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Mining law changes threaten industry.

America's mining regulations, dating back to the Federal Mining Law of 1872, have encouraged the development of one of the world's most productive and successful industries.

Our nation has a fundamental interest in maintaining this industry. It supplies the minerals required to feed, clothe and shelter the country's population and provides inexpensive raw materials to our manufacturing industry. A recent National Research Council study concluded that one of the primary advantages the United States possesses over its principal industrial competitors, Japan and Germany, is its domestic mineral resource base.

Congress is now considering repealing the mining law. Repeal advocates contend that the law does not protect the environment and the industry is not paying its fair share. These arguments need to be examined before replacing the mining law with an entirely new approach.

The mining law is a land tenure law which governs metallic and some non-metallic mineral mining on public lands, which constitute about 30 percent of the nation's land. The law primarily affects the 12 Western states, including Alaska, which contain more than 92 percent of public lands and account for nearly 75 percent of U.S. metal production.


T.S. Ary, former director of the U.S. Bureau of Mines, stated that "the intent of the mining law was to reward the risk-taker."

The law permits any U.S. citizen or corporation to enter on public lands, except those closed to mining, and prospect without prior approval from the federal government; grants the discoverer an exclusive right to develop a mineral deposit; and allows the miner to obtain title to a deposit that can be successfully developed. Each of these principles is an essential part of any policy fostering a healthy mining industry.

Mineral deposits are relatively small and usually buried under barren soil and rock. Detecting a deposit requires careful examination of the regional geology for subtle clues indicating a hidden mineral deposit. This work is self-initiated, often by an individual prospector. Competitors looking in the same area may employ different ideas or technology in their exploration programs. One may succeed, and the other fail. Non-exclusive access for prospecting promotes competition between different ideas and technologies, thereby increasing the odds of finding a mineral deposit.

No incentive exists to prospect unless the right to develop a discovery is guaranteed. This right is obtained by staking mining claims, which confer the exclusive right to conduct mining operations and remove minerals from the property. Except in the vicinity of active operations, the claimholder cannot prevent public access through mining claims or other surface uses of the claim, such as recreation.

If a deposit can be developed into a profitable mine, title to the claim can be acquired (patented) for a nominal fee. The right to patent provides the security of title, which is needed in order to finance construction of a mine. Without security of title, no rational bank or investor will finance mine development.


Opponents of the mining law such as Phil Hocker, president of the Mineral Policy Center, argue that the law is "the last surviving relic of the American resource-development frontier." They contend that the mining law, passed when Ulysses S. Grant was president, was intended to encourage settlement of the West through land disposals, and gave away valuable public lands practically for free.

These arguments can be refuted. The mining law has been modified by numerous court decisions and dozens of federal statutes; thus, the law continues to provide a sound basis for governing mining on public lands. The mining law's purpose was to promote development of the nation's mineral resources -- not dispose of land. Only about 0.14 percent of our nation's land has been disposed of under this law, compared to 12.5 percent under the Homestead Act and 4.1 percent as land grants to railroads.

Miners agree that surface rights should be sold for fair market value. According to John A. Knebel, president of the American Mining Congress, "The mining industry has supported, and continues to support, legislative efforts to modify the mining law by calling for payment of fair market value for land. This requires an amendment -- not a major overhaul of the entire system." Others disagree.

Critics like Sen. Dale Bumpers (D-Ark.) assert that "the mining law does not require the prevention of environmental degradation or the reclamation of mined lands" and that "billions of dollars worth of minerals have been extracted from the public domain without any royalties being paid to the Federal government."

These opponents support H.R. 322, a bill now in the U.S. House of Representatives, which repeals the mining law. This bill replaces the present system with an extensive environmental review and land planning process. It also imposes a high royalty on mineral production.


The mining law is a land-tenure law -- not an environmental law. Federal regulations carefully control activities on mining claims. If significant surface disturbance will result, a detailed plan of operations must be filed and approved before the miner can proceed. Mining operations on public lands are also subject to all federal and state environmental laws.

Minerals cannot be removed without disturbing the land surface. However, mining has affected only about 0.26 percent of the United States' total land, compared to about 1.5 percent impacted by urban areas and 1.2 percent used by highways.

H.R. 322 establishes a sweeping new environmental regulatory process which totally disregards existing environmental and reclamation standards; effectively eliminates any state role in mine permitting and reclamation; and imposes a permitting procedure taking more than two years and costing millions of dollars without providing any certainty that a permit will ever be granted.

This lengthy process can be greatly extended by citizen petitions and suits. Utah Gov. Michael Leavitt commented, "We can ill afford, at either the federal or state level, the excessive cost, unnecessary duplication, and conflicting legal requirements of ... federal legislation imposed in H.R. 322."

A small exploration program involving minimal, easily repairable surface disturbance would have to go through the same permitting procedure as a $1 billion surface mine/mill complex.

H.R. 322 also mandates a land planning process for all public lands to determine their suitability for mining. Mining is not amenable to the land-use planning process; mineral deposits must be mined where they occur. An alternative location for a toothpaste factory can always be found, but no substitute location exists for a mine. Another problem is that science and technology are continuously evolving. For example, most U.S. gold production comes from a deposit type that was not recognized 30 years ago. How can a land planner take into account the unknown?


H.R. 322 imposes an 8 percent gross royalty on mineral production from public lands. How many businesses in a competitive environment can afford to give the government 8 cents of every dollar they make before paying employees, rent, energy, equipment, taxes, medical benefits, etc.? Mining is not one of them.

Royalties are complex financial arrangements which can have drastic, unintentional impacts on tax revenues. In mining states, the effective tax rate on a mine exceeds 50 percent of operating income when federal, state and local property taxes are included.

Rather than gaining new revenue, the government will lose money on the proposed royalty because of decreased tax collections and increased administrative costs. If a mine closes because the royalty is excessive, then the mine pays no taxes. Income taxes levied on employee wages are also lost. Reduced levels of economic activity caused by the mine closure result in additional tax losses.

A recent economic study by Michael Evans shows that the federal government will actually lose $505 million per year by the year 2000 if H.R. 322 is enacted. If a royalty does not result in increased revenue for the federal government, then a needless cost has been imposed on the mining industry.

High royalties substantially decrease the amount of ore which can be profitably mined. John Dobra, an economics professor at the University of Nevada, estimates that an 8 percent royalty would reduce U.S. gold reserves by nearly 60 percent and cause as many as 22 of the nation's largest gold mines to cease production.

Steve Borell of the Alaska Miners Association notes, "A gross royalty would have a ruinous impact on the viability of future mines in Alaska due to our significantly higher operating and capital costs."

A mine operator does not pocket royalty money that is not paid. Rather, the operator lowers the cut-off grade of the mine and optimizes total mineral production. Ore is produced that would not otherwise be mined. As a result, federal, state and local governments receive more in tax revenues; employees receive more in salaries and wages; more money is spent on capital equipment and supply purchases; and of course, the operator receives more in profits.


According to Borell, "The cumulative impact of increased costs and risks caused by H.R. 322 will be so great that mining on public lands will cease, eliminating thousands of jobs and causing a severe reduction in U.S. reserves of critical minerals."

The threat posed by H.R. 322 has already prompted the industry to reduce U.S. exploration expenditures nearly 16 percent, with virtually all of this reduction directed to Latin America. A Mexican attorney recently quoted in the Wall Street Journal suggested that his country should make campaign contributions to legislators supporting high royalties in the United States.

A good mining law should encourage responsible exploration and development of needed mineral resources. The mining industry is supporting S. 775, a bill introduced by Sen. Larry Craig (R-Idaho), which has passed the Senate. This bill retains the strengths of the mining law while amending it to charge a 2 percent royalty. This law would also offer fair market value for surface rights when a patent is issued, establish a reclamation program for abandoned mines, and tighten the restrictions on the amount of surface disturbance allowed before a plan of operation is required.

A strong mining industry will continue to exist under S. 775, whereas H.R. 322 will destroy the industry. The choice is now up to Congress.
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Title Annotation:Federal Mining Law of 1872
Author:Rishel, John
Publication:Alaska Business Monthly
Date:Sep 1, 1993
Previous Article:Alaska's mining industry forges ahead.
Next Article:Frontier tracks: the Northwest Alaska Railroad.

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