The U.S. Hardrock Mining Law 1 Ofofs 1872:1872: Thethe Priceprice Ofof Iinacnacttionion

the U.S. hardrock Mining Law 1 ofofs 1872:1872: TheThe PricePrice ofof iinacnacTTionion

Reclaim Our Future

Introduction The nation’s hardrock mining industry owes an enormous debt to President Ulysses S. Grant. For more than a century it has operated under a law he signed in 1872 which now allows companies to extract billions of dollars worth of precious metals, pay no royalties and frequently avoid liability for environmental damage. At the same time, the industry receives millions of dollars in tax breaks, and taxpayers are left with huge costs for repairing environmental damage and lost federal revenue of an estimated $160 million annually. This giveaway continues in the face of the current fiscal crisis, and the 110th Congress failed to address the problem. The Pew Campaign | for Responsible Mining

The Problem a series of hearings on the issue, and Majority Hardrock mining today is a billion dollar global Leader Harry Reid (D-NV), fourth-term Senator industry, but it operates under a law that has not from the nation’s largest gold-producing state, been substantially updated for 136 years. The vowed cooperation to find a reasonable approach 1872 Mining Law signed by President Ulysses S. to mining reform. Even the Bush Administration Grant to encourage development of the frontier, expressed interest in considering a royalty on still governs the mining of gold, uranium and production. other hardrock metals on U.S. public lands in the A diverse group of stakeholders across the West. Consequently, this multi-national industry country, including western governors and other enjoys essentially the same free reign on public elected officials, conservation groups, sportsmen, lands that prospectors with pack mules had over the outdoor recreation industry and prominent a century ago. Under this outdated regulatory jewelers called on the Senate to pass a reasonable framework, the hardrock mining industry is: reform package. • Not required to pay royalties for minerals But the mining industry intervened and taken from federal public lands; the 110th Congress failed to pass even a modest • Not obligated to share in the cost of cleanup measure to modernize the nation’s mining law. for old, abandoned mines; and As a result, a rare opportunity to update what is • Not subject to modern environmental stan- arguably the nation’s most archaic regulatory dards that protect water quality, farmland, structure has been lost at the expense of Ameri- and fish and wildlife habitat from the release of can taxpayers who must continue paying an ever toxic chemicals. higher bill for mine cleanup.

A Golden Opportunity Lost Price Tag of Inaction At the start of the 110th Congress, prospects for To assess the cost of this inaction, the Pew Cam- revamping this legislative relic appeared bright. paign for Responsible Mining reviewed federal The Chairman of the House Committee on Natu- government data as well as several legislative ral Resources, Nick Rahall (D-WV), led an effort proposals that have been introduced to modern- that culminated with House passage of a bipar- ize the law. We found that failure by Congress to tisan measure in November 2007 to modernize require the mining industry to pay royalties on mining’s outdated law. The Hardrock Mining and minerals taken from federal public lands, added Reclamation Act (H.R. 2262), instituted royalty to various tax breaks and subsidies companies payments for minerals taken from public lands, enjoy, will cost American taxpayers more than established modern environmental standards $160 million annually—an estimated $1.6 bil- and bonding requirements for mine operations lion over the next decade. This amount does not and accelerated cleanup of abandoned mines. include an additional $20 billion to $54 billion In the Senate, Energy and Natural Resources in cleanup costs, much of which will be paid by Chairman Jeff Bingaman (D-NM) conducted taxpayers. Reclaim Our Future

$1 Billion Worth of Metals Taken coal mining operations in the U.S. have paid a —$40 Million Annually Lost fee on coal production to fund reclamation of in Royalties abandoned mines. The Abandoned Mine Rec- The Congressional Budget Office (CBO) esti- lamation Act (S. 2750), introduced by Senator mates that roughly $1 billion worth of hardrock Dianne Feinstein (D-CA), would have created a minerals are extracted each year from America’s hardrock mine cleanup program funded by a 0.3 public lands. Based on CBO’s projections, if the percent fee on the value of hardrock minerals mining reform measure passed last year by the extracted. No CBO estimate of revenues from U.S. House had been adopted by the Senate and this measure is available. Based on mine produc- signed into law, the federal treasury would have tion statistics maintained by the U.S. Geological realized approximately $160 million in new Survey2 for 2000 through 2006, however, such a revenues from 2009 through 2012. The $40 mil- reclamation fee could contribute, by a conserva- lion per year figure would reach $400 million in tive estimate, $29 million3 to the U.S. Treasury a 10-year period. This calculation uses royalty each year. That represents a minimum of $290 rates set out in H.R. 2262, the Hardrock Mining million in lost funding for cleanup over the next and Reclamation Act, which called for a 4 percent decade. royalty on existing mines and an 8 percent royalty on new mines. In contrast, coal mining com- $1 Billion Worth of Metals Taken panies in the U.S. pay royalties as high as 12.5 —Plus $100 Million Annually percent to the Treasury. CBO’s figure assumes Given in U.S. Tax Breaks there would be no new hardrock mining opera- In addition to the royalty-free mineral giveaway, tions on U.S. public lands subject to the higher, federal tax policy offers another significant and 8 percent royalty until 2017. This conservative costly subsidy to the mining industry—the per- estimate was made, despite the fact that several centage depletion allowance. Dubbed a “reverse large-scale projects are likely to be operating in royalty” by economic experts, the percentage the near future, including expansion of Barrick depletion allowance lets mining companies Gold Corp.’s Cortez Hills mine in Nevada, which deduct a set amount from their taxable income would be subject to an 8 percent royalty under each year, regardless of the amount of their the House bill.1 investment in the mine. In many instances, the amount of the deduction exceeds the amount of $1 Billion Worth of Metals Taken investment. According to a Senate letter co- —$29 Million Annually Lost authored by Senators Russ Feingold (D-WI) and in Reclamation Fees John Sununu (R-NH), the percentage depletion Cleanup costs of abandoned hardrock mines allowance and other tax breaks result in an generally fall to taxpayers because, in contrast effective tax rate for many mining companies to coal mining, there is no industry-supported that is much lower than the statutory corporate remediation program. For nearly 30 years, rate of 30 percent paid by other businesses.4 To The Pew Campaign | for Responsible Mining

eliminate the subsidy, Senator Feingold intro- abandoned hardrock mines between fiscal years duced the Elimination of Double Subsidies for the 1998 and 2007.8 And that is just a fraction of the Hardrock Mining Industry Act (S. 2287). Based total outstanding reclamation cost. There is no on data from the Congressional Joint Commit- comprehensive federal inventory of abandoned tee on Taxation, passage of this bill would have hardrock mines—estimates range from 250,000 saved taxpayers $100 million annually in subsi- to 500,000—yet these sites dot the landscape, dies to companies operating hardrock mines on contaminating water and soil and sometimes public lands, or $1 billion over the next decade.5 contributing to injury and death. In July 2008, the Department of Interior’s Inspector General $2.6 Billion Paid by Taxpayers (IG) offered a harsh assessment of the cleanup for Cleanup Since 1998— status of abandoned mines on property man- At Least $20 Billion More Due aged by the BLM and the National Park Service. Mining generates a disproportionate amount The IG cited “serious environmental and safety of pollution and waste. According to the Envi- hazards where members of the public had been ronmental Protection Agency (EPA), hardrock killed, injured, or exposed to dangerous contam- mining generates more toxic waste than any inants,” and concluded that “[t]he potential for other economic sector. Overall, hardrock mine more deaths and injuries is ominous.”9 operations released at least 18 billion pounds of Taxpayers must pay the cleanup costs not toxics into the environment between 1998 and only of older mines but also for the all too com- 2006.6 The most recent data for 2005 and 20067 mon instances when owners of modern mines show that hardrock mining was responsible for declare bankruptcy or otherwise escape their 91 percent of all reported releases of the toxic environmental obligations. Since 1994, more chemical arsenic, a known carcinogen. The than two dozen mine-related sites have been mining sector was also the top emitter of lead listed as Superfund national priorities, a desig- and mercury, two potent neurotoxins that are of nation that allows for use of federal tax dollars to particular concern for their impact on children. expedite cleanups. Modern mines among those The mining sector was responsible for 84 per- include the Summitville gold mine in Colorado, cent of all U.S. releases of lead and 86 percent of the Formosa zinc mine in Oregon, Brewer gold all reported releases of mercury. mine in South Carolina and the Gilt Edge mine But the giveaway of public resources and in South Dakota, all abandoned by owners who corporate tax breaks mean that American reneged on their remediation obligations.10 taxpayers too often are stuck paying the cleanup Without Congressional action, the situation is cost. According to the Government Account- not expected to improve. The GAO also reports ability Office (GAO), four federal agencies— a serious gap in financial assurance at currently the Bureau of Land Management (BLM), the operating mines, recently estimating a shortfall Forest Service, the Office of Surface Mining, totaling $61 million at just 52 operations.11 and EPA—spent at least $2.6 billion to clean up Overall, remediation costs for hardrock Reclaim Our Future

mines could run between $20 and $54 billion, In this time of record deficits, when the budgets according to an EPA analysis.12 A large portion of of both the federal government and taxpayers this cost is certain to fall to taxpayers who will are stretched thin, Congress can no longer afford be saddled with the cleanup bill for both old and to ignore the billions of dollars in taxpayer liabil- new mines. ity and potential revenues that are at stake. As the new Administration and Congress Modern Mining Rush struggle to balance the federal budget and fund While efforts to reform the 1872 mining law have critical public programs, they should make re- languished in Congress over the years, the rapid form of the 1872 Mining Law a priority. The price rise in metal prices and lax U.S. regulations have tag for doing nothing is too high. resulted in an escalating number of new claims. According to a recent analysis of BLM data, the number of active mining claims on federal lands is 39 percent higher today than it was when the 110th Congress convened in January 2007.13 Many of these new claims have been staked near important and irreplaceable natural areas, Endnotes including the Grand Canyon, Yosemite and other 1 According to the July 2007 draft environmental impact national parks.14 statement issued for the Cortez Hills expansion, the project would involve extraction of an estimated 8 million ounces of In the case of the Grand Canyon, the rash of gold over a 10-year period. Barrick Gold Corporation antici- new claims for uranium mining within several pates approval of the mine expansion in late 2008, with an expected production start within 15 months of the regulatory miles of the park’s borders raised such seri- decision. Assuming a December 2008 decision, mine produc- ous concerns about drinking water quality in tion would begin in 2010, not 2017 as assumed by the Con- 15 16 gressional Budget Office. Had Congress enacted the House Nevada and California that the House Natural bill, the mine would be subject to an 8% rather than a 4% Resources Committee was compelled to call on royalty, with a revenue differential for the federal treasury of the Secretary of the Interior to stop accepting roughly $224 million over the life of the mine at a gold price of $700 per ounce, slightly lower than the current spot price. new claims on land near the park,17 an action 2 Thomas D. Kelly et al., “Historical Statistics for Mineral supported not only by conservation groups but and Material Commodities in the United States,” U.S. Geo- also by local officials and the governor of Ari- logical Survey, Data Series 140, http://minerals.usgs.gov/ ds/2005/140/. zona.18 A decision is still pending. 3 The $29 million figure is derived by looking at the revenues that would have been collected over the 5-year period from Conclusion 2002 through 2006, the latest year for which data is avail- th able. To take into account the small operator exemption in It is unfortunate that the 110 Congress failed to Sen. Feinstein’s bill, S. 2750, revenues were calculated after reform the nation’s hardrock mining law, allow- applying a discount rate of 10 percent. These revenues ranged ing a global industry to continue taking billions from $17.5 million in 2002 to $48.7 million in 2006. This estimate does not presume that the 2006 production levels would of dollars in public resources while leaving tax- be maintained, but uses the average value from the 5-year payers with a multi-billion dollar cleanup bill. period. The Pew Campaign | for Responsible Mining

4 April 23, 2008, letter to Senator Jeff Bingaman, Chairman, 10 Environmental Protection Agency, NPL Site Status Informa- and Senator Pete Dominici, Ranking Member of the Senate tion, www.epa.gov/superfund/sites/npl/status.htm. Environment and Natural Resources Committee, signed 11 Statement of Robin M. Nazzaro, op. cit. by Senators Feingold and Sununu as well as Senators Maria Cantwell (D-WA), Judd Gregg (R-NH), Jack Reed (D-RI), 12 U.S. Environmental Protection Agency, Office of Solid Waste Sheldon Whitehouse (D-RI), Robert Menendez (D-NJ), and Emergency Response, “Cleaning Up the Nation’s Waste Olympia Snowe (R-ME), Ben Cardin (D-MD) and Bernard Sites: Markets and Technology Trends,” 2004 Edition, EPA Sanders (I-VT). 542-R-04-015, September 2004, p. 1-12, http://www.clu-in. org/download/market/2004market.pdf. 5 “Feingold, Cantwell Bill Would End Outdated Tax Breaks for Mining on Public Land,” press release, Office of Senator 13 Based on queries of BLM LR2000 database. Russ Feingold, November 1, 2007, http://feingold.senate. 14 Judy Pasternak, “A Grand Canyon rush for uranium,” Los gov/~feingold/releases/07/11/20071101mining.html. Angeles Times, May 4, 2008, and Margot Roosevelt, “Mining 6 Based on queries of the U.S. EPA TRI Explorer database con- claims seen as threat,” Los Angeles Times, October 16, 2007. taining industry-submitted information on toxic releases. 15 June 16, 2008, letter to the Honorable Dirk Kempthorne, Sec- 7 Data for 2005 and 2006 combined, based on queries of the retary of Interior, from Patricia Mulroy, General Manager, U.S. EPA TRI Explorer database. Southern Nevada Water Authority.

8 Statement of Robin M. Nazzaro, Director, Natural Resources 16 March 25, 2008, letter to the Honorable Dirk Kempthorne, and Environment, Government Accountability Office, “In- Secretary of Interior, from Jeffrey Kightlinger, General Man- formation on Abandoned Mines and Value and Coverage of ager, Metropolitan Water District of Southern California. Financial Assurances on BLM Land,” testimony before the 17 Eric Bontrager, “Interior fights House panel on Grand Senate Committee on Energy and Natural Resources, GAO- Canyon withdrawal,” Environment and Energy Daily, July 18, 08-574T, March 12, 2008, http://www.gao.gov/new.items/ 2008. d08574t.pdf. 18 March 6, 2008, letter to the Honorable Dirk Kempthorne, 9 Inspector General, U.S. Department of the Interior, Final Secretary of Interior, from the Honorable Janet Napolitano, Audit Report: Abandoned Mine Lands in the Department Governor of Arizona. of the Interior, July 22, 2008, C-IN-MOA-0004-2007, p. 1, www.doioig.gov/upload/2008-G-00241.pdf. Reclaim Our Future