[Senate Report 104-163]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 213
104th Congress                                                   Report
                                 SENATE

 1st Session                                                    104-163
_______________________________________________________________________


 
                 GREENS CREEK LAND EXCHANGE ACT OF 1995

                                _______


 October 19 (legislative day, October 18), 1995.--Ordered to be printed

_______________________________________________________________________


  Mr. Murkowski, from the Committee on Energy and Natural Resources, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 1266]

    The Committee on Energy and Natural Resources, to which was 
referred the Act (H.R. 1266) to provide for the exchange of 
lands within Admiralty Island National Monument, and for other 
purposes, having considered the same, reports favorably thereon 
without amendment and recommends that the Act do pass.

                                purpose

    The purpose of this bill is to provide approval of an 
agreement between the Forest Service and Kennecott Greens Creek 
Mining Company (KGCMC) for the exchange of lands within 
Admiralty Island National Monument in Southeast Alaska.

                          background and need

    H.R. 1266, the ``Greens Creek Land Exchange Act of 1995,'' 
provides Congressional approval of an agreement between the 
Forest Service and KGCMC which provides for an exchange of 
7,500 acres of land within the Admiralty Island National 
Monument. These lands are adjacent to the Greens Creek Mine.
    The area surrounding the mine contains an area of mineral 
potential which remains unexplored because it is currently 
closed to exploration and development under the Alaska National 
Interest Lands Conservation Act (ANILCA). This land exchange 
would permit the operators of the Greens Creek Mine to explore 
and develop certain lands located within the nonwilderness 
portion of the monument utilizing the infrastructure associated 
with the existing mine and under the same stringent regulatory 
regime currently governing existing operations. The Greens 
Creek Mine is an underground mine. Surface activity would be 
limited primarily to activities such as exploratory drilling 
and necessary surface access on the areas to be explored.
    In exchange for the right to conduct mineral exploration 
and mining operations on these lands, KGCMC has agreed to 
participate in a series of conditions which benefit the United 
States. Specifically, the legislation and agreement will:
    1. Establish a land exchange mechanism where KGCMC will 
purchase $1 million worth of inholdings among willing sellers 
within Admiralty Island National Monument, or elsewhere in 
conservation system units of the Tongass National Forest. KGCMC 
will convey these lands to the Forest Service. In exchange, at 
closing, the Forest Service will grant patent to KGCMC for the 
mineral estate in 7,500 acres of land on Admiralty Island.
    2. Require KGCMC to pay a royalty to the U.S. Government on 
the production of minerals from the exchanged lands only. This 
royalty is based on the value received from this production 
after deduction of shipping, smelting, and refining charges. It 
should be noted that the Greens Creek Mine is located on 
Admiralty Island, and therefore, shipping costs are 
significant.
    The royalty, referred to in the agreement as a net island 
receipts royalty, has two tiers based on the value of the ore. 
When metal prices are average or better, the royalty will be 
three (3.0) percent, and at low metal prices, the royalty will 
be three-quarters of one percent (0.75). This two-tier approach 
will encourage KGCMC to continue operating the mine in times of 
lower metal prices.
    Concerns have been expressed about the auditing process for 
the royalty formula in the Agreement. It should be noted that 
the production costs at the Greens Creek mine can be easily 
audited and are subject to confirmation by federal auditors or 
independent outside auditors. The Greens Creek Mine is subject 
to an annual audit by independent auditors under the terms of 
its partnership agreement.
    Costs of production to a large extent are confirmed by 
third-party billings and invoices. For example: taxes, 
transportation charges, marketing charges, and similar 
postmining and processing cost are all subject to confirmation 
by third-party billings.
    Costs of mining and processing are fixed by actual costs 
expended and subject to confirmation through tax returns, 
third-party billings, and depreciation schedules controlled by 
general accepted accounting principles and subject to annual 
audit by outside auditors. The audit process has already been 
discussed with the Forest Service which is satisfied that cost 
of production are readily subject to audit. The Forest Service 
shares with all joint ventures partners the need to ensure that 
cost are regularly and accurately audited to ensure financial 
certainty for investment and production decisions.
    3. Establish a special account in the U.S. Treasury, 
subject to appropriation by Congress, into which $5 million 
will be deposited for purchases of additional inholdings within 
Admiralty National Monument, or elsewhere in conservation 
system units of the Tongass. The $5 million will come from 
future royalties derived from mineral production on the 
exchanged lands.
    4. Send 25 percent of the future royalty stream to the 
State of Alaska for payments for roads and schools.
    5. Require reclamation and reversion to the federal 
government of all Greens Creek Mine lands (including existing 
patented federal mining claims) at the cessation of mining 
activities.
    The Greens Creek Land Exchange Agreement and legislation 
are an innovative approach which allows for limited development 
of mineral resources while providing for both short and long-
term environmental protection of Admiralty Island National 
Monument. In addition, the agreement establishes a mechanism 
for the acquisition of inholdings in the Tongass National 
Forest and, if a valid mineral discovery is found, ensures the 
federal government will receive royalty revenues on mineral 
production from the exchanged lands.

                          legislative history

    On March 16, 1995 the Greens Creek Land Exchange Act of 
1995 was introduced by Congressman Don Young, Chairman of 
Natural Resources Committee and cosponsored by Congressman 
George Miller, ranking member of the Natural Resources 
Committee. On May 15, 1995, the House passed the legislation. 
On September 12, 1995 the Committee on Energy and Natural 
Resources held a hearing on the legislation.

            committee recommendation and tabulation of votes

    The Senate Committee on Energy and Natural Resources, in 
open business session on September 21, 1995, by voice vote of a 
quorum present, recommends that the Senate pass H.R. 1266 
without amendment.

                      section-by-section analysis

Section 1. Short title

    This section states that the bill may be cited as the 
``Greens Creek Land Exchange Act of 1995.''

Section 2. Findings

    Section 2 makes four findings which state that the Forest 
Service and KGCMC have negotiated an agreement allowing certain 
lands surrounding the Greens Creek mine to be explored and 
developed under terms and conditions consistent with the 
protection of the values of the Admiralty Island National 
Monument and that this Agreement requires approval and 
ratification by the Congress.

Section 3. Definitions

    Section 3 defines the following terms used in the Act: 
Agreement, ANILCA, conservation system unit, Greens Creek 
Claims, KGCMC, Monument, Royalty and Secretary.

Section 4. Ratification of the agreement

    Section 4 ratifies and confirms the Forest Service-KGCMC 
agreement and provides for future modification or amendment of 
the agreement, without further action by Congress, upon written 
consent of all parties and notice in writing to the appropriate 
committees of Congress.

Section 5. Implementation of the agreement

    This section: (a) gives the Secretary of Agriculture the 
authority to make the land acquisitions provided for in the Act 
and incorporates these lands into the National Forest System; 
(b) creates a special account in the U.S. Treasury, the 
``Greens Creek Land Exchange Account,'' to receive the first $5 
million of royalties received by the United States and 
authorizes the expenditures of monies in the special account 
for acquisition of inholdings on Admiralty Island; (c) makes 
royalty payments under the Act subject to the 25 percent 
distribution requirements to the State of Alaska and local 
governments under provisions of the Act of May 23, 1908; (d) 
provides that this Act will take precedence over any 
conflicting provisions in ANILCA with respect to the lands 
being conveyed to KGCMC for mining purposes; (e) authorizes the 
Secretary of Agriculture to implement and administer the rights 
and obligations of the Federal Government under the Agreement; 
(f) provides for the reclamation of KGCMC surface lands and the 
administrative deposition of KGCMC lands upon reversion to the 
United States; and (g) exempts implementation of the agreement 
in accordance with the Act from the National Environmental 
Policy Act, the national Historic Preservation Act, title VIII 
of ANILCA and other laws. This exemption refers to the 
agreement ratified by the Act and not to any substantive 
requirement of law regarding the existing mine or the exchanged 
lands.

Section 6. Recision rights

    Section 6 allows KGCMC and Kennecott Corporation to rescind 
the Agreement within sixty (60) days of enactment of the Act. 
If the agreement is terminated, the status quo would continue 
to govern the existing Greens Creek Mine.

                   cost and budgetary considerations

    The following estimate of cost of this measure has been 
provided by the Congressional Budget Office.
                                     U.S. Congress,
                               Congressional Budget Office,
                                   Washington, DC, October 6, 1995.
Hon. Frank H. Murkowski,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed H.R. 1266, the Greens Creek Land Exchange Act of 1995, 
as ordered reported by the Senate Committee on Energy and 
Natural Resources on September 21, 1995. CBO estimates that 
enacting H.R. 1266 would not have a significant impact on the 
federal budget or on the budgets of state or local governments. 
Because enactment could affect direct spending in the form of 
royalty receipts, pay-as-you-go procedures would apply. CBO 
expects that no direct spending effects would occur over the 
1996-2000 period.
    H.R. 1266 would ratify a land exchange agreement between 
the Forest Service (FS) and the Kennecott Greens Creek Mining 
Company (KGCMC). Under the terms of the agreement, KGCMC would 
acquire the right to explore for and develop minerals found on 
about 7,5000 acres of federal land in the Tongass National 
Forest. Under current law, these lands are not available for 
mineral exploration or development. The federal government 
would receive a royalty based on the value of any minerals 
mined on these lands. In exchange for these rights, KGCMC would 
give the federal government private land in the Tongass 
National Forest.
    The act also would establish a special fund in the United 
States Treasury into which the first $5 million of any 
royalties collected from KGCMC (net of a 25 percent payment to 
the affected counties) would be deposited. When appropriated, 
any such funds would be used for additional land acquisition in 
the area. Based on information provided to us by the FS, we 
estimate that the provisions of H.R. 1266 and the agreement 
could be implemented at no significant additional cost to the 
federal government. But because the agency has no information 
as to what minerals might be found on the lands to be acquired 
by KGCMC, on their value, we have no basis for estimating the 
future royalty income that may result from enacting H.R. 1266. 
We do not expect any such income to be realized for at least 
the next five years.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Victoria 
Heid.
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).

                      regulatory impact evaluation

    In compliance with paragraph 11(b) of Rule XXVI of the 
Standing Rules of the Senate, the Committee makes the following 
evaluation of the regulatory impact of H.R. 1266. The bill is 
not a regulatory measure in the sense of imposing Government 
established standards or significant economic responsibilities 
on private individuals and businesses. No personal information 
would be collected in administering the legislation. Therefore, 
there would be no impact on personal privacy.

                        executive communications

    On October 18, 1995 the Committee on Energy and Natural 
Resources requested legislative reports from the Department of 
Agriculture and the Office of Management and Budget setting 
forth executive views on H.R. 1266. These reports had not been 
received at the time the report on H.R. 1266 was filed. When 
the reports become available, the Chairman will request that 
they be printed in the Congressional Record for the advice of 
the Senate. The testimony of the Forest Service which was 
submitted at the Committee hearing on this measure follows:

  Statement of Jack Ward Thomas, Chief, Forest Service, Department of 
                              Agriculture

    Mr. Chairman and members of the committee, thank you for 
the opportunity to discuss H.R. 1266, the Greens Creek Land 
Exchange Act of 1995. I am accompanied today by Gordon Small, 
the Director of Lands in the Washington Office, and by Gary 
Morrison, Forest Supervisor of the Chatham Area of the Tongass 
National Forest.
    Let me thank you, Mr. Chairman, for the opportunity to 
discuss the provisions of the negotiated agreement and state 
our support for H.R. 1266 as it passed the House. I also want 
to complement the managers of Kennecott Greens Creek Mining 
Company for the years of cooperation we have enjoyed at the 
operations on Admiralty Island, as well as on the development 
of this exchange agreement.
    H.R. 1266 would ratify a land exchange agreement that the 
Secretary of Agriculture entered into with Kennecott Greens 
Creek Mining Company in December of 1994. The agreement evolved 
from the work of the Congress on the Tongass Timber Reform Act 
and suggestions from Members that the Forest Service continue 
to pursue this agreement after enactment of the Act. The 
agreement was negotiated with Kennecott based on prevailing 
market practices and will assure protection of environmental 
values on Federal lands; as well as assuring continuing 
commodity production, and the associated economic benefits to 
the local community and Federal taxpayers.
    On March 30, 1995, the Administration testified in support 
of H.R. 1266 with minor amendments. The amendments suggested by 
the Administration were incorporated through action in the 
House. We support the bill in its current form based on our 
December 14, 1994 agreement with Kennecott Greens Creek Mining 
Company. That agreement provides the right to explore and 
develop the mineral estate in exchange for the conveyance of 
lands purchased by Kennecott, a percentage of net island 
receipts, and other provisions. The lands to be conveyed shall 
be of at least $1 million in value. The bill that passed the 
House would establish a Fund for additional land acquisitions 
subject to appropriation oversight.
    The enactment of H.R. 1266 would allow the exchange of the 
subsurface rights in light of the withdrawal of the area from 
dispositions made pursuant to section 503(f)(1) of the Alaska 
National Interest Lands Conservation Act. Congressional 
approval is also needed to allow for the collection of the 
royalty payments and the establishment of the land acquisition 
fund.
Background
    Admiralty Island National Monument, located 12 air miles 
south of Juneau, contains nearly one million acres of 
wilderness. Of these acres, only the 18,000 acres containing 
the Greens Creek mine is nonwilderness. The island is 
internationally known for having the most dense population of 
brown bear in the world; as well as having high populations of 
bald eagles and other wildlife species. Alaska Native cultural 
and historical resources are also prominent on the Monument. 
The Monument is a treasure to be managed with protection of 
these resources in mind. The proposed legislation would assure 
the protection of the resources through acquisition of key 
private inholdings on a willing-seller basis, and well-managed 
subsurface development of the mineral resources. The elements 
of this exchange address the interests of the mining industry, 
conservation groups, the State of Alaska, and the Department of 
Agriculture.
    The mine and mill facilities were completed in February 
1989. The facility has been closed for the past two years due 
to low mineral prices and is currently in the process of re-
opening. It is considered to be a model for major resource 
development within highly sensitive environments. Mine owners 
have worked closely with the Forest Service throughout the 
exploration and development of the mine to ensure protection of 
the resources, especially fish, wildlife, water quality, and 
the scenic values of the area. Until its temporary closure in 
1993, the mine was extracting minerals and milling silver, 
gold, zinc, and lead. In fact, it was the largest silver 
producing mine in North America. The mine has shown to be 
capable of processing over 475 thousand tons of material per 
year and sustaining over 265 high paying, year-around jobs in 
the local economy of Southeast Alaska.
The exchange agreement
    I would like to address more specifically the details of 
the exchange agreement. Under terms of the agreement, Kennecott 
would receive the right to explore the subsurface of 7,500 
acres of non-Wilderness, National Forest land within the 
Admiralty Island National Monument surrounding the company's 17 
existing, patented claims (comprising about 350 acres). Should 
economically extractable minerals be found, Kennecott would 
then be allowed to mine them, under agreed to environmental 
protection measures.
    In return, Kennecott will acquire (on a willing buyer--
willing seller basis) private inholdings of no less that $1 
million in fair market value within Admiralty Island National 
Monument or other Conservation System Units of the Tongass 
National Forest. Kennecott would convey the inholding to the 
Forest Service in exchange for the 7,500 acre mineral estate.
    Under the agreement, in addition to the land conveyance, 
the U.S. Treasury would receive a percentage of the net island 
returns (royalty) for all minerals mined from the estate 
conveyed to Kennecott as part of the agreement. The percentage 
royalty would be based on the prevailing price of the minerals 
in the world market. When the market is high, the U.S. Treasury 
would receive 3% of the net island returns and when the market 
is low, the U.S. would receive .75% of returns.
    This agreement recognizes the principle that the American 
Taxpayer deserves a return from the use of Federal lands. 
Compared to current law, which does not provide for a royalty 
for minerals mined on public domain lands, this agreement is a 
step in the right direction. However, given the unique 
characteristics of this land transaction, we do not believe 
that this particular royalty rate would be appropriate or 
workable on a broad scale. We defer to the Department of the 
Interior on the subject of royalties for hardrock minerals 
mined on Federal lands.
    The negotiated agreement limits surface occupancy by 
Kennecott. Surface occupancy activities would be identified in 
an approved General Plan of Operation that is subject to the 
National Environmental Policy Act process. No surface mining, 
or smelting operations will occur on these lands. Kennecott 
Greens Creek Mining Company will limit the use of all their 
private lands within the National Monument to mining and mine 
related activities. No extralateral rights would extend under 
the adjacent Wilderness lands.
    The agreement establishes that, upon completion of mining 
(or no later than 100 years following enactment of the bill), 
the exchanged 7,500 acres, as well as all lands currently owned 
or yet to be acquired by Kennecott on Admiralty Island, would 
revert to the United States and be included in the National 
Monument and the Tongass National Forest after reclamation.
Amendments made during House consideration
    At the March hearing before the House Committee on 
Resources the Administration expressed concerns about budgetary 
implications of a proposed escrow account in the bill as 
introduced. The Administration also asked for language 
clarifying the reclamation responsibilities of Kennecott Greens 
Creek Mining Company before any lands reverted to the United 
States. The House amended the legislation to respond to these 
concerns.
    Additionally, the House passed bill includes language that 
would create a new acquisition fund, subject to appropriation. 
This provision would make net royalty receipts available for 
the purchase of additional private inholdings within the 
National Monument or other conservation system units of the 
Tongass National Forest. It would also make royalties subject 
to a 25% payment to the State of Alaska for schools and roads.
    The bill in its present form meets all of the 
Administration's concerns. We want to clarify, however, that 
the $5 million acquisition fund is in addition to the 
conveyance of the real estate valued at $1 million as provided 
in the agreement.
Summary
    In summary, we fell the economic and environmental benefits 
are clear:
          A long-term, fully operational mine would support at 
        least 250 local jobs for as long as 25 years.
          Associated economic benefits would be accrued in both 
        Southeast Alaska and the nation through an expanded tax 
        base.
          The Wilderness and National Monument values would be 
        protected through well managed mine development and 
        enhanced through key private inholding acquisition.
          The United States would receive conveyance of land 
        worth $1 million in exchange for the mineral estate. 
        Such lands being within the Admiralty Island National 
        Monument or other conservation system units of the 
        Tongass National Forest.
          The 7,500 acres of potentially mineralized subsurface 
        under National Monument, non-Wilderness land, otherwise 
        withdrawn from mineral entry, would be available for 
        full and orderly development of the mine, with minimal 
        surface disturbance.
          All Kennecott Greens Creek Mining Company's private 
        lands on Admiralty Island would eventually revert to 
        the United States after reclamation.
          A $5 million land acquisition fund from net royalties 
        received would be created for the purchase of 
        additional private inholdings within the National 
        Monument or other conservation system units of the 
        Tongass National Forest.
          The United States would receive royalty payments for 
        minerals mined from the subsurface estate conveyed to 
        Kennecott.
          Twenty-five percent of the royalties would be 
        distributed to the State of Alaska for roads and 
        schools prior to deposit in the acquisition fund.
    We will continue to work with Kennecott Greens Creek Mining 
Company and members of your staff, Mr. Chairman, to assure that 
we can fully implement the provisions of the exchange 
agreement.
    This concludes my statement, Mr. Chairman. Gordon, Gary, or 
I would be happy to answer any questions you or other members 
of the committee may have.

                        changes in existing law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, the Committee notes that no 
changes in existing law are made by the Act as reported.