

Access Issues
    According to the GAO, as of September 30, 1993, the federal 
government owned approximately 650 million acres and was managing 271 
million acres (43.7%) for conservation purposes. In the ensuing ten-
year period additional lands have been acquired and are designated as 
managed for conservation purposes through various administrative and 
legislative processes. Some of these designations are listed below:
     California Desert Protection Act--7.7 million acres
     Clinton's National Monuments--approximately 4 million 
acres plus
     Previous Administration's Roadless Rule--60 million acres
    These designations increased the total federal acreage managed for 
conservation purposes from approximately 44% in 1993 to 55% at present. 
These numbers do not include endangered species habitat.
    Lands managed for conservation purposes and military reservations 
are generally not open to mineral entry. Additional land designations 
and programs that impact access and impede mineral exploration and 
development include:
     Time restrictions on physical exploration of a prospect 
that involves building access roads, drilling or trenching, in order to 
accommodate the mating, early life stages, feeding and watering or 
migrating habits of threatened and endangered species. In Eastern 
Nevada there are numerous examples where exploration drilling of 
prospects adjacent to operating mines was severally restricted for 
these purposes.
     Withdrawal of areas prospective for mineral discovery 
from mineral entry, such as Crown Butte (defined and designated mineral 
reserves) and the Sweet Grass Hills (existing claims and ongoing 
mineral exploration projects) in Montana
     Indian Sacred Sites (one of the reasons given for setting 
aside the Sweet Grass Hills and the denial of Glamis Gold's permit in 
California)
     Land exchanges
     Having a prospect or discovery in close proximity to an 
area that has been set aside for conservation purposes, even if it has 
been expressly left out of the conservation area because the area is 
prospective for or is known to contain valuable mineral deposits (Crown 
Butte - Montana)
     Wilderness Study or Roadless Areas (RARE I & II Lands, 
which are now incorporated in the Roadless Rule)
    Many of these withdrawals and designations occurred without review 
for: mineral potential; renewable and/ or non-renewable energy 
potential; and impacts to existing communities. In some cases, known 
mineral and energy resources were dismissed--as was the case with the 
Grand Escalante-Staircase Monument listing. These numbers are 
conservative and do not include other actions by the previous 
Administration, such as former Secretary Babbitt's removal from mineral 
entry of almost 3 million acres. This occurred in the first 9 months of 
1999, and includes twenty-year moratoriums for mineral entry over 
areas--Crown Butte and Sweet Grass Hills in Montana--with known, 
defined and engineered mineral resources.
    In contrast to the lands set aside for conservation purposes, 
mining in the U.S. has impacted approximately 6 million acres slightly 
more than two tenths of a percent. About 45 percent of the areas 
impacted by mining have been reclaimed and many other areas are still 
actively being mined.

IN SUMMARY
    The U.S. needs to ``Get back to the reality that the U.S. is 
dependent on metals to make the economy grow and prosper--same with 
energy.'' President, junior mining company (Fraser Institute 2002 
Survey)
    The permitting and regulatory processes have become slower and more 
litigious with each passing year. We have seen many viable projects 
taken into the courts after interminable permitting reviews, studies, 
and processes. As a result, the investment community is taking its 
monies overseas; we are losing jobs, revenues, and income to this 
flight overseas; and we are becoming more reliant on foreign sources 
for the minerals that we consume daily.
    For me, the displacement of the domestic mining industry raises a 
poignant dilemma.
    In all of the places overseas I have had the opportunity and 
pleasure to work, one recurring question is always asked of me by the 
locals--``Why are you here taking my minerals?'' Is this a question of 
mineral or foreign policy, or a combination of both? Most of the time, 
the question is rhetorical or they will answer it with this 
assessment--in the U.S., we are not allowed to access and permit our 
own resources, so we are forced to travel to other countries to find 
the materials that we need to feed our consumption.
    If we are to reverse the current downward trends in the domestic 
mining industry, maintain our leadership role in the development of 
mining technology, environmental practices and enhance our market share 
of this crucial industry, we will have to develop a comprehensive 
Domestic Minerals Policy.
    I believe one of the factors that have hampered the legislative 
process in the development of a strong Domestic Minerals and Energy 
Policy is the perception that Americans are opposed to mining in the 
U.S. and believe that federally managed lands should be set aside for 
purposes other than resource development. Survey research does not 
support that perception. According to a nationwide survey of 800 
registered voters conducted by Market Strategies for the National 
Mining Association last year,
     90% believe we need ``a National Minerals Strategy to 
ensure our quality of life in the future'';
     73% say lands owned by the United States should be open 
to mining, provided the land is reclaimed [as required by law];
     Only 22% say these lands ``belong to the public and 
should be set aside for future generations to enjoy and should not be 
used for mining, forestry or ranching.''
    Mining is a difficult venture no matter where the project is 
located around the globe. The modern mining industry must address many 
issues and concerns while developing projects--social-cultural 
considerations, engineering requirements, possible environmental 
impacts, economic needs, and many other concerns. Evaluations are 
completed within detailed and lengthy studies and communications. 
Investors and the people developing mineral projects should be able to 
operate with some level of confidence--if the regulatory requirements 
and laws are met, then mineral resource development can follow. That is 
a confidence realized more often on overseas projects. There are just 
too many inconsistencies in implementing the established regulations 
here in the U.S. to achieve that same level of confidence. The 
protracted, uncertain and contentious permitting processes here in the 
U.S.--for all aspects of mineral development, from exploration through 
production--creates an excessively uncertain investment atmosphere and 
has lead to a diversion of exploration funds to countries with more 
streamlined, transparent and expedited permitting processes. More and 
more investors view other countries more positively than the U.S., 
where monies can be put to work to benefit local and national 
economies.

Solutions
    Many in the mining community believe that the inconsistencies and 
uncertainties related to permitting mine projects can be addressed. 
Below are suggestions toward correcting some of these inconsistencies:
     Provide firm time guidelines and deadlines--for both the 
information gathering and review processes.
     Review the adequacy of BLM and Forest Service staff and 
resources devoted to regulating mineral exploration and mining 
operations.
     Update technical and policy guidance documents on a 
regular basis.
     Increase and improve agency and stakeholder participation 
in the NEPA process from its earliest stages.
     Expedite the review of permit applications for 
exploration projects affecting fewer than 5 acres of Forest Service-
managed lands.
     Require financial assurance for all mining and 
exploration activities that are not classified as casual use.
     Mandate Plans of Operation for any mining or milling 
operation regardless of size.
     Develop criteria and procedures for modifying Plans of 
Operation.
     Adopt regulations that define temporary closure and 
require interim management plans.
     Plan for and assure long-term, post-closure management of 
closed and reclaimed mines.
     Provide authority to issue administrative penalties and 
develop clear guidelines for involving other state or federal 
enforcement authorities.
     Modify existing environmental laws and regulations to 
allow and promote industry cleanup of abandoned mines and remove 
institutional and legal barriers currently thwarting such cleanup.
     Secure Congressional funding for aggressive and 
coordinated research programs on the environmental impacts of hardrock 
mines.
     Require the losing party to pay all costs and attorney 
fees if they challenge agency decisions in court.
    As one mineral economist concluded recently--the most serious 
threat to the mining industry's long term sustainability in the U.S. is 
the regulatory changes made in the final four years of the Clinton 
administration--including revisions to the 3809 Regulations and the 
Millsite Opinion. Let's work together to reverse these impediments and 
turn around the current trend towards offshore investment and greater 
reliance on foreign mineral sources. Let's work to develop and 
implement a working National Minerals Policy that serves to provide 
national and economic security now and into the future.

[GRAPHIC] [TIFF OMITTED] T8357.011


    NOTE: Appendices A and B have been retained in the Committee's 
official files.
                                 ______
                                 
    Mrs. Cubin. Thank you, Ms. Carpenter.
    The Chairman now recognizes Douglas B. Silver.

          STATEMENT OF DOUGLAS B. SILVER, PRESIDENT, 
                     BALFOUR HOLDINGS, INC.

    Mr. Silver. Thank you for inviting me to speak here today. 
I too am a geologist. I am an American citizen and I do 90 
percent of my work abroad, working principally as a mineral 
economist, helping people finance and value mines. It gives me 
a unique perspective because I do not work too much in the 
United States.
    Others before me have spoken about the supply/demand 
picture for strategic minerals, and you should be aware that 
this list has changed over the century as the material needs of 
the country have evolved. For instance, the early list focused 
on wartime commodities, but the nature of war has changed as 
new alloys are developed with each new generation of armament. 
Similarly, the material needs of society have also shifted with 
new technologies. These changes should trigger an important 
dialog on what constitutes ``strategic'' in today's world.
    From my perspective, however, I see several trends in the 
U.S. economy that provide guidance for the future of strategic 
minerals. I see an economy where service industries dominate 
over basic industries. Just look at the profits of the 
investment bankers over those of the mining industry. But 
unlike banking, mining creates tangible value while investing 
creates paper profits. One can only guess how long the world's 
money can shift away from value creation toward value 
harvesting. The new economy is a virtual economy. We are 
building a virtual Nation where the engines of growth have 
little or no underpinning in hard assets. But the virtual 
Nation is premised on a false reality. Today's economy reminds 
me of an upside down pyramid where wealth and its attendant 
luxuries depend on a very narrow base of true value creation. 
This structure creates an inherently unstable platform, one 
that can fall with very little assistance.
    We also see that tourism and recreational industries carry 
enormous political weight in Washington. This has spawned an 
era of NGO's and special interest groups that are well 
financed, yet provide no income to the U.S. economy. Their 
contributions are both philosophical and intangible, but 
because their agendas tend to be for a specific purpose, they 
serve a select few under the pretenses of serving the majority. 
Their power is immense, yet they pay no taxes and create few 
jobs. Despite their noble intentions, they are a drain on the 
economy.
    The American dream includes the right to own one's home. 
This hope has seen massive expansions in populations and their 
special needs. In my home State of Colorado, I see many middle 
Americans also purchasing second homes in the mountains. But 
where does the land come from for these new residences? It 
comes from the agricultural lands and other rural areas, 
resulting in less land being available for basic industry. We 
also see more and more lands being set aside for recreational 
users, lands whose commercial contributions to the tax base and 
job creation are being limited by their restricted use.
    Special interest groups often talk about ecosystems and 
rightly so. The reduction in available land for mineral 
exploration and development is reaching the point where our 
industrial ecosystem is severely threatened. It seems that 
every time a new deposit is discovered in some remote region, 
that area instantly becomes a beehive of sacred sites, premier 
vistas and unique habitats. What most do not realize is that 
the geologic processes responsible for building mountain ranges 
are also responsible for developing ore deposits. So as each 
new vista view is set aside it is preferentially depleting our 
natural resource base.
    So I ask you to think about the following issue. Today the 
world's largest mineral companies tend to be public companies, 
so why is the United States the wealthiest Nation in the world 
and the largest consumer of metals, yet is the home to so few 
mineral companies? Based on research conducted by my firm, U.S. 
domiciled companies only represent 11 percent of the world's 
public mineral companies. Approximately one half of the U.S. 
companies are active, but only about 20 are focused on hard 
rock minerals, the balance being focused on coal and industrial 
minerals. Wouldn't you think the largest consumer of metals 
would also be the largest supplier of metals?
    The proof is in the fact that Newmont Mining, the world's 
largest gold producer and an American company, derives 57 
percent of its annual production from overseas. Ever wonder 
why? We found no evidence that the lands had been thoroughly 
explored, but there is plenty of evidence that there is less 
land available to explore and that the difficulty in conducting 
even simple exploration on Federal lands serves as a strong 
incentive to work elsewhere.
    The proof is in the fact that the mineral investment in the 
State of Montana is so bad that only the Russians are willing 
to take on the risk.
    The proof lies in the Government's abandonment of the U.S. 
Bureau of Mines, the severe budget cuts to the U.S. Geologic 
Survey and the decisions you are currently making that are 
compromised by the lack of information you are currently 
receiving. Ask the Mineral Information Team at the USGS how 
many positions they have vacant and why they have no budget to 
fill these slots. Take the time to understand that these 
positions were identified as important, yet those responsible 
for slashing their budgets felt the information will have no 
material impact on your ability to make smart decisions.
    By contrast, Canada represents 58 percent of the known 
mineral companies including the vast majority of exploration 
firms. Why has Canada become the leading home for public 
mineral companies? The answer lies in Canada's commitment to 
developing its natural resources. I believe the Canadian 
Government strives to create solutions that permit the 
cohabitation of special interest groups and the engines of 
production, while ours avoids confrontation with the NGO's at 
the expense of commerce. Unlike our Securities and Exchange 
Commission, the Canadians utilize global reporting standards. 
Unlike the EPA, the Canadians recognize the legal rights of 
working people to use their lands for commercial purposes. 
Unlike the United States, the Canadian insurance industry seems 
to work hard at providing bonding for new mine development 
because it understands the importance of commerce to the 
national economy.
    This brings us back to the issue of strategic minerals. In 
my opinion, all minerals are strategic, especially when they 
are no longer available to society. Strategic is what we call 
phosphate when 99 percent of our imports come from Morocco. 
Yttrium, an element used in television screens and magnets, is 
strategic because more than one half of our imports come from 
China. We import almost 70 percent of our manganese from Gabon 
and South Africa. Any mineral or metal that requires 
substantial import should be considered strategic. This means 
that all metals and minerals are strategic.
    I would like to leave you with two concepts to think about.
    What do we as a Nation want to do with our minerals? Will 
we always have the economic and military might to fulfill our 
natural resource needs by any means we deem necessary? If we 
believe we will, then we should continue along the current and 
past administration's policies of ignoring the domestic mineral 
industry. I can only surmise that Washington's lack of progress 
reflects your comfort levels with these existing policies. But 
like a drug addict, the longer you ignore the problems, the 
harder it will be to kick the bad habit. From my observations, 
the difficulties of exploring or developing a hard rock mine in 
this country are immense. They will only get worse if you 
continue along your current path.
    If you believe that the strength of a Nation is founded on 
the abundance and employment of its natural resources and that 
basic industries play a critical role in building lasting value 
for the national economy, then we need a dramatic shift in the 
Federal Government's attitude about U.S. minerals and how we 
intend to manage them.
    We need a Government that is proactive in its support of 
mining. Action items I would like to see include the courts 
quickly identifying frivolous lawsuits filed by the elitist and 
permit companies to seek monetary damages if the case is deemed 
to be frivolous. A typical U.S. mine takes 10 years or longer 
from discovery to production, whereas elsewhere in the world 
this discovery will be placed in production in four or 5 years. 
Discovery is typically made in the first year. Two or 3 years 
are then spent in conducting follow-up work and completing 
feasibility and determining the economic viability of the 
project. Most mines take 1 year--
    Mrs. Cubin. Could you sum up your statement?
    Mr. Silver. Ma'am, there are a lot of issues in the mining 
industry that need to be addressed, and we see the inactivity 
of the Federal Government as being the biggest single problem 
we have. We don't care which way you go, but we really wish you 
would pick a direction so we can get on with our business.
    Thank you.
    [The prepared statement of Mr. Silver follows:]

   Statement of Douglas B. Silver, President, Balfour Holdings, Inc.

    Thank you for inviting me to speak today. Others before me have 
spoken about the supply-demand picture for strategic minerals. This 
list has changed over the past century as the material needs of the 
Country have evolved. For instance, the early lists focused on war-time 
commodities, but the nature of war has changed as new alloys are 
developed with each new generation of armament. Similarly, the material 
needs of Society have also shifted with new technologies. These changes 
should trigger an important dialogue on what constitutes ``Strategic'' 
in today's modern world.
    From my perspective, I see several trends in the U.S. economy that 
provide guidance for the future of Strategic Minerals. I see an economy 
where service industries dominate over basic industries. Just look at 
the profits of the investment bankers over those of the mining 
industry. But unlike banking, Mining creates tangible value, while 
investing creates paper profits. One can only guess how long the 
world's money can shift away from value creation toward value 
harvesting. The New Economy is a virtual economy. We are building a 
Virtual Nation where engines of growth have little or no underpinning 
in hard assets. But the Virtual Nation is premised on a false reality. 
Today's economy is starting to remind me of an upside pyramid where the 
wealth and its attendant luxuries depend on a very narrow base of true 
value creation. This structure creates an inherently unstable platform; 
one that can fall with very little assistance.
    We also see that tourism and recreational industries carry enormous 
political weight in Washington. This has spawned an era of NGOs and 
special interest groups that are well financed yet provide no income to 
the U.S. economy. Their contributions are both philosophical and 
intangible. But because their agendas tend to be for a specific 
purpose, they serve a select few under the pretenses of serving the 
majority. Their power is immense, yet they pay no taxes and create few 
jobs. Despite their noble intentions, they are a drain on the economy.
    The American dream includes the right to own one's home. This hope 
has seen massive expansion in populations and their special needs. In 
my home state of Colorado, I see many middle Americans also purchasing 
second homes in the mountains. But where does the land come from for 
these new residences? It comes from agricultural lands and other rural 
areas, resulting in less land being available for basic industry. We 
also see more and more lands also being set aside for recreational 
users: lands whose commercial contributions to the tax base and job 
creation are being limited by their restricted uses.
    Special Interest Groups often talk about ecosystems and rightly so. 
The reduction in available land for mineral exploration and development 
is reaching the point where the Industrial Ecosystem is severely 
threatened. It seems that every time a new deposit is discovered in 
some remote region, that area instantly becomes a beehive of sacred 
sites, premier vistas and unique habitats. What most do not realize is 
that the geological processes responsible for building mountain ranges 
are also responsible for developing ore deposits. So as each vista view 
is set aside, it is preferentially depleting our natural resources 
base.
    So I ask you to think about the following issues. Today, the 
world's largest mineral companies tend to be public companies. So, why 
is the United States the wealthiest nation in the world and the largest 
consumer of metals, yet it is the home to so few mineral companies? 
Based on research conducted by my firm, U.S.-domiciled companies 
represent only 11% of the world's public mineral companies. 
Approximately one-half of these U.S. companies are active but only 
about 20 are focused on hard rock minerals (the balance being 
principally focused on coal and industrial minerals). Wouldn't you 
think that the largest consumer of metals would also be the largest 
supplier of metals?
    The proof is in the fact that Newmont Mining, the world's largest 
gold producer and an American company, derives 57% of its annual 
production from overseas. Ever wonder why? We have found no evidence 
that the lands have been thoroughly explored. But there is plenty of 
evidence that there is less land available to explore and the 
difficulty to conduct even simple exploration on Federal lands serves 
as a strong incentive to work overseas.
    The proof is in the fact that mineral investment in the State of 
Montana is so bad that only the Russians are willing to take on the 
risk.
    The proof is in the fact that the number of staked claims in Nevada 
dropped precipitously when the annual rents were doubled.
    The proof lies in the Government's abandonment of the U.S. Bureau 
of Mines, the severe budget cuts to the U.S. Geological Society and the 
decisions you are currently making that are compromised by the lack of 
information you are currently receiving. Ask the Minerals Information 
Team at the USGS how many positions they have vacant and why they have 
no budget to fill these slots. Take the time to understand that these 
positions were identified as important yet those responsible for 
slashing their budgets felt the information will have no material 
impact on your abilities to make smart decisions.
    By contrast, Canada represents 58% of the known public mineral 
companies, including the vast majority of exploration firms. Why has 
Canada become the leading home for public mineral companies? The answer 
lies in Canada's commitment to developing its natural resources. I 
believe the Canadian government strives to create solutions that permit 
the cohabitation of special interest groups and the engines of 
production while ours avoids confrontation with the NGO's at the 
expense of commerce. Unlike our Securities and Exchange Commission, the 
Canadians utilize global reporting standards. Unlike the EPA, the 
Canadians recognize the legal rights of working people to use their 
lands for commercial purposes. Unlike the United States, the Canadian 
insurance industry seems to work hard at providing bonding for new mine 
development because it understands the importance of commerce to the 
national economy.
    This brings us back to the issue of strategic minerals. In my 
opinion, all minerals are strategic, especially when they are no longer 
available to Society. Strategic is what we call phosphate when 99% of 
its imports come from Morocco. Yttrium, an element used in television 
screens and magnets, is strategic because more than one-half of our 
imports come from China. We import almost 70% of our Manganese from 
Gabon and South Africa. Any metal or mineral where we require 
substantial imports should be considered strategic. Any metal that 
provides underpinning value for our Virtual Nation should be considered 
strategic. This means that all minerals and metals are strategic.
    I would like to leave you with two concepts to think about.
    1. What do we, as a nation, want to do with our minerals? Will we 
always have the economic and military might to fulfill our natural 
resource needs by any means we deem necessary? If we believe we will, 
then we should continue along the current and past Administrations' 
policy of ignoring the domestic minerals industry. I can only surmise 
that Washington's lack of progress reflects your comfort levels with 
these existing policies. But like a drug addict, the longer you ignore 
the problems, the harder it will be to kick the bad habit. From my 
observations, the difficulties of exploring or developing a hard-rock 
mine in this country are immense and will only get worse if you 
continue along your current path.
    2. If we believe that the strength of a nation is founded on the 
abundance and employment of its natural resources and that basic 
industry plays a critical role in building lasting value for the 
national economy, then we need a dramatic shift in the Federal 
government's attitude about U.S. minerals and how we intend to manage 
them.
        A. We need a government that is proactive in its support of 
        mining. Action items I would like to see include having the 
        courts quickly identify frivolous lawsuits filed by the 
        elitists and permit companies to seek monetary damages if the 
        case is deemed to be frivolous. A typical U.S. mine takes ten 
        years or longer from discovery to production whereas elsewhere 
        in the world this discovery could be placed into production in 
        four or five years.. Discovery is typically made in the first 
        year of exploration. Two to three years are then spent 
        conducting follow-up work and completing feasibility studies 
        that determine the economic viability of the project. Most 
        mines take approximately one year to construct. This suggests 
        that five years are spent fighting for our rights in the 
        courts. Hardly seems fare to me. Can you imagine how Congress 
        would function if we only approved your budget once every ten 
        years? The courts need stronger measures so that everyone's 
        rights are protected, regardless of their perceived political 
        correctness.
        B. We need an SEC that adopts global standards rather than 
        develops its own eclectic sets of rules. I understand that its 
        intention is to protect the shareholders. But its morass of 
        unwritten regulations and conditional approvals are preventing 
        management from fulfilling their fiduciary duties.
        C. We talk about preserving the future for our grandchildren, 
        but do little or nothing to preserve and transfer the technical 
        expertise of our aging talent pool. I am 48 and am considered 
        one of the young ones in our business.
        D. We do little to insure that our mining schools survive. 
        There is an argument that we need less mining education because 
        there is less mining in our country. But what we do not realize 
        that there is less mining because there are too many 
        impediments to building a mine. Consequently, students choose 
        other majors forcing the schools to close or cut back. This 
        results in less education and cutting-edge research that could 
        provide solutions to today's problems.
        E. What worries me the most is the government's lethargy. It 
        was quite evident that Clinton's administration was against 
        Mining but I must confess that I have not observed any 
        contribution by President Bush's people either. Meanwhile our 
        existing mines are being depleted which increases the nation's 
        need for foreign supplies in the same way we have strong 
        foreign dependence on oil. This worries me.
    Now I know that your policies reflect the will of the people, but 
you also need to take a leadership role in protecting their interests 
by insuring there are inexpensive supplies of future metals. The same 
supplies that keep the price of cars affordable, that protect our high 
standards of living and keep our rural communities prosperous. We 
miners stand with pride as our forty-year old copper mines continue to 
operate, but we have grave concerns that there is little new supply 
being sought to replace them. Making money in mining is a tough 
business, particularly when the industry has to compete so ferociously 
at the global level. But when the U.S. government inhibits progress 
through its inactivity, and makes no effort to support its basic 
industries, global forces will draw this talent pool and capital 
expenditures to those regions where it is wanted. So I implore you to 
let us know our fate.
    Thank you.
                                 ______
                                 
    Mrs. Cubin. Thank you.
    I would like to start the questioning with Ms. Carpenter. 
If we improved our policies toward availability of Federal 
lands for minerals development, do you believe that we can find 
significant amounts of specialty minerals within our borders to 
reduce our reliance on foreign supply?
    Ms. Carpenter. Absolutely, Madam Chairwoman. The advances 
in understanding of geologic processes, the advances in 
technologies provide us with opportunities that are infinite. 
I've traveled across the West looking at mineral deposits, and 
I continue to go back to zones or in areas that I've looked at 
previously because the science has changed, the technologies 
have changed. It's an ever-dynamic process. And to say that 
once you have walked across a piece of ground and you can make 
an assessment that there is nothing there is wrong.
    Mrs. Cubin. In your testimony, you discussed a survey of 
American attitudes toward mining on public lands. What were the 
results of that survey?
    Ms. Carpenter. In that survey, it was a survey conducted by 
Market Strategies for National Mining Association. In that 
survey some of the summaries were 90 percent of the people 
surveyed believe that we need a national mineral strategy to 
ensure our quality of life in the future. 73 percent say lands 
owned by the United States should be open to mining, providing 
the land is reclaimed as required by law. And only 22 percent 
say that these lands belong to the public and should be set 
aside for future generations to enjoy.
    Mrs. Cubin. Could you tell me, just list a few things that 
you think ought to be included in the national mineral policy 
that you recommend.
    Ms. Carpenter. In my testimony, starting on page 14 and 
going to 15, I think there are 14 suggested recommendations, 
suggested changes. Some of them are: Provide firm time 
guidelines and deadlines within the permitting process and 
within the regulations; review the adequacy of BLM and Forest 
Service staff and resources devoted to regulating mineral 
exploration and mining operations; expedite the review of 
permit applications for exploration projects; secure 
congressional funding for aggressive and coordinated research 
programs on the environmental impacts of hard rock mines. It is 
a broad spectrum. And finally, require the losing party to pay 
all costs and attorney fees if they challenge agency decisions. 
We find that to be an incredible impediment.
    Mrs. Cubin. I sympathize with that and agree that it would 
be and is a terrible impediment. Unfortunately, we try to do 
that with all parts of public lands, whether it is harvesting 
timber, whether it is bringing up coal, whether it is grazing. 
Whatever activity it is on the public lands, frivolous lawsuits 
seems to be the method that the opposition has chosen to keep 
people from using the public lands. And it is a very 
frustrating situation, although I agree with you very much, and 
I think we should continue to try to make that happen.
    Mr. Hanes, how will our downward trend for minerals 
production and manufacturing in general affect our economic 
future, and especially, how can we rebound from the situation 
that hurts small business interests virtually in every region 
of the country?
    Mr. Hanes. That is a profound question. I am not sure I can 
even treat it adequately. But if you look at the sector that I 
am most familiar with, that is what we have classified as 
strategic metals sector, as my colleague Mr. Noel described, we 
are under economic pressures from a lot of directions. Some of 
that is simply economic pressures. We are dependent on the 
aircraft industry, for example, in general, both military and 
commercial. And you see a lot of that decline in particular in 
the post-9/11 period.
    But the way that we can reverse this trend, in my opinion, 
is to pay, you know, more attention to those applications of 
these strategic and critical metals that are, frankly, hidden 
in these systems. I mean, you know, people are just simply 
unaware. And I talk about that a little bit in my testimony, 
the criticality of these small components that make these very 
sophisticated systems work. And in order to do that, you need 
to sustain the productive capability here in this country. And 
it can be--if indeed, in a lot of those critical applications, 
for example, we don't have that manufacturing capability, it 
can be in fact a weapon of economic warfare.
    I mean, there are some examples that are talked about and 
critical components that go into tactical missile systems, for 
example, that are generated in China that suddenly became a 
little bit--and this is sort of--and I am not sure I have 
factual information here, but you hear stories where these 
critical components, all of a sudden during the Iraq campaign, 
became a little less available. And so people were unable to 
upgrade systems and supply systems that were required. There 
are just any number of those kinds of components that need to 
be sustained.
    Bottom line is that, you know, protectionism probably isn't 
the answer. It is, really, assuring that we have the strong 
manufacturing and technological base to support that 
sophisticated manufacturing here in this country, to assure 
that it is available in the future.
    Mrs. Cubin. Thank you. Mr. Silver, you mentioned in your 
testimony that Canada has a commitment to developing its 
natural resources. About 10 to 15 years ago, a number of the 
mining provinces were headed down the same predicament that we 
are currently facing. What turned things around in Canada? Do 
you know?
    Mr. Silver. Yes, I think the thing that you'd notice the 
most difference is at the Federal level. The Canadian Federal 
Government seems to go out of its way to get people to work 
toward a solution quickly. A good example is this brand-new 
nickel deposit that has been found in Labrador called Voisey's 
Bay. A lot of groups were against it being constructed. The 
government got everybody to sit down, and in a period of two or 
3 years they came to a solution. Now the project is moving 
ahead. We don't see that from the U.S. Government. So I think 
it is the proactive role that the Federal Government takes in 
getting people together and pushing them toward finding an 
answer.
    Mrs. Cubin. It seems to take forever for the Federal 
Government to get acting. We have known for years that we were 
going to have a natural gas shortage and that there would be a 
crisis. And just to get the problem to the attention of the 
American people and the media sometimes seems overwhelming. But 
I certainly think that we need to begin, and hopefully this 
hearing will be a beginning, for a national mineral policy or 
to at least expose the need for one. Because frankly, I haven't 
heard much talk about that in Washington. I think there a few 
people, mostly on this Committee, that are aware of it, but 
otherwise I think there is just really a void in information in 
this regard.
    Mr. Noel, as the domestic mining industry declines, so does 
the enrollment in related educational programs. This is 
substantially reducing the number of qualified professionals in 
the mining industry. Is a comparable decline occurring for 
programs tailored to high-tech and manufacturing?
    Mr. Noel. This is kind of a subjective answer to your 
question, based upon observation, but I think if you go to many 
of our more outstanding technical universities, there is a 
predominance of people from outside the United States that go 
to these schools. And I think typically in the past what we 
have seen is that by and large they have relocated and they 
have come and they have actually become American citizens and 
have supported our industry.
    The Forging Industry Educational and Research Foundation, 
we have 12 schools we work with. In discussions in Ohio State 
in particular, when you go to some of these schools, now as you 
talk to these students, their intent is no longer to stay here. 
Their intent is to go back to their native country and to work 
and develop industries of that country. And so I think 
everybody sees that the American youth is more--is interested 
in, really, pursuing jobs in the service segment of our country 
as opposed to get into the basic hard industrial sector. And 
many of us become very concerned about the ability to have the 
engineering capabilities to continue the advance of technology 
for both military and commercial aircraft.
    Mrs. Cubin. But the connection would be if jobs aren't 
available in the United States, why would students go into 
these type jobs and why would foreign students who are trained 
here stay?
    Mr. Noel. Well, I think the issue that you have here is 
there is no question there--you know, as far as there has, it 
has been a declining or consolidating industry, but one of the 
things that we--for example, you need a stable source of 
funding going into the technology sector. And with that, people 
are looking at the technology functions within their company, 
can stabilize their staffing, and they can go out and attract 
and retain people over long periods of time rather than be 
subjected to the economic cyclicality, which is you are 
bringing people in, you are laying people off, that sort of 
thing.
    Mrs. Cubin. Thank you. Now I recognize Mr. Gibbons for 5 
minutes of questioning.
    Mr. Gibbons. Thank you, Madam Chairman.
    Let me turn to Mr. Hanes first to ask a question, because I 
am curious on some of your testimony. When you hear some people 
say that we ought to be more reliant on recycling, the use of 
certain materials and metals and minerals that we produce, for 
example, hardened steel, that are included in communication 
processes or communication devices, how easy or how readily is 
our developed recycling process to take advantage of recovering 
those, to put those back in the market?
    Mr. Hanes. Well, if you start with the metal beryllium, of 
which I am most familiar, the manufacture of beryllium, it is 
based on recycling everything you possibly can. It is a very 
expensive commodity to win in the first place. But ultimately, 
you lose in the process the ability to recycle. Either 
technology no longer exists or it is not economically feasible 
or any number of reasons. If you put beryllium in copper to 
make beryllium copper, you can never get the beryllium back to 
make a beryllium metal component for a defense application, for 
example. If you put molybdenum in steel, you cannot get that 
back to put it into a superalloy, for example. You know, there 
are just basic laws of physics and chemistry that apply to that 
part of the process.
    If you take the case of a precious metal inlay in a copper 
strip that is converted into a connector or a contactor that 
goes into an automotive ignition system in an automobile, the 
cost of recovering that precious metal, you know, back from 
inside of this very complicated structure is very high, 
although there are recycling companies that do that. But 
ultimately, you lose a percentage, you know, depending on the 
laws of physics, chemistry, and economics, you lose a 
percentage. So, you know, the concept, I think one of the 
favorite expressions of some of the opponents of mining is to 
say, well, if you need gold, you simply melt down all the 
jewelry. Well, eventually you run out of it and you have to 
find primary metal again.
    So it is a lot different from industry to industry to 
industry, but the bottom line is it is all governed by, you 
know, physics, chemistry, and economics.
    Mr. Gibbons. And consumption. Some of these--
    Mr. Hanes. And consumption, correct. Thank you.
    Mr. Gibbons. What I would like to do is turn to Ann 
Carpenter and Mr. Silver, if I could, and propose this. When I 
was in Chile, I talked to Placer Dome's people there in their 
operation. And from the time they discovered their copper 
deposit until the time they had it into production was less 
than 2 years. What has been your experience with the time from 
discovery to the time of production of a mine in the United 
States?
    Ms. Carpenter. For example, I permitted a mine in 1997. It 
was the completion of it, roughly. I am not solid on that. But 
we did an EIS, an environmental impact statement, and it took 
us a year and a half. And it was a complex mine project, about 
a million and a half ounces, pit lake issues, a lot of 
environmental considerations and mitigation concerns. If I were 
to try to do that, just the permitting side, here, we are 
looking in the field at five to 10 years easy.
    Mr. Gibbons. Five to 10 years. And what is the average 
investment in the process before you ever get to production 
going through this permitting cycle and through the phase that 
you need to go through before you can stick the first shovel in 
the ground to get your first return on that investment? How 
much do you usually invest?
    Ms. Carpenter. Excluding litigation, the litigation 
variable--5, 10 million dollars.
    Mr. Gibbons. So you have $5-10 million just through the 
permitting process. That doesn't count for any of the 
development of, say, the mill site or the equipment--
    Ms. Carpenter. Or the mine, yes, right.
    Mr. Gibbons. Or the mine itself.
    Ms. Carpenter. Right.
    Mr. Gibbons. What if you included all of that by the time 
you got to the 10-year point?
    Ms. Carpenter. Well, for instance, I think the Glamus 
project, the Imperial project that was stalled recently even 
after it had gone through the permitting cycle, I believe they 
spent-- if I might be able to ask a couple of my colleagues in 
the audience, if that is all right?
    Mr. Gibbons. Sure.
    Ms. Carpenter. Including capital costs, that estimate is 
$65 million.
    Mr. Gibbons. So they have got an investment of $65 million 
out there with an uncertainty, including a delay in the time to 
get that mine into production.
    Ms. Carpenter. Exactly.
    Mr. Gibbons. And as a result--
    Ms. Carpenter. Those are estimates that I would want to 
have the opportunity to look back on it.
    Mr. Gibbons. As a result, a normal business company is 
going to look at that and say, golly, this is something I have 
great questions about, whether or not I want to invest $65 in 
an uncertain future at an uncertain date, knowing that I could 
take the same $65 million and go down to South America, I could 
go to some other country and within 16 months have production 
and a return on that same money using the same environmental 
standards, using the same production and the same technologies 
that I would have used in the United States.
    Ms. Carpenter. Yes. I would say that.
    Mr. Gibbons. So it is discouraging. Mr. Silver, I want to 
ask you, too, the same question. And if you could, I know my 
time is up, but Madam Chairman has extended me the graciousness 
of going over my 5 minutes. The same type of a question, 
because your testimony very clearly alludes to the fact that it 
is the delays, the uncertainty, the legal cost adding up that 
make it unattractive for industry to remain in the United 
States. Now, I would like to hear.
    Mr. Silver. Yes, Chile is a good example, too, because in 
Chile mining has a primacy over all other land use. So it is a 
wonderful country for miners to go to.
    What you see in most foreign countries is that there is a 
set path that is dictated by regulations. And as long as you 
keep within that path and you achieve the objectives and you 
submit the proper paperwork--
    Mr. Gibbons. Excuse me. So what you are saying is even in 
the United States, if you complete your permitting process to 
the standards that were required in the permitting and the 
environmental impact statement, there is no guarantee.
    Mr. Silver. There is no guarantee and it is actually, I 
think it is getting worse. You see a lot of people filing 
injunctions or trying to obfuscate the process at the 12th hour 
despite the millions that have been spent in the adequate time 
zones. And I think it is a very simple thing. You were 
mentioning before about budget cuts in the Federal Government. 
We are not asking the Government to spend a lot of money. We 
are saying just streamline the process. You can actually save 
money. Just make the process efficient and stick to it. Don't 
allow somebody to come in at the last minute and change the 
rules. Don't bend over backwards to give a special interest 
group another year, because you are destroying industry. And 
that is a risk that is unacceptable anywhere in business.
    Mr. Gibbons. One final thing that I want to ask about is 
the legal status. Oftentimes you see groups file lawsuits even 
though the environmental impact statement is clear in its 
purpose, clear in what you are going to do. The plan is set, it 
meets all the standards, and yet there is a lawsuit filed. What 
is the purpose of filing that lawsuit against you?
    Mr. Silver. Well, it is very simple. It is simple delay. If 
they can delay, it is expensive for the operating company. If 
you delay a project by 1 year, you will knock as much as 15 to 
20 percent off its net present value. If they do that two or 
three times, the project is gone.
    Mr. Gibbons. So delay is --
    Mr. Silver. Delay is a tremendous tool for the opposition. 
But we have less rights than they do, because the delays are 
built into the system. We don't have the right to say the 
Government's decided this and they are sticking with it.
    Mr. Gibbons. I guess my final question--thank you, Madam 
Chairman, for your yielding me this--would be to Mr. Noel. What 
is your impression of the future of the mineral industry in the 
United States? Where do you think we are going?
    Mr. Noel. Well, to me the--you know, I am looking at what 
comes out of the mineral industry and how it goes into metals 
and what the future of the metals industry in the United 
States. And as far as the metals industry, you have key 
companies that have unique positions, like Timet and Henderson 
Nevada, that--you know, they have a $100 million sponge 
facility that is operating at 60 percent of capacity. And 
obviously one of the key issues there is absorbing their 
depreciation expenses on that facility. I mean, that is a huge 
concern. You know, at the current level of consumption, that is 
a business that is in trouble. You look at Special Metals, 
which is a primary producer of superalloys. They are in chapter 
11.
    So the question is, these are elements of both our 
commercial aviation and military defense systems. I believe we 
need this capability. And as this cycle prolongs, and the 
latest projections are that this probably will occur the last--
you know, once the rebound and commercialization, they said 
2005. And if they said ask me again next month and it is 
probably going to be 2006.
    But I am really very concerned that these companies will 
survive in a fashion or form that will be able to support our 
needs. And I think it will be a huge loss to this country if 
that would happen. And they are--these are guys that are not--
they are the prominent suppliers in their industries, and they 
are struggling at this point in time. So that is the reason we 
feel that the defense manufacturing supply chain has to work 
together. If we all work together and collaborate, you know, we 
can be more effective and more efficient.
    And the key to survival is technology. And you look at what 
is the major issue, it is globalization. How do we respond to 
globalization? We feel it is technology, it is speed, it is 
collaboration, it is investment. So we see clearly a troubled 
sector. You go up the next step in the supply chain to the 
component producers, shape isn't as bad. They are generally at 
break-even points, but those businesses are going to be 
consolidated. Many of the smaller companies, I doubt they will 
survive the cycle.
    So, I mean, it is a very troubling situation, with no clear 
path or no clear recovery point on the horizon.
    Mr. Gibbons. Well, I apologize to Mr. Cole for taking so 
much of his time that would be available to him. Thank you, 
Madam Chairman, for extending me the gracious time. Thank you.
    Mrs. Cubin. Certainly. I recognize Mr. Cole for 5 minutes.
    Mr. Cole. Thank you very much, Madam Chairman.
    Mr. Silver, your testimony was so nuanced that I want to 
probe it a little bit. I wish there were a lot more people here 
to hear what you had to say, quite frankly, because it was so 
much to the point. But let me ask you a couple of fairly simple 
questions.
    First, I would assume from your testimony, obviously there 
is an enormous price differential producing abroad as opposed 
to producing here in a variety of areas in basic metals. How 
much of that differential, if you could categorize it broadly, 
is due to problems of permitting here as opposed to problems of 
supply? Or cost of production?
    Mr. Silver. That is a great question, because once the 
mines are built in the U.S., they are very competitive on a 
global scale. I mean, we do have higher labor costs, of course. 
Future environmental costs are built into the models, but we 
have better technology, we are more efficient, so we can keep 
our costs down and be very competitive at the global scale. So 
the producing side is not as big an issue as trying to be 
allowed to build the thing.
    Mr. Cole. So you are pretty comfortable, if we could get 
the regulatory side under control, that we would both have the 
sufficient supplies and technology to be very competitive and 
essentially self-sufficient in a variety of areas?
    Mr. Silver. Yes. There is no evidence from all of our 
research that shows the U.S. is either picked over in the 
commodities we have traditionally done or that the future mines 
are going to be excessively expensive. The only evidence we see 
is this delay and the access.
    Mr. Cole. Let me ask you this question and preface it with 
a comment. A lot of the--I know a lot about the oil and gas 
industry, not very much about hard metals extraction. A lot of 
the resistance in oil and gas that we meet is based on ideas 
about production that are about 50 or 100 years out of date. I 
mean, there really is sort of a vision in people's minds that 
we have a bunch of wooden oil wells up about 10 feet apart and 
that is what an oil field looks like today. And of course it 
doesn't. And we labor sometimes under the mistakes of the past. 
Well, we do have environmental problems--we have tremendous 
environmental problems around lead and zinc extraction in 
Oklahoma, a huge Superfund site there, where clearly what was 
done a century ago was an abomination, a waste of the resource.
    Contrast, if you can for me, what the environmental 
consequences of hard metal are today, how much different and 
better the technology is compared to 50 or 100 years ago.
    Mr. Silver. OK. One of the things I find most interesting 
is that the people who don't like the mining industry assume we 
are using 100-year-old technologies. And in fact, if you use 
old technologies, it is expensive, because you don't fix the 
problems. The new technologies that are being developed today 
are light years ahead of what it was 100 years ago. And as a 
consequence, the industry spends a lot of effort trying to use 
better technology because it in fact reduces cost. So the 
argument that we don't use modern technology is just simply not 
true, and it is not to our advantage to not use the best 
available technology.
    Mr. Cole. Let me direct this question, if I may, to Ms. 
Carpenter, although any of you would be--I would be delighted 
to hear from you.
    Clearly, I mean, there are sort of competing environmental 
visions that you run into. One is everything needs to be 
preserved pristine. The other is let's use what we need to use, 
but let's do it responsibly and let's restore it once we are 
done.
    Tell me just broadly where the industry is at in terms of 
its ability, once an area is tapped out, so to speak, in terms 
of productive capacity, to restore or otherwise minimize 
whatever environmental consequences where they are actually 
mining a particular metal.
    Ms. Carpenter. Very good question. And again, it lends back 
to the technological advances. I work quite a bit doing 
reclamation work on projects for clients that are leaving this 
country and going elsewhere. So they are closing their projects 
out. And I share a lot of my data across the sectors in the 
mineral industry, including construction materials, the coal 
industry, hard rock. And the advances that people are doing, 
the advances, the technological advances, the scientific 
advances have all led to incredible reclamation efforts and 
much better than we saw even 10 years ago. And I would offer 
that, with the advances in technology and the understandings 
that we see and the idea-sharing, we are coming up with much, 
much better reclamation efforts.
    And it is a constant stream of--again, another dynamic 
area--where we are always seeking for better efficiencies on 
it. It is toward the bottom line, but we also want a better 
final product.
    Mr. Cole. Let me ask you this question. Would it be fair to 
say that, you know, once we get past the permitting processes 
and into production that this country is actually a leader in 
terms of restoration and--you know, after an area is exhausted?
    Ms. Carpenter. It is absolutely true. Wherever I have 
worked overseas, they have commented exactly on that.
    Mr. Cole. Well, could you argue that, but would it be fair 
to argue? It might be pushing the point, but would it be--and 
don't hesitate to disagree. It would be fair to argue, you 
could make the case it is environmentally more responsible to 
mine here because--you know, if our policies drive us to other 
countries that don't have the technology or the commitment to 
deal with the environmental problems, then you are going to 
have, frankly, in the global sense, worse environmental damage 
in some of the places that you are working than you would have 
if you worked inside this country where we have the resources, 
the technology, and frankly now, the ethos to make sure the 
environment stays relatively, you know, undamaged.
    Ms. Carpenter. I would encourage you to get on the 
Sacramento Bee website and look for a Tom Knudson article 
called ``State of Denial.'' And it addresses that in 
particular. In his article, he shows, or sort of illustrates 
that preservation stops at the border. And by exporting our 
production, our consumption needs elsewhere, we can't do it to 
the same quality that we can here.
    I would suggest, and I believe this strongly, that we 
should be exporting our knowledge and proving--we are 
environmental--we are leaders in the world on our technologies, 
in this industry and others, and in our environmental successes 
and regulations. And they find it pretty hypocritical that we 
keep exporting out our--wherever I have worked, anyway--our 
consumptive needs when they know that we can do it to such a 
high level at home. And they strive for those high levels.
    Mr. Cole. I see my time is probably up, Madam Chairman. 
Thank you very much.
    Mrs. Cubin. Thank you. I would like to make a statement 
that before Federal policy can ever be changed or moved, we 
have to identify the problem and we have to show people in very 
concise terms that there is a problem. And one way we could do 
that is for you to help us identify a mineral or some minerals 
that are critical to our national defense or to commercial 
aviation or something, and really as many as possible, that in 
the short term are really going to cause a problem for us. And 
if we can demonstrate this to the administration, then possibly 
we can get a national mineral policy on their radar screen and 
we can begin to elevate the importance of this issue. Because I 
am convinced it is very important. And I would be glad to work 
with Mr. Gibbons, Mr. Cole, anybody on the Committee to pursue 
this further.
    So I would appreciate it if you could help us with that. 
Mr. Gibbons?
    Mr. Gibbons. Madam Chairman, I had just one statement. Of 
all this testimony that we have received before this Committee, 
this is probably some of the most important with regard to our 
mineral industry and where we are going.
    I think one of the things we have forgotten about the 
Governmental agencies that deal with these industries, and many 
times we have seen and I am sure some of these companies have 
seen some of our own internal Federal and State agencies derail 
permitting processes through coordination with organizations 
who are opposed to mining and other resource development. And 
we need to bring in those agencies and find out the underlying 
premise and the issues that they are dealing with when it comes 
down to their opposition to the mining industry as well.
    We are seeing the industry here come up and talk about 
their frustrations, and I think we need to deal also 
effectively with our own Governmental agencies that add to that 
frustration.
    Mrs. Cubin. That, and additionally the reticence of an 
agency to make a statement about policy when in fact they are 
very aware that certain policies might be beneficial.
    I would like to make an announcement. John Rishel, who 
worked for this Committee and was passionate about national 
mineral policy and he was passionate about making mining for 
hard rock minerals in the United States more available and more 
profitable, while at the same time protecting the environment--
there is a memorial for John today at 4 p.m. in Longworth Room 
1334, this room. So anyone who would like to attend that would 
certainly be welcome. And I think John certainly is deserving 
of a memorial to bring out the contributions that he made. So 
thank you very much.
    I thank the witnesses for their valuable testimony and the 
members for the questions. Once again, members of the 
Subcommittee may have additional questions, and we would ask 
that--we will get them to you and ask that you could respond 
within 10 days, at which time the record will close.
    If there is no further business in front of the 
Subcommittee, then we stand adjourned.
    [Whereupon, at 11:48 a.m., the Subcommittee was adjourned.]

    [Additional information submitted for the record by the 
Mineral Policy Center follows:]

 Statement of Lexi Shultz, Legislative Director, Mineral Policy Center

The Antiquated 1872 Mining Law Subsidizes Environmental Destruction and 
        Public Health Risks:
    There are several ways in which the outdated 1872 Mining Law has, 
by subsidizing the mining industry, actually encouraged environmental 
destruction. First of all, by selling off public lands at below market 
prices and letting the industry have free access to $240 billion worth 
of public minerals, the law has blocked taxpayers from getting a fair 
return on their resources and encouraged the mining industry to overuse 
public lands.
    Second, by failing to provide land managers with the discretion to 
deny mines once valid mining claims have been established, the law has 
elevated the interests of the mining industry over all other possible 
uses and interests in the land, including those of taxpayers, other 
businesses benefiting from the land, public health and the environment. 
That is, under the 1872 Mining Law, federal land managers must approve 
mining operations with valid claims, even if tourism would be a more 
economical use of the land, even if drinking water and public health 
would be compromised by the presence of a mine in the area, and even if 
the land is of particularly crucial significance for the health of an 
ecosystem.
    Third, by omitting any standards to address the specific 
environmental problems caused by mining, the law has failed to prevent 
mining-related pollution, leaving a legacy of 12,000 miles of polluted 
streams and rivers, air pollution, contaminated drinking water, and 
disrupted habitat. While the mining industry must comply with the same 
environmental laws that every other business in America must comply 
with--the Clean Water Act, the Endangered Species Act and others--these 
laws do not protect against contamination of groundwater from heavy 
metals and chemicals like cyanide. Nor do these laws directly address 
acid mine drainage caused by rain and snow falling on mining wastes, or 
the metal-laden dust and particulate matter created by mining 
operations. Considering that modern mining produces more waste than all 
other sources combined, including municipal waste, and that mining 
contamination can last for hundreds or thousands of years, it is 
inexcusable that everything possible is not being done to prevent this 
pollution from occurring in the first place.
    Fourth, the law lacks any standards either for the reclamation of 
mined-out lands or for the mining industry to bear the financial 
responsibility from that cleanup. As a result, the law has encouraged 
mining companies to simply walk away from mines once they are done, 
leaving taxpayers with devastated public lands and an enormous cleanup 
bill. The Mineral Policy Center has estimated that taxpayers will 
eventually have to pay $32 to $72 billion to clean up the more than 
half a million abandoned and polluting mine sites across the country. 
Seventy of these sites have been designated as Superfund sites because 
of the enormous damage to human health and the environment that they 
are causing. Each of these sites alone may cost in excess of $100 
million to clean up. Moreover, because the mining industry knows that 
it will not be liable for the full costs of cleaning up abandoned 
mines, it has no incentive to minimize the amount of pollution it will 
produce in advance.

The Consequences of Mining on the Environment and Human Health have 
        been Devastating:
    The consequences of the 1872 Mining Law's outdated and misguided 
policies have been devastating, both to the environment and to human 
health around the country. Consider the following examples taken from a 
report produced by the Mineral Policy Center entitled ``Burden of 
Gilt.''
    In Montana, windblown particulates from old mine tailings piles in 
and around Butte deposited heavy metals on high-school baseball fields 
in such dangerous concentrations that the fields had to be excavated 
and the topsoil had to be replaced. The city's water treatment plant is 
built on old tailings deposits that contain dangerously high 
concentrations of copper, zinc, cadmium, arsenic, and lead. Sediments 
from mine tailings have contaminated more than 35 square miles of 
groundwater in the Butte area.
    In Idaho, lead levels in Silver Valley soil downwind from the 
abandoned Bunker Hill silver mine--designated as a Superfund site--were 
found to be more than 30 times higher than maximum levels deemed 
``safe'' by the Environmental Protection Agency. Virtually all of the 
179 children living within a mile of the site were found to have 
potentially brain-impairing levels of lead in their blood.
    In New Mexico, after a molybdenum mine near Questa was inactivated 
when prices fell in the mid-1980's, tailings from the mine continued to 
contaminate the Red River, killing fish and destroying wildlife 
habitat, and also contaminated wells relied on by Taos County 
residents.
    In Colorado, the Summitville cyanide-leach gold mine sent a flood 
of cyanide and heavy metals into the Alamosa River, killing fish and 
destroying 17 miles of the river, when its 45-acre waste pile flooded 
and leaked. The Galactic Resources Mining Company paid only minimal 
fines and a $4.7 million performance bond before filing for bankruptcy. 
The state and the EPA have already spent $130 million to clean up this 
Superfund site, and estimate that the job will take another $45 million 
of taxpayer money to complete.
    In Montana, the Pegasus Gold Corporation went bankrupt, leaving 
taxpayers to pick up the approximately $100 million bill to clean up 
the now defunct Zortman-Landusky mine.

The Antiquated 1872 Mining Law Must be Comprehensively Reformed:
    It is clear that, under the current provisions of the 1872 Mining 
Law, far too much environmental destruction and far too many public 
health risks have occurred. In order to prevent these horror stories 
from being repeated, and in order to protect public lands and the 
Americans who own those lands, the entire 1872 Mining Law must be 
reformed. This reform must be undertaken comprehensively and with the 
goal of protecting the interests of taxpayers and the environment, not 
just those of the mining industry. Accordingly, the law must be 
reformed with three basic principles in mind:
    Fair Return to the Taxpayers. The mining industry should be 
required to pay fair market value for both public minerals and public 
lands. For minerals, the mining industry should pay a 12.5 percent 
royalty, which is the same as the royalty paid by the oil industry for 
drilling on public lands and by the coal industry for mining above 
ground on public lands. Since mining companies pay royalties for mining 
on both state and private lands, there is no reason why they cannot 
give federal taxpayers the same consideration. For public land, the 
practice of ``patenting,'' selling land for $2.50 to $5.00 an acre, 
should be permanently abolished. Mining companies should be forced to 
engage in arms-length transactions with the federal taxpayers, just as 
they would if they were dealing with private entities. The taxpayer-
subsidized ``free lunch'' must end.
    Pollution Prevention. The best way to protect clean water, clean 
air, and wildlife habitat is to prevent pollution in the first place. 
Reform of the law must include environmental standards that will 
address the specific environmental problems caused by hardrock mining, 
including groundwater contamination, runoff, and other such problems. 
These standards must also deal with the reclamation of mined-out lands 
so that these sites do not become a hazard in the future. Moreover, 
where no amount of environmental safeguards could adequately protect a 
particular region, whether because of its importance for drinking 
water, for wildlife habitat, for recreational opportunities, or any 
other reason, land managers must be given the discretion to deny mines 
in order to protect those interests. Finally, in order to minimize the 
potential for destruction, the mining industry should not have access 
to unlimited amounts of public land for the dumping of mining wastes.
    Polluter Pays. The mining industry must be required to pay for the 
clean-up of both depleted mines and any mines for which pollution 
prevention failed. These costs should be borne by the industry that 
caused the pollution or degradation of the land. In this way, taxpayers 
will not have to shoulder what should be a normal cost of doing 
business for an industry taking advantage of public resources, and the 
mining industry will have an incentive to mine as responsibly and with 
the least disruption as possible.

The Mill Site-Mine Site Issue is the Law and Must be Enforced:
    There is one provision in the 1872 Mining Law that has the 
potential to protect taxpayers and the environment, by limiting the 
amount of public land available for the dumping of toxic mining wastes. 
This provision provides that mining companies may have a mill site of 5 
acres, to be used to process or dump overburden and ore, for each 20-
acre mineral claim. Despite industry claims to the contrary, this 
provision has been a part of the law since 1872. And despite industry 
claims to the contrary, the law does not allow unlimited numbers of 
mill sites for each mineral claim. If it did, there would be no need 
for the law to have limited the size of mill sites to 5 acres--it could 
simply have provided that mining companies be allowed to have a mill 
site of unlimited size.
    The fact that this portion of the law has been inconsistently 
enforced until recently is highly unfortunate and may have led to 
otherwise avoidable environmental degradation. However, this fact does 
not alter the provision's legal authority.
    Nor does this provision mean the end of mining, as the industry 
claims. Mining companies can do land exchanges, apply for special use 
permits, or, in some instances, reconfigure their mines to mine 
underground. While these alternatives may not be as favorable to the 
mining industry as having access to unlimited amounts of public land at 
little or no cost, they are the only options that can even begin to 
give taxpayers and the environment a fair shake.
    Because the law is finally being enforced the way it was written, 
the industry may try to push weak or ``sham'' reform. Mineral Policy 
Center opposes any attempts at reform of the 1872 Mining Law that do 
not adequately address the needs of taxpayers, the environment, and 
public health.

Conclusion:
    It is time to put an end to the taxpayer-subsidized environmental 
destruction and public health risks caused by the outdated 1872 Mining 
Law. What is needed is meaningful comprehensive reform of the law that 
will fully protect the interests of taxpayers and the environment.
                                 ______
                                 

   Statement of Stephen D'Esposito, President, Mineral Policy Center

Mineral Policy Center Supports Responsible Mining Polices and Practices
    Mineral Policy Center supports responsible mining policies and 
practices: responsible mining policies that give taxpayers a fair 
return for valuable land and mineral assets, and that eliminate 
government subsidies to mine on public lands; responsible mining 
policies that require mining companies meet adequate environmental 
protection standards; and responsible mining policies that recognize 
that on some public lands there are resources, and other uses, that may 
be more valuable than mining, including the protection of 
environmentally significant areas. Currently, federal law does not 
offer adequate environmental or taxpayer protections.
    Mineral Policy Center recognizes that some mining companies seek to 
operate in a manner that protects our environment. But the 1872 Mining 
Law is actually a disincentive for responsible industry action. The 
1872 Mining Law sends the wrong signal to mining companies. It rewards 
irresponsible behavior. Until it is reformed it will serve as a haven 
for bad actors and fail to reward those who act responsibly.
    Those who most vociferously oppose environmental reform of the 1872 
Mining Law, may be those companies who do not believe they are poised 
to operate successfully in an environment that mandates and rewards 
environmental performance.
    Successful mining law reform will balance the interest of mining 
companies with those of taxpayers, citizens who seek to protect land 
and water resources, and future generations who will benefit from well 
managed public lands.

            131 YEARS LATER, ITS TIME FOR MINING LAW REFORM

    One hundred and thirty-one years is too long. It is time to reform 
the 1872 Mining Law. Written to encourage the development of the mining 
industry, and the settlement of the western United States, the mining 
law is a relic of a bygone era--a time when mining was a pick-and-
shovel affair, when men moved on horses and in covered wagons. 
1 The mining law's roots may also have a humanitarian 
origin, to deter violence that resulted from claim jumping. 
2 One hundred and thirty-one years after its passage, its 
original purposes accomplished, it is time for reform.
    Today, the prospector's pan has given way to giant earth-moving 
machines that cam literally crumble mountains and dig pits the size of 
small towns. Panning for gold nuggets has given way to the use of 
potentially lethal chemicals such as cyanide that leach microscopic 
flecks of ore from massive piles of pulverized rock. Today's 
prospectors are multi-national corporations and their mine sites occupy 
thousands of acres of our public land.
    While there are technical and engineering solutions to many of the 
environmental problems that mining can cause, technical solutions are 
only part of the answer. They will not be enough to fully address the 
broader environmental, economic, social, and cultural issues that this 
Subcommittee, and all Members of Congress, must grapple with. Reforming 
the mining law is not, after all, just a matter of a technical fix. It 
is one thing to design a safe and efficient mine, it is quite another 
to design public policy that results in good decisions about the use of 
public land and resources. Good public policy must provide a basis for 
weighing environmental, social, economic, and cultural issues, as well 
as technical issues.

                MILLSITE CLAIMS AND THE 1872 MINING LAW

    With the enforcement of the millsite limit of the 1872 Mining Law, 
it appears that we may have a new ally in the fight for mining law 
reform, the mining industry.

Organizations Representing Millions of Members Support the Millsite 
        Decision
    MPC believes the millsite opinion, effectively enforcing limits on 
mine waste dumping on public land, is based upon an accurate reading of 
the 1872 Mining Law. While it is widely accepted that the Mining Law's 
millsite restriction does not meet the needs of some of today's mining 
operations, neither does this antiquated law meet the needs of 
taxpayers, communities near many of today's mines, or the environmental 
health of our public lands. The massive waste piles produced at many of 
today's mines have outgrown the mining law.
    However, the solution to this problem is not to create a special 
exemption from the part of the mining law that some in the industry 
find troublesome. The solution is comprehensive reform that will 
balance the needs of the industry, taxpayers and the environment. We 
should engage in a public debate about reforming all of the mining law, 
not just the part that the mining industry does not like.
    In a March 23, 1999, letter to Secretary of the Interior Bruce 
Babbitt and Forest Service Chief Michael Dombeck, Mineral Policy 
Center, Friends of the Earth, Natural Resources Defense Council, Sierra 
Club, The Wilderness Society, U.S. Public Interest Research Group, 
Okanogan Highlands Alliance, Western Organization of Resource Councils, 
and Grassroots Environmental Effectiveness Network (GREEN) petitioned 
the government to reject the Plan of Operations for the Crown Jewel 
Mine because it was over the millsite claims limit. To quote from the 
letter: In this case, the federal land agencies must determine whether 
to approve a mining plan that is proposed on public lands that do not 
contain valid mining and millsite claims under the 1872 Mining Law. A 
number of other proposed open pit gold mines on federal land face 
similar issues. The most pressing examples include the Imperial Project 
in southern California and the Yarnell Mine adjacent to the town of 
Yarnell, Arizona. Thus, your decisions at Crown Jewel will have 
ramifications across the West.
    On March 25, 1999, the U.S. Departments of the Interior (DOI) and 
Agriculture (DOA) released a joint decision stating that they were 
``unable to approve the proposed Plan of Operations'' for the Crown 
Jewel Mine in the State of Washington. 3 The plan for this 
large open-pit, cyanide-leach gold mine was rejected because it did not 
comply with the requirement of the 1872 Mining Law that limits 
claimants to one 5-acre millsite claim for each mining claim.
    The March 25, 1999 decision references the November 7, 1997, 
Solicitor's Opinion entitled ``Limitations on Patenting Millsites Under 
the Mining Law of 1872.'' This 1997 opinion reviews the millsite limit 
in detail. The conclusion is unequivocal: ``the plain language of the 
mining law indicates that only one 5-acre millsite claim per mining 
claim may be patented.'' 4
    Before the March 25th decision, mining companies were sometimes 
permitted, albeit illegally, more than one 5-acre millsite claim per 
mining claim. Although the Bureau of Land Management (BLM) and U.S. 
Forest Service (USFS) have permitted multiple millsite claims in some 
instances, they had no legal basis under the mining law, or under 
regulations, for such approvals.
    The Solicitor's Opinion notes that the current BLM's Handbook for 
Mineral Examiners may be the source of the problem. It provides for the 
granting of multiple millsite claims per mining claim. However, as the 
Solicitor makes clear, ``no authority is cited for these statements.'' 
While this explains why some BLM field staff may have approved plans of 
operations that were over the millsite limit, it does not change the 
fact that the limit exists in the Mining Law.

This is Not Just About Land Use
    The recent millsite ruling addresses a fundamental environmental 
problem--today's mines are dramatically larger and produce more waste 
than the pick-and-shovel operations that the mining law was written to 
govern. Management of this waste presents a significant public policy 
challenge since waste from mines often pollutes surface and groundwater 
resources with acid mine drainage and heavy metals such as arsenic. The 
Mining Law does not address these environmental concerns directly. To 
the extent that it deals with them at all, it addresses them through 
the millsite limit. This de facto environmental safeguard should not 
simply be jettisoned, it should remain in place until the Mining Law is 
reformed to include such protections by design.

History Supports the Millsite Decision
    There is ample evidence that Congress, DOI, and many in the mining 
industry understood the strict millsite limit contained in the Mining 
Law. Prior to 1960, the Mining Law allowed millsite claims only in 
connection with vein or lode claims, not with placer claims. In 1960, 
Congress explicitly amended the mining law to permit the location of 
millsites in connection with placer claims. 5 The 
legislative history of the amendment makes it clear that Congress and 
DOI understood both the millsite limits in the existing statute and the 
amendment, which permitted only one five-acre millsite claim in 
connection with a placer claim. The amendment was passed and signed 
only after input from the DOI caused Congress to remove language that 
would have permitted millsites ``for each individual claimant'' and 
allowed for a larger millsite claim of ``10 acres for each individual 
claimant.'' 6 The amendment was changed as requested by DOI, 
which sought to have the millsite limit for placer claims match that of 
lode claims. The report language was explicit:
          [T]he word ``ten'' was stricken and the word ``five'' 
        inserted in lieu thereof.
          The purpose of this amendment is to restrict the area of a 
        millsite in conjunction with a placer claim to 5 acres of land 
        to make it conform with the allowable millsite acreage for lode 
        claims which has been the statutory requirement since 1872 ...
          [T]he words ``for each individual claimant'' were stricken so 
        as to impose a limit of one 5-acre millsite limit in any 
        individual case preventing the location of a series of 5-acre 
        millsites in cases where a single claim is jointly owned by 
        several persons ....
    In 1968, the leading mining industry trade association (the 
American Mining Congress, the predecessor of today's National Mining 
Association), in a statement submitted to the Public Land Law Review 
Commission, acknowledged that the law permits only one millsite claim 
per mining claim. ``When the mining law was enacted in 1872, provision 
was made for the acquisition of five-acre millsites to be used for 
plant facilities on mining claims. The typical mine then was a high-
grade lode or vein deposit from which ores were removed by underground 
mining. The surface plant was usually relatively small, and acquisition 
of five-acre millsites in addition to the surface mining claims--
adequately served the needs of mines ``Today, the situation is 
frequently different--A mine having 500 acres of mining claims may, for 
example, require 5,000 acres for surface plant facilities and waste 
disposal areas. It is obvious that such activities may not be acquired 
through five-acre millsites.'' 7 (emphasis added)
    In 1974 in United States v. Swanson, 14 IBLA 158 the Interior Board 
of Land Appeals stated that: [A] claimant is entitled to receive only 
that amount of land needed for his mining and milling operations, and 
this amount can embrace a tract of less than five acres. The statute 
states that the location shall not ``exceed five acres.'' ... The 
reference to five acres in the statute is clearly a ceiling measure, 
not an absolute, automatic grant.
    In 1979, the Congressional Office of Technology Assessment 
confirmed this interpretation of the mining law's millsite provision. 
There could be as many millsites as there are mining claims, and each 
millsite would be at most one-fourth the size of the typical 20-acre 
claim, so that millsites, in the aggregate, would be one-fourth the 
size of the ore body encompassed by the claims.

The Impacts of Enforcing the Millsite Opinion
    Will this be the end of mining on public lands? No, there are 
mining methods, such as underground mining, that do not necessarily 
require such vast amounts of space for processing and waste dumping. It 
is also important to remember that open-pit mining takes place on non-
federal lands. In those instances, mining companies successfully 
assemble the necessary lands through acquisition, leases, or by 
purchasing mineral rights. As the Solicitor's Opinion made clear, 
mining companies can seek to acquire necessary millsite acreage through 
land exchanges and special use permits. Both methods do require the 
company to meet additional hurdles and land managers could exercise 
discretion to prevent ``unnecessary'' or ``undue'' degradation of 
public lands. But these are not unreasonable conditions.
    The decision may have an impact on marginal, low-grade deposits. 
But there is no reason why federal policy should be used to subsidize 
the mining of such deposits on public lands. In fact, it should be the 
government's policy to create a level playing field for all mining 
companies--whether the land is owned by the federal government, the 
state, or private citizens.
    We do not expect open-pit mining to end on public lands as a result 
of this opinion, nor would we expect, does DOI or the Forest Service.
The Millsite Limit Should be Enforced Until the Mining Law is Reformed
    We do not think that the law should be effectively amended, and 
weakened, to suit the needs of a number of mining companies or even an 
entire industry. We should not look at this problem from the wrong 
side. The underlying problem is not the millsite limit. The millsite 
limit is a symptom. The problem is the outdated 1872 Mining Law. It 
does not fit today's mining industry, it does not protect taxpayers, 
and it does not protect the environment. Let's fix the underlying 
problem, not just treat the symptom.
    Some believe that our reading of the millsite limit under the 1872 
Mining Law is legally flawed. We disagree. But for those who hold this 
view there is an obvious remedy and it is not this Subcommittee or the 
Congress. It is the courts.
    Some believe there is an urgent need to address this issue because 
of concerns about retroactivity. We do not think a rush to judgement on 
these important issues should be driven by such concerns, and we do not 
believe this issue should be applied retroactively. If necessary, we 
would support a resolution or amendment specifying that there would be 
no retroactive application of this issue to currently operating mines. 
Our objective is not to penalize mining companies that may have 
benefited from the incorrect application of the Mining Law by either 
DOI or the Forest Service. Our objective is that this provision now be 
applied.

                 WHAT'S WRONG WITH THE 1872 MINING LAW

    The 1872 Mining Law allows for public land giveaways and taxpayer 
subsidies to the mining industry. And it fails to protect our 
environment and our public lands. Of course, those who crafted the 
mining law in 1872 could not envision the potential environmental 
impacts of modern mining. The environmental legacy of this outdated law 
is all too clear. A 1989 report from the U.S. General Accounting Office 
found that the Mining Law ``runs counter to other national natural 
resource policies and legislation.'' 8 The GAO found that 
the mining law ``no longer promotes mineral development'' and can 
result in ``needless damage'' to public lands. 9

Let's Cleanup Our Nation's Abandoned Mines
    Estimates of abandoned mines, range from at least 200,000 to over 
500,000, scattered across the country. The abandoned mine problem 
should serve as a wake-up call. Cleanup costs could be as high as $72 
billion. 10
    We should immediately implement a national program to clean up the 
hundreds of thousands of unreclaimed and abandoned mine sites. MPC 
estimates that there are 557,000 abandoned mine sites nationwide, with 
an estimated cleanup cost of $32 to $72 billion. The Western Governors 
Association has identified abandoned mine sites in 10 states in need of 
priority cleanup. In Alaska, the abandoned Treadwall Mine is pockmarked 
with vertical shafts, open portals and pits, and a dangerous highwall 
500 feet tall. Because the site is adjacent to the cities of Juneau and 
Douglas it receives extensive use by the public. Washington state 
residents are struggling with a toxic legacy at the Holden Mine where 
acid mine drainage from waste rock and 18 million tons of tailings have 
rendered 12 miles of nearby river biologically dead. In Utah, the 
abandoned Temple Mountain site is home to 300 open uranium mines with 
moderate to high radionuclides. 11 Californians are still 
living with the festering Iron Mountain Mine, which is predicted to 
continue leaching acid for at least 3,000 years. And that is just to 
name a few.
    Reclamation of sites like these would restore valuable lands, 
eliminate public safety and health threats, and create up to 10,000 
jobs. 12 The question is not whether it should be done, but 
how it should be funded. Potential sources of funding include a mineral 
royalty, rental fees, and through other sources such as a reclamation 
fee. Establishment of this fund should not be delayed.
We Should Permanently End $2.50 An-Acre Public Lands Giveaways
    Although an annual moratorium is in place, the 1872 Mining Law 
allows public land giveaways at the bargain-basement rate of $2.50 or 
$5.00. This was a bargain in 1872, today it's a steal. Patenting is not 
necessary to mine on public lands.
    According to the Department of Interior, during the Mining Law's 
first 120 years, 315 million ounces of gold, 5.5 billion ounces of 
silver, 79.5 million tons of copper, 19.2 million tons of lead, and 
13.9 million tons of zinc were mined in 13 western states. In 1994 we 
estimated the value of these minerals at more than $231 billion. That's 
just the minerals under the land, it doesn't take into account the 
value of the land.

Taxpayers Deserve a Fair Royalty
    When a mining company mines on public land, they do not pay a 
royalty. When they mine on private or state land, mining companies pay 
a royalty that can range from 5% to 18%. What is the justification for 
not requiring a royalty for mining on public lands? There is none. The 
coal, oil and gas industries pay a fee when they mine on federal lands. 
Why not the hardrock mining industry?
    Consider these excerpts from the testimony of Dr. W. Thomas 
Goerold, a noted minerals economist to the Senate Energy and Natural 
Resources Committee, Subcommittee on Mineral Resource Development and 
Production, on September 13, 1990:
    ``Current domestic hardrock mineral producers sometimes claim that 
paying for federal minerals would be so burdensome that it would force 
a significant portion of them out of business. A cursory examination of 
the evidence does not support these claims. Producers of leasable 
minerals found on federal lands have paid royalties and land rentals 
since 1920 and no one questions the health of these industries. 
Moreover, miners of hardrock minerals have a long history of routinely 
paying royalties and rental payments when these same minerals are found 
on state or private lands.''
    ``Hardrock mineral miners maintain that there is still a 
fundamental difference between hardrock minerals production and other 
businesses, as well as between hardrock minerals firms and other 
mineral producers that pay land rental and royalty fees to the Federal 
Government for use of publicly owned resources. Contrary to industry 
claims, these purported distinctions do not justify the privileged 
treatment accorded producers of hardrock minerals. The Office of 
Technology Assessment supports this view. The OTA believes that the 
distinctions between leasable (generally energy and chemical minerals 
requiring government permission and payment of lease and royalty fees) 
and locatable minerals are more artificial than real.''
    Do hardrock miners on federal lands have more importance than 
automobile manufacturers, retail store owners, or any other business 
not eligible for similar government subsidies? Are hardrock miner 
producing minerals from federal lands more important than these same 
producers mining state or private lands?
    One argument advanced by mining interests against the imposition of 
royalties for federal hardrock minerals is that the Federal Government 
already taxes the profits of these companies. This is a misleading 
argument--most non-mineral businesses do not obtain the inputs to their 
firms from the federal government at no cost, yet virtually all pay a 
federal income tax. Royalty and rental free mineral operations are 
analogous to a gift of steel and rubber to automobile manufacturers, or 
free office rental to an accounting firm, courtesy of the U.S. 
Government. 13
    There are also federal land parcels in Minnesota, Missouri and 
Ilinois where miners pay royalties for extraction of hardrock minerals. 
And even on federal lands, mining companies are willing to pay 
royalties, to other mining companies but not to the taxpayer. 
14 In October 1993, Newmont Mining Corporation leased 1872 
Mining Law claims on BLM Land at Grassy Mountain in Oregon from the 
Atlas Corporation. Newmont paid a $22.5 million cash bonus and a $5 net 
smelter royalty production.
    A net smelter royalty of between 8% and 12.5% should be enacted. 
The proceeds from this royalty should be used to fund abandoned mine 
cleanup.

We Should Let Mining Compete With Other Land Uses
    131 years ago it may have been possible to make a case that mining 
deserved preferential treatment on public land, over all other uses. 
Today there is no social or economic good that justifies this 
preferential treatment. There are public lands that deserve protection, 
and there are public lands that are more suitable for other economic or 
recreational purposes.
    Land managers should have the authority and discretion to protect 
environmentally significant public lands, weigh other land uses, and 
deny permits for poorly planned mines. A mining permit application must 
clearly demonstrate, before mining begins, how the mining and 
reclamation project will occur so as to minimize environmental impacts. 
Land managers must have the authority to deny mining permits in 
environmentally fragile areas, or critical wildlife habitats and areas 
otherwise found to be unsuitable for mining.

We Should Protect Our Public Lands and Environment
    Environmental safeguards must protect water resources and prevent 
significant long-term environmental damage. It is worth noting that a 
1987 study by the EPA rated problems related to mining waste as second 
only to global warming and stratospheric ozone depletion in terms of 
ecological risk. The report concludes ``with high certainty'' that the 
release to the environment of mining waste ``can result in profound, 
generally irreversible destruction of ecosystems.'' In a 1985 report 
the EPA stated that mining for hardrock minerals, asbestos, and 
phosphate alone generates 1 to 2 billion metric tons of waste each 
year, and that ``perhaps 56% of the waste generated could be considered 
potentially hazardous to human health or the environment.'' Mining has 
polluted 12,000 miles of rivers and streams and 180,000 acres of lakes. 
15
    Environmental safeguards should include provisions for water 
protection, full cleanup and reclamation, environmental operating 
standards, enforcement requirements, and guarantees that the mining 
company will pay for full closure and cleanup. We are all familiar with 
the Summitville nightmare. In 1992, the Summitville Consolidated Mining 
Company declared bankruptcy and walked away from its environmentally 
disastrous cyanide, heap-leach gold mine in the San Juan Mountains of 
southern Colorado. Taxpayers, meanwhile, have been left with a 
devastated landscape and an enormous cleanup bill. So far the State and 
EPA have spent $130 million dollars to reclaim and restore the site, 
and expect to spend another $45 million dollars before the job is done. 
16 With a reclamation bond of $4.7 million 17, 
taxpayer liability equates to approximately $170.3 million. This is 
today's problem because the taxpayer bill is still mounting.

The Public Should Participate in Mining Decision on Public Lands
    The public must have the right to fully participate in mine 
decisions on public lands. This includes access to information, the 
right to comment on permit and regulatory actions, the right to 
petition the government to designate an area unsuitable for mining, the 
right to file citizen complaints, the right to accompany an inspector 
to a site, and citizen suit provisions to compel enforcement. The 
public must have the right to fully participate in mine decisions on 
public lands.

                 ZORTMAN-LANDUSKY, A REFORM CASE STUDY

    The Zortman-Landusky Mine (ZL) is a prime example of why the 1872 
Mining Law needs urgent reform The Zortman-Landusky mines is located on 
BLM managed lands in the Little Rocky Mountains of Montana. It is the 
home of the Assiniboine and Gros Ventre Tribes of Fort Belknap who have 
a strong cultural and spiritual connection with the Little Rockies. In 
fact, Spirit Mountain, where the mine site is located was considered a 
sacred site.
    This was a large-scale open-pit cyanide heap leach gold mine. It 
was the largest gold mine in Montana and it mined the lowest grade ore 
in the United States. It caused more land disturbance per amount of 
gold extracted than any other gold mine in the U.S. During typical 
operations, more than 55 tons of ore are processed to yield a single 
ounce of gold.
    During its operation, Zortman-Landusky experienced a litany of 
cyanide solution leaks and spills, stability failures, surface and 
groundwater contamination, bird and wildlife fatalities, and other 
problems. Streams emanating from the mine area, including water flowing 
onto the reservation, were seriously polluted with acid and heavy 
metals. The mine experienced numerous cyanide spills. There have been 
severe problems with acid streams and fish kills. Following a major 
spill, cyanide appeared in domestic drinking water in a mine worker's 
housing unit south of the mine.
    The mine was operated by Pegasus Gold Incorporated. Responsibility 
for the mine's troubled track record rests not only with Pegasus Gold, 
but the 1872 Mining Law and weak environmental safeguards.
    Things got worse when the stock of Pegasus plunged in late 1997 due 
to the falling price of gold and legal troubles. Pegasus declared 
chapter 11 bankruptcy on January 16, 1998.
    Today in the state of Montana, government officials estimate that 
this recently abandoned open-pit cyanide heap-leach gold mine could 
cost state taxpayers $8 million in cleanup costs. 18 An 
independent mining engineer has estimated that the cleanup bill to 
taxpayers could be an additional $90 million. It is estimated that 
Pegasus produced $360 million worth of gold at the mine and returned $0 
to the taxpayer. And it is likely that the taxpayer will get stuck with 
a substantial cleanup bill.
    During the bankruptcy proceedings, the company outraged both state 
officials and the public when it sought to pay executives a bonus of $5 
million, just as state officials revealed that taxpayers could get hit 
with a cleanup bill of $8 million. And in June the company appointed by 
the state to handle reclamation, was fired because it had already spent 
its entire annual budget in just six months.
    There has been a history of problems like this with cyanide process 
gold mines in Montana. As a result, in 1998, Montana voters passed a 
ban on all new cyanide process mines.

          NOW IS THE TIME FOR COMPREHENSIVE MINING LAW REFORM

    It has been ten years since the last significant attempt was made 
to reform the mining law. There is too much at stake on our public 
lands, in our Western communities, for American taxpayers, and for the 
mining industry, to delay further.
    Over the years, a number of bills have been introduced under the 
reform label that are actually not true reform bills because they fail 
to adequately address the fundamental environmental and fiscal 
shortcomings of the mining law. These bills typically contain miniscule 
royalties and wide loopholes for escaping royalty payment, fail to 
address important environmental protection issues, and do not allow 
land managers to weigh other uses of public lands. One telltale sign of 
a sham reform bill is the use of a ``net proceeds'' royalty. The ``net 
proceeds'' royalty allows companies to deduct so many costs before 
paying a royalty that the taxpayer ends up with almost nothing.
    Some will argue that now is not the time to reform the mining law 
because mining companies are already suffering as a result of today's 
low mineral prices. But mineral prices have, and always will, 
fluctuate. It is in the public's interest to take action that will 
stimulate other commercial and non-commercial uses of our public lands, 
including preservation. And it is in our best interest to pursue 
environmental objectives that will lead to job creation in mining 
communities or former mining communities, such as abandoned mine 
cleanup. Taxpayers deserve a fair royalty and our public lands deserve 
environmental safeguards, whatever the price of metals happens to be.
    Policies that provide public subsidies to mining companies create 
an incentive for inefficient mine operations on public lands, perhaps 
in places that are best used for other purposes. These subsidies lead 
to an unfair economic advantage for some companies and may result in 
inefficiencies and over-supply. The net impact of such policies is to 
make mining more attractive on federal lands than on other lands. ``The 
Federal government, by forgiving this normal mineral business cost, has 
distorted the distribution of economic activity, discouraging mining on 
private, state, and tribal land and encouraging it on Federal land.'' 
19 Continuation of this policy is not in the country's 
economic interest.
    It is time to put an end to the subsidies and favors that mining 
companies receive on public lands. The net results of 1872 Mining Law 
reform will be healthier communities and healthier ecosystems, jobs 
creation, and, we believe, a healthier mining industry. 20
    A mining industry that is rewarded for its environmental 
performance, and penalized for its environmental mistakes, will be a 
healthier industry, both in the United States and around the world. It 
is in the interest of this Subcommittee to create incentives for better 
environmental performance on our public lands. Improved environmental 
performance will increase the competitiveness, marketability, and 
performance of U.S. mining companies.
    The United States economy has developed to the point that mineral 
development no longer needs preferential treatment on our public lands. 
The way we manage and use our public lands today will have an impact on 
the landscape and opportunities we pass on to future generations. The 
federal government has a duty to manage those lands in a manner that is 
in the public interest, not in the short-term interest of a particular 
industry. Is it wise to allow management of our public lands to be 
governed by a 19th century law that no longer reflects, and in fact, 
runs contrary to popular opinion? Sixty-seven percent of all Americans 
say no. 21
    To summarize, we recommend that Congress permanently end public 
lands giveaways to mining companies, impose a fair royalty for mining 
on public lands, create an abandoned mine cleanup program, and end the 
policy of giving mining companies first-use of our public lands. Thank 
you.
        ``... After eight years in this office, I have come to the 
        conclusion that the most important piece of unfinnished 
        business on the nation's resource agenda is the complete 
        replacment of the Mining Law of 1872.''
   Stewart L. Udall, Secretary of the Interior, 15 January 
                                                       1969

                                ENDNOTES

1 Federal Land Management: The Mining Law of 1872 Needs 
        Revision, GAO Report/RCED-89-72, March 1989, 2.
2 Multiple Conflicts Over Multiple Uses, Reform of the 1872 
        Mining Law: A Primer, John L. Dobra, ed. Terry L. Anderson, 
        Political Economy Research Center, 1994, 39.
3 The ``Crown Jewel Mine Decision,'' U.S. Department of the 
        Interior, Solicitor John Leshy, Mar. 25, 1999.
4 Limitations on Patenting Millsites Under the Mining Law of 
        1872, U.S. Department of the Interior, Solicitor John Leshy, 
        Nov. 7, 1997.
5 Pub. L. No. 86-390, 74 Stat. 7 (1960), codified at 30 
        U.S.C. sec. 42 (b) (1994).
6 The original bill was introduced in 1959 as S.2033. 105 
        Cong. Rec. 8734 (1959).
7 American Mining Congress, The Mining Law and Public Lands, 
        at 29, Jan. 11, 1968.
8 Federal Land Management: The Mining Law of 1872 Needs 
        Revision, GAO Report/RCED-89-72, Mar. 1989, 3.
9 Ibid
10 Mineral Policy Center estimates. See MPC methodology in 
        Mineral Policy Center, Burden of Gilt, June 1993, 28-31.
11 Abandoned Hardrock and Noncoal Mines in the West, Draft, 
        Western Governor's Association, March 24, 1998.
12 Burden of Gilt, Mineral Policy Center, June 1993, 3.
13 Dr. W. Thomas Goerold, Testimony before the Senate 
        Subcommittee on Mineral Development and Production, Sept. 13, 
        1990.
14 Ibid
15 U.S. Environmental Protection Agency, Fish Kills Caused 
        by Pollutioin, Fifteen Year Summary 1961-1975, Apr. 1978, 8.
16 Gold mine cleanup progresses, The Denver Post, June 16, 
        1999.
17 Summitville Consolidated Mining Company Inc./Galactic 
        Resources Inc./Galactic Resources Ltd., Summitville Mine Site, 
        State of Colorado, Division of Minerals and Geology, Feb. 1, 
        1993.
18 Mining company sues state over cleanup plans, Great Falls 
        Tribune, Sept. 3, 1998.
19 American Mining Congress, The Mining Law and Public 
        Lands, at 29, Jan. 11, 1968
20 Mineral Policy Center, Thomas Michael Power, Not All That 
        Glitters, 1993.
21 Findings from a National Bipartisan Survey of Voter 
        Attitudes Toward Mining Law Reform, Prepared for MPC et al by 
        Frederic,/Schneiders Inc., September 1994.
                                 ______
                                 
BILLINGS GAZETTE
June 17, 2003

                      Stillwater purchase approved

Jan Falstad
    DENVER--Given the choice between possible bankruptcy or being 
controlled by a Russian mining giant, Stillwater Mining Co. investors 
chose the Russians.
    The sale of a majority of Stillwater stock to Norilsk Nickel of 
Moscow marks the largest purchase yet of an American corporation by a 
Russian company.
    Following Monday's special shareholders meeting in Denver, 
Stillwater Chief Executive Frank McAllister said the stock sale will 
accomplish three things: ``We brought financial stability to our 
company. We brought time to restore confidence in palladium and 
increase demand. And we preserved the jobs.''
    Stillwater vice president John Stark said 62 percent of the 
company's investors voted on the proposal. Investors representing 22 
million shares voted ``yes'' to the Norilsk deal, while those holding 
about 5 million shares said ``no.''
    Also Monday morning, McAllister announced the Federal Trade 
Commission had waived any antitrust concerns over the sale. With the 
federal roadblocks gone, McAllister said acquisition will be completed 
quickly.
    ``The closing will take place in the next two weeks,'' he said.
    After the vote, union president Brad Shorey, reached in Columbus, 
said he was disappointed.
    He said a majority of the 1,030 miners represented by Local 8-001 
of the Paper, Allied Industrial, Chemical and Energy Workers 
International Union rejected the buyout.
    He said he has never supported giving Norilsk controlling interest 
in the only American platinum and palladium mine and he worries about 
upcoming labor negotiations. The PACE contract expires in July 2004 and 
negotiations start soon.
    ``If we ended up in a labor dispute, what makes you think we're not 
doing exactly what they want?'' Shorey said. ``They could ride the line 
and play at good faith bargaining, while pushing us into a strike.''
    Norilsk Nickel has been facing labor problems at the mines it owns 
near the Arctic Circle.
    Dave MacAusland, who owns a small business in Portland, Ore., and 
owns a cabin in Red Lodge, asked if investors could express their 
opinions before the final votes were cast Monday.
    After a testy exchange, McAllister let MacAusland speak.
    His emotional comments focused on why the United States would cede 
control of its only platinum and palladium mine--one of three major 
mines in the world--to any foreign corporation.
    After speaking for 10 minutes, MacAusland received a round of 
applause from several other shareholders, the only applause of the 
meeting.
    McAllister responded by saying the United States is already 
dependent on the world for many metals we formerly produced. America 
consumes half of the world's the world's palladium, but Stillwater 
produces only 5 percent. So, the U.S. is already a net importer of 
palladium, he said.
    Another investor asked McAllister what alternatives to the Norilsk 
sale the company was considering.
    ``I cannot answer about alternatives,'' he said. ``Obviously, we're 
in a very desperate and serious state at this time.''
    Stillwater's board twice rejected another offer by American 
investors to raise $100 million for Stillwater by selling more shares.
    McAllister said that deal wouldn't have generated the cash needed 
to pay operating expenses and to pay down high debt.
    As to fears the Russians would shut down the Nye or East Boulder 
mines in order to sell more of their own palladium, McAllister said 
that won't happen.
    ``They can't pick up the mines in the mountains of Montana and move 
them to Russia,'' he said.
    No one representing Norilsk attended the Denver meeting at the 
Hyatt Regency Tech Center.
    Carl Edstrom, a metals engineer and investor from Arvada, Colo., 
asked why the costs of production at Montana's mines jumped from $178 
per ounce of palladium five years ago to $354 per ounce today.
    McAllister blamed low production at the East Boulder mine, where 
the concentration of the ore was much lower than expected.
    Platinum and palladium are interchangeable in the most common use 
for catalytic converters. So McAllister said he'll try to convince auto 
makers to switch from platinum, costing $680 an ounce, to palladium 
which has fallen from more than $1,000 an ounce to $180.
    After the meeting, Dennis Schmidt, a retired wheat farmer and 
investor from Lawrence, Kan., said he still was doing a ``slow burn'' 
about the loss of value in his 20,000 shares.
    ``The management ought to be in jail for arranging this transaction 
and going through with it,'' he said.
    McAllister said the company has enough cash to perhaps make it 
through this year, but has no ``rainy day'' fund left if something goes 
wrong.
    This stock sale accomplishes a lot, which he said Montana 
politicians understand, but workers don't grasp yet.
    ``The employees are worried about their jobs just as I am'' he 
said. ``Well, it's done and they still have their jobs--the majority of 
them still have their jobs.''
    McAllister also said with the cash influx he's excited to pursue 
some other business activities outside of mining.
    ``Will we do something else? I hope so,'' he said.
    He wouldn't comment on what ideas he has, except to say Stillwater 
will conduct palladium research and promotion and will expand a small 
sideline in Columbus that recycles catalytic converters.
    McAllister is eligible for up to a $2 million transaction bonus for 
negotiating the Norilsk deal. The board will determine the exact 
amount. He also remains as Stillwater's top executive unless the new 
board controlled by Norilsk changes management.
    JP Morgan, which handled the financing, gets $5 million.
    The high costs of attorneys to handle Washington, D.C., legal and 
lobbying work haven't been tallied yet, McAllister said.
    The powerful firm of Baker Botts lobbied the deal through the 
federal agencies. The lead lobbyist was James Baker, son of the former 
secretary of state.
    Half of the $100 million in cash Stillwater will receive when the 
agreement is closed goes to pay off debt.
    Norilsk is one of the world's largest metal producers and it mines 
palladium as a byproduct of copper and nickel production near the 
Arctic Circle.
    Critics said mining palladium as a byproduct means Norilsk pays 
only $24 per ounce, a fraction of the $354 price tag at the Montana 
mines.
    Even though Norilsk trades publicly in Russia, Russian secrecy laws 
don't allow the company to report how much palladium it is producing or 
has stockpiled.
    Without that crucial data, critics say Norilsk's accounting isn't 
transparent or generally accepted.
    When the deal was announced last November, Norilsk agreed to pay 
Stillwater $341 million for 51 percent of the company stock.
    Stillwater would get $100 million in cash and the balance in metal, 
877,000 ounces of palladium.
    Since then, the price of palladium has dropped dramatically. That 
means the total sale price today is around $258 million or $83 million 
less than anticipated.
    When the sale is completed, Stillwater will issue 45,463,222 new 
shares of common stock to a subsidiary of Norilsk called Norimet 
Limited.
    Norilsk has the option of buying up even more shares up to 56 
percent ownership if the stock price stays below $7.50 for two weeks 
after closing.
    Stillwater's stock closed up 21 cents Monday at $4.83.
    Union president Shorey said some miners who are financially able to 
quit said they will.
    ``They won't work for a Russian-controlled company,'' Shorey said. 
``At first I thought it was because they were older, but it's young and 
old people.''
    The mood at the mine Monday was watchful, Shorey said.
    ``From this day forward, we're going to be holding our breath to 
see what happens.''
                                 ______
                                 
THE PLAIN DEALER
(Cleveland Plain Dealer)
May 22, 1994

                      FORTUNE HIDDEN UNDER DESERT

CLEVELAND FIRM WANTS TO BUY LAND WITH RARE ORE FOR $26,487
KEITH EPSTEIN PLAIN DEALER BUREAU
    In the harsh desert of western Utah south of the Great Salt Lake, a 
desolate plateau of scrub and sagebrush stretches to the horizon. It is 
home to gophers, jackrabbits, rattlesnakes and the occasional coyote. 
Groundwater is too brackish for crops. The nearest house is 40 miles 
away.
    ``Nobody's ever wanted to homestead out there, and nobody ever goes 
to a place like that to live or have fun,'' observes industrial 
geologist Lee Davis. ``To the ordinary fella, it would seem 
worthless.''
    But this desert, owned by America's taxpayers, conceals a vast 
fortune. Beneath 2,548 acres alone is a rare bertrandite ore, which, 
when processed, could be worth up to $15 billion.
    Brush Wellman Inc., a Cleveland-based mining company, wants to buy 
those acres from the Interior Department's Bureau of Land Management 
for a mere $26,487--around $10.40 an acre.
    That would be one of the richest lodes ever purchased from the 
government--worth potentially almost as much as last week's highly 
publicised sale of land with perhaps $18 billion in gold to a Canadian 
mining company. ``The biggest gold heist since the days of Butch 
Cassidy,'' Interior Secretary Bruce Babbitt complained on Monday as he 
transferred 1950 acres in Nevada to Toronto-based American Barrick 
Resources Corp. for a mere $9,765. ``It is a ripoff.''
    Babbitt is powerless to stop the sale because, for many years, 
Congress has declined to curb sales of precious public property. Dirt-
cheap prices meant for grizzled miners of 122 years ago are still on 
the books.
    Babbitt vows to insist upon replacing such sales with royalties 
that produce a ``reasonable return'' to taxpayers. But the House and 
Senate are far from agreeing on how to do so.
    While Brush Wellman disputes some figures in this article, arguing 
that its high cost of exploration and development should be considered, 
the company agrees with the bottom line: By paying the government just 
thousands, it can obtain land worth millions.
    ``Nobody's disputing that,'' said Hugh D. Hanes, vice-president of 
environmental and government affairs. ``It's a relatively small amount 
(returned to the Treasury) in comparison to what's in the ground.''
    Similar stories are unfolding elsewhere. In Oregon, for one, 
Denver-based Newmont Mining Corp. hopes to spend $1,560 for 60 acres 
containing most of an estimated $373 million in gold--and tens of 
millions more in silver.
    For five months Western senators have been stalling final action to 
replace the 1872 mining law. While they dawdle, companies continue to 
wrest from public lands some $1.7 billion in gold and other minerals 
each year--with little or no direct compensation to the federal 
treasury.
    That amount is only the General Accounting Office's guess. 
Government officials don't know how many millions of tons of precious 
minerals there are on federal lands, or what it's all worth--
complicating any attempts to set a fair asking price.
    ``We don't have good facts,'' Interior Secretary Bruce Babbitt 
acknowledges. Babbitt told a congressional committee he was ``really 
astonished'' when trying to learn from his own employees the volume and 
value of mineral production on public lands, data that companies 
consider confidential.
    ``The answer I got was, `we don't have any','' Babbitt said.
    The tale of Brush Wellman's beryllium bonanza illustrates how 
government and corporations often cooperate to advance corporate 
interests, sometimes without fairly compensating taxpayers.
    At stake is the future of 432 million acres of publicly owned 
lands--and the untallied treasures they contain. These lands are 
managed by the U.S. Forest Service and Bureau of Land Management.
    This article was assembled using corporate documents, government 
records, interviews with company insiders, and a computer-assisted 
analysis of $131,336 in campaign contributions to members of Congress 
by Brush Wellman executives, lobbyists and committees. Checks are not 
illegal
    The checks that flow each year to politicians from Brush Wellman 
and its employees are neither illegal nor random.
    As Hanes acknowledged: ``The company tends to support those people 
that are supportive of the company.''
    Two company supporters, Republican Reps. James Hansen of Utah and 
Paul Gillmor of Port Clinton, have received $41,400 from Brush since 
1988.
    An example of that support occurred last November, when the duo 
came within 45 votes of getting the company exempted from House mining 
rules requiring higher fees and royalties.
    The congressmen argued that, without a financial break, the company 
might be forced to shut down the mines. America's only domestic source 
of beryllium would thus be jeopardized--and that, they said, elevated 
the exemption to a matter of national security.
    But Pentagon documents show that the military is ``over goal'' in 
its stockpile of beryllium metal. Nor does it need beryl ore or a 
beryllium-copper alloy.
    Far from being concerned about secure supplies of Brush Wellman's 
products, the Pentagon now wants to sell 24,221 tons of beryllium 
materials worth $122.9 million.
    Explains Beth Offenbacker, spokeswoman for the National Defense 
Stockpile Center: ``We feel we don't need it.''
    Brush Wellman, Gillmor and Hansen all say they intended only to 
fight for workers' jobs and the local economy.
    They say they've done nothing that violates official rules or laws. 
By all accounts, they are correct--and for that they can thank not only 
campaign finance laws, but the General Mining Law of 1872, a statute 
dating to the administration of Ulysses S. Grant. Brush coverts 
bertrandite
    Brush Wellman's sophisticated methods of extracting a fortune from 
the rocks by refining minerals into products with far-reaching 
technological applications would have dazzled even the hardiest, most 
crusty ``Forty-niner.''
    Like other modern mining companies, Brush uses a chemical process 
to leach ore. Like other modern companies, it literally can move 
mountains and create cratered moonscapes.
    Brush converts the bertrandite ore, found in Utah, Brazil, Africa, 
India and China, into light-weight, harder-than-steel beryllium. Its 
uses include satellites, nuclear reactors, airplanes, computers and 
cars.
    Brush Wellman's products are in nuclear warheads. Every strategic 
missile in the U.S. arsenal contains beryllium, as did the ``smart 
bombs'' dropped on Iraq during the Gulf War.
    What President Grant had in mind--around the time of Custer's last 
stand--was to encourage exploration and development of the western 
wilderness.
    He wanted it used, opened up and settled. Thus, he offered to 
``patent'' cheap land titles--for miners, not multinational 
conglomerates that sometimes scar the landscape and foul waters. But 
Utah and federal mining officials say that Brush Wellman's 
environmental record is impeccable--better than law currently requires.
    For years, aggressive lobbying by mining corporations and railing 
by western politicians has thwarted attempts to revise the 
anachronistic law. Politicians such as Sen. Pete V. Domenici, R-N.M., 
often complain of a ``war on the West.''
    But the Clinton administration's vow to seek market-based fees for 
use of federal lands for mining, grazing and timber-harvesting has 
created new pressure for reform.
    ``Just the first step in an assault on the west,'' Sen. Conrad 
Burns, R-Mont., complained during last year's debate on ranchers' fees.
    Clinton, who made electoral gains in the usually Republican west, 
isn't likely to go too far in alienating his newfound western friends. 
Nor is the public lands brawl strictly east versus west.
    Today's mines are more likely to be run from corporate boardrooms 
in Toronto or Cleveland. In fact, 33 companies now mining on public 
lands purchase $901 million in equipment and supplies that translates 
into jobs in the east, a fact not lost on eastern congressmen.
    In Ohio, four companies besides Brush--Oglebay-Norton, Cleveland 
Cliffs, Dresser Industries and AEP--have mined on public lands. A 
fifth, Timken, is a major supplier of heavy mining equipment. House 
votes for royalty
    In November, the House voted overwhelmingly to end the practice of 
selling cheap land to mining companies. Instead, companies would pay 
the government 8% of the processed minerals' value.
    Amounting to some $100 million a year, such a royalty--
significantly lower than the 12.5% coal, natural gas and oil companies 
have been paying for years--would hardly make a dent in the national 
debt.
    And it would only begin to help pay for cleanups of thousands of 
old abandoned mines, many of which are fouling land and waters in 
locations throughout the Western United States.
    Over time, such a royalty would have cost companies such as Brush 
Wellman hundreds of millions.
    Thus, the industry supported a Senate-backed end to the land sales 
that imposes what environmentalists regard as a ``sham'' royalty--2% of 
the value of minerals before they are processed.
    Companies also could deduct major business expenses.
    Since then, key members of the House and Senate who are supposed to 
reach a compromise have only dawdled, and now lobbying has intensified. 
Last month, for instance, Hanes made his pitch to key members as part 
of an industry-sponsored ``Hardrock Minerals Day.''
    Meanwhile, mining companies are wisely hedging their bets by 
seeking to ``patent'' their claims more quickly than ever. These are 
legal and administrative steps they must take before the government 
grants them title to the land.
    As Congress began seriously debating an end to cheap land sales, 
mining companies scrambled to start applying for purchases. There's a 
``patent rush'' out there--a frenzy to buy before it's too late.
    In California and Nevada, for instance, more than 100 applications 
are pending; a few years ago, there were never more than 40 at any 
time.
    ``Companies know that something will eventually happen (in 
Congress), and with a foot in the door they may be able to keep that 
door open,'' observes Walter Phelps, who heads the Bureau of Land 
Management's office in Utah.
    Interior Secretary Babbitt has tried to stall some sales--including 
the gold mine now lost to the Canadian company--until Congress passes a 
new mining law. A federal magistrate criticized Babbitt, saying this 
amouted to little more than a ``shameful de-facto moratorium'' on 
issuing mining patents.
    Brush Wellman officers, meanwhile, hope that the company is far 
enough in the process that the eventual reform of mining laws will not 
apply; the company will be ``grandfathered'' in. If not, the company 
threatens a lawsuit.
    ``Our concern,'' says Hanes, ``is protecting the investment we've 
made in the patenting process.''
    By that, he means the money spent on lawyers--about $1 million--to 
prepare eight different applications. Moreover, Hanes says the company 
has spent more than $8 million on exploration, and that investing in 
Utah was a ``bet-your-company'' move in the first place.
    ``Hardly a giveaway,'' he said. ``We're not getting a free ride. 
The ore we mine on public lands requires a major up-front investment.'' 
Regula seeks reform
    ``A specious argument,'' responds Rep. Ralph Regula, R-Navarre. 
``First of all, they don't have to buy the land to mine it. And their 
investment is part of doing business whether they own the land or lease 
it. The fact is, nothing goes to the government.''
    For several years now, Regula has persuaded his House colleagues to 
ban the cheap land sales--only to be stymied in the Senate where, he 
complains, ``westerners always kill any mining reform. It's 
outrageous.''
    To date, some 3.2 million acres of federal land--an area the size 
of Connecticut--have been sold, some for as little as a few dollars an 
acre.
    And, Regula says, some land has even been sold back to the 
government after companies have squeezed what they could from the 
land--at a profit.
    Davis, who was there on the plateau of sagebrush at the beginning 
of the beryllium mine, in 1968, complains that environmentalists and 
eastern politicians have distorted the issue.
    ``The idea that mining companies are getting ground cheap and not 
paying the government much is completely wrong,'' says Davis, who was 
Brush Wellman's chief geologist until retiring three years ago. ``We 
pay an awful lot of state taxes and we help a lot of economies locally.
    ``And,'' he adds, ``we'd be happy to give the land back to the 
government. After we've mined it.''
                                 ______
                                 
MINERAL POLICY CENTER
            PLAYING ON AMERICA'S NATIONAL SECURITY CONCERNS
 mining companies' false argument on ``strategic metals and minerals''
    Seeking to boost profits under the guise of national security, 
mining corporations promote mining in the U.S. as a source of strategic 
minerals. In reality, most mining in the United States is for metals 
totally unrelated to national security. At the same time, metals mining 
puts U.S. taxpayers, western communities and our environment at risk.
     For years, the federal government has been selling off 
excess supplies of ``strategic metals and minerals'' to private 
entities.
     A storehouse of these materials was set aside after World 
War II under the Pentagon's strategic minerals program. But in 1992, 
Congress deemed most of the storehouse unnecessary and authorized the 
sale of the bulk of these materials.
    National security should not be exploited as a distraction from the 
real issues and problems of hardrock mining.
     The vast majority of mining on U.S. public land is for 
nonstrategic purposes. 85% of gold mined in America is used for 
jewelry.
     Metals like gold and copper--which never appeared on the 
Pentagon's list of strategic minerals--generated more than $5 billion 
in 2001 for multinational mining companies.
     Many strategic metals and minerals must be imported, as 
they don't exist in America's ore bodies. No amount of mining on 
American land will make our country less dependent on other countries 
for these materials.
    Hardrock mining operations endanger public health.
     Toxic chemicals released in mass quantities by mines 
include lead, arsenic and mercury.
     335 million pounds of lead were released by mines in 
2001, according to the industry's own reports to EPA. Lead poisoning 
can permanently damage a child's brain, nervous system and kidneys. It 
can impede growth and cause hearing loss, learning difficulties, 
vomiting, headaches and appetite loss.
     336 million pounds of arsenic were released by mines in 
2001, according to the industry's own reports to EPA. Arsenic consumed 
by humans can cause cancer of the bladder, liver and skin, according to 
the National Academy of Sciences. Arsenic is associated with birth 
defects, as well as damage to the human heart, blood vessels and 
nervous system.
     4.3 million pounds of mercury were released by mines in 
2001, according to the industry's own reports to EPA. Mercury is a 
potent neurotoxin. Children and infants exposed to mercury often 
experience delays in developing motor skills like walking and talking. 
New concerns center on increased numbers of women with elevated blood 
mercury levels, as this dangerous toxin can transfer through a placenta 
to a developing fetus, or to a newborn through breastfeeding.
    American taxpayers are continually fleeced by multinational mining 
companies.
     Multinational mining companies have taken $245 billion 
worth of precious metals and minerals from land owned by U.S. taxpayers 
without paying a cent in royalties over the past 131 years. In 
contrast, coal, oil and gas companies pay 8% to 12.5% royalties--a 
total of $35 billion between 1994 and 2001 alone.
     A tax break amounting to $100 million per year is given 
to hardrock companies based on the declining value of minerals, even 
though the industry never pays for the minerals in the first place.
     Taxpayer costs to clean up more than 500,000 abandoned 
mines littering the U.S. landscape could total $32 billion to $72 
billion.
     Taxpayers could be liable for $12 billion to clean up 
costs currently operating mines, according to the Center for Science in 
Public Participation.
    Devastating environmental consequences of hardrock mining continue 
to grow.
     The nation's #1 toxic polluter is hardrock mining, 
releasing 2.8 billion pounds of chemicals like arsenic, lead, mercury 
and other heavy metals in 2001, according to the industry's own reports 
to EPA.
     Portions of 40% of western watersheds are contaminated by 
mining, according to EPA.
     Half a million abandoned mines litter the U.S., emitting 
acid mine drainage and other pollution.
     More than 70 hardrock mines already have become Superfund 
sites.
     Mine pollution includes everything from heavy metal 
contamination to cyanide spills and acid mine drainage. Streams 
seriously affected by acid mine drainage and heavy metal contamination 
are biologically dead.
    Real reform of the 1872 Mining Law is needed to protect taxpayers 
and the environment.
     Strong environmental standards for hardrock mining should 
be enacted to protect western communities and valuable water resources.
     Hardrock mining companies should be required to pay an 
8%-12% royalty to taxpayers for taking precious minerals from public 
lands--just like coal, oil and gas companies do.
     Giveaways of public land to multinational mining 
companies for less than $5 an acre should be permanently ended.
     Special places, like wilderness areas and sacred sites, 
should be protected from irresponsible and destructive mining 
practices.
     Western communities should be allowed to have greater 
input into mining proposals that will directly impact the economic and 
public health of their area.

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