[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
SEEKING INNOVATIVE SOLUTIONS FOR THE FUTURE OF HARDROCK MINING
=======================================================================
OVERSIGHT HEARING
before the
SUBCOMMITTEE ON ENERGY AND
MINERAL RESOURCES
of the
COMMITTEE ON NATURAL RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
Thursday, July 20, 2017
__________
Serial No. 115-20
__________
Printed for the use of the Committee on Natural Resources
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______
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COMMITTEE ON NATURAL RESOURCES
ROB BISHOP, UT, Chairman
RAUL M. GRIJALVA, AZ, Ranking Democratic Member
Don Young, AK Grace F. Napolitano, CA
Chairman Emeritus Madeleine Z. Bordallo, GU
Louie Gohmert, TX Jim Costa, CA
Vice Chairman Gregorio Kilili Camacho Sablan,
Doug Lamborn, CO CNMI
Robert J. Wittman, VA Niki Tsongas, MA
Tom McClintock, CA Jared Huffman, CA
Stevan Pearce, NM Vice Ranking Member
Glenn Thompson, PA Alan S. Lowenthal, CA
Paul A. Gosar, AZ Donald S. Beyer, Jr., VA
Raul R. Labrador, ID Norma J. Torres, CA
Scott R. Tipton, CO Ruben Gallego, AZ
Doug LaMalfa, CA Colleen Hanabusa, HI
Jeff Denham, CA Nanette Diaz Barragan, CA
Paul Cook, CA Darren Soto, FL
Bruce Westerman, AR A. Donald McEachin, VA
Garret Graves, LA Anthony G. Brown, MD
Jody B. Hice, GA Wm. Lacy Clay, MO
Aumua Amata Coleman Radewagen, AS Jimmy Gomez, CA
Darin LaHood, IL
Daniel Webster, FL
Jack Bergman, MI
Liz Cheney, WY
Mike Johnson, LA
Jenniffer Gonzalez-Colon, PR
Greg Gianforte, MT
Todd Ungerecht, Acting Chief of Staff
Lisa Pittman, Chief Counsel
David Watkins, Democratic Staff Director
------
SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES
PAUL A. GOSAR, AZ, Chairman
ALAN S. LOWENTHAL, CA, Ranking Democratic Member
Louie Gohmert, TX Anthony G. Brown, MD
Doug Lamborn, CO Jim Costa, CA
Robert J. Wittman, VA Niki Tsongas, MA
Stevan Pearce, NM Jared Huffman, CA
Glenn Thompson, PA Donald S. Beyer, Jr., VA
Scott R. Tipton, CO Darren Soto, FL
Paul Cook, CA Nanette Diaz Barragan, CA
Vice Chairman Vacancy
Garret Graves, LA Vacancy
Jody B. Hice, GA Raul M. Grijalva, AZ, ex officio
Darin LaHood, IL
Jack Bergman, MI
Liz Cheney, WY
Rob Bishop, UT, ex officio
------
CONTENTS
----------
Page
Hearing held on Thursday, July 20, 2017.......................... 1
Statement of Members:
Gosar, Hon. Paul A., a Representative in Congress from the
State of Arizona........................................... 1
Prepared statement of.................................... 3
Lowenthal, Hon. Alan S., a Representative in Congress from
the State of California.................................... 4
Prepared statement of.................................... 5
Statement of Witnesses:
Cress, James, Counsel, Bryan Cave LLP, Denver, Colorado...... 21
Prepared statement of.................................... 22
Hitzman, Murray, Associate Director for Energy and Minerals,
United States Geological Survey, Reston, Virginia.......... 7
Prepared statement of.................................... 8
Krebs, Mitchell, President and CEO, Coeur Mining, Chicago,
Illinois................................................... 30
Prepared statement of.................................... 31
Questions submitted for the record....................... 34
Pagel, Lauren, Policy Director, Earthworks, Washington, DC... 15
Prepared statement of.................................... 16
Questions submitted for the record....................... 20
Parke, Bret, Deputy Director, Arizona Department of
Environmental Quality, Phoenix, Arizona.................... 11
Prepared statement of.................................... 13
Additional Materials Submitted for the Record:
Lower Slate Lake, photographs submitted for the record by
Rep. Lowenthal............................................. 61
Mineral Commodity Summaries 2017, by USGS, pages 6-7
submitted for the record by Rep. Hice...................... 54
OVERSIGHT HEARING ON SEEKING INNOVATIVE SOLUTIONS FOR THE FUTURE OF
HARDROCK MINING
----------
Thursday, July 20, 2017
U.S. House of Representatives
Subcommittee on Energy and Mineral Resources
Committee on Natural Resources
Washington, DC
----------
The Subcommittee met, pursuant to notice, at 9:07 a.m., in
room 1324, Longworth House Office Building, Hon. Paul Gosar
[Chairman of the Subcommittee] presiding.
Present: Representatives Gosar, Cook, Gohmert, Lamborn,
Wittman, Pearce, Thompson, Tipton, Hice, LaHood; Lowenthal,
Beyer, and Soto.
Dr. Gosar. The Subcommittee on Energy and Mineral Resources
will come to order. The Subcommittee is meeting today to hear
testimony on seeking innovative solutions for the future of
hardrock mining.
Under Committee Rule 4(f), any oral opening statements at
the hearings are limited to the Chairman, Ranking Minority
Member, and the Vice Chair. This will allow us to hear from our
witnesses sooner, and help Members keep to their schedules.
Therefore, I ask unanimous consent that all other Members'
opening statements be made part of the hearing record, if they
are submitted to the Subcommittee Clerk by 5:00 p.m. today.
Without objection, so ordered.
STATEMENT OF THE HON. PAUL A. GOSAR, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ARIZONA
Dr. Gosar. Today, the Subcommittee meets to discuss the
importance of hardrock mining. Hardrock mining on Federal land
in the United States has a storied past, a challenging present,
and a multitude of needs for reform. This hearing will focus on
pressing issues facing the hardrock industry, and provide
oversight for innovative solutions for the future of hardrock
mining.
Back in March, this Subcommittee held an oversight hearing
highlighting the importance of raw materials in a variety of
infrastructure projects. From rocks to roads, rare earths to
green technologies, and iron ore to wind farms, all
infrastructure projects rely on a mining operation.
The diversity of the Nation's mineral endowment allows for
the United States to be self-sufficient, yet domestic
production of solid mineral resources is hindered by an arduous
and uncertain regulatory scheme.
Delays in obtaining the various permits required for mine
construction and production results in a project's loss in
value. The NEPA process alone averages over 4\1/2\ years. This
affects the economics of a given deposit and a company's
ability to maximize the quantity of the resource they are able
to recover. In other words, artificial delays in a mining
project results in the squandering of the Nation's resources.
Mining begins with exploration. In the early 1990s, the
United States attracted 20 percent of the worldwide exploration
budget. Today, it hovers around 7 percent. Without domestic
exploration, significant declines in U.S. mineral production
are unavoidable. This has contributed to an increased import
dependency for minerals.
In the mid-1980s, the United States was dependent on
foreign sources for 30 non-fuel minerals. By 2017, the U.S.
import dependence for non-fuel minerals more than doubled to 64
commodities, 20 of which are imported entirely. Maybe it is
time to return the USGS to its mission of geological
exploration.
Mining operations can have a significant impact on the
environment. As such, Federal and state regulations have
evolved to respond to past deficiencies, and ensure that the
highest level of environmental protection is achieved,
including significant and sufficient bonding requirements.
However, over-regulation has a detrimental effect, as well.
For instance, the EPA is working on a rule right now that would
disregard the comprehensive regulations by states and other
Federal agencies. The Bureau of Land Management, the U.S.
Forest Service, and the majority of western states continue to
raise concerns regarding duplication and pre-emption. These
attempts to impose excessive and duplicative requirements on
the mining industry will only serve to disincentivize critical
investments in the United States.
Abandoned mine lands are also an issue. There are estimates
as to how many sites exist, and while there is no comprehensive
inventory of abandoned hardrock mines, the problem is known to
be extensive. While progress has been made in addressing some
of the problem sites, there are legal barriers to creating a
more aggressive and substantial program, and Good Samaritan
legislation for abandoned hardrock mine site reclamation can be
a positive force to resolve this legacy issue.
Additionally, the United States no longer has a Federal
entity promoting mineral development. The U.S. Bureau of Mines
(USBM) was a Federal entity in the Department of the Interior
that operated from 1910 until 1996. The purpose of the Bureau
was to promote health, safety, and economic viability of the
mining industry. Many from the mining community have pointed to
the disbandment of the USBM as the beginning of the decline of
mining in the United States.
Today, we will also discuss the topic of royalties on
minerals produced on Federal land. I encourage us to keep in
mind the realities of hardrock mining. These economic and
technical variables lead to different returns on investments
from operation to operation. A one-size-fits-all gross royalty
does not take into account the unique feature of every mine. As
such, any legislative proposal seeking to impose a royalty rate
must appropriately account for the realities of the hardrock
mining industry, and be coupled with permitting certainty.
It is true, we are covering a lot today. I look forward to
coming up with novel approaches to perceived needed reforms,
and I hope that we can do so in a bipartisan way. For many
Congresses, we have been throwing around the same ideas to no
avail. It is time for some new ideas, and I hope we come
together to find them.
Last, this week is ``Made in America'' week, and at this
timely hearing we are discussing what is ``Mined in America.''
I want to thank the witnesses for being here, and I look
forward to hearing from them.
[The prepared statement of Dr. Gosar follows:]
Prepared Statement of the Hon. Paul A. Gosar, Chairman, Subcommittee on
Energy and Mineral Resources
Today, the Subcommittee meets to discuss the importance of hardrock
mining. Hardrock mining on Federal land in the United States has a
storied past, a challenging present, and multiple needs for reform.
This hearing will focus on pressing issues facing the hardrock industry
and provide oversight for innovative solutions for the future of
hardrock mining.
Back in March, this Subcommittee held an oversight hearing
highlighting the importance of raw materials in a variety of
infrastructure projects. From rocks to roads, rare earths to green
technologies, and iron ore to wind farms, all infrastructure projects
rely upon a mining operation. The diversity of the Nation's mineral
endowment allows for the United States to be self-sufficient, yet
domestic production of solid mineral resources is hindered by an
arduous and uncertain regulatory scheme.
Delays in obtaining the various permits required for mine
construction and production results in a project's loss in value. The
NEPA process alone averages over 4\1/2\ years. This affects the
economics of a given deposit and a company's ability to maximize the
quantity of the resource they're able to recover. In other words,
artificial delays in a mining project results in the squandering of the
Nation's resources.
Mining begins with exploration. In the early 1990s, the United
States attracted 20 percent of the worldwide exploration budget; today
it hovers around 7 percent. Without domestic exploration, significant
declines in U.S. mineral production are unavoidable. This has
contributed to an increased import dependency for minerals. In the mid-
1980s, the United States was dependent on foreign sources for 30 non-
fuel minerals. By 2017, the U.S. import dependence for non-fuel
minerals more than doubled to 64 commodities; 20 of which are imported
entirely. Maybe it's time to return the USGS to its mission of
geological exploration.
Mining operations can have a significant impact on the environment.
As such, Federal and state regulations have evolved to respond to past
deficiencies and ensure that the highest level of environmental
protection is achieved, including significant and sufficient bonding
requirements. However, over-regulation has a detrimental effect. For
instance, the EPA is working on a rule right now that would disregard
the comprehensive regulations by states and other Federal agencies. The
Bureau of Land Management, the U.S. Forest Service, and the majority of
western states continue to raise concerns regarding duplication and
pre-emption. These attempts to impose excessive and duplicative
requirements on the mining industry will only serve to disincentivize
critical investments in the United States.
Abandoned mine lands are also an issue. There are estimates as to
how many sites exist, and while there is no comprehensive inventory of
abandoned hardrock mines, the problem is known to be extensive. While
progress has been made in addressing some of the problem sites, there
are legal barriers to creating a more aggressive and substantial
program and Good Samaritan legislation for abandoned hardrock mine site
reclamation can be a positive force to resolve this legacy issue.
Additionally, the United States no longer has a Federal entity
promoting mineral development. The U.S. Bureau of Mines (USBM) was a
Federal entity in the Department of the Interior that operated from
1910 until 1996. The purpose of the bureau was to promote the health,
safety, and economic viability of the mining industry. Many from the
mining community have pointed to the disbandment of the USBM as the
beginning of the decline of mining in the United States.
Today, we will also discuss the topic of royalties on minerals
produced on Federal land. I encourage us to keep in mind the realities
of hardrock mining. These economic and technical variables lead to
different return on investments from operation to operation. A one-
size-fits-all gross royalty does not take into account the unique
features of every mine. As such, any legislative proposal seeking to
impose a royalty rate must appropriately account for the realities of
the hardrock mining industry, and be coupled with permitting certainty.
It's true that we are covering a lot today. I look forward to
coming up with novel approaches to perceived needed reforms and I hope
we can do so in a bipartisan way. For many Congresses, we have been
throwing around the same ideas to no avail. It's time for some new
ideas and I hope we can come together to find them.
Last, this week is ``Made in America'' week, and at this timely
hearing we will be discussing what is ``Mined in America.'' I want to
thank the witnesses for being here and look forward to hearing from
them today.
______
Dr. Gosar. And with that, I recognize the Ranking Member
this morning, Mr. Lowenthal, for his 5 minutes.
STATEMENT OF THE HON. ALAN S. LOWENTHAL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Dr. Lowenthal. Thank you, Mr. Chairman, and thank you for
holding this hearing on a topic that is long overdue for some
innovations, and thank you to all the witnesses.
If I had to make one operative statement, one sentence,
that summarized what I am going to say, it is the West has been
settled. That is my operative sentence, ``the West has been
settled,'' because we are going to be talking today about
Federal law surrounding hardrock mining.
Innovative solutions? At this point, what we are talking
about if we look at the last time that we did anything on this,
we are talking about the horseless carriage, the gramophone,
light bulbs. We have not really been dealing with hardrock
mining for a long, long time.
The Mining Law dates back to 1872, when the West looked
nothing like it does today. The same could be said for the
entire country, as well as mining. The incentives placed into
the 1872 law were supported by President Grant, because he
wanted the West to be settled. That was the driving force. My
message is the West has been settled; it is time to move on.
The population of the entire country in the 1870s was
smaller than the population of California today. Los Angeles
was home to about 6,000 people, and thanks to the new
transcontinental railroad, you could get from coast to coast at
a blistering pace of just under 1 week. And it was in those
days that we put into effect what became the local codes and
the rules that the 49ers developed during the Gold Rush.
Now, we have over 321 million people in the United States,
nearly 10 million alone in Los Angeles County. And you can get
from Los Angeles to Washington, DC, or New York City in about
5\1/2\ hours. But our mining laws are still effectively the
local codes and the rules that the 49ers developed during the
Gold Rush.
Public land is open for you to freely explore. The gold,
silver, copper, and other minerals are there for you to take,
no royalty necessary. And if you find something, you can buy
the land outright for either $2.50 or $5 an acre. These rules
may have been appropriate in the mid-19th century, but they are
completely inappropriate in the modern world. It is long past
time to seriously reform hardrock mining laws in this country.
I know some will say, ``Hey, but hardrock mining does
adhere to our environmental laws, such as NEPA, the Clean Water
Act, and the Clean Air Act.'' But none of these laws today are
really equipped to handle at this moment the specific
environmental challenges that come with hardrock mining, or to
address the exalted status that mining has managed to maintain
on our public lands.
For example, there are over a half-million abandoned
hardrock mines that litter the country, posing safety threats
and polluting thousands and thousands of miles of rivers and
streams with toxic runoff. Congress tackled this issue for coal
mines almost 40 years ago. Industry was asked to pay a small
fee for each ton of mined coal, and that money goes to
remediating the harmful legacy of countless abandoned coal
mines. There is no similar program for abandoned hardrock
mines.
We have discussed Good Samaritan programs in this
Committee, along with potential support from the newly-created
Bureau of Land Management Foundation. These are voluntary
efforts and they are off to a good start. I applaud this
Committee for dealing with that, but that is not going to be
enough to seriously put a dent in the problem.
This can only happen if the mining industry steps up and
meaningfully begins to deal with this history of pollution,
just like the coal mining industry has done. There are many
ways to raise revenue, and one option would be a long-overdue
royalty on hardrock mining.
I think it is constructive that we are having this
discussion today, because it is simply long past time for the
American people to get their fair share for the sale of
minerals that actually belong to them.
For nearly a century, we have received a royalty for oil,
gas, coal, potash, soda ash, and many other resources that are
extracted from public lands. It should be no different for
gold, silver, copper, or any other minerals.
I look forward to the discussion about the options for
things such as royalty and other ways to reform the mining law.
It is long overdue. And, as I say in conclusion, the West has
been settled. It is time to move forward.
Thank you, Mr. Chair.
[The prepared statement of Dr. Lowenthal follows:]
Prepared Statement of the Hon. Alan S. Lowenthal, Ranking Member,
Subcommittee on Energy and Mineral Resources
Thank you, Mr. Chairman, and thank you for holding this hearing on
a topic that's really long overdue for some innovations. Because when
you're talking about Federal laws surrounding hardrock mining,
innovative solutions could include the horseless carriage, the
gramophone, or light bulbs.
The Mining Law dates from a time when the West looked nothing like
it does today. The same could be said for the entire country, as well
as mining itself. The population of the entire country in the 1870s was
smaller than the population of California today. Los Angeles was home
to about 6,000 people. And thanks to the brand-new transcontinental
railroad, you could get from coast to coast at a blistering pace of
just under a week. And it was in these years that Congress put into law
what were effectively the local codes and rules that the 49ers
developed during the Gold Rush.
Today, we have 321 million people in this country, nearly 10
million in Los Angeles County alone. And you can get from L.A. to New
York City in about 5\1/2\ hours. But our mining laws are still
effectively the local codes and rules that the 49ers developed during
the Gold Rush.
Public land is open for you to freely explore. The gold, silver,
copper, and other minerals are there for you to take, no royalty
necessary. And if you find something, you can buy the land outright for
either $2.50 or $5 an acre.
These rules may have been appropriate in the mid-19th century, but
they are completely inappropriate for the modern world. It is long past
time to seriously reform hardrock mining laws in this country.
I know that there are some who point out that hardrock mining in
America still adheres to all of our environmental laws, such as the
National Environmental Protection Act, the Clean Water Act, and the
Clean Air Act. But none of those are equipped to handle the specific
environmental challenges that come with hardrock mining, or to address
the exalted status that mining has managed to maintain on our public
lands.
Then there are the half-million abandoned hardrock mines that
litter the country, posing safety threats and polluting thousands and
thousands of miles of rivers and streams with toxic runoff. Congress
tackled this issue for coal mines almost exactly 40 years ago. Industry
was asked to pay a small fee for each ton of mined coal, and that money
goes to remediating the harmful legacy of countless abandoned coal
mines. There is no similar program for cleaning up abandoned hardrock
mines.
We have discussed Good Samaritan programs in this Committee, along
with potential support from the newly created Bureau of Land Management
Foundation. But these are volunteer efforts that are a good start, but
that will not be nearly enough to put a significant dent into this
problem.
That can only happen if the mining industry steps up and
meaningfully deals with its own long history of pollution, just like
the coal industry has done. There are many ways to raise that revenue,
and one option would be the long-overdue royalty on hardrock mining.
I think it's very constructive that we're having that discussion
today, because it is simply long past time for the American people to
get their fair share for the sale of minerals that belong to them. For
nearly a century, the American people have received a royalty for oil,
gas, coal, potash, soda ash, and many other resources that are
extracted from public lands. It should be no different for gold,
silver, copper, or any other mineral.
I look forward to the discussion about the options for such a
royalty, and other ways to reform the Mining Law, but there is no
question this discussion is long overdue.
I thank the witnesses for being here, and I yield back the balance
of my time.
______
Dr. Gosar. I thank the gentleman. I will now introduce our
witnesses.
First, we have Dr. Murray Hitzman, the Associate Director
for Energy and Minerals at the United States Geological Survey;
Mr. Bret Parke, Deputy Director for the Arizona Department of
Environmental Quality; Ms. Lauren Pagel, Policy Director at
Earthworks; Mr. James Cress, Counsel at Bryan Cave, LLP; and
then Mr. Mitchell Krebs, President and CEO of Coeur Mining.
Let me remind the witnesses that under our Committee Rules,
they must limit their statements to 5 minutes. Their entire
written testimony will be placed in the hearing record.
Our microphones are not automatic, you will have to push
the microphone button so we can hear you. At that same time,
you will see the clock start at 5 minutes. It will be green for
the first 4 minutes, then it will turn yellow for 1 minute.
When you see the red, please cut it off. We have a busy
morning, so we want to make sure we give everybody ample time.
I am going to start now by recognizing Dr. Hitzman for his
testimony.
You are recognized.
STATEMENT OF MURRAY HITZMAN, ASSOCIATE DIRECTOR FOR ENERGY AND
MINERALS, UNITED STATES GEOLOGICAL SURVEY, RESTON, VIRGINIA
Dr. Hitzman. Good morning. Thank you, Chairman Gosar,
Ranking Member Lowenthal, and members of the Subcommittee.
Thank you for the opportunity to discuss the Nation's mineral
resources.
The U.S. Geological Survey is responsible for conducting
research and collecting data on a wide variety of mineral
resources. The USGS maintains a workforce of geologists,
geochemists, geophysicists. and resource specialists with
expertise in minerals and materials. These geoscientists
collect, analyze, and disseminate data and information on
domestic and global rare earth and other mineral reserves and
resources, production, consumption, and use. These mineral data
are published annually in the mineral commodities summary.
Domestic and global demand for mineral commodities
continues to increase. The United States is a major producer of
non-fuel minerals that have an estimated total value of $75.6
billion, and is a net exporter of 16 non-fuel mineral
commodities.
But the United States is also increasingly reliant on
foreign sources for processed mineral materials. In 2016, our
studies show that imports made up more than one-half of the
apparent U.S. consumption of 50 non-fuel mineral commodities
valued at $32.3 billion. The United States was 100 percent
reliant for 20 of these mineral commodities, including 8 that
the USGS identified as critical. This is an increase from 47
non-fuel mineral commodities on which the country was more than
one-half dependent in 2015, and 19 non-fuel mineral commodities
for which the country was 100 percent dependent in 2015.
In addition to providing information on mineral production
and consumption, the USGS also produces data that aids in
assessing the mineral potential of a country, and we have done
so since 1879. The Nation's lands undoubtedly contain
additional deposits of critical and strategic minerals, but
mineral exploration by the private sector is hampered by the
lack of modern geological and geophysical data.
USGS studies of domestic mineral resources make heavy use
of geological and regional-scale geophysical maps such as
aeromagnetic and radiometric maps that help to find areas that
could be favorable for exploration. Many USGS geological maps
are produced in conjunction with state geological surveys
through the National Cooperative Geologic Mapping Program.
Currently, less than one-third of the United States has
been mapped at the detailed scales required for mineral
exploration. For example, Alaska and large portions of the mid-
continent represent some of the most prospective ground for
mineral discovery in the world. However, the favorable rocks
for the deposits are buried, and not visible at the earth's
surface. Geophysical surveys are required for such areas.
Other countries, such as Canada and Australia, that have
undertaken such geological and geophysical surveys report that
investments of $1 by the government have resulted in further
investment of over $5 by the private sector.
An assessment of the Nation's mineral resources must
include not only the resources available on the ground, but
also those that become available through recycling. Metal
supply consists of primary material from a mining operation and
secondary material, which is composed of old and new scrap.
Metal recycling rates cluster in the range from 15 to 45
percent. Although recycling is a major source of some non-fuel
resources, such as aluminum, technical difficulties with
recycling for other mineral commodities, such as the rare earth
elements, can be very challenging.
The Department, through the USGS, stands ready to fulfill
its role as the Federal provider of unbiased research on
mineral resources, as well as information on domestic and
global production and consumption of mineral resources for use
in global critical mineral supply chain analysis.
Thank you for the opportunity to testify, and I look
forward to any questions you may have.
[The prepared statement of Mr. Hitzman follows:]
Prepared Statement of Dr. Murray Hitzman, Associate Director for Energy
and Minerals, U.S. Geological Survey, U.S. Department of the Interior
Good morning Chairman Gosar, Ranking Member Lowenthal, and members
of the Subcommittee. Thank you for the opportunity to discuss the
Nation's mineral resources.
background
On behalf of the U.S. Department of the Interior, the U.S.
Geological Survey (USGS) is responsible for collecting data and
conducting research on a wide variety of mineral resources. Research is
conducted to understand the geologic processes that have concentrated
known mineral resources at specific locations in the Earth's crust; and
to assess quantities, qualities, and areas of undiscovered mineral
resources, or potential future supply. The USGS maintains a workforce
of geoscientists, including geologists, geochemists, geophysicists, and
resource specialists, with expertise in minerals and materials. These
geoscientists continuously collect, analyze, and disseminate data and
information on domestic and global rare earth and other mineral
reserves and resources, production, consumption, and use.
current understanding of the nation's mineral endowment
Domestic and global demand for mineral commodities continues to
rise. Mineral commodities have ever more applications in both consumer
and national security products, especially those products involving
advanced technologies. The United States remains a major mineral
producer with an estimated total value of non-fuel mineral resources of
$75.6 billion, and is a net exporter of 16 non-fuel mineral
commodities. However, the country also is increasingly reliant on
foreign sources for processed mineral materials. In 2016, imports made
up more than one-half of the U.S. apparent consumption of 50 non-fuel
mineral commodities (valued at $32.3 billion), and the United States
was 100 percent import reliant for 20 of these mineral commodities
(valued at $1.3 billion), including 8 critical minerals as identified
by the USGS. This is an increase from 47 non-fuel mineral commodities
on which the country was more than one-half dependent in 2015 and 19
non-fuel commodities for which the country was 100 percent import
reliant in 2015. China, followed by Canada, supplied the largest number
of non-fuel mineral commodities to the United States in 2016, similar
to 2015.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
USGS mineral commodity specialists study current production and
consumption for 84 mineral commodities, both domestically and
internationally for 180 countries. These production and consumption
data include information on domestic production and use, import
sources, world production capacity, and recycling. The data allow for a
comprehensive understanding of the complete life cycle of mineral
resources and materials. This information is published annually in the
USGS Mineral Commodity Summaries (USGS, 2017) and includes a
description of current events, trends, and issues related to supply and
demand. These data inform analyses and policies concerning the Nation's
dependence on foreign sources of mineral commodities.
In addition to providing information on mineral production and
consumption, the USGS also produces data that aids in assessing the
mineral potential of the country, which we have done since 1879. This
work continues as different mineral commodities gain importance for the
economy and as our understanding improves of how mineral deposits form
and how they can be discovered. Geological maps are a primary source of
information for mineral exploration. Many USGS geological maps are
produced in conjunction with state geological surveys through the
National Cooperative Geologic Mapping Program through cooperative
agreements.
The Mineral Resources Program (MRP) conducts research to better
understand new types of critical mineral deposits. Also critical are
geological mapping and geophysical data. These USGS research and
assessment products are crucial to Federal, state, tribal, and industry
decision making on mineral resources management.
potential to enhance the nation's mineral resources information
The United States remains a major mineral producer. The Nation's
lands undoubtedly contain additional deposits of critical and strategic
minerals, but mineral exploration by the private sector is hampered by
the lack of modern geological and geophysical data. USGS studies of
domestic mineral resources make heavy use of geologic mapping and the
production of regional scale geophysical maps such as aeromagnetic and
radiometric maps that help define areas favorable for exploration.
Currently less than one-third of the United States has complete
topographic, geologic, and geophysical 3D mapping at fine enough scales
to support these resource assessments that directly support private
industry exploration. For example, Alaska and large portions of the
Midcontinent (IL, IN, IA, KS, MI, MN, MO, NE, OH, OK, and WI) represent
some of the most prospective ground for mineral discovery in the world.
However, the favorable rocks for the deposits are buried and not
visible at the Earth's surface, and have not been more specifically
identified through modern geological and geophysical mapping. Other
countries such as Canada and Australia have undertaken such geological
and geophysical surveys nationwide and have reported that investments
of $1 by the government have resulted in further investment of over $5
by the private sector.\1\
---------------------------------------------------------------------------
\1\ For Canada: Duke, J.M., 2010, Government geoscience to support
mineral exploration: public policy rationale and impact: Prospectors
and Developers Association of Canada. Toronto, Canada, 64 p.
For Australia: ACIL Allen Consulting, 2015, Exploration Incentive
Scheme Economic Impact Study, Geological Survey of Western Australia,
78 p.
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In addition to reinvesting in the Nation's fundamental data on
mineral resources, an accurate assessment of the Nation's mineral
resources must include not only the resources available in the ground
but also those that become available through recycling. Metal supply
consists of primary material from a mining operation and secondary
material, which is composed of new and old scrap. Metals show a wide
range of recycling rates, recycling efficiency, and new-to-old-scrap
ratios. Recycling rates cluster in the range from 15 to 45 percent for
different resources. Although recycling is a major source of some non-
fuel mineral resources such as aluminum, technical difficulties with
recycling mean that for other mineral commodities such as the rare
earth elements recycling is challenging. USGS compiles information
about recycling, but research on new methods of metal recycling is
undertaken mainly by the Department of Energy.
conclusion
The Department, through the USGS, fulfills its role as the Federal
provider of unbiased research on known mineral resources, assessment of
undiscovered mineral resources, and information on domestic and global
production and consumption of mineral resources for use in global
mineral supply chain analysis.
Thank you for the opportunity to present on behalf of the
Department on the important subject of mineral resources. I will be
happy to answer any questions.
______
Dr. Gosar. I thank you very much. I will now introduce Mr.
Bret Parke, the Deputy Director of the Arizona Department of
Environmental Quality.
Big difference between heat out in Arizona and here, isn't
it?
Mr. Parke. Yes, Mr. Chairman. It is a big swampy here.
[Laughter.]
STATEMENT OF BRET PARKE, DEPUTY DIRECTOR, ARIZONA DEPARTMENT OF
ENVIRONMENTAL QUALITY, PHOENIX, ARIZONA
Mr. Parke. Mr. Chairman, members of the Subcommittee, my
name is Bret Parke, and I am the Deputy Director at the Arizona
Department of Environmental Quality (ADEQ). It is a privilege
for me to be here today, and I appreciate the opportunity to
offer testimony regarding the U.S. EPA's proposed rule on
CERCLA financial responsibility.
Earlier this month, ADEQ, along with many states and
government associations, including the Interstate Mining
Compact Commission, requested that EPA withdraw the proposed
rule, and determined that EPA action is unnecessary and
inappropriate under CERCLA.
The modern regulatory permitting programs that ADEQ cited
in its comments and that I will discuss today are site-specific
and preventative in nature. In contrast, the 1980 CERCLA law's
financial responsibility mandate is remedial, and was founded
on the contingency that an unpermitted release will lead to a
financial burden on taxpayers. I believe that CERCLA's
financial responsibility rulemaking mandate and express Federal
pre-emption of related financial responsibility is antiquated
and unworkable. And, CERCLA's mandate to apply the history of
superfund and judgments associated with legacy environmental
contamination 37 years later, in 2017, is unjustified.
Modern state, regulatory permitting programs and related
financial responsibility ameliorate the very risk Congress was
addressing more than three decades ago, when it passed CERCLA.
Indeed, in the intervening years, states, including Arizona, as
well as the Federal Government, filled the gap with
sophisticated environmental regulatory permitting and land
management programs to govern hardrock mining.
Although EPA acknowledges the existence of Arizona's
aquifer protection program and Mining Lands Reclamation Act,
EPA overlooked the broad applicability and effectiveness of
these programs. ADEQ's formal comments on the rule listed seven
distinct programs currently applicable to mines that prevent
and mitigate the duration and degree of risk associated with
hardrock mining. Many of the Federal regulatory permit programs
are delegated and are administered by states.
These state-implemented regulatory programs are
progressive, in that they require modern engineering and
design, and application of new control technologies. These
mature and sophisticated state and Federal regulatory programs
have made the requirement to promulgate the proposed rule
duplicative and unnecessary. In fact, since the development,
implementation, and integration of these state and Federal
regulatory programs, no currently operating mine facility
release has triggered the financial responsibility call by
ADEQ.
In addition to the technical and legal inadequacies of the
proposed rule, the economic and administrative burden to
Arizona government and industry significantly outweighs any
perceived but undemonstrated environmental benefit EPA
suggests. For context, mining has played a central role in
Arizona's history, and Arizona remains a top producer of copper
in the world. In 2014 alone, mining companies in Arizona
employed more than 12,000 people.
For that year, including both direct and indirect economic
impacts, the mining industry is estimated to have provided
43,800 Arizona jobs, and income of $4.29 billion. ADEQ, based
on an EPA-provided example and using EPA's model, identified
that the financial impacts to Arizona mines could be extreme,
totaling $1.8 billion in additional financial responsibility
for just the two Arizona mines modeled. This is an
extraordinarily high financial burden on mine operators, and
the state and its citizens, that is not warranted.
Mining is a global competition. Every additional regulation
adopted in the United States should be carefully considered by
policy makers. The EPA's own estimated cost under the proposed
rule to just the mining industry is $7.1 billion. Notably, EPA
identified the proposed rule will have a significant impact on
a substantial number of small entities. In fact, EPA identified
36 percent of hardrock mines subject to the rule are small
businesses.
Additionally, EPA's record, including the financial market
capacity study requested by Congress, demonstrates that the
financial markets are unsure, unfamiliar, and currently do not
underwrite this type of third-party, direct-actionable, long-
tailed financial responsibility. What this means is that the
market will include a premium to price that unknown risk. This
is especially important to note, given that mining is only the
first sector, and EPA has published advance notice of a
proposed rulemaking for three more nationally strategic
sectors.
In closing, I would like to share with you ADEQ's
philosophy. ADEQ believes, by working closely with our
stakeholders, and by identifying and expanding the nexus
between the environment, economy, and the community, ADEQ can
best protect and enhance public health and the environment,
creating a win-win for the people that live in the great state
of Arizona.
That concludes my testimony; I would be happy to answer any
questions you might have.
[The prepared statement of Mr. Parke follows:]
Prepared Statement of Bret Parke, Deputy Director, Arizona Department
of Environmental Quality
proposed rule--cercla 108(b) financial responsibility requirements
Mr. Chairman, members of the Subcommittee, my name is Bret Parke,
and I am the Deputy Director of the Arizona Department of Environmental
Quality. It is a privilege for me to be here today and I appreciate the
opportunity to offer testimony regarding the U.S. Environmental
Protection Agency's (EPA) proposed rule on CERCLA \1\ Section 108(b)
Financial Responsibility Requirements for hardrock mining (hereafter
proposed rule).\2\
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\1\ The Comprehensive Environmental Response, Compensation, and
Liability Act of 1980.
\2\ https: / / www.federalregister.gov / documents / 2017/01/11/
2016-30047 / financial-responsibility-requirements-under-cercla-108b-
for-classes-of-facilities-in-the-hardrock.
---------------------------------------------------------------------------
As you learned from my bio, I am a career environmental
professional with deep family roots in public service in the protection
and enhancement of Arizona's rich and diverse environment.\3\
---------------------------------------------------------------------------
\3\ Incidentally, if you have not seen the original The Lorax book
or movie from Dr. Seuss, I highly recommend it.
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I would like to begin by expressing gratitude to EPA for its recent
efforts to engage with and understand the true impacts the proposed
rule will have on Arizona and other states for which hardrock mining is
a significant economic driver. It is through such collaboration that I
believe EPA will come to understand the significant and robust
environmental regulatory infrastructure already being effectively
administered by state and Federal programs that prevent and mitigate
the very risks EPA seeks to address through the proposed rule.
Earlier this month, the state of Arizona through ADEQ, along with
many states and government associations, requested that EPA withdrawal
the proposed rule and determine that no EPA action is necessary or
appropriate under CERCLA 108(b).\4\ In making this request, ADEQ
identified several key elements of the proposed rule that makes it
untenable for Arizona, and that I would like to share with you today.
---------------------------------------------------------------------------
\4\ As permitted by the Court in its decision in On Petition For
Writ of Mandamus to the United States Environmental Protection Agency,
In Re: Idaho Conservation League, et al., Petitioners, No. 14-1149
(D.C. Cir. Jan. 26, 2016) (available at https: / /
www.cadc.uscourts.gov/internet/opinions.nsf/
1F012EA1238D7A3C85257F490054E52E/$file/14-1149-1596081.pdf).
---------------------------------------------------------------------------
The modern regulatory permitting programs that ADEQ cited in its
comments, and that I will discuss today are site-specific and
preventative in nature. In contrast, the 1980 CERCLA law's financial
responsibility mandate is remedial and was founded on the contingency
that an unpermitted release will lead to a financial burden on
taxpayers. I believe that CERCLA's 108(b) financial responsibility (FR)
rulemaking mandate and express Federal pre-emption of related state FR,
is antiquated and unworkable in the current existing regulatory
permitting and FR environment.\5\ And, CERCLA's mandate to apply the
history of Superfund and judgments associated with legacy environmental
contamination 37 years later, in 2017, is unjustified. Modern state
regulatory permitting programs and related FR ameliorate the very risk
Congress was addressing more than three decades ago when it passed
CERCLA.
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\5\ https://www.law.cornell.edu/uscode/text/42/9608.
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Indeed, in the intervening years EPA inexplicably delayed the
rulemaking process, states, including Arizona, and the Federal
Government filled the gap with sophisticated environmental regulatory
permitting and land management programs to govern the hardrock mining
industry. ADEQ's formal comments on the rule listed seven distinct
programs currently applicable to mines that prevent and mitigate the
``duration and degree of risk'' associated with the hardrock mining
industry. Many of the Federal regulatory permit programs that were
developed have now been delegated to and are administered by the
states. These state implemented regulatory programs are progressive in
that they require modern engineering and design, and application of new
control technology.
These mature and sophisticated state and Federal regulatory
programs have made the requirement to promulgate the proposed rule
duplicative and unnecessary.
This fatal flaw is well documented in Arizona. Although EPA
acknowledges the existence of Arizona's Aquifer Protection and Mining
Lands Reclamation Act programs, EPA overlooked the broad applicability
and effectiveness of these programs.
In fact, since the development, implementation, and integration of
these state and Federal regulatory programs, no currently operating
mine facility release has triggered a call by ADEQ on a financial
responsibility mechanism in Arizona.
In addition to the technical and legal inadequacies of the proposed
rule, the economic and administrative burden to Arizona government and
industry significantly outweighs any perceived but undemonstrated
environmental benefit that EPA suggests will occur if the proposed rule
is enacted. To provide you context for this comment, the hardrock
mining industry is an integral part of maintaining sustainable, healthy
and prosperous communities throughout Arizona and other hardrock mining
states.
Mining has played a central role in Arizona's history and Arizona
remains a top producer of copper in the world, as well as a significant
producer of molybdenum, coal, gold, silver, and uranium. In 2014 alone,
mining companies in Arizona employed more than 12,000 people, spent
$2.77 billion purchasing goods and services throughout the state
generating 6,200 jobs, and provided income of $910 million to just the
first-tier suppliers working to support mining.\6\ Including both
direct and indirect economic impacts, the Arizona mining industry in
2014 is estimated to have provided 43,800 Arizona jobs and income of
$4.29 billion.
---------------------------------------------------------------------------
\6\ The Economic Impact of the Mining Industry on the State of
Arizona: for the year 2014. L. William Seidman Research Institute, W.
P. Carey School of Business, Arizona State University (available at
http://www.azmining.com/uploads/AMA%20report%202014%20v2%20.pdf).
---------------------------------------------------------------------------
ADEQ recently conducted a financial screening analysis modeled
under the proposed rule based on an EPA-provided example that suggests
the financial impacts to Arizona mines could be extreme: totaling $1.8
billion in additional financial responsibility for just the two Arizona
mines.
This is an extraordinarily high financial burden on mine operators,
and the state and its citizens that is not warranted, given the lack of
evidence to support EPA's assertion that the proposed rule would yield
an environmental benefit.
Mining is a global competition. Every additional regulation upon
the industry to operate in the United States should be carefully
considered by policymakers. The EPA's own estimated CERCLA 108(b)
financial responsibility cost to just the mining industry is $7.1
billion. Notably, EPA identified 36 percent of hardrock mining
businesses are small businesses, and EPA estimates that the proposed
rule will have a significant impact on a substantial number of small
entities. The record, including the financial market capacity study
requested by Congress (P.L. 114-113),\7\ demonstrates that the
financial markets are unsure, unfamiliar and currently do not
underwrite this type of third-party accessible, direct actionable,
long-tailed financial responsibility. What this means is that the
market will include a premium to price the unknown risk.
---------------------------------------------------------------------------
\7\ https://semspub.epa.gov/work/HQ/196705.pdf.
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In addition, as documented in ADEQ's formal comments, the technical
and legal documentation supporting EPAs rulemaking process is fatally
flawed because it was driven by a litigation driven timeline.
This is especially important to note given that mining is only the
first sector, and EPA has already published advanced notice of intent
for a proposed rulemaking for three more nationally strategic sectors;
manufacturing, petroleum and coal products manufacturing, and the
electric power generation, transmission, and distribution
industries.\8\
---------------------------------------------------------------------------
\8\ https://www.epa.gov/superfund/superfund-financial-
responsibility.
---------------------------------------------------------------------------
In closing, I'd like to share with you one of the cornerstones of
our philosophy at ADEQ. We believe that a healthy environment can only
be achieved if we acknowledge and embrace the complex world in which we
operate. By working closely with our stakeholders, and by identifying
and expanding the nexus between the environment, the economy and the
community, we can best achieve our mission to protect and enhance
public health and the environment, and create a win-win for the people
that live in the great state of Arizona. The CERLA 108(b) proposed rule
on which I have provided testimony on today, is largely duplicative and
fails to recognize the complexities of our existing regulatory and
environmental ecosystem. If enacted, the proposed rule will yield
significant negative economic and state program impacts in Arizona. It
will also have an outsized effect on the limited number states with
hardrock mining, and the generally rural communities in which they
exist. As a result, we strongly encourage EPA to withdraw the proposed
rule.
That concludes my testimony and I would be happy to answer any
questions you may have.
______
Dr. Gosar. Thank you, Mr. Parke.
I now recognize Ms. Pagel from Earthworks.
STATEMENT OF LAUREN PAGEL, POLICY DIRECTOR, EARTHWORKS,
WASHINGTON, DC
Ms. Pagel. Thank you, Chairman Gosar, Ranking Member
Lowenthal, and members of the Subcommittee, for holding this
hearing, and for the opportunity to testify before you today.
My name is Lauren Pagel, Policy Director at Earthworks.
For nearly 30 years, Earthworks has worked to protect
communities and the environment from the adverse impacts of
mining. Innovative solutions exist to bring our mining laws
into the 21st century and protect mining-impacted communities
and western water resources.
The U.S. mining industry currently benefits from open
access to public lands under an antiquated mining law, large
subsidies from the American taxpayer, a uniform regulatory
system, and several mining-specific loopholes in our bedrock
environmental laws. These factors combine to prioritize
hardrock mining industry profits over communities' water
resources and taxpayers.
Meaningful reform of the outdated 1872 Mining Law is the
innovative solution we need. Reform will give the mining
industry the certainty it needs, while providing a fair return
to the taxpayer, increasing community involvement in mining
decisions, and adequately balancing mining with other uses of
public land.
The mining industry receives public minerals for free under
a law that was written to govern pick-and-shovel miners, not
the large-scale industrial mining that exists today. In
addition to royalty-free mining, mining companies receive
enormous tax breaks for depleting our resources, due to an
extremely favorable tax code.
The mining industry also benefits from a consistent
regulatory process set by the National Environmental Policy
Act. In fact, the United States is consistently ranked as one
of the world's best places for mining investment. According to
the Fraser Institute, a Canadian think tank who annually
surveys mining exploration and development companies around the
world, Nevada, Utah, and Wyoming routinely rank in the top 10
most attractive jurisdictions for mineral investment.
According to a 2016 GAO report, the BLM spends an average
of 2 years permitting a mine. And when lengthy delays do occur,
the main cause of those delays is often the permit applicants
themselves.
The mining industry also benefits from loopholes in major
environmental laws, and insufficient bonding and reclamation
requirements. For example, loopholes in the Clean Water Act
allow mining companies to dump their waste, untreated, directly
into our lakes, rivers, and streams. A groundbreaking study
found that 75 percent of mining operations pollute surrounding
surface or groundwater, despite their robust environmental
reviews that predict they won't. A new study released today
finds that 74 percent of the domestic gold mines profiled have
polluted water with cyanide, arsenic, nitrates, or other
hazardous materials.
The innovative solution to many of the challenges I have
highlighted thus far is meaningful reform of the 1872 Mining
Law. Earthworks encourages legislation that will provide a fair
return to the taxpayer, create a robust reclamation fund to
deal with our Nation's abandoned mine program, require mining
companies to comply with 21st century operation and reclamation
standards, and allow mining to be properly balanced with other
uses of public lands.
A value-based gross royalty linked directly to the revenue
mining companies receive from the sale of our minerals will
help ensure a fair return.
Nevada's state royalty is a good example of why net
proceeds royalties do not provide a fair return to the
taxpayer. Between 1995 and 2016, Nevada mining operations sold
over $1 billion in gold, yet they only paid royalties to the
state of $1.7 billion, less than 1.7 percent. Over that time
span, more than 7 percent of gold production, or over $7
billion worth, paid no royalty, whatsoever, to the taxpayer.
A modern mining law also requires we deal with the legacy
cost mining has passed along to taxpayers. The EPA estimates
that total cleanup costs for abandoned mines could be as much
as $50 billion. A reclamation fee similar to the coal abandoned
mine fee is needed to create a steady stream of long-term
funding for hardrock AML cleanup.
Most importantly, any reform of the mining law must include
the discussion for Federal land managers to balance mining with
other land uses such as recreation, conservation, hunting, or
fishing. Land managers should have clear authority to weigh
these competing land uses, water impacts, and community needs
before approving or disapproving a mine plan.
I thank you for the opportunity to present Earthworks' view
on seeking innovative solutions for the future of hardrock
mining. We look forward to working with this Subcommittee and
other stakeholders to reform the Mining Law of 1872 to fully
protect communities, the environment, and taxpayers.
[The prepared statement of Ms. Pagel follows:]
Prepared Statement of Lauren Pagel, Policy Director, Earthworks
Thank you Chairman Gosar, Ranking Member Lowenthal, and members of
the Subcommittee for holding this hearing and the opportunity to
testify before you. I am Lauren Pagel, Policy Director for Earthworks.
For nearly 30 years, Earthworks has worked to protect communities and
the environment from the adverse impacts of mineral and energy
development while seeking sustainable solutions.
Innovative solutions exist to bring our mining laws into the 21st
century and protect mining-impacted communities and western water
resources. The U.S. mining industry currently benefits from open access
to public lands under an antiquated mining law, large subsidies from
American taxpayers, a uniform regulatory system that encourages
investment and several mining-specific loopholes in our bedrock
environmental laws.
These factors combine to prioritize hardrock mining industry
profits over the communities and water resources that are negatively
impacted by large hardrock mines. Meaningful reform of the outdated
1872 Mining Law is the innovative solution that will bring our mining
laws and practices into the 21st century, giving the mining industry
the certainty it needs, while providing a fair return to the taxpayer,
maintaining community involvement in mining decisions and adequately
balancing mining with other uses of public lands.
The mining industry in this country enjoys unprecedented access to
hardrock minerals on public lands--minerals they receive for free under
a law that was written to govern pick and shovel miners of 1872, not
the large-scale industrial mining that exists today. Federal land
managers at the Forest Service and Bureau of Land Management interpret
the Mining Law to give mining precedence over all other uses of public
lands--prioritizing mining over hunting, recreation, grazing or other
beneficial uses.
In addition to royalty-free mining, mining companies receive
enormous tax breaks for depleting our resources. An extremely favorable
tax code permits a company to deduct a fixed percentage from their
gross income according to the mineral extracted, ranging from 22
percent for uranium to 15 percent for silver and other hardrock
minerals. In some cases this deduction, over the life of the mine,
actually exceeds the cost of acquiring the mineral deposit. The result
is a situation where mining companies not only pay virtually nothing
for the public's minerals, but also get paid by the government to mine
public minerals they were freely given. This subsidy, called the
Percentage Depletion Allowance, costs taxpayers over $500 million every
year.
The mining industry also benefits from a consistent regulatory
process set by the National Environmental Policy Act (NEPA). In fact,
year after year, the United States is ranked as one of the world's best
places for mining investment. With stable democratic institutions,
courts that enforce contracts, favorable tax and environmental policy,
and an orderly and reliable process for public input in permitting
decisions, America is the one of the world's best place to mine.
Just ask the mining companies. According to the Fraser Institute--a
center-right Canadian think tank who annually survey approximately 700
mining, exploration, development mining company managers and executives
around the world--Nevada, Utah, and Wyoming, routinely rank in the top
10 most attractive jurisdictions for mineral investment surveyed.
Despite the mining industry's complaints about permit times,
according to a 2016 Government Accountability Office (GAO) report, the
Bureau of Land Management spends on average 2 years permitting a mine.
Two-year permit times is competitive with the other western democracies
with robust mining industries such as Australia, Canada, Chile, and
Norway.
The truth is, mining companies create more permitting delays than
agencies or regulations. According to the GAO, the main cause of permit
delays is the permit applicant. Incomplete or poor quality application
information, market fluctuations, or changes to mining plans lead to
most delays. Even when the plans are fine, mining companies have
further delayed by making changes (sometimes for perfectly legitimate
reasons) to their plans after submission. GAO says this occurred 37
times over 5 years accounting for delays ranging from just a few weeks
to 7 years.
In addition to free minerals, profitable tax breaks, and a
consistent regulatory process, the mining industry also benefits from
lax regulation during mine operation and insufficient bonding and
reclamation requirements after mine closure. Loopholes in the Clean
Water Act and Resource Conservation and Recovery Act allow mining
companies to dump their waste directly into our lakes, rivers, and
streams. Hardrock mines are often some of the most expensive to clean
up when they all too often find themselves on the Superfund National
Priorities list. These funding shortfalls leave the public exposed to
hazardous mining waste, and leave taxpayers to foot the cleanup bill
because the EPA lacks the funds to perform adequate remediation. The
hardrock mining industry lacks strong financial assurance regulations,
despite the fact that the industry is this Nation's top toxic polluter
according to the Environmental Protection Agency's Toxics Release
Inventory.
Several studies have shown that mines pollute ground and surface
water, even when permit applicants claim they will not. In fact:
a groundbreaking study found that 75 percent of mining
operations pollute surrounding surface or groundwater,
despite their robust environmental reviews that predict
they won't
74 percent of domestic gold mines have polluted waters
with cyanide, arsenic, nitrates or other hazardous
materials
100 percent of copper sulfide mines experienced pipeline
spills and accidental releases and 92 percent failed to
control water treatment and collection leading to
contaminated mine seepage
There are several examples of mines that have polluted nearby
ground or surface water in a new report Earthworks released today
titled ``U.S. Gold Mines, Spills & Failures Report.'' The report cites
27 mines that have accidentally released, spilled, or failed to capture
and treat mine impacted water, allowing it to pollute nearby waters.
For example, the Wharf Mine, now owned by Coeur Mining Company,
violated its surface water discharge permit with the release of biomass
from its water treatment plant during the summer of 2007. The discharge
affected fish populations in Annie Creek. Wharf also violated its
permit limits for certain pollutants. Wharf was issued a civil penalty
of $214,930. Because of this and other spills and failures, groundwater
has been polluted with nitrates, arsenic and cyanide. Annie Creek has
been polluted with selenium, ammonia, cyanide, arsenic. Adverse impacts
to surface water in Annie Creek resulted in a fish kill, and adverse
impacts to the fish population.
Another Coeur Mining Company mine, the Kensington Mine, is a poster
child for taking advantage of the Clean Water Act loophole to preserve
mining industry profits at the expense of clean water. Because of the
loophole, Coeur Alaska Mining Company was allowed to dump 200,000
gallons per day of a toxic wastewater slurry directly into Lower Slate
Lake in the Tongass National Forest. The dumping, which will eventually
deposit 4.5 million tons of solids in the lake, has turned what was
once a pristine body of water into mine tailings disposal site.
The innovative solution to many of the challenges highlighted above
is meaningful reform of the 1872 Mining Law. Earthworks encourages
legislation that will provide a fair return to the taxpayer, create a
robust reclamation fund to deal with our Nation's abandoned mines
problem, require mining companies to comply with 21st century operation
and reclamation standards to protect clean water and allow mining to be
properly balanced with other uses of public lands.
fair return
Since 1872, at least $245 billion worth of public minerals like
gold, silver, copper, and uranium have been mined with no return to the
taxpayer. Only a value-based gross royalty will help ensure a fair
return. Gross royalties link directly to the revenue mining companies
receive from the sale of our minerals. Most western mining states, 10
of 13, assess some form of gross royalty.
A net profits (also known as net proceeds) royalty, by contrast,
enables a mining company to deduct their cost of doing business from
their income before the royalty is charged. This royalty scheme allows
extensive administrative, business and operating deductions, beyond
those associated with processing mined ore into marketable commodities.
Two states, Alaska and Nevada, have a net proceeds royalty/fee.
Between 2000 and 2005, Nevada mining operations sold $16.4 billion of
minerals (mostly gold), yet they only paid royalties of $158 million,
less than 1 percent. Half of the Nevada's mining operations paid no
state royalties at all during that time. Alaska fared even worse.
Between 1997 and 2007, Alaska collected only $1.2 million in royalties
despite the gold's value at more than $1.2 billion.
This experience demonstrates that a net proceeds approach will not
generate a fair return to the taxpayer, and a gross royalty is what is
needed.
reclamation fee
Modern mining needs modern rules. This includes dealing with the
legacy costs mining has passed along to present and future taxpayers.
Insulating taxpayers from the financial risks of old and abandoned
mines requires a steady stream of dedicated funding. Otherwise,
taxpayers will bear more of the cleanup costs.
Earthworks estimates that there are over 550,000 abandoned hardrock
mines in the United States, mostly in the West. The Interior Department
has no comprehensive inventory of abandoned hardrock mines, and funds
to clean up these sites remain limited. The Environmental Protection
Agency (EPA) estimates the total cleanup costs could reach a staggering
$50 billion.
Western communities face significant burdens associated with these
old mines. According to the EPA, at least 40 percent of the stream
reaches in the headwaters of western watersheds are polluted from
mining. That's because many abandoned mine sites have significant acid
mine drainage problems, which can persist for thousands of years if
left untreated.
The single largest obstacle to the restoration of abandoned
hardrock mines is the lack of funding. In states like Montana--where
revenues exist from a state severance tax and the state is authorized
to restore abandoned mines with revenues from the coal abandoned mine
land fund--there is a small stream of revenue (on average about $3.5
million) available to remediate only a few small sites a year, but it
is not enough to address the serious problems posed by the 6,000
inventoried abandoned mines across the state, and the estimated 3,700
miles of rivers and streams polluted by harmful metals, primarily from
abandoned mines.
In other states, such as California and New Mexico, there are few
sources of funds available to correct this pervasive problem in old
mining districts. As a result, the number of abandoned mine lands that
cause safety or environmental hazards far outweigh the funding
available to restore them. A steady stream of long-term funding for
hardrock abandoned mine lands cleanup, similar to the coal abandoned
mine fee and program, is essential to dealing with the scope of the
problems western states face from abandoned mines.
environmental and operating standards
Any meaningful plan for the future of mining should include general
environmental performance and operational standards. The 1872 Mining
Law has none. The Bureau of Land Management (BLM) 3809 mining
regulations have undergone few significant changes since they were
originally implemented in 1980. Under current law, there are no
statutory environmental standards written specifically for hardrock
mining. Neither the Clean Water Act nor Resource Conservation and
Recovery Act protect groundwater from mining pollution, and there is no
definition for how to reclaim a mine.
Environmental standards should be ``performance based'' or
``outcome based,'' indicating what the resources affected by mining
need to look like from the initial dirt moving to the post-mining land
use. The standards need not dictate how they are met, just lay out
benchmarks for the industry during exploration, operation, closure, and
post-closure. These include handling of soils, revegetation, and
establishing and maintaining fish and wildlife habitat.
Operations must minimize damage to surface and groundwater
resources, and result in minimal disturbance to the prevailing
hydrologic balance. To meet water quality standards, operators must
minimize the production of polluted water rather than relying on water
treatment. They must receive specific direction to minimize acid mine
drainage. Operators must also minimize the loss of water quantity.
Operational standards help mitigate some of the impacts mining
activities commonly create during operation. These standards cover
construction and maintenance of haul roads, impoundments, waste piles,
and leaching pads. They provide direction for drilling holes, managing
acid-forming materials, public safety, and other activities.
balancing mining with competing land uses
The Federal Government currently interprets the 1872 Mining Law as
mandating that mining is the highest and best use for public lands.
This eliminates any discretion for Federal land managers to balance
mining with any other land use--recreation, conservation, hunting,
drilling etc. Land managers should have clear authority to weigh
competing land uses, especially in Wilderness Study Areas, Areas of
Critical Environmental Concern, roadless areas, and lands in the Wild
and Scenic River System.
In addition, citizens, local, state, and tribal governments should
have the ability to put lands off limits to mining. Mining reform
should enable these entities to petition the Secretary of the Interior
to put lands that are important for other values, such as drinking
water, off limits to mining.
I thank you for the opportunity to present Earthworks' view on
seeking innovative solutions for the future of hardrock mining. We look
forward to working with this Subcommittee, and other stakeholders, to
reform the Mining Law of 1872 to fully protect communities, the
environment and taxpayers.
______
Questions Submitted for the Record by Rep. Gosar to Lauren Pagel,
Policy Director, Earthworks
Question 1. Regarding the Kensington Mine, could you please give
the Subcommittee more detail about the quality and character of Lower
Slate Lake pre-mining?
Answer. According to the Environmental Impact Statement for the
Kensington Mine, several types of aquatic life were found in Lower
Slate Lake pre-mining:
``As Kline (2003b) indicates, fish surveys conducted during June
2000, August and September 2001, and October 2003 have documented the
occurrence of Dolly Varden char throughout the Slate Lake and Slate
Creek system. Two-way fish passage occurs between Lower Slate Lake and
approximately 1,500 feet of East Fork Slate Creek below the lake. Kline
(2003b) indicated, however, that Dolly Varden char redds have been
documented in the littoral zone of Lower Slate Lake. Their spawning
appears to be quite variable in timing between years and might occur as
early as July. In addition to Dolly Varden char, three-spine
stickleback (Gasterosteous aculeatus) have been captured in Lower Slate
Lake (Kline, 2001).''
It was clear from the Environmental Impact Statement that the
choice to use Lower Slate Lake as a tailings dump would harm the lake
and everything living in it. The mining company had an upland
alternative for disposal, but chose the more destructive alternative:
``Alternatives B, C, and D include tailings disposal in Lower Slate
Lake through a slurry pipeline from the mill. For the purposes of this
analysis, it is expected that all fish and most other aquatic life
(such as macroinvertebrates, periphyton, and zooplankton) in Lower
Slate Lake would be lost during operations as a result of this
action.''
Question 2. Can you explain the specific provisions in Clean Water
Act regulations that allow for untreated mine waste to be dumped into a
lake?
Answer. There are two loopholes in regulations adopted by the EPA
and Army Corps of Engineers that allow many hardrock mines to dispose
of mine waste into waterways, destroying fish and other aquatic life.
The first loophole is a 2002 revision of regulations expanded the
definition of ``fill material'' under Section 404 of the Clean Water
Act to include mine waste. Section 404 was intended to regulate the
placement of rock, soil, clay, sand and other materials normally used
in construction related activities, not mining waste. The second
loophole is a regulation defining ``waters,'' allow mine developers to
designate natural lakes, rivers, streams, and wetlands as ``waste
treatment systems,'' exempt from the Clean Water Act.
Question 3. Could you please detail specific references that
enumerate the water quality issues and water pollution problems
stemming from hardrock mining in the United States?
Answer. Please find several studies detailing the water pollution
issues at hardrock mines in the United States:
A 2012 peer-reviewed study of the track record of water quality
impacts from copper sulfide mines found severe impacts to drinking
water aquifers, contamination of farmland, contamination and loss of
fish and wildlife and their habitat, and risks to public health. In
some cases, water quality impacts were so severe that acid mine
drainage at the mine site will generate water pollution in perpetuity.
https://www.earthworksaction.org/files/publications/
Porphyry_Copper_Mines_Track_Record_ -_8-2012.pdf.
A 2006 study found that faulty water quality predictions,
mitigation measures and regulatory failures result in the approval of
mines that create significant water pollution problems. Despite
assurances from government regulators and mine proponents that mines
would not pollute clean water, researchers found that 76 percent of
studied mines exceeded water quality standards, polluting rivers, and
groundwater with toxic contaminants, such as lead, mercury, arsenic and
cyanide, and exposing taxpayers to huge cleanup liability. https://
www.earthworksaction.org/files/publications/ComparisonsReportFinal.pdf.
A lengthy review of government documents reveals that an estimated
17 to 27 billion gallons of polluted water will be generated by 40
mines each year, every year, in perpetuity. This is equivalent to the
amount of water in 2 trillion water bottles--enough to stretch from the
earth to the moon and back 54 times. https://www.earthworksaction.org/
files/publications/PollutingTheFuture-FINAL.pdf.
A 2017 study of U.S. gold mines' operating records reveals that
major gold mines surveyed by the U.S. Geological Survey have spilled
contaminants, and 74 percent polluted water with cyanide, arsenic,
nitrates or other hazardous materials. https://
www.earthworksaction.org/files/publications/
USGoldFailureReport2017.pdf.
______
Dr. Gosar. I thank the gentlewoman.
The gentleman, Mr. James Cress, the Counsel for Bryan Cave,
is now recognized for 5 minutes.
STATEMENT OF JAMES CRESS, COUNSEL, BRYAN CAVE LLP, DENVER,
COLORADO
Mr. Cress. Thank you, Mr. Chairman, Mr. Ranking Member, and
Subcommittee. I appreciate the opportunity to appear today. I
am a mining lawyer. I have practiced mining law for about 30
years, and have represented mining companies and landowners in
royalty negotiations, both in the United States and in other
countries. I also do a lot of work with indigenous and local
communities on a pro bono basis, attempting to help them get a
better deal and more benefits from mining that takes place in
their communities.
I would like to ask that my written testimony be included
in the record, because I, doubtless, will not get through it
here.
The first question I think that you have to look at, if you
are deciding whether to impose a royalty, is what is a royalty
for, what does it compensate the United States for. A royalty
is not a way to fund any particular policy objective. It is
really a payment to the United States for the value of what the
United States is providing to the industry. And that value is
raw land with mineralization that needs to be explored,
processed, and mined in order to have any value.
That exploration, development, and mining is very
expensive. And that is why mining royalties are typically lower
than royalties on coal, oil, and gas, which are a completely
different structure, where you have a usable commodity that is
actually produced right out of the ground.
The total government take is the other thing that you have
to keep in mind. It is not just a royalty that matters when you
are looking at a financial return to the government. It is all
the other taxes, including severance taxes and royalties
imposed at the state level that companies will compare to
decide whether to operate in Nevada or Indonesia, and they do
make that comparison.
There have been studies on this. In 2000, Professor James
Otto and others did a comparative study of jurisdictions that
found that Nevada actually ranked right at the high end of
competitive jurisdictions for total tax burden: 49.3 percent of
revenue was taken in the form of taxes, royalties, and other
burdens. And that is without a Federal royalty. In Arizona,
that was 49.9 percent for where most of our copper comes from.
They modeled in this study what would happen if prices
dropped by 10 percent and Nevada's effective tax rate jumped to
63 percent, which is in the confiscatory end of the spectrum.
So, you have to keep in mind the overall burden.
I would like to talk a little bit about the form of a
royalty, because we talk a lot about gross royalties and net
royalties, and it is important to understand that there are two
components here. One is the rate, and we compare and throw
around these numbers all the time--8 percent, 5 percent, 2
percent--but the important factor is what is the royalty base,
or the definition of what that percentage is applied against.
A gross royalty is a royalty that does not allow a lot of
deductions, or any deductions, depending on how it is
characterized. A net royalty will allow for deductions of
processing costs, refining costs, and sometimes mining costs,
so there is kind of a spectrum from net profits to totally
gross royalties that we are looking at. And you have a lot of
options. You can innovate here in adopting a royalty. You don't
have to go with a straight gross or a net profit.
Hardrock minerals have been subject to severance taxes in
the western states for a long time. I studied the General
Accounting Office 2008 report, which gave a listing of all of
the different taxes and compared which ones were gross and net.
In analyzing that report and the 2008 statutes that they were
looking at, I found that 10 of the 13 western states have
mostly used a net royalty or a small royalty that is called
gross, but it is a gross royalty based on the ore, which really
is not a gross. It is not based on the gold that comes out at
the end of the process, for example.
Five states use net profits or net proceeds royalties:
Alaska, Nevada, California, Montana, and Arizona. Seven states
use a small net or small gross royalty, including Colorado,
Idaho, Montana, Oregon, South Dakota, Utah, and Wyoming.
So, I would encourage you to look at the examples in
deciding whether a royalty is appropriate, and how much is too
much. Thank you very much.
[The prepared statement of Mr. Cress follows:]
Prepared Statement of James F. Cress, Counsel, Bryan Cave LLP
Mr. Chairman and members of the Subcommittee, my name is Jim Cress.
I am testifying today on the subject of mining royalties at the request
of the Subcommittee and not on behalf of any organization. I am a
mining lawyer in private practice at Bryan Cave LLP in Denver. With
Bryan Cave and a predecessor firm, Holme Roberts & Owen, I have
specialized for nearly 30 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, iron, zinc, coal, uranium, barite, oil and gas and other
minerals, and have advised clients on royalty compliance for private,
Federal and state royalties and mineral severance taxes. In my
international practice, I have evaluated mining royalties and taxes and
negotiated royalty and mining agreements with governments in a number
of countries. I have also devoted substantial pro bono time to mining
issues, particularly in developing countries. I worked on the royalty
provisions in the International Bar Association Mining Law Committee's
Model Mine Development Agreement, an example template for a mining
agreement between a developing country government and mining company. I
have supported local and indigenous communities in obtaining more
equitable participation in the benefits of mining through the non-
profits Sustainable Development Strategies Group and RTC Impact Fund.
Thank you for the opportunity to appear and speak on the important
issue of hardrock mining royalties. I have previously testified on this
subject before this Subcommittee and before the Senate Energy & Natural
Resources Committee, and my comments today will reflect on some of the
same issues, which are difficult ones. In particular, if Congress
determines that a royalty on locatable hardrock minerals is needed, how
can Congress structure a royalty on to promote a fair return to the
public, while ensuring a viable domestic mining industry that minimizes
reliance on foreign imports of strategically critical minerals?
what does a royalty compensate? how much is too much?
The threshold policy question for evaluating a Federal hardrock
mining royalty is what is the policy reason for compensating the United
States with a royalty? Any royalty payment to the United States for
hardrock minerals should be based on the value of the United States'
ownership interest in the minerals. That interest is limited to the raw
minerals in the ground. The purpose of the Federal royalty is to
encourage exploration and discovery across millions of acres of Federal
land which are not yet proven to contain mineral deposits. Compared to
oil & gas and coal and similar bedded deposits like sodium and
potassium, hardrock deposits are much harder to find and generally
require much more extensive mining, processing and refining to produce
salable products. A royalty should not be paid on value added to the
raw minerals by a mining company spending hundreds of millions of
dollars to find, process, refine and sell the mineral products. The
United States makes land available for mineral exploration, but the
United States contributes nothing to the enormous costs and effort of
finding, producing and processing the minerals.
Mining companies pay income and many other taxes in the United
States. Any discussion of Federal hardrock royalties should focus not
only on the amount of the royalty, but on the entire tax and royalty
burden applicable to mining. Mining companies take the same holistic
view of the cost of doing business when they are deciding whether to
invest their exploration and mine development capital in the United
States or another country.
The total ``government take'' (royalties, taxes and other fees) for
mining operations in the United States is already comfortably within
the range of other competitive mining countries. Professor James Otto
and others have conducted various studies comparing government take
from mining in various countries, which included the states of Arizona
and Nevada (two of the highest mineral producing western states with
substantial Federal lands). The most recent public study was published
in 2000. Otto, Batarseh & Cordes, ``Global Mining Taxation Comparative
Study (Second Edition)'' (Institute for Global Resources Policy &
Management Mar. 2000) (``Global Mining Taxation''). The study evaluated
all of the direct and indirect taxes on mining (including royalties) in
24 countries, including a range of developed and developing countries.
The authors then modeled the impact of ``government take'' in these
countries on two hypothetical mineral deposits, a gold mine and a
copper mine, to evaluate and compare the burden imposed by these tax
and royalty regimes.
Professor Otto testified in 2008 before the Senate Energy and
Natural Resources Committee that his studies have shown that many
mineral producing countries impose a total effective tax rate
(government take) in the range of 40 to 50 percent. In the Global
Mining Taxation study, the effective tax rate in 2000 for Nevada was
49.3 percent for a medium-profitable gold mine, without the imposition
of any Federal royalty. See Global Mining Taxation, Section 4.5, pp.
95-96 and Table 27. With a 10 percent drop in the gold price from the
2000 price, Nevada's effective tax rate jumped to a confiscatory 63
percent. Id. p. 101 and Table 28. Similarly, the effective tax rate in
2000 for the hypothetical copper mine in Arizona was 49.9 percent,
without the imposition of any Federal royalty. Id. Section 4.5, pp. 95-
96 and Table 27. These studies suggest that even a small Federal
royalty could take the United States out of the 40-50 percent effective
tax rate range typical for successful mineral producing countries,
making the United States less competitive for mining investment.
It would be prudent to update these studies in designing any
Federal royalty, so the impacts can be modeled and understood.
Significantly, as discussed below, almost all of the western states
already impose a severance or extraction tax on mining from private,
state and Federal lands. Any Federal royalty will have to be added on
top of these existing burdens, making it crucial that the royalty not
be so high that the combined burden makes future mining uneconomic,
negatively impacting state tax revenues and driving mining activity off
of Federal lands.
form of a hardrock royalty--gross versus net royalties and royalty
rates
There are many types of royalties used in the mining industry and
by governments around the world, from simple unit-based royalties (a
fixed amount per ton produced) to royalties based on net proceeds or
net profits after deduction of mining and/or processing costs, to gross
royalties with little or no deductions. The latter two types, often
referred to loosely as ``net'' and ``gross'' royalties, are most often
proposed for a potential Federal hardrock royalty.
There are two issues to consider when evaluating net and gross
royalties--the royalty rate and the calculation of the amount against
which that rate is applied (also called the ``royalty base'').
Differences in the royalty base are what we are discussing when talking
about ``net'' versus ``gross'' royalties. It is important to look
closely at the definition of the royalty base when comparing private
royalties to government royalties or comparing royalties of different
countries or U.S. states, since what may be called a ``gross'' royalty
may actually be based on the ``gross value of ore,'' rather than a
final mineral product, the ``gross value less processing costs,''
``gross value at the mine mouth'' or another royalty base definition
that is functionally equivalent to a net royalty base. ``[T]he
definition of the royalty base is critical to understanding the rate.
When comparing royalty rates in different jurisdictions, care must be
taken not to compare rates unless the royalty base is identical.''
Otto, et al., ``Mining Royalties: A Global Study of Their Impact on
Investors, Government, and Civil Society'' p. 62 (World Bank 2006)
(``World Bank Study'').
Net royalties and gross royalties have differing impacts on mining
investment due to the cyclical nature of commodity price cycles.
Generally, a royalty assessed on gross income increases the economic
risk of a given mining investment, and acts as a disincentive to
investment. As a consequence, a company looking to develop a project
will require a higher required pretax and after-tax rate of return to
accommodate the increased risk. Because a royalty assessed on net
income has a smaller effect on the variability of after-tax rates of
return, it is a better basis for assessing a royalty. As commodity
prices decrease, the rate of return required to justify a mining
investment increases more dramatically under a gross royalty than under
a net royalty. Because the other costs of the mining operation are
relatively fixed, the gross royalty takes a bigger bite out of the
shrinking income pie as prices decrease. This can have a dramatic
impact on whether existing mines stay open or new mines are built.
Because the royalty assessed on gross income will cause a larger
reduction in after-tax income when profits are low (or negative) than a
royalty assessed on net income, the royalty on:
A gross royalty can exacerbate industry downturns by causing a
greater reduction in the cash-flows of mining companies when profits
are already low. A gross royalty may actually reduce 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. A gross royalty raises the
``cutoff point'' between recoverable ore and waste, and may shorten 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 a mine is closed and reclaimed, the
stranded reserves are usually uneconomic to recover on their own in the
future. When mines shut down prematurely, in addition to lost mineral
reserves, jobs are lost, Federal state and local tax revenues are lost,
and business is lost by suppliers of other goods and services that the
support the mines. These lost economic benefits affect both those
directly involved in the mining activity and the governmental entities,
including the United States, and their citizens who rely on taxes paid
by mining operations.
A net proceeds or net income royalty, in contrast, does not cause a
mining operation to operate at a loss. A net royalty automatically
reduces during periods of low prices and increases again when prices
are higher, permitting mining operations to weather periods of low
commodity prices and maximize the recovery of marginal ore during
periods of high prices. Due to the cyclical nature of demand for
mineral commodities, there have been and will always be periods of
lower commodity prices. A net royalty provides the best incentive to
explore for minerals on Federal lands throughout economic cycles and
keep the domestic industry viable and the Nation's mineral supply
secure.
Determining what rate is appropriate to apply across dozens of
commodities and millions of acres of Federal land with differing
mineral potential should not be a matter of opinion or guesswork.
Congress should look closely at the type and rate of hardrock mineral
royalty that has worked in states and countries that have maintained
vibrant mining industries.
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 royalty
treatment. 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 most hardrock 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 crude oil a ``gross'' royalty, because the royalty
is ``net'' of refining costs, equivalent to a net or mine mouth royalty
on the value of raw ore in a hardrock operation.
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 that requires little or no processing. In the West, where
most Federal deposits exist, coal beds are vast, world-class 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 with drilling and sampling. While the 12.5 percent royalty for
surface mined coal (8 percent for underground) imposed in 1976 was a
substantial increase over 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 addition,
the Federal coal royalty regulations permit the deduction of the most
material post-mining costs, coal washing (where needed) and
transportation. Thus, the Federal coal royalty is not a gross royalty
in the strictest sense, and like oil and gas, is more akin to a net or
mine mouth royalty on the value of raw ore in a hardrock operation.
Oil and gas and coal are not the only leasable minerals on Federal
lands. Sodium, potash, and phosphate are leasable minerals that are low
margin industrial and fertilizer minerals, the economics of which
cannot support a 12.5 percent or even an 8 percent royalty. The
statutorily established base rate for phosphate is 5 percent and for
sodium and potassium is 2 percent. 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 percent to hardrock minerals simply because that
is what is done with coal and oil and gas would be overly simplistic
and dangerously naive.
state royalties and severance taxes are generally net royalties or
small gross royalties
Western states, in which most Federal lands are located that would
be subject to a Federal hardrock royalty, tend to impose two types of
burdens on hardrock mining--royalties on mineral production from state
lands and severance taxes on private, state and Federal mineral
production. Both are calculated using a percentage of the value of the
mineral produced, so both can be useful as comparisons for a Federal
royalty.
The approaches of the western states to royalties and severance
taxes, including the use of net or gross, vary considerably (with more
than one approach sometimes used in the same state), but most states
include a net approach or an approach based on the gross value of ore
or mine mouth value, which is equivalent to a net. State royalties and
severance taxes were summarized by the General Accounting Office in a
2008 study. See ``Hardrock Mining: Information on State Royalties and
Trends in Mineral Imports and Exports,'' GAO-08-849R (GAO July 2008)
(2008 GAO Report).
Western states apparently do not perceive that net approaches
impose undue burdens on the state in calculating and collecting
royalties and severance taxes. No state imposes a flat royalty on gross
income without any deductions like the royalty often proposed in prior
mining law and budget bills. In addition to their varied approaches to
the royalty or severance tax base, the states all impose significantly
lower royalty or severance tax rates than the 8 percent gross royalty
that has often been proposed in prior mining law and budget bills.
Rates in the western states tend to be lower for gold, copper and other
metals.
The various western state approaches to royalty and severance tax
base are discussed below in a continuum from the most ``net'' to the
most ``gross'' approaches. This summary is based on the 2008 GAO
Report, the most recent survey of state royalty and severance tax laws,
and has not been updated, but the variety of state approaches have not
differed materially since its publication.
Net Profits or Net Proceeds
A number of states define the royalty base or severance tax base on
a net profits or net proceeds basis. These state burdens are truly
``net,'' in the sense that the royalty base is typically determined
after deduction of all mining and processing costs and transportation.
Alaska imposes a royalty of 3 percent of net income on mining from
state lands. Alaska Stat. Sec. 38.05.212. Alaska also imposes an
additional mining license tax (similar to a severance tax) that is
calculated as a percentage (between 3 and 7 percent) of the net income
from the property. Producing mines are exempted from the tax for 3\1/2\
years, in order to allow them first to recover their capital costs.
Alaska Stat. Tit. 43, Ch. 65.
Nevada imposes a severance tax of between 2 and 5 percent of net
proceeds. Nev. Rev. Stat. Ann. Ch. 362. ``Net proceeds'' is defined as
the gross value of the mineral product, less deductions for extraction
costs, processing, refining and sale costs, costs of transportation
from the mine to the place of processing and sale, marketing costs,
maintenance and repair costs for machinery, facilities and equipment
used in mining, processing and transportation, depreciation of such
facilities and equipment, insurance costs, costs of employee benefits,
development costs, royalties, and certain administrative overhead
costs. Id. Sec. 362.120; Nev. Admin. Code Ch. 362. This tax is phased
in as the percentage of net proceeds to gross proceeds increases, with
the lower rate applying to operations generating $4 million or less in
annual net proceeds.
California imposes a royalty on state lands on a lease-by-lease
basis. One basis used is a percentage of the net profits derived from
mineral extraction operations. See Cal. Pub. Resources Code Sec. 6895.
Montana taxes the net proceeds of minerals other than coal,
bentonite and metal mines (metal mines are taxed on a net smelter
returns basis as described below). Mont. Code Ann. Sec. 15-6-
131(1),(2). Id. Sec. 15-23-503. The ``net proceeds'' tax base is
defined as gross receipts received from the sale of concentrates or
metals, less allowable deductions. Deductions allowed include royalties
paid, costs of labor, machinery and supplies used in mining operations
and development, costs of improvements, repairs or replacements to the
mine, mill or reduction works, and depreciation of the mill and
reduction works, transportation from mine to mill or place of sale,
marketing costs, insurance, environmental, reclamation and mine safety
compliance costs, sampling and assaying charges, engineering and
geological service charges.
``Net profits'' are defined as gross receipts from the sale of
precious metals, less deductions for the cost of extraction,
transportation from mine to mill, the costs of reduction, refining and
sale, marketing costs, costs of maintenance and repairs of mining,
processing and transportation machinery, equipment and facilities and
administrative facilities, interest costs, insurance costs, employee
benefits, depreciation of machinery, equipment and facilities, mine
exploration and development costs, reclamation costs, royalty payments,
state and local taxes, and general administrative expenses incurred
within the state. Id. Sec. Sec. 10-39-44, 10-39-45.2.
Arizona also had a royalty on state land of 5 percent of the net
value of minerals, until a 1989 state supreme court decision overturned
this method as being inconsistent with the state's enabling act (a
rationale that would not apply to a Federal royalty). Ariz. Rev. Stat.
Sec. 27-234 (repealed); see Kadish v. Arizona State Land Department,
155 Ariz. 484; 747 P.2d 1183 (1987).
Gross Value of Ore or Mine Mouth Value
A number of western states have imposed royalties or severance
taxes that are based on the gross value of the unprocessed ore or mine
mouth value. This is the functional equivalent of a net proceeds or net
profits approach, with deductions for all processing and transportation
costs and, in some states, mining costs.
Colorado's severance tax is 2.25 percent of the gross value of the
ore, excluding any value added subsequent to mining, and subject to an
exclusion for the first $19 million in income and credits for property
taxes and any state land royalties. Colo. Rev. Stat. Sec. Sec. 3929-102
to -104. Colorado state land royalties are determined on a case-by-case
basis, see Colo. Rev. Stat. Sec. 36-1-113 , but gross value of ore has
been used for some minerals, and net smelter returns for others. See
``Royalties in the Western States and in Major Mineral-Producing
Countries,'' GAO/RCED-93-109, p.28 (GAO 1993) (``1993 GAO Report'').
Idaho imposes a license tax (equivalent to a severance tax) of 1
percent of the gross value of ore, after deducting all costs of mining
and processing the ore. Idaho Code Sec. Sec. 47-1201, 47-1202. Idaho,
like Colorado, imposes state land royalties on a case-by-case basis in
each lease, see Idaho Code Sec. 47-710 , and has in the past also used
a royalty of between 2.5 percent (for certain metals) to 10 percent
(for certain non-metallic minerals) of the value of the unprocessed
ore. See 1993 GAO Report, p.30.
Utah has imposed a royalty on minerals extracted from state lands
of a specified percentage of the value of the minerals, including a
royalty of 4 percent of the gross value of the ore sold for metals
other than uranium. See 1993 GAO Report, p.43.
South Dakota imposes a royalty on leases of state lands of not less
than 2 percent of the gross returns from the sale of ores and mineral
products derived therefrom, less smelting and reduction charges and
transportation and any other ``customary and appropriate charges''
determined by the state land commissioner. S.D. Cod. Laws Sec. 5-7-55.
If the ore is sold, this constitutes a royalty on the ``gross value of
ore'' without a deduction for mining costs.
Wyoming's severance tax is based on the fair market value of the
minerals at the mouth of the mine, after extraction. Wyo. Stat.
Sec. 39-14-703. This royalty base is also equivalent to the value of
ore, like the states above, but without a deduction for mining costs.
Montana imposes a royalty on state lands of at least 5 percent of
the market value of the minerals recovered. Mont. Code Ann. Sec. 77-3-
116. Montana has in the past defined this royalty as a percentage of
the value of the raw minerals recovered from the claim, See 1993 GAO
Report, p. 32; 2008 GAO Report, p.18-19, which is similar to the
``gross value of ore'' used in the states described above.
Oregon imposes a royalty of 5 percent on most metallic minerals
removed from leases of state lands. Or. Admin. R. Sec. Sec. 141-071-
0410, -0610. The royalty base is calculated on the gross value of
minerals at the mine mouth. Id. Sec. 141-071-0620; See 2008 GAO Report,
p.25.
Net Smelter Return and Similar Approaches
Several states employ net smelter return or similar methodologies
in their royalties or severance taxes. Net smelter return approaches
are more common in state land royalties, which may be in part because
of the trust requirements imposed by state enabling statutes on state
lands, as discussed above.
Montana imposes a license tax (similar to a severance tax) on metal
mines of 1.6 percent of the net smelter returns for precious and base
metals. The tax is 1.8 percent on mineral concentrates prior to
shipment to the smelter. Mont. Code Ann. Sec. Sec. 15-23-801, 15-37-
102, 15-37-103. The tax base is the receipts received from the sale of
concentrates or metals, less allowable deductions. Deductions allowable
in calculating the tax include treatment and refinery charges, costs of
transportation from the mine or mill to the smelter, roaster or other
processing facility, quantity, price, impurity and penalty charges, and
interest. Id. Sec. 15-23-801(5). Treatment and refinery charges include
labor cost, utility and fuel costs, costs of maintenance, repairs and
supplies, materials, depreciation, rental of equipment, pollution
control costs, costs of training, freight, engineering, insurance and
licensing attributable to smelting and refining, administrative
services and all third party treatment and processing costs. Id.
Sec. 15-23-801(2).
New Mexico imposes a royalty on state lands of not less than 2
percent of the gross returns from the smelter or other processing
facility, less the costs of smelting or reduction and transportation.
N.M. Stat. Ann. Sec. 19-8-22. This is functionally a net smelter
returns royalty. The royalty percentage is not less than 5 percent for
uranium and certain other minerals.
South Dakota imposes a royalty on leases of state lands of not less
than 2 percent of the gross returns from the sale of ores and mineral
products derived therefrom, less smelting and reduction charges and
transportation, and any other ``customary and appropriate charges''
determined by the state land commissioner. S.D. Cod. Laws Sec. 5-7-55.
If concentrates or metals are sold and no other deductions are allowed
by the commissioner, this is equivalent to a net smelter return.
As an alternative to the net profits royalty base described above,
California may impose on a case-by-case basis a royalty on state lands
based on 10 percent of the gross value of the mineral production less
processing and transportation charges, which is similar to a net
smelter return calculation. See Cal. Pub. Resources Code Sec. 6895.
Gross with Flat Cost Deduction
Two states use an innovative ``gross with flat cost deduction''
severance tax system. This approach attempts to approximate the
economic burden of a net profits or net proceeds tax, while minimizing
the administrative burden by eliminating the need to audit mine-
specific cost deductions, by allowing a flat deduction of a percentage
of gross proceeds to approximate the deduction of mining and processing
costs. These states apply different tax rates to different minerals,
and permit different flat cost deductions for different types of
mineral products. This is not a ``net'' approach, however, because the
flat cost deduction treats all mining operations the same regardless of
their actual costs; this system is effectively a small gross burden
that varies for different minerals. The administrative simplicity of
the flat deduction has been somewhat offset by the need to amend the
statute more frequently to ensure that the size of the flat cost
deduction reflects actual costs to the extent possible, and to address
concerns of particular mineral producers with higher processing costs,
such as beryllium miners in Utah.
New Mexico imposes a severance tax of between \1/8\ and \1/2\ of 1
percent (depending on the metal or mineral) of the ``taxable value''
Taxable value is the value of a specific mineral product (concentrates
for molybdenum, copper, lead and zinc, concentrate or ore for gold)
less 50 percent to 66 \2/3\ percent of that value to approximate the
costs of mining and processing. The tax rate and cost deductions differ
for various minerals.
Utah's severance tax is 2.6 percent of the ``taxable value,'' which
is determined based on the product sold. If the mineral product sold is
ore, the taxable value is 80 percent of the gross proceeds, with the 20
percent of the value excluded approximating a deduction for mining and
transportation costs. If the product sold is metal (other than
beryllium), the taxable value is 30 percent of the gross proceeds, with
the remaining 70 percent of gross proceeds approximating a deduction
for mining, processing and transportation costs. Beryllium formerly had
a taxable value of 20 percent of the gross proceeds, with an 80 percent
deduction for costs, but taxable value is now equal to 125 percent of
the mining costs. For intermediate mineral products such as copper
concentrate, the taxable value is based on the amount of contained
metal in the product if the intermediate product is further processed
rather than being sold at the point of taxation.
Gross Receipts from First Marketable Product
Washington imposes a royalty on minerals extracted from state lands
of 5 percent of the gross receipts. ``Gross receipts'' are based on the
value of the first marketable product, subject to the deduction of
transportation costs. Wash. Admin. Code Sec. Sec. 332-16-035, 332-16-
155. This royalty appears to be either a gross or net burden depending
on the mineral product sold, whether ore, concentrates or finished
metals. Washington has no severance tax, which may help offset the
impact of this potentially more gross royalty calculation.
Unit-Based Severance Taxes on Specific Minerals
Several states impose an additional, unit based severance tax on
particular minerals. A unit-based tax is not based on a percentage of
the value of the mineral, such as the net and gross ad valorum
approaches described above, but is a flat dollar amount per unit of
mineral produced. These taxes tend to be aimed at large producers or
particular minerals in these states, presumably because the states have
determined they are able to bear a higher tax burden. Unit-based
royalties are not a good basis for designing a Federal royalty, which
must apply to many commodities and many types of mining operations.
Colorado imposes an additional severance tax of 5 cents per ton of
molybdenum ore for all tons over 625,000 produced in a calendar
quarter. The quantity limitation limits the tax primarily to two of the
largest molybdenum mines in the world that have operated in Colorado
for decades.
South Dakota imposes a severance tax on gold of $4 per ounce, plus
an additional $1 to $4 dollars per ounce depending on the gold price.
Id. Sec. 10-39-43.
any hardrock royalty legislation should allow for royalty reductions
and waivers on a case-by-case basis
All current Federal royalty statutes for oil and gas, coal and
other minerals permit the Department of the Interior to grant royalty
waivers and reductions on a case-by-case basis. The same flexibility
should be provided in any hardrock mining statute. In order to avoid
administrative complexity, any hardrock royalty will probably have to
be applied in a fairly uniform manner across a large number of
commodities and mining and processing methods. Any inequities created
by this broad brush approach can be partially addressed by providing a
mechanism for specific operations or mineral commodities to apply for
royalty relief, in order to address economic hardships or to maximize
the economic recovery of minerals from each deposit.
any royalty should not apply to existing valid mining claims
A grandfathering of at least some existing unpatented mining claims
from the new royalty is both required by law and required to treat
fairly parties that have made significant investments in Federal lands
prior to the enactment of the royalty. Moreover, it may be advisable to
grandfather some claims that may not constitute fully vested property
rights, in order to have a simple, bright-line test for which claims
are subject to the new royalty, which will reduce uncertainty, reduce
administration and litigation costs for the government and promote
mining investment.
It is settled law that unpatented mining claims supported by a
``discovery'' of a ``valuable mineral deposit'' create constitutionally
protected property rights in the owner of the claim. Imposition of a
royalty on such claims is likely to trigger significant ``takings''
litigation against the government. A royalty is in no way comparable to
the imposition of simple Federal filing requirements on unpatented
mining claims, which was upheld by the Supreme Court in United States
v. Locke, 471 U.S. 84 (1985). Grandfathering claims with a valid
discovery as of the date of enactment from the royalty is thus the
minimum transition approach that is legally defensible, as Professor
John Leshy agreed in his prior testimony before the Senate Environment
and Natural Resources Committee.
The problem with protecting only claims with a valid discovery is
that determining which of the hundreds of thousands of mining claims
has a discovery would be an unprecedented administrative challenge for
the Department of the Interior. Under a long line of court cases and
administrative decisions, a mining claim does not have to be currently
producing to support a ``discovery''; a reasonable prospect that the
claim could be profitably mined is sufficient. Currently, the
Department requires an administrative hearing in order to contest
claims for lack of a discovery. Due process requires a hearing for
claimants on this issue. The Department has only a handful of hearing
examiners trained in the specialized rules applicable to determining
whether a ``discovery'' exists. It would be unworkable for the
Department to adjudicate hundreds or thousands of these mining claim
validity cases to determine which claims can be legally subjected to a
new Federal royalty.
To avoid the royalty transition becoming an administrative
gridlock, Congress should apply the royalty only to claims located
after the enactment of the law or to claims that are not included in a
plan of operations approved by the Department prior to the date of
enactment (without a requirement for commencement of commercial
production). Having a ``bright line'' test will save administrative
costs and will also promote certainty about the application of the new
royalty, which will encourage investment.
conclusion
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 and
production costs, and appropriately stringent environmental and
operating requirements. These costs must also be balanced in
determining whether a royalty is necessary on Federal lands and if so,
how much royalty should be charged. Congress should not impose a
royalty without careful consideration of the economic and competitive
impacts.
I thank the Committee for the opportunity to address this important
public lands issue, and I am happy to answer any questions you may
have.
______
Dr. Gosar. I thank you for your testimony.
Now Mr. Mitchell Krebs, the President and CEO of Coeur
Mining.
STATEMENT OF MITCHELL KREBS, PRESIDENT AND CEO, COEUR MINING,
CHICAGO, ILLINOIS
Mr. Krebs. Chairman Gosar, Ranking Member Lowenthal, and
members of the Subcommittee, good morning. I appreciate the
opportunity to appear here today. I hope I can provide you with
some helpful suggestions as you consider policies related to
the hardrock mining industry.
Coeur Mining has been around nearly 90 years. We are
headquartered in Chicago and operate five mines that produce
silver and gold. Our U.S. operations are located in northern
Nevada, southeast Alaska, and in the Black Hills of western
South Dakota. In total, we employ over 2,100 people. These jobs
pay about two times the national average and are based in some
of the more remote areas of the country. In addition to our
wages and benefits, we are a significant source of tax revenue
for each city, county, and state where our mines are located
and our employees reside.
I have been in this industry since 1995, and I have a good
sense of the reputation it has had over the years. In some
cases, that reputation was well deserved. However, our company
and our employees do not represent that outdated perception of
mining. We are a forward-thinking company, and we represent
where mining is going, and not where it has been in the past.
``We pursue a higher standard,'' that is our company's
purpose statement. That purpose and attitude extends into every
aspect of what we do. We are continually looking for ways to
make our workers safer, and the communities and the environment
better off than they were before.
We all might have a different view about mining, but I
think it is important for people to not lose sight of the
connection between the mining activities we carry out and what
these metals are needed for in our society, especially a metal
like silver.
Silver is a metal that is fueling many of the exciting,
technology-driven trends in the world today. Anything with an
on/off switch has silver in it. Every mobile device, every
touch screen relies on some silver. It is used in solar panels
and in batteries to help generate clean, renewable energy, and
to propel electric cars. Tomahawk missiles, drones, satellites,
and GPS devices used to protect our country all rely on silver.
It is a part of our everyday life, and it is vital that we have
a competitive and reliable mining sector in this country.
The area where we see the biggest opportunity for
improvement is in how permits are obtained for new mines or to
expand existing mines. The United States is a great place to do
business as a mining company, but as it functions now, our
country's permitting system is tied with Papua, New Guinea for
the title of World's Longest Permitting Process, at
approximately 7-10 years. In Canada and Australia, a similar
process takes 2 to 3 years, and in Mexico, the average time to
permit a new mine is about 18 months.
I was just up at our Kensington Mine in Alaska earlier this
week, which I think serves as a poster child for our country's
inefficient and unpredictable permitting process. It took us
over 19 years, 1,000 separate studies, and, ultimately, a trip
here to DC to the U.S. Supreme Court and a 6-3 decision to
finally secure the 90 separate state, local, and Federal
permits necessary to place that mine into production.
By eliminating the duplication that currently takes place,
and by tackling the lack of coordination among the various
agencies, the process could be streamlined without sacrificing
thoroughness or completeness.
The issue of an efficient mining process is not just a
mining issue. It applies to any infrastructure project across
the country. Some specific suggestions include the following:
adopt a one-project, one-review approach; allow state processes
to act as substitutes or equivalents to Federal ones, as long
as they meet certain criteria and requirements; provide
specific, legally-binding timelines up front, make these
timelines specific, transparent, and use technology to
eliminate data paper-based systems for submissions and document
sharing; and consider re-opening the Office of the U.S. Bureau
of Mines to act as a coordinator for the permitting process,
among other important activities.
As for introducing a royalty on the industry, we strongly
believe it would need to be carefully crafted, or else it could
put many mining companies out of business, eliminate thousands
of good-paying jobs, and leave our economy reliant on foreign
sources for minerals and metals. If you do choose to revisit
the idea of a royalty, I would ask the Subcommittee to consider
the following:
First, make the permitting process more efficient and
predictable, and ensure the security of title and tenure before
introducing any sort of royalty.
And any royalty should not be based on revenue, but rather
on profits. As a mining industry we have no control over the
price we receive for the metals we produce. We are price
takers. The net profits royalty would at least adjust as prices
rise and fall over time.
And finally, we don't think any new royalty should be
applied to mines already in production.
With that, I will go ahead and close. I do invite anybody
here at any time, if they would like to come out and visit one
of our operations, to please do so. Thanks again for the
opportunity today.
[The prepared statement of Mr. Krebs follows:]
Prepared Statement of Mitch Krebs, President and CEO of Coeur Mining,
Inc.
Chairman Gosar, Ranking Member Lowenthal, and members of the
Subcommittee, my name is Mitch Krebs and I'm the President and Chief
Executive Officer of Coeur Mining. I appreciate the opportunity to
testify before you today. It's a great honor and privilege. I hope my
testimony will provide the Subcommittee with a good sense of how our
company and I think about the future of hardrock mining. Like most
industries, mining is changing quickly and its approach to how mining
is done has evolved--for the better (finally)--and we consider
ourselves a leader in this evolution. I also hope I can provide the
Subcommittee with some helpful thoughts and suggestions you might
consider in four specific areas as you look to reform hardrock mining
laws:
1. Our Nation's current permitting process;
2. The idea of introducing a royalty on hardrock mines;
3. EPA's proposed rule to require additional financial requirements
on our industry; and
4. The risks associated with the thousands of abandoned mines
throughout our country.
company background
First, I'd like to share a brief background of our company. Coeur
Mining is a nearly 90-year-old U.S. mining company headquartered in
Chicago, Illinois. We operate five mines that produce silver and gold.
Our U.S. operations are in Nevada, Alaska and South Dakota and our
international operations are in Mexico and Bolivia. In total, we
directly employ over 2,100 people while the industry in total employs
approximately 2 million people directly and indirectly. We generate
about two-thirds of our revenue from our U.S. operations, which is more
than any other major mining company. We're publicly traded on the NYSE
and have about 50,000 stockholders worldwide.
We are proud of the jobs we provide, of the dedicated men and women
we employ, and of the impact we have in the communities in which we
have a presence. These jobs we provide pay about two times the national
average and are based in some of the more remote areas of the country.
And, as you might imagine given what we do, these are jobs that cannot
and will not ever be moved overseas. Like most mining companies in the
United States, Coeur's operations do business with many different local
suppliers, service providers, and contractors and are a significant
source of tax revenue for each city, county, and state where the mines
are located and where our employees reside. As an industry, domestic
mining generates $46 billion in tax payments to Federal, state and
local governments.
I've been in this industry since 1995 and I think I have a good
sense of the reputation it's had over the years. In some cases that
reputation was well-earned. However, our company and our people don't
represent that outdated perception of mining. We are a forward-thinking
company and we represent where mining is going in the future. ``We
pursue a higher standard'' is our Company's purpose statement. That
purpose and attitude extends into every aspect of what we do. We are
continually striving to find ways to make our workers safer and the
communities and the environment better off than they were before. In
fact, I'd say the most ardent environmentalists I know are people who
work for our company--out at our sites every day making sure we are
protecting the air, the water, the land and the people themselves so
that everyone can go home safely from work at night and enjoy the
environment where they live.
One last thought from a mining company's perspective: it's
important that we don't lose sight of the connection between the mining
activities we carry out and what these metals are needed for--
especially a metal like silver. Silver is not just used in jewelry and
silverware. It's a metal that is fueling many of the exciting,
technology-driven trends in the world today. Anything with an ``on-
off'' switch has silver in it, every mobile device and touch screen
relies on silver. It's used in solar panels and in batteries to help
generate clean, renewable energy and to propel electric cars. It's used
to purify water and to treat burn victims. Tomahawk missiles, drones,
and GPS devices used to protect our country and our soldiers all rely
on silver. It's everywhere around us and it's vital that we have a
competitive and reliable mining sector in this country.
our nation's current permitting process
The area where we see the biggest opportunity for improvement is in
how permits are obtained for new mines or to expand existing mines. As
the process functions now, our country's permitting process is tied
with Burkina Faso for the title of ``world's longest mining process''
at approximately 7-10 years. In Canada and Australia, a similar process
takes 2-3 years. In Mexico, the average time to permit a new mine is
about 18 months.
I was just up in southeast Alaska earlier this week at our
Kensington Gold Mine. Although there are many other examples,
Kensington is the poster child for the broken permitting process we
currently have in the United States. It took over 19 years to finally
obtain the 90 separate local, state and Federal permits for the
Kensington Mine and put it into production. My background is in finance
and one thing I understand is the time value of money. If it takes 19
years to start getting your money back on an investment, you're not
generating a competitive--let alone a positive--rate of return.
These delays and uncertainty are most likely key reasons why
exploration investment to identify new supplies of metals and minerals
has fallen as much as it has in the United States.
By eliminating the unnecessary duplication that currently takes
place at multiple levels of government and by tackling the lack of
coordination and communication among the various regulatory agencies,
we could bring certainty and a level of common sense to the process and
save a tremendous amount of time and expense without sacrificing
thoroughness or completeness.
Some specific suggestions include the following:
Adopt a ``One Project--One Review'' approach: Allow state
processes to act as substitutes or equivalents to Federal
ones as long as they meet certain Federal requirements;
Provide specific, legally-binding timelines up front: Make
these timelines specific, transparent and use technology to
eliminate dated paper-based systems for submissions and
document sharing.
Consider re-opening the office of the U.S. Bureau of Mines
to act as a coordinator for the permitting process--help
connect the dots and bring accountability and structure to
how permits are obtained. The United States is the only
developed country in the world without a Federal entity
promoting responsible mineral development and conducting
important research. Recently, British Columbia up in
Western Canada established a Major Mine Permitting Office
(MMPO), whose purpose is to improve the coordination of
major mine authorizations across government.
the idea of introducing a royalty on hardrock mines
There have been congressional proposals over the years to impose a
hardrock mining royalty on production from Federal lands. Any new
financial obligations placed on this industry need to be carefully
crafted or else they run the risk of running mining companies out of
business, eliminating hundreds of thousands of jobs, and leaving our
economy completely reliant on foreign sources of minerals and metals.
When considering a royalty on this industry, my suggestion to the
Subcommittee is to consider the following:
Making the permitting process more efficient and
predictable ensuring the security of title and tenure would
need to be the first steps toward implementing a royalty.
These enhancements would help offset the diminished
competitiveness a royalty on the domestic hardrock industry
would create;
Companies in this industry are price takers--we do not
have any control over what price we receive for our metals.
In addition, many of our operating costs--fuel, steel,
chemicals--are outside of our control. Adding a royalty
will directly increase our costs and reduce our
profitability, which isn't that strong to begin with given
the dynamics of the industry;
A royalty should be tied to profits (net) rather than
revenues (gross). A net production payment is a better
incentive for investment because it takes into
consideration the costs to mine and process ore and does
not penalize mining companies during periods of low
commodity prices;
A company should be allowed to recoup its investment
before a royalty is paid. Mining is an extremely capital-
intensive business and it struggles to earn an attractive
rate of return. The capital used to fund new mine
development should be compensated for the commensurate risk
before a government royalty obligation is required to be
paid; and
Any new royalty should not be applied to mines already in
operation. The rules should not be allowed to be changed in
the middle of the game.
epa's proposed rule to require additional financial requirements on our
industry
Last December, EPA issued a proposed rule to require hardrock
mining companies to demonstrate and maintain financial responsibility
``consistent with the degree and duration of risk associated with their
mining operations,'' which sounds like a great idea. The only problem
is, it already exists.
State and Federal financial responsibility programs have been
developed and implemented over the past several decades that are more
than adequate to address environmental risk. These existing programs
are robust, are required by regulation, and meet the intent of the
proposed rule that facilities must establish and maintain evidence of
financial responsibility. At Coeur Mining, our financial assurance
portfolio already comprehensively addresses environmental risk,
closure, reclamation, and post-closure liabilities. We have
approximately $200 million of bonding in place to cover the estimated
cost of closure and post-closure activities at our U.S. mines. As an
industry, companies commit tens to hundreds of millions of dollars to
ensure that money is set aside to properly close sites and in the
unlikely event of a release, to monitor and remediate any long-term
environmental issues. For example, the Bureau of Land Management holds
nearly $3 billion in financial assurance and the Forest Service an
additional $325 million. These estimates are calculated with the help
of third parties, are reviewed annually, and are signed off on by state
and Federal regulators who understand the scope of the required work.
As part of the new proposed rule, EPA came up with a new ``one-size-
fits-all'' formula to try to estimate these potential costs. In our
case, it would increase our bonding requirement fivefold to over a
billion dollars, which doesn't make any sense. It's not even possible
to obtain that amount of bonding from providers of those financial
products.
While we understand the importance of a company being able to
demonstrate its ability to secure ``response costs'' to pay for any
sort of cleanup, this proposed rule is flawed, it's redundant, it's
unnecessary, it's duplicative, and it's a ``solution in search of a
problem.''
the risks associated with the thousands of abandoned mines throughout
our country
Ironically, while there is great concern about mining companies
being able to demonstrate financial assurance under CERCLA, nothing is
being done to address the thousands of historic abandoned mines whose
owners are now bankrupt and long gone.
The GAO determined in 2008 that there are at least 161,000
abandoned hardrock mine sites in the 12 western states and Alaska. At
least 33,000 of these sites had degraded the environment by
contaminating surface water and groundwater or leaving arsenic-
contaminated piles of waste rock from historic mining activities. The
incident at the Gold King Mine in Colorado 2 years ago where toxic
wastewater was released into the Animas River is a recent example of
this problem.
These old mines represent a real danger--to our safety, to our
water, to our air, and to the communities where they're located.
Although Coeur didn't cause the problems at these mines, we have the
know-how, the people, and the desire to help clean up these abandoned
mines and to be a part of the solution. However, there are too many
disincentives and risks of exposure to potential historical liabilities
under current state and Federal laws that prevent companies like ours
from getting involved. Good Samaritan legislation has been talked about
for a long time. Getting something in place could act as a catalyst to
getting these legacy sites cleaned up--something that everyone wants to
see happen.
conclusion
In closing, I want to personally thank the Committee again for
having me and for looking at ways to improve the hardrock mining
permitting process. I appreciate you allowing me to share my thoughts
with you and invite you to come see one of our operations sometime. I'd
now welcome any questions you may have for me.
______
Questions Submitted for the Record by Rep. Gosar to Mitchell J. Krebs,
President and Chief Executive Officer, Coeur Mining
Thank you again for the opportunity to testify before you as well
as to provide additional followup testimony. As I said during my oral
testimony on July 20, 2017, hardrock mining and the industry have
evolved over the decades into highly regulated and responsible
corporations whose management and stockholders see themselves as
stewards of our public lands. At Coeur Mining, we consider ourselves a
leader in this evolution.
Per your request, below are my responses to the Subcommittee's
additional questions:
Question 1. Regarding the Kensington Mine, can you please give the
Subcommittee more detail about the quality and character of Lower Slate
Lake and explain the actions Coeur will take when reclaiming it?
Answer. It is important to start with the natural state of Lower
Slate Lake prior to any mining taking place.
Prior to the onset of mining, the surface area of Lower Slate Lake
was relatively small, spanning approximately 20 acres, and in its
natural state, did not meet state water quality standards due to high
aluminum levels occurring naturally in the lake's waters. In addition,
approximately 9 acres of the lake bottom (slightly less than half of
its size) were classified as unproductive due to its depth, reaching 51
feet deep.
Today, the naturally occurring metals in the lake impoundment water
are being treated. As a result, the treated water discharge from the
lake impoundment now has a better quality and meets the stringent EPA
permitting and discharge requirements at the impoundment outlet to
Slate Creek.
At the conclusion of tailings deposition, the lake will be
reclaimed to a self-sustaining aquatic ecosystem. Water treatment will
continue until water quality standards are met and sustained. The final
impoundment will significantly expand the size of Lower Slate Lake from
approximately 20 acres to approximately 60 acres, resulting in a larger
and more productive lake with enhanced fisheries and wildlife habitat.
The lake will be shallower, wider and more capable of sustaining
aquatic life. With a maximum depth of approximately 28 feet, benthic
habitat for lake bottom productivity will be created, thus eliminating
the 9 acres of pre-existing unproductive lake bottom. Native fish
species will re-populate the lake from adjacent surface water bodies
with productive wetland and open water habitats returned.
It is important to note the U.S. Forest Service (USFS) conducted an
ecological risk assessment that concluded the overall productivity of
the reclaimed lake, after the mine is closed, would be higher than pre-
existing Lower Slate Lake conditions. The higher productivity will
provide a better and more sustainable long-term condition with an
overall net environmental gain.
For the Subcommittee's benefit as well as in response to
Congressman Lowenthal's submission of outdated pictures taken of Lower
Slate Lake from the Internet, I have included photos of Lower Slate
Lake taken in July 2017 representative of current conditions of the
Lower Slate Lake tailings facility since mining operations were
initiated.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Question 2. Can you explain the specific provisions in the
Clean Water Act regulations that allow for mine tailings to be placed
into the Lower Slate Lake at your Kensington Gold Mine?
Answer. ``We pursue a higher standard'' is our Company's purpose
statement, which is our driving purpose into every aspect of what we
do. We continually strive to find ways to make our workers safer and to
make the communities we serve and the environment better off than they
were before. Thus, we follow the regulations of the Clean Water Act. We
should discuss the specific provision of the Clean Water Act.
To begin, the joint U.S. Army Corps of Engineers (``Corps'')/
Environmental Protection Agency (``EPA'') regulations which implement
Section 404 of the Clean Water Act, found at 40 C.F.R. Sec. 232.2,
allow the tailings to be placed as fill material into the Lower Slate
Lake under carefully controlled conditions imposed by the agencies in
permitting the facility. These regulations specifically define
``discharge of fill material'' to include ``placement of . . . slurry,
or tailings or similar mining-related materials'' in waters of the
U.S. 40 C.F.R. Sec. 232.2(6)(1).
Specifically, the EPA regulations known as the ``404(b)(1)
guidelines'' at 40 C.F.R. Part 230 provide the criteria for the Corps
to authorize the placement of the tailings in the impoundment as the
``least environmentally damaging practicable alternative'' for disposal
and storage of the tailings. The Corps made this determination in
issuing the Section 404 permit for the Kensington Project tailings
facility after an exhaustive environmental impact statement and
permitting process in which the EPA as well as numerous other Federal,
state and local agencies, environmental and other organizations, and
the general public participated.
Any doubts about the authority for the Corps to permit the
placement of tailings in the Lower Slate Lake impoundment in accordance
with these regulations were resolved by the United States Supreme Court
in Coeur Alaska, Inc. v. Southeast Alaska Conservation Council et al.,
557 U.S. 261 (2009).
Question 3. Please explain the permitting requirements under the
Clean Water Act and state regulatory authority required to secure
permits and comply with those permits during the entire mining cycle as
they apply to water quality and discharge issues.
Answer. Clean Water Act permitting requirements and related state
regulatory provisions that implement or augment Federal requirements
are complex and daunting. They vary according to each particular mine
project and by state. They generally include:
1. One or more Clean Water Act Section 404 permits (issued by the
Corps with oversight by the EPA) for placement of fill
material during construction or subsequent operations into
delineated ``jurisdictional'' wetlands or other waters of
the United States for roads, development rock, tailings, or
other facilities. The 404(b)(1) regulations contain
requirements that regard avoiding, minimizing, and
mitigating to compensate for impacts to these
jurisdictional wetlands or waters.
2. One or more Clean Water Act Section 402 National Pollutant
Discharge Elimination System (``NPDES'') permits (issued in
most states by the state environmental quality agency with
oversight by the EPA) for ``point source'' discharges of
pollutants to waters of the U.S. (other than placement of
fill or dredged material under Section 404). Those
permitted discharges may be from tailings impoundments,
mine drainage outlets, or other facilities. The effluent
must be treated as needed to meet stringent standards for
metals and other constituents in order to protect drinking
water, swimming, fish habitat, and other designated uses
for the water body receiving the discharge.
3. One or more storm water permits, also a category of Section 402
NPDES, permit for controlling storm water runoff during
construction and later mine operations.
4. A Clean Water Act Section 401 state certification that point
source discharges authorized under Federal licenses or
permits for the project (such as a Section 404 permit) will
comply with state water quality standards. These standards
can include, where applicable, nondegradation standards to
protect desired conditions and designated uses for high
quality streams and other water bodies and compliance with
Total Maximum Daily Load (``TMDL'') limitations for bodies
of water designated as impaired for one or more pollutants
under the Clean Water Act.
5. Additional state law requirements that may apply to groundwater
and other uses and water quality parameters.
These requirements apply to varying degrees throughout the life
cycle of a mine project, from initial exploration that may
involve temporary road or drilling pad construction and
operations through later phases of mine development,
operation, closure/reclamation, and longer-term post-
closure care and maintenance of the mine site. These
requirements include long-term water quality monitoring and
continued treatment of point source discharges if needed.
The Clean Water Act and related state permitting requirements
provide a rigorous regulatory framework for protecting
water quality, from the inception of a mine prospect
through the end of active operations and including long-
term care of the reclaimed site. The application of these
Federal and state requirements to any particular
substantial mine project requires a site-specific analysis
which is quite complex and multifaceted.
Question 4. Will you please provide information regarding the
safety and environmental performance record of hardrock mining in the
United States, including trends in recent years and decades?
Answer. In accordance with our purpose statement of pursuing a
higher standard, we are a forward thinking hardrock mining company
dedicated to continuous improvement in all areas, especially worker
safety. Our team is consistently working to ensure that we operate in
an environmentally responsible and safe manner daily. In addition, as
an industry, we have no higher priority than the safety of our workers
and our responsibility for maintaining a healthy and vibrant
environment at our mining operations. We all recognize that even one
injury is one too many.
Speaking for Coeur, we have worked tirelessly to ensure our mines
are among the safest in the hardrock mining industry. We achieve this
through our safety programs which begins on Day One of each employee's
time at our company.
The statistics regarding the industry's safety record speak for
themselves. Statistics from the U.S. Mine Safety & Health
Administration on all metal/nonmetal mines show that in 2016, there
were 3,647 total injuries (an injury rate of 1.92 per 200,000 employee
hours) and there were 17 fatalities (a fatality rate of 0.009 per
200,000 employee hours.) Historically speaking, injuries and fatalities
in the hardrock mining industry have never been lower than they are
today. By comparison, in 1980 there were 15,161 injuries and 103
fatalities and in 2000, there were 9,600 injuries and 47 fatalities in
this industry. The drop in injuries and fatalities is significant,
which the industry attributes to several factors, including better
technology, improved hazard identification, and an ongoing safety
education programs at each mine.
In addition, the environmental record is just as strong. Based on a
2011 letter to Senator Lisa Murkowski from the U.S. Forest Service, the
agency confirmed that 2,685 permits had been issued for mines on USFS
land since 1990, and none of those mines had been placed on Superfund's
National Priorities List (NPL.) Also in 2011, the Bureau of Land
Management (BLM) responded to the same question posed by Senator
Murkowski about permits on BLM lands. Since 1990, BLM's Mining Law
Administration Program had approved 659 Plans of Operation and none of
them had been placed on the NPL. Only one mine (on private land in
South Carolina), which has had a permit approved since 1990, has been
placed on the NPL. One mine out of thousands of permits simply does not
indicate a pattern of environmental abuse or negligence for the modern
mining industry.
Unfortunately, the temptation by many in the environmental
movement, however, is to continually advocate to the public through
scare tactics, incomplete facts or through deliberate ignorance that
virtually all modern hardrock mining operations are somehow destroying
our environment and do not operate responsibly. These accusations that
hardrock mining companies are intentionally skirting environmental laws
because of callous disregard for the environment or to enhance
financial margins is entirely inaccurate and misleading. It is
irresponsible to represent that hardrock mining companies intentionally
pollute the environment.
Our commitment to the communities where our hardrock mines are
located and where our workers and their families live demands that we
use ongoing safety education, environmental stewardship, and the best
technology with modern mining practices as part of the social compact
we have with both.
Question 5. Can you please provide the Subcommittee with
information regarding the expected closure and reclamation costs for
active hardrock mines in the United States and the existing financial
assurances to cover those costs (including through third party
bonding).
Answer. Before going to current costs, we should review history.
Prior to 1970, hardrock mines were typically designed and built to
maximize production and minimize cost with little or no regard for
environmental values. This was no different than other industries.
However, beginning in the 1980s almost all new hardrock mines have
been designed, built and operated to integrate long-term environmental
closure and reclamation as a primary design standard, and this is
required by current Federal and state law. At the same time, the
Federal land management agencies (FLMAs) and states have significantly
evolved their financial assurance (FA) programs with specific emphasis
on post-closure care and maintenance, thereby minimizing the long-term
potential for releases of hazardous substances and unbonded agency
liability.
Currently, the FLMAs and states have increased their oversight of
mine permitting and reclamation practices, and they have developed a
comprehensive regulatory regime covering all aspects of the mine
permitting, reclamation and FA process. It is unusual that government
and industry agree on environmental issues. In this case, however,
industry, states, FLMAs, and the U.S. Small Business Administration
(SBA) have had the same message to EPA in the CERCLA Sec. 108(b)
rulemaking that existing FA programs are working at modern mines and
there is no need for a fundamentally flawed, duplicative, and costly
EPA program.
FLMA and state programs tie FA requirements to each mine's
individual permit stipulations for operations and closure, and these
requirements are reviewed and updated by the FLMA and/or state on a
continual basis. EPA's Proposed Rule ignores these existing FLMA and
state schemes and does not recognize the adverse effect that
duplicative Federal oversight would have on these states and their
citizens. Instead of considering the present degree of risk and taking
into consideration required input from FA providers, EPA's Proposed
Rule is the result of litigious pressure from anti-mining environmental
groups and special interests. Without regard to facts, EPA's Proposed
Rule duplicates FLMA and state agency requirements, creates conflicts
of law, and bypasses local administrative authorities who have proven
expertise in reviewing, permitting, and overseeing mining projects.
Over the past 25 to 30 years, these programs have greatly advanced,
adapted to new information and responded to fill gaps in both their
regulatory and FA programs as circumstances have required. These
programs have proven effective, which the National Academy of Sciences,
in response to a request from Congress, determined in a comprehensive
1999 report entitled Hardrock Mining on Federal Lands. The Report
concluded that the overall structure of Federal and state laws and
regulations that provide mining related environmental protection is
complicated but effective.
In the case of the mines operated by Coeur Mining, the closure,
reclamation, and post-closure costs of our mines are well understood
with comprehensive site specific plans established for closure. All
hardrock mining operations are bonded for closure, reclamation, and
post closure monitoring and maintenance, all of which is a condition to
operate. Financial assurance needs to be secured and adjudicated before
any site disturbance begins. Thus, those liabilities are already
secured through financial assurance mechanisms such as surety bonds,
letter of credit, insurance, trusts, and cash collateral, for example.
Comprehensive closure and reclamation costs and their requisite
financial assurance for the hardrock mining industry may be best
illustrated by BLM and USFS estimates. According to these agencies, the
USFS held over $325 million in reclamation bonds for approximately 530
projects. Of that $325 million, approximately $304 million is
identified for eight large operations. The calculations are project-
specific and financial assurance is calculated based on the type and
amount of disturbance at each operation. The BLM holds $2.9 billion in
financial assurances for final reclamation of approximately 1,374
operations. Mining operations occurring on private or state lands are
also required to secure financial assurance prior to construction and
operation. Cost estimates for financial assurance go through a rigorous
review process through the Federal and state agencies.
In closing, thank you for allowing me to submit further testimony
to the Subcommittee and for seeking ways to improve the hardrock mining
permitting process. I invite you or your staff to come see one of our
operations.
Please do not hesitate to reach out if you have additional
questions.
______
Dr. Gosar. I thank the gentleman. I thank the panel for
their testimony.
Reminding the members of the Committee that Rule 3(d)
imposes a 5-minute limit on the questions, and I will recognize
myself first.
Mr. Cress, thank you so very much for joining us today,
especially with the distance that you have traveled. I mean,
coming all the way from the Philippines, that has to be a
record, or darn close to a record.
Your expertise and extensive experience in your field are
invaluable to this Subcommittee, and your testimony is
especially helpful for showing how non-binary the prospect of
gross proceeds versus net proceeds really is. What states and
countries are really doing in a wide spectrum and then painting
it simply as one or the other is disingenuous. So, thank you.
My first question to you, I want to make sure I get this
correct, because you said it and I want to highlight it. When
all the different taxes and fees are accounted for in the
United States, it is pretty close to the global average. Can
you explain that again?
Mr. Cress. That is correct. In the global mining taxation
study that was done by Professor Otto, it was actually on the
high end of competitive. The competitive range that Professor
Otto defined was about 40 to 50 percent government take. And
both Arizona and Nevada came in at 49 and change.
Dr. Gosar. So, it is really important that we consider the
whole aspect of implications versus selecting just one aspect
that we want to nitpick, true?
Mr. Cress. Yes, that is correct.
One other thing I might add is that the exploration end of
the industry actually operates by retaining small royalties,
and they will discover, explore, and transfer properties to
larger companies. You need to leave room for those royalties,
so that that industry can continue to function and find
deposits.
Dr. Gosar. You are really pointing a picture to my next
question, and that is if we are talking about this royalty
schematic, Congress is going to have to walk a real tightrope
in regards to this discussion. This is such a complicated issue
that I cannot see the wisdom in just a flat, gross royalty. Do
you see the same thing?
Mr. Cress. I think the advantages of gross royalties are
that they are supposedly simpler to administer, although that
is not always true. We have gross royalties in oil and gas, for
example, that have very complicated deductions for processing.
And coal, for transportation and washing.
Complexity does not need to be an impediment to adopting a
net approach. The states are handling that complexity just
fine. And many other governments--Canada, Australia--have very
complex net royalties, and administer them also, just fine.
Dr. Gosar. My next question to you is, if Congress were to
craft legislation that would affect mining operations in all
states with their own economic burden, all commodity types for
their different markets, and all mining techniques with their
different capital intensities, in your professional opinion,
how could we ever possibly craft such legislation?
And would it be more realistic to grant a governing body
the ability to determine the appropriateness of those rates on
a case-by-case basis?
Mr. Cress. You are correct that this would be an
unprecedented attempt to define royalties over a number of
commodities. When Congress has done this before, it has been on
a single commodity basis. So, I personally believe that that
would require great study and great care.
You could specify in the legislation different royalties
and different royalty bases for different royalty metals, but
it is going to be a complex undertaking.
Dr. Gosar. And I think we made the point that, before we
can actually consider that, we would actually have to look at a
streamlining of the permitting process, a common-sense
application there.
Mr. Cress. Yes. As you have heard in the testimony today,
the U.S. ranking would be higher, if not for the permitting
delays. So, adding a royalty will be a discouragement. But if
you improve permitting, that would encourage.
Dr. Gosar. Ms. Pagel, I have a couple questions for you.
Have you visited Twin Metals or the iron ore mine range in
Minnesota?
Ms. Pagel. No, I have not.
Dr. Gosar. How about Resolution Copper?
Ms. Pagel. I have visited the Oak Flat Campground.
Dr. Gosar. Have you been in the mine?
Ms. Pagel. No, I have not been in the mine.
Dr. Gosar. Well, when we make these ascertations about how
ineffective and inefficient mining is, I think you need to walk
a mile in our moccasins out in Arizona and Minnesota. When you
make the gross accusations about the spills actually polluting,
let me explain something to you.
We just actually went out to Minnesota. Do you know that
the iron ore pits actually clean the water better than what you
see in the boundary waters? Are you familiar with that?
Ms. Pagel. I did not know that.
Dr. Gosar. Once again, I think what we have to do is we
have to learn, instead of being ignorant and putting out false
facts. I think we need to start walking and making sure that we
have our facts right, so that we are not scaring people
egregiously.
Ms. Pagel. I will be happy to get you more details about
the pollution.
Dr. Gosar. Well, what I would like you to do is come out to
see us, because you are going to see something much more
different than what you are proclaiming at the witness stand.
Ms. Pagel. I would be happy to.
Dr. Gosar. I recognize the gentleman from California for
his 5 minutes.
Dr. Lowenthal. Thank you, Mr. Chair. I want to kind of
explore this idea about how long it takes to get a mining
permit, not so much to put people on the spot, but to get a
better understanding of what is really going on, and what some
of the issues are.
So, Mr. Krebs, you mention that we have the world's longest
mining permitting process of 7-10 years. That is very similar
to what the Majority's memo on this hearing also mentions, the
same kind of time frame. And it all comes from a 2014 report on
ranking of countries for mining investments. That is really
where it comes from. But there is no actual permitting data in
the report. It just says that.
And the other thing that I need to understand is, with this
problem are tremendous--you mention how much further behind we
are. The report ultimately ranks nations in terms of conditions
that promote investment growth in the mining industry, and
between 2013 and 2014, the United States had the greatest
investment growth. In conditions that promoted investment
growth, it really ranks us third out of I think 26 nations, in
terms of conditions that are right for investment.
Can you square this? And where are the problems? If this
would improve us, if we are already moving in the right
direction, where are the problems?
Mr. Krebs. It is such a case-by-case situation. I talked
about the Kensington Mine up in Alaska. I would consider that
to be an extreme example, 19 years. I could give you another
example, a mine of ours, the one in Nevada, it has been in
existence since----
Dr. Lowenthal. But just take those cases. What has led to
such, what pushed it so long out there? Is it the agencies not
coordinating? Is it the local, state, and Federal level, it is
not any one level of government that is the problem, is it the
coordination that we are doing? What do you see as the critical
issue?
Mr. Krebs. I would say it is two things. It is the
coordination, and then it is the litigation that we experienced
throughout the process.
And on the coordination front, I think, in our experience,
like Nevada, things go really well to, for example, get
something put into the Federal Register. But when that finally
gets to DC, it sort of goes into a black hole. I think there
are something like 14 separate approvals that are required here
in DC before that thing can actually get put into the Federal
Register. And if there is any change made by any 1 of those 14
approvals, it goes back down to square one and starts over
again.
Dr. Lowenthal. Yet, we still do have, as the report
indicates, the conditions are such, compared to the rest of the
world--besides, I believe, it is Canada and Australia--we have
come up much closer to them now, that promote investment growth
in the mining sector. Why is that so, then, with all of these
delays? Why are we also looked at as a great place to invest?
Mr. Krebs. Well, for starters, it is the certainty of
title. It is the rule of law, contracts. Infrastructure here in
the United States is great in most cases. Although, in Alaska,
we have no infrastructure there at our mine. But you tend to
get into a more litigious loop here in the United States, where
you will put something, an EIS, out there, there will be
litigation, which will extend the timeline. And then,
inevitably, the prices of the commodities change, so then we
will have to go back and sort of redo the economics.
Dr. Lowenthal. I agree we can be looking at that, but I
still come back to we are still looked at as one of the best
places to invest money.
Ms. Pagel, what do you see as the issue? What is really
going on here? They are saying, hey, this permitting, it is
just taking too long, even though the BLM and the Forest
Service, when they do mine plans of operation, the average is
less than 2 years and more than half are done in 18 months. Is
there a problem here? I mean we are hearing a major problem.
Ms. Pagel. Yes, I think the GAO report that came out last
year was very clear that there is a 2-year average for mine
permitting time, and the delays that occur--it went through
many different situations where the mining companies actually
were the issue. They either decide to expand the mine or they
don't provide the correct information to the agencies.
I think with the Kensington Mine, that was a mine that is
outside the norm, in terms of the fact that the mine tailings
waste dump was going to be placed into a freshwater lake. That
is outside the norm of mining practices, and I think that is
likely probably one reason why it took a little bit longer.
Dr. Lowenthal. Thank you, and I appreciate this discussion
to understand exactly what the data is.
I think what I am struck with--and I will yield back--is
our lack of really understanding the scope of what is going on,
so I enjoy this discussion. Thank you, and I yield back.
Dr. Gosar. I thank the gentleman. I recognize the Vice
Chairman, Mr. Cook, for his 5 minutes.
Mr. Cook. Thank you very much, Mr. Chair. I want to switch
gears a little bit. As I was listening to this conversation,
and, you know, I was a history major. Everybody says that I am
so old I made a lot of history and what have you. But--I heard
that.
[Laughter.]
Mr. Cook. I want to go back in time, if you will, to World
War II, when we had certain minerals, certain parts of the
economy that were extremely important to our national security,
to our survival in this war. And if you remember right, there
was an individual who was very obscure at that time. I think he
was from Independence, Missouri, and no one had ever heard of
him. He went on later to have the most unexpected victory in
the 1948 election: Harry S. Truman--cutting through the
bureaucracy to respond to what was happening, nationally.
OK, I am going to make the point now. A mine in my
district, which, ironically enough, a Democratic Congresswoman
from California asked me about because she had been there, and
she said, ``What is the status of Molycorp Corporation, the
rare minerals and rare earth, vital to national security, vital
to guided missiles, to all kinds of things?''
I said, ``They have gone bankrupt.'' And then there was a
news release--I don't know if anybody reads those--that
Molycorp made the suggestion to nationalize the corporation,
because this would cut through all the problems of litigation,
the waits, and everything, and give them a chance to compete
with the country that is just killing us, internationally, that
buys companies--in the United States, all over the world--buys
them, lowers the price once the competition goes out, and then
they raise the price, and that is China.
They are conducting economic warfare, and I am speaking far
too long, but I want anyone's take on whether you think this is
a real--not problem for jobs, jobs, jobs--and, by the way,
Molycorp--I am from California. Ninety percent of the jobs were
from Nevada, and I don't see anybody from Nevada. I just want
to re-emphasize that you should have a stake in this.
So, my comments on that, can you respond? Our first
speaker, perhaps? I haven't heard from you much.
Dr. Hitzman. Yes, there is no question that Molycorp, the
Mountain Pass deposit, is the richest known rare earth deposit
that has been in production in the United States, and it has
had a troubled history for a variety of reasons, but primarily
because China has, I think one could say, manipulated the
market to affect that.
How we go forward, that is a question, obviously, for
yourselves. But you are right to point out that during the
second World War the United States did, in fact, very much
support several very key mineral commodities here in the United
States, and does so still to this day with beryllium, as one
commodity the U.S. Government is still supporting directly.
Mr. Cook. Thank you. Anybody else in my 1 minute and 22
seconds?
[No response.]
Mr. Cook. Thank you very much. I yield back. Oh, I am
sorry, you were going to----
Mr. Cress. I will comment only because I have also watched
the situation with Molycorp, and I addressed this issue before
the National Academy of Sciences on the issue of critical and
strategic minerals.
If you look in the New York Times, they ran a series on
mining of rare earths in China, and the environmental
devastation that allows them to undercut that mine. And the
Molycorp mine has been put out of business twice by the
Chinese. And I think it is a problem. I actually think the
nationalization idea is not a bad one. And I would not normally
say that. In this case, maybe it is.
Mr. Cook. I would not go that far, but I am a Republican. I
yield back.
Dr. Gosar. Thank you. Thanks to the gentleman. Now the
gentleman from northern Virginia, Mr. Beyer, is recognized for
his 5 minutes.
Mr. Beyer. Thank you, Mr. Chairman. Thank you all very much
for coming and teaching us all about hardrock mining.
Ms. Pagel, our Chairman invited you to come and see the
mines in Minnesota and Arizona. I would encourage you to do
that. It is always helpful. Let me know when you guys arrange
it. I would love to come, too. The last time I had a panic
attack was deep in a coal mine under Kentucky, the darkest I
have ever seen.
The Chairman suggested that at least some of your testimony
was based on alternative facts, and you talked about a
groundbreaking study that 75 percent of mining operations have
polluted surrounding surface or groundwater; that 74 percent of
domestic gold mines have polluted waters with cyanide, arsenic,
et cetera; 100 percent of copper sulfide mines have had
pipeline spills and accidental releases. Where do these facts
come from?
Ms. Pagel. We work with mining engineers, hydrologists to
look at EISs and also look at what mining companies said when
they first built the mine in terms of how much water they might
pollute, and then, after that mine is in operation for a period
of time, how much water they actually did pollute. And,
unfortunately, what happens in reality does not match the
predictions, and we do know that mines out there are polluting
both ground and surface water.
Mr. Beyer. Do any of these end up in scientific studies, in
peer-reviewed journals?
Ms. Pagel. They do, and I would be happy to send them to
the Subcommittee so they can take a look at them.
Mr. Beyer. And is it also possible that there are mines
that do clean the water because they are running through rock,
and other mines that are releasing arsenic and the like into
the groundwater?
Ms. Pagel. Yes, often mines have water treatment plants
that will take the polluted water and treat it so that it is no
longer as polluting.
Mr. Beyer. Great, thank you.
Mr. Krebs, in Ms. Pagel's testimony she talked specifically
about the Kensington Mine and taking advantage of the Clean
Water Act loophole: 200,000 gallons per day of toxic wastewater
in the Lower Slate Lake, eventually, 4\1/2\ million tons of
solid into the lake, and ``what was once a pristine body of
water into a mine tailings disposal site.'' How do you react to
that, or respond to that?
Mr. Krebs. Well, I would ask you all to come up there and
look at what we do at Kensington. Lower Slate Lake was a
dormant, small body of water that was not capable of even
supporting aquatic life. To call it a mudhole would not be a
stretch. By the time we are done mining and we reclaim Lower
Slate Lake, it will become a much larger body of water, capable
of supporting aquatic life.
Up there, we treat water as much as we mine ore. We process
5 million gallons of water a day at a mine like Kensington.
There is no toxic waste. Half of what we mine that does not
contain the ore that we ultimately process and ship off-site
goes back underground, into the mine, as backfill to help
support the underground infrastructure. That leads to better
safety conditions in the underground mine.
So, I would say that the characterization of Kensington is
off base. The idea that there is some kind of a loophole after
19 years and 1,000 studies and a trip to the Supreme Court, I
don't think those guys would let a loophole--if anything, we
are tied up in knots up there, in terms of how we operate.
And we are fine doing it. We are the last people that want
to have any environmental issues. Our workers are there in the
local community. I think some of the most ardent
environmentalists I have seen are people that work at our
company.
Mr. Beyer. Let me interrupt 1 second, only because the time
is so limited.
Mr. Krebs. Yes, sir.
Mr. Beyer. Mr. Cress, you gave a long and wonderfully
detailed lawyer description of all the different fees and,
basically, why we should not have Federal royalties at all. But
then you go on and cite Alaska, Montana, Nevada, California,
Arizona, Colorado, Idaho, Utah, South Dakota, Oregon, New
Mexico, and Washington as all having some kind of royalty
thing, whether gross or net.
Why is it OK for the states to have royalty regimes and not
the Federal Government?
Mr. Cress. I actually didn't say that the Federal
Government should not charge a royalty. I said if they decide
to do that they need to be very careful about how it is done.
The states are charging those royalties mainly as severance
taxes. Those taxes generally go to support local communities,
so it is a way of addressing the impacts of mining on local
communities. So, it is kind of a different purpose.
And I think you really have to stick to the purpose of the
Federal royalty, which would be, again, the raw minerals in the
ground prior to processing, prior to all the expense of making
that into a metal. That is what the United States is providing.
Mr. Beyer. One purpose might be, as we have heard from
almost all, is the hundreds of thousands of abandoned hardrock
mines that need cleanup.
Mr. Chair, I yield back.
Mr. Cook [presiding]. Thank you.
Mr. Lamborn.
Mr. Lamborn. Thank you, Mr. Chairman. Today, there are as
many as a half-million abandoned mines across the United
States. And some pose tremendous health and safety hazards, as
we saw in our state of Colorado, with the Gold King Mine
disaster. So, it really is something I, and I think everyone on
this Subcommittee, want to address. I will be introducing a
bill for the fourth Congress in a row--if I am counting
correctly--to at least address part of the puzzle.
There are a lot of different facets to abandoned mine
lands, but one factor that I think needs to be in there, and my
bill would address, is the liability issue. If people clean up
abandoned mine lands voluntarily, they should not have
unlimited, infinite liability, because no one will ever touch
it, as a result.
But we have seen great examples in Pennsylvania coal
country and other places, where people voluntarily really do
some great cleanup. So, unless you act grossly negligent or
willfully, then you would have liability. But if you are acting
in good faith, I think we need to relieve the current unlimited
liability, or we will never get some of these cleaned up.
Mr. Krebs, what issues also should we be looking at as we
look at Good Samaritan legislation? I addressed part of it, but
what are the things we should be looking at when we consider a
package of bills, let's say?
Mr. Krebs. Yes, I think you are on point there. The biggest
issue--you know, we are a publicly-traded company, we have
50,000 shareholders around the world. We need to be very
careful about what kind of liability we expose our shareholders
to. As it currently sits, there are just too many risks
associated with getting involved with any of these historic
sites, which is unfortunate, because we have the know-how, we
have the resources. And, frankly, we have the desire to get
involved in trying to be a part of the solution to address
these abandoned mines.
Sure, hopefully, there might be some economic benefit for
us to do so. But above and beyond that, it is the right thing
to do. It is a bit of a black eye for the industry, so I think
trying to be a leader in the industry by attacking and
addressing that issue is the right thing to do.
Mr. Lamborn. Mr. Krebs, are mining companies uniquely
situated to be able to address this problem?
Mr. Krebs. I would say we are. We have the capital. And
then, many times, we already are reprocessing old tailings.
For example, we have a mine in Bolivia, where we are mining
on the surface of a historic mountain down there called the
Cerro Rico Mountain that was mined underground for over 500
years. And our sole mining efforts there are in picking up the
old tailings that were left behind over all those centuries
that are just waste rocks sitting on the surface, picking those
up, reprocessing them, and recovering the silver in those piles
of waste rock, and returning the mountain to a much more
environmentally friendly place.
So, that is kind of an example of how companies like ours
are already doing this kind of thing.
Mr. Lamborn. I wish the EPA had been doing that at the Gold
King Mine back in Colorado.
Mr. Cress, I am going to ask you a royalty question now.
Some have called for a gross royalty, and I think you did a
good job of explaining the difference between gross and net,
and the difference between retroactive and prospective, or
future assessment of taxes. Can you also address economic
cycles? And with the long timelines that we are laboring under
right now, how that factors in?
Mr. Cress. Yes, as I am sure you all know, the mining
industry is very cyclical. Prices go up and down, and the
swings can be dramatic. In fact, some of the numbers that I
have seen Earthworks use before on Nevada and Alaska are
numbers that are taken from downward swings.
If you look at the Alaska or the Nevada tax, just to use an
example, I think they brought in about $150, $200 million over
a 10-year period through 2007. In the last 10 years, it has
brought in $1.4 billion. That is because the cycle of the
industry went up, and mines opened, and the state received a
greater share. That is the beauty of the net approach, is that
when the industry is already suffering, mines can close if
there are fixed costs like a gross royalty that do not go down
when the industry is suffering.
And that approach allows you to ride out those cycles, and
I would say sustainable development in mining is using the
minerals.
Mr. Lamborn. Thank you.
Mr. Cook. Mr. Soto.
Mr. Soto. Thank you, Mr. Chairman. When I looked through
the royalty rates for other resources, we have 12.5 percent for
onshore oil and gas royalties, 18.75 percent for offshore oil,
and Secretary Zinke just recently mentioned possibly even
looking to raise those. With coal it is $1 per ton, and it is
split between Federal and the states.
But here, where we are dealing with hardrock, it looks
like, in the absence of any Federal revenue, we have had a
bonanza with the states using this as a revenue source. And
that appears to be the real issue here.
Mr. Cress, you had testified that we are already at the
world average. So, is it the states being greedy? Is that why
we are at that level, in the absence of any Federal royalties?
Mr. Cress. No, I don't think so. I think that almost 50
percent share that government takes, a lot of it would be
income tax. That includes all taxes assessed against business.
But mining does bear a very specific tax that other
industries do not, which is these state severance taxes.
Sometimes they are called license taxes. In Alaska, they use
that. Those are percentages of profit or percentages of
proceeds, unlike a business license, which is a $50 thing, it
is a percentage of profit.
Mr. Soto. And that is a state fee, is that right?
Mr. Cress. That is correct, those are state fees. There are
really two.
Mr. Soto. So, for removing the income tax that everybody
pays, and just talking about fees and royalties, basically
state-imposed revenue, is that where most of the cost is right
now?
Mr. Cress. I am sorry, the cost for industry?
Mr. Soto. The cost to industry for mining hardrock,
specifically.
Mr. Cress. Well, it is part of the cost, yes. What I tried
to set out in my testimony is that most states are sensitive to
this gross versus net problem, and impose a net burden on
severance of minerals.
Mr. Soto. And, Mr. Parke, what does Arizona charge for
mining hardrock?
Mr. Parke. I am not aware. I can get you that information.
I would mention, though, that mostly that is on state lands, so
it is applicable to mineral resources that are extracted from
state lands.
Mr. Soto. Are there any fees or other licensing
requirements like Mr. Cress was discussing already, even if it
is on a Federal land, if they are operating within Arizona?
Mr. Parke. I can get you that information.
Mr. Soto. It appears that what we are working with with
coal seems to be a fair way, where we are looking at revenue
sharing between the state and the Federal Government. As we are
looking at a $20 trillion debt and a $600 billion deficit, this
appears to be an area where there has just been a fix that has
not happened out there, a loophole that has allowed states to
really rack up revenue at the expense of the Federal
Government.
Going next to Ms. Pagel, we see there has been over $300
billion in mined hardrock. What are the total cleanup costs
that are left for all of these mined areas? Do we know that?
Ms. Pagel. We have an estimate around $50 billion. It could
be more than that. The fact that there is not real inventory,
exactly how many abandoned mines we have in this country is an
issue.
Regardless of what the number is, the main problem is that
we have no money, no steady stream of funding to clean up those
abandoned mines.
Mr. Soto. So, there were never any royalties charged, there
was never any fund created to help clean up mines afterwards,
and we are stuck with $50 billion worth of damage across the
United States. Is that fair to say?
Ms. Pagel. Exactly.
Mr. Soto. What do you think we should be doing, going
forward?
Ms. Pagel. It is time to start charging the industry a fair
return for the Federal minerals that they are taking, including
a royalty and a reclamation fee, similar to what the coal
mining has, both a royalty and a reclamation fee. And we hope,
with that reclamation fee, that we can start to chip away at
the $50 billion in AML cleanup.
Mr. Soto. And if we didn't do a royalty fee, but just a
reclamation fee to help with the cleanup, do you think that
would get us moving on this $50 billion?
Ms. Pagel. It would, because of the 1872 Mining Law--and I
am sure Mr. Krebs can attest to this--many of the ore bodies
have actually been patented, meaning privatized, under the 1872
Mining Law for $5 an acre. So, we have actually lost some of
that revenue by privatizing public minerals.
Mr. Soto. Thank you, and I yield back.
Mr. Cook. Mr. Wittman.
Mr. Wittman. Thank you, Mr. Chairman. I thank our panelists
for joining us today.
Mr. Krebs, I want to go to you. You spoke quite eloquently
about how fixing the hardrock permitting process and making it
easier would affect our reliance on foreign suppliers of some
of these critical minerals, and you spoke about compounds like
silver and its use within a number of different practices, both
of strategic importance and economic importance to the United
States.
Also, rare earth elements, you spoke a little bit about
rare earth elements, and specifically being able to reprocess
tailings in many situations where existing tailings have
significant economically viable amounts of rare earth elements
in there for us to be able to reprocess.
But looking at that across the spectrum, if we are looking
at how changes in the royalties, or additional financial
requirements for folks that are either mining today or would
want to get into that to be able to get to some of these
critical elements that need to be processed for national
security purposes, if nothing else, how would some of those
proposals, or what you look at as proposals, how would those
royalties or financial requirements potentially impact either
current operations or those companies that may look at getting
into those operations?
Mr. Krebs. Yes, it would certainly detract from the
attractiveness of, from a commercial standpoint, looking at any
kind of opportunity, if there is an additional cost. That would
have to be offset, then, with any potential opportunity to move
forward the cash flow by having a more efficient permitting
process. So, it would be an economic trade-off that we would
look at, just like any other opportunity.
I think there is probably an equilibrium in there
somewhere, where you could address some of those issues around
permitting, land, tenure, issues like that, something like
that, and then putting a profits royalty in there, so that you
have some reliability and some certainty so that, as a private
company you can have some ability to predict what the
investment looks like. And then, ranking that against the
global market that there is for where you can allocate capital
and what the relative rates of return are.
Mr. Wittman. If the wrong policy decisions are made
concerning royalties and additional financial requirements, and
we have less production in the United States, for those reasons
exclusively, or even if other external factors come in as part
of that, how would you say that affects our national security?
Mr. Krebs. Well, companies would leave and go elsewhere.
There would be even less exploration done in this country to
find new sources of those metals. And we would sort of be left
dependent on others.
Keep in mind there are only a handful of U.S.-based--at
least in our case--precious metals mining companies. You look
over the border into Canada, there are, I think, 300-plus
mining companies. The industry here has already shrunk down a
lot, despite the fact that there are a lot of good things about
being here in the United States, don't get me wrong.
But some of these other issues mainly around uncertainty,
unpredictability of the timeline, and litigation is a reason
why this industry has shrunk as much as it has here.
Mr. Wittman. Got it. Very good, thank you.
Dr. Hitzman, I want to ask you, what would you say are the
most important factors ensuring a steady stream of domestic
mineral commodities? And as we look at fluctuations there and
other countries--i.e. China--getting in, and in many instances
trying to dominate and displace others in those marketplaces,
whether it is for compounds like silver, but even more
importantly, rare earth minerals, give me your estimation about
what we can do here on the domestic side.
But also, if we don't do things, how does that affect us,
strategically?
Dr. Hitzman. It is complicated, and this hearing is showing
some of the complications. And it is variable, because
different metals have very different markets.
For instance, silver is a relatively large and
international market. The rare earths, which many people are
concerned about, is also an international market. But the
amount of rare earths produced is incredibly small, so very few
companies actually get into that business because it is a niche
business. That affects many other things.
So, moving on to what can we do. One of the things,
clearly, at least from the USGS side, is provide the
geological, geophysical data so that companies like Mr. Krebs'
actually have the information to go out and find the minerals.
That is, from my point of view, one thing that is incredibly
important.
The rest is what you are talking about, which is not what
the USGS does, we are a non-regulatory agency. But clearly, the
idea of permitting and how that works is another area that
needs to be looked at.
Mr. Wittman. Thank you, Mr. Chairman. I yield back.
Mr. Cook. Thank you.
Mr. Pearce.
Mr. Pearce. Thank you, Mr. Chairman.
Dr. Hitzman, you were just talking about how we should make
the information available where Mr. Krebs could go out and find
the rare earth mineral sites, right? Eleven of them in New
Mexico they shut down. The jobs are in China now. So, if you
want to come, Mr. Krebs, we will drive you out there to them.
[Laughter.]
Mr. Pearce. The flags are still in the ground, and the jobs
are gone. And, by the way, the Chinese started charging 35
percent excise tax on the rare earth minerals, because they
want to put our manufacturers out of business. Since they have
the mining in their country, they want to put our manufacturers
out of business for these strategic resources. And Ms. Pagel
said they are getting an unfair deal. I don't know, it is just
hard to rectify that.
What sort of rate of return do you make on your silver
mines, Mr. Krebs? Not your gross income, that is----
Mr. Krebs. Well, yes. It depends on what the price of
silver is, obviously.
Mr. Pearce. Today. What are you getting today, roughly?
Mr. Krebs. Today, a rate of return on a new mine?
Mr. Pearce. No, just your gross income.
Mr. Krebs. On a gross income we make cash flow of a couple
hundred million dollars a year, then we pay----
Mr. Pearce. What percent is that?
Mr. Krebs. That is about 15 percent.
Mr. Pearce. Fifteen percent? And what comes out after you
get gross income on the tax reforms? What comes out after gross
income? What do you take out of that?
Mr. Krebs. After all the capital expenditures that we are
required to make to continue operating, this year will be----
Mr. Pearce. Gross income does not include taxes, does it?
Mr. Cress, you seem to know a little bit about this. So,
you are going to move from gross income to net income. What are
the deductions out of that, Mr. Cress?
Mr. Cress. [No response.]
Mr. Pearce. Mr. Cress?
Mr. Cress. I am sorry, I am not sure for his company.
Mr. Pearce. No, no, I am just talking in general. If you
are going to move from gross income to net income----
Mr. Cress. Yes, you are going to have taxes, you are going
to have depreciation, you are going to have depletion.
Mr. Pearce. So, really, when Ms. Pagel mentioned the 15
percent gross income, it is a little bit tricky because taxes
come out after that.
Mr. Cress. Yes, that is correct.
Mr. Pearce. Payroll taxes, any other taxes, any taxes to
the state, any taxes to other countries come out after that.
So, this quoting of 15 percent gross income is, I think,
misleading at best.
Now, again, reading Ms. Pagel's testimony, she says that
more than half the delays, a majority of the delays, are up to
you. So, your 19 years, she would assert that 9\1/2\ years plus
were due to your actions. Can you document that to be a correct
statement or an incorrect statement?
Mr. Krebs. It is a little bit of a chicken and the egg,
because every time there are lawsuits filed that delay things
for long enough, inevitably the price, the economics change.
Then we are forced to go back and re-look at what can actually
be an economic approach to mining the resource. So, then we
have to start over and then that gets litigated.
So, whether that is on us for changing the plan, or if we
are changing the plan because we are delayed, I think it is the
latter.
Mr. Pearce. Again, maybe there is a more complex argument
to be made than just that you are out there changing plans,
randomly.
Mr. Krebs. Yes. We would prefer to not do that, if we
didn't have to.
Mr. Pearce. So, again, the assertion was made that you dump
200,000 tons or gallons or something--200,000 is the number
that jumps out of the testimony--into Slate Lake, the Lower
Slate Lake. Do you do that?
Mr. Krebs. We have a tailings facility there that we
contain that material. We treat it and release it at standards
that are set by the state of Alaska, which are among the
highest in the country.
Mr. Pearce. So, you are not going to put 4.5 million tons
of solids into the lake?
Mr. Krebs. Solids go into the lake, but that is ultimately
what will form the base of this much larger lake that will be a
much, much healthier body of water by the end of the mine life.
Mr. Pearce. All right. Mr. Cress, the potash industry is
one of the few mining industries still in New Mexico. And we
have significant potash. What would happen to those jobs if we
had an 8 to 12 percent royalty increase in potash?
Mr. Cress. Every mine would close. I have worked in that
industry with clients in your state. That industry, which has
royalties that have ranged between 2 and 5 percent, has
struggled because of foreign competition, cartels in Russia and
Belarus and in Canada that have affected pricing. And you would
lose every single job if you had a higher royalty.
And, in fact, the government has offered royalty relief,
which is something in my testimony I suggest you include. The
government allows the companies to come in and ask for a
reduced rate when the economics or unfair foreign competition
affects them.
Mr. Pearce. Thank you, sir.
Thank you, Mr. Chairman.
Mr. Cook. Mr. Tipton.
Mr. Tipton. Thank you, Mr. Chairman, and thank the panel
for taking the time to be able to be here.
Mr. Krebs, that was interesting, listening to some of your
testimony that was going on. And I just want to know and make
sure that this is the policy of mining not only in the United
States, but wherever you do operations. You were talking about
reclaiming a lake which currently, apparently, is not qualified
to be able to have aquatic life, and that you are going to be
able to reclaim that lake.
You were talking about being able to go to Bolivia to be
able to do it responsibly. That is the method that your company
works at, no matter where they are at.
Mr. Krebs. No matter where.
Mr. Tipton. Environmentally responsible?
Mr. Krebs. That is correct, sir.
Mr. Tipton. Great. Can you tell me just a few of the
environmental laws maybe that you do comply with? Give a little
bit of background. I am not sure we all understand the extent
that industry goes to to responsibly develop a resource.
Mr. Krebs. Well, the number of acronyms are long. NEPA and
CERCLA you know at the state level, at the Federal level. Like
I said in my remarks, at Kensington, not only did we have to
obtain 90 different permits, but now we have to keep track and
remain in compliance with all 90 of those over the life of the
asset. That is a huge exercise.
We are proud to do it, we do a really good job of it. You
can talk to anybody in Alaska about our performance in
Kensington, and they would tell you that they love having us
there, and we do a terrific job on the environment. And all
communities where we operate would say the same thing.
But the mish-mash between the state and the Federal
agencies and the overlap and duplication has really created a
spider's web of different regulations that we need to try to
keep up with and follow, as a company.
Mr. Tipton. I appreciate that. And my colleague from
Colorado and I both share a passionate concern over some of the
issues that you addressed in your written testimony in regards
to the abandoned mine land cleanup that goes on.
The EPA caused the Gold King Mine spill in the state of
Colorado. Part of the challenge that we really have, I think,
is maybe perspective, in terms of being able to move forward to
be able to address these issues. We both share a passion in
regards to Good Samaritan legislation. But from the starting
point, when we talk about the lands to be able to be cleaned
up, some of these patents, some of the development of the
projects, these were primary 1800s, early 1900s, would that be
a reasonable, accurate statement to be able to make?
Mr. Krebs. Yes, exactly.
Mr. Tipton. And when those companies were operating, did
they have the same environmental compliance requirements that
you just described?
Mr. Krebs. I would say they had no environmental----
Mr. Tipton. They had none. And are they still in existence
today?
Mr. Krebs. No, they are long gone.
Mr. Tipton. So, the sensible thing to do is to be able to
work together, to be able to strive and create legislation to
actually get in and address the problem.
You had talked about being able to have some private-public
partnerships to be able to move forward. What are some of the
obstacles right now? What is going to stop you? What is going
to stop Trout Unlimited from being able to work together to
address mine cleanup?
Mr. Krebs. Yes. I have mentioned the historic liability,
stepping into the shoes of all of that. That is what Good Sam
would address.
I think the other obstacle, to be honest, you mentioned,
like a Trout Unlimited. We would love to partner with some
NGOs, because we see this as being a great intersection between
industry and groups like that.
I think, oftentimes, those groups may not want to see those
mines cleaned up, because it eliminates an issue that is great
for fundraising. Abandoned mines are great for fundraising for
NGOs. We would prefer to instead work with them, side by side,
and be a part of a coalition that could do some great things
here in this country. It seems like a winner of an idea, no
matter what your perspectives are.
Mr. Tipton. So, if we can address the liability issue--the
people who did it, no longer there. The people who want to be
able to do the right thing--you, Trout Unlimited, and others
that are willing to be able to step forward, to have reasonable
liability going forward, we can actually start to fix the
problem that we all identify as something that does need to be
able to be addressed.
Mr. Krebs. We would love to be a part of that solution.
Mr. Tipton. Great. Thank you, Mr. Chairman, and I yield
back.
Mr. Cook. Thank you.
Mr. Hice.
Dr. Hice. Thank you, Mr. Chairman.
Dr. Hitzman, let me begin with you. You are familiar with
the 2017 Mineral Commodity Summaries Report?
Dr. Hitzman. Yes, sir.
Dr. Hice. By the way, Mr. Chairman, I would ask unanimous
consent that this portion of that report be submitted to the
record.
Mr. Cook. Without objection.
[The information follows:]
Rep. Hice Submission
MINERAL COMMODITY SUMMARIES 2017
Page 6
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Dr. Hice. Thank you.
According to the report, the United States is currently 100
percent import-dependent for about 20 minerals, and more than
50 percent import-dependent on another 30 minerals. I find this
stunning. A lot of these are very important minerals, and
minerals that we have here in the United States. Yet, we are
100 percent dependent on imports from other countries. How do
you explain this?
Dr. Hitzman. It is different for different minerals. The
one that has been the poster child is the rare earths, where,
clearly, one country has, I think, had a policy of trying to
actually become the dominant producer in the world.
There are other minerals, often by the Chinese as well,
where that is the case. There are some other minerals where, to
be honest, we may have some in this country, but the most
economic deposits that we know of in the world are in other
countries, so it makes the most economic sense to mine them
there.
I think it is different for each one of them.
Dr. Hice. All right. So, we have these minerals in the
United States, but there are multiple barriers--whatever you
may define as a barrier--that prevent us from getting to them
here in our own country, or it is more economical to get them
elsewhere.
I certainly believe we have barriers, as well. But one of
the big barriers that appears to be glaring to me is the fact
that, as I understand it, it takes 7-10 years, on average, here
in the United States to go through the permitting process,
where you look at other countries--Canada and Australia, for
example--who have the same safeguards at the end of the line
that we do, and yet it only takes 2 or 3 years for them to get
through the process.
So, we are taking three times the amount of time to get to
the end of the product, whatever it may be, the mineral, as
other countries. Why is that?
Dr. Hitzman. From the USGS point of view, we are not
involved in that discussion, since we have nothing to do with
it. We are non-regulatory.
Dr. Hice. Does anyone on the panel, is anyone else involved
in that discussion? Why does it take so long?
Mr. Krebs. Lack of coordination between states and DC, and
litigation. Those would be the two main issues.
Could I make one other comment about the foreign ownership
of metals real quick? Obviously, I am not as close to the rare
earth side of the industry, but around the world, the M&A
activity for new assets, or for existing assets or companies,
when you look at the prospective buyers lists that I see, it is
Chinese companies that are at the top of the list, looking to
acquire these things around the world. They have the lowest
cost of capital, they look at the returns on these types of
things differently than most companies. And, I would say, they
have a nearly insatiable appetite for looking to acquire these
assets, no matter where they are, whether they are here,
Africa, you name it.
Dr. Hice. Well, sure, and I think a lot of people forget
the fact that Apple came up with the iPhone 10 years ago right
now, 2007. And we have quartz crystals in all of our phones. We
have it right here in the United States. But as long as the
iPhone has been around, had we started then with the permitting
process, we would only today be allowed to start getting after
it. We have 10 years that we have lost time. This is insanity.
It is absolute insanity to me.
And I am not even thinking that we ought to be on par with
countries like Canada or Australia that take 2 years compared
to our 7-10 years. Why can't we do it in a year? Why can't we
do it in a year-and-a-half? Why can't we be ahead of them,
better than them? This is the frustrating thing to me.
We are so encumbered with regulations, mitigation,
litigation, and whatever other ``ation'' we want to talk about,
that we are not able to get done what we have right here in our
own country. And to me, it is just totally inexcusable. We have
to find our way through this maze for the sake of our own
country, our jobs, and what resources we have that are so
valuable. Thank you, Mr. Chairman.
Dr. Gosar [presiding]. I thank the gentleman. The gentleman
from Illinois is now recognized for his 5 minutes.
Mr. LaHood. Thank you, Mr. Chairman, for having this
hearing today. I want to thank the witnesses for being here
today, and I appreciate your testimony.
Mr. Krebs, welcome here today. My home state of Illinois,
we are glad that Coeur Mining is headquartered in Illinois, are
proud to have you there, and appreciate your comments here
today, and the high standards that Coeur Mining has throughout
the country, particularly in Alaska and Nevada.
In a prior life, I spent 5 years as a Federal prosecutor in
Nevada, and actually spent time in Lovelock, so I have been up
there a few times. I know that area well, which a lot of people
don't get to. It is actually getting a lot of publicity today
because of the prison up there.
In Ms. Pagel's testimony, her written testimony, she made a
reference, obviously, to the Kensington Mine as it related to
Coeur Mining, but also the Wharf Mine. I know you have talked
about Kensington. I was just wondering if you could comment on
the Wharf Mine a little bit, and get your perspective.
Mr. Krebs. Yes, sure, thank you. Nice to see you. The Wharf
Mine is a gold mine that we bought 2 years ago from a Canadian
mining company. So, what happened in 2007 was obviously not
while we have been there.
I can say, since we have owned that thing, the
environmental standards, the safety performance have all gone
in the right direction. If you could ever come out and see that
mine, you cannot find another mine, I don't think anywhere in
the world, where--our next-door neighbor is actually a ski
resort. When you are skiing at Terry Peak in the Black Hills of
South Dakota, you are skiing down, looking out over the Wharf
Mine. And the partnership between the ski mountain, and the
ownership, and the mine is as strong as any partnership I have
ever seen.
So, when you think about mining being sometimes like an
adversary or whatever, to think that our biggest supporter in
town in that area is a ski resort--usually skiing and mining do
not go hand in hand--there is not a person out there in western
South Dakota who is not a fan of the Wharf Mine. And we have
brought the same standards there, now that we have owned that
mine, that we have everywhere else.
Mr. LaHood. Great, thank you. You also talked a little bit
in your written testimony about what Coeur has been doing with
renewables and green technology. Can you expound on that a
little bit?
Mr. Krebs. Yes. If anybody likes solar energy, then you
have to like silver. Every new gigawatt of photovoltaic
capacity that gets installed around the world consumes about
2\1/2\ million ounces of silver, both on the front side of the
panel and then on the back side of the panel. And now, I think,
global PV installations this year are something like 70 million
gigawatts. It is mostly in China, here, India, and to a lesser
extent in Japan.
So, in order for there to be more solar energy, more
photovoltaic capacity, there has to be silver to go onto those
panels. We love the idea of being a part of a clean source of
energy for this country and for everywhere. That is what we are
all about.
Mr. LaHood. We have heard a lot today about litigation,
bureaucracy, the cumbersome process in the United States. In a
company like yours, when you are looking at new investors or
shareholders, or looking at new opportunities, tell me how that
conversation goes when somebody could go elsewhere around the
world, instead of the United States.
Mr. Krebs. Yes, most non-U.S. companies--take Canadian
companies or Mexican companies--they typically do not put the
United States up at the top of the list because of some of
these issues around uncertainty, changing rules.
Like I said, there are a lot of positives about coming to
the United States, but it is a commodity market, it is around
the world. We all look at rate of return, and what goes into
rate of return is how much money do you have to put in, when
can you start getting cash flow back out, what is the tax rate
on the cash flow that you do generate, and can you have the
ability to continue drilling to extend and expand that deposit
that you are trying to mine to try to generate an appropriate
rate of return for investors.
And exploration in this country has gotten a lot harder.
Permitting to get to just drill and explore has gotten harder.
That is why you have seen exploration fall off a cliff in this
country, and U.S. production levels of at least silver and gold
have peaked and are now declining.
Mr. LaHood. Thank you for your comments.
Those are all my questions, Mr. Chairman.
Dr. Gosar. I thank Mr. LaHood for his comments. We are
going to quickly just do the Ranking Member and myself, a
second round.
Mr. Parke, how many state permits are typically required
for a mine in Arizona?
Mr. Parke. Well, Mr. Chairman, it varies, as has been
discussed today. I do have some examples. The number of permits
required depends on the facility design. A modern mine, the
Safford Mine, holds six different permits on various activities
and locations throughout the footprint of the mine.
There are also various health, safety, and water quantity
permits and general regulatory requirements that also may
apply, depending on specific activity being conducted.
Dr. Gosar. And what is the average timeline, on average
there?
Mr. Parke. I appreciate that question, because there has
been a lot of discussion on that today. And ADEQ is very proud
of the results that we have provided, but it does not impact
the Federal process.
So, individual permit time frames are longer than general
permits, but ADEQ has made significant improvements in the
speed of our permitting process for all industry types. For
example, ADEQ reduced the average permitting time frames for
APPs--that is our aquifer protection program--from 351 days in
2012 to 99 days in 2017. And ADEQ's goal is to issue all
individual permits within 180 days, regardless of the program.
For example, also with air quality permits, ADEQ has
reduced the average permitting time frame from 199 days in 2012
to 74 days in 2017, all while still remaining protective of the
environment.
Dr. Gosar. Yes, and I am very aware, coming from Arizona,
as well. So, I want to applaud you.
In your testimony, you mention seven distinct programs
relevant to mining. Could you briefly go into detail about
these programs, the environmental assessments required by these
programs, as well as the coordination amongst the programs--how
does it happen and who is the lead agency?
Mr. Parke. Yes. I would like to mention that those seven
programs are distinct within the state framework. That does not
include NEPA or the other time frames. We have the state
aquifer protection program, which protects groundwater; the
Clean Water Act, which protects surface water but is
administered by the state; the Clean Air Act protections;
natural resource damage coverages; RCRA solid and hazardous
waste programs, including solid waste facility permits for mine
operations; state land reclamation bonding; and, of course,
Arizona Mine Land Reclamation Act.
The coordination of those--Mr. Krebs probably can speak
more directly, too--but, in fact, we work with the Federal
Government through the NEPA process. The problem is that the
individual organizations find themselves--to use Mr. Krebs'
turn of phrase, a chicken and an egg. Which one do I do first?
Because I am inevitably going to have to amend, if I cannot get
through one or the other.
So, that one review, one permit idea could reduce
significant waste in the process.
Dr. Gosar. Let me get this straight. In Arizona, we drink
whiskey because water is for fighting over, right?
Mr. Parke. That is correct.
Dr. Gosar. We don't like dirty water, do we? I don't. You
don't.
Mr. Parke. We have many dry counties, and in Arizona that
doesn't mean whiskey.
[Laughter.]
Dr. Gosar. Yes, and I will tell you, we are very astute
about our water quality.
You bring up a good point about coordination. It seems like
a very smart application to be able to have, like, a case
coordinator. I am a businessman, and it seems like we could do
things a lot faster if we have somebody kind of coordinating,
and we are doing things at the same time. Does that make sense
to you, Mr. Parke?
Mr. Parke. Absolutely, and in this new era of cooperative
federalism, the state continues to seek additional authorities
from the Federal Government.
The Arizona Department of Environmental Quality is going to
seek Clean Water Act 404 permit authority, as well as authority
for the underground injection control program, which intersects
with our APP, which should streamline that.
Quickly, the planned Resolution mine, as was testified
before the Committee in March of 2017, has reported
expenditures of $1.3 billion for permitting studies and project
shaping, and still does not have a final permit after almost 10
years, without producing an ounce of product. That is madness.
Dr. Gosar. Yes. One quick question. We are going to go real
quickly. Has there been any forfeiture of financial assurances
in Arizona?
Mr. Parke. No. Again, to that point, there has been no
release that has triggered a FAR. Even when companies struggle,
the reality is the value of the assets in the ground make that
ground still valuable. So, while the company may leave, as Mr.
Krebs alluded to, another company is ready to come in.
Dr. Gosar. I appreciate your comments, and I am going to
now turn it over to the Ranking Member, Mr. Lowenthal, for 5
minutes.
Dr. Lowenthal. Thank you, Mr. Chair.
Mr. Cress, I have a follow up on some questions that we
have been talking about--royalties, and I am going to bring us
back again.
The Federal Government already charges a royalty on
hardrock minerals in a few selected places such as on acquired
lands. We also do it, I think, in Minnesota. What type of
royalties are being charged there? And can you tell us how the
mining industry is faring under these royalties?
Mr. Cress. I am aware of that. Minnesota is one example. I
think the royalties are net smelter royalties, I believe, net
smelter returns. It is not a refining cost. And I guess I can't
answer the latter question because I don't know----
Dr. Lowenthal. About how well they are doing. But have they
been impacted?
Mr. Cress. I don't know how many of them are on Federal
land. So, it is hard to answer that question. I could look into
it, but I don't have that answer at my fingertips.
Dr. Lowenthal. I am kind of struck with the fact that,
although I think you are all experts, there is a lack of
information out there, in many ways, about what the status is,
how many abandoned mines there are, what is actually being
charged or not being charged. Even the question about the
permitting delay. I do not deny that there are issues there,
but I don't see any data to really understand what the issue
is.
And I am not blaming anybody, it is just, whatever we do,
it would be nice to base it upon information that we kind of
agree upon, all of us, that this is the most accurate that we
have at this moment. And I think that is what is so good about
this hearing, we are beginning to talk about those issues.
Other things I would like to ask is, Ms. Pagel, one of the
common complaints about the Mining Law is that land managers at
BLM or the Forest Service act as if they say they can't say no
to a proposed mine. Can you talk a little bit about that, and
why that is so, if in your experience, that really is so?
Ms. Pagel. It is. The way the 1872 Mining Law has been
interpreted over the years is to make mining the highest and
best use of public lands. So, even when there is a potential
conflict with a wilderness area or a sacred site, the BLM and
Forest Service have said time and time again that they do not
feel like they have the authority to say, ``You know what, this
is probably not a place for mining.''
Dr. Lowenthal. In following that up, when we are talking
about special places like wilderness, study areas, national
monuments, what I hear you saying is that they are not
currently protected from mining or mining impacts by the 1872
law.
Ms. Pagel. Some of them are. National monuments, when each
monument is created, usually there is some sort of mining
withdrawal to prevent mining in the monument.
But there are cases with wilderness areas--for example, in
Montana, there are two mines that would like to tunnel
underneath a wilderness area from each side. There are some
endangered species in the area, both grizzly bear and trout,
and studies have shown that those mines, tunneling underneath
those wilderness areas, will have negative impacts on the
endangered species. Yet, we find ourselves, unfortunately, in
litigation because the Forest Service really feels like they do
not have the ability to say no to those mines.
Dr. Lowenthal. Thank you. And, Mr. Chair, before I yield
back I would like to enter into the record pictures of Lower
Slate Lake, which was before and after mining occurred.
Dr. Gosar. Without objection, so ordered.
[The information follows:]
Rep. Lowenthal Submission
LOWER SLATE LAKE PHOTOS
Before
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Dr. Gosar. Just one real quick question or comment.
The multiple-use public doctrine for public lands was a
contract with the Federal Government to states for the maximum
revenues in lieu of states not reclaiming their lands. That is
what precludes all aspects, just as an FYI for the last
comment.
I thank the witnesses for their valuable testimony and the
Members for their questions. The members of the Subcommittee
may have some additional questions--I am sure they will, and I
know they do. We will ask you to respond to those in writing.
Under Committee Rule 3(o), members of the Subcommittee must
submit those questions within 3 business days following the
hearing, and the hearing record will be held open for 10
business days for those responses.
If there is no further business, without objection, the
Subcommittee stands adjourned.
[Whereupon, at 10:51 a.m., the Subcommittee was adjourned.]
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