[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
__________
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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
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\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
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\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
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\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.
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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.
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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:]
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