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UNITED STATES Don’t mess with history—or hardrock mining profits

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Mining is a dirty business. Mines can threaten habitats, leak toxic chemicals, pollute drinking water or scar a landscape.

In 1872, though, President Ulysses S. Grant had different concerns. Following the Civil War, Grant wanted to promote a westward expansion not seen since the Gold Rush. To do so, he offered a sweetheart deal to anyone interested in mining federally owned land for the nation's abundant supply of gold, silver, copper and zinc, among other minerals. He directed Interior Secretary Columbus Delano to sell public land to mining companies for as little as $2.50 an acre—a rate that, incredibly, is still on the books today. Recently, the federal government sold 155 acres in Crested Butte, Colo., to Freeport-McMoRan Copper & Gold Inc., Phoenix, for $790—or a little over $5 an acre. According to the company, the land could yield $158 million in after-tax profits over 11 years.

To further encourage expansion, Grant said that mining companies wouldn't have to pay royalties on what they mined. Since 1872, the value of minerals taken without compensation is an estimated $245 billion, according to Ryan Alexander, president of Taxpayers for Common Sense.

Even further from Grant's mind, however, was the question of who would end up holding the bill when a site had been thoroughly mined and abandoned. The answer, according to Alexander, is taxpayers. The price tag for cleaning up abandoned sites is between $7 billion and $24 billion, with more than half of that being charged to taxpayers.

In 1920, Congress removed oil, gas and coal from the Mining Law, ensuring that energy companies leasing federal lands would pay a royalty—currently 12.5 percent—to the government on what they extracted. But with only a few exceptions, hardrock mining companies still don't pay a dime in royalties to the federal government. Some in Congress say it's time for that to change.

Late last year, the House of Representatives passed a bill that would require royalty payments of 4 percent on existing mines and between 8 and 9 percent on new mines. That money would be put into a fund to pay for the clean-up of abandoned mines. The bill also would establish overall environmental standards for mining on federal lands. Currently, mining is regulated by a wide array of federal, state and local laws, sometimes leading to confusion and varying standards.

As good as reform of the law sounds to environmentalists, the House bill is considered all but dead on arrival in the Senate, where pro-mining members hold prominent positions. Senate Majority Leader Harry Reid (D., Nevada) has said he will not move a bill that requires current mines to pay royalties. The Senate has decided to write a bill of its own, but mining companies have sent a clear message don't bother.

Testifying before the Senate's Energy and Natural Resources Committee, William E. Cobb, vice president of environmental services for Freeport-McMoRan, said that additional federal regulation of mining on federal lands is "unnecessary, duplicative and unreasonable."

James Cress, a partner at the Denver law firm of Holme Roberts & Owen LLP, told the committee that it would be unfair to apply regulations on coal, oil and gas mining to hardrock mining. Hardrock mining costs vary widely from project to project, and the overall cost is far greater than that of mining for energy reserves like coal, which is relatively plentiful. Cress, who deals extensively with U.S. mining and oil and gas law transactions, said that a gross royalty of 8 percent is unheard of in private negotiations with the exception of Newmont Mining Corp.'s Gold Quarry in Nevada, which was known to contain 8 million ounces of gold—not the typical case on unexplored federal land.

Lurking behind the issue, as it is with so many others, is China. Those opposed to the legislation say that raising the cost of mining in the United States will simply encourage companies to mine overseas in countries with virtually no environmental regulations. The argument echoes those of the steel industry, which opposes a cap-and-trade program to stem greenhouse gas emissions.

The United States already relies too much on imported minerals, which also are being sucked up by China and India, said Cobb, who also is a spokesman for the National Mining Association. "As these countries continue to evolve and emerge into the global economy, their consumption rates for mineral resources are ever-increasing," he told the committee. "Even now, some mineral resources that we need in our daily lives are no longer as readily available to the United States."


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