[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
        H.R. 2262, HARDROCK MINING AND RECLAMATION ACT OF 2007

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

                          LEGISLATIVE HEARING

                               before the

                       SUBCOMMITTEE ON ENERGY AND
                           MINERAL RESOURCES

                                 of the

                     COMMITTEE ON NATURAL RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                        Tuesday, October 2, 2007

                               __________

                           Serial No. 110-46

                               __________

       Printed for the use of the Committee on Natural Resources



  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                                   or
         Committee address: http://resourcescommittee.house.gov


                     U.S. GOVERNMENT PRINTING OFFICE
38-137 PDF                 WASHINGTON DC:  2008
---------------------------------------------------------------------
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092104 Mail: Stop IDCC, Washington, DC 20402ï¿½090001

                     COMMITTEE ON NATURAL RESOURCES

              NICK J. RAHALL, II, West Virginia, Chairman
              DON YOUNG, Alaska, Ranking Republican Member

Dale E. Kildee, Michigan             Jim Saxton, New Jersey
Eni F.H. Faleomavaega, American      Elton Gallegly, California
    Samoa                            John J. Duncan, Jr., Tennessee
Neil Abercrombie, Hawaii             Wayne T. Gilchrest, Maryland
Solomon P. Ortiz, Texas              Chris Cannon, Utah
Frank Pallone, Jr., New Jersey       Thomas G. Tancredo, Colorado
Donna M. Christensen, Virgin         Jeff Flake, Arizona
    Islands                          Stevan Pearce, New Mexico
Grace F. Napolitano, California      Henry E. Brown, Jr., South 
Rush D. Holt, New Jersey                 Carolina
Raul M. Grijalva, Arizona            Luis G. Fortuno, Puerto Rico
Madeleine Z. Bordallo, Guam          Cathy McMorris Rodgers, Washington
Jim Costa, California                Bobby Jindal, Louisiana
Dan Boren, Oklahoma                  Louie Gohmert, Texas
John P. Sarbanes, Maryland           Tom Cole, Oklahoma
George Miller, California            Rob Bishop, Utah
Edward J. Markey, Massachusetts      Bill Shuster, Pennsylvania
Peter A. DeFazio, Oregon             Dean Heller, Nevada
Maurice D. Hinchey, New York         Bill Sali, Idaho
Patrick J. Kennedy, Rhode Island     Doug Lamborn, Colorado
Ron Kind, Wisconsin                  Mary Fallin, Oklahoma
Lois Capps, California               Vacancy
Jay Inslee, Washington
Mark Udall, Colorado
Joe Baca, California
Hilda L. Solis, California
Stephanie Herseth Sandlin, South 
    Dakota
Heath Shuler, North Carolina

                     James H. Zoia, Chief of Staff
                   Jeffrey P. Petrich, Chief Counsel
                 Lloyd Jones, Republican Staff Director
                 Lisa Pittman, Republican Chief Counsel
                                 ------                                

              SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES

                    JIM COSTA, California, Chairman
          STEVAN PEARCE, New Mexico, Ranking Republican Member

Eni F.H. Faleomavaega, American      Bobby Jindal, Louisiana
    Samoa                            Louie Gohmert, Texas
Solomon P. Ortiz, Texas              Bill Shuster, Pennsylvania
Rush D. Holt, New Jersey             Dean Heller, Nevada
Dan Boren, Oklahoma                  Bill Sali, Idaho
Maurice D. Hinchey, New York         Don Young, Alaska, ex officio
Patrick J. Kennedy, Rhode Island
Hilda L. Solis, California
Nick J. Rahall, II, West Virginia, 
    ex officio
                                 ------                                
                                CONTENTS

                              ----------                              
                                                                   Page

Hearing held on Tuesday, October 2, 2007.........................     1

Statement of Members:
    Costa, Hon. Jim, a Representative in Congress from the State 
      of California..............................................     1
    Heller, Hon. Dean, a Representative in Congress from the 
      State of Nevada............................................    10
    Pearce, Hon. Stevan, a Representative in Congress from the 
      State of New Mexico........................................     3
    Rahall, Hon. Nick J., II, a Representative in Congress from 
      the State of West Virginia.................................     5
    Young, Hon. Don, a Representative in Congress from the State 
      of Alaska..................................................     8

Statement of Witnesses:
    Cress, James F., Attorney, Holme Roberts & Owen, LLP.........    24
        Prepared statement of....................................    25
    Ferguson, Tony L., Director of Minerals and Geology 
      Management, National Forest System, Forest Service, U.S. 
      Department of Agriculture..................................    47
        Prepared statement of....................................    49
        Response to questions submitted for the record...........    53
    Hanlon, James A., Director, Office of Wastewater Management, 
      U.S. Environmental Protection Agency.......................    43
        Prepared statement of....................................    45
    Lazzari, Salvatore, Specialist in Natural Resource Economics 
      and Policy, Resources, Science and Industry Division, 
      Congressional Research Service.............................    13
        Prepared statement of....................................    15
    Lind, Hon. Greg, State Senator, State of Montana.............    58
        Prepared statement of....................................    59
        Response to questions submitted for the record...........    65
    Otto, James M., Independent Consultant on Mining Law, Policy 
      and Economics..............................................    19
        Prepared statement of....................................    21
    Skaer, Laura, Executive Director, Northwest Mining 
      Association................................................    68
        Prepared statement of....................................    69
        Response to questions submitted for the record...........    79

Additional materials supplied:
    Gallagher, Thomas H., P.E., P.L.S., Chairman and Chief 
      Executive Officer, Summit Engineering Corporation, Letter 
      submitted for the record...................................    11
    San Xavier District of the Tohono O'Odham Nation, Statement 
      submitted for the record...................................    87


LEGISLATIVE HEARING ON H.R. 2262, TO MODIFY THE REQUIREMENTS APPLICABLE 
   TO LOCATABLE MINERALS ON PUBLIC DOMAIN LANDS, CONSISTENT WITH THE 
PRINCIPLES OF SELF-INITIATION OF MINING CLAIMS, AND FOR OTHER PURPOSES. 
          ``THE HARDROCK MINING AND RECLAMATION ACT OF 2007''

                              ----------                              


                        Tuesday, October 2, 2007

                     U.S. House of Representatives

              Subcommittee on Energy and Mineral Resources

                     Committee on Natural Resources

                            Washington, D.C.

                              ----------                              

    The Subcommittee met, pursuant to call, at 2:05 p.m. in 
Room 1324, Longworth House Office Building. Hon. Jim Costa 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Costa, Pearce, Rahall, Gohmert, 
Heller, Sali, Young, and Udall.

   STATEMENT OF THE HONORABLE JIM COSTA, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Costa. The Subcommittee on Energy and Minerals will now 
come to order. This is the third or fourth legislative hearing 
that we have held on the issue of the Hardrock Mining and 
Reclamation Act of 2007, reflecting Chairman Rahall's 
legislation that he introduced, third or fourth, depending on 
whether or not you count the Tucson meeting earlier this year. 
Neither Congressman Pearce nor I were able to attend that 
meeting, but regardless, this is an area that the Subcommittee 
has focused on as it relates to the issue before us.
    I need to dispense with some preliminary items to begin 
with, and then we will get going with our first panel.
    This legislative hearing, of course, has come to order. The 
Subcommittee is meeting today to hear testimony on H.R. 2262, 
the Hardrock Mining and Reclamation Act of 2007. Under Rule 
4[g] the Chairman and Ranking Minority Member may make opening 
statements. If any other member has other statements, they may 
be included in the record under unanimous consent, and we are 
very good about granting unanimous consent for those purposes.
    Additionally, under Committee Rule 4[h] additional material 
for the record should be submitted by members or witnesses 
within 10 days after the hearing. We urge witnesses to try to 
expedite that effort to help our staff, and so your 
cooperation, obviously, to any questions that we submit in 
writing is appreciated.
    Because this is one of a series of hearings that we have 
held and it is my understanding the Chairman anticipates a 
markup some time before the end of the year on his bill, we 
thought it was appropriate today to focus on the issue of 
royalties, and what I must say at the outset is that there has 
been an enormous amount of cooperation and collaboration 
between all of the interests involved on this issue, and I want 
to thank you for those efforts.
    For those members who are not able to join Congressman 
Heller and myself in Nevada, I want you to know that he is a 
very hospitable host, as is Senator Reid. It was a two-day 
field hearing that I found to be very informative, and in which 
we received a great deal of input in.
    I have come to the conclusion that there is, I think, a 
broad consensus that reform is necessary, and I think, as they 
say, the question is or the devil is in the details in terms of 
how we bring that reform about. Therefore, we are looking for 
the expertise of the witnesses to testify this afternoon in 
Panel No. I and Panel No. II as it relates to the issue of 
royalty.
    Obviously, it has been a source of contention as to what 
are the various forms of royalty that would be applicable, that 
would be appropriate, that would be reasonable, and that would 
be fair, and would be, in my view as just a farm boy from 
Fresno, workable. I mean, at the end of the day and we have, I 
think, a number of examples on the Federal level of, 
notwithstanding good ideas, being very complicated and very 
difficult to implement. So when I have a choice, I always like 
to err on the side of simplicity because I think that is easier 
for all to try to deal with.
    At the same time when we talk about administrative efforts 
as it relates to the Federal government and to make sure that 
we are good partners with the private sector, we also have to 
talk about the balancing act that, of course, is part of the 
charge of this Subcommittee, and I talk about it often. 
Certainly we want to ensure industry competitiveness. This is 
an international global market that we live in. Hardrock 
minerals compete in that international global market, and many 
of the experts and those that we saw in Nevada not only do 
business there, but they do business in many other parts of the 
world.
    So we are also interested today to learn about those 
experiences in other parts of the world in terms of experiences 
that may be applicable here in the United States. So obviously 
that is something that we will listen to carefully.
    In addition, one of the other major issues that is a 
concern of this Subcommittee as we do the balancing act between 
ensuring competitiveness but ensuring that these are public 
lands and that the U.S. taxpayers get a fair rate of return, 
and that fair rate of return is not just to benefit the 
American treasury, but sadly, we have a significant number, in 
my view, of abandoned mines throughout the country that go back 
to practices that no longer conform with today's standards.
    Nonetheless, those abandoned mines in many, many 
instances--I know in California, in my own state, health and 
safety hazards, and therefore the first priority in the call on 
this money, if we can work out these details, will be to 
address those funds to clean up those abandoned mines to ensure 
that we protect both health and safety as it relates to issues 
of water quality and other impacts that these abandoned mines 
and hazards may pose, and of course, we have a number of 
witnesses in the second panel that will give us a better 
snapshot, as I like to say, the size of that breadbox.
    Just as an example, Members of the Committee, in California 
there are 47,000 hardrock abandoned mines, and the majority of 
them are on public lands. More than 20,000 of them possess 
safety hazards, and the state is able to address about 65 of 
those sites per year, but there is, of course, no dedicated 
funding to protect public health and safety from those sites, 
let alone to address potential areas of pollution. Eleven 
percent of the abandoned mines in California, we believe, 
create environmental impacts, especially to our waters, which 
are precious.
    So those are the kind of the perspectives that we want to 
get today from our two panels: one on the area of how we come 
to some consensus on the issue of a payment, in lieu payment, 
royalty payment, whatever you choose to call it, and the 
experts in the first panel will focus on that, and the second 
panel will try to get an idea about where those monies would go 
once we hopefully get agreement at some point in time as this 
legislation moves forward on how we prioritize, how we 
collaborate with states who are already aggressively out there 
doing things, like in Nevada, like in California, and 
elsewhere, and how we combine resources.
    So with that understood, I would like to defer to my 
colleague, the gentleman from New Mexico, for an opening 
statement.

 STATEMENT OF THE HONORABLE STEVAN PEARCE, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF NEW MEXICO

    Mr. Pearce. Thank you, Mr. Chairman. Appreciate your plan 
through SIC. We don't often get much appreciation up here, and 
I think people do work in all circumstances, so I appreciate 
you being here today. You did say three words that really 
caused an alarm in your first opening statement when you used 
the term ``simple farm boy from Fresno''. That puts alarm into 
my thinking. The only thing you could have said that would have 
caused a greater fright would be ``simple country lawyer''.
    [Laughter.]
    You also used the term ``simplicity'' as it relates to the 
Federal government. I am sorry, but our mantra in the Federal 
government, if it ain't broke, fix it until it is, and that 
doesn't go along with simplicity. So other than those two 
things, I appreciated your opening statement. Like you said, it 
is either the third or fourth, depending on if you are using 
Olympic standards or just world standards for this hearing 
sequence that we are in, and it is an extraordinarily important 
thing that we are talking about.
    The Federal royalty program, the abandoned hardrock mine 
problem is one that needs solutions. I think that even with 
this hearing we are going to need follow-up hearings. One of 
the key recommendations included in the World Bank's report on 
mining royalties is for governments that impose a royalty or 
impose a change in the royalty structure, for them to consult 
with the industry in order to assess the impacts that such 
changes will have on the mineral sector.
    While industry is in the process of evaluating exactly what 
the impacts of the royalty recommendations, and Chairman 
Rahall's bill will be on the industry, that assessment is not 
yet complete, and we should meet after they make the decision 
on that. There were three analyses that were issued--three 
separate economic analyses that were issued on the Rahall 
proposals back in 1993. Those all said that there was going to 
be a loss of employment in the mining sector, and also a loss 
of revenue to Federal and state treasuries. I have copies of 
these analyses with me here today, and I ask unanimous consent 
that they be entered into the record.
    Mr. Costa. Without objection.
    [NOTE: The analyses submitted for the record have been 
retained in the Committee's official files.]
    Mr. Pearce. Thank you. The World Bank report also 
recommends that the country seeking to establish a royalty 
evaluate the impact that royalty will have on attracting 
investment, and if the royalty will make the Nation less 
competitive with other industries. The United States is already 
at a competitive disadvantage for investment in hardrock 
mineral exploration. As you well know, back in 1993, the U.S. 
had 21 percent of the world's exploration budget and today that 
is down to eight percent in 2007. Again, we have the charts 
that will show the relative change in the U.S. share of the 
world mining market, and our dependence on foreign sources of 
minerals is increasing. Today, we are 100 percent import 
dependent on 17 critical non-fuel minerals, and more than 50 
percent import dependent on another 28 non-fuel minerals. Again 
we have the chart that begins to show your increasing 
dependence on foreign countries.
    In 1986, we were 100 percent import dependent for five non-
fuel minerals, and more than 50 percent dependent on 16 non-
fuel minerals, again further encouragement to export the mining 
industry is the wrong direction and those USGS charts would 
show that we are moving in the wrong direction.
    Care should be taken in establishing an appropriate Federal 
royalty so that it does not adversely impact additional 
investments in the development of the nation's mineral 
resources or affect state and local revenues already paid by 
the mining companies.
    I also believe that we could spend more time looking at the 
existing Federal and state abandoned hardrock mine land 
programs and identify a better and more streamlined approach to 
coordinate these programs. I believe that there is more going 
on in addressing this issue than we may be aware of.
    For example, last week the Forest Service and the BLM 
jointly issued a report on the 10-year anniversary of their 
hardrock abandoned mine land program. While committee staff was 
aware of these agency programs, and the Army Corps of Engineers 
restoration of abandoned mine sites program, they were unaware 
that this report was in the works until it was complete.
    In addition to these important issues we will begin to 
discuss today, there are two National Research Council reports 
looking at aspects of our national mineral policy that are 
scheduled for release later this week regarding securing 
minerals for the 21st Century and military-critical minerals in 
the U.S. economy. We may need additional hearings, and I would 
recommend that we have one in Silver City, New Mexico. We have 
reserved a spot on the 19th of October, if the Chairman would 
be susceptible to that.
    But as we move forward, I think that we will need 
additional mining hearings on this mining law reform to ensure 
that we are pursuing appropriate policy and not just punishing 
a modern industry for their ancestor's actions of 100 years 
ago.
    I thank the witnesses on both panels for their testimony 
and I look forward to hearing from you, and would yield back. 
Thank you, Mr. Chairman.
    Mr. Costa. I appreciate the gentleman from New Mexico's 
comments. I do believe one of the areas that we are going to 
need to examine closer is the current efforts and the 
collaboration between states and the Federal government because 
I am aware of some, I think, positive efforts that are taking 
place and we certainly want to encourage those and build on 
those. So hopefully we will have an opportunity to do that.
    We are blessed with the presence of the Chairman of the 
committee who has a statement to make or he may be using that 
as a ruse to simply come and watch us. But in either case, he 
is quite welcome to--this is a gentleman who has been 
passionate about this issue for many years, and is working very 
hard on his bill, and we would recognize the gentleman from 
West Virginia, the Chairman of the Natural Resources Committee, 
for an opening statement.

STATEMENT OF THE HONORABLE NICK J. RAHALL, II, A REPRESENTATIVE 
          IN CONGRESS FROM THE STATE OF WEST VIRGINIA

    Mr. Rahall. I thank the distinguished Subcommittee 
Chairman, Mr. Costa, for those kind words. I might say we are 
cursed rather than blessed by my appearance here, but that 
would come more from the other side of the aisle than I believe 
those that are scheduled to testify because we have, as the 
Chairman has referred to, been talking with everybody on this 
issue, both Chairman Costa and myself, including meetings 
today, and these will continue as we try to reach common ground 
in what I view all sides, all sides are saying that certainly 
we need to eliminate the uncertainty that hangs over the 
industry's head. We need to have a plan to move forward so that 
we can mine the minerals and metals that are so important for 
our economy here domestically.
    The gentleman from New Mexico, I believe, has referred to 
it, is it the National Science Foundation report, Steve, the 
latest report that you were referring to pointing to the 
strategic importance of minerals and metals to our economy? 
That is the same report, I believe, that Ranking Member Young 
called me on just a little while ago and wanted to have a 
separate hearing.
    But from what I can judge from this report there is nothing 
with which anybody could disagree, certainly not this gentleman 
from West Virginia. Metals and minerals and hardrock mining are 
important to our economy. They are important to our defenses in 
this nation, and nobody, certainly not this gentleman from a 
mining area of this country, wants to eliminate any jobs or any 
industry that is critical for our energy independence and/or 
the defenses of our country.
    I want to make an opening statement because I not only want 
to address that issue, but also those who might wonder where 
this gentleman from the eastern part of the United States, 
although it is West Virginia, comes from on this issue, as well 
as the relationship of myself with my coal mining industry, and 
perhaps wonderment about how I would want to reform the 
hardrock mining industry when we have our own problems in the 
coal industry, which I certainly attest that we have.
    But during the years that I have labored to reform the 
Mining Law of 1872, those who defend its privileges, and it is 
indeed a privilege to be deemed the highest and best use of our 
public domain lands, have often alleged that reform legislation 
fails to take into account the contribution of hardrock mining 
to area economies. They claim that reform would have dire 
consequences on the industry, that we did not provide the 
industry with unfettered access to public lands and public 
minerals, that is, if we did not provide such access, that the 
industry could no longer survive, et cetera, et cetera.
    Let me just say that at the outset there is no member in 
the House of Representatives whose congressional district is 
more dependent upon mining for employment and its economic 
well-being than this gentleman from West Virginia. And when we 
are talking about the effects of mining, I would suggest that 
there is little difference between coal mining or gold mining. 
The effects, whether measured in terms of employment or in 
terms of the environment, are the same.
    With that noted, I would note I have engaged in this effort 
to reform the Mining Law of 1872 for many years now, a couple 
of decades, not just for the apparent reasons--value of 
minerals, mined for free, the threats to human safety and the 
health--but also because I am pro-mining, because I no longer 
believe that we can expect a viable hardrock mining industry to 
exist on public domain lands in the future if we do not make 
corrections to the law today, and again I say it is to 
eliminate the uncertainty that hangs over this industry's 
future as well.
    I do so because there are provisions of the existing law 
which impede efficient and serious mineral exploration and 
development, and I do so because of the unsettled political 
climate governing this activity. Reform, if not coming in a 
comprehensive fashion, certainly will continue to come in a 
piecemeal fashion and will continue to hang that cloud of 
uncertainty over the industry.
    So I say to my colleagues from the Western states who 
resist reform I understand your concerns. I have and will 
continue to meet with you. I have been in your situation. Just 
in a meeting today in my office we recalled 1977, when this 
committee was then called the House Interior Committee under 
the chairmanship of the gentleman that oversees this room in 
spirit today, Mo Udall.
    I was a young freshman, and in those days it was unheard of 
for a freshman to serve on a conference committee, but it was 
my first year, and I was confronted by legislation being 
advanced by our Chairman, and I will recall that the coal 
industry was dragged kicking and screaming into the debate that 
led to the enactment of the Surface Mining Control Reclamation 
Act of 1977. I voted for that legislation. It was not an easy 
thing to do, but I voted for the bill because in my region of 
the country we were grappling with a legacy of acidified 
streams, high walls, refuge piles, open mine shafts, and other 
hazards associated with coal mining practices, a legacy, I 
would submit, that we are faced with in our lands administered 
by the Forest Service and the BLM in the Western states due to 
hardrock mining practices.
    The fact of the matter is that the gloom and doom 
predictions made by my coal industry at that time against the 
Federal Strip Mining Act all those years did not come about. 
Predictions, I would note, that are almost to the word 
identical to those whose industry has leveled at times against 
this Mining Law of 1982 reform legislation.
    Yet today the coal fields of this nation are a much better 
place in which to live, and we are producing more coal than 
ever before. Certainly coal continues to have its 
controversies, whether they include mountain top removal coal 
mining, whether problems we are having with coal waste 
impalements, these are problems confronted on a daily basis, 
but at least--but at least there are laws on the books to deal 
with these situations, and we try to deal with these 
situations, whether it is mountain top removal or these 
impalements, we try to deal with them within the context of the 
current laws that exist, and the laws, for the most part, which 
the industry is legitimately following.
    At least when one mine's coal in our Federal lands there is 
a royalty that is paid to the Federal government, and at least 
we are making provisions for the restoration of lands that are 
left abandoned by past coal mining practices. None of this 
exists with respect to hardrock mining under the Mining Law of 
1872.
    So I believe, as I conclude, with enough courage and 
fortitude we can continue to address the problems facing 
mining, and dove tail our need for energy and minerals with the 
necessity of protecting our environment and providing jobs for 
our people. At stake here, over the Mining Law of 1872, is the 
health, welfare, and environmental integrity of our people and 
our Federal lands. At stake, indeed, is the public interest of 
all Americans, and at stake is the ability of the hardrock 
mining industry to continue to operate on public domain lands 
in the future, to produce jobs for our people, and to produce 
those minerals that are necessary to maintain our standard of 
living.
    I thank you, Mr. Chairman.
    Mr. Costa. Thank you, Mr. Chairman, for your illustrative 
comments that give us a snapshot of the history in comparison 
and reflects your own experience as it relates to the U.S. coal 
industry and the challenges on legislative changes that you 
quite concisely repeated in your testimony. We appreciate that 
history, and we hope it will be applicable in terms of our best 
collaborative bipartisan efforts to work on this effort as 
well.
    I would like to entertain the committee's unanimous consent 
to allow Mr. Tom Udall to sit and participate in this 
afternoon's hearing. Hearing no objection. Mr. Udall has had a 
long interest in this subject matter, and of course, his uncle 
was, as noted by Chairman Rahall, the Chairman of this 
committee and his father used to be the Secretary of the 
Interior, so the family obviously lays claim--no pun intended--
to a serious focus on the subject matter.
    Speaking of serious focus on the subject matter, I don't 
know, Mr. Pearce, if it is just you and I this afternoon or why 
we are blessed with such illustrious talent in the House here. 
It must be the subject matter. But we have another Chairman, 
the gentleman from Alaska, who we all enjoy serving with who 
has blessed us with his presence, and so we will allow an 
opportunity for an opening statement from the gentleman from 
Alaska, Mr. Young.

   STATEMENT OF THE HONORABLE DON YOUNG, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF ALASKA

    Mr. Young. Thank you, Mr. Chairman, and I do not have a 
written statement so my statement will be from my memory of 
history, and the gentleman is right, from West Virginia. He was 
dragging and crawling and opposing any mining law changes for 
the coal industry. I don't quite remember all the history 
mentioned in the sense that since that time there has been 
numerous other laws that we have passed in this committee and 
this Congress that affect the hardrock mining. Later on I am 
hoping that the industry will explain all the permitting 
process that you have to go through. The Endangered Species 
Act, the water quality control, the air quality control, those 
did not exist then, so don't suggest that they are the same 
thing when we passed the coal mining law at the same time.
    There are numerous new laws that we put on the books that 
the industry has to meet, and my interest in this is, very 
frankly, one that we have to recognize--now 20 of the minerals 
which our industry base consumes are imported 100 percent. We 
are a nation dependent upon hardrock minerals, not just gold, 
but hardrock minerals, more so than even for energy. Every 
automobile has an imported mineral is in it, a metal of some 
type. Every computer, everything we use is imported from 
overseas, from China. I will give you an example if you don't 
have it.
    We have China, Morocco, Mexico and Chile, and we have 
arsenic, you may not use it, but we do. Asbestos, we don't mine 
it but we do import it from Canada; bauxite and aluminum from 
Jamaica, Guinea, Australia and Brazil; molybdenum from Brazil, 
China, Mexico, South Africa and Mongolia, and on down the line.
    If you don't have a copy of this, look at what we are 
dependent upon now today, far exceeds our energy, far exceeding 
our energy because we have not, in fact, encouraged the mining 
industry in this nation as we should have, and we are now 
dependent upon countries that are not friends of ours, and look 
at this bill the gentleman introduced and talking about reform 
and how we have to reform. Reforming for the benefit of the 
Nation is crucially important. Reforming to punish an industry 
that is crucial to our endeavors and our economy is wrong.
    Look at Title III, and see how many new permits, how many 
other agencies, you will never get a permit ever to mine 
anymore minerals in this country, thus making us more dependent 
upon foreign countries not our friends, when we can't produce, 
Mr. Chairman, what we should be producing in this country. We 
weaken this nation. We weaken this world's climate. We weaken 
society as a whole. Resources are on this earth to be utilized 
for the good of man.
    By the way, one of these resources that we are talking--
none of these hardrock minerals are used by anybody but man. 
Man's use, and I believe we must need them.
    I want to check your button over there, Mr. Udall, and see 
where it was made and what it is made of. Probably imported, 
United States Congressman's button. Many times I don't wear 
mine because I don't want to be a target, but just keep it in 
mind----
    [Laughter.]
    Mr. Young.--that is probably where it was made, and now we 
go to your automobiles because we will hear a lot from that 
side of the aisle, oh, we have to save the world, the earth is 
coming to an end, hot house is hitting us. We are going to have 
hybrid cars. The average car today has 40 pounds of copper in 
it. A hybrid has 100 pounds of copper, and under this bill you 
will not have any new copper mines in the United States. Under 
this bill you will not have any tungsten, any moly, you are 
going to have no production of what we have to have even for 
our military strength in the United States because we will be 
all importing it, and that is why if we are to reform for the 
benefit of the nation, I will be on the gentleman's side. But 
if we are going to reform, saying we are going to solve all 
these problems and punish an industry that has contributed to 
this country, and will continue to contribute to this country, 
it is dead wrong.
    Right now I will make you a deal. You knock out Title III, 
and I will take the rest of the bill.
    Mr. Rahall. Gentleman yield?
    Mr. Young. Yes.
    Mr. Rahall. What if we keep Title III in there and place a 
bet on whether there will be another permit issued?
    Mr. Young. Well, no, no, no. Knock it out and you have a 
deal. That is real reform. That will be real reform, and we 
will be able to provide for this nation the needed minerals we 
have to have to maintain our strength. If we go forth with this 
bill as it is written, you will not have a hardrock industry, 
and this nation will be at the mercy of those countries that 
don't have a unique understanding of the environment or the 
labor force or any other thing. That is what will happen.
    Yield back the balance.
    Mr. Costa. Thank you very much, and it is inspiring, I 
think, to have the Chairman and the former Chairman here and 
weigh in, and let me make it clear to all of the members of the 
Subcommittee and those who are not members of the Subcommittee 
that it is not the intention of this Chairman to punish 
anybody, but to try to bring about some common sense or form, 
and we will see where we can reach that balancing point.
    Having said that, any other statements wish to be submitted 
for the record? Mr. Heller from Nevada.

  STATEMENT OF THE HONORABLE DEAN HELLER, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF NEVADA

    Mr. Heller. Thank you, Mr. Chairman. I just want to tell 
you I appreciate the opportunity for this third hearing, a 
third hearing that at least I have attended, maybe more. But I 
also want to take a moment to also thank you and Senator Reid 
for the time that you spent in Elko, the two days that you 
spent there. I have gotten a lot of feedback from some of my 
constituents and how much they appreciated having the 
opportunity to discuss some of these issues with you, and 
though I may not support the current form of this bill, I hope 
that your experience and some of the things that you were able 
to detail while you were there in Elko will help maybe more 
calmer minds or reasonable minds come together with some 
legislation that we can live with and the industry also.
    Having said that, because I want to get to the witnesses, I 
would like to submit my written comments to the record.
    Mr. Costa. Very good.
    Mr. Heller. And also, Mr. Chairman, I had a constituent 
that wrote a letter, Summit Engineering Corps, Thomas 
Gallagher. If there is no objections.
    Mr. Costa. Without objection, we will submit that for the 
record as well.
    Mr. Heller. Thank you very much. I yield.
    [The letter from Thomas Gallagher submitted for the record 
by Mr. Heller follows:]

[GRAPHIC] [TIFF OMITTED] T8137.008

[GRAPHIC] [TIFF OMITTED] T8137.009

[GRAPHIC] [TIFF OMITTED] T8137.010

    .epsMr. Costa. As well as your testimony, and we thank the 
gentleman, and as I said on the outset, you and Senator Reid 
and your constituents most importantly were most hospitable, 
and the two days the committee spent in Elko were informative 
and certainly were a pleasure.
    With that understanding, I think we will begin with the 
testimony. It almost sounds like we have already had testimony, 
but not true. We are here to listen to the witnesses. I would 
now like to recognize our first panel. Mr. Salvatore Lazzari of 
the Congressional Research Service, otherwise known as CRS; Mr. 
James Otto, a Consultant on issues relating to mining royalties 
for governments around the world; and Mr. James Cress, Attorney 
with Holme Roberts & Owens, LLP, are the three members on our 
first panel.
    I think some of you--maybe all of you--are savvy and 
experienced with testifying on the Hill. Those timing lights in 
front of you would indicate the five minutes that are available 
to you. We certainly will take your full statement that may be 
longer than your oral testimony. When the light turns yellow, 
you need to kind of conclude your remarks. That gives you a 
minute left, and the Chair views favorably those members of the 
panel that testify that stay within the five minutes. If you 
don't, I will politely let you know, and then we will move to 
the questions.
    Having said that, our first witness is Mr. Salvatore 
Lazzari from Congressional Research Service.

 STATEMENT OF SALVATORE LAZZARI, SPECIALIST IN PUBLIC FINANCE, 
    RESOURCES, SCIENCE AND INDUSTRY DIVISION, CONGRESSIONAL 
                        RESEARCH SERVICE

    Mr. Lazzari. My name is Salvatore Lazzari. For 28 years, I 
have been an economist at the Congressional Research Service, 
specializing in energy and natural resource economics and 
policy, focusing on energy tax policy. I am honored to be here 
today to discuss the economic aspects of H.R. 2262, The 
Hardrock Mining and Reclamation Act of 2007, specifically, the 
proposal to impose an 8 percent ad valorem royalty in 
production of locatable minerals on public domain lands. Please 
keep in mind that CRS takes no position on any legislative 
options.
    Part of the problem in deciding how to structure a royalty 
is confusion over just what a royalty is and what it is not. 
Economics is very clear on this. A royalty is a factor payment, 
part of the rent paid or the return to land as an input to 
production. It is analogous to the wage rate, which is a 
payment for the services of labor, or the interest rate, which 
is a payment for the services of capital. Mineral production 
requires the services of these productive factors, such as 
labor and capital, and generally must pay the going market rate 
in exchange for these services.
    The exception to this rule, of course, has been the case of 
locatable minerals on Federal lands in the United States on 
which royalties are not paid.
    In the case of mineral production, under conditions of 
perfect competition and no risk rents could be captured by the 
landowner as up-front payments or they could be paid in various 
forms, such as bonus bids, annual rentals, or a royalty, or 
even in various combinations of these, depending upon the type 
of mineral and the specific contractual agreement between a 
developer of the resources and the landowner.
    However, given the risks in mineral production, the royalty 
becomes a way of allowing for mineral rents to be paid, i.e., 
for the landowner to earn a return on the land in a way that 
simultaneously protects the mineral producer against excessive 
or overestimation of rents, and the landowner against 
underestimation of rents.
    Being a factor payment then, a royalty is not a tax, which 
is a compulsory levy on individuals and businesses to finance 
the general cost of government for the common welfare and not a 
return to a factor of production. This is an important point, 
one that might be used, for example, to argue against proposals 
to impose a royalty based on net profits, which would make the 
royalty more of an income tax rather than a factor payment.
    As a type of rent then, the type of royalty that most 
closely captures the rents for mineral lands whose future 
productivity and value cannot be precisely determined is the ad 
valorem royalty based on value. Under such a royalty, all of 
the rental payments are made in installments rather than 
partial up front, and the rent payments are based on the amount 
and value of the mineral produced.
    It would be inconsistent with the concept of rent as a 
factor payment for a royalty to be based on other than market 
value. Assessing the royalty based on the gross income 
definition of value under the percentage depletion laws of the 
Federal income tax, as is proposed under H.R. 2262, will not 
only be consistent with the economic concept of the royalty but 
would also facilitate industry compliance and government 
administration since the legal and regulatory apparatus for 
measuring the value would already be in place.
    With regard to the specific royalty rate, economic theory 
is less clear beyond the implication that the royalty rate be 
determined in the competitive marketplace is generally the most 
economically efficient rate. In most types of private royalty 
arrangements, the most common type of royalty was the ad 
valorem royalty at rates ranging from 2 to 8 percent, with an 
average rate of five percent.
    On state lands, mineral royalties are also ad valorem with 
rates ranging from two to ten percent. For oil and gas on 
Federal lands, the royalty rate is either one-eighth or one-
sixth the share of the price. For coal on Federal lands, the 
royalty rate is either 12 percent for surface mines or eight 
percent for underground mines. Even for hardrock minerals on 
acquired lands as opposed to public domain lands, which are 
governed by the 1872 mining law, the Congress has established 
an ad valorem royalty rate of five percent.
    The U.S. hardrock mineral industry is, in general, subject 
to the same income tax laws as apply to other businesses for 
profits. Hardrock mining companies are highly capital-intensive 
businesses and also benefit from accelerated depreciation 
allowance, and from several targeted subsidies.
    Expensing of exploration and development costs, a 
percentage of the depletion allowance based on fixed percentage 
of the growth income as determined in the tax law, which ranges 
from five to 22 percent, and a deduction for mine closing and 
land reclamation costs in advance of the actual closing and 
reclamation, i.e., before the occurrence of the activity giving 
rise to the expenses. These special tax preferences have 
historically resulted in relatively low industry effective tax 
rates.
    Finally mining companies pay a variety of claims fees--
location, Bureau of Land Management processing, and annual 
maintenance fees, which are assessed for specific 
administrative services provided by the BLM. In cases where the 
title to the lands are conveyed, there are also patent fees, 
improvement and purchase fees also apply.
    Thank you, Mr. Chairman. That concludes my testimony. I 
would be happy to answer any questions you or the Subcommittee 
members might have.
    [The prepared statement of Mr. Lazzari follows:]

    Statement of Salvatore Lazzari, Specialist in Natural Resource 
   Economics and Policy, Resources, Science, and Industry Division, 
          Congressional Research Service, Library of Congress

    Mr. Chairman, and Members of the Subcommittee:
    My name is Salvatore Lazzari. For 28 years I have been an economist 
at the Congressional Research Service, specializing in energy and 
natural resource economics and policy, focusing on energy tax policy. 
Before that I was a business economist for a major corporation in 
Michigan. I am honored to be here to discuss H.R. 2262, the Hardrock 
Mining and Reclamation Act of 2007, specifically the proposal to impose 
an 8% ad valorem royalty on production of locatable minerals on public 
domain lands, effective after the date the bill becomes law. As you 
requested, I will address the economic aspects of this issue, but keep 
in mind that CRS takes no position on any legislative options. My 
statement today addresses the following issues:
      What is a royalty?
      Assuming that a royalty is to be imposed, what is the 
best way to structure such a royalty? Should the royalty be an ad 
valorem type, a fixed unit based royalty, or based on net income or 
profit? If there is to be an ad valorem royalty, at what stage should 
value (or price) be measured, and what deductions, if any, should be 
allowed?
      What should the royalty rate be? And how do we decide 
what a fair royalty rate is?
      Finally, what taxes and fees does the hardrock mineral 
industry pay, and do they have any bearing or implications for royalty 
determination?

WHAT IS A ROYALTY?
    Part of the problem in deciding how to structure a royalty is 
confusion over just what a royalty is and what it is not. Economics is 
very clear on this: A royalty is a factor payment, part of the rent 
paid, or the return, to land as both a marketable capital asset and 
input to production. It is a voluntary payment made by the renter of 
the land to the landowner (whether private or public) in exchange for 
the flow of services provided by that land over time. Thus, the royalty 
is analogous to the wage rate, which is a payment for the services of 
labor, or the interest rate, which is a payment for the services of 
capital.
    Mineral producers, as business organizations, require land, as well 
as labor, capital, energy, and other materials, in order to establish 
their enterprise and produce goods and services--minerals that provide 
utility to consumers. In the typical economic model, just as mineral 
producers must pay for the services of factors of labor, capital, and 
other inputs, they must pay landowners for the services of land that 
contains a mineral deposit. The exception to this rule, of course, has 
been the case of locatable minerals on public (or federal) lands in the 
United States, on which royalties are not paid.
    In the case of mineral lands, rents could be paid in various forms 
such as a bonus bid, annual rentals, or a royalty, or in various 
combinations of these depending on the type of mineral, and whether 
there is a lease or not, and the contractual agreement between a 
developer of the resources and landowner. For example, under the Outer 
Continental Shelf Lands Act of 1953, as amended, the federal government 
leases the lands for oil and gas development in return for a bonus bid, 
annual rents, and royalties. Lease sales are conducted through a 
competitive bidding process, and leases are awarded to the highest 
bidder, who makes an up-front cash payment called a bonus bid in order 
to secure the lease. Annual rents range from $5-$9.50 per acre, with 
lease sizes ranging form 2,500 to nearly 6,000 acres, and royalty rates 
are either 12.5% or 16.67%. 1
---------------------------------------------------------------------------
    \1\ U.S. Library of Congress. Congressional Research Service. 
Royalty Relief for U.S. Deepwater Oil and Gas Leases. CRS Report 
RS22567, by Marc Humphries. August 1, 2007.
---------------------------------------------------------------------------
    These mineral rents are an attempt to capture the returns to the 
land above and beyond the returns paid to labor (wages), capital 
(interest), entrepreneurship (profits), and other factors, and above 
any taxes that have to be paid to government. With perfect knowledge 
and no risks, for example, the rents resulting from mineral lands could 
be captured by the landowner as up-front payments--as the price of the 
mineral rights, for example. However, mineral production, like all 
business, is risky; it is difficult to know in advance of production 
precisely the quantity and quality of the mineral, or the market price 
that it will sell for in the future. There are long lead times between 
exploration, discovery, and actual production, and it is difficult to 
project what mineral prices will be upon production and sale. These and 
other uncertainties make it risky for both the producer and landowner 
to predict up front what rents would be earned by mineral lands, and 
therefore what the mineral producer should pay the landowner. In 
general, the precise division between a royalty or bonus bids and 
annual rentals depends primarily upon how production risk is shared 
between landowner and mineral producer. The royalty becomes a way of 
allowing for mineral land rents to be paid, for the landowner to earn a 
return on the land, in a way that simultaneously minimizes the risk of 
either overpayment or under payment. As a land rental, then, an ad 
valorem royalty protects the mineral producer against excessive royalty 
payments (overestimation of rents) and the government against 
underestimation of economic rents.
    Being a factor payment, then, a royalty is not a tax, which is a 
compulsory levy on individuals and businesses to finance the cost of 
government for the common welfare and not a return to a factor of 
production in exchange for specific services provided. This is an 
important point, one that might be used, for example, to argue against 
proposals to impose a royalty based on net profits, which would make 
the royalty more of an income tax rather than a factor payment. 
2
---------------------------------------------------------------------------
    \2\ There are examples of profit sharing, instead of revenue 
sharing, such as in the movie business. But these reflect the reality 
that the return to labor (wages) could be paid in different forms.
---------------------------------------------------------------------------
WHAT WOULD BE THE STRUCTURE OF AN ECONOMICALLY EFFICIENT (AND FAIR) 
        ROYALTY ON HARD ROCK MINERALS FROM PUBLIC DOMAIN LANDS?
    As a type of rent, then, the type of royalty that most closely is 
intended to capture the rents from mineral lands whose future 
productivity cannot be precisely determined due to risk--variability in 
price, unknown quality and quality of mineral, etc.--is the ad valorem 
royalty. Under such a royalty, all of the rental payments are made in 
installments over the life of the mine, rather than partially up front, 
and the rent amounts are based on the amount of the mineral produced, 
and the market value or price of the mineral at the mine. Lands 
producing minerals of higher quality and value, gold for instance, pay 
a higher royalty amount; those producing lower quality or value 
minerals, lead for example, pay a lower amount. The economic concept of 
a royalty as a factor payment implies that the payment should be based 
on the market value of the producer's output, whether it be hard rock 
minerals, coal, or oil and gas. It would be inconsistent with the 
concept of sharing and with the concept of a factor payment in a 
competitive market for a royalty to be based on other than market value 
minus the costs of obtaining it. For example, if instead of payments in 
kind (deer or crops or precious metals) the landowner were to be paid 
in money, one would expect him to receive the monetary equivalent of 
the value of the output. Rational landowners would not settle for less 
than what the deer, crop, or metal is worth because they could always 
have the deer, crop, or metals taken to market and sold for at least 
market value. If they wanted less rent, then presumably that would have 
been negotiated as a smaller share (instead of 1 deer out of 5, it 
would perhaps be 1 out of 6). Likewise it would not be rational for the 
renter to pay to the landowner a royalty based on more than market 
value.
    In addition, assessing the royalty on value as determined under 
present federal income tax laws means that the industry compliance and 
government administration apparatus would already be in place. Under 
H.R. 2262, the proposed 8% ad valorem royalty would be applied to a 
base called the ``net smelter return,'' which is defined as the gross 
income from the property for purposes of determining percentage 
depletion allowance under IRCSec. 613(c), one of the tax preferences or 
subsidies available to the mining industry under the federal income tax 
laws. Under IRCSec. 613, mining companies are allowed percentage 
depletion, at varying rates, based on the gross income from the 
property. Under IRCSec. 613(c), gross income for depletion purposes is 
generally defined as ``the actual price for which the ore or mineral is 
sold where the taxpayer sells the ore or mineral as it emerges from the 
mine before application of any processes other than a mining process or 
any transportation, or after application of only mining processes, 
including mining transportation.'' Thus, gross income allows deductions 
for any costs of non-mining processes but does not allow for deductions 
for the costs of mining processes, the idea being to arrive at a price 
or value of the mineral as close to the mine mouth as possible. 
However, in the event that the firm applies non-mining processes before 
the mineral is sold, so that the price is not available, then IRS 
regulations Sec. 1.613-4 stipulate the use of the representative market 
or field price (RMFP, basically the first sales price less all non-
mining costs) as an approximation to the actual price. Finally, if an 
RMFP is not determinable, regulations stipulate one of various other 
methods to estimate the mine mouth price.
    Thus, conceptually, not only is the tax concept of gross income 
consistent with the concept of mine value or price for purposes of the 
ad valorem royalty, it facilitates royalty compliance and 
administration.

WHAT WOULD BE THE APPROPRIATE ROYALTY RATE?
    With regard to the specific royalty rate, economic theory is less 
clear beyond the implication that the royalty rate determined in the 
competitive marketplace is generally the most economically efficient 
rate--the rate that is most likely to maximize social welfare. In the 
case of privately owned mineral lands, markets already exist that 
determine the royalty type and rate for a wide variety of minerals. In 
most types of private royalty arrangements in the early 1990s (the 
latest data readily available), the most common type of royalty was the 
ad valorem royalty at rates ranging from 2-8%, with an average rate of 
5%. 3 In the case of publicly owned lands, laws determine 
the return on the resources, although competitive market rates may be a 
determining factor in establishing such rates. Most states with mineral 
resources imposed ad valorem royalties at rates ranging from 2-10%. 
4 For leasable energy minerals on federal lands, the 
statutory royalty rates range from 5%-16.67%. For oil and gas, the 
royalty rate is either a 1/8 (12.5%) or 1/6 (16.67%) share of the price 
of the mineral, depending upon whether the oil or gas is shallow (1/6 
share because costs are lower) or deep (a 1/8 share because costs are 
higher). On some leases, the rate could be higher than 1/6. Also, the 
royalty could be paid ``in-kind'' (either a 1/8 or 1/6 share of the 
output rather than of the price). For coal, the royalty rate is either 
12% (surface mines) or 8% (underground mines). Note that the 8% ad 
valorem rate proposed in H.R. 2262 is the same as the royalty rate on 
underground coal mines. Even for hardrock minerals on acquired lands 
(as opposed to public domain lands, which are governed by the 1872 
Mining Law), the Congress has established an ad valorem royalty rate of 
5%. 5 Finally, in international lease transactions, mineral 
royalties are predominantly of the ad valorem type with rates ranging 
typically from 2-12%, depending on the country, and the mineral type. 
6
---------------------------------------------------------------------------
    \3\ U.S. Department of the Interior. Economic Implications of A 
Royalty System for Hardrock Minerals. August 16, 1993.
    \4\ U.S. General Accounting Office. Mineral Royalties: Royalty in 
the Western States and in Major Mineral Producing Countries. GAO/RCED-
93-109. March 1993.
    \5\ U.S. Department of the Interior. Minerals Management Service. 
Mineral Revenues 2000: Report on Receipts from Federal and American 
Indian Leases. p.134.
    \6\ Otto, Andres, Cawood, Doggett, Guj, Stermole, Stermole, and 
Tilton. Mining Royalties: A Global Study of Their Impact on Investors, 
Government, and Civil Society. The World Bank. 2006.
---------------------------------------------------------------------------
THE FEDERAL TAX TREATMENT OF THE HARD ROCK MINING INDUSTRY
    The U.S. hard rock minerals industry is, in general, subject to the 
same income tax laws which apply to all other for-profit businesses. In 
addition, there are three special tax preferences available to the 
hardrock mining industry generally, as well as to coal mining. First, 
mining firms are permitted to expense (to deduct in the year paid or 
incurred) rather than capitalize (i.e., recover such costs through 
depletion or depreciation) certain exploration and development (E&D) 
costs; second, mining firms are also permitted to claim an allowance 
for depletion based on a fixed percentage of the ``gross income''--
i.e., sales revenue--from the sale of the mineral rather than on the 
basis of the actual investment in the mine. For hard rock minerals, 
these percentages range from 5% (for clay, sand, gravel, stone, etc.) 
to 22% (for sulfur, uranium, asbestos, lead, etc.). Metal mines 
generally qualify for a 14% depletion, except for gold, silver, copper, 
and iron ore, which qualify for a 15% depletion allowance. Under this 
method, total deductions typically exceed the capital invested. In 
addition to these two tax subsidies (which are also available for oil 
and gas production), mining qualifies for a third subsidy. Under IRC 
Sec. 468, mining companies are allowed to deduct the costs of mine 
closing and land reclamation in advance of the actual closing and 
reclamation, i.e., before the occurrence of the activity giving rise to 
the expenses. This provision is contrary to the general tax rule under 
both the cash method of accounting and the accrual method of 
accounting, which state that expenses to be incurred in the future 
cannot be deducted currently.
    These special tax preferences or subsidies, combined with 
accelerated depreciation (a significant tax benefit for highly capital 
intensive business such as hard rock mining) have historically resulted 
in relatively low effective average and marginal tax rates. Thus, firms 
that mine hard rock minerals on public domain lands pay no royalty, and 
benefit from fairly significant tax subsidies. In addition to reducing 
federal tax revenues, from an economic point of view, these subsidies 
have further distorted the economy's allocation of resources. H.R. 2262 
does not address the tax subsidies, and the question of whether to 
impose a royalty is independent of whether to continue to provide or 
whether to reduce or eliminate these tax subsidies. It is fair to say 
there is no economic justification, absent a market failure, and based 
on efficiency considerations, for not assessing competitive market 
royalty rate on locatable minerals on public lands. 7 While 
the royalty question and tax subsidies are separate policy issues, if a 
royalty is imposed, then the percentage depletion deduction would be 
reduced. This is because, under IRCSec. 613, royalties and rents are 
deductible against percentage depletion. To illustrate, at a 22% 
percentage depletion deduction, and an 8% royalty, the effective 
percentage depletion deduction would be 20.24%; at a 15% percentage 
depletion deduction, and an 8% royalty, the effective percentage 
depletion deduction would be 13.8%. Also, it should be noted that 
royalties are a tax deductible expense, a cost of doing business, 
against income, which reduces the effective burden of the royalty.
---------------------------------------------------------------------------
    \7\ Arguments have been made for royalty forgiveness and tax 
subsidies based on national security. These non-economic considerations 
are not addressed in this statement.
---------------------------------------------------------------------------
FEES PAID BY THE HARD ROCK MINING INDUSTRY
    Finally, mining companies pay a variety of claims fees (location 
fees, Bureau of Land Management processing fees, annual maintenance 
fees). These are charges for specific type of administrative services 
provided by the BLM. In cases where the title to the lands are 
conveyed, patent fees (improvement fees and purchase fees) also apply.
                                 ______
                                 
    Mr. Costa. We appreciate that. I am sure there will be 
questions, and you are almost within the time limit.
    The Chair would now recognize the next witness, Mr. James 
Otto, who will testify for five minutes.

        STATEMENT OF JAMES OTTO, INDEPENDENT CONSULTANT

    Mr. Otto. Thank you very much for the opportunity to 
present my views here today. I am appearing here as a private 
citizen, and expressing my own views, and not those of any 
company----
    Mr. Costa. You might speak a little closer to the 
microphone, please.
    Mr. Otto. I have been active in this area for about 25 
years, working with many countries around the world on mining 
tax return and mining law reform. I have been the lead 
consultant in tax reform efforts in many of the major mining 
countries of the world, including places like Australia, 
Indonesia, Mongolia, Papua New Guinea, Philippines, Canada.
    You mentioned a report by the World Bank earlier. I was the 
lead author of the book ``Mining Royalties.'' What I am going 
to try to do in five minutes is talk a little bit about 
international practice and how that might apply here in the 
United States. One of the things I can say is determination of 
a royalty and royalty method is not rocket science. There are a 
lot of good examples out there. If you get it right, it can be 
a win/win for both industry and government, but if you get it 
wrong, it can cost the treasury and it can pretty much close 
down an industry.
    One of the key questions is should the U.S.A. have a 
royalty on minerals, and as we look around the world today, 
almost every country that produces minerals does have a royalty 
with one or two exceptions, and those countries are now 
considering imposing a royalty. So in terms of international 
competitiveness, the mere existence or lack of a royalty isn't 
going to have that much impact. It is the royalty of the type 
that the industry can sustain or not.
    What is the rationale behind a royalty? Well, we had one 
explanation. Another way of thinking about it is an ownership 
transfer tax. It is the amount that is paid irregardless of 
profitability to the owner of the mineral as it is transferred 
from the public to the private sector.
    Another way of looking at it is that it is a usage fee, a 
licensing fee, a fee that is paid for the right to mine, and 
this is often used in countries where the ownership of the 
mineral may not reside with the state as we might have in 
perfected claims here in the U.S.
    But the general rationale or the main rationale most 
countries have royalties is to provide income to the treasury, 
and this could be to the general budget or earmarked, as it is 
in this bill for certain purposes.
    Should royalties be different for different types of 
minerals? Well, as we look around the world today, many 
countries do come up with separate types of royalties for 
different types of minerals and the royalty is designed mineral 
by mineral. However, in many other countries this turns out to 
be a bit complex on the administration side, and for a variety 
of other reasons it can be very difficult to implement, for 
example, where you have a concentrate that may contain four or 
five or more minerals, how to value the royalty if you have 
different rates for each of the minerals contained in that 
concentrate.
    The clear trend today is for a more uniform approach where 
you might have three or four different categories of minerals, 
each with a different royalty rate being applied to it in a 
different calculation basis.
    My advice to most governments today is to aim for a more or 
less uniform system of royalties applying to all minerals with 
the except of construction minerals and perhaps coal, which may 
be more amenable to a unit-based royalty rather than a value-
based royalty.
    How should royalty be calculated? While there are a number 
of different approaches that are used, all can be used 
successfully. The simplest is a simple amount, a fee per unit 
volume or unit weight, as in construction minerals and coal in 
many countries. Another approach is a percent of value, an ad 
valorem. This is the most common type of royalty and the one 
that is advocated in the current bill. A third type is one that 
is based on some measure of profitability, and those are the 
most difficult to apply in practice, and aside from a few 
countries like Canada, one state in Australia, Nevada, most 
countries shy away from this as being not beneficial to the 
government.
    The type of royalty proposed in the bill is called a net 
smelter royalty. I don't believe there is anyone in industry or 
in government that assesses a net smelter royalty who would 
call what is in the current bill a net smelter royalty. So you 
ought to think perhaps about that, redefining that.
    Finally, I would like to say that the current mining law is 
badly out of date. It suffers from a host of problems, and one 
of the problems is it doesn't lay the groundwork for a social 
license to operate, and by this I mean acceptance by our 
society that the mining industry plays a positive role in our 
well-being. The public perceives the industry as highly 
polluting, causing a proliferation of abandoned eye sores, 
putting workers at risk, and contributing little to national or 
the local economy.
    Today, most communities view a proposed mine not as an 
engine for economic growth, but an industry that must be kept 
out of their back yard. The imposition of a royalty, especially 
when revenues are earmarked for reclamation and local 
investment, may help to regain the industry's social license to 
operate.
    Thank you.
    [The prepared statement of Mr. Otto follows:]

         Statement of James M. Otto, Independent Consultant on 
                    Mining Law, Policy and Economics

    Thank you for the opportunity to present my views concerning the 
issue of royalty considerations to be taken into account with regard to 
H.R. 2262, the Hardrock Mining and Reclamation Act of 2007.
    I appear here today as a private citizen, expressing my own views, 
and not representing any group. I have worked on mining policy, law and 
fiscal issues for twenty five years. I have assisted many governments 
in the development of their mining policies, laws, agreements and 
fiscal systems including many of the world's most important mining 
nations. Examples of my recent mining taxation related work includes: 
lead consultant to the Treasury on the bill to introduce royalties in 
South Africa, mining sector fiscal analysis for the Peruvian government 
prior to the introduction of royalty, analysis of the mining fiscal 
systems including royalty in Australia, Bolivia, Egypt, Indonesia, 
Mongolia, Mozambique, Papua New Guinea, Philippines, Saudi Arabia, 
Yemen, Zambia, and others. In some cases my mining taxation work is 
funded directly by the concerned government, other times by multi-
lateral agencies like the World Bank, IFC or United Nations, and 
occasionally by the private sector. My books on the subject of mining 
laws and mine taxation are considered by some as standard references. 
My most recent co-authored book is titled Mining Royalties and it has 
been distributed by the World Bank to most mining and finance 
ministries and departments worldwide.
    In my work for governments who are undertaking mineral sector 
fiscal reform, I advise that when designing a tax system, policy-makers 
should be aware of the integrated impact that all taxes, royalties and 
fees can have on mine economics and potential levels of future 
investment. When determining which types and levels of taxes to apply 
to the mining sector, policymakers should consider not only ways to 
achieve individual tax objectives (such as reclamation and community 
benefits in H.R. 2262), but also take into account the cumulative 
impact of all taxes. Such awareness should recognize the importance of 
each tax type in achieving specific objectives. The overall tax system 
should be equitable to both the nation and the investor and be globally 
competitive.

Should the U.S.A. impose a royalty on locatable minerals?
    Most nations impose some form of royalty on minerals when the 
nation is the owner of the mineral. There are very few exceptions and 
over the past few years some countries that previously had no royalty 
now either have one or are planning to introduce one. Almost all new or 
recently amended mining laws include a royalty provision. The rationale 
for a royalty varies from country to country. In some, it is perceived 
as a form of ownership transfer tax, where the nation is provided a 
fiscal payment as the mineral moves from national ownership into 
private ownership. In other nations, it is justified as a form of usage 
fee--the royalty is considered as the regulatory fee paid in exchange 
for the ``right to mine'' in much the same way as a driver pays an 
annual registration fee to register and use a car on public roads. In 
this later case, questions about minerals ownership are mute which may 
be an important factor in the U.S.A. where for perfected claims 
minerals may no longer belong to the government. Regardless of the 
rationale, the primary reason behind imposing a royalty in most nations 
is to increase the amount of money flowing to the government, either to 
the general budget or for earmarked purposes. Most nations impose 
royalty and it is time for the U.S.A. to do so also.

Should royalties differ for different minerals?
    There are many different types of minerals and their extraction 
costs, prices received and profit margins may differ substantially. For 
example, the average gold mine probably has a higher profit potential 
over the long run than an average copper mine. Should not the royalty 
for gold thus be higher than for copper? Many nations do discriminate 
between mineral types. In some nations like India and Indonesia, long 
lists of minerals appear in their laws along with separate rates or 
amounts for each mineral type. Other nations classify minerals into 
groups and apply a different royalty to each mineral group. Still 
others apply a uniform system regardless of the mineral type. In my 
visits with tax authorities in many nations, those responsible for tax 
collection almost invariably prefer a uniform system, with the one 
exception being construction minerals. There are a variety of reasons 
for this, and I will illustrate two reasons. Many mines produce one or 
more multi-metal concentrates. For example, a zinc concentrate may 
contain recoverable amounts of zinc, lead, silver, and gold. If 
different royalties apply to each mineral, how can the amount of 
royalty be calculated? A second reason to avoid royalty discrimination 
between mineral types is that it invariably leads to sustained efforts 
by producers of one mineral type to lobby for a reduction in their rate 
to the lowest rate on any other mineral so that there is a ``level 
playing field.'' My advice to most governments is to have a uniform 
royalty approach to all minerals, with the exception of construction 
type minerals and perhaps coal.

How should the royalty be calculated?
    In its simplest forms, the royalty tax liability is calculated 
based either on a set amount per unit volume ($/cubic foot) or per unit 
weight ($/ton), or is based on a percentage of the value of the mineral 
commodity being extracted or sold (% x value). In the first instance, 
unit based royalties, the determination of the royalty liability is 
straight forward being solely dependent on the physical quantity or 
volume of the material produced but in the second case, value-based 
royalties, the assessment is more difficult because a value must be 
assigned to the commodity being sold. A third and more complex method 
relies on some measure of net profit where a measure of sales revenue 
is reduced by the deduction of certain allowable production and other 
costs to determine a net profit subject to a royalty rate (% x net 
profit). The advantage to government of unit and value based royalties 
is that they are fairly straight forward to calculate and pose fewer 
opportunities for tax minimization strategies. Their weakness is that 
low profit mines will have the same royalty basis as high profit mines, 
and this may impact them with regard to decisions about mine life, ore 
cut-off grade, and whether to continue operations when prices are low. 
Most Canadian provinces levy a form of net profits royalty, as do a few 
other jurisdictions including Nevada. In my experience, when a country 
is considering royalty reform, companies will argue strongly for a net 
profits type of royalty. However, most governments apply royalties 
based on units and/or on value. Unit based royalties are in common use 
mainly for construction minerals and sometimes coal but are less often 
applied to most other minerals.
    Determining the value of the commodity for a value based royalty is 
not always straight forward. Different commodities each pose their own 
special problems and a nation may use several different valuation 
methods. Not only will different commodities often be valued by 
different methods but even a single commodity may pose assessment 
challenges depending on the state to which it has been processed. For 
example, take the following situation. A copper deposit is located 
which contains some ore suitable for recovery by smelting and some 
which is recoverable by leaching. The mine management determines that 
three products will be produced for sale: raw ore, a copper 
concentrate, and from an electro-winning plant, copper metal. The three 
copper products will obviously command very different sales values in 
the market. How should the three sales products be valued for royalty 
purposes? I usually advise nations that when devising a value based 
royalty to use a sales invoice (gross proceeds) based system for most 
minerals or a net smelter return system. The later reflects the value 
of the mineral after deducting certain allowed costs (such as the 
transport costs of the mineral to a third party facility that processes 
the mineral to a higher valued state and the charges associated with 
that processing).

If a value based royalty (such as net smelter return) is used, what 
        royalty rate should apply?
    This is a difficult question. For marginally economic mines, any 
royalty may result in them becoming sub-economic leading to closure. 
For highly profitable mines, a low rate may see the government 
needlessly forgoing revenue. The key is to achieve a royalty that most 
mines can bear and still make reasonable profits. The experience of 
many nations has been that for most minerals a royalty rate of between 
2 and 5% of mineral value (gross proceeds or net smelter return) works 
well. Rates higher than this may over the long run result in lower 
income tax and royalty yields because fewer new mines will meet minimum 
rate of return decision criteria and some will not be built (the income 
tax base will be smaller). Additionally, capital may flow to lower 
taxing jurisdictions. The draft bill imposes an NSR of 8%, one of the 
highest value based royalty rates that I have encountered in my work. 
Is this rate too high? I am unable to offer a firm opinion on that 
without further study, and the main reason is another feature of the 
U.S. tax system--the depletion allowance. Very few nations have a 
depletion allowance for mineral production. Such an allowance is viewed 
by most nations as a form of negative/reverse royalty and most nations 
have rejected this concept. In most nations, the concept of a royalty 
is that payments should be made to government as non-renewable minerals 
are mined. Conversely, a depletion allowance allows an income tax 
deduction as non-renewable minerals are mined. Thus, over the life of a 
mine the impact of a high royalty is offset to some extent by lowering 
income tax through a depletion allowance (assuming that most mines pay 
income tax). Even given the depletion allowance there is a strong 
argument in favor of a royalty rate less than 8%. While taxpayers with 
multiple operations may be able to take advantage of depletion 
allowances in most years because they are taxed on income from all 
operations, the taxpayer with a single mine will not enjoy the benefits 
of depletion during the early years of the project when it already has 
substantial other deductions or when its taxable income falls to zero 
because of low commodity prices. An 8% gross value type royalty will 
have a major impact on independent mines. If the U.S.A. did not offer a 
depletion allowance, I would certainly counsel that a net smelter 
royalty should be set in the 3 to 5 percent range.

Will a royalty put U.S.A. producers at a disadvantage to producers in 
        other nations?
    Any increased cost, such as a royalty, puts a U.S.A. producer in a 
worse off position to compete. Increased costs may discourage 
investment into the sector both by U.S. and foreign firms. However, 
almost all nations have royalty. In my advice to governments, I urge 
policy makers to take into account the complete tax system when 
considering a change in any part of it. It is the impact of the tax 
system as a whole that will determine whether most mines are able to 
operate profitably, and with sufficient profits to reinvest in new 
exploration to replace reserves. In extensive studies by myself and by 
the International Monetary Fund it has been determined that many 
mineral producing nations impose a fiscal system on mines that results 
in a total effective tax rate (ETR) in the range of 40 to 50%. ETR is 
simply the amount of all taxes and fees paid to government divided by 
before tax profit, calculated over the life of the mine. In my mining 
fiscal studies for other nations, I typically use a cashflow 
spreadsheet for one or more model mine and build in all the various 
taxes and fees and incentives. The model then calculates the ETR and 
the investor's rate of return. Such models are very useful to assist 
lawmakers in understanding the impact on a typical mine of various 
royalty rates in times of high and low commodity prices. They also 
allow a better understanding of the ways that the tax system works in a 
holistic way. For example, to what extent does the depletion allowance 
offset the impacts of a high royalty? To what extent does the ability 
to deduct a royalty from income subject to income tax affect profits? I 
don't know if such modeling has been done to assist in setting the 
proposed 8% rate. If this rate is contentious, I suggest that such 
modeling may be a useful tool for lawmakers to have so as to understand 
whether the rate is reasonable. Taken alone without reference to the 
rest of the tax system, it will be one the world's highest NSR 
royalties.

Transfer pricing
    Transfer pricing is a major and growing concern with regard to 
royalty, more so than with income tax. The term transfer pricing refers 
to a practice where the mine product is sold to an affiliated company 
at a price less than the product would have been sold to an 
unaffiliated party. It in effect transfers profit from one tax entity 
to another. If a royalty is based on some measure of sales value (such 
as an NSR) this is a concern. The industry is consolidating, and sales 
between affiliated companies is common. In mining laws and agreements 
that I have recently drafted I strive to reduce the potential for 
transfer pricing with regard to royalty. For example, I may require 
special reporting of any sale to an affiliate, with affiliate being 
defined much more aggressively than in the draft bill (for example a 
10% ownership interest test, rather than a just a control test). The 
bill lacks provisions requiring ``arms length sales'' practices. 
Perhaps it is intended that such provisions will be provided in rules, 
or perhaps this is addressed through provisions in other laws. If not, 
consideration might be given to adding additional provisions to the 
royalty section to reduce transfer pricing.

Royalty relief
    Minerals prices are notoriously cyclical, more so than the prices 
for many other goods. The result is that high cost producers may and 
often do become unprofitable during periods of low prices. Royalty is a 
cost and if based on value, that cost will be incurred regardless of 
profitability. More marginal mines will close, perhaps permanently, in 
low price times because of royalty. This is the nature of the market 
system--low cost producers survive, high cost producers do not. Some 
nations provide a statutory means whereby royalty may be waived for a 
time to allow a mine to stay open during a price downturn. The impact 
from closing a large mine can be hard on local communities, and can in 
the long run lessen overall fiscal revenues. The key issues in such a 
statutory provision are: who has the authority to grant a waiver or 
deferment, what criteria must be met to qualify, and how long should 
the waver/deferment be for. In my opinion, such relief should not be 
offered. When prices turn down, many mines will apply for relief 
creating an administrative burden and when prices turn back up, 
pressure will be brought to continue the waiver. Such royalty relief is 
becoming less available in other nations and most countries don't allow 
it.

Concluding remarks
    The current mining law is badly out of date. It suffers from a host 
of problems and among these is that it does not lay the groundwork for 
``a social licence to operate.'' By this I mean the acceptance by our 
society that the mining industry plays a positive role in our well-
being. The public perceives the industry as highly polluting, causing a 
proliferation of abandoned eye-sores, putting workers at high risk, and 
contributing little to the national or local economy. Today, many 
communities view a proposed mine not as an engine for economic growth, 
but an industry that must be kept out of their back yard. The 
imposition of a royalty, especially one where revenues are earmarked 
for reclamation and local investment, may help to regain the industry's 
social licence to operate. Since 1990, over 100 nations have replaced 
or made major amendments to their mining laws. It is time for the 
U.S.A. to do the same.
                                 ______
                                 
    Mr. Costa. Thank you very much, Mr. Otto, and we will look 
forward to asking questions that reflect your testimony, and 
our last witness on this panel but certainly not the least is 
Mr. Cress who has a great deal of expertise that he brings to 
the subject matter, and we look forward to your testimony. 
Please begin.

            STATEMENT OF JAMES F. CRESS, ATTORNEY, 
                   HOLME ROBERTS & OWENS LLP

    Mr. Cress. Thank you, Mr. Chairman and Members of the 
Subcommittee. I appreciate the opportunity to appear before you 
to discuss the important issue of mining royalties.
    My background is as a lawyer in private practice. I am a 
mining lawyer. In my practice, I have negotiated royalties for 
all kinds of minerals on behalf of mineral companies, and 
landowners, and I have also got some experience negotiating 
with foreign governments. So that is where I am coming from on 
this issue. I would ask that you include my written testimony 
in the record, but I will just summarize some of the high 
points.
    Mr. Costa. Without objection, it will obviously be 
submitted.
    Mr. Cress. Thank you, Mr. Chairman.
    One thing that we often hear is a comparison between 
hardrock minerals and the royalty on coal and oil and gas. I 
will just take coal as an example. There are significant 
differences between hardrock minerals and coal that explain why 
royalties in a different amount can be imposed on them.
    Coal is a generally uniform substance that is essentially 
crushed and sized and sent to market. Metals are highly 
complex, how they were found in the ground generally in lava 
flows frozen in rock, if you wish, require extremely difficult 
methods of processing to extract the metal from the ore, and 
the difference in the concentration of those metals in the rock 
makes all kinds of operational difficulties and challenges that 
a royalty needs to address.
    The other thing that is completely different is the 
commodity markets in which they operate. The western coal mines 
on which a 12 percent royalty was imposed for surface mining 
had the ability to contract for long-term contracts, 20 years 
in some cases or greater. That provided the certainty necessary 
to build those mines, and in addition to that the leases that 
were in effect at the time did not have the 12 percent royalty 
and it was phased in over a period of up to 20 years.
    At the same time the economics of transportation improved 
and the demand for the low sulfur western coal increased, so 
you might say they dodged a bullet in that sense, and those 
rich deposits of coal can bear that kind of gross royalty.
    Hardrock minerals need to be treated with a little more 
precision, I would say. A gross royalty is really not a fair 
measure of the value of the minerals in the Federal lands. 
Gross royalties can have extreme impacts on the development of 
a mine and the operation of a mine, and in fact, it can be 
inconsistent with the principle of sustainable development 
because once a mine is open and operating, if the price of the 
commodity dips below what is necessary to keep that mine 
operating, the mine may close and the rest of that mineral 
deposit may be lost. So you need a little more nuance in your 
royalty.
    The H.R. 2262 royalty is really a gross royalty. The 
definition that was incorporated by reference from the tax code 
is a gross income from mining definition, and it is not truly a 
net smelter royalty as that term is used in leases and other 
industry agreements that I have negotiated.
    If mining companies do use net smelter return royalties in 
private negotiations, but you shouldn't leap to the conclusion 
that that is an appropriate burden for all Federal lands, and 
the reason for that is the way the industry is structured and 
also the way that, you know, the task before you, which is to 
impose one levy on all Federal lands. You need to be able to 
encourage exploration for hardrock minerals. They are extremely 
hard to find, even more hard to find in a mature company like 
the United States, which has been explored. So you need to 
allow sufficient--put a burden on that is appropriate and that 
allows for explorationists to go out and find those minerals. 
They need to be paid too, and they are often paid in the form 
of an overriding royalty based on production.
    So if the government takes too large a share, there will 
not be any share left, if you will, for the persons who find 
the minerals that are produced.
    I am only aware of a single royalty that is as high as the 
royalty proposed in the bill, just one in my 20 years of 
practice. An eight percent gross royalty would really be 
ruinous, and you should consider a net approach which takes 
into account the differences between minerals and can be used 
to impose not too high a burden on any given mineral.
    I would be happy to answer any questions that you have. 
Thank you.
    [The prepared statement of Mr. Cress follows:]

           Statement of James F. Cress, Holme Roberts & Owen

    Mr. Chairman and members of the Subcommittee,
    My name is Jim Cress, and I am testifying today as a mining lawyer 
in private practice on the subject of mining royalties. I am a partner 
at Holme Roberts & Owen, a 109-year old law firm that represented 
miners in Colorado in the late 1800's and today represents mining 
companies around the globe. I have specialized for nearly 20 years in 
U.S. and international mining law, as well as oil and gas and coal law. 
I have represented mining companies and landowners in negotiating 
royalties for gold, silver, copper, coal, uranium, oil and gas and 
other minerals, and have advised clients on royalty compliance for 
private, federal and state royalties and severance taxes. In my 
international practice, I have negotiated royalty and tax sharing 
agreements with governments from Asia to the Americas. I have taught in 
the Graduate Studies program in Natural Resources and Environmental law 
at the University of Denver Sturm College of Law, am a contributing 
author to the Rocky Mountain Mineral Law Foundation's American Law of 
Mining treatise, and am the former Chair of the Mineral Law Section of 
the Colorado Bar Association. Thank you for the opportunity to appear 
and speak on the important issue of hardrock mining royalties.

 The H.R. 2262 Royalty is a gross royalty, not a ``net smelter 
        return,'' and is not an appropriate measure of fair value for 
        mining on federal lands.
    This hearing focuses on the royalty provisions of H.R. 2262. 
Section 102(a)(1) of H.R. 2262 provides for a royalty of 8 percent of 
the ``net smelter return'' from production from federal mining claims. 
The term ``net smelter return'' is defined in Section 102(i) as ``gross 
income'' as defined in Section 613(c)(1) of the Internal Revenue Code 
of 1986. This provision is used to define the depletion allowance under 
the tax code, and was not intended to capture a fair return for 
minerals mined from federal lands.
    Let's call a spade a spade: the H.R. 2262 royalty is a gross 
royalty, not a net royalty. The use of the term ``net smelter return'' 
in the bill is actually misleading, because this royalty is not a ``net 
smelter return'' royalty as customarily used in the mining industry.
    A customary ``net smelter return'' royalty in the mining industry 
permits the deduction of the costs of smelting (and sometimes costs of 
leaching and other non-smelting processing methods), refining, 
transportation from the mine to smelter, transportation from refinery 
to market, as well as deduction of taxes paid to the government and 
royalties paid to landowners. The deduction of post-mining costs such 
as smelting and refining is, in fact, the hallmark of this type of 
royalty (thus the name ``net smelter return'').
    The term ``gross income from mining'' under Section 613(c)(1) of 
the Internal Revenue Code is designed to capture the gross value of the 
mineral after the mining processes end and non-mining processing begin, 
contrary to the industry definition of ``net smelter return.'' The 
intent of this provision of the tax code is to prevent mining companies 
from claiming a depletion allowance on the value added by the non-
mining operations such as smelting and refining operations. Thus, the 
customary deductions for smelting, refining and other costs under an 
industry ``net smelter return'' royalty are actually prohibited under 
Section 613(c)(1). The result is essentially a gross royalty. A gross 
royalty is a blunt axe approach to royalty valuation that ignores the 
comparative value of the federal land base and the value added by 
subsequent beneficiation and processing of mineral products, and makes 
little sense in the context of hardrock mineral economics.

 A gross royalty is not a fair measure of the value of hardrock 
        minerals in federal lands
    Any royalty payment to the United States for hardrock minerals 
should be based on the value of the United States' ownership interest 
in the land. That interest is limited to the minerals in the ground, 
and it cannot justifiably be extended to require a royalty to be paid 
on values added to the minerals after mining, by the mining company 
processing, refining and selling the mineral products. The United 
States makes available land, and any minerals in the land for 
development, but the United States contributes nothing to the costs and 
effort of producing and processing the minerals.
    Gross royalties are inconsistent with the principle of sustainable 
development. A gross royalty reduces the volume of an ore deposit that 
can be recovered. Each deposit of metallic minerals will have varying 
grades of mineral, generally requiring extensive concentration and 
refining to be marketable. The portion of the deposit with grades too 
low to be recovered economically is either removed as waste or left 
undisturbed in the ground. Adding costs such as royalties raises the 
``cutoff point'' between recoverable ore and waste, shortening the life 
of a mine by causing what otherwise would be valuable minerals below 
the cutoff point to be lost. These lost reserves generally can never be 
recovered, because once the mine is reclaimed, it is uneconomic to 
recover them.
    If mining costs can't be deducted, a mining company would have to 
pay the royalty regardless of how high those costs may be for difficult 
mining situations or for low grade ores. This would require a mining 
company to continue paying a royalty even when it is operating at a 
loss, and that royalty could even cause the loss. No mine can be 
operated long at a loss. The result would be that some mines would shut 
down prematurely, creating loss of jobs, federal state and local taxes 
not paid, and suppliers of goods and services suffer. The result is 
lost economic vitality affecting both those directly involved in the 
mining activity and the governmental entities, including the United 
States, that are sustained by those activities.

 Hardrock minerals are different, and should be treated differently 
        than coal and oil and gas
    Why should hardrock minerals not be subject to the 8 percent or 
greater royalty imposed on oil & gas and coal? The dramatically 
different characteristics of the minerals themselves and the ways in 
which they are explored for and developed justifies different 
treatment.
    Oil and gas are fluid and usually collect in sedimentary basins. 
Exploration for oil and gas usually consists of seismic studies to 
detect the type of structures where oil and gas are found. These 
studies are conducted at relatively low cost and usually without the 
need to acquire more than an easement over the property to be explored. 
When a promising prospect is identified leases are acquired, a well is 
drilled and core samples, drill stem tests and logs are taken to 
determine whether the well is successful. The costs of drilling can 
sometimes be quite high, but a single well can also drain a large area 
because of the fluid characteristics of oil and gas. Development of a 
field is usually accomplished through the initial exploratory well and 
one or more development wells that are drilled in locations reasonably 
expected, as a result of the information gathered from seismic studies 
and the initial wells, to draw from the same reservoir. Once a prospect 
has proved successful, identification of the size and shape of the 
reservoir can be conducted with relatively low risk and expense.
    After extraction, oil must be processed and refined before it is 
ultimately consumed as vehicle fuel or other product. The royalty on 
oil produced under federal leases is not based upon the value of these 
refined products, however; it is measured by the value of the crude oil 
at the lease or wellhead, prior to such processing and refining. Unlike 
many other minerals, there is a market for oil in its crude, unrefined 
state and therefore a ready value for royalty purposes before the value 
added by refining and processing. Most oil is sold at the wellhead into 
this crude oil market and that wellhead sales price establishes the 
value of the oil for federal royalty purposes. Thus, it is somewhat 
misleading to call the federal royalty on oil a ``gross'' royalty. 
Because the royalty is typically based on the value of the crude oil 
prior to processing and refining, the royalty is, in essence, ``net'' 
of those costs.
    Similarly, federal royalty on gas is also based upon the value of 
the gas at the lease. After gas is extracted, often the only thing 
required for consumption by the ultimate end-user is transportation 
(the cost of which, if paid by the producer, is deducted before 
royalties are calculated). Sometimes further processing is required to 
remove sulfur and separate gasoline, butane and other constituents from 
the gas. The royalty, however, remains payable on the value of the gas 
at the lease or wellhead and the processing costs incurred by the 
producer downstream of the lease are deducted under the federal rules 
before calculating royalty, to arrive at essentially a ``net'' value at 
the lease.
    Coal is a solid mineral of generally uniform quality and 
composition. In the West, where most federal deposits exist, coal beds 
often consist of vast deposits of great thickness, in Wyoming averaging 
80 feet and up to 200 feet. Little exploration for coal is required, 
and it is relatively easy to determine the quality of the coal and the 
thickness of a seam prior to mining. The western coal miner thus knows 
much about the characteristics of the mineral he has to sell prior to 
actual mining. At the same time, coal mining is an extremely labor and 
capital-intensive enterprise. Because of the need to construct 
facilities, obtain equipment, employ workers, and comply with 
substantial permitting requirements, it can take years to design, 
permit and construct a mine. For these reasons, coal from federal lands 
in the West has often been sold under fixed, long-term contracts 
entered into prior to construction of a mine. Based on the certainty of 
a market provided by these contracts, the coal miner can lease 
sufficient reserves to mine over the life of these long-term contracts 
and make the considerable capital investments required to construct the 
mine. Additionally, many long term coal contracts and state utility 
laws allow for the pass through of the royalty burden to the consumer, 
while no such pass-through is available for many hardrock minerals, 
which are sold and priced in global markets.
    While the 12.5% royalty imposed on coal in 1976 was a considerable 
increase over the coal royalties typical at the time, the royalty did 
not take effect for many federal coal leases until they were 
readjusted, which occurred over a period of 20 years. In the meantime, 
the demand for low-sulfur western coal boomed due to the increasingly 
stringent requirements of the Clean Air Act, and transportation costs 
out of the Powder River Basin decreased, which permitted the large 
surface coal mines developed in Wyoming during this period to bear the 
increased royalty burden, which in any event was generally passed on to 
utilities (and consumers) under long term coal contracts. The higher-
cost coal production in Colorado and North Dakota did not fare as well 
as Wyoming. Colorado's production initially plummeted, and North 
Dakota's fared little better, and only because North Dakota mines are 
associated with mine mouth power plants and because the state made 
efforts to prop up the industry by lowering taxes and discouraging 
import of coal from Wyoming. The higher BTU or heating value and low 
sulfur content of Colorado coal has allowed the market to rebound since 
that time, and to bear the 8% royalty applicable to Colorado's 
underground coal deposits (although some Colorado mines have operated 
under royalty reductions during economic downturns).
    In addition, the federal coal royalty regulations permit the 
deduction of the most material costs, including coal washing where 
required, and transportation. Thus, the federal coal royalty is not a 
gross royalty in the strictest sense.
    Oil and gas and coal are not the only leasable minerals on federal 
lands. Sodium, potash, and phosphate are also leasable minerals. These 
minerals are commonly occurring, low margin industrial and fertilizer 
minerals the economics of which cannot support a 12.5% or even an 8% 
royalty. The statutorily established base rate for phosphate is 5% and 
for sodium and potassium is 2%. That is because the nature of these 
commodities and the economics around their extracting and marketing 
differ from oil and gas and coal. In practice, these mines have 
operated under government-sanctioned reduced royalties during periods 
when economic conditions and foreign competition threatened to close 
the mines.
    These examples demonstrate clearly why prevailing royalties differ 
from mineral to mineral. Specific analyses can be made for many other 
types of minerals. It is clear, however, that application of a gross 
royalty at a rate of 8% to hardrock minerals simply because that is 
what is done with coal and oil and gas would be dangerously naive.
    Hardrock minerals are, by comparison, scarce and hard to find. 
Unlike oil and gas and coal, the size and geometry of a hard rock ore 
deposit, the quality of the ore, the mineral composition, the value of 
the mineral products, the metallurgical processes required, the mining 
methods, the commodity prices and the capital costs all vary for each 
operation. Commercial ore bodies may be found under as little as a few 
acres of land. Exploration is conducted through exploratory drilling 
which gives initial clues regarding the deposit, followed by many 
expensive development drill holes to define a deposit for development. 
Once a prospect is identified, development commences at considerable 
cost, with the capital and labor intensiveness of large coal mines, but 
without the geologic or metallurgical certainty of coal mines nor the 
economic certainty and incentive of long-term coal sales contracts, 
which are not customary for most hard rock minerals. The prices of hard 
rock minerals have historically been subject to great fluctuation. 
Because hardrock deposits were often concentrated by ancient subsurface 
magma flows which have been altered by subsequent faulting, the 
concentration of metals varies considerably over relatively small 
distances, unlike the relatively constant quality of western coal 
deposits. As a result, portions of a hardrock deposit may be economic 
while other portions may contain near- or sub-economic ore that is 
extremely sensitive to the addition of royalty and other burdens. The 
combination of price volatility and the variations in the concentration 
and the chemical and geological characteristics of the minerals within 
an ore body can turn a profitable mine into valueless rock with a 
sudden downturn in the market.
    Hard rock minerals, therefore, require considerably different 
approaches to exploration and extraction than do oil and gas and coal. 
Oil and gas and coal are relatively plentiful, and occur over 
relatively large areas where found. Hardrock minerals are scarce and 
occur in small concentrations, and must be discovered by expending 
considerable money pursuing elusive prospecting clues. The period 
between exploration and extraction for hard minerals is much more 
lengthy than with oil and gas or coal, and since hard minerals prices 
are not stable, the risk of the project becoming uneconomic before 
production begins is substantial. These factors are some of the reasons 
that hard rock mining transactions and agreements are considerably 
different from each other and from those dealing with oil and gas and 
coal. These factors also weigh in favor of a royalty reduction 
provision in the bill, so that site-specific determinations can be made 
to reduce costs and achieve the maximum economic recovery from federal 
mineral deposits.
    While individual royalties for specific commodities would 
theoretically be the best approach, such a system might be too 
difficult to administer. The most reasonable approach given the large 
number of commodities to be covered would be a uniform net royalty that 
permits deduction of mining and processing costs. The Nevada net 
proceeds tax provides a model that has been tested in practice, and you 
should consider a similar approach for federal lands.

 If mining companies use net smelter returns in private negotiations, 
        why shouldn't the government follow that approach if it imposes 
        a royalty?
    A negotiated royalty between private parties is not analogous to 
the federal government's imposition of a royalty on millions of acres 
of unexplored federal lands. Private royalties are negotiated on a case 
by case basis for each property. Usually, the royalty negotiated 
depends on what information is known about the property at the time of 
the negotiation. The less that is known, the lower the royalty.
    An 8% gross royalty for lands not proven to contain a mineral 
deposit is virtually unheard of. I am aware of only one royalty of this 
magnitude in 20 years of practice. In that case, there was a known ore 
body containing millions of ounces of gold on the property when the 
royalty was negotiated and the owner conveyed the mineral rights to the 
surrounding area (measuring roughly 25 miles by 15 miles), free from 
any royalty. Clearly, this is not the typical case on unexplored 
federal land.
    Any particular private royalty is not the proper benchmark for 
setting the federal royalty for tens of millions of acres of federal 
lands. The purpose of the federal royalty is to encourage exploration 
and discovery on lands which are not yet proven to contain mineral 
deposits.
    In privately-negotiated royalties, there are almost as many royalty 
rates and calculations as there are minerals. Each is dependent upon 
the nature of the product that is produced and sold, customs and 
practices in the industry, the strength of the market for the 
particular mineral, the mining cost/processing cost ratio, and many 
other factors. Use of a net royalty for the federal royalty avoids the 
need for extensive, mineral-specific legislation. All mines measure net 
revenues, or profits, and bear determinable operating costs. Therefore, 
a reasonable percentage net proceeds royalty can be applied and achieve 
a reasonable return for the use of federal lands, without 
disproportionate impacts on any particular mineral industry.
    In my experience, other countries are paying considerable attention 
to the appropriate royalty and tax burden to encourage mineral 
exploration and development. The United States has relatively low grade 
deposits of many hardrock minerals, relatively high labor costs, and 
stringent environmental and operating requirements. These must also be 
balanced in determining whether a royalty is necessary on federal 
lands. The United States should not impose a royalty without careful 
consideration of the economic and competitive impacts.

 British Columbia's failed experiment with a ``net smelter returns'' 
        royalty is instructive.
    In 1974, British Columbia enacted the Mineral Royalties Act, which 
imposed royalties on mines located on Crown Lands and the Mineral Land 
Tax Act and subjected owners of private mineral rights to royalties 
equivalent to those applied to Crown Lands. The government imposed a 
net smelter royalty of at 2.5% in 1974, and 5% thereafter.
    The results were devastating for British Columbia mineral 
development. During the period the royalty was in effect, no new mines 
were developed, several marginal mines ceased operations, and non-fuel 
mineral output fell, despite increased prices. As a result, revenue 
collected from royalties on metal mines declined from $28.4 million in 
1974 to $15 million in 1975. During the two year period the royalties 
were in effect, nearly 6,000 mining-related jobs were lost. In 1972, 
$38 million Canadian was spent on exploration expenditures. In 1975, 
exploration expenditures fell to $15.3 million Canadian (a 60% decline) 
while exploration expenditures in the Pacific Northwest--outside 
British Columbia--increased. New mine exploration and development 
spending (excluding coal) decreased from an annual average of $131 
million in the years 1970-1973 to an estimated $20 million in 1975 (an 
85% decline). In 1972, 78,901 new claims were staked. In 1975 the 
number of new claims staked fell to 11,791 (an 85% decline).
    The royalty was repealed in 1976. After the royalty was repealed, 
BC Mine Minister Tom Waterland said that ``[t]he Government's decision 
to introduce royalties in 1974 was the result of inadequate 
understanding of the realities of mineral resource development and the 
economic characteristic of that development..''
    I thank the Subcommittee for the opportunity to address this 
important public lands issue, and I am happy to answer any questions 
you may have.
                                 ______
                                 
    Mr. Costa. Thank you, Mr. Cress, for your testimony.
    In your testimony you indicated that you opposed a gross 
royalty and you take issue as to whether or not the bill as it 
currently is drafted really creates for a net smelter royalty. 
I would like you to be a little more explicit on why you don't 
believe it holds that definition as a net smelter.
    Mr. Cress. The definition that is incorporated by reference 
into the bill is Section 613[c][1] of the tax code, which is a 
definition of gross income from mining. There are a number of 
deductions that you would see in a net smelter return royalty 
that are not present in that section. They may appear in other 
sections of the tax code or in the regulations, but in fact 
really as a matter of drafting the only section referred to is 
613[c][1], which is a two-line section.
    Mr. Costa. This area as it relates to the tax code I am 
learning about, and as well there is a depletion allowance, is 
there not, under the current tax code?
    Mr. Cress. There is a depletion allowance, yes.
    Mr. Costa. And doesn't that sort of work like, in effect, a 
negative royalty that provides breaks that are not there that 
other countries don't offer?
    Mr. Cress. I am not sure whether we are the only country 
that has a depletion allowance. It was designed for specific 
purposes in the tax code, and I guess that is what----
    Mr. Costa. Let me ask your opinion. If the industry, and I 
know you don't pretend to speak for the industry, but you have 
a sense of their focus, had a choice between paying a five 
percent net--a true net smelter royalty or giving up the 
depletion allowance, which do you think they would choose?
    Mr. Cress. I couldn't say. I haven't polled them.
    Mr. Costa. You don't have a sense of that then?
    Mr. Cress. I am actually not a tax expert.
    Mr. Costa. OK.
    Mr. Cress. My practice is royalties.
    Mr. Costa. All right. I want the record to stipulate you 
are not a tax expert.
    The discussion in the World Bank and--well, I think I don't 
want to go into that with Mr. Cress.
    Mr. Otto, you talked about different royalties and what 
works best for government and taxpayers without putting 
industry out of business. In your testimony you talked about 
gross income versus net smelter royalties as being relatively 
straightforward to calculate, but you note that the gross 
income type of royalties pose fewer opportunities for tax 
minimization strategies. I don't know whether or not you are a 
tax expert or not as the previous witness indicated he was not, 
but which are typically seen as net profit royalties, and to 
respond to the point that was made earlier, do you think the 
definition of this bill really provides for a net smelter 
royalty?
    Mr. Otto. Absolutely not. A net smelter royalty as the term 
is used around the world by industry and most governments 
reflects where the mineral is taken for further processing, 
smelting, refining, and in that process certain costs are 
involved, and in a net smelter royalty the cost of the smelting 
and refining are deducted from the value of the mineral. 
Oftentimes insurance and freight to that smelter and refinery 
are also deducted.
    In the definition that is in the current bill and its 
relationship to the Income Tax Act, it is just a straight gross 
proceeds. There is no deductions for that smelting and 
refining.
    Mr. Costa. And so you heard my opening comments about I 
generally think simple is better both from the standpoint of 
the government to provide the auditing necessary to get a fair 
amount. What side do you fall on in terms of what would be 
preferential, in your opinion?
    Mr. Otto. I think a royalty that is based on a carefully 
defined definition of gross sales value is preferable over most 
other systems.
    Mr. Costa. All right. We will go back to another round. I 
will defer to the gentleman from New Mexico for five minutes of 
questioning.
    Mr. Pearce. Thank you, Mr. Chairman. I was checking each 
other over. We had those high-Ranking Members come in, I felt 
like Darth Vader and Obi-Wan Kenobi were shooting lasers back 
and forth, and I don't think one of us got holes through us, so 
that worked out pretty well.
    Mr. Costa. We are fine.
    Mr. Pearce. Back into the regular committee hearing now, so 
that is good.
    One of the comments that the Chairman of the full committee 
made is that the gloom and doom forecast for the coal mining 
industry, when they did the reforms, did not come about, and 
yet when I look on page 12 of the hearing from July 25, 
Wednesday, July 25 of this year, Mr. Duncan says that in 1978, 
there were 157 small coal mines in the east coal mining 
companies and east Tennessee, and now there is zero. One 
hundred and fifty-seven to zero seems like a significant 
decrease, and the coal mining production in east Tennessee or 
the whole State of Tennessee is 25 percent of what it was, and 
have been for many years.
    So at least in the case of the one circumstance that is 
reflected in the hearing testimony, Mr. Duncan claims that 
significant gloom and doom did actually occur, based on what 
something caused a difference in the industry. Again, I think 
that is what we are here to discern, and I think both sides 
should figure out how we can do reform without creating a 
competitive disadvantage for the country.
    So, Mr. Cress, if we look at what actions government 
agencies can cause, not necessarily just in this country, but 
economically, if the British Columbia's mining industry tell us 
a little bit about the super royalties they imposed in the 
1970s. Again, I think your testimony says the eight percent 
royalty is kind of unprecedented. So ours might be equivalent 
to the super royalty of British Columbia, and maybe even exceed 
that. Let us learn from somebody else's experience. If you can 
share with us what happened there.
    Mr. Cress. Thank you, Congressman. I would be happy to do 
so.
    British Columbia imposed a net smelter return royalty of 
2.5 percent, increasing to five percent after a year or so in 
the early seventies, and that system was only in effect for a 
few years because the result in fact was fairly devastating. 
Revenue collected from royalties on metal mines declined from 
28.4 million in 1974 to 15 million in 1975. Exploration 
expenditures also decreased from 38 million in 1972 to 15.3 
million in 1975, and exploration is necessary to find those new 
mines, and new mine and exploration development also decreased 
from an annual average of 131 million in the years 1970 to 
1973, to 20 million in 1975.
    This ill-advised experiment was repealed in 1976, and I 
think it is instructive that even with a relatively modest 
burden of a royalty, nowhere near the eight percent number, 
even if it was a net smelter number that is being discussed 
here, there were significant impacts on mineral exploration and 
production.
    Mr. Pearce. So with considerably less effect than the eight 
percent that is being recommended under the Rahall bill, would 
you say a 50 percent decline is accurate? In other words, we 
are just thinking the kind of bigger numbers up here. Is that a 
50 percent decline that you----
    Mr. Cress. It was a significant decline, yes.
    Mr. Pearce. OK.
    Mr. Cress. And 85 percent decline actually in mine 
development expenditures.
    Mr. Pearce. Mr. Lazzari, you mention on page 3 of your 
testimony that--you are describing under R.C. 613[c]----
    Mr. Lazzari. Yes.
    Mr. Pearce.--that you describe the depletion allowance as a 
subsidy available to the mining industry.
    Mr. Lazzari. Yes.
    Mr. Pearce. Would you describe for me the difference. In 
other words, I was in business, and we had equipment. We had 
large trucks, large pumps, and the IRS allowed us to depreciate 
it. In other words, the IRS recognized that if you buy an 
asset, it begins to be worth less value over a period of time, 
and just part of accounting convention in order to reflect 
reality that the investment is worth less 10 years from now 
than it was today. So if they allowed the depreciation in the 
mines for every rock like this you take out, the mine is worth 
someone less. In other words, it depletes.
    And so can you tell me exactly how that is perceived as a 
subsidy? I think that is the word you used in your testimony.
    Mr. Lazzari. Yes. Yes, that is a good question. I would be 
happy to.
    Well, just like equipment, depletion is very similar to 
depreciation for equipment. But in the case of equipment, the 
depreciation is based on the cost, the actual investment of the 
equipment. In the case of percentage depletion allowance, the 
deduction is not based on the actual investment in the asset as 
it is for equipment, but in fact is a percentage of gross 
income, which is essentially sales revenue from the mine at the 
mine mouth before any manufacturing or non-mining processes can 
take place.
    So you get to deduct the same percentage every year 
regardless of your investment, which means that total 
deductions over time can exceed your actual investment in the 
mine as compared to the case you mentioned, which is the 
depreciation for equipment, and the subsidy value is in the 
excess which the Joint Tax Committee computes and calculates 
every year the excess of percentage depletion allowance over 
cost depletion, which would be based on your actual investment 
and computed annually based on the output from the mine.
    Mr. Pearce. Thank you, Mr. Chairman. I see my time as 
lapsed. I have other questions if you----
    Mr. Costa. That is OK. We will come for a second round.
    The gentleman from New Mexico, Mr. Udall, recognized for 
five minutes.
    Mr. Udall. Thank you, Mr. Chairman.
    One of you, I think it was Mr. Otto, said that a royalty is 
basically a usage fee that is paid by industry, and as we know 
with regard to this industry, the hardrock mining industry, it 
doesn't pay anything, and so we are trying to get to something. 
I understand the Chairman and the Ranking Member in this 
Subcommittee are trying to get to a usage fee that is simple 
and that is a significant usage fee because the incomes being 
dedicated or the revenue that comes in from the fee is 
dedicated to a substantial problem of these abandoned mines.
    So isn't the principle to try to, whatever you call it, 
make it very simple in terms of what you are trying to achieve 
rather than go through long lists of deductions and end up, and 
in no way am I picking on Nevada, my good friend, Mr. Heller, 
over here. But Nevada has what is called a net profit royalty, 
and in 2006, for Nevada gold and silver mines, they paid a net 
proceeds tax of just $61 million on a production worth $5.1 
billion.
    So would you all comment on that on how you get, maybe 
start, Mr. Lazzari, with you. How do you get to something that 
is simple, that achieves the objective of a reasonable usage 
fee, and yet at the same time try to make sure that it is not 
so complicated and burdensome to industry? Thank you.
    Mr. Lazzari. Yes, that is a very good question also, and 
economics can't really tell us what the level of the royalty or 
the rate of the royalty should be, and it is very important to 
take all the considerations into account because we don't want 
to have an adverse effect domestically or internationally. So 
it can't really tell us what the rate should be beyond 
basically using the market as a guideline.
    As far as simplicity and the other aspects, it is just 
basically the fact that economic theory suggests that the 
royalty should be based on value is an important consideration 
in terms of promoting efficiency and resource use, which 
basically means balancing industry concerns with the way 
resources are allocated efficiently throughout the rest of the 
economy, not just in the industry.
    Now, simplicity in administrative issues are also important 
and it seems like this bill, without recommending it, is 
consistent with that principle in that an administrative 
apparatus for compliance and administering the royalty would 
already be in effect if it is based on gross income as defined 
in the current tax law, because in fact the tax law defines 
gross income as value as close as possible to the mine mouth 
before non-mining processes are taken into account. So it seems 
like administratively you already have a system in place.
    The IRS has administered the system, the courts have made 
rulings, and in fact there is also a Supreme Court ruling to 
that effect.
    Mr. Udall. So you end up having a number of rules that have 
already been tested and they are settled, and you are not going 
to have a lot of disputes is what you are saying.
    Mr. Lazzari. Well, you are not going to eliminate disputes. 
You are always going to have disputes, but a lot of it has 
already been settled
    Mr. Udall. A lot of it has already been settled and you 
have a certainty level.
    Mr. Lazzari. You have guidelines for each specific mineral 
on how to define gross income from mining
    Mr. Udall. Yes.
    Mr. Lazzari. I.e., value, they have that
    Mr. Udall. Yes. And Mr. Otto, you were nodding.
    Mr. Otto. I concur with you. Go with any type of tax system 
that allows adjustment to the tax basis to account for costs. 
The number of interpretations about what qualifies or doesn't 
qualify as a deductible cost is going to be higher than if it 
is just based on some measure of income without cost adjustment
    Mr. Udall. Thank you.
    Mr. Costa. All right, thank you, the gentleman from New 
Mexico.
    In order of those who first came to the Subcommittee this 
afternoon, Mr. Heller, the gentleman from Nevada.
    Mr. Heller. Thank you, and I appreciate the panel being 
here today. I just had a couple of questions.
    First of all, Mr. Cress, you said there was one royalty 
above what is being submitted in this particular bill. What 
royalty was that?
    Mr. Cress. That is the gold quarry royalty of Newmont 
Mining. That royalty was negotiated as part of a package deal, 
if you will, where the company acquired several million ounces 
of gold that were actually known on the property, and lands of, 
I think, a 25-by-15-mile ranch with mineral rights that would 
not bear a royalty, and that is kind of an example of how you 
are mixing apples and oranges, I think, when you focus on any 
one given example.
    If you knew there were 2 million ounces of gold under a 
property, you would obviously pay more.
    Mr. Heller. Right.
    Mr. Cress. So that is that example.
    Mr. Heller. Mr. Udall pointed out the fact that Nevada gets 
about $60 million a year in net proceed at five percent, and 
you have spoken a lot but you haven't talked about the impact 
that a gross royalty would have potentially on states. Can you 
tell us what impact, revenue impact this particular bill would 
have for state revenues, on state revenues as it is written?
    Mr. Cress. I am sorry. Are you addressing that question to 
me?
    Mr. Heller. Yes, I am.
    Mr. Cress. Oh, thank you. I think states collect their own 
piece of the pie, if you will, and any system, any royalty 
system is going to have to take that into account, so you could 
end up with decreasing the severance tax base for the State of 
Nevada, for example, if that is going to be deducted, if the 
payments are going to be deductible from--the Federal royalty 
payments are going to be deductible from the severance tax, so 
you are really just transferring money from one account into 
another.
    Again, the overall burden, if it is too high, is going to 
have the effect of shutting down the mines. It will be 
uneconomic. So you are making a policy choice to use some of 
the money to fund the abandoned mine problem, but at the 
expense of the people of Nevada.
    Mr. Heller. Thank you. Mr. Otto, you are the accountant 
here. I guess that has been decided or determined anyway.
    Effective tax rates, you talk about that in your written 
testimony. Have you done an analysis on what the effective tax 
rate may be currently here in the United States on mines?
    Mr. Otto. During the 1990s, a lot of countries began 
reforming their mining laws and tax laws, and I was with the 
United Nations at that point, and we started getting a lot of 
requests for information on this, and I went into academia 
shortly thereafter and launched an effort to produce a global 
comparison of mining tax systems around the world, and we 
included in those studies that were published in 1997 and in 
2000, taking a look at a gold mine in Nevada and a copper mine 
in Arizona, and using those model mines we applied the tax 
system for not only those two states but countries all around 
the world.
    The findings in 2000, and things have changed since 2000, 
were that the effective tax rate, the combined impact of all 
the various taxes to be applied to the industry were around 50 
percent in both of those states, putting them in the range of 
being competitive but kind of in the middle, not too high, not 
too low, pretty much in a competitive position to attract 
domestic and foreign investment.
    That study hasn't been updated since 2000, though, and we 
have seen some governments lowering their tax systems quite 
considerably in terms of income tax, withholding taxes. We have 
also seen some increases in other countries with regard to in a 
position of higher royalty rates.
    Mr. Heller. What do you think an eight percent gross 
royalty would have, in effect, on a tax rate?
    Mr. Otto. If you were to take a look at just the royalty 
alone without consideration of any other taxes, it would 
certainly be the highest ad valorem type royalty in the world 
in terms of all minerals as a whole. We can see some 
exceptions. In Poland, you have 10 percent on gold, and on 
diamonds you have higher rates in some countries. There are a 
few exceptions, but once you get above about five percent most 
countries have had the experience, they see a very great 
decline in levels of exploration taking place. So you may see a 
short-term increase in tax revenue, but over the longer term 
the tax base become smaller because you have fewer mines that 
can meet their minimum rate of return for investment 
decisionmaking.
    Mr. Heller. Thank you. Mr. Chairman, I yield back.
    Mr. Costa. Thank the gentleman from Nevada.
    Mr. Chairman, want to yield the balance of your time? I 
have some questions I want to ask.
    Mr. Rahall. I have no questions.
    Mr. Costa. All right. Thank you very much.
    Mr. Lazzari, you may be aware that last week the Inspector 
General of the Department of the Interior found that the 
royalty collection program administered by the Minerals 
Management Service is fairly flawed which, I guess, for some of 
us doesn't come necessarily as news; that it is mismanaged and 
that as a result the public is losing millions of dollars in 
royalties and gas revenues.
    I guess my question is as we try to structure something 
responsive, something simple, something that doesn't repeat the 
mistakes that some of us believe exists within the Minerals 
Management Service, how do we avoid the major administrative 
factors into the decisions of establishing a royalty in this 
effort here, a better system, learning from mistakes that have 
previously been made? What would you advise the committee?
    Mr. Lazzari. I am not familiar with the details of the 
Inspector General's report and really it is beyond my area of 
expertise as an economist, except to say that we have heard 
about the administrative problems, you know, tracking, 
reporting and collection problems, and they have been going on 
for a long time.
    To some extent, these types of problems are inevitable. 
They are going to occur regardless of the type of royalty you 
have, and the idea is to try to minimize those kinds of 
collection system problems and administrative problems as much 
as possible, but I would just have to say again based on 
economic theory there is no real--that problem, so far as I 
know, has no direct bearing on the theoretical advantages of 
the ad valorem royalty, and the practical or administrative 
advantages of the ad valorem royalty based on the gross income 
as defined in the tax law.
    Mr. Costa. Mr. Otto, you have testified at length about 
what might work better or what is fair, and it seems to me 
that, based on the capacity of the administrative agency, on 
the surface it appears that it would suggest that a value-based 
may be better. What is your sense?
    Mr. Otto. I generally advise for most countries, and I 
think for the U.S. also that a sales price-based royalty is the 
easiest to administer that also takes into account the fact 
that minerals prices are cyclical. So as the value of minerals 
goes up or down, the amount of royalty that is paid is going to 
go up and down because the sales value will change, so it is 
two percent of sales value. Unit-based royalties don't have 
this attribute, and royalty systems that have deductibility for 
some types of costs have many administrative problems.
    Mr. Costa. Well, then to be a little more specific, you 
have advocated that simpler is better, which is kind of my 
opening statement as well, and if I were to advise the 
Chairman, who is here, to stick with a net smelter type but 
watch for the definition that was pointed out by one of the 
witnesses that maybe this doesn't completely fall under the 
definition of a net smelter based upon the draft, that maybe we 
lower the rate below eight percent.
    Mr. Otto, from your book in 2006, that you said most 
jurisdictions with profit-base systems will assess at a rate of 
in excess of five percent. Given the special depletion 
allowance that the U.S. Tax Code offers, might a profit-based 
royalty say of 10 percent be reasonable in order to bring a 
fair rate of return?
    I mean, at some point we are going to be negotiating these 
numbers, and I guess I am trying to get a sense from you based 
upon your 2006 book in terms of what is going on around the 
world what would be fair and competitive.
    Mr. Otto. In providing tax reform advice to other 
governments, they almost all take the same approach. They take 
a look at the system as a complete whole, and so what is the 
offsetting advantages from the depletion allowances as compared 
to the penalties imposed through a royalty, and they would take 
a look at how those two would offset each other, and I just 
haven't done that for the United States, and I am not aware of 
any other government outside of Egypt and the Philippines that 
allows depletions, so I just don't have enough experience.
    Mr. Costa. I understood there were just a few. If I submit 
that in the form of a written question, I would like you to 
give it a little more thought, and to respond, please. Will you 
do that?
    Mr. Otto. It would take quite a bit of analysis so I can't 
commit to that.
    Mr. Costa. You will try? You will try?
    Mr. Pearce. Mr. Chairman, he wants you to pay for the time.
    Mr. Costa. I guess. I get that sense.
    [Laughter.]
    Mr. Costa. No pro bono work here. Not Italian, huh?
    All right. My time has expired clearly, and are we with the 
gentleman from Idaho?
    Mr. Sali. Thank you, Mr. Chairman.
    Mr. Lazzari, have you ever been involved in any mining 
yourself?
    Mr. Lazzari. No.
    Mr. Sali. You just have experience as an economist?
    Mr. Lazzari. I am an economist, yes.
    Mr. Sali. OK.
    Mr. Lazzari. I was a business economist in Michigan before 
my experience here at CRS, a corporate economist, but no, I 
have never had any direct experience in mining.
    Mr. Sali. Mr. Otto, you indicated a few minutes ago that 
the effective tax rate when you take into account all the 
taxes, and I think you had two subjects you were looking at, 
Arizona and Nevada, if I understand correctly, of about 50 
percent. If we impose the royalty as it is structured in the 
bill we are talking about today, would that effectively take 
that tax rate to 58 percent? It would just add another eight 
percent on top of that?
    Mr. Otto. No. It gets a little more complicated because 
royalties are deductible for the purposes of computing income 
tax, for example, so it would be probably less than 58 percent, 
but it could also influence other factors in the calculation of 
the total tax basis. So it would be less than 58 most probably.
    Mr. Sali. It would take more of that work that you weren't 
willing to do for the Chairman of this Subcommittee, is that 
right?
    [Laughter.]
    Mr. Sali. OK. Well, I guess I am trying to figure out.
    Mr. Otto. Any mineral economist can work these numbers out. 
It is not a complex assignment.
    Mr. Sali. Well, I am trying to figure out with the 
description we had of what happened in Canada when the 
royalties were imposed, and trying to balance what might be a 
fair amount, what might be a simple amount, but making sure 
that we aren't going to end up killing the goose that is laying 
the golden egg, if you were going to advise, and recognize this 
might require some of that work you are not willing to do, but 
if you were going to advise the members of the committee how 
should we approach this to make sure that our mining industry 
does stay healthy and viable, and we don't reduce exploration 
dollars, where should we end up with a royalty rate? What would 
be fair and healthy for the economy and healthy for the mining 
industry?
    Mr. Otto. I think if we take a look at the industry simply 
a little bit round-about, and I apologize for that. If we take 
a look at the mining industry, it is under a lot of pressure 
right now about getting access so that it can mine, the social 
license to operate that I was talking about. It is perceived 
that it is not contributing to our society, and one of the 
principal criticisms of the industry is we don't get anything 
out of this. Where is the royalty? Everybody else gets royalty. 
We don't get royalty. And I think a lot of people in the 
industry wouldn't mind seeing a reasonable royalty, 
particularly if it is earmarked for the types of purposes as in 
the current bill here, for community impact, mitigation, for 
reclamation purposes, but you don't want to have a situation 
where when the company sits down and it calculates the 
economics on its mine it finds that it is not meeting its 
minimum rate of return, its hurtle rate, it is not meeting that 
return that it needs in order to move ahead with investment.
    So for a typical mine in the United States, how much can 
you add on and it will still be economic for that mine to go 
ahead?
    Now, for most countries that have a typical tax system, 
they have from experience found that it is probably on the 
order to two, three, four, five percent for most minerals on a 
sales-based royalty. Every tax system is a little different and 
so that is why in answering that question I can't say two 
percent for the U.S. or three percent for the U.S. No matter 
what royalty is, it will make some mines become sub-economic.
    Mr. Sali. You would agree with me that what is proposed in 
this bill is not going to get the job done in a way that will 
keep the mining industry healthy, is that correct?
    Mr. Otto. I think an eight percent is excessive. Whether it 
should be four percent or six percent, I----
    Mr. Sali. This would take some more of that work that you--
--
    Mr. Otto. It would take more work. I can give you another 
example. Jim Cress gave you the example of British Columbia. 
Papua New Guinea, a major mineral-producing country, produces 
copper and gold. They had a royalty of two percent. They raised 
their royalty, they put an additional royalty in place of 
around three percent, took it up to five percent, and 
exploration collapsed. They repealed it. Exploration started 
coming back up. So there is a point where when companies do 
their assessments of the tax systems, they say even if we find 
something, we can't make profits to develop it. Where that 
point is for the U.S., I can't say.
    Mr. Sali. Thank you.
    Mr. Costa. The gentleman's time has expired.
    Mr. Otto, I am not so sure we are just getting you future 
billable hours in your consulting career or not, but I am going 
to try again here.
    [Laughter.]
    Mr. Costa. You have indicated, and you have heard Mr. 
Cress's concerns about the definition of net smelter, and I 
raised that a moment ago, in the legislation before us. Let us 
say we want to clarify that and make it easy so that we have 
the appropriate for hardrock minerals that include a limited 
number of logical deductions for transportation and for 
refining.
    Is there, from your experience and world knowledge, a 
definition of a net smelter return on hardrock minerals 
elsewhere? Number one.
    Number two, and this one I dare say I will ask, would you 
work with the committee to propose a clearer definition?
    Mr. Otto. If you are interested in good definitions, there 
are quite a few out there that could be applied to the U.S. 
example. I have the legislation from the----
    Mr. Costa. Buy the book.
    Mr. Otto.--countries in here. Eighteen dollars.
    [Laughter.]
    Mr. Costa. I got that.
    Mr. Otto. There is a CD in the back, and if you take a look 
at say the definitions for determining value in Papua New 
Guinea, they have a sales value definition and they have a net 
smelter return definition. A lot of minerals aren't smelted and 
aren't refined.
    Mr. Costa. Correct.
    Mr. Otto. So to use that smelter for all minerals is a bit 
awkward. But in answer to your question, if the committee would 
like information on other types of definitions or other 
approaches to definitions than we see in the Income Tax Act, 
yes, I could provide information.
    Mr. Costa. All right. I am going to defer the balance of my 
time to the gentleman from Texas, who has been very patient.
    Mr. Gohmert. Well, thank you. It might be a shock too that 
I have been patient, but I appreciate your kindness. Thank you 
very much, Mr. Chairman.
    I just have a couple of observations and questions, but 
when I hear the term ``economist'', I can't help but think of 
that great quote from John Kenneth Galbraith about there are 
only two kinds of economists. There are those who don't know, 
and there are those that don't know they don't know. But anyway 
whether he was right or wrong or whether we can tax that 
opinion is a different question. But I am still trying to 
gather facts and come to some conclusion.
    One thing that would help me though is to know, and I throw 
this out for all three, is there any nation in the world where 
it is more difficult or time consuming to get an application 
processed and approved than the United States and any nation 
where it is any more difficult to meet environmental 
requirements? So I throw that out for observations from all 
three of you, actually.
    Mr. Cress. I will field that question. I think the United 
States, the permitting times for new mines in the United States 
are probably among the highest in the world because we have our 
environmental laws that we have here. One effect of that 
royalty-wise is that during a period of seven to 10 years when 
you are trying to get an operation permitted, the mineral 
commodity cycle, the price of that mineral is going to vary 
considerably so an investment decision that made sense five 
years ago may not make sense, and that is one of the 
competitive disadvantages that we have here even though 
environmental protection is obviously important and critical, 
but those times are a problem.
    Mr. Gohmert. I would be curious to hear from either one of 
you. Mr. Lazzari, you have made obviously a great deal of study 
of the matter, and I do appreciate what CRS does to educate us 
around here.
    Mr. Lazzari. Thank you. I don't have a comment on that. 
That is kind of beyond my area of expertise. I don't really 
know.
    Mr. Gohmert. OK. Mr. Otto?
    Mr. Otto. Oftentimes the perception is that our permitting 
processes here take a lot longer than elsewhere. If we take a 
look at most of Europe though, I think we would find that the 
system here works in the end, where in many European countries' 
companies won't even attempt to begin that process.
    There is a study that has been done to take a look at how 
long it takes to get through the permitting process, to get 
through all the approvals. It was done by a very competent 
Australian, Richard Shodie, and in his studies he shows that 
the time that it takes to get a mine permitted in the United 
States is actually less than in many other places.
    Now, when I say permitting, it is not just environmental 
permitting in other countries. It can be the negotiation of an 
agreement to take a deposit into production. So he takes a look 
at how long it takes from the time that the company has made a 
decision that it wants to proceed with the mine until the mine 
starts producing, and that time period, he has gone in, he has 
looked at hundreds of mines and taken the data from it, and his 
conclusion is that the U.S. is not out of line with what is 
generally encountered in most countries around the world.
    I can provide a copy of that study to the committee if it 
desires.
    Mr. Gohmert. That would be helpful.
    Mr. Chairman, I was wondering if I might ask indulgence 
just to ask one quick question further of all three witnesses 
because I really am trying to get educated on this?
    Mr. Rahall. [Presiding.] Yes.
    Mr. Gohmert. You all actually obviously have various areas 
of expertise and experience. I am just curious. What would each 
of you say is the best way for the U.S. Government to raise 
revenue from mining? Just a very short answer. What is the best 
way you have seen, all things considered, for each of you?
    Mr. Lazzari. Well, if I can go first. I can't really say as 
an economist what the best way is. That is a policy question. 
The way I see it though in terms of economic theory it is not 
really a question of revenue per se. It is more a question of 
the allocation of resources. Just like I said earlier, you have 
wages that are paid for labor services.
    Mr. Gohmert. I understand all the considerations.
    Mr. Lazzari. It is not a revenue consideration per se.
    Mr. Gohmert. OK. Then whatever you say, want to call it, to 
get money from the process of mining to pay for what the 
Federal government does to allow the mining. Just whatever 
process you want to call it, getting income from that.
    Mr. Lazzari. Well, as I said earlier, economic theory 
suggests that the most economically efficient approach is a 
royalty based on value, the ad valorem royalty.
    Mr. Gohmert. OK.
    Mr. Lazzari. OK.
    Mr. Gohmert. Thank you. If I can get a quick answer from 
everybody else.
    Mr. Cress. I guess I would come out in favor of a net 
royalty that allows for deduction of mining and processing 
costs because when you are applying it to that many minerals 
and with a huge land base, that is going to, I think, result in 
continued development and not be too burdensome or too high.
    I differ, I guess, with Professor Otto in one respect, 
which is, I think metals are just more complicated than coal, 
so a gross system, while simpler and hard to administer in some 
countries that lack the capacity, I think could be administered 
here.
    Mr. Gohmert. But bottom line net royalty?
    Mr. Cress. Bottom line would be net royalty.
    Mr. Gohmert. Mr. Chairman, you have been very gracious with 
his allowance of time, but if you could give me a quick answer.
    Mr. Otto. I would focus not so much on trying to impose a 
new tax or fiddle with the existing rates on existing taxes, 
but rather to provide incentives to the industry to encourage 
more exploration. Small incentives don't cost very much at the 
exploration stage.
    Mr. Gohmert. So we pay others to do the mining? I mean, 
that is what incentives sounds like. I am talking about how do 
we raise it.
    Mr. Otto. To give you an example, some countries allow a 
double deduction for exploration expenses so that if you invest 
a dollar in exploration, you get two dollars in the future 
deducted.
    Mr. Gohmert. Right. Deducting from what though? That 
presupposes there is some kind of tax or revenue source, right? 
So what would that tax revenue source be?
    Mr. Otto. Either a deduction from current revenue, because 
a lot of companies have multiple mines, or a deduction against 
future revenues that could be carried forward.
    Mr. Gohmert. Well, you are talking about deductions. I am 
talking about what are you deducting it from. Is that a tax, a 
royalty, ad valorem?
    Mr. Otto. From the income tax.
    Mr. Gohmert. OK, thank you. Thank you, Mr. Chairman.
    Mr. Costa. Yes. I would just suggest to the gentleman from 
Texas that it is my sense that the gentleman from West Virginia 
doesn't want this bill to go to Ways and Means. So as we focus 
on how we reach this middle ground, and of course I don't 
presuppose to speak for the gentleman from West Virginia, but 
my guess is he doesn't want to go to Ways and Means.
    We will recognize the gentleman from New Mexico for this 
last bit of questioning, and then we will switch to the next 
panel, but we do appreciate all of your testimony.
    Mr. Pearce. Thank you, Mr. Chairman. I would just guess 
that everybody thinks it is a little bit complex to do the net 
smelter computation, that we could just subcontract that out to 
the State of Nevada and they could do it if they aren't already 
doing it for their own program right now.
    Also, Mr. Chairman, it is unfortunate that you came here. I 
was going to suggest that while the Chairman of the full 
committee is here that maybe if the Chairman would consider 
buying all those books for everybody on the committee, 50 
books, then we might get better and deeper answers. We would be 
paying more for that time from Mr. Otto there, so I would 
recommend that.
    I would say, Mr. Chairman, you put together a great panel. 
I think if we locked these three guys in a room with committee 
members, I think that we could drive toward a solution that 
would be productive, that would be fair for the industry, and 
fair for the Nation without being punitive, and I do believe 
that.
    I am just going to ask one question. Mr. Lazzari, we have 
heard kind of concern from both members that the eight percent 
might be excessive, that it might be the highest in the 
country. Do you have an opinion about the eight percent?
    Mr. Lazzari. I do not have an opinion about the eight 
percent, no.
    Mr. Pearce. Do you want to say? You just don't want to go 
on record at all because now we got----
    Mr. Lazzari. No, because I cannot say. That is not 
something that comes out of economic theory. That is more of an 
empirical and policy question, so I cannot. No. That is right.
    Mr. Pearce. OK. Is there ever a possibility in economic 
theory that a royalty rate would get so high as to cause undue 
distress and exiting out of, is that theoretically possible 
that would get high enough?
    Mr. Lazzari. Absolutely. Yes.
    Mr. Pearce. OK.
    Mr. Lazzari. That is correct.
    Mr. Pearce. But you don't have an opinion that we are 
approaching that at the eight percent level?
    Mr. Lazzari. No.
    Mr. Pearce. OK. I appreciate that, Mr. Chairman. I will 
yield back the rest, and we will submit the other questions in 
writing. Appreciate it, and again, I really compliment you. 
This panel has been very good at reaching, I think, the balance 
that we are looking for. Thanks.
    Mr. Costa. Thank you very much the gentleman from New 
Mexico, and we do appreciate the witnesses' testimony, and 
obviously this will be revisited, and I guess I will have to go 
out and buy the book myself.
    Our next panel, please. As I mentioned, members of the 
committee, as our next panel of witnesses are getting 
comfortable, this is going to be the other focus of the bill 
before us--that is, it gets to the balancing act. As 
Congressman Rahall's bill is before us, once there is an 
agreement between the various parties and the Senate and the 
House on what is a fair rate of return, that purpose, of 
course, is in fact because these are on public lands. But the 
other part of the purpose is because we have a significant 
problem with abandoned mines throughout the country, and as 
some of us know, from our own experiences either within our 
areas or within our states, states are attempting to focus on 
it. They are not ignoring it. There is an issue as it relates 
to health and safety, as it relates to water quality, and 
therefore I think it would benefit all of us to hear the 
testimony of this second panel as they attempt to describe the 
size of the problem of abandoned mines throughout the country. 
My terminology is how big is this breadbox that we are 
describing, and therefore is there a way that you prioritize. 
Is the Federal government through the Bureau of Land Management 
doing all that it should be doing? And just as importantly, are 
they collaborating with states? Because states are a lot closer 
to this issue, and local governments are too, they oftentimes 
are the first to have to deal with it.
    With that said, we will begin with our next round of 
witnesses. The first witness before us is Mr. Jim Hanlon. He is 
the Director of the Office of Wastewater Management from the 
United States Environmental Protection Agency.
    Mr. Hanlon, you know the rules, the five-minute rule, and 
all that good stuff.
    Mr. Hanlon. Yes, thank you.
    Mr. Costa. So take it away. You don't need any 
instructions, sir.
    Mr. Hanlon. Not today.
    Mr. Costa. OK, very good.

 STATEMENT OF JIM HANLON, DIRECTOR OF THE OFFICE OF WASTEWATER 
        MANAGEMENT, U.S. ENVIRONMENTAL PROTECTION AGENCY

    Mr. Hanlon. Good afternoon, Mr. Chairman and Members of the 
Subcommittee. I am Jim Hanlon, Director of the Office of 
Wastewater Management in the Office of Water at EPA. Thank you 
for the opportunity to discuss an important issue facing the 
United States--impaired watersheds and legacy impacts from 
abandoned mines.
    Inactive or abandoned mine sites can pose serious public 
safety and environmental hazards. The good news is that there 
are significant resources available through voluntary efforts 
to remediate these sites and improve environmental health and 
safety.
    Unfortunately, as a result of unavoidable legal obstacles, 
we have been unable to take full advantage of the opportunities 
to promote cooperative conservation through partnerships that 
will restore and enhance abandoned mine sites throughout the 
United States.
    According to estimates, there are over half a million 
abandoned mines nationwide, most of which are former hardrock 
mines located in the western states, which are among the 
largest sources of pollution, degrading water quality in the 
United States. Acid mine drainage from those abandoned mines 
have polluted thousands of miles of streams and rivers as well 
as groundwater, posing serious risks to human health, wildlife, 
and the environment.
    This problem can affect local economies by threatening 
drinking water and the agricultural water supplies, increasing 
water treatment costs, and limiting fishing and recreational 
opportunities.
    Mine drainage and runoff problems can be extremely complex 
and solutions are often highly specific. In many cases, the 
parties responsible for the pollution and cleanup of these 
mines no longer exist. However, over the years an increasing 
number of Good Samaritans, who are not responsible for the 
pollution, have stepped forward on a voluntary basis to clean 
up these mines. Through their efforts, we can restore 
watersheds and improve water quality.
    The threat of liability, whether under the Clean Water Act 
or the Comprehensive Environmental Response Compensation and 
Liability Act, CERCLA, can be a real impediment to voluntary 
remediation. A private party cleaning up a release of a 
hazardous substance might become liable as either an operator 
of the site or as an arranger for the disposal of hazardous 
substances.
    Under the Clean Water Act, a party may be obligated to 
obtain a discharge permit which requires compliance with water 
quality standards in streams that may already be in violation 
for those pollutants. The potential assignment of liability 
occurs even though the party performing the cleanup did not 
create the conditions causing or contributing to the 
degradation. Removing this liability threat under both CERCLA 
and the Clean Water Act will encourage more Good Samaritans to 
restore watersheds impacted by acid mine drainage.
    Let me emphasize, however, that encouraging Good Samaritan 
cleanups is not about lowering environmental standards or 
letting polluters off the hook. Good Samaritans should be held 
to a realistic standard that results in environmental 
improvements, and those responsible for the pollution, if still 
in existence, will remain accountable, consistent with the 
agency's ``polluter pays'' policy.
    In June of this year, EPA Administrator Steve Johnson 
released administrative tools that provide strong protections 
for Good Samaritans under CERCLA. Our administrative tools do 
much under CERCLA to remove road blocks, but we can only go so 
far administratively. In addition to the administrative tools, 
the administration in EPA proposed the Good Samaritan Cleanup 
Watershed Act in the last Congress that comprehensively reduced 
the Good Samaritan liability issues. That legislation, as you 
probably know, would modify both CERCLA and the Clean Water 
Act.
    With the release of our administrative tools, however, and 
our desire to accelerate the pace of environmental improvement, 
EPA continues to work with a broad range of stakeholders, 
including the Western Governors Association and others, to 
develop a bipartisan legislative proposal for the Clean Water 
Act, which remains the main obstacle to Good Samaritan 
cleanups.
    We applaud the bipartisan legislative efforts in both 
Houses of Congress to correct the issue, and we look forward to 
working with the appropriate congressional committees on this 
legislation. In the interim, EPA will continue to facilitate 
cleanup of abandoned mines through use of its administrative 
tools and authorities.
    In conclusion, we hope the Good Samaritan initiative will 
be a good springboard for future successes such as those 
achieved through the Brownfields Program, which legislation 
passed in 2002. But unlike the situation in Brownfields, Good 
Samaritans of abandoned mines are not looking to purchase the 
property or receive monetary award for their efforts. They 
simply want to engage in voluntary stewardship activities that 
benefit the environment.
    The bottom line is that this type of innovative partnership 
agreement, coupled with targeted watershed grants and other 
assistance, can help dramatically in revitalizing thousands of 
water bodies harmed by acid mine runoff.
    A comprehensive solution to the problem associated with 
abandoned mine remediation is long overdue. EPA is actively 
working with Congress and our partners at the state and local 
levels to create a long-term solution to encourage and expedite 
Good Samaritan cleanups. EPA will continue to provide 
leadership through the Good Samaritan initiative and to work 
with our Federal land management agencies, states, and the 
Congress to pass legislation for the Clean Water Act that 
promotes and encourages environmental restoration and 
restoration of abandoned mines across the country.
    That concludes my oral statement, and look forward to any 
questions.
    [The prepared statement of Mr. Hanlon follows:]

  Statement of James A. Hanlon, Director of the Office of Wastewater 
            Management, U.S. Environmental Protection Agency

    Good Morning Mr. Chairman and Members of the Subcommittee, I am 
James A. Hanlon, Director of the Office of Wastewater Management at the 
United States Environmental Protection Agency (EPA). Thank you for the 
opportunity to discuss an important issue facing the United States--
impaired watersheds and legacy impacts from abandoned mines.
The Abandoned Mine Problem
    Inactive or abandoned mine sites can pose serious public safety and 
environmental hazards. The good news is that there are significant 
resources available through voluntary efforts to remediate these sites 
and improve environmental health and safety. Unfortunately, as a result 
of avoidable legal obstacles, we have been unable to take full 
advantage of opportunities to promote cooperative conservation through 
partnerships that will restore and enhance abandoned mine sites 
throughout the United States.
    According to estimates, there are over half a million abandoned 
mines nationwide, most of which are former hardrock mines located in 
the western states, which are among the largest sources of pollution 
degrading water quality in the United States. Acid mine drainage from 
these abandoned mines has polluted thousands of miles of streams and 
rivers, as well as ground water, posing serious risks to human health, 
wildlife, and the environment. This problem can affect local economies 
by threatening drinking and agricultural water supplies, increasing 
water treatment costs, and limiting fishing and recreational 
opportunities.
    The Center of the American West at the University of Colorado, 
Boulder developed and published a report entitled, ``Cleaning Up 
Abandoned Hardrock Mines in the West--Prospecting for a Better 
Future,'' for which EPA provided financial assistance. However, the 
report does not represent formal EPA policy. The report details the 
history of the nation's mining industry, the environmental legacy that 
remains, and describes challenges and management options--at the 
Federal, State and local level--in reducing the effects of inactive and 
abandoned mines.
    Mine drainage and runoff problems can be extremely complex and 
solutions are often highly site specific. In many cases, the parties 
responsible for the pollution and clean up of these mines no longer 
exist. However, over the years, an increasing number of Good 
Samaritans, who are not responsible for the pollution, have stepped 
forward on a voluntary basis to clean up these mines. Through their 
efforts, we can help restore watersheds and improve water quality.
Liability
    The threat of liability, whether under the Clean Water Act or the 
Comprehensive Environmental Response, Compensation and Liability Act 
(CERCLA), can be a real impediment to voluntary remediation. A private 
party cleaning up a release of hazardous substances might become liable 
as either an operator of the site, or as an arranger for disposal of 
the hazardous substances. Under the Clean Water Act, a party may be 
obligated to obtain a discharge permit which requires compliance with 
water quality standards in streams that are already in violation of 
these standards. The potential assignment of liability occurs even 
though the party performing the cleanup did not create the conditions 
causing or contributing to the degradation. Removing this liability 
threat will encourage more Good Samaritans to restore watersheds 
impacted by acid mine drainage.
    The Clean Water Act requires permit holders to comply with their 
permits so discharges do not violate water quality standards. While 
this concept has been extremely effective for protecting and restoring 
our Nation's waters, it inhibits the type of work Good Samaritans would 
undertake. Partial cleanups by Good Samaritans will result in 
meaningful environmental improvements and will accelerate achieving 
water quality standards. Yet, in many cases, the impacted water bodies 
may never fully meet water quality standards, regardless of how much 
cleanup or remediation is done.
    By holding Good Samaritans accountable to the same cleanup 
standards as polluters or requiring strict compliance with the highest 
water quality standards, we have created a strong disincentive to 
voluntary cleanups. Unfortunately, this has resulted in the perfect 
being the enemy of the good. Another concern for potential Good 
Samaritans is their potential liability for any remaining discharges at 
the abandoned mine site. The ability for a Good Samaritan to go onto a 
site, do a clean up to improve the quality of a discharge, and then 
leave the site after completing what they said they were going to do 
without long term liability, is not possible under current law. A 
statutory change for the Clean Water Act is necessary to provide these 
protections and to be realistic and fair to a volunteer agreeing to 
improve water quality. By removing this threat of liability, we will 
encourage more voluntary and collaborative efforts to restore 
watersheds impacted by acid mine drainage.
    Let me emphasize, however, encouraging Good Samaritan cleanups is 
not about lowering environmental standards or letting polluters off the 
hook. Good Samaritans should be held to a realistic standard that 
results in environmental improvements and to be held accountable while 
they have a permit. And those responsible for the pollution, if still 
in existence, will remain accountable, consistent with the Agency's 
``polluter pays'' policy.

Good Samaritan Tools
    In June of this year, EPA Administrator Steve Johnson released 
administrative tools that provide strong protections for Good 
Samaritans under CERCLA. The Agency developed a model Good Samaritan 
Agreement and comfort/ status letter that can be used to provide 
greater legal certainty to a volunteer while also providing adequate 
assurances to the Agency that a cleanup will be performed properly. We 
are also working closely with our Federal land management agencies and 
State partners to encourage, where appropriate, greater use of 
voluntary cleanup programs for abandoned mine remediation. In addition, 
we are developing guidance that will help Good Samaritans understand 
our approach to these cleanups. Our administrative tools do much under 
CERCLA to remove roadblocks, but we can only go so far 
administratively.

Legislative Efforts
    In addition to the administrative tools, the Administration and EPA 
proposed The Good Samaritan Clean Watershed act in the last Congress to 
comprehensively reduce the Good Samaritan liability issues. That 
legislation, as you probably know, would modify both CERCLA and the 
Clean Water Act. With the release of our administrative tools, and our 
desire to accelerate the pace of environmental improvement, EPA 
continues to work with a broad range of stakeholders including the 
Western Governors' Association, and others, to develop a bipartisan 
legislative proposal for the Clean Water Act which remains the main 
obstacle to Good Samaritan cleanups. In fact, there are many cleanups 
in the State of Colorado that remain on hold and unfinished, not 
because of CERCLA liability concerns, but because of Clean Water Act 
liability concerns.
    We applaud the bipartisan legislative efforts in both houses of 
Congress to correct the issue, and we look forward to working with the 
appropriate Congressional committees on legislation. In the interim, 
and until such time as Good Samaritan legislation is enacted, EPA will 
continue to encourage and facilitate clean up of abandon mines through 
use of its administrative tools and authorities.

Good Samaritan Activities
    The first project under the Agency's Good Samaritan Initiative is 
the abandoned mine in Utah's American Fork Canyon. We are working with 
Trout Unlimited (TU) and a private landowner who had not caused the 
pollution at the site. This project will help restore a watershed that 
has been impacted for well over a century, restoring the water quality 
and the habitat of a rare cutthroat trout species. Restoration of the 
American Fork is part of an ambitious multi-year effort by Trout 
Unlimited to draw attention to the problem of abandoned mines in the 
western United States while also identifying solutions. EPA has learned 
from the experience of the Trout Unlimited project and is putting those 
lessons to good use. This restoration effort exemplifies how 
cooperative conservation, emphasizing collaboration over confrontation, 
can accelerate environmental protection.
    Mine scarred lands are a particular concern of the EPA Brownfields 
Program and they were explicitly highlighted in the Brownfields Law 
passed in 2002. The Brownfields Program has coordinated a multi-agency 
collaborative initiative to help communities clean up and reuse mine-
scarred lands. The federal partners are implementing six community 
pilots in Virginia, Pennsylvania, West Virginia, Colorado and Nevada. 
The pilot communities received targeted federal technical and financial 
support; initially to help develop action plans and then to create 
local assistance packages leading to revitalization.

Conclusion
    We hope the Good Samaritan initiative will be a springboard for 
future successes, such as those achieved through the Brownfields 
program. But unlike the situation with Brownfields, Good Samaritans at 
abandoned mine sites are not looking to purchase the property or 
receive monetary awards for their efforts--they simply want to engage 
in voluntary stewardship activities that benefit the environment.
    The bottom line is that this type of innovative partnership 
agreement--coupled with targeted watershed grants and other 
assistance--can help dramatically in revitalizing thousands of water 
bodies harmed by acid mine runoff.
    A comprehensive solution to the problem associated with abandoned 
mine remediation is long overdue. EPA is actively working with Congress 
and our partners at the State and local levels to create a long-term 
solution to encourage and expedite Good Samaritan cleanups. EPA will 
continue to provide leadership through the Good Samaritan Initiative 
and to work with our Federal land management agencies, States and 
Congress to pass legislation for the Clean Water Act that promotes and 
encourages environmental restoration of abandon mine sites across the 
country.
                                 ______
                                 
    Mr. Costa. Thank you very much, and we look forward to 
getting back to you, and we appreciate the collaboration there 
as well.
    Our next witness is Tony Ferguson, who is the Director of 
Minerals and Geology Management for the United States 
Department of Forest Service. Mr. Ferguson.

STATEMENT OF TONY L. FERGUSON, DIRECTOR OF MINERALS AND GEOLOGY 
                MANAGEMENT, U.S. FOREST SERVICE

    Mr. Ferguson. Thank you. Good afternoon, Mr. Chairman and 
Members of the Subcommittee. Thanks for the opportunity to 
testify on the hardrock abandoned mine land reclamation 
program. I am pleased to be here with you today.
    This year, the Forest Service and the Bureau of Land 
Management are celebrating 10 years of hardrock abandoned mine 
land program success. With your permission, Mr. Chairman, I 
would like to submit for the record a copy of the joint Forest 
Service and BLM publication describing the successes we have 
had reclaiming the abandoned mine lands over the last decade.
    Mr. Costa. Without objection, it is submitted for the 
record, and I believe we each have a copy.
    [NOTE: ``Abandoned Mine Lands: A Decade of Progress 
Reclaiming Hardrock Mines'' prepared by the Bureau of Land 
Management and U.S. Forest Service has been retained in the 
Committee's official files.]
    Mr. Ferguson. The Forest Service and the BLM----
    Mr. Costa. We didn't have to pay for this one.
    Mr. Ferguson. Well, it depends on your perspective.
    [Laughter.]
    Mr. Costa. I am sorry. I didn't mean to interrupt your 
testimony. Please, I will give you back your time.
    Mr. Ferguson. The Forest Service and the BLM, using data 
compiled by the Bureau of Mines in 1995, estimates that 
approximately 38,500 abandoned mine sites are on National 
Forest System lands, and 65,000 abandoned mines site are on BLM 
lands. An estimated 20 to 30 percent of the abandoned mine 
lands on the Forest Service and BLM lands have dangerous human 
safety hazards and as many as 10 percent may be releasing toxic 
heavy metals, acidity, and radioactivity into rivers, lakes and 
streams.
    In 1994, an interagency task force was formed to develop a 
watershed approach for the cleanup of hardrock mines on public 
lands. The goals of the watershed approach are to foster 
coordination and collaboration across Federal and state 
agencies, facilitate solutions to address mixed ownership 
issues on sites, address important problem sites first and 
reduce cost through fund leveraging and avoiding duplication of 
efforts.
    The momentum of the interagency task force led to the 
Forest Service and the BLM launching formal AML programs in 
1997. Two top priority watersheds were selected as pilot 
projects for remediation--the Animas River watershed in 
Colorado and the Boulder River watershed in Montana. A third 
top priority pilot, Cottonwood Wash in Utah, was selected in 
1998. I would like to highlight the Animas River watershed as 
an example of the success of the pilot projects.
    The Animas River watershed reaches across 186 square miles 
of Colorado's San Juan Mountains. Over the years, the impacts 
of contaminants including aluminum, cadmium, copper, iron, 
lead, and zinc emanating from historic mines and natural 
sources became environmentally and economically visible with 
acidity levels in the water rising to levels that impair many 
fisheries and leave some streams devoid of fish.
    Communities within the watershed have a long history of 
mining that dates back to the late 1800s. These communities are 
in the process of transitioning from a mining economy to one 
based on tourism and recreation, and reclamation of these 
historic sites is an important part of that effort. The Animas 
River stakeholders group was formed to assist the communities 
in their efforts to address the environmental impacts of mining 
within the Animas watershed. Approximately 15 mining 
remediation projects had been successfully completed within the 
Animas River watershed. The community is now reaping the 
benefits of these cleanup efforts, including overall increased 
water quality and two successfully reproducing species of trout 
in the watershed. This, in turn, is beginning to entice more 
visitors to seek recreation opportunities in the area.
    Building on their existing AML inventories, the BLM and 
Forest Service can develop better program planning and 
prioritization of sites for reclamation.
    Again with your permission, Mr. Chairman, I would like to 
submit a copy of BLM's strategic plan for the abandoned mine 
land program for the record.
    Mr. Costa. Without objection.
    [NOTE: The strategic plan submitted for the record has been 
retained in the Committee's official files.]
    Mr. Ferguson. In an effort to coordinate AML activities, 
the BLM has embarked on an effort to develop a National Mine 
Land Inventory that will show AML and all mine sites locations 
on Federal lands. Additionally, the Forest Service is in the 
process of putting its regional AML data into a national 
database, making it available for land use planning and other 
resource management activities.
    Past partnerships show that collaboration and coordination 
result in more efficient use of limited funding. Future AML 
site successes depend on initiating and building long-term 
relationships with local individuals and organizations that are 
in tune with the local wildlife, traditional culture and 
character of the community.
    With many years of experience cleaning up mining sites, the 
Forest Service and BLM know that the greatest savings in 
cleanup costs comes from technological improvements. To bring 
these technological advancements to bear on public lands, both 
agencies must partner with others in training and technical 
assistance. The next 10 years will certainly bring new and 
cost-effective tools to AML reclamation.
    With the current estimates of AML sites on the public 
lands, reclamation will not be completed in the near term. 
Preventing future AML sites is also a crucial goal of any land 
management agencies' AML program. Sustainable mining practices, 
environmentally protective mining closure planning, optimal 
permitting requirements and financial assurances are all tools 
that land management agencies are using to encourage mining 
companies to operate under a sustainable business model that 
follows a mine's life from start up to clean closure.
    Thank you for this opportunity, and I will be happy to 
answer any questions.
    [The prepared statement of Mr. Ferguson follows:]

     Statement of Tony L. Ferguson, Director of Minerals & Geology 
     Management, National Forest System, U.S. Forest Service, U.S. 
                       Department of Agriculture

    Mr. Chairman and members of the Subcommittee, thank you for the 
opportunity to testify on the hardrock Abandoned Mine Land (AML) 
reclamation program. I am pleased to be here with you today.
    This year, the Forest Service and the Bureau of Land Management 
(BLM) are celebrating 10 years of hardrock abandoned mine lands program 
success. The BLM and Forest Service hardrock AML programs operate to 
improve the quality of public lands through similar missions:
      To mitigate hazards present at abandoned mines;
      To restore watersheds for natural resources; and
      To protect public health and safety, recreation, fish and 
wildlife.
Over the last decade, both agencies' hardrock AML programs have grown 
and matured through the dedicated effort of many people.

Scope of AML Issues on Federal Land
    The Forest Service and the BLM, using data compiled by the Bureau 
of Mines in 1995, estimated that approximately 38,500 abandoned mine 
sites are on National Forest System (NFS) land and 65,000 abandoned 
mines sites are on BLM. A mine site consists of one or more mine 
features, such as human-made objects or disturbances associated with 
mining activities. These mine features include shafts or adits 
(vertical or horizontal opening), tailings, waste rock, machinery and 
facilities.
    An estimated 20 to 30 percent of the abandoned mine sites on Forest 
Service and BLM lands have dangerous human safety hazards and as many 
as 10 percent may be releasing toxic heavy metals, acidity and 
radioactivity into rivers, lakes and streams. The Forest Service has 
estimated that approximately 2,500 mines would require cleanup of 
hazardous substances and more than 22,500 would require mitigation of 
non-hazardous pollution and safety hazards. Since the late 1990's, the 
Forest Service has inventoried 20,000 sites, mitigated more than 2,000 
safety hazards and cleaned up hazardous substances at more than 400 
sites, with hazardous substance cleanup at another 150 sites in 
progress.
    The BLM AML reclamation program supports core BLM programs by 
addressing degraded water quality, hazardous materials, and other 
environmental impacts on or affecting lands administered by the BLM, 
and mitigating physical safety hazards of abandoned mine sites on 
public lands. Between 2000 and 2007, the BLM has inventoried 5,500 
sites and remediated physical safety hazards at more than 3,000 sites. 
The BLM also restored water quality at over 280 sites through FY 2003 
and on more than 3,000 acres between 2004 and 2007.
    The BLM and Forest Service efforts to clean up abandoned mine lands 
have many worthwhile outcomes. Visitors to public lands are better 
protected from health and safety hazards, and neighboring communities 
enjoy cleaner water. Onsite soil and water quality is often returned to 
pre-mining conditions resulting in restored habitat for plants and 
wildlife. Significant cultural and historic resources are preserved.

Inventory of Abandoned Mine Sites
    At the time the BLM and Forest Service began to address AML 
reclamation, the sheer number of abandoned mining sites across the 
United States was daunting, with estimates ranging from tens of 
thousands to hundreds of thousands. In the early 1990s, the BLM and 
Forest Service began to inventory abandoned mine sites, focusing on 
hardrock and non-coal abandoned mines. This inventory built on data 
previously compiled by other governmental agencies, including the U.S. 
Bureau of Mines and the U.S. Geological Survey (USGS).
    Inventory work performed by the Forest Service, the BLM and State 
agencies has varied among agencies and over time. The Forest Service is 
in the process of putting the regional inventory data into a national 
database. The BLM is developing a national mine lands inventory that 
will show AML and mine site locations on all Federal lands. States with 
access to Surface Mining Control and Reclamation Act (SMCRA) funds and 
those with pilot watershed reclamation projects have more comprehensive 
inventories. Some discrepancies between various inventories are a 
result of the protocols used to develop them. Inventories are dynamic 
and continue to be refined, supplemented and amended.

Prioritization of Sites
    Each year Forest Service national priority project lists for the 
out year budget are developed from projects submitted by the National 
Forest Regions. Projects are prioritized for funding by a team using 
the Choosing By Advantages (CBA) method, which ranks projects by 
various criteria including benefits to human health and safety, 
environmental protections, public/private partnerships and public 
interest. Funding is allocated directly to the projects in order of 
their priority.
    In March 2006, the BLM released its Cooperative Conservation Based 
Strategic Plan for its AML program. The plan sets out both a national 
strategy and state-specific multi-year work plan. More specifically, 
the plan identifies priority watersheds and high-use areas where AML 
funds will be directed through FY 2013 given current funding levels. 
State-specific plans were developed in consultation with the BLM's 
Federal and State partners.

Cleanup of Abandoned Mine Sites
    In 1994, an interagency task force was formed consisting of Federal 
land management agencies, including the BLM, Forest Service, National 
Park Service and Department of the Interior (DOI) science bureaus, 
including USGS and the former Bureau of Mines. This task force worked 
closely with the Environmental Protection Agency (EPA) to develop a 
``watershed approach'' for the cleanup of hardrock mines on public 
lands. The goals of the watershed approach are to foster coordination 
and collaboration across Federal and State agencies, facilitate 
solutions to address mixed ownership issues on sites, address important 
problem sites first and reduce costs through fund leveraging and 
avoiding duplication of efforts.
    The Forest Service and the BLM launched formal AML programs in 
1997. Two top priority watersheds were selected as pilot projects for 
remediation: the Animas River watershed in Colorado and the Boulder 
River watershed in Montana. A third top priority pilot, Cottonwood Wash 
in Utah, was selected in 1998. I'd like to highlight the Animas River 
watershed as an example of the success of the pilot projects.

Animas River Watershed, Colorado
    The Animas River Watershed reaches across 186 square miles of 
Colorado's San Juan Mountains. Communities within the watershed have a 
long history of mining that dates back to the late 1800s. Over the 
years, the impacts of contaminants including aluminum, cadmium, copper, 
iron, lead, and zinc emanating from historic mines and natural sources 
became environmentally and economically visible with acidity levels in 
the water rising to levels that impair many fisheries and leave some 
streams devoid of fish.
    The communities are in the process of transitioning from a mining 
economy to one based on tourism and recreation, and reclamation of 
these historic sites is an important part of that effort. Approximately 
50 mining remediation projects have been successfully completed within 
the Animas River watershed, eight are underway and plans are ongoing 
for 40 additional projects. Of the completed projects, remediation 
activities for 19 priority sites have been completed with the mining 
companies addressing approximately one-half, Federal land management 
agencies addressing approximately one-quarter, and the Animas River 
Stakeholders Group addressing approximately one-quarter of the 
activities.
    The community is now reaping the benefits of these cleanup efforts, 
including overall increased water quality and two successfully 
reproducing species of trout in the watershed. This, in turn, is 
beginning to entice more visitors to seek recreation opportunities in 
the area. As the community continues to work together to address the 
remaining sites, a collaborative initiative among six federal agencies 
is helping to revitalize a two-mile stretch of the Animas River 
corridor through Silverton, recognizing the community's value on 
tourism as it promotes aesthetic and quality-of-life improvements to 
the area.
    The positive outcomes of early AML partnerships and commitment to 
reclamation efforts in the pilot watersheds resulted in Federal funds 
that were specifically directed at AML programs. Since then the BLM and 
Forest Service have continued to fund the cleanup of abandoned hardrock 
mines using a variety of approaches designed to meet multiple 
objectives, including addressing physical safety hazards as well as 
hazardous substances and non-hazardous sources of pollution and 
contamination. The following are examples of successful AML reclamation 
projects on National Forest System lands.

Stibnite Mine (near Yellowpine, Idaho), Payette NF, Valley County, 
        Idaho
    The Stibnite Mine site is mixed ownership of Forest Service and 
private. The Forest Service, EPA and the State of Idaho worked closely 
and cooperatively on reclaiming and remediating the mine site through a 
Memorandum of Understanding. Remediation began in the late 1990's and 
included stabilization of a large mill tailings pile in and around 
Meadow Creek, stabilization of the Meadow Creek diversion, design of a 
new channel through the tailings area and placing Meadow Creek into the 
new channel, and shaping and revegetating the spent ore pile. Much of 
this work was completed by Mobil Oil Corp. The Forest Service completed 
the clean up of tons of trash and abandoned equipment as well as 
covering and capping ponds from a cyanide leach pilot test plant. The 
State of Idaho removed milling facilities and chemicals located on the 
private lands.

Garnet Dike Mine, Sierra NF, Fresno County, California
    The Garnet Dike Mine is located in the Kings River Special 
Management Area of the Sierra National Forest. This is an area of the 
wild and scenic portion of the Kings River. This cleanup project 
included removal of explosives, installation of two bat-friendly gates, 
foam closures of a shaft and adit, and two wire-rope warning fences 
with signs on a 40 ft. diameter daylighted slope. This was the first 
phase of an on-going project that will include removal of structures, 
debris and abandoned equipment in future years. The cleanup completed 
has provided for improved public safety and protection of critical bat 
habitat.

El Portal Barite Mine, Sierra NF, Mariposa County, California
    The El Portal Mine site is located on the Sierra NF near Yosemite 
National Park. During the mid 1990s the Forest Service completed a 
CERCLA removal action at this mine site to address heavy metal 
contamination. In 2005, additional work was completed to improve public 
safety, protect bat habitat and allow continued bat occupancy of mining 
features. The project included installing bat-friendly angle iron gates 
at two adits and foam closures at another adit and tunnel portal. 
Yosemite National Park personnel played an integral role in assisting 
the Forest with this project. One of their administrative sites was 
made available for a staging area; they assisted with traffic control, 
made a forklift and operator available and provided other logistical 
support.

Champion Mine, Umpqua NF, near Cottage Grove, Oregon
    The Champion Mine cleanup project in Lane County, Oregon was 
completed by the Forest Service in 2006. Project work included the 
removal of waste rock, diesel and heavy oil contamination, treatment of 
acid mine drainage and encapsulation of hazardous mill tailings. These 
actions will reduce or eliminate contaminants in Champion Creek which 
is a tributary to Row River and Dorena Reservoir, a source of drinking 
water for the City of Cottage Grove, Oregon.

Red River Area, Questa, New Mexico
    The Red River area has had a history of mining but has now 
successfully transitioned to a tourism economy based on skiing and 
other recreational activities. The Forest Service helped promote this 
new economic base by ensuring the safety of Federal Lands. We worked 
closely with the State, EPA, U.S. Fish and Wildlife Service, Trout 
Unlimited and the ski resort owners to improve the safety of the area 
by consolidating contamination from abandoned mine sites into a single, 
capped repository. One of these sites was situated upstream of the City 
of Red River's water system. Other activities included closing exposed 
adits, minimizing erosion and stabilizing slopes.

Current Sources of Funding
    The Forest Service addresses AML reclamation primarily through two 
programs.
    The Environmental Compliance and Protection (ECAP) program provides 
for cleanup of hazardous materials and restoration of natural resources 
damaged by hazardous materials at abandoned mines on NFS lands. ECAP 
cleanups are typically done to comply with CERCLA (Comprehensive 
Environmental Response, Compensation and Liability Act), RCRA (Resource 
Conservation and Recovery Act) and CWA (Clean Water Act) requirements.
    The Abandoned Mine Lands (AML) program provides for non-CERCLA 
related cleanup (uncontaminated sediment, erosion), and mitigation of 
safety hazards at abandoned and/or inactive mines on NFS lands. The AML 
program is also responsible for the basic inventory of abandoned mines 
on NFS Lands.
    In addition, the Forest Service also receives funds from the USDA 
hazardous material management account (HMMA). The USDA has also 
received approximately $300 million in funding or work from potentially 
responsible parties (PRPs) since 1995. The majority of these funds were 
recovered from PRPs on NFS Lands.
    Current funding for the AML program for the BLM comes from several 
sources, including the Soil, Water and Air program and the Department 
of the Interior's Central Hazardous Materials Fund. The BLM receives 
approximately $12-14 million for the AML program each year. Finally, 
receipts from land sales around the Las Vegas area under the Southern 
Nevada Public Lands Management Act have provided additional funds for 
local AML projects.
    Additional funds and/or support come from partnering with State and 
Federal agencies on mine cleanups and safety mitigation. In some cases, 
particularly for states that receive SMCRA (Surface Mining Coal and 
Reclamation Act) reclamation funds, cleanup of abandoned mine safety 
hazards is usually a joint effort.
    More recently, partnerships have been developed with groups such as 
Trout Unlimited, Bat Conservation International and Tiffany and Company 
to successfully complete cleanup efforts. By forming partnerships 
during the reclamation process, project stakeholders collectively 
maximize and pool resources that would not have been readily available 
if only one entity was involved.

Looking to the Future
    Building on their existing AML inventories, the BLM and Forest 
Service can develop better program planning and prioritization of sites 
for reclamation. Additional data collection is necessary to ensure that 
all sites that pose significant health and safety threats are 
prioritized appropriately. In an effort to coordinate AML activities, 
the BLM has embarked on an effort to develop a National Mine Lands 
Inventory that will show AML and all mine site locations on Federal 
land. Additionally, the Forest Service is in the process of putting its 
regional AML data into a national database, making it available for 
land use planning and other resource management activities.
    Past partnerships show that collaboration and coordination result 
in more efficient use of limited funding. Looking to private sector, 
academia and nonprofit alliances will tap new capabilities in 
technology transfer, funding sources and knowledge management. Future 
AML site successes depend on initiating and building long-term 
relationships with local individuals and organizations that are in tune 
with the local wildlife, traditional culture and character of the 
community.
    With many years of experience cleaning up mining sites, the Forest 
Service and BLM know that the greatest savings in cleanup costs come 
from technology improvements. To bring these technology advancements to 
bear on public lands, both agencies must partner with others in 
training and technical assistance. The next 10 years will certainly 
bring new and cost-effective tools to AML reclamation.
    With the current estimates of AML sites on public lands in the 
hundreds of thousands, reclamation will not be completed in the near 
term. Preventing future AML sites is also a crucial goal of any land 
management agency's AML program. Sustainable mining practices, 
environmentally protective mine closure planning, optimal permitting 
requirements and financial assurances are all tools that land 
management agencies are using to encourage mining companies to operate 
under a sustainable business model that follows a mine's life from 
startup to clean closure.
    Mr. Chairman, thank you for the opportunity to talk about the 
hardrock Abandoned Mine Lands program. I would be happy to answer any 
questions.
                                 ______
                                 
    [The response to questions submitted for the record by the 
U.S. Forest Service follows:]

October 17, 2007

The Honorable Jim Costa, Chairman
Subcommittee on Energy and Natural Resources
Committee on Natural Resources
United States House of Representatives
1626 Longworth House Office Building
Washington, DC 20515-5255

Dear Chairman Costa:

    Enclosed please find responses to the questions for the record 
submitted by the Subcommittee on Energy and Natural Resources of the 
House Committee on Natural Resources from the October 2, 2007, hearing 
on H.R. 2262, ``The Hardrock Mining and Reclamation Act of 2007.''
1.  You testified that the Bureau of Land Management is developing a 
        ``National Mine Lands Inventory,'' and the Forest Service is in 
        the process of putting regional inventory data into a national 
        database.
1a.  Are the two agencies using similar site prioritization systems?
    Descriptions of CERCLA and non-CERCLA cleanup projects, including 
the costs and benefits of each, are submitted by the Forest Service 
Regional Offices two years prior to the desired implementation date. 
Because the number of projects always exceeds the available funding, 
they are prioritized for funding by a team of Washington Office and 
Regional Office representatives using the Choosing by Advantages (CBA) 
methodology. In the CBA process all proposed projects are evaluated and 
assigned scores based on potential benefits to:
      Human health and safety;
      Environmental factors such as water quality;
      Economic and social factors including partnerships, 
public interest and overall cost.
    The projects are then ranked on the basis of their scores and 
funded as money becomes available through the budget process.
    Safety Mitigation Projects are prioritized at the regional level 
and submitted to the National Office for funding. Criteria used for 
prioritizing safety mitigation projects are based on the severity of 
the hazard and accessibility to the public including:
      Sites where a death, injury or close call has occurred;
      Sites where complaints or concerns have been expressed by 
the public or others;
      Sites nearby developed recreation sites or other 
concentrations of people;
      Sites accessed by, or near forest roads or trails;
      Other sites based on the severity of the hazard and 
accessibility to the public.
    Unlike cleanup projects, each region can only receive up to a 
certain percentage of the national budget. This percentage is mutually 
agreed upon by the Regions, and is based on the number of abandoned 
mines in the region and the degree of public exposure risk.
    The BLM has similar criteria for its AML water quality projects and 
physical safety hazard sites. The criteria are in the BLM's strategic 
plan submitted to the committee for the record. The BLM field 
organization applies the criteria to prioritize their sites within 
project descriptions entered into the Bureau's Budget Planning System 
for each fiscal year. Then, AML program leads from the BLM State 
Offices and Headquarters collaborate on funding allocations. Like the 
Forest Service, funding requests exceed available dollars. In order to 
complete ongoing projects only about 10-20 percent of a given year's 
available allocation are available for new projects.
1b.  A Decade of Progress estimates that there are approximately 47,000 
        sites identified on BLM and FS Lands, but, we have also heard 
        estimates closer to 100,000. Please explain the basis of each 
        estimate; what percent of each inventory is based on field 
        surveys as opposed to old mineral records?
    The 47,000 figure reflects the number of records currently 
contained in the BLM (12,000) database and a Forest Service estimate of 
total sites (35,000) made based on mineral records collected by the 
former USDI Bureau of Mines (BOM) and recorded in the Mining 
Availability System/Mineral Indicator Location System (MAS/MILS) 
database. Records in MAS/MILS in the mid 1990's for both BLM and FS 
administered lands showed approximately 100,000 abandoned mines (65,000 
and 39,000 for BLM and FS respectively). BLM and FS field surveys have 
only been done on a small percentage of the estimated sites
    MAS/MILS data were based on information in published reports and 
maps, and to some extent from private and public sources and included 
data on abandoned coal mines. Data in MAS/MILS were not field verified, 
but there was some attempt by the BOM over the years from the 1960's to 
the 1990's to clean up obvious location errors. Management of the MAS/
MILS database was taken over by the U.S. Geological Survey when the BOM 
was disbanded in the mid 1990's.
    MAS/MILS data remain the most comprehensive basis for estimates of 
total AML sites on federal lands. BLM and FS field surveys have only 
been done on a small percentage of the estimated sites. BLM and FS 
inventory efforts during the 1990s and continuing to the present are 
focused on identifying those AML sites which pose the greatest threat 
to human health and the environment and scheduling them for cleanup, 
rather than simply adding to the known inventory.
1c.  When was the last time the Forest Service did inventory work?
    Inventory for the purpose of refining the estimate of total AML 
sites was de-emphasized by the FS in the 1997-1998 period when the 
focus shifted to identifying sites which pose the greatest threat to 
human health and the environment and scheduling them for cleanup. Some 
basic inventory continues where there are known gaps in data, and in 
response to discovery of sites by the public and work crews involved in 
cleanup of priority sites.
1d.  The northwest mining association testified that we probably do not 
        need to develop another AML inventory-that we know enough 
        already. Does the forest service agree? Are there some areas, 
        or States, where you think there are significant gaps in our 
        understanding of the abandoned mine land problem?
    The FS agrees with this assessment to an extent. Our main focus is 
currently on assessing the relative risk to human health and the 
environment posed by known sites, and prioritizing them to receive 
available funding. This does not mean that all inventory effort should 
be discontinued. Some basic inventory must continue where there are 
known gaps in data, and in response to discovery of additional sites by 
the FS personnel and the public, and in populated paces and high use 
areas.
1e.  Please detail how the Forest Service coordinates with States on 
        inventory compilation and management, and on reclamation 
        prioritization and projects.
    The FS Regions coordinated with most States during the inventory 
phase of the AML Program by using data from State AML inventories, or 
by the use of MAS/MILS data which was often the basis of State AML 
inventories. The FS is currently developing a national AML database 
which will be used among other things, to track any continuing 
discovery of AML sites and cleanup status of known sites. Once this 
national database is complete the FS will be able to share data 
regarding the presence, priority and cleanup status of AML sites with 
States, other federal agencies and the public. In addition, we 
understand that the Department of the Interior (DOI)'s Office of 
Inspector General has identified the need for the BLM to undertake some 
additional inventory work in populated and high-use areas. We suggest 
contacting the BLM for additional information.
    Coordination with States on reclamation priority and projects 
varies depending on the State involved and the type of cleanup project.
    The FS works closely on AML safety hazard mitigation with States 
such as Colorado, Utah and Montana which have abandoned mine 
reclamation programs funded under Title IV of the Surface Mining 
Control and Reclamation Act (SMCRA). These funds allow States to work 
on hardrock mines once they have certified that priority coal 
reclamation has been completed. In Colorado for example the FS provides 
funds to the State for safety project planning and execution on FS 
Lands. Coordination with States like Idaho and California that do not 
have access to SMCRA reclamation funds occurs to a lesser extent 
through sharing of information and project planning.
    Coordination with States on environmental cleanup projects is 
encouraged through the use of project selection criteria which rewards 
State/federal partnerships and evidence of State priorities such as 
work within a State priority watershed or water quality limited stream 
or waterbody.
    Formal partnerships or agreements exist where cleanup involves 
mixed ownership sites that include private or State lands.
    The BLM AML Program coordinates with State governments and other 
entities via the AML Program Lead in each of the eleven AML States. In 
addition to the on-the-ground risk criteria, the BLM recognizes 
partnership arrangements as high priority opportunities.
1f.  How do your inventories and site prioritization process 
        incorporate growing residential and recreational growth in and 
        near areas with abandoned mines?
    For environmental cleanups, the FS project selection process 
includes a measure of how much public exposure to contaminants exist at 
a given site. Sites with such exposure are assigned a higher priority. 
This exposure may result from growing residential, or from public use 
of campsites, roads or trails.
    For safety cleanups, the FS allocates a greater percentage of the 
national budget to Regions with abandoned mines that are near 
population centers. For example Regions 2 and 5 receive the highest 
percentage of the national budget due to the number of abandoned mines 
near population centers in Colorado and California respectively.
    The BLM AML Program's inventory methodology incorporates growing 
residential and recreational access areas with a focus on populated 
places and high use areas.
2.  Please help the Subcommittee better understand the potential costs 
        of hardrock abandoned mine reclamation on public lands.
2a.  What are the cost estimates for reclaiming hardrock abandoned 
        mines on Forest Service land? On BLM land? Do those estimates 
        include superfund sites? Please break down the estimates by 
        State, if possible. Do those figures include restoration, or 
        just remediation?
    The FS allocates funding by Region, and does not have a break down 
of cost estimates by State. Funding by Region for the last 5 years is 
presented below.
    In 1994, the FS estimated that will cost approximately $2.1 billion 
and $2.3 billion dollars respectively to cleanup hazardous substances 
and mitigated safety hazards at abandoned mines on FS Lands. Using a 
simple inflation multiplier based on the consumer price index the 1994 
estimate would be approximately $5.55 billion dollars in 2007 dollars. 
It should be stressed that these are very rough approximations at best 
since the actual number of abandoned mines and the extent of cleanup 
that will be required is unknown.
    To date, the Forest Service has spent $180 to $200 million dollars 
of USDA and FS funds on abandoned mine environmental cleanup and safety 
mitigation from 1998 to 2008. This is a net figure and does not include 
overhead and indirect costs. Exact figures are not available since 
historic records do not separate environmental cleanups at FS 
facilities from abandoned mines.
    Finally records show that nearly $300 million dollars of work or 
funding has been provided by potentially responsible parties (PRP) at 
abandoned mine sites.
    For the most part FS cleanup and safety mitigation work would be 
described as remediation rather than restoration. The primary focus is 
on eliminating or minimizing the environmental or safety threats 
present rather than fully restoring land and water to pre-mining 
conditions.
    Based on the BLM's AML Program's Strategic Plan, the BLM projects 
needs of approximately $130,000,000 for AML projects scheduled through 
FY 2012, which does not represents all of the
    AML work that needs to be done on BLM lands in the years beyond 
2012. The work currently identified includes a wide variety of cleanup 
solutions, for example: mitigation with signs and fences, complete 
closure or removal of physical safety hazards, bat gating, restoration 
of streambeds, and removal of hazardous materials to repositories. Most 
of these projects are medium size sites and do not include several 
special situations, such as the Kelly Mine/Rand Mining District in 
California. This is a large, potentially high-cost CERCLA site
    The following are cost estimates spelled out, State by State, in 
the BLM's AML Strategic Plan:

[GRAPHIC] [TIFF OMITTED] T8137.011

2b.  How does total annual funding for reclamation compare to the 
        total need?
    Relying solely on a FS budget of $15 million dollars annually in 
direct project work, it would take 370 years to complete the estimated 
$5.55 (2007 dollars) billion dollars of cleanup and safety mitigation 
work. If we assume that USDA and PRP funding remains constant at rate 
of roughly $35 million dollars (based on 10 years of record), then it 
would take approximately 105 years to complete the safety and 
mitigation work. It should be stressed that these are very rough 
approximations at best since the actual number of abandoned mines and 
the extent of cleanup that will be required is unknown.
2c.  At your current rate of funding, when might you have secured your 
        priority sites and/or watersheds?
    The FS does not have the environmental and physical safety data 
available on all AML site to support identification of a complete 
priority list of environmental cleanup or safety mitigation projects. 
Although we believe that the time frame to address priority sites would 
be less than that estimated for the total need (see above), we do not 
have sufficient information to make a defensible estimate for 
completing priority work.
2d.  A decade of progress mentions the successful reclamation project 
        in the Questa area, around the Red River, with potential 
        benefits for the city of Red River's water system. Has the 
        Forest Service done any cost-benefit analysis of that 
        reclamation project, or assessed what potential costs were 
        avoided through reclamation?
    The Placer-Pioneer Watershed (Red River) project was completed in 
FY 2007. Here is summary of the benefits we expect to see over the next 
few years:
    The Placer Creek Watershed and Pioneer Creek Watershed are located 
directly southwest of and adjacent to the town of Red River and drain 
into the Red River. The town of Red River's water system and Red River 
Ski Resort are located in the Pioneer Creek watershed.
    The town of Red River and Red River Ski Area are visited by 
thousands of visitors and tourists year round, including fishermen, 
hunters, horseback riders, campers, hikers, skiers, bikers, and folks 
attending seasonal events such as running marathons, rafting 
competitions, & school events. As part of this project the Forest 
Service removed 8,050 cubic yards of tailings and waste rock containing 
elevated levels of lead and arsenic from the banks of Placer Creek, 
restoring over 2 miles of perennial stream improving the water quality, 
and increasing water quantity to the Ski Area and the town of Red 
River. The Forest Service also removed 5,900 cubic yards of mine 
tailings and waste rock containing elevated levels of lead and arsenic 
from the banks of Pioneer Creek, restoring over 4 miles of perennial 
stream, improving water quality and increasing water quantity to the 
Ski Area and the town of Red River
    The project benefits realized were:
      Removal of waste rock and tailings eliminated direct 
long-term exposure of human, animals and plants to high levels of 
arsenic and lead at and downstream of the site in the town of Red River 
and the Ski Area. The resulting benefits include reduced water 
treatment costs in Red River and the Ski Area and the increased human 
health and safety of residents and visitors. These direct benefits to 
human and ecosystem health, and secondary benefits due to the continued 
economic benefits of recreation and tourism are significant, but have 
not been quantified in monetary terms.
      Closure of 8 hazardous mine openings (adits and shafts) 
eliminated the risk of human injury or death over the long-term, as 
well as the negative affects to recreation and tourism that would 
result if such injury or death occurred. This is a long-term benefit to 
visitors to the National Forest as well as visitors to the nearby town 
of Red River and Ski Area, but the benefit has not been quantified in 
monetary terms.
    The cost of the Placer and Pioneer remediation was $1.1 million. We 
will monitor the effectiveness of the remediation for the next 3 to 5 
years.
    The next and final phase of the Red River remediation is to 
remediate the mine waste located within Bitter Creek Watershed, which 
contains over 44,000 cubic yards of tailings and waste (elevated levels 
of arsenic and lead). The Bitter Creek Watershed is situated adjacent 
and directly northeast of the town of Red River. The total cost of this 
remediation is $2.8 million and with $1.3 million currently available 
the Forest Service is planning to initiate the project in May 2008. 
Funding to complete the project will compete for funding through the 
national project selection process.
    Please provide a list of program offices in the forest service and 
the BLM which are involved in abandoned mine cleanup. Please estimate 
resources (staff and funding) in each of those offices for each of the 
past five years.
    Attached is a list of National and Regional Office contacts for the 
Environmental Compliance and Abandoned Mine Land Program in the Forest 
Service. There are additional personnel involved less than full time in 
these programs at the local (national forest) level. The only estimate 
we can provide is an estimate of FS (excludes USDA and PRP) funding 
received by each of the nine Regions based 2003 through 2007 budgets.
    FS Environmental Compliance and Protection/Abandoned Mine Land 
(ECAP/AML) Allocation by Region, 2003-2007 1
---------------------------------------------------------------------------
    \1\ Approximately 70-80 percent of FS ECAP/AML Allocation is for 
AML Environmental Cleanup and Safety Hazard Mitigation. The remaining 
20 to 30 percent is spent on FS facilities.
[GRAPHIC] [TIFF OMITTED] T8137.012

    .eps R1--Montana, North Dakota, parts of Idaho, South Dakota
     R2--Colorado, South Dakota, Nebraska, Kansas, Wyoming
     R3--New Mexico, Arizona
     R4--Utah, Nevada, part of Idaho, Wyoming and California
     R5--California
     R6--Oregon, Washington
     R8--Southern States
     R9--Northeastern States
    R10--Alaska
    The following shows the BLM offices that have been involved in AML 
related cleanup work for the past five years and the amount of funding 
distributed:

[GRAPHIC] [TIFF OMITTED] T8137.013

    Thank you for your interest in the management of the National 
Forests.

Sincerely,

/s/ Douglas W. Crandall
Director, Legislative Affairs

cc: Dave Whittekiend
                                 ______
                                 
    Mr. Costa. We appreciate that very much, and your focus, 
and I am sure we will have a number of questions as it relates 
to your efforts.
    Our next witness is Senator Greg Lind, State Senator from 
Montana, and many of us found our origin from state 
legislatures from around the country. Almost half the Members 
of Congress are from state legislatures, and as one who is very 
fond of their experience in those years there, I am very 
pleased that you are here testifying on your experience in 
Montana. Senator Greg Lind.

             STATEMENT OF THE HONORABLE GREG LIND, 
                     STATE SENATOR, MONTANA

    Mr. Lind. Thank you, Mr. Chairman, Distinguished Members of 
the Subcommittee. I appreciate this opportunity to testify on 
this important matter.
    For the record, I am a physician practicing in Missoula, 
Montana. I have served in the legislature since 2004, and in 
2007, I chaired the Senate Natural Resource and Energy 
Committee.
    With my testimony, I would like to touch on some of the 
problems with our mining legacy in Montana, and appeal to you 
for a promise for a different future.
    Across the state many operations permitted on Federal lands 
under the 1872 mining law have caused pollution to important 
water resources, resulting in contaminated drinking water, harm 
to fish and wildlife, impacts to residential and agricultural 
lands, and significant cost to our taxpayers. Several mines 
will present health and environmental problems forever.
    First and foremost, abandoned mines are not just the mines 
that were operated with pick and shovel in the last century, 
but in Montana, we now have a legacy of modern mine problems 
that are the responsibility of state, tribal and the Federal 
government.
    I would like to touch on three examples from recent history 
in Montana. The common theme here will be water.
    Zortman Landusky: Zortman Landusky gold mine is located on 
Bureau of Land Management land in the Little Rocky Mountains of 
north central Montana adjacent to the Fort Belknap Reservation. 
It operated between 1979 and 1998. Numerous cyanide releases 
occurred during operations which have affected the community 
drinking water supply. Water quality problems escalated in 
1991, when acid mine drainage had permeated ground and surface 
water.
    In 1998, the company filed for bankruptcy, leaving 
insufficient funds to cover the reclamation costs for long-term 
water pollution. State and Federal scientists have determined 
that acid and metal polluted runoff from the mine will continue 
in perpetuity.
    The tribes worked with the legislature to secure passage of 
a bill in 2005. We appropriated roughly $19 million of state 
money to pay for perpetual water treatment at this site.
    Shifting to Beal Mountain, Beal Mountain Mine is an open-
pit cyanide leach gold mine located in Beaverhead Deerlodge 
National Forest and operated by Pegasus Gold from 1989 until 
bankruptcy in 1998. After cessation of mining, water quality 
issues continued in contamination of steams with cyanide, 
selenium and copper have continued.
    The Forest Service and state government have already spent 
$5 million in public funds to install and operate water 
treatment systems, but that is just the beginning. Forest 
Service estimates that an additional $13 million is needed for 
additional reclamation and long-term water treatment.
    Those are some examples from the recent past. In addition 
to these, we have a legacy of historical mine problems. There 
is an inventory of mines in Montana that I thought it was a 
large number until I heard of California's experience, but we 
have at least 6,000 inventoried abandoned mines in the State of 
Montana, 350 are top priority sites for restoration because of 
ongoing safety risks to public health and the amount of 
pollution generated at these sites. According to Montana DEQ, 
over 3,700 miles of rivers and streams in Montana are polluted 
by metals, primarily from abandoned mines.
    To date, the state has spent over $26 million for historic 
abandoned mine cleanup and it estimates that the unfunded costs 
for remediation at the top 350 sites of these historic sites 
are in excess of $91 million. That is a very conservative 
estimate. Our state agency estimates it will cost our taxpayers 
hundreds of millions of dollars to cleanup all the historic 
sites in the State of Montana.
    As you know, resources are limited and needs are great. The 
State of Montana is currently spending about $3.5 million a 
year at some of the state's abandoned sites and we are working 
through those problems that do exist.
    I am going to shift briefly to a Superfund site. Montana's 
capital city, Helena, obtained 70 percent of its drinking water 
from 10-Mile Creek Basin, in which are sited 150 abandoned mine 
sites. The estimates to cleanup 70 of those sites that are the 
highest priority is calculated in excess of $22 million. The 
state's share would be 10 percent of that, and those problems 
are ongoing.
    Montana faces funding challenges for reclamation and long-
term water treatment resulting from modern and historic 
abandoned mine operations. We anticipate the costs to be well 
over $180 million just for the sites I have mentioned in my 
written testimony. I have abbreviated it here. This is a 
conservative estimate and includes resources that have already 
been allocated and projections for future needs.
    I would encourage the committee to please close the door on 
projects that require water treatment in perpetuity. Perpetuity 
is very expensive. We have found that out all too well in 
Montana, and provide the regulators the tools to say no to 
projects that aren't appropriate, such as the one adjacent to--
the Crown Butte site adjacent to Yellowstone National Park that 
we paid $65 million to buy back.
    I thank you for your time and I look forward to your 
questions, and appreciate your work.
    [The prepared statement of Mr. Lind follows:]

      Statement of The Honorable Greg Lind, Montana State Senator

    I thank the chair and subcommittee members for inviting me to come 
and testify on this important matter.
    Mr. Chairman and distinguished members of the subcommittee: My name 
is Greg Lind. I am a practicing physician in Missoula, MT and member of 
the Montana Legislature. I was elected in 2004 and served as chair of 
the Senate Natural Resource and Energy Committee in 2007.
The Need for Reform
    The need for reform of the 1872 Mining Law is clear in Montana. 
Across the state, mining operations permitted on federal land under the 
1872 Mining Law have caused substantial pollution to important Montana 
water resources, resulting in contaminated drinking water supplies, 
harm to fish and wildlife, impacts to residential and agricultural 
lands, and significant costs to taxpayers. Several mines have resulted 
in such severe water quality problems that they will generate 
contaminated runoff forever. It is time to reform the Mining Law of 
1872.
    One of the key issues in the debate about reforming the law is the 
need to clean up abandoned mines and create a source of revenue to 
ensure that the public safety risks and environmental damage from these 
mines is corrected. I commend the Chairman for holding the hearing 
today to address these issues.
    In our state of Montana, we have made a significant investment in 
understanding the problems from abandoned hardrock mines around the 
state and created an aggressive program to clean up these mines. I want 
to make a few remarks about the scope of the abandoned mine problem 
that we have identified in Montana, because I expect these same 
problems are repeated in states across the West.
    First and foremost, abandoned mines are not just the mines that 
were operated by pick and shovel in the last century. In Montana, we 
now have a legacy of modern mine disasters that are now the 
responsibility of the state, tribal and federal government. Here are 
just a few examples of the mines that have been operated in Montana in 
the past 20 years.
Impacts of Modern Mines
Zortman Landusky Mine
    The Zortman Landusky gold mine is located on Bureau of Land 
Management (BLM) land in the Little Rocky Mountains of north central 
Montana. The mine adjoins the Fort Belknap Reservation to the north, 
home to the Gros Ventre and Assiniboine Tribes. It operated from 1979-
1998. Mining operations resulted in widespread pollution to surface and 
groundwater in the Little Rockies. Numerous cyanide releases occurred 
during operations, including a release of 50,000 gallons into Alder 
Gulch, which affected a community drinking water supply. 1 
Water quality problems escalated when acid mine drainage developed at 
the mine. By 1991, acid runoff from the mine had permeated surface and 
groundwater. 2 In 1993, the EPA and the Tribes filed suit 
against the company, charging that its discharges ``present human 
health risks'' and that ``the acidity of the discharges would kill fish 
and aquatic life.'' 3
    In 1998, the company filed for bankruptcy, leaving insufficient 
funds to cover reclamation costs and long-term water pollution. State 
and federal scientists have determined that acid and metals-polluted 
runoff from the mine will continue in perpetuity. As a result, costly 
water treatment systems must be maintained to prevent further 
contamination of downstream water resources. 4
    The BLM's June 2004 Action Memorandum describes the threats to the 
public health and welfare and the environment that could result if 
operation of the water capture and treatment systems are not continued 
at the mines. If the systems fail or ceases operation, the BLM states 
that ``the release of hazardous substances would increase greatly 
without the benefit of treatment, creating significant environmental 
damage. This includes the release of solutions containing metals such 
as arsenic, cadmium, copper, selenium, and zinc; plus cyanide 
complexes, nitrates, and solutions having low pH (acidic) levels''. 
5 The document warns that drinking water supplies or 
sensitive ecosystems could be contaminated and that human and animal 
populations could be exposed to the toxic effects of these substances. 
Over a billion gallons of contaminated run-off has been intercepted 
from the mine since 1999. 6
    Faced with the on-going threat to tribal water resources, the Fort 
Belknap Tribes have spent endless hours and scarce tribal resources to 
advance funding legislation. The Tribes worked with state legislator 
Rep. Jonathon Windy Boy on the passage of a bill in the 2005 Montana 
legislature that appropriated approximately $19 million in state funds 
to pay for long-term water treatment at the mine. 7
    While progress has been made, issues at the mine are far from over. 
A federal Court Judge Donald Molloy recently wrote, ``It is undisputed 
that the Zortman Landusky mines have devastated portions of the Little 
Rockies, and will have effects on the surrounding area, including the 
Fort Belknap Reservation for generations. That devastation, and the 
resulting impact on tribal culture, cannot be overstated.''
Beal Mountain Mine:
    The Beal Mountain Mine is an open-pit cyanide leach gold mine 
located on the Beaverhead Deerlodge National Forest of western Montana. 
The mine was operated by Pegasus Gold Corp. from 1989 until its 
bankruptcy in 1998. Even after mining operations ceased, it continued 
to pollute neighboring streams with cyanide, selenium and copper. 
8 In 2003, scientists determined that native westslope 
cutthroat trout in the mountain streams downstream of the mine were 
contaminated with harmful amounts of selenium caused by mining 
activities. 9
    Warren McCullough, of the Montana Department of Environmental 
Quality, told the Montana Standard in July 2003 that the aftermath of 
the closed Beal Mountain Mine is ``not going to be something that we're 
ever going to be able to walk away from.'' In 2003 the Forest Service 
pulled the mine into a federal ``time critical'' cleanup program 
because conditions at the mine present a ``substantial endangerment to 
human health and the environment.''
    The Forest Service and State government have already spent $5 
million in public funds to install and operate a water treatment 
system, but that is just the beginning. 10 The Forest 
Service estimates that an additional $13 million is needed for 
additional reclamation and long-term water treatment. 11
Basin Creek Mine:
    The Basin Creek Mine, which is located in the Beaverhead Deerlodge 
National Forest near Helena, Montana, operated from 1989 to 1991. After 
the Pegasus bankruptcy in 1998, responsibility for the mine fell to the 
State of Montana and the U.S. Forest Service. After spending the $6.5 
million reclamation bond, reclamation work was still needed and water 
pollution problems persisted. The Forest Service has spent $2 million, 
and the State of Montana has spent over $5 million in public funds, 
with another $1 million to be spent in 2007. 12
Kendall Mine:
    The Kendall Mine is an open pit gold mine, originally permitted on 
BLM land in north-central Montana--a key agricultural region. Although 
the mine operated for just seven years (1989-1995) it caused 
substantial impacts to water resources. The mine experienced several 
cyanide releases during its years of operation. 13 Mining 
operations also polluted waters with contaminants such as thallium, 
arsenic and nitrates. 14
    In October 2001, six families who live downstream of the mine filed 
suit against the company for alleged damages to water supplies and 
private property. According to the complaint, mine activities have 
deprived livestock of water, crops of irrigation and harmed the value 
of downstream ranches and other property. 15
    Although the mine was originally permitted on lands managed by the 
BLM, the BLM subsequently entered into a land swap with the company, 
leaving the State to deal with the on-going reclamation and water 
management issues at the mine. To date, approximately $500,000 in 
public funds have been spent on an EIS to develop a new reclamation 
plan for the site because water treatment issues were not anticipated 
in the original mine permit. 16
Impacts of Historic Abandoned Mines
    In addition to these modern mine disasters, the State of Montana 
has also inherited a vast legacy of historic abandoned mines. The state 
conducted a comprehensive inventory of the abandoned hardrock mines on 
federal, tribal, state and private lands to determine where the problem 
sites were and to develop a comprehensive plan to address the pollution 
and health risks from these mines. There are 6,000 inventoried 
abandoned mines scattered around Montana in our old mining districts, 
including 350 or more sites that are top priority for restoration 
because of the ongoing safety risks or the amount of pollution 
generated by the mine.
    These 6,000 old mines pose many hazards, ranging from physical and 
health hazards from open mine shafts or exposure to toxic materials to 
environmental hazards such as water contamination from mine tailings or 
waste rock. According to the Montana Department of Environmental 
Quality, over 3,700 miles of rivers and streams in Montana are polluted 
by metals, primarily from abandoned mines. 17
    To date, the State has spent $26,748,276 for historic abandoned 
mine cleanup, and it estimates the unfunded cost of remediation for the 
350 top priority mines at $91,815,000. 18 Our state agency 
estimates that it will cost hundreds of millions of dollars to clean up 
all the problem mine sites identified around Montana.
    The state of Montana has been able to find a small amount of 
federal, state and local funds to address the water quality and safety 
issues at some of the state's abandoned hardrock mine sites, 
approximately $3.5 million a year. This funding is provided largely by 
federal grants derived from a tax on coal under the Surface Mining 
Control and Reclamation Act of 1977 (SMCRA). It is not enough to 
address the serious problems posed by abandoned mines in Montana, and 
the tremendous backlog of sites in need of timely remediation. 
Montana's abandoned mine lands program is an effective program with 
demonstrated on-the-ground successes. Yet, the limited funding 
available to the State, allows the program to remediate only a few 
sites each year. The following examples highlight the problems and the 
need for funding:
Silver Creek, Marysville
    Abandoned mines in the Marysville area north of Montana's capitol 
city have caused extensive mercury contamination in the area, 
precluding land development and presenting public health risks. Mine 
pollution has also contributed towards the degradation of area streams, 
particularly from mercury. The State has issued a fish consumption 
advisory warning the public of the health hazards associated with 
eating fish from Silver Creek. Mine cleanup costs are projected at $4 
million. 19
McLaren Tailings, Cooke City
    The New World Mining District has been extensively damaged by 
historic mining. One of the sites, the McLaren Mill, regularly 
experienced overflows from the tailings impoundment downstream into 
Yellowstone National Park. 20 By the late 1960s, Soda Butte 
Creek was considered the most polluted stream entering Yellowstone 
National Park, adversely affecting the fish producing capacity of Soda 
Butte Creek within the Park. Some initial remediation work was done in 
1969, but current studies show that the McLaren Tailings Site remains a 
significant source of acid drainage and heavy metal pollution to Soda 
Butte Creek. 21 The Montana AML program projects the cost of 
mine cleanup at $4 million. 22
Superfund Program
    A number of Montana's more egregious mine sites have been 
designated Superfund Sites on the National Priority List. Funding for 
cleanup of these sites has seriously declined in recent years. The tax 
that supports the federal Superfund Trust Fund hasn't been collected 
for 10 years, and very little money remains in the fund. The following 
example demonstrates the real need for reclamation funding.
Ten Mile Creek
    Montana's state capitol, the City of Helena, obtains 70% of its 
municipal drinking water from the Ten Mile Creek watershed, which also 
contains an estimated 150 abandoned hardrock mines. During heavy rains 
or spring runoff, the mines and their associated waste piles and 
tailings contribute to the contamination of surface water, groundwater, 
and stream sediments throughout the drainage basin of upper Ten Mile 
Creek and its tributaries. 23
    The EPA has determined that these mines pose a current and 
potential threat to human health and the environment. In 1999, the 
drainage was added to the EPA's National Priorities List for Superfund 
cleanup. Cost for cleaning up 70 of the 150 sites is calculated at 
$22,427,000 24, of which the State of Montana must 
contribute 10%. The availability of funds has been piece-meal at best. 
Much more remains to be done.
Economic Benefits of Cleanup
    The benefits accrued from abandoned mine cleanup go far beyond the 
benefits to public health, safety and the environment. Removing the 
messes of a hundred years of mining takes millions of dollars. Those 
millions create hundreds of jobs. Across Montana, consultants, 
engineers and construction crews are rebuilding streams, removing 
contaminated soils and planting new vegetation. These projects 
represent a net injection of new funds into Montana's economy. 
Abandoned mine cleanup provides substantial economic benefits, and many 
of the jobs are created in rural areas. According to the federal Office 
of Surface Mining (OSM), the economic impact from abandoned mine 
remediation projects completed in Montana in 2004 totaled $5.9 million. 
25 The projected economic benefit of the McLaren Tailings 
cleanup project is $8 million in generated income and 280 jobs. 
26 The projected economic benefit of the Silver Creek is 
$7.4 million and 260 jobs.
Places at Risk: Yellowstone National Park
    Montana also offers a compelling example for the need for the 
discretionary provisions in H.R. 2262. Crown Butte Mines, a subsidiary 
of a Canadian mining company proposed a massive gold, copper and silver 
mining enterprise on National Forest Service and lands patented under 
the 1872 Mining Law in Montana, adjacent to Yellowstone National Park. 
The proposed mine straddled three watersheds. One watershed drains into 
an adjacent wilderness area, another drains into the only Wild and 
Scenic River in Wyoming, and the third drains into Yellowstone National 
Park. The project was highly controversial given the potential damage 
that could occur to the water, recreational assets and wildlife 
habitats in and around the Park. Despite the clear risks to one of the 
nation's most treasured sites, federal land managers maintained that 
under the 1872 Mining Law they had no choice but to permit the mine. It 
took intervention by President Clinton in 1996 to stop the mine--at a 
cost of over $65 million to the U.S. taxpayer.
    We are proud of our abandoned mine program in Montana. We have been 
able to complete the inventory of abandoned mines. We know where the 
highest priorities are for restoration of lands and rivers. Montana's 
abandoned mine program is a model for other states.
    It is now up to Congress to create a comprehensive program for 
abandoned mine restoration in the West. In order for this program to be 
successful, it needs to be funded. And it should be funded by the 
mining industry that caused the damage in the first place, otherwise 
the burden falls to the taxpayer to carry hundreds of millions of 
dollars of clean up costs.
Recommendations for Committee Action:
Generate Funding for Clean-up of Existing Mine Sites
    As in many arid western states, water is critical for Montana's 
economic success. Access to clean water is one of the economic drivers 
in the western part of our state and the scarcity of useable water has 
contributed to population outmigration and economic declines in the 
drier regions. But, as you can tell from the examples in this 
testimony, many Montana citizens are paying a high price to protect and 
reclaim sources of water. Ranching families strive to protect their 
livelihood; native communities struggle to preserve their remaining 
water supplies; sportsmen work to restore damaged fisheries; and cities 
pay to remediate their drinking water aquifer.
    Montana faces funding challenges for reclamation and long term 
water treatment resulting from modern and historic abandoned mining 
operations. We anticipate costs of well over $180 million for just the 
sites I've mentioned in my testimony. This conservative estimate 
includes resources that have already been allocated and projections for 
future needs. For too long, mining interests have been able to extract 
U.S. minerals from public lands for free. A royalty levied against the 
hardrock mining industry, as provided for in H.R. 2262, is an equitable 
and appropriate way to generate revenue to fund the clean up our 
treasured rivers and streams and reclaim lands for the protection of 
public health and the benefit of Montana's wildlife. Congress should 
look for as many opportunities as possible, like a new royalty on 
hardrock mining, to create a revenue stream for restoration of these 
old mines. This program will create jobs in Montana in land and 
watershed restoration and provide a lasting benefit for Montana 
communities.
Protect State Resources and Prevent Future Problems:
    At the same time that funding is urgently needed to address the 
existing mine reclamation and water treatment issues, it is equally 
important that measures be taken now to prevent future problems. Under 
the 1872 Mining Law, federal land managers are forced to prioritize 
mining over all other land uses. While this may have seemed reasonable 
a century ago, it doesn't provide for sound public land stewardship 
today. Land managers must have the discretion to balance mining with 
other land uses, and the ability to protect important public resources 
such as Yellowstone National Park. H.R. 2262 will provide much needed 
balance to the management of our public lands by requiring the Interior 
Secretary to assure that mining is conducted in a manner that 
recognizes the value of such lands for other uses such as wildlife 
habitat, recreation, agriculture and water supplies.
    H.R. 2262 will also return balance to the management of our public 
lands by establishing operation standards and reclamation criteria for 
hardrock mining. It's clear that the existing patchwork of federal laws 
does not provide sufficient protection to our nation's waterways and 
puts downstream families, fisheries, wildlife and water supplies at 
risk. A recent scientific study that analyzed water quality impacts 
from twenty-five representative hardrock mines around the west found 
that 76% of those exceeded water quality standards due to mining 
activity. 27 A solid framework of federal laws--specific to 
the impacts of modern hardrock mining--will better protect our natural 
resources and reduce the number of future liabilities.
    It is crucial that Congress address the enduring legacy of hard 
rock mining's impacts on our nation's fish and wildlife and other 
natural resources now. The dramatic increase in commodity prices is 
currently driving a new ``gold rush'' across the west, including 
Montana. The number of mining claims staked on public lands in Montana 
has increased dramatically, jumping from 617 new claims filed in 2002 
to 3,012 new claims filed in 2006 (September). 28
    Although mining activity on public lands has polluted Montana 
waters, harmed wildlife and left taxpayers with significant cleanup 
costs, government oversight remains stuck in the 19th Century. Unless 
something is done now to address the substantive inadequacies of the 
1872 Mining Law, these may be the abandoned mine land problems of the 
future.

                                ENDNOTES

1 Kuipers, P.E., Jim. ``Nothing New Here: A Technical 
        Evaluation of Initiative I-147. September 2004.
2 U.S. BLM, Action Memorandum for Zortman and Landusky Mines 
        Time Critical Removal. June 2004
3 Final Supplemental EIS for the Zortman and Landusky mines, 
        Phillips County, Montana, MDEQ and BLM, December 2001.
4 U.S. BLM, Action Memorandum for Zortman and Landusky Mines 
        Time Critical Removal. June 2004
5 Ibid.
6 Ibid.
7 Mitchell, Larry, ``Metal Mine Bonding in Montana'' A 
        report of the Montana Environmental Quality Council, May 2004. 
        And, House Bill 379: http://data.opi.state.mt.us/bills/2005/
        billhtml/HB0379.htm
8 Action Memorandum for Beal Mountain Mine Time Critical 
        Removal. Beaverhead-Deerlodge National Forest, Silver Bow 
        County, Montana, July 2003.
9 Aquatic Hazard Assessment for Selenium in the German Gulch 
        subwatershed, Based on 2001 and 2002 Data. Prepared January 
        2003 by Tim LaMarr, Reviewed by Dennis Lemly.
10 Mitchell, Larry, ``Metal Mine Bonding in Montana'' A 
        report of the Montana Environmental Quality Council, May 2004.
11 Backus, Perry. ``Mine Still Causing Trouble'' Missoulian, 
        January 2, 2006.
12 Mitchell, Larry. ``Metal Mine Bonding in Montana'' A 
        report of the Montana Environmental Quality Council, May 2004. 
        And, Vic Anderson, Montana Dept. of Env. Quality, personal 
        communication Aug. 25, 2006.
13 Kuipers, P.E., Kuipers and Associates, ``Nothing New 
        Here: A Technical Evaluation of Initiative 147. September 2004.
14 Montana DEQ, Notice of Violation and Administrative 
        Order, Docket No. WQ-98-06
15 Complaint filed in the Montana 10th Judicial District 
        Court; Alan and Stephanie Shammel et. al. v. Canyon Resources 
        Corporation. Sept. 2001.
16 Mitchell, Larry. ``Metal Mine Bonding in Montana'' A 
        report of the Montana Environmental Quality Council, May 2004.
17 Sonja Lee, ``State Hits Cleanup Pay Dirt'', Great Falls 
        Tribune, December 11, 2005.
18 Vic Anderson, MT DEQ Abandoned Mine Lands Program, Pers. 
        Comm. Sept. 27, 2002.
19 Office of Surface Mining Reclamation and Enforcement, 
        Annual Evaluation Summary Report for the Mine Waste Cleanup 
        Bureau's Abandoned Mine Land Program for the State of Montana, 
        2004.
20 Draft Final EECA for the McLaren Tailings Site, Prepared 
        for Montana DEQ, May 2002.
21 Ibid.
22 Vic Anderson, Montana Abandoned Mine Land Program, Pers. 
        Comm. Sept. 27, 2007.
23 U.S. EPA, October 2001 Proposed Plan Upper Tenmile Creek 
        Mining Area Site.
24 Ibid.
25 Office of Surface Mining Reclamation and Enforcement, 
        Annual Evaluation Summary Report for the Mine Waste Cleanup 
        Bureau's Abandoned Mine Land Program for the State of Montana, 
        2004.
26 Ibid.
27 Kuipers P.E., Jim and Ann Maest, ``Comparison of 
        Predicted and Actual Water Quality at HArdrock Mines: the 
        Reliability of Predictions in Environmental Impact Statements'' 
        2006.
28 U.S. Bureau of Land Management, Claims Data
                                 ______
                                 
    [The response to questions submitted for the record by 
Senator Lind follows:]

October 11, 2007

Rep. Jim Costa, Chairman
Subcommittee on Energy and Mineral Resources
U.S. House of Representatives
Washington DC 20515

Dear Chairman Costa;

    Thank you for the opportunity to share additional information about 
the abandoned mine lands program in Montana, and the benefits of mine 
remediation to public health, safety, environment and the economy. Here 
are my responses to your questions:
1.  Please tell us about Montana's Abandoned Mine Lands program. Would 
        you describe it as efficient? Why or why not? How ready is that 
        program to participate in reclamation endeavors should funding 
        for hardrock mine reclamation increase?
    Montana's Abandoned Mine Lands (AML) program was established in 
1980. It is approved and funded by the U.S. Office of Surface Mining 
Reclamation and Enforcement (OSMRE). In 1990 Montana certified it had 
completed reclamation of all high priority abandoned coal sites, which 
allowed the state to focus on abandoned hardrock mining reclamation. 
The program has done an extensive inventory and prioritized a list of 
abandoned/inactive hardrock mines. While there are thousands of AML 
sites in Montana, approximately 350 were identified by state and 
federal agencies as high priority. The state program has, since 1995, 
successfully reclaimed 31 of these high priority sites: removing waste 
rock and tailings from streams for placement in properly sited 
engineered repositories with geo-synthetic liners and caps, redirecting 
acid mine drainage away from wastes to reduce water contamination, and 
removing safety hazards such as dilapidated structures and open shafts 
that pose safety problems. 1
    The program is very efficient, utilizing a small professional staff 
of 5 FTE to manage a large number of private-sector engineers, 
scientists, and construction contractors. The program on average spends 
$25/cubic yard of wastes to (1) fully investigate the site, (2) prepare 
the necessary compliance documents to receive clearance from OSM, other 
agencies and the public, (3) prepare design and bid documents, and (4) 
construct the selected cleanup plan. 2 This is 20% of what 
federal agencies have experienced doing similar work. 3
    The AML program currently utilizes approximately 10% of its 
available funds to administer the program; 90% goes to investigations, 
designs, and construction to reclaim sites. This reliance on private 
sector contractors, utilizing well-defined agency processes, gives the 
program the ability/flexibility to responsibly respond to and spend a 
significant increase in funding. 4
    The proficiency of the program is exemplified by a recent project 
completed in 2005--the Montana Silver Smelter Project, located inside 
Giant Springs State Park at Great Falls, Montana. 5 This 
site contained an area of 40 acres with high levels of lead, arsenic, 
cadmium and iron. The highest levels occurred where the slag was dumped 
near and into the Missouri River. Several fish hatchery employees and 
their families reside on the site near the river and their yards were 
found to be extremely toxic. The soil had to be completely excavated 
down to the base of the foundations of the residences and each yard 
sealed and completely reconstructed with clean fill. The site is also 
heavily utilized by the general public because of the large, adjacent 
State Park and fish hatchery. A national Lewis & Clark celebration drew 
over 150 thousand people to the area during the summer of 2005. The 2.1 
million dollar clean-up project was finished in 2005--just one year 
from the initial investigation. 6
2.  Your testimony mentioned that reclamation can bring economic 
        benefits. Tell us more about what you have experienced in 
        Montana in terms of direct and indirect benefits of 
        reclamation, whether in terms of the value of water that no 
        longer needs treatment, recreation, jobs, and so on.
    Montana's AML program currently utilizes 17 contractors with 
various skills to sample sites, perform feasibility studies, prepare 
cultural resource reports, conduct threatened and endangered species 
assessments, prepare engineering designs, develop bid documents, and 
oversee construction operations. While some of these are national firms 
nearly all of the personnel are in Montana. 7 Thus, they pay 
Montana taxes, buy food, clothes, cars, and gas for those cars, and 
contribute to the local economy. Largely, the samples they take are 
sent to laboratories in Montana for analysis. The reports are prepared 
locally and sent to local office supply firms for reproduction. In 
general the 90% spent on contractor services for direct cleanup of the 
AML sites is spent in Montana.
    The Office of Surface Mining and Reclamation has calculated the 
economic benefits of various construction ready projects in its annual 
evaluation reports of Montana's AML program. According to its 2005 
report, if $22.49 million in funding were available to complete the 20 
construction-ready projects identified that year, it would generate 
$53.38 million in economic benefits and support 1,831 jobs. 
8
    The indirect economic benefits come from public use of the restored 
resource for a variety of purposes. Recreationally, people can use the 
clean water for fishing, swimming, rafting and in some cases even 
drinking. Restored areas can also be utilized for livestock grazing, 
camping and other activities that were previously restricted because of 
risk from either air contaminants, direct contact with materials or 
adversely impacted ground and surface water. Recreational dollars go 
into the local economy.
    For example, in the Boulder River watershed in Montana, more than 
80 years of mining has left a legacy of degraded water quality, 
contaminated water supplies in local communities, and the drastic 
reduction or complete elimination of fish populations as far as 55 
miles downstream. 9 Spurred by a transitioning economy, 
surrounding communities faced the challenge of reversing this damage to 
improve water quality and restore impacted fish populations. A combined 
effort between the Montana AML program and federal agencies has 
resulted in significant improvements. Fish species like the native 
Westslope Cutthroat Trout have begun to return and increase in number. 
The agencies expect that eventually local species and recreational 
fishing may once again thrive and the watershed could become a premier 
fishery.
3.  You testified that the unfunded costs of remediation for the top 
        350 abandoned mine sites in Montana is $91 million and the 
        total for the sites you mentioned specifically in your 
        testimony could be $180 million, including long-term water 
        treatment. Meanwhile the state of Montana is receiving roughly 
        $3.5 million a year in funding for reclamation.
    I'd like to take a minute to make a correction to my earlier 
testimony, which understated remediation costs at AML sites in Montana. 
The $91 Million figure mentioned in my testimony is only the cost for 
approximately 150 high priority sites, not the full 350 priority sites. 
10
    These estimates are about 7 years old; costs will be higher today 
and the problems that have gotten worse over time will also be more 
costly to fix. Furthermore, cost estimates were not made on many of the 
sites owned at least in part by federal agencies and were not made for 
sites on private land where enforcement action may be taken. The 
Montana AML program also decided that there was no advantage to 
spending program dollars on developing more cost estimates when the 
program dollars are better spent performing actual on the ground 
cleanup. 11
    It is also important to note that water treatment costs are not 
part of the estimate. 12 That cost is undetermined at this 
time but current estimates are that water treatment can easily cost 10 
times more than cleanup of the solid wastes (waste rock, tailings, 
overburden) found at abandoned sites. 13
    I also mention the Zortman Landusky Mine in my previous testimony. 
Zortman Landusky is a modern abandoned mine located on BLM and patented 
land in Montana. I'd like to include some supplemental information to 
clarify costs associated with cleanup at this mine. The following 
paragraph provides a breakdown of incurred and projected costs for the 
State of Montana and the BLM according to current calculations by the 
Montana Department of Environmental Quality. 14 The 
estimated total funding for the Zortman/Landusky project is as follows:
      Funds provided by Zortman Mining Inc or their Sureties: 
$52 Million
      Funds provided by the State of Montana (through 2008): 
$6.5 Million
      Funds to be provided by the State of Montana (through 
2017): $10 Million
      Funds provided by the U.S. BLM (through 2008): $8 Million
      Funds to be provided by the U.S. BLM (through 2017): $6 
Million (projected)
      Anticipated Total: $82.5 Million
    Another project it's important to mention in terms of mine 
remediation is the cleanup activity associated with the Clark Fork 
Superfund complex in Montana. The Berkeley Pit, a huge, former open-pit 
copper mine, is one of the largest bodies of contaminated water in the 
United States. It is the most visible of four sites in a wider 
Superfund cleanup of century-old mining sites along the Clark Fork 
River that is expected to cost Arco more than $1 billion by the time it 
is completed. 15 The company indicates that it has spent 
about $700 million in the past 10 years as part of the overall cleanup 
of toxic mining sites around Montana's Butte-Silver Bow County. 
16 The site represents a significant liability to the State 
of Montana if the company should fail or file for bankruptcy.
4.  How many sites are you addressing each year with that funding?
    The Montana AML program currently receives approximately $3.5M/
year. At this level of funding 2-4 sites can be cleaned up each year. 
However there are sites on the list that will cost between $3M and $7M. 
These will have to be performed in phases.
    The 2006 amendments to the Surface Mine Control and Reclamation Act 
have yet to be fully implemented. Depending on the resolution of how 
much money OSM will release to Montana each year there is a possibility 
of increased funding for the short term (10 years or so) from annual 
grants and return of the state share of the AML trust fund.
5.  Can you provide a cost estimate for reclamation of abandoned mines 
        in Montana on public lands?
    Forest Service Lands: According to the Forest Service, there are an 
estimated 3,500 abandoned mines identified within National Forest 
boundaries in Montana. 17 It's important to note that this 
number does not include abandoned placer mining operations. 
18 The Forest Service has indicated that it is requesting 
assistance from the Montana Bureau of Mines to identify the number of 
placer operations on Forest Service lands throughout the State. 
19
    The Forest Service does not have projections for cleanup costs for 
the abandoned mine sites on Forest Service lands in Montana. 
20 Furthermore, field visits have occurred to only a small 
percent of the sites. The only figures available are rough 
approximations of nation-wide costs, identified as $5.55 billion. 
21
    BLM Lands: According to the BLM, the Western BLM Montana Zone 
currently has 5-7 unreclaimed abandoned mines in priority watersheds 
and 59 unreclaimed sites that pose physical safety hazards. 
22 For Fiscal Years 2007--2013, the BLM has identified seven 
priority watershed cleanup projects, with projected costs of 
approximately $5.8 million, and twenty-one priority physical safety 
hazard sites, with projected costs of approximately $500,000. They have 
not projected cleanup costs for the remaining unremediated abandoned 
mine land sites.

Sincerely,

Greg Lind
Montana State Senator, District 50
                                 ______
                                 

                                ENDNOTES

1 Sandi Olsen, Montana DEQ, ``H.R. 2262 Supplemental 
        Information: Questions to Mr. Greg Lind, Montana State 
        Senator'' October 2007.
2 Ibid.
3 Ibid.
4 Ibid.
5 Office of Surface Mining and Reclamation and Enforcement, 
        Annual Evaluation Summary Report for the Abandoned Mine Lands 
        Program Montana, 2005.
6 Ibid.
7 Ibid.
8 Office of Surface Mining and Reclamation and Enforcement, 
        Annual Evaluation Summary Report for the Abandoned Mine Lands 
        Program Montana, 2005.
9 U.S. BLM, ``Abandoned Mine Lands: A Decade of Progress 
        Reclaiming Abandoned Hardrock Mines. Sept. 2007.
10 Office of Surface Mining Abandoned Mine Lands Information 
        System (AMLIS)
11 Sandi Olsen, Montana Department of Environmental Quality, 
        H.R. 2262 Supplemental Information: Questions to Mr. Greg Lind, 
        Montana State Senator, October 2007.
12 Ibid.
13 Ibid.
14 Sandi Olsen, Montana Department of Environmental Quality, 
        Supplemental Information provided to Montana Senator Greg Lind, 
        October 2007.
15 Spokesman Review, ``Firms Pony Up for Mine Cleanup'' 
        March 27, 2002.
16 Ibid.
17 Data from USDA Center for Environmental Excellence 
        database, 8-15-07
18 Nancy Rusho, AML Program Leader, Region 1, U.S. Forest 
        Service, personal comm. October 10, 2007.
19 Ibid.
20 Tom Buchta, AML Program Leader, U.S. Forest Service, 
        Washington DC; response to questionnaire, provided October 11, 
        2007.
21 Ibid.
22 U.S. BLM, ``Abandoned Mine Land Workplan: Period FY 07-
        2013''
                                 ______
                                 
    Mr. Costa. Thank you very much, Senator.
    Our last witness but certainly not the least is the 
Executive Director for the Northwest Mining Association, Ms. 
Laura Skaer. Good to see you again.

         STATEMENT OF LAURA SKAER, EXECUTIVE DIRECTOR, 
                  NORTHWEST MINING ASSOCIATION

    Ms. Skaer. Thank you, Mr. Chairman and Members of the 
Committee.
    Nearly everyone, especially the mining industry, agrees 
that eliminating AML sites is an important public policy 
objective, but in order to accomplish this goal in the most 
expedient, effective and efficient manner we must first ensure 
we understand the nature and extent of the AML problem so we 
match the right solution to the problem. I am going to 
highlight the four most important points of my written 
testimony, which are: most of the abandoned mine sites are 
landscape disturbance or safety hazards, approximately 90 
percent are in that category; that they are historic; that they 
are state and Federal programs that are effective in making 
progress in reclaiming abandoned mine sites; and that we have 
an absolute need for Good Samaritan legislation if we are truly 
going to address this problem in the right way.
    Now, AMLs are historic. The ones that are in need of 
remediation occurred all the way back to 1820. Some of them 
were operated by the Federal government during World War I and 
World War II, and they were all abandoned, most of them were 
abandoned before the advent of modern mining regulations. Table 
1 in my testimony compares the advent of mining regulation with 
the history of mining.
    But today we have comprehensive regulatory programs that 
include bonding requirements and financial assurance 
requirements that work together to ensure that the AML problem 
is a finite one and will not grow in the future.
    Now, I said the vast majority of the sites do not pose 
significant environmental problems. The three types--landscape 
disturbance, safety hazards and environmental problem. The 
safety hazards we need to address first. Those are the ones 
that are fairly straightforward in addressing and actually they 
can be addressed for a lot less money.
    We have had three recent surveys and they all agree that 
safety and landscape disturbances are between 80 and 90 percent 
of all of the AMLs. One was the Western Governors Association 
report in 1998. A more recent one was the Center for the 
American West, a study in 2005, that found that only a small 
fraction of an estimated half a million AMLs were significant 
problems for water resources, and the just released BLM-USFS 
study that Mr. Ferguson testified about.
    Now, Mr. Chairman, you asked how big is the breadbox. Well, 
the estimates are all over the board, and it is primarily 
because we don't have a universal definition of what 
constitutes an AML site, and because each hardrock AML site is 
unique. We have had estimates from a half a million to the 
Forest Service and BLM's recent estimate of 47,000 on 450 
million acres of Federal land.
    I don't think it is important to know exactly how many. I 
think what is important is that we get started and we continue 
to put the money on the ground to abate the AML issues that are 
out there. Great progress has been made with the BLM and the 
Forest Service in every western state. I detail Nevada as an 
example in my written testimony.
    Nevada has made great strides. In fact, they have secured 
over 9,000 dangerous abandoned mine openings since the 
inception of the program in 1987.
    We need Good Samaritan legislation. Although some progress 
has been made, the number one impediment to voluntary cleanup 
of abandoned hardrock mine sites is the U.S. is the potential 
liability imposed by CERCLA, the Clean Water Act and other 
environmental laws, and virtually everyone agrees that we need 
Good Samaritan legislation and in fact the National Academy of 
Science recently recommended to Congress that Congress enact 
such legislation.
    Last year we supported S. 1848 by Senator Salazar and 
Allard from Colorado. We believe that is an effective model for 
Good Samaritan legislation.
    We also support the creation of the abandoned mine fund 
that is in H.R. 2262. We believe the money should be 
distributed back to the existing state programs. We do not 
believe we need a new program or that the money should be 
distributed to OSM for their use. That is inefficient. Let us 
get the money to the states who know where the problems are and 
can best prioritize how that money should be spent.
    Finally, we want to see the AML's remediated and reclaimed 
as much as anyone. After all, they are our dirty pictures, but 
we need your help. We have the desire, the experience, the 
technology, the expertise and the capital to remediate and 
reclaim AMLs, and we ask that you help us with creating a 
Federal fund that will be used from the royalties and to enact 
Good Samaritan legislation.
    Thank you.
    [The prepared statement of Ms. Skaer follows:]

             Statement of Laura Skaer, Executive Director, 
           Northwest Mining Association, Spokane, Washington

INTRODUCTION AND EXECUTIVE SUMMARY
    My name is Laura Skaer. I am the Executive Director of the 
Northwest Mining Association, a 113 year old non-profit mining industry 
trade association. Our offices are located in Spokane, Washington. NWMA 
has more than 1,650 members residing in 35 states and 6 Canadian 
provinces. Our members are actively involved in exploration, mining and 
reclamation operations on BLM and USFS administered land in every 
western state, in addition to private land. Our membership represents 
every facet of the mining industry, including geology, exploration, 
mining, reclamation, engineering, equipment manufacturing, technical 
services, and sales of equipment and supplies. Our broad-based 
membership includes many small miners and exploration geologists, as 
well as junior and large mining companies. More than 90% of our members 
are small businesses or work for small businesses. Our members have 
extensive first-hand experience with reclaiming active and inactive 
mine sites and remediating a variety of safety issues and environmental 
conditions at these sites.
    Our members also have extensive knowledge of the scope of, and 
potential dangers posed by, hardrock abandoned mine lands (AMLs), as 
well as experience and expertise in dealing with those dangers. As I 
discuss below, AMLs in need of significant remediation are limited in 
number and not expected to increase. They comprise mines that were 
developed and abandoned before the advent of modern environmental laws 
in the 1970s and 1980s, and regulations that were updated as recently 
as 2001, including current comprehensive regulatory programs at both 
the federal and state levels that require mining companies to provide 
financial assurance to ensure that, at the end of exploration and/or 
mining operations, sufficient funds will be available to reclaim the 
sites if the operator becomes bankrupt or otherwise is unable to 
reclaim the sites.
    Moreover, the Western Governors' Association (WGA), the Bureau of 
Land Management (BLM), the U.S. forest Service (USFS) and the non-
partisan Center of the American West are all agreed that the vast 
majority of AMLs pose no dangers or, at most, safety rather than 
significant environmental hazards.
    That being said, the mining industry supports the creation of a new 
federal AML fund, to be financed from royalties owing under any mining 
law legislation enacted by the Congress, to augment the monies 
available to State AML funds to address safety and, where needed, 
environmental hazards at AML sites. The industry also continues to 
strongly support the enactment of comprehensive Good Samaritan 
legislation that would allow mining companies with no previous 
involvement at an AML site to voluntary remediate and reclaim that 
site, in whole or in part, without the threat of potentially enormous 
liability under CERCLA, the Clean Water Act, and other federal and 
state environmental laws.
    The mining industry has long been front and center in trying to 
deal responsibly with AMLs. Some of these efforts are documented in a 
study researched and authored by two of our members, Debra W. 
Struhsacker and Jeff W. Todd, and published in 1998 by the National 
Mining Association entitled ``Reclaiming Inactive and Abandoned Mine 
Lands--What Really is Happening.'' (A copy of this study is being 
included in the record and is hereinafter cited as the ``NMA Study''). 
This study presents compelling evidence that given the right 
opportunity, the mining industry can play a significant role in 
eliminating the safety hazards and improving the environment at 
abandoned and inactive mines.
ABANDONED MINE LANDS ARE HISTORIC
    It is important to understand that when we talk about hardrock 
abandoned mine lands we are talking about a problem that was created in 
the past due to mining practices used at sites that were mined prior to 
the enactment of modern environmental laws and regulations. Table 1 
lists the dates of development of many of the major mining districts in 
the country compared to the dates of enactment of many of the federal 
and state environmental laws and regulations that govern hardrock 
mining activities. As is clearly seen from this table, mining in the 
U.S. dates back to the 1820s, with significant historic mine 
development throughout the remainder of the 19th century and into the 
early part of the 20th century. Many of the AML sites that need 
attention were created in this timeframe.
    It also is important to note during World Wars I and II, the 
federal government took over operations at many mines to produce the 
metals and minerals necessary for the war efforts. The focus was on 
maximizing production and winning the war--not on using mining methods 
that were designed to protect the environment. The metals mined from 
these sites greatly benefited U.S. society by contributing to the 
country's victories in both wars. What we are left with today, however, 
are the environmental impacts created by these unregulated mining 
activities. Some of these war-efforts mines are now abandoned. Because 
the American public benefited in the past from mining of these sites, 
we now have a public responsibility to develop policies and funding 
mechanisms to reclaim these sites.
    Modern mining started in the mid-1960s at about the same time that 
the country was developing an environmental awareness and when Congress 
was starting to enact environmental laws. Thus, as is readily apparent 
from Table 1, the U.S. environmental statutory and regulatory framework 
is a recent development compared to the history of mining in the U.S. 
Moreover, it is important to recognize that many of the laws and 
regulations governing hardrock mining are quite new--some are less than 
20 years old. For example, Nevada's state reclamation law went into 
effect in 1990, only 17 years ago. BLM's regulations for hardrock 
mining, the 43 C.F.R. Subpart 3809 program, went into effect in 1981 
and were substantially updated just six years ago in 2001.
    The body of federal and state environmental laws and regulations 
shown in Table 1 has had a significant and positive impact on the way 
mining is now conducted in the U.S., resulting in a substantial 
reduction in environmental impacts and dramatic improvements in 
reclamation. As a result of these laws and regulations, the domestic 
hardrock mining industry of today is highly regulated and 
environmentally and socially responsible. Also, because these 
regulations require exploration and mining companies to provide 
financial assurance to guarantee reclamation at the end of the project, 
mines today will not become future AML sites. In the event a company 
goes bankrupt or defaults on its reclamation obligations, state and 
federal regulatory agencies will have bond monies that will be 
available to reclaim the site. Thus, the AML problem is a finite and 
historical problem and not one that will grow in the future.
    As shown in Table 1, the U.S. Forest Service adopted the 36 C.F.R. 
Part 228A surface management regulations governing hardrock mining 
operations on National Forest Lands in 1974. Six years later, in 1980, 
BLM enacted the 43 C.F.R. Subpart 3809 surface management regulations, 
which were substantially expanded and updated in 2000 and 2001. Both 
BLM's 3809 regulations and the U.S. Forest Service's 228A regulations 
require that all exploration and mining activities above casual use 
provide federal land managers with adequate financial assurance to 
ensure reclamation after completing the exploration or mining project. 
Because the underlying purpose of the financial assurance requirement 
is to ensure reclamation of the site in the event an operator goes 
bankrupt or fails to reclaim a site for some other reason, the amount 
of required financial assurance is based on what it would cost BLM or 
the U.S. Forest Service to reclaim the site using third-party 
contractors to do the work.
    In addition to mandating reclamation and establishing financial 
assurance requirements, these comprehensive federal regulations also 
require compliance with all applicable state and federal environmental 
laws and regulations to protect the environment and to meet all 
applicable air quality, water quality and other environmental 
standards.
    Additionally, all western public land states have enacted 
comprehensive regulatory programs that govern hardrock mining 
operations in their respective state. Like the federal financial 
assurance requirements, these state regulatory programs require the 
posting of adequate financial assurance or reclamation bonds in an 
amount equal to the cost that would be incurred by the government if it 
had to contract with a third party to remediate and reclaim the site. 
In many states, federal and state regulators with jurisdiction over 
mining work together to jointly manage the reclamation bonding 
programs. For example, in Nevada, the BLM, the U.S. Forest Service and 
the Nevada Division of Environmental Protection/Bureau of Mining 
Regulation and Reclamation have entered into a Memorandum of 
Understanding (MOU) that establishes procedures for coordinating the 
federal and state regulatory programs for mining. This MOU specifies 
that the federal and state agencies will work together to review 
reclamation cost estimates and to agree upon the required bond amount.
[GRAPHIC] [TIFF OMITTED] T8137.001

[GRAPHIC] [TIFF OMITTED] T8137.002

[GRAPHIC] [TIFF OMITTED] T8137.003

    .epsIn 1999, the National Academy of Sciences National Research 
Council, in response to a request from Congress to assess the adequacy 
of the regulatory framework for hardrock mining on federal lands, found 
that--[t]he overall structure of the federal and state laws and 
regulations that provide mining-related environmental protection is 
complicated, but generally effective.'' Thus, these state and federal 
comprehensive regulatory programs together with financial assurance 
requirements work together to ensure that modern mining is 
environmentally responsible and that today's mines will be reclaimed.
THE VAST MAJORITY OF AML SITED DO NOT POSE SIGNIFICANT ENVIRONMENTAL 
        PROBLEMS
    It is important to understand that the vast majority of all 
hardrock AML sites are not problematic. The 1998 WGA report mentioned 
above estimated that more than 80% of AML sites create neither 
environmental nor immediate safety hazards. Where problems do exist, 
safety hazards are the primary problem although some AML sites have 
both environmental and safety issues.
    The Center of the American West released a study in 2005 entitled 
``Cleanup of Abandoned Hardrock Mines in the West.'' The Center, which 
is affiliated with the University of Colorado, states at page 31 of its 
report that ``only a small fraction of the 500,000 abandoned mines 
[identified by the Mineral Policy Center] are causing significant 
problems for water quality.''
    The 2007 USFS/BLM report cited above estimates that as many as 10% 
of the AML sites on USFS- or BLM-managed land may include environmental 
hazards and that the balance, or approximately 90%, are landscape 
disturbances or safety hazards. The finding that landscape disturbance 
and safety hazards comprise the bulk of the AML problem is consistent 
with other reports.
    Although much of the public debate about the AML problems typically 
focuses on environmental issues, it is really safety hazards that 
deserve our immediate attention. Nearly every year, the country 
experiences one or more tragic accident or fatality at an AML site 
where somebody has fallen into or become trapped in an unreclaimed 
historic mine opening. AML safety hazards pose a far greater risk to 
the public than AML environmental problems. Therefore, we should focus 
first-priority AML funds on eliminating safety hazards at abandoned 
mine sites located near population centers and frequently used 
recreation areas.
    The 1998 NMA Study includes a comprehensive discussion of the types 
of safety hazards and environmental problems that exist at AML sites. 
Table 2 summarizes this discussion and lists the safety hazards and 
environmental problems that may occur at AML sites and the techniques 
used to address these hazards and problems. As stated above, landscape 
disturbances and safety hazards are the dominant problem at most AML 
sites. However, some sites may have a combination of landscape 
disturbance, safety hazards, and environmental problems.
[GRAPHIC] [TIFF OMITTED] T8137.004

    .epsAlthough many of the above listed measures are expensive--
especially those used to remediate environmental problems--they are 
technically straightforward, well understood, and are generally quite 
effective in improving environmental conditions at AML sites. The NMA 
Study identified a number of AML sites with safety hazards and/or 
environmental problems that were substantially reduced through the use 
of one or more of the measures listed in Table 2. It is important to 
understand, however, that each AML site is different. The measures 
shown in Table 2 to address landscape disturbance, safety hazards, and 
environmental problems at an AML site must be custom-tailored to fit 
the site-specific conditions of a particular site. A cookie-cutter, 
one-size-fits all approach will not achieve optimal results and may 
even fail to address the problem.
    AML policy discussions have had a tendency to focus on the worst 
and most complex AML sites. This mischaracterization of the global AML 
problem has probably contributed to the lack of progress in developing 
federal policies and programs to solve the AML problem. The legislative 
dialogue about enacting Good Samaritan legislation has perhaps been 
made more difficult by focusing on sites with very serious or complex 
environmental and liability issues such as sites with acid drainage 
from underground mine openings which typically require extensive and 
costly remediation efforts. Although this type of site is serious and 
deserving of our immediate attention, it is not representative of the 
safety and environmental concerns at most AML sites. NWMA urges the 
Congress to take a closer look at the universe of AML sites in 
developing a Hardrock AML program and in addressing Good Samaritan 
legislation. Focusing solely on the most challenging AML sites is 
likely to produce programs with unwarranted complexity and costs.
HOW MANY AML SITES ARE THERE?
    Historic abandoned hardrock mines have long been an issue of 
concern to industry, government and the public. Nearly everyone--
especially the mining industry--agrees that eliminating AML sites is an 
important public policy objective. Past estimates of the scope of the 
historic AML problem range considerably, with various state and federal 
agencies and NGOs, estimating the number of unreclaimed hardrock mining 
sites. Part of the reason for the apparent disparity in these estimates 
is that these inventories have defined the term ``site'' in an 
inconsistent manner. Some AML inventory efforts have considered a 
``site'' to be any single opening, mining or exploration disturbance or 
mining related feature. Other state AML programs and the mining 
industry define ``site'' to include multiple features that can be 
addressed with coordinated and consolidated reclamation and remediation 
measures. Continued debate over a universal definition of AML ``site'' 
and development of a comprehensive hardrock AML inventory diverts 
attention and resources from the real issues that need to be addressed. 
Moreover, the progress being made in reclaiming AML sites demonstrates 
that it is not necessary to count every site prior to designing 
effective programs to address the problem.
    In 1998, the Western Governors' Association compiled an inventory 
of hardrock AML sites. This effort confirmed the results of earlier 
efforts--because each hardrock AML site varies in geology, geography, 
climate, terrain, hydrology, and types of AML features, and because 
there are different definitions of what constitutes an AML site, it is 
very difficult, if not impossible to produce a complete inventory of 
hardrock AML sites.
    The most recent estimate of the number of AML sites is the just 
released U.S. Forest Service/ BLM report entitled Abandoned Mine Lands: 
A Decade of Progress Reclaiming Hardrock Mines. This report estimates 
that there are approximately 47,000 abandoned mine sites on more than 
450 million acres of federal land managed by those two agencies.
    While the desire to have a complete inventory of hardrock AML sites 
in the western U.S. was perhaps an appropriate focus ten or fifteen 
years ago, we believe that enough is now known about the scope of the 
problem. This knowledge coupled with the fact that on-the-ground 
progress is being made towards solving the problem suggests to us that 
inventory efforts have reached a point of diminishing returns--it is 
time to stop counting sites and to focus all of our energy upon 
reclaiming them. Further efforts to develop a comprehensive inventory 
will not add much value or contribute anything new to solving the AML 
problem. The focus should thus be on-the-ground remediation and 
reclamation of known hardrock AML sites. We therefore urge this 
Subcommittee to eliminate or modify the provision in H.R. 2262 Section 
403(c) that requires the Secretary to develop another AML inventory.
CURRENT HARDROCK AML PROGRAMS
    Every western public land state, the BLM, the Forest Service, and 
the Army Corps of Engineers have abandoned mine land programs that 
address abating safety hazards, remediating environmental problems, and 
reclaiming disturbed landscapes associated with abandoned hardrock 
mining sites. The 1998 NMA Study cited above found that
        ...state AML programs and industry-sponsored efforts have 
        abated, reclaimed and remediated a number of high priority AML 
        sites throughout the west. Private funding, equipment and labor 
        for mining companies have been responsible for reclaiming and 
        remediating many AML sites. Mining companies have spent tens of 
        millions of dollars of voluntary on-the-ground cleanups and 
        abatements of AML sites. (NMA Study at ES-2)
    The Nevada Division of Minerals Abandoned Mine Lands program is 
representative of an effective state AML program. Nevada's AML program 
receives funding from a $1.50 fee on county mining claim filings and a 
one-time fee of $20 per acre of new permitted mining disturbance. The 
program is supplemented by small grants from BLM's abandoned mines 
program. In 2006, Nevada's AML program secured 540 hazards with 
approximately $350,000 in funding. The bulk of the work includes 
fencing or closing mine openings on federal public land. Since the 
inception of the program in 1987, the Nevada Division of Minerals has 
secured over 9,000 dangerous abandoned mine openings.
    The Nevada Division of Minerals also serves as lead coordinator of 
the Nevada Abandoned Mine Land Environmental Task Force. The task force 
was formed in 1999 and is comprised of 13 state and federal agencies. 
The task force has overseen reclamation activities at 21 abandoned 
mines sites. The Army Corps of Engineers Restoration of Abandoned Mine 
Sites (RAMS) program has provided $4 million since 2000 to support 
development of closure plans and small, innovative, on-the-ground 
demonstration projects related to AML remediation and reclamation.
    In addition to these efforts, a partnership, known as the Nevada 
Mine Backfill Program, between the BLM, the Division, the Nevada Mining 
Association and member companies, and others has resulted in the 
backfilling of 265 hazardous mine openings in Clark, Esmeralda, Nye and 
Washoe counties since 1999. This program received the Northwest Mining 
Association's Environmental Excellence Award in 2000 for protecting 
public health, safety and the environment through government/industry 
cooperation.
    As demonstrated by the Nevada AML programs, much progress has been 
made by existing state AML programs, the BLM, USFS, RAMS and the 
industry. Mr. Tony Ferguson, Director of Minerals and Geology 
Management, USFS will be testifying to the excellent progress the BLM 
and USFS have made over the past decade in remediating and reclaiming 
abandoned mine sites.
INDUSTRY SUPPORTS CREATING A FEDERAL HARDROCK AML FUND
    The mining industry supports creating a federal hardrock AML fund 
using revenue generated from a net royalty on new claims to support, 
augment and expand the existing AML programs that have proven to work. 
The fund also should allow for donations by persons, corporations, 
associations and foundations, and other monies that are appropriated by 
the Congress of the United States. These funds should be distributed to 
the states with hardrock AMLs to be administered by the respective 
state AML program. States that generate royalty revenues should be the 
first in line to receive federal AML funds.
    While federal oversight might be appropriate, we do not support the 
establishment of a new, separate federal hardrock AML program or 
delegating the responsibility for hardrock AML remediation and 
reclamation to the Office of Surface Mining. This would be an 
inefficient use of the monies collected and would prevent the maximum 
amount of money going into on-the-ground remediation and reclamation. 
Hardrock AML sites are unique in their geology, geography, terrain and 
climate and a uniform, one-size-fits-all program will not work. The 
state AML programs are in the best position to prioritize where federal 
AML funds should be spent within the state and to carry out hardrock 
AML hazard abatement, remediation and reclamation, in cooperation with 
the industry and other groups, including NGOs. The NMA Study describes 
a streamlined interagency regulatory approach that was in place at the 
time in South Dakota that proved to be particularly effective in 
facilitating AML cleanup activities by minimizing protracted regulatory 
reviews and permit requirements and emphasizing on-the-ground measures.
THE NEED FOR GOOD SAMARITAN LEGISLATION
    Although, as discussed above, some progress has been made by 
industry and existing State and federal AML programs in reducing safety 
hazards and remediating and reclaiming hardrock AMLs, the number one 
impediment to voluntarily cleanup of hardrock abandoned mine lands is 
the potential liability imposed by existing federal and state 
environmental laws, in particular the Clean Water Act (CWA), the 
Comprehensive Environmental Response, Compensation and Liability Act 
(CERCLA) (commonly known as Superfund), the Resource Conservation & 
Recovery Act (RCRA), and the Toxic Substances Act. Under these laws, a 
mining company, state or federal agency, NGOs, individuals or other 
entities that begin to voluntarily remediate an abandoned mine site 
could potentially incur ``cradle-to-grave'' liability under the CWA, 
CERCLA, and other environmental laws, even though they did not cause or 
contribute to the environmental condition at the abandoned mine land 
site.
    Furthermore, they could be required under the CWA to prevent 
discharges to surface waters from the AML in perpetuity, unless those 
discharges meet strict effluent limitations and do not result in 
exceedences of stringent water quality standards, something that may 
not be possible; and in any event, may be so expensive that no company, 
individual, or other entity would undertake a voluntary cleanup.
    Virtually everyone who has looked at the AML issue in the west has 
recognized and documented the legal impediments to voluntary cleanup of 
AMLs and have urged that those impediments be eliminated. These groups 
include the Western Governors' Association, the National Academy of 
Sciences, and the Center for the American West.
    The time has come for Congress to adopt the recommendation from the 
National Academy of Sciences National Research Council's 1999 report to 
Congress and enact effective Good Samaritan legislation that will 
create a framework, with incentives and liability protection for 
numerous entities, including mining companies, local, state and federal 
agencies, NGOs, and tribes to voluntarily remediate of environmental 
problems caused by others at abandoned hardrock mine sites in the U.S. 
Several Good Samaritan bills have been introduced in the past, but only 
S. 1848, introduced last year by Senators Salazar and Allard, passed 
out of committee. We strongly supported, and continue to support the 
Salazar/Allard approach to Good Samaritan legislation.
    No one knows more about reclaiming and remediating mine sites than 
the mining industry. The mining industry has the desire, the resources, 
expertise, experience, and technology to effectively and efficiently 
assess the environmental and safety issues present at an AML and to 
properly remediate, reclaim and secure those sites. This often can be 
done in conjunction with reclamation activities at nearby active mines 
which the company operates, resulting in an efficient use of resources 
to improve the environment and enhance public safety.
    In some cases, processing tailings, waste rock piles and other 
historic mining materials at AML sites may be the most efficient and 
least costly means of cleaning up a site. The waste from any 
reprocessing or remining activities would then be disposed of in a 
modern engineered facility that complies with current environmental 
standards and practices. Remining/reprocessing is thus an environmental 
remedy in the form of resource recovery and source reduction, both of 
which are EPA-favored responses for environmental cleanups and waste 
management. The net result would be an efficient use of resources to 
increase the ultimate recovery of metals the U.S. needs for strategic 
and economic purposes while improving the environment.
    Given the desirability of achieving the resource recovery and 
source reduction that can result from reprocessing and remining, Good 
Samaritan legislation should allow the reprocessing, remining, and 
reuse of ores, minerals, waste rock piles and other materials existing 
at an AML, even if this results in the mining company or other Good 
Samaritan recovering metals from such materials and making some cost 
recovery and perhaps a little profit on its Good Samaritan operations. 
Given the volatility and cyclical nature of metal prices, it is just as 
likely that the costs of any Good Samaritan project would exceed the 
revenue generated by removal and reprocessing. In any event, these 
activities should be allowed as part of a Good Samaritan project only 
if the overall result would be an improvement in environmental 
conditions at the site.
    The Mining and Minerals Policy Act of 1970 (30 U.S.C. Sec. 21(a)), 
specifically establishes the Congressional intent ``to foster and 
encourage private enterprise in the development of economically sound 
and stable domestic mining, minerals, metal, and mineral reclamation 
industries.'' Including remining and reprocessing authority in Good 
Samaritan legislation is consistent with and promotes this 
Congressional intent.
SUPERFUND IS NOT THE ANSWER
    Some Members of Congress and NGOs argue that instead of enacting 
Good Samaritan legislation, Congress should fund the Superfund program 
and EPA, under the Superfund program, should address all hardrock 
abandoned mine lands. In our opinion, this is an inappropriate, 
inefficient, and costly approach to remediating and reclaiming historic 
abandoned mine lands. Moreover, the Superfund program is clearly not 
designed to address the most pressing and prevalent AML problem--
abatement of safety hazards.
    Superfund does not have a very good track record at mine sites. 
Superfund was not designed to address natural processes that result in 
contaminated watersheds at AMLs. The historic mining communities of 
Aspen and Leadville in Colorado, Butte, Montana, Triumph, Idaho and the 
Bunker Hill site in northern Idaho's Silver Valley all have experienced 
first hand the failures of Superfund and the costly results of 
misguided policies and millions of dollars wasted on legal delays and 
repetitive studies. Of the billions of dollars spent of Superfund 
efforts, only 12% of those moneys have actually gone into cleaning up 
the environment while the balance went to legal and consulting fees.
    In each of the Superfund sites noted above, cleanup has cost three 
to five times more than reasonable estimates of what it should have 
cost. Bunker Hill is a prime example of the waste that occurs when an 
EPA-led Superfund effort is undertaken at mine sites. This can be 
demonstrated by comparing Bunker Hill with another example from the 
Silver Valley in northern Idaho.
    There are many historic mining sites on Nine Mile and Canyon Creeks 
just outside the Bunker Hill Superfund site. Two mining companies 
working together with the State of Idaho were able to cleanup and 
remove historic mine wastes, tailings and waste rock piles from Nine 
Mile and Canyon Creeks, and restore fish habitat on the two creeks. 
This work was accomplished at cleanup costs that were one-fourth to 
one-fifth of the cleanup costs on a per-cubic-yard of material removed 
basis compared to EPA's Superfund costs.
    I have visited these sites on three occasions and can personally 
testify to the outstanding remediation and reclamation on Canyon and 
Nine Mile Creeks, and the substantial improvement in water quality as a 
result of these efforts. And, the work has been completed, unlike the 
work at Superfund sites which seems to never end.
    Finally, at the risk of stating the obvious, the Superfund legal 
procedures to identify Potentially Responsible Parties (PRPs), to 
assign joint and several liability, and to recover costs are premised 
on the concept that the site in question has owners who can be 
identified and compelled to pay for the cleanup. None of these 
provisions are appropriate for AML sites, which by definition, no 
longer have an identifiable owner. Thus, the Superfund Program is not 
an ideal or even applicable template for most AML sites.
    There may be some sites for which Superfund is the appropriate 
remedy, but let's not limit the tools we have in the toolbox. 
Thoughtful and effective Good Samaritan legislation that encourages and 
incentivizes Good Samaritans is an important tool to add to the 
Abandoned Mine Land remediation and reclamation toolbox.
CONCLUSION
    Industry wants to see abandoned mines cleaned up. After all, they 
are our dirty pictures, and an albatross hanging around our neck. 
Mining opponents use pictures of historic, unreclaimed abandoned mines 
to foment public opposition to new mine proposals. But it is time for 
this recrimination and finger pointing to stop and to start working 
together to solve this problem.
    Industry wants to see AMLs remediated and reclaimed as much as 
anyone, but we need your help. The mining industry has the desire, the 
experience, the technology, the expertise and the capital to remediate 
and reclaim AMLs. In fact, the mining industry has more experience and 
expertise than all other potential Good Samaritans put together. A 
federal hardrock AML fund using revenue generated from royalties on new 
claims combined with effective Good Samaritan legislation to encourage 
private-sector reclamation efforts offers the best opportunity to 
expedite safety hazard abatement, remediation and reclamation of 
hardrock AML sites, and create a win-win-win-win for the environment, 
for the Good Samaritan, for the community, and for society.
    We applaud the Chairman for holding this hearing and look forward 
to working with him to produce constructive amendments to the Mining 
Law that will provide the certainty, financial and regulatory framework 
necessary to maintain a prosperous domestic mining industry that will 
be able to generate revenues from a royalty on new claims to provide an 
additional funding source to augment existing state, federal and 
industry AML remediation and reclamation efforts. Good Samaritan 
legislation is essential if we truly want to address the historic AML 
problem.
    I thank you for this opportunity to testify on this important issue 
and will be happy to answer any questions.
                                 ______
                                 
    [The response to questions submitted for the record by Ms. 
Skaer follows:]

October 10, 2007

The Honorable Jim Costa
Chairman, Subcommittee on Energy and Mineral Resources
U.S. House of Representatives
Committee on Natural Resources
Washington, DC 20515

Dear Mr. Costa:

    Thank you for your October 4, 2007 letter and the additional 
questions for the record with respect to the legislative hearing on 
October 2, 2007. Our answers to your three questions are set forth 
below.
1.  H.R. 2262 Proposes that reclamation funding go first to sites where 
        there are public health and safety issues. Do you support that 
        provision in Title IV?
Answer:
    We believe AML sites that present public health and safety issues 
should be the first priority for funds distributed to the states, BLM, 
USFS, and ACOE RAMS AML programs. As set forth in our written 
testimony, we believe the funds should be distributed directly to 
existing state/federal AML programs. There is no need to create a new 
federal AML program that would be administered by the Secretary.
    While we believe abating public health and safety issues associated 
with hardrock AMLs should be the first priority for AML funds, we do 
not support Section 402 as drafted. We especially are concerned with 
the language in Sec. 402(b)(1) that makes addressing surface water and 
ground water contamination the highest priority and equates this 
contamination with ``extreme danger.'' There is no ``extreme danger'' 
to the public resulting from contamination of surface water and ground 
water by abandoned mines. In marked contrast, there is extreme danger 
posed by unsecured mine openings. The USFS/BLM study states that there 
is an average of 25 deaths per year due to people falling into 
abandoned mines (see page 21). There are not 25 deaths per year from 
exposure to high levels of heavy metals in water downstream from AMLs. 
We do need to address surface water and ground water contamination from 
AMLs, but it should not be our highest priority for the expenditure of 
moneys from the AML Fund. Addressing physical hazards and unsecured 
mine openings should be our first priority in order to protect public 
health and safety.
2.  Would you recommend that we use the National Mine Lands inventory 
        that Mr. Ferguson from the Forest Service mentioned in his 
        testimony as the starting point for use of any new reclamation 
        funding?
Answer:
    NWMA believes the National Mine Lands inventory Mr. Ferguson 
mentioned and is referenced in the joint BLM/USFS report entitled 
``Abandoned Mine Lands: A Decade of Problems Reclaiming Hardrock 
Mines'' is a good starting point and should be combined with the 
abandoned mine lands inventories the various western states have 
conducted. We believe it would be prudent to use both the National Mine 
Lands inventory Mr. Ferguson mentioned together with the state 
inventories, and that state AML programs are in the best position to 
prioritize the use of any new AML funding.
3.  Does NMA now support the prohibition against self-guarantees for 
        bonds that was incorporated in
    3809 rule changes? Do you think Nevada should take action to 
conform with the prohibition for all mined lands?
Answer:
    We do not believe it is necessary for Nevada to conform to the 3809 
approach to corporate guarantees. The Nevada Division of Environmental 
Protection (NDEP) carefully considered the viability of the corporate 
guarantee as an assurance mechanism in the 2001-2002 timeframe, 
contemporaneous with and after the BLM revised its 3809 regulations. 
Nevada chose to retain its corporate guarantee program, with certain 
significant enhancements. The following enhancements have been made to 
the Nevada program:
      The regulations now make clear, and the policy of the 
NDEP is that even if a company satisfies the minimum financial criteria 
to qualify for a corporate guarantee, it does not mean that it is 
entitled to post a corporate guarantee for a full 75% of the surety 
amount. Rather, NDEP retains the discretion to accept a lower 
percentage of corporate guarantee. It would do so, for example, where a 
corporate guarantor barely satisfies the financial criteria or where 
its financial results show a negative trend.
      The regulations provide for an annual review of the 
certified financial statements of a corporate guarantor by an 
independent third-party accounting firm. This allows NDEP to detect 
changes in the financial condition of a corporate guarantor and if 
necessary, take appropriate action, such as increasing the percentage 
of the financial assurance that must be satisfied by a surety bond or 
letter of credit. The corporate guarantor is required to pay a fee to 
NDEP to cover the cost of the third-party review.
      The regulations also established a process fluid 
stabilization trust fund. NDEP recognized the need to be able to access 
immediate funds to ensure containment of process fluids in the event of 
an operator's financial failure. The funds have been paid and are in 
NDEP's possession. If NDEP ever has to access the funds, it then repays 
the trust fund from the proceeds of the operator's financial assurance.
      NDEP, in coordination with the BLM State Office in 
Nevada, has also established the standard unit cost estimator model for 
reclamation cost calculation. This cost estimator is updated annually 
to reflect current labor (Davis/Bacon wages), materials and fuel costs. 
This tool assures that true third party costs are used in the 
calculation. The tool also ensures that all of the cost line items are 
transparent and verifiable. By regulation, operators must update the 
cost estimate for each project every three years.
    We believe the approach taken by NDEP is appropriate and has proved 
to be capable of protecting Nevada's interest in a sound yet flexible 
financial assurance system.
    Thank you for the opportunity to provide additional information. Do 
not hesitate to contact us if you have further questions or if we can 
be of assistance on these issues.

Sincerely,

/s/ Laura Skaer
Executive Director
                                 ______
                                 
    Mr. Costa. Thank you very much, Ms. Skaer, for giving us a 
better description as to the size of the breadbox, as I like to 
describe it.
    For members of this panel and for members of the committee, 
we have been noticed that there are going to be votes at 4:30, 
two votes today, and it is the Chair's intent when the first 
roll call comes in that we will complete our round of 
questioning, and whoever is questioning at that time, we will 
allow you to complete your questioning, and we will close it at 
that point, and then we will submit any written questions for 
members of the panel, but I think everybody is going to get at 
least their five minutes, and we will see how much longer it 
goes from there.
    So don't start yet on me, Holly. OK? You can start now.
    I am going to have the National Conference of State 
Legislatures put together something on what different states 
are doing. When we were in Nevada with Mr. Heller, it was clear 
to me, and actually I think you were there, Ms. Skaer, as well, 
that Nevada is doing a lot since the inception of the reform of 
their own mining law in the 1980s, and I think we need to 
develop some sort of a matrix as to what states are doing so 
that, in essence, we try not to reinvent the wheel. So I will 
suggest to staff both on the majority and minority side to try 
to work with NCSL to try to get a handle and see how that fits 
with the Good Samaritan legislation.
    Senator Lind, I was interested in your comments because all 
of us, especially if you are from the West, understand how 
precious our water resources are.
    Has Montana attempted to put--I mean, you talked about the 
price tag on the three mines you cited, but the full potential 
of the impact or the cost of cleanup on water quality and 
abandoned mines in Montana?
    Mr. Lind. Mr. Chairman, Members of the Committee, the 
numbers I have come from our Abandoned Mine Lands Program and 
they are not comprehensive.
    Mr. Costa. Is your state doing that?
    Mr. Lind. I have looked for that information recently and I 
will be happy to get back to the committee. I don't have that 
before me. The total package, it was not available in the last 
couple of days.
    Mr. Costa. OK. Mr. Ferguson, there was a description by Ms. 
Skaer that talks about the size of the abandoned mine problem, 
and Mr. Hanlon and Mr. Ferguson, I would like to get both from 
you if you, first of all, agree with the numbers that you used, 
roughly, that the overwhelming majority are safety issues, or 
hazard issues as opposed to water quality issues. Do your 
numbers, your research, concur with her testimony?
    Mr. Ferguson. Mr. Chairman, I can----
    Mr. Costa. I mean, when you look at the size of this 
document here as I was perusing it.
    Mr. Ferguson. I would like to agree with the complexity of 
the numbers. I think Laura mentioned that there is a whole 
variety of numbers, and I think that has to deal with sort of a 
lack of consistency among the various reporting agencies back 
from the Bureau of Mines and the way the states characterize, 
so there is a large number.
    Mr. Costa. How would you describe today the collaboration 
between your Forest Service and the states in assessing this 
problem?
    Mr. Ferguson. Well, we work very closely with the states. 
We are trying to do more and more. One of the efforts that we 
are underway right now with the BLM is we are transferring all 
of our geospatial data on Forest Service lands to the BLM who 
will be entering that into a geo-communicator which will be 
available for the general public to see where these locations 
are.
    We approach all of our reclamation efforts, and especially 
the ones that involve water on a watershed basis, so we look at 
that mixed ownership. We work with the state and we want to be 
sure that we are looking at sort of the headwaters when we 
start because if you start working and doing reclamation at a 
lower level in the watershed, you may not be making any kind of 
accomplishments, and with the mixed ownership patterns, we do 
work with the states.
    Mr. Costa. All right. My time is quickly eroding. Mr. 
Hanlon, part of my difficulty is the wide variety of the cost 
of cleaning up. Even though regardless of the percentage, and 
it seems like we can agree on the percentage, I have heard a 
price tag $30 billion out there, and I have heard it as high as 
double that. How do we get a better handle on this? Again, I am 
trying to get a understanding of how long it is going to take 
to clean these up, and how many resources it is going to 
require.
    Mr. Hanlon. I am not sure I have a sort of capsulated 
answer for you this afternoon, Mr. Chairman. I think the 
complexity of the challenge that states across the country and 
EPA regions are dealing with is both within the Superfund 
program and outside of it.
    Mr. Costa. Well, can you suggest how we might work on that, 
give that some thought, and I will submit it to you in written 
question?
    Ms. Skaer, before my time is gone, you talked about not 
abandoning--no pun intended--the Good Samaritan process. Any 
words of advice on that?
    Ms. Skaer. Well, I think if you look at S. 1848 from last 
year that passed out of the Senate Environment and Public Works 
Committee, I think that provides an excellent framework for 
Good Samaritan legislation that will be effective in getting 
work done on the ground. It needs to work on the ground, and I 
think that provides the model for the committee to look at.
    Mr. Costa. OK. My time has expired. The gentleman from New 
Mexico, Mr. Pearce.
    Mr. Pearce. Thank you, Mr. Chairman.
    Mr. Hanlon, the staff shows me pictures like this when I 
say, you know, what are we really doing on cleanup today, and 
they will show things like this. Is this reflective of cleanups 
that are really happening?
    In other words, you describe and Mr. Ferguson describes a 
project beyond the Animas, but can we say that the industry or 
that the problem is moving this direction rather than having 
more sites that are untouched? Which direction are we going?
    Mr. Hanlon. I am not personally familiar with the pace of 
the individual sites. I think there is real progress being made 
in some locations, both under the Superfund program and outside 
of that with some Good Samaritan examples, but again they are 
just examples. I am not in a position to give you a 
comprehensive answer to that.
    Mr. Pearce. And again, if I heard you correctly, that Good 
Samaritan would probably facilitate the cleanup of sites rather 
than make it harder, is that correct?
    Mr. Hanlon. Yes, sir.
    Mr. Pearce. OK. Ms. Skaer, you heard Mr. Lind in the first 
sentence of his testimony say that the need for reform of the 
1872 mining law is clear, and then goes on to present the 
problems that they are encountering. As I understand it, the 
permitting actually isn't covered under that law of 1872, that 
it actually occurs under the BLM 3809 regulations and the 
Forest Service 288 regulations.
    Can you address what has been done by the different 
regulatory agencies and Forest Service, the BLM with regard to 
those permittings and in the minds that previously could have 
gotten access to mine without sufficient bonding? Can you talk 
about that for me from an industry perspective just a little 
bit, and the safeguards that are in place now that might not 
have been in place when Mr. Lind's problems began to occur?
    Ms. Skaer. I think there is a detailed description of this 
in my written testimony. As I said, prior to the 1970s, 
actually prior to NEPA there were no environmental laws, and 
mines--you know, there weren't even permits required for most 
industries, not just mining, and with the advent of NEPA and 
the Clean Water Act, Clean Air Act, and then the Federal Land 
Policy Management Act, in 1974, the Forest Service enacted 
their 288 regulations. BLM's were first in 1980. They were 
significantly updated in 2001, and what we have seen, as 
industry has learned more and as the regulatory agencies and 
land management agencies have learned more, they have modified 
and adopted their regulations with the increased knowledge.
    So what you have today is a very comprehensive set of 
regulations that ensure that water quality is protected. Both 
the Forest Service and the BLM, in order to receive your 
permit, you have to demonstrate that your project will comply 
with applicable state and Federal environmental laws. It is 
incorporated into the regulations and unless you can comply 
with the different environmental laws you will not get your 
permit.
    Industry supports those regulations, and actually, in 2000-
2001, a lot of changes were made in terms of how bonds are 
calculated so that now financial assurance is calculated so 
that the cost you have to bond for is not the costs that it 
would be for the mining company to reclaim, but what would it 
cost the BLM or the Forest Service or the state if they had to 
hire a third party contractor, paying Davis-Bacon wages, et 
cetera, and so the bond amounts are set now so to make sure 
that they cover all of the contingencies that could occur in 
the event of a default or a bankruptcy.
    Mr. Pearce. Mr. Ferguson, do you find varieties in what Ms. 
Skaer is saying, that the agency is much more protected so the 
burden doesn't fall on the agency from the problems after these 
new regulations?
    Mr. Ferguson. I agree with her description. That is the 
process, yes.
    Mr. Pearce. So the problems that Mr. Lind is experiencing 
there are fixes already in the system that seem to be working 
much better than the permitting before?
    Mr. Ferguson. I can't specifically address those cases he 
cited, but in the current permitting process, we do have those 
processes in place that Ms. Skaer described.
    Mr. Pearce. As we look at the document here, I will tell 
you that there is probably no one in the Congress more critical 
of the Forest Service, and if you would take back that myself, 
if you would take back that your testimony today feels sound, 
and we see things that are actually happening that should be 
happening, and they may not care but I suspect they will be 
interested that I am passing along positive comments about the 
Forest Service. So just let me give you my compliments for--we 
are trying to sort through a very difficult problem, and the 
same goes to Mr. Hanlon, for you all, that these are 
extraordinary complex things, and there are people who want to 
drive it to the extreme, that if you don't get it to 
perfection, then we are going to be held accountable, and we 
are seeing there that incremental improvements can be made. The 
whole situation gets somewhat better.
    Mr. Chairman, if we get the second chance, I have one more 
question, but other than that I am pretty well finished. 
Thanks.
    Mr. Costa. Well, just a quick question. I know some of you 
may not have the familiarity or the experience on the issue 
that Ms. Skaer relates as related to the bond, but I did have a 
question before your comment, and maybe you can respond to it.
    Because of the present day requirements for bonds on 
permitting on mines, is it accurate for me to think of it in 
these terms as a layperson for new mines developed for the 
bonded requirement, there is a coverage to clean up the 
facility afterwards? If the company goes bankrupt, that bond is 
there to provide the cleanup, is that correct?
    Ms. Skaer. That is correct, to ensure that the taxpayer 
doesn't bear the burden.
    Mr. Costa. OK. So in my attempt to visualize this into two 
categories, the problem of which this bill attempts to address 
one issue, and that is a royalty payment that would be first 
prioritized for cleanup, would be the category of abandoned 
mines that previously did not have a bond requirement. Would 
that be correct?
    Ms. Skaer. Right, because the mines were--the properties 
were mined and abandoned before there were bonding requirements 
in the regulations.
    Mr. Costa. So when we are trying to get the size of the 
breadbox in terms of the descriptive on how much cleanup is out 
there that is required, we have to put those into two 
categories, in essence, based upon those that were prior to 
bonding requirements and those that now have bonding 
requirements. Does it suffice to say now that all mines in the 
United States are required to have bonding requirements before 
they are allowed all of their permits to go ahead?
    Ms. Skaer. Absolutely.
    Mr. Costa. OK, and it is based upon the criteria that you 
described a moment ago?
    Ms. Skaer. Yes. Correct.
    Mr. Costa. Thank you for that. I am going to defer the 
balance of my time to the gentleman from Idaho, Mr. Sali. You 
will get your total five minutes. It is just I am not using all 
of my five minutes.
    Mr. Sali. Mr. Chairman, I will be very brief.
    Ms. Skaer, I was looking at the end of your written 
testimony, your discussion about Superfund not being the 
answer, and in there you refer to some who are interested in 
funding Superfund again as opposed to working on Good Samaritan 
legislation. I don't suppose you would want to speak for them, 
but I would like a better understanding of who is it that would 
be opposing the Good Samaritan legislation and what are the 
reasons, if you know?
    Ms. Skaer. Well, I recall last year when S. 1848 was marked 
up in the Senate Environment and Public Works Committee that 
Senator Boxer from California opposed the Good Samaritan bill, 
and actually stated in the record that she believed that rather 
than enact Good Samaritan legislation that Congress should 
reauthorize Superfund and ensure that there was sufficient 
monies in there, and that that was the appropriate remedy for 
these abandoned mines.
    We completely disagree with that, and I think if you look 
at all of the data that shows that between 80 and 90 percent of 
these are either safety hazards or landscape disturbances, 
Superfund is a totally inappropriate tool to address those 
sites.
    Mr. Sali. As you go through your discussion in your written 
testimony, you make the point that, first of all, the Superfund 
tends to be much, much, much more expensive than the efforts, 
for example, of the state working in the Silver Valley in Idaho 
on a couple of abandoned mine issues there. But I am struck by 
your statement as well that the difference for abandoned mine 
lands is that they have been abandoned.
    Ms. Skaer. They have been abandoned. There is no owner.
    Mr. Sali. There is no one to identify as a potentially 
responsible party. How would we continue to address that using 
Superfund for a bunch of these abandoned mine lands where, for 
example, you have pointed out they are just safety issues?
    Ms. Skaer. In my view, it would not work. It would totally 
be a waste of money and kind of a circular process to try to 
find a potential responsible party for a site that, by 
definition, has no owner. It is abandoned. It is orphaned. So 
it seems to me that a better approach is the approach that was 
laid out in the Good Samaritan legislation of Senator Salazar 
last year, and also utilizing the existing state abandoned mine 
land programs and the BLM and the Forest Service and the Army 
Corps of Engineers program to go out and address these sites. 
It can be done more efficiently.
    As I stated in my testimony, I am familiar with the Silver 
Valley of northern Idaho. I have testified on these issues. I 
have visited the site, and the State of Idaho working in 
cooperation with two mining companies completely cleaned up, 
remediated and reclaimed tailings that were in two creeks, 9-
Mile and Canyon Creek, and they did it for about one-fifth of 
the cost that the Superfund site around Bunker Hill, and so if 
we want to get these sites cleaned up and into the ground and 
not into the pockets of lawyers and consultants.
    Mr. Sali. Mr. Chairman, I was going to yield the balance of 
my time to the gentleman from New Mexico, but I see my time is 
just about up, and I yield back.
    Mr. Costa. That is OK. The gentleman from New Mexico and I 
have an understanding. He has always got as much time as he 
needs.
    Mr. Pearce. We are not called to vote until 4:45, Mr. 
Chairman. I really appreciate that.
    Mr. Costa. Let me amend my statement.
    [Laughter.]
    Mr. Pearce. OK. First of all, I want to compliment the 
Chairman and the staff. Both panels today have been very 
effective. Mr. Lind adequately talks about the burden on the 
states for problems. I think both agencies are very well 
represented, and began to talk about curing problems, not how 
can we drive the discussion to the extremes, but how do we 
begin to cure that, and Ms. Skaer's comments about the dirty 
pictures of the industry. You know, recognition is the first, I 
think, step toward a solution, and when I hear that, I believe 
that we are all on the road to where we need to be on, rather 
than just using each other for political points or whatever. So 
I really appreciate both panels, Mr. Chairman.
    My only question, Ms. Skaer, is going to be to you. I mean, 
you have heard the testimony about the Good Samaritan 
legislation, and again considering the testimony of Mr. Lind, 
which is very compelling with the problems that we have, if the 
Good Samaritan legislation were in place, do you think the 
Pegasus bankruptcy would have occurred or do you think there 
would have been the ability to solve the problem in the format 
of the Good Samaritan legislation that you have referred to?
    Ms. Skaer. Yes, certainly the framework would have been 
there. I do know that of another situation in which several 
mining companies offered to provide the equipment, provide 
water treatment, provide consulting services to address 
potential pollution problems, but they needed that Good 
Samaritan protection in order to do it because they didn't want 
to acquire cradle-to-grave responsibility for the site, and 
that protection was denied, and the site ended up becoming a 
Superfund site.
    So I think that while I don't have this great crystal ball, 
I can tell you that I believe if Good Samaritan protection was 
in place the ethic that the industry has today to be an 
environmentally and socially responsible industry, you know, it 
doesn't do a responsible mining company any good to have 
another site that goes bad, because that site then is going to 
become the dirty picture that is used every time you go to 
permit a new mine.
    So I think it is in the industry's--I think the industry 
would look at it as it is in their best interest to come 
together in a cooperative way and address those sites so they 
don't become problems.
    Mr. Pearce. Mr. Chairman, again I find that statement just 
as compelling that there were mines willing to take on the 
responsibility, and lend their money and expertise to solve a 
problem, and yet they would have become then owners of the full 
problem, so that is an effective picture as well as your 
missions up front.
    Again, Mr. Chairman, great panel. Appreciate both of these, 
and I yield back.
    Mr. Costa. Thank you very much the gentleman from New 
Mexico. I concur with you. We had some excellent testimony this 
afternoon, both panels. This is, as we say, a work in progress, 
and so we shall be continued. I think we got some greater 
clarity on the different options as it relates to royalties, 
and how we try to strive toward doing something that is fair 
and equitable, and I want to thank the minority staff and the 
majority staff for their hard work in putting this hearing 
together today.
    I really am going to urge that we try to get a better 
handle on what states are doing and develop that matrix so that 
the Subcommittee has that information, because there is good 
work taking place in places like New Mexico and Montana, and I 
know California and Nevada as I witnessed with Congressman 
Heller, and so we certainly want to collaborate in a meaningful 
way and not reinvent the wheel. So we need to get that 
information at hand as well, and we will continue to work at 
this.
    Thank you very much. The Subcommittee is now adjourned.
    [Whereupon, at 4:27 p.m., the Subcommittee was adjourned.]

    [Additional material submitted for the record follows:]
    [A statement submitted for the record by the San Xavier 
District of the Tohono O'Odham Nation follows:]

[GRAPHIC] [TIFF OMITTED] T8137.005


    [GRAPHIC] [TIFF OMITTED] T8137.006
    

    [GRAPHIC] [TIFF OMITTED] T8137.007
    
                               
