U.S. GOVERNMENT PRINTING OFFICE

58–947 u WASHINGTON : 1999

THE EFFECT OF FEDERAL MINING FEES AND

PROPOSED FEDERAL ROYALTIES ON STATE

AND LOCAL REVENUES AND THE MINING INDUSTRY

FIELD HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY

AND MINERAL RESOURCES

OF THE

COMMITTEE ON RESOURCES

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

MAY 15, 1999, RENO, NEVADA

Serial No. 106–36

Printed for the use of the Committee on Resources

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

or

Committee address: http://www.house.gov/resources
(II)

COMMITTEE ON RESOURCES

DON YOUNG, Alaska, Chairman

W.J. (BILLY) TAUZIN, Louisiana

JAMES V. HANSEN, Utah

JIM SAXTON, New Jersey

ELTON GALLEGLY, California

JOHN J. DUNCAN, JR., Tennessee

JOEL HEFLEY, Colorado

JOHN T. DOOLITTLE, California

WAYNE T. GILCHREST, Maryland

KEN CALVERT, California

RICHARD W. POMBO, California

BARBARA CUBIN, Wyoming

HELEN CHENOWETH, Idaho

GEORGE P. RADANOVICH, California

WALTER B. JONES, JR., North Carolina

WILLIAM M. (MAC) THORNBERRY, Texas

CHRIS CANNON, Utah

KEVIN BRADY, Texas

JOHN PETERSON, Pennsylvania

RICK HILL, Montana

BOB SCHAFFER, Colorado

JIM GIBBONS, Nevada

MARK E. SOUDER, Indiana

GREG WALDEN, Oregon

DON SHERWOOD, Pennsylvania

ROBIN HAYES, North Carolina

MIKE SIMPSON, Idaho

THOMAS G. TANCREDO, Colorado

GEORGE MILLER, California

NICK J. RAHALL II, West Virginia

BRUCE F. VENTO, Minnesota

DALE E. KILDEE, Michigan

PETER A. DEFAZIO, Oregon

ENI F.H. FALEOMAVAEGA, American

Samoa

NEIL ABERCROMBIE, Hawaii

SOLOMON P. ORTIZ, Texas

OWEN B. PICKETT, Virginia

FRANK PALLONE, JR., New Jersey

CALVIN M. DOOLEY, California

CARLOS A. ROMERO-BARCELO ́, Puerto

Rico

ROBERT A. UNDERWOOD, Guam

PATRICK J. KENNEDY, Rhode Island

ADAM SMITH, Washington

WILLIAM D. DELAHUNT, Massachusetts

CHRIS JOHN, Louisiana

DONNA CHRISTIAN-CHRISTENSEN, Virgin

Islands

RON KIND, Wisconsin

JAY INSLEE, Washington

GRACE F. NAPOLITANO, California

TOM UDALL, New Mexico

MARK UDALL, Colorado

JOSEPH CROWLEY, New York

RUSH D. HUNT, New Jersey

LLOYD A. JONES, Chief of Staff

ELIZABETH MEGGINSON, Chief Counsel

CHRISTINE KENNEDY, Chief Clerk/Administrator

JOHN LAWRENCE, Democratic Staff Director

SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES

BARBARA CUBIN, Wyoming, CHAIRMAN

W.J. (BILLY) TAUZIN, Louisiana

WILLIAM M. (MAC) THORNBERRY, Texas

CHRIS CANNON, Utah

KEVIN BRADY, Texas

BOB SCHAFFER, Colorado

JIM GIBBONS, Nevada

GREG WALDEN, Oregon

THOMAS G. TANCREDO, Colorado

ROBERT A. UNDERWOOD, Guam

NICK J. RAHALL II, West Virginia

ENI F.H. FALEOMAVAEGA, American

Samoa

SOLOMON P. ORTIZ, Texas

CALVIN M. DOOLEY, California

PATRICK J. KENNEDY, Rhode Island

CHRIS JOHN, Louisiana

JAY INSLEE, Washington

——— ———

BILL CONDIT, Professional Staff

MIKE HENRY, Professional Staff

DEBORAH LANZONE, Professional Staff
(III)

C O N T E N T S

Page

Hearing held May 15, 1999 ..................................................................................... 1

Statements of Members:

Bryan, Hon. Richard, a Senator in Congress from the State of Nevada,

letter to Mr. Gibbons .................................................................................... 6

Cubin, Hon. Barbara, a Representative in Congress from the State of

Wyoming, prepared statement of ................................................................. 5

Gibbons, Hon. Jim, a Representative in Congress from the State of Nevada ................................................................................................................ 1

Additional material submitted by ............................................................ 4

Prepared statement of ............................................................................... 3

Statements of witnesses:

Carpenter, Ann, Vice President, Exploration and Business Development,

Nevada Colca Gold, Inc., Reno, Nevada ...................................................... 81

Prepared statement of ............................................................................... 82

Coyner, Alan R., Administrator, Nevada Division of Minerals .................... 10

Prepared statement of ............................................................................... 13

Additional material submitted by .......................................................................... 15

Dempsey, Stan, Chairman, Royal Gold, Incorporated, Denver, Colorado ... 70

Prepared statement of ............................................................................... 72

Additional material submitted by ............................................................ 74

Drozdoff, Leo M., Chief, Bureau of Mining Regulation and Reclamation,

Nevada Division of Environmental Protection, Carson City, Nevada ...... 56

Prepared statement of ............................................................................... 57

Letter to Ms. Cherie Sexton ..................................................................... 65

Letter to Ms. Cherie Sexton ..................................................................... 109

Letter to Mr. Paul McNutt, ...................................................................... 125

Letter to Mr. Dave Aberswerth and Bob Anderson, ............................... 129

Letter to Mr. Bob Anderson, .................................................................... 138

Fields, Russell A., President, Nevada Mining Association ........................... 6

Prepared statement of ............................................................................... 8

Guinn, Hon. Kenny C., Governor, State of Nevada, prepared statement

of ..................................................................................................................... 35

Additional material submitted for the record by:

Ingle, Hugh, President, Nevada Miners and Prospectors Association,

Yerington, Nevada ........................................................................................ 83

Prepared statement of ............................................................................... 84

Kennedy, Larry, Exploration Manager, Battle Mountain Gold, Reno, Nevada ................................................................................................................

Lewis, F. W., F.W. Lewis, Incorporated, Reno, Nevada ................................ 86

Prepared statement of ............................................................................... 87

Miller, Glenn C., Cochair, Mining Committee, Toiyabe Chapter, Sierra

Club, Reno, Nevada ...................................................................................... 41

Prepared statement of ............................................................................... 43

Myers, Tom, Director, Great Basin Mine Watch, Reno, Nevada .................. 44

Prepared statement of ............................................................................... 47

Parratt, Ronald L., Commissioner, Commission on Mineral Resources,

State of Nevada ............................................................................................. 25

Prepared statement of ............................................................................... 26

Rhoads, Dean A., Chairman, Natural Resource Committee, Nevada State

Legislature ..................................................................................................... 35

Prepared statement of ............................................................................... 38

Soberinsky, Victoria, Deputy Chief of Staff for Governor Kenny Guinn,

State of Nevada ............................................................................................. 33
Page

IV

Additional material submitted:

Backgound Memo from the Committee .......................................................... 104

Federal Register, Notice of Intent and scoping .............................................. 120

Loptien, Greg D., Sparks, Nevada, prepared statement of ........................... 105

Western Governors’ Association, letters and prepared statement of ........... 113

Women’s Mining Coalition, Reno, Nevada ..................................................... 157

Guinn, Hon. Kenny C., Governor, State of Nevada, prepared statement of .................................................................................................... 35
(1)

THE EFFECT OF FEDERAL MINING FEES AND

PROPOSED FEDERAL ROYALTIES ON STATE

AND LOCAL REVENUES AND THE MINING

INDUSTRY

SATURDAY, MAY 15, 1999

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON ENERGY

AND MINERAL RESOURCES, COMMITTEE ON RESOURCES, Reno, Nevada.

The Subcommittee met, pursuant to call, at 2 p.m. at the Washoe

County Commission Chambers, 1001 E. 9th Street, Building A,

Reno, Nevada, Hon. Jim Gibbons presiding.

STATEMENT OF HON. JIM GIBBONS, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF NEVADA

Mr. GIBBONS. Ladies and gentlemen, it’s my honor to open this

Subcommittee on Energy and Mineral Resources hearing here in

Nevada. To begin with, I want to welcome all of you here. We’re

going to make a slight change in the format simply because some

of the witnesses that were on the first panel have been unavoidably

detained, so we will end up starting with the second panel.

Let me also tell you that at the end of all of the hearing time

for those people that are on scheduled panels, we’re going to try to

open it up, time permitting, for an open mike to let those public

citizens out here that want to have a voice to be heard, we’re going

to offer them a minute or a minute and a half—I know that sounds

like a short time, but when the TV cameras are on you, it’s a long

time.

So figure out what you’re going to want to say. We’ll try to open

it up so you will have an opportunity, if you weren’t on one of the

panels to begin with.

Let me also say that this hearing today is to hear testimony on

the effect of Federal mining fees and proposed Federal royalties on

State and local revenues and the mining industry, so we want to

somewhat focus it down a little so we don’t get too far adrift and

start dividing our attention and focus on areas that may not be applicable to today’s hearing.

Before I get to my remarks, I’m going to advise all of those panels that we have listed here that I will swear you in.

This is an official congressional hearing and you will be testifying

under oath, and so I just want to advise you of the procedure that
2

before we start with each of you, we will ask you to take an oath,

which I will have you stand and administer to you.

Let me begin this morning by welcoming all of you here to this

hearing, and we all know that Nevada is the largest gold producing

State in the country and the third largest gold producer in the

world. It’s my honor and pleasure to welcome and thank you for

taking time out of your busy schedules to share your thoughts on

mining with this Committee. Today, we’ll hear what I think is very

important testimony on the effect of existing Federal fees such as

the $100 per claim holding fee in addition to proposed Federal fees,

such as royalties, on the mining industry, State and local economic

activity and revenues.

The Committee also wishes to gather information on the probable

effects of various existing and proposed Federal fees on trends in

our Nation’s domestic mineral exploration, production, and reserves.

Mining is a basic economic activity necessary to all mankind. The

knowledge and use of metals is so important to human civilization

that the progress of early man is marked by the advancement in

his knowledge of metals. Man’s most primitive period in tool making was known, of course, as the Stone Age. Man’s subsequent

technological advancements for the next 2,500 years is characterized by his increasing ability to work with metals, and the periods

of this advancement are divided into the Copper Age, the Bronze

Age, and the Iron Age.

Now, as a former mining geologist, myself, and a cochairman of

the Congressional Mining Caucus, let me say that I have a deep

appreciation and understanding of Nevada’s mining industry. Nevada, the Nation’s leader in gold production, has 30 operating gold

producing companies that employ more than 14,000 people; and

these people mine more than $3 billion worth of metals annually,

and Nevada alone provides an annual direct contribution to the

Federal Government of more than $113 million.

As the second largest employer in the State, mining provides

$1.5 billion in personal, business and State and local government

revenues.

These numbers make it easy to realize why mining is such an

important part of Nevada. Around the globe mining continues to be

a basic economic activity which supplies strategic metals and minerals that are essential for modern agriculture, construction, and

manufacturing.

A recent study by the National Research Council concluded that

one of the primary advantages of the United States, that it possesses over it’s strongest industrial competitors Japan and western

Europe, is our domestic resource base.

The domestic mining industry provides about 50 percent of the

metal used by U.S. manufacturing companies. The United States is

among the world’s largest producers of many important metals and

minerals, particularly copper, gold, lead, molybdenum, silver, and

zinc, and still has substantial domestic reserves of these metals.

Twelve western States containing more than 92 percent of U.S.

public land account for nearly 75 percent of U.S. domestic metal

production. Thus, much of the United States’ future mineral supplies will likely be found on public lands in the West.
3

As I’m sure everyone here knows, the Second Congressional District, which I have the privilege of representing in Congress, encompasses some of the most important mining areas in the United

States. Precious metal mining constitutes the majority of economic

activity in the north central and northeastern parts of Nevada.

One of the reasons why this Committee selected Reno for this

hearing is not simply because I live here, but because Nevada is

an important public lands mining State, with more than 87 percent

of the Nevada lands managed by the Federal Government; and

mining accounts for approximately 9 percent of our State’s gross

State product. Consequently, any detrimental effects of Federal

mining policy are going to have a serious consequence to the mining industry and to the livelihoods of families across this State of

Nevada.

Some seem to believe that mining doesn’t matter in this new age.

They think that the future of mankind can be secured without

basic material resources. They often think that if they produce

words and ideas in the ‘‘information age,’’ then nothing else is necessary. Well, they’re wrong.

Mining matters to everyone. Mining makes our civilization and

high living standards possible. Everything you will use today began

in a mine. Everything you do today depends on mining. Today we’ll

examine the existing and proposed Federal policies, particularly

those policies relating to royalties and fees toward mining on Federal lands.

Hopefully, what we learn here today will help us find out the

consequences that these policies have had or will have on those

who would invest their capital toward finding mineral deposits and

developing mines.

There is an old adage out there. Many of you know it, and we’re

trying to spread it as far as we possibly can, and it goes: ‘‘If it isn’t

grown, it has to be mined.’’ And I think that is an important

thought for all of us to maintain. With that, it’s time for this hearing to begin.

[The prepared statement of Mr. Gibbons follows:]

STATEMENT OF HON. JIM GIBBONS, A REPRESENTATIVE IN CONGRESS FROM THE

STATE OF NEVADA

Welcome to Nevada, the largest gold producing state in the Country and the third

largest gold producer in the world. It is my honor and pleasure to welcome and

thank you for taking time out of your busy schedules to share your thoughts on mining with this Committee.

Today we will hear important testimony on the effect of existing Federal fees,

such as the $100 per claim holding fee. We will also hear testimony about the effect

of proposed Federal fees, such as royalties on the mining industry, on state and

local economic activity and revenues. The Committee also wishes to gather information on the probable effects of various existing and proposed Federal fees on trends

in our nation’s domestic mineral exploration, production and reserves.

Mining is a basic economic activity necessary to mankind. The knowledge and use

of metals is so important to human civilization that the progress of early man is

marked by the advancement in his knowledge of metals. Man’s most primitive period of tool-making is known as the Stone Age. Man’s subsequent technological advancement for the next 2500 years is characterized by his increasing ability to work

metals, and the periods of this advancement are divided into the Copper Age,

Bronze Age and Iron Age.

As a former mining geologist and Co-Chairman of the Congressional Mining Caucus, I have a deep appreciation and understanding of Nevada’s mining industry. Nevada, the nation’s leader in gold production, has 30 operating gold producing compa-
4

nies that employ more than 14,000 people. These people mine more than $3 billion

worth of metals annually. Nevada alone provides an annual direct contribution to

the Federal Government of more than $113 million. As the second largest employer

in the State, mining provides $1.5 billion in personal, business, and state and local

government revenues. These numbers make it easy to realize why mining is such

an important part of Nevada.

Around the globe, mining continues to be a basic economic activity which supplies

strategic metals and minerals that are essential for modern agriculture, construction and manufacturing. A recent study by the National Research Council concluded

that one of the primary advantages that the United States possesses over its strongest industrial competitors, Japan and western Europe, is its domestic resource base.

The domestic mining industry provides about 50 percent of the metal used by U.S.

manufacturing companies. The United States is among the world’s largest producers

of many important metals and minerals, particularly copper, gold, lead, molybdenum, silver and zinc and still has substantial domestic reserves of these metals.

Twelve western states, containing more than 92 percent of U.S. public land, account for nearly 75 percent of U.S. domestic metal production. Thus, much of the

United States future mineral supplies will likely be found on public lands in the

West.

As I’m sure everyone here knows, this Congressional district which I represent

in Congress, encompasses some of the most important mining areas in the United

States. In addition, precious metals mining constitutes the majority of economic activity in the north central and northeastern parts of Nevada.

One of the reasons why the Committee selected Reno for this hearing is because

Nevada is an important public lands mining state, with 87 percent of Nevada’s

lands owned by the Federal Government and mining accounting for approximately

9 percent of the Gross State Product. Consequently, any detrimental effects of Federal mining policy are going to have serious consequences to the mining industry

and to the livelihoods of families across this great State.

Some seem to believe that mining doesn’t matter in this new age. They think that

the future of mankind can be secured without basic material resources. They think

that if they produce words and ideas in the ‘‘information age’’ then nothing else is

necessary. They are wrong.

Mining matters to everyone. Mining makes our civilization and our high living

standards possible. Everything you will use today began in a mine. Everything you

do today depends on mining.

Today we will examine existing and proposed Federal policies, particularly those

policies relating to royalties and fees, towards mining on Federal lands. Hopefully,

what we learn today will help us find out the consequences that these policies have

had or will have on those who invest their capital toward finding mineral deposits

and developing mines.

Remember if it isn’t grown, it has to be mined!

With that it is time to begin. Will the first panel please be seated.

[The information follows:]

LETTER TO PARTICIPANTS FROM HON. HARRY REID, A SENATOR IN CONGRESS FROM

THE STATE OF NEVADA

THE HON. HARRY REID,

U.S. SENATE,

WASHINGTON, DC,

May 14, 1999.

Dear Hearing Participants:

I want to first thank Congressman Gibbons for allowing a statement to be read

on my behalf, and I would also like to thank him for arranging this hearing.

The mining industry is an important part of Nevada’s economy. Furthermore, our

mining industry employs thousands of Nevadans who would otherwise be hard

pressed to find employment in other areas.

This past week, I was able, through my seat in the Appropriations Committee,

to include some language that will ensure that the Department of Interior takes into

account a study that was mandated by Congress last year. This study is being conducted by the National Academy of Sciences and will cost nearly $1 million. To ignore this study, as is Secretary Babbitt’s intention, is a sheer waste of taxpayer

monies.
5

Again, I would like to thank Congressman Gibbons for his hard work on this

issue, and I only wish that I could be there with you today.

With all best wishes,

Sincerely,

HARRY REID,

United States Senator.

STATEMENT OF HON. BARBARA CUBIN, A REPRESENTATIVE IN CONGRESS FROM THE

STATE OF WYOMING

Our domestic hard rock mining industry has long utilized the public lands of the

Western United States and Alaska as its primary exploration base. Indeed, since

1866 approximately three million acres of mineral rights have been patented to discoverers of valuable deposits of gold, silver, copper, lead, zinc, and many other mineral commodities which fall within the purview of the general mining laws. Of

course, this figure represents only a small fraction of the public domain of this Nation (my home state of Wyoming alone is twenty times larger) but it is critical to

the health of our industry because as geologists like to say ‘‘ore deposits are where

you find them.’’

An early champion of these western miners was President Abraham Lincoln. Indeed, only a few hours before leaving for Ford’s Theater on April 14, 1865, Mr. Lincoln wrote the following in a note to House Speaker Schulyer Colfax:

‘‘I have very large ideas of the mineral wealth of our Nation. I believe it practically inexhaustible. It abounds all over the western country, from the Rocky

Mountains to the Pacific, and its development has scarcely commenced . . . . Immigration, which even the war has not stopped, will land upon our shores hundred of thousands more per year from overcrowded Europe. I intend to point

them to the gold and silver that waits for them in the West. Tell the miners

from me, that I shall promote their interests to the utmostof my ability; because

their prosperity is the prosperity of the Nation, and we shall prove in a very

few years that we are indeed the treasury of the world.’’

I would note that President Lincoln wasn’t concerned with collecting fees from the

western miners—President Polk had done away with attempting to collect mining

royalties in 1848—rather, his focus was upon stimulating the economy of a still

rather new nation. But, one hundred thirty years later this doesn’t seem to be a

concern of President Clinton one iota. In this Administration’s zeal to protect the

environment at all costs, and balance the budget on the backs of commodity producers, a flurry of user fees, tax changes and royalty proposals have found their way

to Capitol Hill. Supplementing proposed law changes are rulemakings, Solicitor

opinions and case adjudications which have not been subject to the legislative process to insure common sense prevails. And I, for one, believe that is what has been

missing lately from Interior Department edicts.

Our hearing today is intended to solicit views on this topic from those in the

know—elected officials, state mining regulators, mining industry folks and concerned environmental advocates. I trust the record we are beginning to establish

with this first of several planned field hearings in western venues will show there

are negative impacts upon our local communities and state treasuries from poorly

thought out policies advanced by the Clinton Administration. We are following in

the wake of the National Academy of Sciences (NAS) panel who came to Reno recently to gather information on the mining regulatory environment. That panel was

not charged with examining fee impacts, as we will do today, but we anxiously

await its objective verdict on the necessity for the extraordinary changes in the surface management regulations proposed by Secretary Babbitt in February of this

year.

The loss of mineral exploration jobs in this country over the last several years is

well documented. If we lay off the prospecting end of the business sooner or later

there are no reserves to replace those mined and fashioned into the products society

demands. Oh yes, we may be able to import gold the chip makers need for the tech

revolution, or platinum for automobile catalytic converters, etc. but not without

doing damage to our already outrageous balance of trade, and not without taking

good jobs away from Americans. We must think through the consequences of any

legislative ‘‘fixes’’ sought by special interest groups as well as administrative rulemaking proposals, before taking or allowing actions which have been deemed to be

in the ‘‘public interest’’ simply because the advocates for the changes have said so

over and over again without sufficient rebuttal by affected parties. Of course, these

folks have been too busy trying to make a living from mining, or are elected officials

thousands of miles from the beltway who must legislate in the wake of the fed’s un-
6

intended (and intended?) consequences. So we have come to you. Let’s hear what

you have to say.

LETTER TO MR. GIBBONS FROM HON. RICHARD BRYAN, A SENATOR IN CONGRESS FROM

THE STATE OF NEVADA

UNITED STATES SENATE,

WASHINGTON, DC.

May 15, 1999

Congressman JIM GIBBONS,

400 South Virginia Street

Reno, Nevada 89501

Dear Congressman Gibbons:

Thank you for holding an oversight hearing in Reno today to discuss the effect

of Federal mining fees and proposed Federal royalties on state and local revenues

and the mining industry and its employees. As you know, mining is the second largest industry in the State of Nevada. In addition to direct employment in mining,

there are also thousands of jobs in the State related to providing goods and services

needed by the industry.

I regret that previous commitments prevent me from attending this hearing and

I appreciate your efforts in bringing these important issues to the attention of our

constituents.

Sincerely,

RICHARD H. BRYAN,

United States Senator.

Mr. GIBBONS. I would ask the second panel to come up here and

take a seat. And let me say that we’re going to try to keep everybody to a certain time limit. You’re welcome to summarize your

statements. We will, of course, without objection, admit your written testimony for the record. It will be complete as it is submitted,

and with that, I’d like to have the first panel stand, so I can administer the oath to them.

[Witnesses sworn.]

Mr. GIBBONS. Let me take this moment to introduce our panel

here. We have Russ Fields, President, Nevada Mining Association

from Reno, Nevada; Alan Coyner, Administrator, Nevada Division

of Minerals, Carson City; Ron Parratt, Commissioner, Commission

on Mineral Resources for the State of Nevada from Reno.

Gentlemen, welcome, and we’ll start with Mr. Fields. It’s all

yours.

STATEMENT OF RUSSELL A. FIELDS, PRESIDENT, NEVADA

MINING ASSOCIATION

Mr. FIELDS. Thank you, Congressman.

I’m Russ Fields. I’m President of the Nevada Mining Association.

We appreciate the Committee holding this field hearing in Reno.

Mining has always played an important role in Nevada’s economy since before statehood. In 1998, Nevada mines led the Nation

in precious metals production, producing some 76 percent of domestic gold and 38 percent of the Nation’s silver, among many other

minerals.

Any Federal action concerning hard rock mining has the potential to significantly impact Nevada and Nevada’s mining industry.

At the end of 1998, there were more than 13,200 men and women

directly employed at the mines, and another estimated 43,000 jobs

involved with providing goods and services to the industry.

The direct mining jobs are the highest paid sector in our State
7

economy. With an average annual salary of $50,000, this is well

above the average salary in Nevada of less than $29,000. Direct

mine annual payroll exceeds $650 million in Nevada. Mining contributed over $1.81 billion to Nevada’s personal incomes each year over the last couple of years. Mining’s tax payments to State and local government in the 1996-1997 tax year totalled approximately $125.5 million.

These tax payments come in the forms of sales and use tax, property tax, and Net Proceeds of Mines Tax. A large portion of these

taxes stay with the local government. Over $1 billion in State and

local taxes have been paid by the Nevada mines from 1987 through

last year.

Producers of metals such as gold and silver and copper are price

takers. That is, the price of their product is set in the world market

place that cannot be affected by any single producer or groups of

producers. Given this fact, the only business variable that a mine

can control in the long run is its cost of production.

As an example: We’re currently experiencing 20-year lows in the

price of gold. In 1998, Nevada mines reduced their direct costs of

production by an average of approximately $15 per ounce. This was

done through gains in productivity brought about by improved efficiency and mining of higher grade material where possible.

Certain capital expenditures and exploration activities are being

delayed, as well, to conserve cash. Unfortunately approximately

1,550 direct mining jobs were lost during 1998 as a result of tightening expenses. There is obviously a limit to how far expenses can

be reduced.

As costs rise or prices fall, or both, what previously may have

been counted on mining companies books as mineable reserves,

may fall into an unmineable category. It’s no longer ore because

this material can no longer be mined at a profit.

If a mine’s ore reserves are reduced due to economics, the life of

a mine is shortened and the economic benefit of mining comes to

an earlier end. Increased fees, costs, and royalties imposed by the

Federal Government result in reduced ore reserves and therefore

reduced mine lives. The result is a loss of employment and positive

economic benefits on counties and communities.

A significant part of the discussion over the General Mining Law

has surrounded the issue of royalty. Any royalty is an added expense and will have a negative impact on mining in communities

in which mining takes place. However, if there is to be a royalty,

a net proceeds type of royalty seems to fit hard rock mineral production the best, because it takes into account the cost of extracting the metal from the rock and the fact that producers have no

opportunity to pass costs through to customers.

When prices are low, as they are now for gold and copper, for example, the royalty amount will be lower; but under net proceeds,

operations can stay in business and continue to employ people and

make their contributions to the local economies.

When prices are higher, certainly the royalty amount will be

higher. This is fair and equitable to the public and to the industry

as well.

In summary, any increase in Federal fees reducing regulatory

costs, or excuse me, including regulatory costs, fees and royalties,
8

has the exact same impact on a mining company’s bottom line as

does the reduction in the price received from the mineral product.

Currently mining is facing many increased costs in this lowpriced environment. Together, these increases in costs and reduction in prices result in impacts on local and State government as

a result of business impacts on the mining industry. Given this situation, Congress should take great care as it considers the imposition of new fees and costs on this industry.

The specific impacts of any fee, royalty, or cost of compliance

should be carefully evaluated.

Thank you very much, and I would like to personally thank you

again, Congressman Gibbons, for holding this hearing in Nevada.

[The prepared statement of Mr. Fields follows:]

STATEMENT OF RUSSELL A. FIELDS, PRESIDENT, NEVADA MINING ASSOCIATION

I am Russ Fields, President of the Nevada Mining Association. We appreciate the

Committee holding this field hearing in Reno. We are sitting only several hours

away from the greatest gold producing region in North America. The Nevada Mining

Association is the trade association for Nevada’s mining industry. We have approximately 400 members ranging from several of the largest gold, silver and copper mining companies in the world to individuals who are interested in mining. Our members also include industrial minerals producers: miners of crushed stone, barite,

limestone and gypsum, among others. Suppliers to the industry—those who provide

the goods and services needed to conduct the business of mining—are also among

our membership.

NEVADA’S HARD ROCK MINERAL INDUSTRY

Mining has always played an important role in Nevada’s economy. Indeed, it was

the fabulously rich Comstock lode silver mines, just 17 miles from Reno that provided the economic engine and population that led to Nevada’s becoming a state in

1864. Over the years, this state has had numerous episodes of mining for a wide

variety of mineral products—copper, tungsten, lead, zinc, silver, antimony, gypsum,

barite and the list goes on. Today, gold is by far our most important mineral product. In 1998, Nevada mines led the nation in precious metals production, producing

some 76 percent of the domestic gold and 38 percent of the nation’s silver.

Although Nevada’s mining industry faces a number of important market, technical and regulatory challenges, the industry has developed a large, efficient and

economically viable capital base that is fundamentally sound and sustainable well

into the next century. This capital base has been built through investment of over

$10 billion in expenditures in plant and equipment and exploration since 1980.

Any Federal action concerning hard rock mining has the potential to significantly

impact Nevada and Nevada’s mining industry. This state is approximately 87 percent owned by the Federal Government. These lands are held in the form of military

withdrawn lands, wilderness, a national park and public lands managed by the Department of Interior, Bureau of Land Management and the U.S. Forest Service. The

military lands, wilderness and park are, of course, off limits to mining. It is the

BLM and Forest Service managed lands where a miner operating under the General

Mining Law of the United States and myriad other Federal and state laws and regulations has an opportunity to develop hard rock mineral resources.

ECONOMIC IMPACTS OF MINING IN NEVADA

At the end of 1998, there were more than 13,200 men and women directly employed by the mines and another estimated 43,000 jobs were involved in providing

goods and services to the industry. The direct mining jobs are the highest paid sector in our state economy, with an average annual salary of $50,000. This is well

above the average salary in Nevada of less than $29,000. Mining contributed over

$1.81 billion to Nevadans’ personal incomes in 1997.

In addition to the significant employment in Nevada’s rural counties, with direct

mine annual payroll exceeding $650 million, tax payments to state and local government in 1996-97 totaled approximately $125.5 million. These tax payments come in

the form of sales and use tax—modern mining is extremely capital intensive with

some single pieces of equipment costing in the millions—property tax and net proceeds of mines tax. A large portion of these taxes stays with the local government
9

due to state tax distribution formulae. Over $1 billion in state and local taxes have

been paid by Nevada mining from 1987 through last year.

The key to sustaining tax revenues from Nevada’s minerals industry is maintaining capital investment in the industry’s production capacity and in mineral exploration. Nevada’s unique geology is clearly the most important factor in attracting

capital investments and exploration expenditures. However, Nevada’s tax and regulatory structure also play a key role in industry investment decisions. A reasonable

tax and regulatory environment are critical to maintaining a world class minerals

industry capable of sustaining production here in our state. More importantly, a

consistent, reasonable Federal mineral policy is essential for the future of mining,

both here and throughout the U.S.

THE BUSINESS OF MINING

There are some facts about modern hard rock mining that are relevant. First, for

metals such as gold silver and copper, miners are price takers. That is, the price

of their product is set in the world market place that cannot be effected by any single producer. The dynamics of the markets also preclude any group of producers

from being able to have any significant effect on the price. Given these facts, the

only business variables that a mine can control in the long run are its costs of production.

As an example, we are currently experiencing 20-year lows in the price of gold.

In 1998, Nevada mines reduced their direct cost of production by an average of approximately $15 per ounce. This was done through gains in productivity brought

about by improved efficiency and mining of higher-grade material where possible.

Certain capital expenditures and exploration activities are being delayed as well to

conserve cash. Unfortunately, approximately 1,550 direct mining jobs were lost during 1998 as a result of tightening down on expenses. Many others involved in providing goods and services have also struggled during this period. That situation continues today.

Second, the regulatory climate for modern mining adds costs and time delays. The

modern mining industry has largely agreed with the vast improvements in protection of land, water, air and wildlife over the past 15 to 20 years. These improvements, which absolutely distinguish modern mining’s environmental practices from

historic activities, do add significant costs to doing business. However, to the extent

these changes are reasonable and actually benefit the environment and improve

safety, mining has been supportive.

Third, because metals and other valuable minerals are distributed unevenly in

the earth’s crust, geologists focus on identifying concentrations of metals or minerals

that have the prospect of being mined and produced at a profit. Concentrations that

have this property are called ore deposits. Because the term ore, by definition, implies that it can be developed and produced at a profit, what is ore and what is not

changes routinely with changes in price and changes in costs. As costs rise, or prices

fall or both, what previously may have been counted in a mining company’s books

as ore reserves, may fall into an unmineable category. It is no longer ore because

it can’t be mined at a profit. If a mine’s ore reserves are reduced due to economics

(or any other reason), the life of the mine is shortened and the economic benefit of

mining comes to an earlier end.

EFFECTS OF FEDERAL FEES AND ROYALTY

The foregoing facts about the business of mining are well-recognized in our industry, but they bear repeating in some detail because increased fees, costs, royalties

and so on imposed by the Federal Government result in reduced ore reserves and

therefore, reduced mine lives. The obvious result is the loss of employment and the

positive economic impacts on communities.

Exploration is one of the first mining related activities to suffer the effects of

higher costs brought on by fees, royalties and so on, or lower prices. Exploration is

the effort mining companies make to discover new mineral deposits to take the place

of ore that is mined. Nevada, and the United States, has seen significant decreases

in exploration activities over the past several years. In Nevada, the state Division

of Minerals reported a 32 percent decline in exploration expenditures for 1997.

A significant part of the discussion over the General Mining Law has surrounded

the issue of royalty. Any royalty is an added expense and will have a negative impact on mining and the communities in which mining takes place. However, if there

is to be a royalty, a net proceeds type royalty seems to fit hard rock mineral production best because it takes into account the costs of extracting the metal from the

rock and the fact that producers have no opportunity to pass royalty through to customers. When prices are low, as they are now for gold and copper, the royalty will

be lower, but under net proceeds, operations can stay in business, jobs and contribu-
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tions to local economies can be maintained. When prices are higher, the royalty will

also be higher. This is fair and equitable to both the public and to the industry.

As opportunities in the United States are made less attractive because of more

regulation and higher costs, including the effect of fees and royalties, the mining

companies will leave for foreign venues. Mining capital is highly mobile. In this regard, Nevada and the United States are competing for mining business with the

likes of Chile, Australia, Indonesia, South Africa and many other places that host

economically recoverable mineral deposits. This results in lost opportunity for domestic creation of wealth through mining and the positive economic impacts at all

levels.

CONCLUSION

In summary, any increase in Federal fees, including regulatory costs, maintenance

fees, royalties or the removal of any benefit, such as percentage depletion, has the

exact same impact on a mining company bottom line as does a reduction in the price

received for the mineral product. Currently, modern mining is facing many increased costs in a low price environment. This exacerbates the problem and increases the impacts on local and state government as a result of business impacts

on the mining industry. This suggests that Congress should take great care when

considering the imposition of new costs on this industry. The specific impacts of any

fee, royalty or cost of compliance should be carefully evaluated.

We are particularly thankful for the Subcommittee’s decision to come to Nevada

to receive information to assist you in making good decisions.

Mr. GIBBONS. Thank you very much. Ladies and gentlemen, as

you have noticed, there is a little light affair over here. This is the

standard procedure. On the table up here, there is a green, a yellow and a red light. It’s just like the stoplight you have in a traffic

stop. When it’s green, you can go and talk all you want; when it’s

yellow, you ought to be wrapping it up; and when it’s red, remember, I possess the gavel, and the volume control on the microphone,

in order for us to move along.

Before I go to the next witness, I was reminded that I was remiss

in my duties as the chairman to recognize two distinguished individuals in the audience, both of whom are very dear friends, one

of whom is more of a dear friend than the other. Senator Dean

Rhoads is here, and my wife, Assemblywoman Dawn Gibbons, is

here. I would like to welcome them both.

And as well, we have a wonderful group of people from I should

say the ‘‘People For the USA’’ represented here as well, so welcome,

everyone.

Mr. GIBBONS. Mr. Coyner, the mike is all yours.

STATEMENT OF ALAN R. COYNER, ADMINISTRATOR, NEVADA

DIVISION OF MINERALS

Mr. COYNER. Thank you, Mr. Chairman. I will ask you to have

my testimony at hand because I will be referring to several charts.

My name is Alan R. Coyner, and I’m the Administrator of the Division of Minerals for the State of Nevada.

The mission of the Division, as promulgated by the legislature,

is to promote, advance and protect mining and the development

and production of petroleum and geothermal resources in Nevada.

In light of that mission, the Division has an ongoing concern about

the negative economic impacts to the economy of our State from

Federal mining fees, regulatory changes, and proposed royalties.

And certainly, as you know, hard rock mining is an integral part

of Nevada history and the Nevada way of life. It is truly unique,

paralleled but not equaled by any other State in the Union. And

accordingly, Nevada has devoted a lot of time and energy and re-
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sources to maintain a healthy, viable, and above all, responsible

mineral industry.

An essential component of this has been the relationship between

the Federal agencies and the State and has resulted in what we

call the Nevada Model, and it’s something with regard to that cooperative relationship we’re rightly and justly proud of.

This Committee is seeking to ascertain the effect of Federal mining fees and proposed royalties on State and local revenues, and

with that in mind, I would like to supply you with data that provides evidence of the linkage between the regulatory environment

and mineral exploration activity in our State, independent of the

commodity price.

The Division conducts an annual exploration survey to determine

the level of mineral exploration activity in Nevada, and responses

are generally received from approximately 50 companies, all of

which have exploration programs in the State.

If you look at chart number 1, this is the active claims in Nevada, and you will see a curve described through the 1980s and

early 1990s of increasing activity peaking in 1991, and then as rule

making was promulgated with regards to the $100 mining claim

fee, you will see that that enactment in 1993 resulted in the drop

of claims from approximately 400,000 to 150,000 claims.

I’ve also put on there the price of gold. You can see that that

drop is independent of that price. This drop in claims resulted in

a loss of at least $25 million in annual assessment expenditures toward the discovery of new deposits and a redirection of $15 million

annually from exploration to the Federal Treasury.

If you look at chart number 2, this is exploration expenditures

for companies active in Nevada and this looks at the time period

from 1994 through 1998. And you can see that range for those companies active in the State ranged from $450 million to $1.1 billion

worldwide during a time of static or declining gold prices. But during that same period total dollars spent in Nevada declined from

$154 to $120 million with a further decrease projected for 1998 of

$94 million.

This is somewhat more easily seen in chart number 3 which is

essentially percentage of expenditures, and again for that time period we can see the rising curve upwards of the rest of the world

and the lowering curve for Nevada from 35 percent down to about

12 percent projected in 1998. Again this reduces or eliminates the

influence of price, and suggests mining fees, proposed royalties,

and the cost of regulation have negatively impacted the economy

of our State.

Chart 4 I’ve borrowed from John Dobra, of the University of Nevada, Reno, and the Natural Resources Industry Institute, and it

confirms the trend that the division has found, and extends it backward to about 1992, and you can see there, that under his data,

firms active in North America were spending some 60 percent of

their budgets in the United States, and that percentage is now

down around 25 percent.

This demonstrates especially that exploration dollars are extremely liquid and flow internationally.

And with that, I will also note that I’ve appended Dr. Dobra’s remarks to my testimony. The Division has asked him to do a study
12

in April of 1999 on the local impacts of this spending reduction.

That report is due in early June, and we would appreciate the

Committee allowing testimony to remain open to allow inclusion of

that final report in June.

In conclusion, there is no question that current Federal fees and

regulations have negatively impacted mineral exploration activity

in the State of Nevada. They have played a major role in the exodus of exploration dollars and geological talent from Nevada and

the United States to foreign countries.

Successful Federal mining policy must strike a reasonable balance among the need for regulation, environmental concern, and

economic activity. The exploration surveys conducted by the Nevada Division of Minerals indicate recent Federal actions have

upset that balance.

Mining claim fees, changes in the 3809 regulations, the Crown

Jewel decision, and the enactment of a Federal royalty will only

serve to increase the uncertainty and hasten the exodus. Thank

you, Mr. Chairman.

Mr. GIBBONS. Thank you for a very timely presentation of the

testimony. We’ll have it all submitted for the record.

[The prepared statement of Mr. Coyner follows:]
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Mr. GIBBONS. Mr. Parratt, the floor is yours.

STATEMENT OF RONALD L. PARRATT, COMMISSIONER,

COMMISSION ON MINERAL RESOURCES, STATE OF NEVADA

Mr. PARRATT. Thank you, Mr. Chairman. My name is Ronald

Parratt, and I am here today in my capacity as a commissioner on

Nevada’s Commission on Mineral Resources, a position I’ve held for

the last 8 years.

As background, I have been directly involved in private industry

in mineral exploration in the western United States for almost 27

years, and I’ve lived here in Reno the last 20, working predominantly in Nevada and exploring for gold. In 1993 the Bureau of Land Management implemented a $100 per mining claim fee, or about $5 per acre that was to be paid to

the Federal Government in August of each year in lieu of the traditional assessment work or physical exploration that was previously

required annually to keep a mining claim valid.

In 1993, prior to the fee, there were approximately 330,000 active

mining claims in Nevada. Following the requirement of the fee in

1994, the number of active mining claims fell to around 140,000,

or a reduction of almost 60 percent. Although I don’t have comparable numbers for other states, I’m sure that similar reductions

in the number of claims occurred as well.

Certainly in Nevada, some of these claims might have dropped

for normal business reasons, although in my view, the principle

reason, without doubt, was the claim fee. In support, I’d offer that

I was responsible for dropping several thousand mining claims that

year for my employer who was one of Nevada’s larger explorers.

Filing fees paid for 1995, 1996, 1997 and 1998 in Nevada have generated a total of almost $60 million for the BLM, an average

of almost $15 million a *year, and resulted directly in a corresponding reduction in exploration spending in Nevada during

that time.

The great majority of mining claims in Nevada, and certainly

throughout the west, are held for exploration purposes, and only a

relatively small percentage of claims are actually in use for active

mining operations.

This means only a small percent of the aggregate mining claim

fees are paid for out of the budgets of individual mining operations,

and that the bulk of these fees are paid for out of exploration budgets. Again, payment of the fees directly results in reductions in actual exploration activity and a reduction in the industry’s ability to

discover new resources to replace those that are being mined.

This fee is another added cost for the business of exploration in

Nevada and our country, and reduces the effectiveness of our precious exploration dollars. Not only does this hurt the exploration

business per se, but also with the multiplier effect that translates

into fewer jobs for those industries which service exploration

groups such as drilling contractors, laboratories, restaurants and

even motel owners.

Much of this activity, of course, is in Nevada’s rural communities.

To put some perspective on the size of this burden to the exploration business, it’s estimated that in 1998 between $90 and $100
26

million were spent in Nevada on exploration. Mining claim fees

paid to the BLM for that year were $13 million, which results in

adding a budget burden of about 13 percent to the industry as a

whole just to hold Federal land.

For some added perspective, comparable costs for holding exploration rights on lands in countries who are competing to get these

dollars and jobs are as follows—for comparison, keep in mind the

United States fee is about $5 per acre:

Canada has a variable structure but always less than a dollar

per acre; Mexico again is variable, but always less than 50 cents

per acre; Chile, 48 cents per acre; Peru, 80 cents per acre; and Argentina, 11 cents per acre. New proposals, including royalties and

new reclamation fees are being considered as well, which would

further burden mining companies and exploration. The cumulative

impact of these will be to further weaken and reduce the effectiveness of our exploration dollars and has weakened the competitiveness of our domestic mining industry.

We must do everything possible to keep this from happening and

seek to encourage a strong domestic industry. Thank you.

[The prepared statement of Mr. Parratt follows:]

STATEMENT OF RONALD L. PARRATT, COMMISSIONER, COMMISSION ON MINERAL

RESOURCES, STATE OF NEVADA

Mr. Chairman and Members of the Resources Committee, my name is Ronald L.

Parratt and I am here today in my capacity as a Commissioner on Nevada’s Commission on Mineral Resources—a position I’ve held for the past 8 years. As background, I’ve been directly involved in the private sector in mineral exploration in

the western United States for almost 27 years and have lived here in Reno for the

last 20 years working predominately in Nevada exploring for gold. In 1993, the Bureau of Land Management implemented a $100 per mining claim fee ($5/acre) that was to be paid to the Federal Government in August of each year

in lieu of the traditional assessment work or physical exploration that previously

was required annually to keep a mining claim valid. In 1993, prior to the fee, there

were approximately 330,000 active mining claims in Nevada. Following the requirement of the fee in 1994, about 190,000 claims were dropped and the number of mining claims fell to about 140,000 or a reduction of almost 60 percent. Although I do

not have comparable numbers for other states, I’m sure that similar reductions in

the number of claims occurred as well. Certainly in Nevada some of these claims

might have been dropped for normal business reasons. However in my view, the

principle reason was the claim fee. In support I would offer that I was responsible

for dropping several thousand mining claims that year for my employer who was

one of Nevada’s larger explorers. Filing fees paid for 1995 to 1998 have generated

about $60mm for the BLM—an average of almost $15mm per year and resulted directly in a corresponding reduction in exploration spending in Nevada during that

time. The great majority of mining claims in Nevada—and certainly throughout the

west—are held for exploration purposes and only a relatively small percentage of

claims are actually in use for active mining operations. This means only a small percentage of the aggregate mining claim fees are paid for out of the budgets of actual

mining operations and the bulk of these fees are paid for out of exploration budgets.

Again, payment of the fee directly results in reductions in actual exploration activity and a reduction in the industry’s ability to discover new resources to replace

those being mined. This fee is another added cost for the business of exploration

in Nevada and our country and reduces the effectiveness of our precious exploration

dollars. Not only does this hurt the domestic exploration business per sec, but also

with the multiplier effect, it translates into fewer jobs for those industries which

service exploration groups such as drilling contractors assay laboratories and motel

owners. Much of this is in Nevada’s rural communities.

To put some perspective on the size of this burden to the exploration business,

it’s estimated that in 1998 between $90mm and $100mm was spent on exploration

in Nevada. Mining claim fees paid to the BLM were about $13mm which results

in this fee adding a budget burden of about 13 percent to the industry as a whole

just to hold Federal land.
27

For some additional perspective, comparable costs for holding exploration rights

on lands in countries who are competing to get these exploration dollars and jobs

are as follows; (and for comparison keep in mind that the U.S. Federal fee is $5/

acre) Canada less than $1/acre, Chile $0.48/acre, Peru $0.80/acre and Argentina

$0.11/acre. Mexico is also low but I don’t have an exact figure.

There are of course additional fees paid to hold mining claims in the U.S. which

total about $15/claim per year. New proposals including royalties and new reclamation fees are being considered as well which would further burden mining companies

and exploration. The cumulative impact of these will be to further weaken and reduce the effectiveness of our exploration dollars and hence weaken the competitiveness of our domestic mining industry. We must do everything possible to prevent

this from happening and seek to encourage a strong domestic industry. Thank you.

I’d be pleased to answer any questions.

Mr. GIBBONS. Thank you, Mr. Parratt, and I want to congratulate the first panel here that’s testified. Not one of you got to the

red light. We appreciate that.

Let me maybe throw a question out there. I don’t know if Mr.

Fields or Mr. Coyner or Mr. Parratt want to answer this, but my

original question is for the audience and I think even for the

record, we need to know a little bit about the different types of royalty proposals that are out there. I know that one we talked about

already is a gross royalty, versus net proceeds, versus net smelter

return. Maybe if somebody could just give us a very brief—it’s a

very technical question, but if somebody wants to give us just a

thumbnail sketch so we can understand how each one of those impacts the bottom line, and what each one would produce, if you

can.

Mr. FIELDS. Okay, I will tackle that, Mr. Chairman. This is Russ

Fields, for the record.

Of the three types of royalties you mentioned, let me start with

gross royalty. This is one that has been proposed in the last several

Congresses, and in several bills.

Gross royalty is a royalty that would be imposed on the gross

sales price of the mineral commodity, whether it be gold or copper,

et cetera. It would be applied directly to that price that is received. For example: Today the price of gold is about $276. An 8 percent

gross royalty, which has been proposed in the past, would amount

to approximately $23 per ounce of gold. As my testimony indicated,

this would be the same thing as a $23 fall in the price of gold.

It would go right through to the bottom line, bringing the value

received to the mining company then to something like $253, based

on today’s gold price.

Now, the problem with that, from the mining company’s standpoint, is that is very close to the cash cost of production, the direct

cost in terms of dollars to produce an ounce of gold at many of our

gold mines here in northern Nevada.

That means that there is nothing left over to pay back the cost

of capital. There is nothing left over to pay for administrative overhead and expenses, and, as Mr. Parratt will attest, there is nothing

left to pay for exploration activity to find the next ore deposit.

I think the result of a gross royalty along those lines would be

a very rapid slowdown in the production of hard rock minerals here

in the State.

I think we would see high grading of ore deposits and shortening

of lives, as I mentioned in my testimony, shortening of mine lives.

And the impacts of such a royalty would be very, very substantial.
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Now, the second type of royalty that has been discussed in Congress is referred to as a net smelter royalty, and really, with net

smelter and the other type that I will discuss, net proceeds, the

devil is in the details, how you really define the royalty.

But net smelter royalty for most purposes, would be defined as

taking the gross value of the gross receipts, gross revenues produced by the minerals. Again let’s use gold as an example. At $276 an ounce, you’d take that gross $276 and deduct from that the cost of final refining, producing refined metal out of the door, that is the gold and silver mix

that we produce at our mines, and then apply the royalty to that,

so it’s very close to a gross royalty because the cost of refining as

a percentage of the total cost, is very small.

I have mentioned in my testimony that if there is to be a royalty,

it should be based on a net proceeds type approach. That’s what

we do here in the State of Nevada for our taxation of minerals. It’s

called the Net Proceeds of Mines Tax.

What that does, is it allows a miner to deduct the cost of producing the metal and turning the metal into money, so in other

words, the cost of mining, the cost of milling, the cost of transportation, those costs are allowed to be deducted from the gross receipts, leaving a net profits number, and that is the point at which

royalty would be affixed, at the net proceeds level.

It makes more sense in many ways because when the markets

fluctuate so much, when the price is high the royalty amount will

be higher. When the price of the metal is low, the amount of Royalty will be lower, so it allows a mining company, then, to perhaps

stay in business and then continue to operate even while it pays

a royalty, which may not be the case in the case of a gross.

That was longer than my testimony I apologize for that.

Mr. GIBBONS. You did very well. It was very enlightening to hear

what you say.

Let me turn to Mr. Coyner. Could you maybe explain or expand

a little bit more on the Nevada Model that was in your testimony

so that we can develop that a little further.

Mr. COYNER. One of the largest—or a factor within that model,

is the testimony that Russ just gave. It’s a net proceeds approach

on a royalty which, I think implies we’re in this thing together, and

that can be extrapolated to a national sense as well.

These minerals and others in our State are necessary for our national security, as you well know, and there should be a

participatory process of all the owners in that security.

As we look at the mining companies that are active in the State,

most are public stock companies. A lot of that stock is held by

Americans. So it does imply that we’re in this together and we

need to make those decisions together.

The Nevada Model is a subset on that. Essentially the State

agencies, the Federal agencies, the environmental groups, all the

stake holders come together and forge this process as we go forward in Nevada.

We appreciate that, and that’s a very good working relationship.

It resolves differences early. It obviates the need for lawsuits. It

makes for good working relationships and friendly working relationships.
29

So that, in essence, is the Nevada Model. It’s been copied by

other States which gives testimony to its effectiveness.

Mr. GIBBONS. Mr. Coyner, on these charts that you have submitted to us, is there a point on there which you can identify for

us the time in which the Nevada Model or the net proceeds implementation took effect in this chart, perhaps to show if there is a

significant downward trend simply due to Nevada’s implementation

of a net proceeds royalty?

Do you recall what year we implemented that?

Mr. FIELDS. Mr. Chairman, this is Russ Fields, for the record.

The Net Proceeds of Mines Tax has been a part of Nevada since

the very early days. In fact, I think it is in the Constitution that

mines shall be taxed on their net proceeds, so it’s a very, very old

tax that goes way back before any of, I think, Mr. Coyner’s charts.

I would say that I had the opportunity in 1989 to be very involved with the State government’s efforts to adopt its reclamation

program which—and also its water pollution control program for

mines.

Both of those things happened in 1989, and I think that was

probably, in my recollection, realistically where we could say that

the Nevada Model was born. It was a collective cooperative effort

of State agencies, the Federal Government, the environmental community, and mining industry, so there, again, I think that probably

predates everything on Mr. Coyner’s charts.

I’m looking at the Active Claims in Nevada chart over my neighbor’s shoulder here, and what happened in 1993 to the mining

claims had nothing to do with the State of Nevada and had everything to do with the imposition of a $100 per claim per year holding fee from the Federal Government, so that’s probably the most

remarkable thing that is affecting the charts that I’m looking at

here.

Mr. COYNER. Mr. Chairman, I would add that I think that if Dr.

Dobra were here he would express that the 1990s and it’s capital

development and development expenditures and also our production have risen and that is sort of an inertia effect of all this exploration and activity that we saw in the 1980s and the early 1990s.

The problem we see now is that that exploration activity has

been curtailed, so the worry is for the future. Certainly, as we need

to replace these reserves Mr. Parratt spoke of, we have a need to

expend those exploration dollars, and they are not being spent in

considerable amounts.

I mean we’re talking multi-hundreds of millions of dollars per

year that are not being spent in Nevada, and that’s significant.

Mr. GIBBONS. The point I want to make is that the imposition

of Federal royalties, is it your opinion that it will have a dramatic

lowering of the production from the mines of metals and minerals

in this State?

Mr. COYNER. Certainly if the royalty is in any way punitive or

high relative to other countries in the world. Again, mineral production is a global business. Money flows to where it is welcome.

If those royalties are excessive or judged to be excessive, production

will go off shore.

Mr. FIELDS. If I may Mr. Chairman, just to add a little bit to

that: Yes, the impact would be immediate. I think the charts that
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you see here about what happened to the mining claims, this

speaks to the fact that business will react immediately to its business conditions. It will not wait. It has other opportunities.

We could definitely see an exodus certainly first of exploration,

a slowdown of mining, and then decline and stoppage of mining if

the royalty is onerous enough. It would be very simple to overturn

this apple cart right now, especially with the low price environment

that our mines are dealing with.

Mr. Coyner’s Division of Minerals has estimated that approximately 30 percent of Nevada’s nation-leading gold production is derived from public lands, today. That 30 percent represents now approximately three million ounces of gold, which is more than any

other State produces, coming right from Nevada.

Now, that royalty, any Federal royalty would be applied to that

3 million ounces of gold if something were to happen today.

I also submit, as you mentioned in your opening remarks, that

the future of the mining industry in Nevada is on public lands;

that 30 percent is going to increase over time if we can preserve

the status quo, because 87 percent of our State is owned by the

Federal Government.

There is simply no other place to explore than on public lands,

so if we were to have a Federal royalty, in the future, it will be

imposed upon any new discoveries that are made on those Federal

lands.

The big IF, though, is will there be any exploration of those

lands? I suspect that there will be much less if there is a gross royalty. So the imposition of any royalty will have an immediate negative impact on the State of Nevada, its State government, its local

government, its communities and certainly the mining industry.

Mr. GIBBONS. Well, let me ask each of you to put on a hat that

has a broader perspective and wider vision than just the State of

Nevada. Do any of you have an opinion as to the effect of a reduction in our mining capability with regard to our national economy

or our national defense, natural security? The role mining plays nationally would be affected in some way by this, and if any of you

have any thoughts, I’d like to hear about that.

Mr. PARRATT. Well, there is no doubt that everything in our economy runs from mining because as you said earlier, if it can’t be

grown it has to be mined, everything from the computers we operate, to the building we’re in, to the lights that are illuminating this

room are coming from mining. We have to preserve a strong industry in this country. Mining is very, very important to our economy.

Mr. FIELDS. The State of Nevada is blessed with, as you know,

Mr. Chairman, the kind of geology that is conducive to lots of various types of minerals.

In the past this State has produced tungsten; it’s produced antimony; it’s produced molybdenum; it’s produced manganese. The list

goes on and on.

Today we’re producing gold and silver and copper and a variety

of industrial minerals, but all of these minerals are somehow used

to make this Nation strong. For example, tungsten, is used in the

hardening of steel which is used in weaponry.

We need those, obviously we do. Gold, now, is so important in

electronic components, computers. When this Nation does its work
31

overseas in the war arena, which we do from time to time, we have

to have gold to make those components work correctly the first

time, every time.

So that is just a small example, and certainly there are others

who’ll testify today who have lived the time when we were in major

wars and we needed to have the mineral commodities that this

State can produce, and this Nation can produce.

Another thing that is important is our mineral production, especially for gold, is allowing the United States to be a net exporter

of gold. It does contribute to the balance of trade for this United

States, which, it’s a contribution. It’s certainly not enough to say

that we’re going to turn that balance of trade around, but it’s a

contribution. Nevada is doing its part for the balance of trade.

Mr. GIBBONS. I just have two final questions for this panel, and

then we’ll try to move on.

Mr. Coyner maybe I can direct this to you. The Nevada Division

of Minerals, has it made any estimates of remediation? I know in

the past practice of mining, we have a lot of abandoned mines out

there which no company today would tolerate or even be permitted

to contribute to, but we have the remediation cost question, I’m

sure.

Have you tried to quantify the abandoned mine lands problem in

Nevada in terms of dollars, and do you have any handle on what

the eventual total cost would be to solve this problem?

Mr. COYNER. The Nevada Division of Minerals is charged with

the physical securing of hazardous mines in the State. With the

abandoned mines programs we have, we estimate those numbers to

be in the 50,000 to 100,000-type range in terms of hazardous openings. The cost of each of those to remediate is about $500 per site or

so, so that would give you a fee or figure on the physical hazard

side. Now, if we’re going to talk about the environmental hazard

side, it’s a much larger issue and a much bigger number.

I don’t think anyone in this State has really put their mind to

it yet in terms of what that total is, but let me say in that regard,

that we have recently struck up an interagency task force of both

the State agencies and the Federal agencies utilizing monies that

are coming to us from the BLM to take a look at exactly that problem and try to get a handle on that.

So in order to put a total number on that right now would be

somewhat premature, and again, it depends on what you call satisfactory with regards to the remediation. How much, to what level

must you remediate it.

It’s a national issue. It’s being tackled actively in places like Colorado, Montana, and California as well, and we’re doing the same

here in Nevada, but I really can not put a number on it here for

you today, Mr. Chairman.

Mr. GIBBONS. Finally, let me ask a question about educational

outreach. I know all of you have been involved in that for some

time, and maybe you can explain to us for the Committee and for

the record, your educational outreach for Nevada students with regard to mining.

Mr. COYNER. I will start with that. As you know, Russ Fields was

my predecessor at the Division of Minerals, so we have both been
32

very actively involved in our education program there, and we partner that program with the Nevada Mining Association and with

members of the industry.

There are many, many professionals involved in the business

today in Nevada that feel quite strongly about mineral education

of our people and of our school children.

We sponsor in Nevada, teachers’ workshops twice yearly, one in

the spring in Las Vegas and one in the summer in northern Nevada. These are very well attended and very highly spoken of.

Again those are partnered with industry and the Nevada Mining

Association. We regularly go into the school classrooms. My division alone does over 200 presentations during the course of the

school year, and everyone from our secretary/receptionist to the administrator participates in those duties.

We feel very strongly about that mission and getting that word

out to the Nevada schoolchildren. And finally I think we do need

to realize that of the 1.8 million people in our State, 1.3 million live

in Las Vegas and that, again, is a very unique thing to Nevada.

We do have a brand new growing population down there that needs

to hear that message and needs to understand why mining is important to them, so we’re very concerned about that.

And we continue to push regularly and hard on that mineral

educational issue.

Mr. GIBBONS. Finally, before I let you go—I know, I promised

you just two questions, but I can’t let you go without this one.

Do you see an area, any of you see an area, knowing the present

status of Nevada laws, where the Federal Government needs to

enact stricter laws that have been overlooked on your behalf, or an

area where you think the Federal Government should step in to

enact stricter laws because the State for some reason may have

failed or is unable to proceed in that area?

Mr. FIELDS. No. I think the point that needs to be made to the

Federal Government is that the production of hard rock minerals

is an activity that requires closeness—I’m not sure that’s the right

term, but close oversight from local and State regulators, because

of the unique character of different kinds of mines, and conditions.

We have mines here in areas that produce 2 inches per year of

rainfall. Montana has mines in areas that produce 50 inches of

rainfall, and Alaska, much more. How can the Federal Government

come up with a one-size-fits-all type of regulation to deal with the

wide variety of mineral resources that we have and the wide variety of climatic, geographic and economic conditions that we have?

I think the current debate over the 3809 regulations is a case in

point. Nevada has developed a network, a system of regulations

that work very well for Nevada. Other states have developed networks, systems of laws and regulations that work very well for

their conditions.

I think the role for Federal oversight is just that. It’s an oversight to make sure that broad public policy guidelines are being

met, but leave it to the local States actually to do the regulation

on them.

Mr. GIBBONS. I’m not his straight man.

Mr. Coyner?
33

Mr. COYNER. Mr. Chairman, I would add something from one

small perspective, which is the State bond pool. The Division of

Minerals does administer that program for the State, which helps

the smaller and moderate-sized mining companies meet their bonding obligations.

The track record of that bond pool has been one of no forfeitures

during the time of it’s existence. So we have demonstrated the

State can respond on that level and manage that actively and with

satisfaction.

Another point I will make is that we have had several companies

in difficult times in the recent past year or two with regard to finances and bankruptcy. The system, because of the well-thoughtout nature of it in Nevada, has responded to those timely and with

decision, and it’s being managed in a proper and appropriate way.

So, again, I think the evidence is the Nevada Model, if you want

to call it that, responds to various situations, is very well designed

and suits our State very well and good.

Thank you.

Mr. GIBBONS. Mr. Parratt.

Mr. PARRATT. I can only agree with what my counterparts at the

table have said. I think things are going quite well in Nevada. I

don’t think we need any additional regulations on the Federal side.

Mr. GIBBONS. Well, gentlemen, thank you very much for your

time and testimony here today. It’s been very helpful, and we appreciate you being present today to help us better understand Nevada, its mining industry, and the future in hand for where we

want to go.

With that, I’ll go ahead and release this panel and call the next

panel up. I don’t know if Assemblywoman Marcia de Braga has

made it to the room, but it will consist of Victoria Soberinsky, the

Deputy Chief of Staff for Governor Kenny Guinn; Senator Dean

Rhoads, we have also mentioned here earlier, Chairman, Natural

Resource Committee, Nevada State Legislature; and

Assemblywoman Marcia de Braga, Chairman of the Natural Resources, Agriculture, and Mining Committee for the Assembly, Nevada State Legislature.

Mr. GIBBONS. Do we only have the two of you?

[Witnesses sworn.]

Mr. GIBBONS. It’s good to see you. Let me welcome both of you

to the panel today. I apologize for the delay. We appreciate your

time, your patience in waiting, and Mrs. Soberinsky, the floor is

yours.

STATEMENT OF VICTORIA SOBERINSKY, DEPUTY CHIEF OF

STAFF FOR GOVERNOR KENNY GUINN, STATE OF NEVADA

Ms. SOBERINSKY. Thank you very much, Mr. Chairman, and for

the record my name is Victoria Soberinsky, and I am the Deputy

Chief of Staff for Kenny Guinn in Nevada.

I appreciate the opportunity to testify today regarding the effects

of Federal mining fees and proposed Federal royalties on State and

local revenues and the mining industry.

Mining is an integral part of Nevada history and the Nevada

way of life. Nevada continues to be a world leader in gold production and produces the most silver, magnesite and barite in the Na-
34

tion. Accordingly, Nevada has devoted a tremendous amount of

time and resources over the years to create and maintain a strong

and responsible mining industry.

I believe that Nevada is one of the most environmentally responsible mining regions in the world; however, even with Nevada’s

successes and proven track record, I believe Congress and the State

should continue to work with the industry and the environmental

community to continue to minimize mining effects on the land and

the other land users.

To be clear, the issues of reasonable Federal mining fees and proposed Federal royalties are legitimate discussion points. However,

the impact from these proposed fees, royalties and proposed Federal regulations on my State, our local communities and the mining

industry are equally important.

The industry is an important contributor to the Nation’s economy

and my State’s economy in particular. Nevada’s mining industry

has created approximately 13,000 jobs directly related to mining

with an additional 45,000 jobs indirectly related to the industry.

Generally speaking, these are high paying jobs that average close to $50,000 per year. Rural Nevada communities, such as Elko, Carlin, Battle Mountain, Winnemucca, Ely, Eureka and Tonopah are

all dependent on a vibrant mining industry.

As you contemplate proposed Federal fees and royalties and have

the opportunity to review proposed Federal regulations, I hope you

will keep in mind those communities and those families who built

a future around a responsible and environmentally sensitive mining industry.

I’d like to make some brief remarks about the Department of Interior’s initiative to amend its land management, or 3809 regulations.

Nevada has closely monitored this initiative since the Secretary

of Interior directed the BLM to draft regulations in January of

1997. Since that time there has been no real justification offered

by Interior regarding the need to make changes.

Some people in groups have described our opposition to the 3809

revision as anti-environmental. I can assure you that nothing can

be further from the truth. Nevada has strong State laws and regulations requiring reclamation of land disturbed by mining.

Today, Nevada holds over $500 million in reclamation sureties to

ensure successful reclamation. My State has also developed comprehensive regulations governing water quality standards at mining operations. These requirements are working well because the

environmental community, mining industry, and State and Federal

regulators crafted them with a great deal of cooperative effort.

Nevada’s opposition to BLM’s draft 3809 regulations is based on

the fact that our comments and input regarding this action have

largely been ignored.

I believe the current draft regulations are onerous, unnecessarily

burdensome and duplicative. In short, Interior is attempting to

move the responsibility for environmental oversight of mining operations from Nevada and other western States to Washington, DC.

Interior’s efforts would clearly and significantly impact Nevada’s

mining industry; but they will also adversely impact Nevada’s economy and our environment.
35

Nevada is the most arid State in the Nation. The condition of

public lands and the reliable quality and quantity of Nevada’s

water resources are vitally important to our State. Nevada has

demonstrated it’s eminently qualified to protect these resources.

Another level of Federal bureaucracy is simply not necessary.

I believe reasonable mining fees and Federal royalties would benefit all stake holders, including the States, Federal Government,

and industry. Proposed changes in mining fees should end the

$2.50 to $5 per acre patenting fee and replace it with provisions

to sell the patent for the surface land’s market value. This type of

royalty would closely resemble the State of Nevada’s net proceeds

system.

The administrative costs of our program are $250,000 annually,

but the system has historically generated millions of dollars on an

annual basis.

Nevada would support these types of fee and royalty proposals

because they are fair. While these fees would clearly increase costs

in these difficult economic times, industry could benefit because it

would reduce some uncertainties and risks associated with mining

in the United States today.

The price of gold today is approximately $280 per ounce. This

very large variable has been the main force behind the loss of nearly 1,000 jobs across Nevada in the last 2 years.

While commodity prices cannot be controlled, the need to reduce

other variables is evident. Nevada would support improvements in

the status quo in the areas of fees, royalties and regulations, as

long as they have a benefit and are consistent with our goals and

objectives, most notably to have a strong, well-regulated, environmentally sound mining industry.

Thank you very much, Mr. Chairman.

Mr. GIBBONS. Thank you very much, Ms. Soberinsky.

[The prepared statement of Hon. Kenny C. Guinn follows:]

STATEMENT OF HON. KENNY C. GUINN, GOVERNOR, STATE OF NEVADA

Mr. Chairman and members of the Subcommittee, I appreciate the opportunity to

testify today regarding the effects of Federal mining fees and proposed Federal royalties on State and local revenues and the mining industry. Mining is an integral

part of Nevada history and the Nevada way-of-life. Nevada continues to be a world

leader in gold production and produces the most silver, magnesite and barite in the

nation. Accordingly, Nevada has devoted a tremendous amount of time and resources over the years to create and maintain a strong and responsible mining industry. I believe that Nevada is one of the most environmentally responsible mining

regions in the world. However, even with Nevada’s success and proven track record,

I believe Congress and the states should continue to work with the industry and

the environmental community to continue to minimize mining effects on the land

and the other land users.

To be clear, the issues of reasonable Federal mining fees and proposed Federal

royalties are legitimate discussion points. However, the impacts from these proposed

fees, royalties and proposed Federal regulations on my state, our local communities

and the mining industry are equally important. The industry is an important contributor to the nation’s economy—and my state’s economy in particular. Nevada’s

mining industry has created approximately 13,000 jobs directly related to mining,

with an additional 45,000 jobs indirectly related to the industry. Generally speaking

these are high paying jobs that average close to $50,000 per year. Rural Nevada

communities such as Elko, Carlin, Battle Mountain, Winnemucca, Ely, Eureka and

Tonopah are all dependent on a vibrant mining industry. As you contemplate proposed Federal fees and royalties and have the opportunity to review proposed Federal regulations, I hope you will keep in mind those communities and those families

who built a future around a responsible, environmentally sensitive mining industry.
36

I would like to make some brief remarks about the Department of Interior’s initiative to amend its land management or 3809 regulations. Nevada has closely monitored this initiative since the Secretary of Interior directed the BLM to draft regulations in January 1997. Since that time, there has been no real justification offered

by Interior regarding the need to make changes. Some people and groups have described our opposition to the 3809 revisions as anti-environmental. I can assure you

that nothing can be further from the truth. Nevada has strong state laws and regulations requiring reclamation of lands disturbed by mining. Today, Nevada holds

over $500 million in reclamation sureties to ensure successful reclamation. My state

has also developed comprehensive regulations governing water quality standards at

mining operations. These requirements are working well because the environmental

community, mining industry, and state and Federal regulators crafted them with a

great deal of cooperative effort. Nevada’s opposition to BLM’s draft 3809 regulations

is based on the fact that our comments and input regarding this action have largely

been ignored. I believe that the current draft regulations are onerous, unnecessarily

burdensome and duplicative. In short, Interior is attempting to move the responsibility for environmental oversight of mining operations from Nevada and other

Western states to Washington, D.C. Interior’s efforts would clearly and significantly

impact Nevada’s mining industry, but they will also adversely impact Nevada’s

economy and our environment, Nevada is the most arid state in the Union. The condition of public lands and the reliable quality and quantity of Nevada’s water resources are vitally important to our state. Nevada has demonstrated that it is eminently qualified to protect these resources. Another level of Federal bureaucracy is

simply not necessary.

I believe reasonable mining fees and Federal royalties would benefit all stakeholders including the states, Federal Government and industry. Proposed changes

in mining fees should end the $2.50 to $5.00 per acre patenting fee and replace it

with provisions to sell the patent for the surface land’s fair market value. This type

of royalty would closely resemble the State of Nevada’s net proceeds system, which

has proven to be highly effective. The administrative costs of our program are

$250,000 annually, but the system has historically generated millions of dollars on

an annual basis.

Nevada would support these types of fee and royalty proposals, because they are

fair. While these fees would clearly increase costs in these difficult economic times,

industry could benefit because it would reduce some uncertainties and risks associated with mining in the United States today. The price of gold today is approximately $280 per ounce. This very large variable has been the main force behind the

loss of nearly one thousand jobs across Nevada over the last two years. While commodity prices can not be controlled, the need to reduce other variables is evident.

Nevada would support improvements to the status quo in areas such as fees, royalties and regulations as long as they have a benefit and are consistent with our goals

and objectives, most notably to have a strong, well regulated, environmentally sound

mining industry. Thank you.

Mr. GIBBONS. Senator Rhoads, welcome, and the floor is yours.

STATEMENT OF DEAN A. RHOADS, CHAIRMAN, NATURAL

RESOURCE COMMITTEE, NEVADA STATE LEGISLATURE

Mr. RHOADS. Thank you.

Good afternoon, Mr. Chairman. I’m Dean Rhoads, Chairman of

the Nevada Senate Natural Resources Committee. I wondered perhaps, when this hearing is over with, if you could do Dawn and I

a favor and lend us your light there for the legislature.

Mr. GIBBONS. It is a wonderful thing.

Mr. RHOADS. We have 16 days left, and I’m sure if we had that

light there we could cut it down to 8.

Mr. GIBBONS. I will see if I can send you a copy of it.

Mr. RHOADS. Mining is an industry, as you know, that I have

spent many years hearing about from your side of the table. It’s a

pleasure to be here today, after four months of the legislative session, to sit on the witness side to share with you some of my observations I’ve collected for over the years.
37

As a rancher from Tuscarora, in the morning I could look out and

see the Independence Mine, and in the spring we’d drive the cattle

down through Barrick, Rodeo, Meickle and Newmont’s mine, and

by the Digal mine and by Rossi Mine.

I’ve spent almost all my entire professional career working near

mining and learning about its effects on rural communities. In

1977, when I was elected to the Nevada Assembly I began considering mining from a policy perspective. My experiences as a legislator have brought to life the complexities of mining on a statewide

level.

In 1985, I was appointed to the interim Public Lands Committee,

a committee which I’ve chaired since that time. I’ve also been

Chairman of the Natural Resources Committee since 1995.

While mining exists throughout Nevada, it’s my Senate District

that is the most productive mining region in the State, and arguably, the third most productive region in the world. I represent

Elko, Lander, Humboldt Counties and most of Eureka County. The

effects that mining has had on my District over the years has been

profoundly positive at times and very poor at others due primarily

to market fluctuations.

The simple fact is that the value of Nevada’s primary ores—gold,

silver, and copper, are established on the open market. Economic

fluctuations, sometimes severe, are felt throughout the rural communities that I represent.

These counties depend on tax revenues from the Net Proceeds of

Mines. Even with the current depressed market, Net Proceeds of

Mines constitutes between 20 percent to—in the case of Eureka

County—50 percent—of the rural counties’ assessed valuation. In

contrast, net proceeds of Mines in Clark County is only $8 million

of the county’s total $26 billion in assessed valuation.

Additionally, there have been roughly 1,500 layoffs over the past

year, year and a half, throughout Nevada. Yet, these laid-off workers come primarily from rural Nevada, representing a rather significant percentage of the work force.

The fate of rural Nevada is not dire, thankfully. There are signs

of economic diversification, and ranching and tourism and farming

continue to contribute to the economy. Moreover, Nevada’s rural

communities consist of survivors—people who always keep their

chins up and endure the tough times. And there have been tough

times.

Nonetheless, it’s my district that must be remembered when considering policies such as royalties and fees on mining. A lot can be

learned from studying the effects on our communities by the recent

drop in the price of gold—a factor that is out of our control.

Parallels can certainly be drawn between the changing market

and changes in royalties and fees. Additional reductions in mining

revenue, even those that are seemingly small on paper, will have

weighty repercussions on the local businesses, infrastructures, and

families of rural Nevada.

I appreciate the Subcommittee’s attention to these details, and I

thank you again for the opportunity to testify here today on this

most important issue. We thank you.

Mr. GIBBONS. That light really works, doesn’t it?
38

Mr. RHOADS. It sure does. Senator O’Neil would really like that.

I should grab it up for the last day of the session and give it to

him.

[The prepared statement of Mr. Rhoads follows:]

STATEMENT OF DEAN A. RHOADS, A STATE SENATOR FROM THE STATE OF NEVADA

Good afternoon Mr. Chairman and members of the Subcommittee. I’m Dean

Rhoads, Chairman of the Nevada Senate Natural Resources Committee.

Mining is an industry that I have spent many years hearing about from your side

of the table. It is a pleasure to be here today on the witness side to share with you

some of the observations I’ve collected over the years.

As a rancher from Tuscarora, Nevada, which is in the northern-most part of the

state, I have spent almost all of my entire professional career working near mining

and learning about its effects on rural communities. In 1977, when I was elected

to the Nevada Assembly, I began considering mining from a policy perspective. My

experiences as a legislator have brought to light the complexities of mining on a

state-wide level. In 1985, I was appointed to the interim Public Lands Committee,

a committee which I have Chaired since that time. I have also been Chairman of

the Senate Natural Resources Committee since 1995.

While mining exists throughout Nevada, it is my Senate district that is the most

productive mining region in the state, and arguably the third most productive region

in the world. I represent Elko, Lander, Humboldt and Pershing Counties, and half

of Eureka County.

The effects that mining has had on my district over the years has been profoundly

positive at times and very poor at others due primarily to market fluctuations. The

simple fact that the value of Nevada’s primary ores—gold, silver, and copper—are

established on the open market, economic fluctuations—sometimes severe—are felt

throughout the rural communities that I represent.

These counties depend on tax revenues from the Net Proceeds of Mines. Even

with the current depressed market, Net Proceeds of Mines constitutes between 20

percent to—in the case of Eureka County—50 percent of the rural counties assessed

valuation. In contrast, Net Proceeds of Mines in Clark County is only $8 million of

the county’s total $26 billion in assessed valuation.

Additionally, there have been roughly 1,500 lay-offs over the past year and a half

throughout Nevada; yet, these laid-off workers come primarily from rural Nevada,

representing a relatively significant percentage of the work force.

The fate of rural Nevada is not dire, thankfully. There are signs of economic diversification, and ranching and farming continue to contribute to the economy.

Moreover, Nevada’s rural communities consist of survivors—people who always keep

their chins up and endure the tough times. And there have been tough times.

Nonetheless, it is my district that must be remembered when considering policies

such as royalties and fees on mining. A lot can be learned from studying the effects

on our communities by the recent drop in the price of gold—a factor that is out of

our control. Parallels can certainly be drawn between the changing market and

changes in royalties and fees. Additional reductions in mining revenue, even those

that are seemingly small on paper, will have weighty repercussions on the local

businesses, infrastructures, and families of rural Nevada. I appreciate the Subcommittee’s attention to these details.

Thank you, again, for the opportunity to testify here today on this important

issue, which is critical to the livelihood of rural Nevada.

Mr. GIBBONS. Well, both of you, thank you for your time here

today, and Senator Rhoads, let me just begin with you because you

were mentioning about rural life, rural lifestyle and impact. And

there are some, but particularly the opposition to the mining industry, who claim that the development of tourism can replace the loss

of the jobs in mining industry and the economic base or other resource-dependent jobs in our rural communities.

As a legislator from rural Nevada, can you comment on this idea

of where you see tourism supplanting the loss of jobs and the quality of the lifestyle, where, as Ms. Soberinsky stated, the average

salary is about $50,000 for someone in the mining industry?

Can you just give us your opinion and your perspective.
39

Mr. RHOADS. I think as a rural legislator, one of the big issues

in this session of the legislature is how are these rural counties

going to survive with their hospitals deteriorating, with their

schools—they do not have enough tax base to generate any revenue. As far as any economic development that would create tourism, they don’t have enough private land to put a decent tourism

attraction on.

We’re working in these last 2 weeks, addressing the rural counties is going to be one of the major issues we come up with; and

I think for the first time in Nevada history, or at least the first

time since I have been in the Nevada legislature—and that’s 22

years—you’re going to see the State actually participate in some

kind of funding mechanism to get these rural counties back into decent financial shape.

And most of it has been caused, in a lot of the rural counties,

because of the declining mining industry, thanks to the Federal

Government. So that is a factor.

Mr. GIBBONS. Well, I know, Senator Rhoads, because of your action and your ideas, many of us in Congress, Senator Reid and myself, have instituted what we call the Northern Nevada Public

Lands Bill, which we have introduced, which will sort of assist

some of these poor counties, both in their need to grow, need to expand, in some of the communities, as well as a resource or revenue

source for some of these very important needs, like education,

health care and maintenance of highways, et cetera.

So I applaud you for your efforts in looking for those solutions

as well.

Ms. Soberinsky, for the record I read along with you in your

statement, and I do want to correct one thing: I believe you stated,

and maybe it was a misstatement, that the bonds held by Nevada

were $50 million. In your record of testimony you said $500 million.

Which is correct? It’s on page 2——

Ms. SOBERINSKY. Five hundred million, from my information.

Mr. GIBBONS. Okay. And Ms. Soberinsky, the Department of the

Interior has maintained that their Draft Proposal 3809 regulations

were developed in cooperation with the States. Since Nevada may

well be one of the most important mining states in the Union, one

would assume, of course, that they had solicited a great deal of

input from the State of Nevada; but in your testimony, you have

indicated otherwise.

How would you characterize the Interior Department’s efforts to

seek the State of Nevada’s input into their Draft 3809 regulations?

Ms. SOBERINSKY. Mr. Chairman, as you know, we’re a new administration, however I’ve spoken to various State agencies, including Pete Morris at the Department of Conservation and Natural

Resources, and have been told that there was relatively no solicitation from the Department of the Interior on our concerns, Nevada’s

concerns in particular, but on the draft regulations as a whole, and

that our input was largely ignored and not taken into consideration

at all.

Mr. GIBBONS. Now, would you mind submitting to the Committee

for the record, a record of or description of any meetings, or your

suggestions that came from the State of Nevada with regard to the
40

proposed 3809 regulations so that we can incorporate that into this

record?

Ms. SOBERINSKY. Absolutely. We would be happy to do that.

[The information follows:]

Mr. GIBBONS. Let me explain for those of you in the audience,

the gentlemen that are sitting up here beside me are not Congressmen. They are staff. Jack Victory from Fallon over here is my legislative director and works with me in Washington, DC.

John—I forgot your last name, I’m sorry——

Mr. RISHEL. Rishel.

Mr. GIBBONS. [continuing] Rishel, is the staff member from the

Committee. And Doug Fuller is the staff legal counsel for the Resource Committee, and, of course, when I forget to do something,

they’ll hand me a note. Let me say that for both of you, maybe we

can get one final question and then be pleased to let you resume

your busy lives.

If I were to go back to Congress and give them one statement

or summary about Nevada mining, what should I tell them?

Ms. SOBERINSKY. This is actually—I was going to add on to Senator Rhoads’ comments earlier when you had asked about tourism

replacing the mining industry. I’d say most importantly, I think

sometimes what the Federal Government forgets is that the mining

industry and the people that make up the mining industry are integral parts of the communities that they live in.

They are the first ones there with scholarships when needed;

they’re the first ones there when there is a health care crises. They

are the first ones there when there is a family in their community

that needs something.

They are not just this monolithic industry that mines gold out of

the ground and takes all its profits and runs. They significantly

contribute to the livelihood of each of those communities, and I

think that that is something that the Federal Government needs

to take into consideration in dealing with this issue.

Mr. GIBBONS. I’m not her straight man.

Mr. RHOADS. I would say, Congressman, that we should tell them

that the people that are the closest to the ground are the ones that

can make the wisest decisions, and we live there and we’re going

to come back there. And we’re going to take care of that ground

much better than somebody from Maryland or Pennsylvania, or Arkansas. I have been telling them that for 25 years back there, and

sometimes we gain a little, and a lot of times we lose, but thanks

to Congressmen like you and others, I think that there’s a little bit

of light at the end of the tunnel now and we might be getting our

voices heard, so we appreciate that.

Mr. GIBBONS. Well, thank you. We’re happy to have both of you

here today. Thank you for your very helpful testimony.

Again, we’ll excuse you, and appreciate your follow-up with any

additional testimony or documentation that you have.

With that, let me call our third panel up, Glenn Miller, Cochair

Mining Committee, Toiyabe Chapter, Sierra Club, Reno, Nevada;

Tom Myers, Director, Great Basin Mine Watch, Reno, Nevada; Leo

Drozdoff, Chief, Bureau of Mining Regulation and Reclamation, Nevada Division of Environmental Protection, Carson City, Nevada.

Gentlemen.
41

[Witnesses sworn.]

Mr. GIBBONS. Welcome to each of you. As you have heard, your

full written testimony will be submitted for the record. You’re free

to paraphrase and summarize in any way you see fit.

The lights will come on for you, each one, to give you a certain

time frame within which to discuss your points.

Mr. GIBBONS. With that, Professor Miller, we’ll turn to you first.

STATEMENT OF GLENN C. MILLER, COCHAIR, MINING COMMITTEE, TOIYABE CHAPTER, SIERRA CLUB, RENO, NEVADA

Mr. MILLER. Thank you. I appreciate the opportunity to make

some brief comments, and I appreciate your willingness to hold this

hearing.

I think all the speakers before us have made the comment, which

is very true that the industry is very much depressed right now because of a severe depression in gold prices.

When gold was up at $400 an ounce, I think everybody was

happier. It’s a lot easier to talk to industry when they have a lot

of money, about environmental issues, and it’s more difficult when

they don’t have as much profit margin present.

But the issues that I guess I’d like to make is that even though

the depression is there in prices, and profitability is not there, the

environmental, risk of the environmental costs remain about the

same, and I am very concerned that the funds to insure that the

mines are mining in an environmentally responsible manner be retained.

There is an issue of bankruptcies in Nevada. Now, the numbers,

I’m not completely sure about. They change on a fairly frequent

basis, but there are over 13 mining sites that have gone into bankruptcy in recent years, and some of these operations are major

ones.

The Arimetco’s Paradise Peak and the Yerington copper mine.

Those are ones where the bonding was severely problematic. Part

of it was a corporate bond that is no longer, at least, accessible at

present. Pegasus’ large mine, Florida Canyon; and Alta Gold is now

in bankruptcy. They may come out of bankruptcy; but they have

Olinghouse mine just above the Pyramid Lake reservation, plus

two other mines in Nevada.

While bonds are available for these mines under Nevada regulations—I was involved in establishing both the legislation that established reclamation law, which, although it was debated very

highly in 1989—I remember having shouting matches in the legislature, during that time—whether that was a consensus process, I

don’t know, but the way legislation goes, it did move forward.

That, we agreed would not bond for fluid costs. Now, probably I

think one of the largest emerging problems from mining and environmental issues have to do with how to handle fluids that come

out of the waste rock dumps, fluids that come out of heaps, and pit

lakes.

There is no authority, and in fact there is specifically an inability

to bond for those specific units on major mines. And those are probably some of the largest environmental problems with largest costs

that ultimately may be incurred.
42

One of the mines, Paradise Peak, half of the bond was held as

a corporate guarantee, may come back but it’s problematic. We

have to get in line with other of the debtors from that mine.

This now has a tailings impoundment that you can see when it

blows, like it has blown for the last few days, you can see it from

10 miles away, the tailings impoundment dust, or dust which

causes—pretty reactive materials can be seen 10 miles away. It has

a pit lake that the last time I saw any gauge on it, was going sour,

going acidic, there was a tremendous amount of physical risk from

that site also because of the very high instability in the wall rock.

Who’s going to pay for this? I mean, this is not a trickle cost.

This will be many millions of dollars. And I guess that I would

argue that a royalty fee, should it be established, should be dedicated to paying for those mines that go under that are not sufficiently bonded.

Three quick points here: I want to provide a brief overview of

three generic problems that are becoming increasingly prevalent in

Nevada.

Pit lakes: In the next 30 years, there will very likely be more

water in pit lakes than all the other man made reservoirs in Nevada, excluding, of course, Lake Mead. And I don’t think anyone

argues that point at all.

It’s also my belief that the water quality in these pit lakes will

not meet the majority of uses that include agricultural, either irrigation or stock watering, certainly not domestic water quality uses,

so that water that will be in those pit lakes will largely be unavailable for ranching, for agriculture or for domestic use.

At least one of the pit lakes in Nevada contains constituents that

are really severely problematic to wildlife. The two largest manmade lakes in Nevada will be pit lakes and will contain a total of

1 million acre feet of water.

It’s a long term commitment that we are doing right now. We’re

committing long term resources for the future.

The second one is discharge from precious metals heaps. This an

issue I don’t think anybody felt would be a major problem. It’s now

becoming apparent that a large number of heaps in Nevada will

drain following snow and rain infiltration and this will be over

many, many decades.

Even if you get one furlong of water through a pit, through a

heap, with the rainfall in it Nevada will require on the order of 20,

30, 40 and beyond decades. So it’s a problem that is effectively permanent, and how we a handle that water is not clear at all.

I think Leo Drozdoff may have some comments about that.

Finally, discharge from waste rock dumps: As in other States,

drainage from waste rock dumps is a problem. A problematic mine

is the Big Springs Mine, which was a model mine. I appeared on

a video in support that mine. Now it has sulfate concentrations

coming up; some pH declines that are very slight, with some indication that may be becoming an acid site. At the very least, it’s

causing significant problems for the north fork of the Humboldt.

Somebody is going to pay for this. Somebody is going to pay.

Right now the BLM is getting funds out of appropriations to pay—

for some of this, so it’s either going to be the taxpayers, or I would

argue that a good burden of that should be on the industry that
43

has and will continue to gain a profit from those activities. Thank

you.

Mr. GIBBONS. Thank you.

[The prepared statement of Mr. Miller follows:]

STATEMENT OF GLENN C. MILLER, CO-CHAIR OF THE MINING COMMITTEE OF THE

TOIYABE CHAPTER OF THE SIERRA CLUB

My name is Glenn C. Miller, and I reside at 581 Creighton Way, Reno NV. I have

been active in the Toiyabe Chapter of the Sierra Club for over 20 years on the subject of mining on public lands. I have observed the mining industry in Nevada grow

nearly ten-fold during that time, from less than $400 million per year in 1980 to

over $3 billion in 1997. This industry has undergone dramatic changes during that

time, and I have followed the development of new state and Federal regulations,

and observed changes in the mining industry in their response to regulations.

In many ways, gold mining in Nevada is less expensive and offers better operational characteristics than are present in other states that have higher rainfall.

These features, as well as a friendly regulatory attitude towards mining, have allowed Nevada to become the nation’s largest producer of gold and silver. When gold

was near $400 per ounce, the industry was very profitable; at $280 per ounce, the

industry is severely stressed, except perhaps for the very lowest cost producers.

Even in these times of financial stress, the environment still requires just as much

protection as when the mining industry was much more profitable. Protecting the

environment requires sufficient funding to plan, permit, regulate and close these

mines. To reduce funding now when mine closure is becoming an increasing concern

is very short sighted.

I wish to make four simple points regarding the fees charged for mining claims

and a potential royalty, which would help to pay for some of the costs associated

with mining.

1. Even though the profitability of mining may have decreased, the costs for regulating mining remain, and may be increasing due to the increased need for careful

regulation during closure of mines. The gold mining boom that began in the early

1980’s utilized new techniques for mining. This very large-scale mining has created

new environmental issues that have not previously been considered and closure

problems are now becoming apparent. These issues are discussed below. At any

rate, the need for increased funding for the Federal and state regulatory agencies

is apparent. Unless this funding comes from the mining industry, it will probably

need to come from the general fund. Thus, retention of Federal and state fees on

claims is critically important to retain, as are the current permit fees required by

the State of Nevada.

2. Bankruptcies of mining companies are becoming a common occurrence in Nevada. Companies which operated or owned over 13 mining sites have gone into

bankruptcy in recent years in Nevada. Some of those operations are major mines,

including Arimetco (Paradise Peak and the Yerington copper mine), Pegasus (Florida Canyon) and Alta Gold (Olinghouse mine and two other mines in Nevada).

While bonds are available for many of these mines, they are not generally bonded

for management of fluids which are released following closure of heaps, or long-term

management of pit lakes, when they occur. For one of the mines, (Paradise Peak)

half of the bond was held as a corporate guarantee, which is problematic, to say

the least when the net worth of the company is less than the debt. This mine now

has a pit lake that may be turning acidic, a tailings impoundment that blows

tailings dust miles away and heaps that are not closed properly. Who has the responsibility of protecting the public from long-term costs of remediation? Those costs

are likely to range in the millions of dollars, or if left alone will provide long-term

physical and chemical risks to the public and wildlife.

3. If a royalty is established, I urge that those funds be used to partially offset

the costs the public will incur for management and remediation of mines on public

lands. I am convinced that those costs will be substantial and doubt that any royalty will be sufficient for the public costs that are being incurred with present mines

today. However, it will help.

4. Finally, I want to provide a brief overview of three generic problems that are

becoming increasingly prevalent in Nevada:

• Creation of pit lakes: Within the next 30 years, there is very likely to be more

water in pit lakes than all the other man-made lakes completely in Nevada. It

is also my belief that the water quality in the majority of those pit lakes will

be sufficiently poor that it will be degraded for domestic use, irrigation, and

stock watering. Some of the pit lakes presently in Nevada exceed standards for
44

protection of wildlife. The two largest man-made lakes in Nevada will be pit

lakes and contain a total of over 1 million acre-feet of water. This is a tremendous long-term commitment of the limiting resource in Nevada.

• Discharge from precious metals heaps. It is now becoming apparent that a

large number of heaps in Nevada will drain following snow and rain infiltration.

Based on research my laboratory has conducted at the University of Nevada,

this water will be contaminated for many decades. We do not have firm plans

for management of that water, other than to simply allow it to drain into the

subsurface environment. In fact, this option is the regulatory fix which is being

permitted by the State of Nevada, even on federally managed public lands.

• Drainage from waste rock dumps. Just as in other states, drainage from waste

rock dumps is a problem. While acidic drainage was not thought to be a substantial problem in the current gold mining areas, we now have several sites

where acids are being generated. One of those sites, the Big Springs Mine was

considered a model mine in the early 1990’s. By 1992, the sulfate concentrations

began to increase from drainage from waste rock dumps, and a serious decrease

in pH of the drainage water is now an apparent trend. Waste rock dumps at

other sites are also releasing contaminants loads that did not exist prior to mining.

These problems are now occurring when the industry is very stressed. The problems will not simply go away, and many of them will continue to increase as the

larger mines close. Rather than consider reducing fees, the Congress needs to recognize that someone has to pay the piper. Those costs will be paid either by the industry that gained the wealth from the activity, or it will be the public who will bear

the cost in money or resource loss if they are not fixed.

Thanks for the opportunity to provide these comments.

Mr. GIBBONS. Dr. Myers.

STATEMENT OF TOM MYERS, DIRECTOR, GREAT BASIN MINE

WATCH, RENO, NEVADA

Mr. MYERS. Thank you. Mr. Chairman, my name is Tom Myers,

I am a Director of the Nevada-based environmental advocacy

group, Great Basin Mine Watch. Thank you for this opportunity to

testify on the issue of immediate concern to members of our group

and the State of Nevada, and thank you for holding this hearing.

And the light is still red right now. I’d hate to be eliminated after

my first paragraph.

Mr. GIBBONS. It’ll just give you that much more time.

Mr. MYERS. Thank you. As requested, I will address two subjects:

Federal holding fees such as the claim maintenance fee, and royalty payments.

As part of the 1993 appropriations bill, Congress allowed the

BLM to start collecting $100 year per claim fee on mining claims

as part of their appropriations. This has been renewed twice with

an additional $25 location fee added in 1995.

Fees collected have ranged from $30- to $36 million dollars between 1995 and 1998 with the majority going to the BLM’s Mining

Law administration Budget. If this Committee proposes elimination

of the fee, the administration of the program must financed from

general revenues.

Who could oppose this fee? The amount is a mere blip on the annual budget of large companies. For those holding a claim block

until the market improves, the fee frees them from doing expensive

and environmentally damaging maintenance work.

The small miner exemption eliminates the fee as an issue for

honest, small-scale miners and exploration companies.

The only people really hurt by this holding fee are speculators.

These are people who stake multiple claims in a minerals-rich area
45

in hopes of mining the legitimate mining companies who would

rather buy out a claim than challenge it’s validity.

You have received testimony today that these fees have decreased the exploration activity in Nevada. We respectfully disagree with the opinion that this is a problem. In 1993, the number

of registered claims dropped from 258,000 to 126,000, while nationally, claims dropped from 760,000 to 294,000.

Coincident, statistically insignificant drops in exploration are due

to the price of gold. Any increase in exploration in foreign countries

merely reflects the fact that Nevada has been explored for 125

years.

The overseas areas, such as Russia, are virgin territory.

Regarding royalties, Great Basin Mine Watch supports an 8 percent net smelter royalty, which is in the low end of the 5 to 15 percent range currently charged by states on their lands. My written

testimony includes calculations that prove that at least 80 percent

of operations will remain profitable with such a royalty even if gold

prices drop to $250 per ounce.

Based on an operating cost of $212 per ounce, the effective royalty rate after tax deductions and depletion allowances are considered, is only 5.48 percent.

But a longer-term look reveals much more about the industry

and production. Between 1987 and 1992 the real price of gold fell

by $220 per ounce. During that time period of precipitous price declines, gold production boomed increasing 128 percent.

An industry that can boom amidst price declines that are 15

times the likely effective size of a Federal royalty is unlikely to be

crippled by that royalty.

More importantly, the industry has adjusted to changing prices

by decreasing their costs substantially with time. The preferred

method of decreasing costs is to discover and produce higher quality ore. Unfortunately for the worker and for Nevada’s economy,

production costs are often lowered by more efficient processing

which usually means more mechanization and less labor.

I expect that as the industry expands, more gold will be produced

with less labor, just as in the timber industry.

The impact of the Federal royalty will likely be about a 2 percent

reduction in total production and employment, which represents

about a day’s worth of not normal job growth in the West. Only 1

in 1,000 western jobs are in metal mining and only 1 in 6 of those

jobs rely on Federal land. Therefore, royalty payments have a potential to effect a tiny sliver, about 3 of every 10,000 of total western jobs in the mining industry.

This is not to make light of the concern of local communities in

eastern Nevada who do depend to a substantial degree on minerals

production. However, the answer is not continued corporate welfare

or subsidies. The answer is more diversification of the local economies.

Great Basin Mining Watch recommends that royalties be used

for abandoned mine reclamation. Production in Nevada alone, 143

thousand—excuse me—$143 million per year. Nevada looses a

huge economic opportunity because the Federal Government does

not charge royalties that are applied to abandoned mine clean up.
46

Federal royalties could also solve potential problems that Glenn

referred to a minute ago with things like bankruptcies, corporate

bonding, and a few other problems. In conclusion, I want to reiterate that the fastest growing rural western regions are places

where people want to live because of their beauty, not because of

what they extract from the earth. Thank you very much.

[The prepared statement of Mr. Myers follows:]
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48
49
50
51
52
53
54
55
56

Mr. GIBBONS. Look at that. It’s still green.

Mr. Drozdoff.

STATEMENT OF LEO M. DROZDOFF, CHIEF, BUREAU OF MINING REGULATION AND RECLAMATION, NEVADA DIVISION OF

ENVIRONMENTAL PROTECTION, CARSON CITY, NEVADA

Mr. DROZDOFF. Thank you Mr. Chairman. My name is Leo

Drozdoff and I’m the Mining Office Bureau Chief of the Nevada Division of Environmental Protection. The Nevada Division of Environmental Protection of the Nevada Department of Conservation

and Natural Resources appreciates the opportunity to provide testimony to the Committee on Resources, Subcommittee on Energy

and Mineral Resources.

Since you have requested testimony on the effect of Federal mining fees and proposed Federal royalties on State and local revenues

and the mining industry, we will provide the Subcommittee with

some background pertaining to Nevada’s well-run mining regulatory programs.

I will probably also touch on a couple of points Doctor Miller

talked about as well. The NDEP is only one of several State agencies that regulate mining operations in Nevada. The Mining Bureau of NDEP is charged with ensuring that the quality of Nevada’s water resources are not degraded as a result of mining operations and provide that the land is properly reclaimed and returned to a productive post mining land use.

Other bureaus within NDEP are charged with protecting Nevada’s air quality and insuring that solid waste at mining operations is handled appropriately.

Generally speaking, the prevailing instrument that the NDEP

uses to regulate activities on mine sites is the operating permit.

The cost to obtain these permits, that is, air, water, reclamation,

et cetera, may range from $100,000 for a mid-sized facility to several million dollars for a large operation with sensitive environmental issues.

The annual cost associated with these permits, that is, the fees

paid to support the State regulatory programs, can range from

$20,000 to $70,000 a year, or probably more.

For example, NDEP’s entire Mining Bureau operating budget of

$2 million is completely supported by fees paid by the industry.

NDEP’s Mining Bureau does not receive any State general fund or

Federal monies. The monitoring costs that ensure that a mining facility remains in compliance with their operation permits routinely

exceeds $100,000 per year.

And lastly, the State of Nevada holds, or jointly holds with Federal land managers, over $500 million in reclamation sureties.

These costs don’t include construction costs necessary to meet environmental requirements. In addition, costs from other State and

Federal programs, most notably, NEPA requirements, rival and

can dwarf the costs associated with the NDEP’s programs.

Our reason for summarizing these programs is to neither boast

nor apologize, but rather to underscore the states priorities. With

these costs, this State realizes tangible benefits, most notably a

well-regulated mining industry, and a protected environment.
57

Currently there are literally dozens of new regulations on the horizon which can not only negatively impact the mining industry,

but also Nevada’s ability to regulate mining activity.

It’s our hope that when Congress has the opportunity to review

new regulations or fees, it will ascertain whether these proposals

add value and benefit like we believe Nevada’s already do.

I would like to just make you aware that some of the environmental issues raised by Dr. Miller, my fellow panel member, are

certainly legitimate discussion points.

I guess to stay on point I will summarize them generally and be

glad to answer specific questions, but from my perspective the

NDEP is equipped to address these issues, and more importantly,

we are effectively addressing these issues. The State program is a

dynamic program. We’re clearly in a changing environment and

we’re contemplating some changes to our environmental programs,

but that’s the beauty of the State program, that it has the ability

to do that.

So with that, I would be happy to answer any questions that you

have.

Mr. GIBBONS. Mr. Drozdoff, thank you very much for your very

helpful testimony.

[The prepared statement of Mr. Drozdoff follows:]

STATEMENT OF LEO M. DROZDOFF, P.E., BUREAU CHIEF, MINING REGULATION AND

RECLAMATION, STATE OF NEVADA, DEPARTMENT OF CONSERVATION AND NATURAL

RESOURCES, NEVADA DIVISION OF ENVIRONMENTAL PROTECTION

Mr. Chairman and members of the Subcommittee, the Nevada Division of Environmental Protection (NDEP) of the Nevada Department of Conservation and Natural Resources appreciates the opportunity to provide testimony to the Committee

on Resources, Subcommittee on Energy and Mineral Resources. Since you have requested testimony on the ‘‘effect of Federal mining fees and proposed Federal royalties on state and local revenues and the mining industry,’’ we will provide the Subcommittee with some background pertaining to Nevada’s well run mining regulatory

programs. The NDEP is only one of several state agencies that regulate mining operations in Nevada. The Mining Bureau of NDEP is charged with ensuring that the

quality of Nevada’s water resources are not degraded as a result of mining operations and provide that the land is properly reclaimed and returned to a productive

post mining land use. Other bureaus within NDEP are charged with protecting Nevada’s air quality and ensuring that solid waste at mining operations is handled appropriately.

Generally speaking, the prevailing instrument the NDEP uses to regulate activities on mine sites is the operating permit. The costs to obtain these permits (air,

water, reclamation, etc.) may range from one hundred thousand dollars for a midsized facility to several million dollars for a large operation with sensitive environmental issues. The annual costs associated with these permits, that is, the fees paid

to support the state regulatory programs can range from $20,000–$70,000 per year

or more. For example, NDEP’s entire Mining Bureau operating budget of $2 million

is completely supported by fees. NDEP’s Mining Bureau does not receive any state

general fund or Federal monies. The monitoring costs that ensure that a mining facility remains in compliance with their operating permits routinely exceed $100,000

per year. Lastly, the State of Nevada holds or jointly holds with Federal land managers, over $500 million in reclamation sureties. These costs certainly don’t include

construction costs necessary to meet environmental requirements. Additionally,

costs from other state and Federal programs, most notably NEPA requirments, rival

and can dwarf the costs associated with the NDEP’s programs.

Our reason for summarizing these programs is to neither boast nor apologize, but

rather to underscore the State’s priorities. With these costs, the State realizes tangible benefits—most notably a well regulated mining industry and a protected environment. Currently, there are literally dozens of new regulations on the horizon,

which can negatively impact not only the mining industry, but also Nevada’s ability

to regulate mining activities. It is our hope that when Congress has the opportunity
58

to review new regulations or fees it will ascertain whether these proposals add value

and benefit like Nevada’s already do.

I would be happy to answer any questions you may have. Thank you.

Mr. GIBBONS. Let me start with Dr. Miller, if I may.

You talked about the need for a royalty to take care of the environmental problems that have been or are currently existing, or

may exist in the future. Dr. Miller, is it your position that the Federal Government under a Federal royalty could do a better job than

if we had a State royalty to take care of the very the same thing?

Mr. MILLER. Yes. Either way. I mean I have no—I think on publicly-owned land, there is a responsibility that those land management agencies, that they answer to the public. It is public lands.

I think there needs to be a substantial involvement in that discussion, exactly how that reclamation or damage reduction occurs.

But you know, I have no particular—you know, money is money.

Whether—but I have yet to hear of the State of Nevada suggesting

that there should be a royalty for reclamation. The money, the net

proceeds, which has declined considerably in the last year, 1997-

1998, I don’t think there has ever been a discussion of utilizing

that to reclaim lands that are damaged.

I was out at Pyramid Lake yesterday and there is a site there

that is from historic mining, I believe a copper site, tremendously

acid generating, that is—on an ephemeral basis, during high runoff, does flow into Pyramid Lake. That’s something that nobody has

any money to pay for, certainly not—it’s on reservation property.

It’s one of the issues that the BLM in their abandoned mining

lands program is looking at fixing, but that’s the kind of issue that

is an historic issue.

Then I believe there is all these other things that are being created now that we don’t know about that we’ll know about 20 or 30

years from now. There should be some money somewhere to pay for

those. And I believe that is an industry responsibility because it’s

the industry that created the wealth that went—you know, I am

a great supporter of wealth creation. There is a lot of money that’s

made, profits made. And some of that needs to stay somewhere in

order to correct those problems that are being created and have

been created in the past years.

Mr. GIBBONS. Dr. Miller, We’re all aware of the Superfund, a

Federal program to clean up hazardous sites around this country.

Mr. MILLER. Yes.

Mr. GIBBONS. A very, very, lucrative fund which has gone almost

totally unapplied to the things it was supposed to do. Instead it

goes to court battles filling the pockets of lawyers rather than

cleaning up sites.

Mr. MILLER. No argument there.

Mr. GIBBONS. So I guess my point is, would you believe that a

one-size-fits-all Superfund type, that is paid mostly out of Nevada

since we’re the largest metal-producing State in the country, would

be the way to do this, or should it be individualized, because problems, as you heard earlier, are local to Nevada that aren’t local to

Montana, that aren’t local to Utah or Arizona?

Mr. MILLER. Congressman, you’re in the Nevada Legislature. The

chances of getting a royalty passed in Nevada on mining, I think
59

you have a better idea of exactly what the chances of that would

be.

They are not very high, and I guess my suggestion is I don’t care

where the money comes from. But it should come from somewhere.

I don’t think Nevada politically would ever pass a royalty to fix

abandoned mine damage in this State—and if you believe they

would, I would appreciate you asking the legislature if they would,

because you know, I think you have quite a bit of influence on that

issue.

Mr. GIBBONS. Let me say that we heard, also, testimony—and

not to argue with you, because I don’t intend to do that, but we

have 1.3 million people in Las Vegas, and I don’t know of too many

mines in Las Vegas, and the majority of the members of our legislature come from Las Vegas, who have a deep abiding interest in

the welfare of not just Las Vegas, but all of Nevada.

I would think as the face of Nevada changes, so might the political will of this State. I think it’s very onerous to suggest that those

people in Nevada should pay for damage that is done in Utah.

Mr. MILLER. Absolutely not. I agree with that. I agree with that.

Mr. GIBBONS. Mr. Myers, I have looked at your testimony—excuse me, Dr. Myers, if you prefer—I looked at your testimony, and

your royalty analysis on page five, that’s here, in your written testimony, is based on heap leach gold as I see it. Is that correct?

Mr. MYERS. Yes, it is. It’s based—the calculations in there are

based on a table from a Congressional Research Services paper of

several years ago.

Mr. GIBBONS. So did you take into consideration other metal

mining operations and milling costs, or copper and zinc in your calculations there?

Mr. MYERS. No, not at all. I mean, I could have hundreds of permutations of that calculation. What I tried to do is similar to what

the author of that report did, for copper—I believe his example was

copper—is I tried to come up with a variety of examples and using

the 1997 average cost of production, or 212, which I think—$212.

Mr. GIBBONS. On page 8 of your testimony, you state that ‘‘production’’—I presume gold, because it’s not qualified in there—‘‘will

yield about $143 million per year.’’ Presumably that’s with an 8

percent net smelter royalty payments to the Federal Government?

Mr. MYERS. Correct.

Mr. GIBBONS. That’s the basis of your statement?

Mr. MYERS. That’s correct.

Mr. GIBBONS. I can’t see how you derive that estimate of $143

million, because according to the information that I have—and

maybe you can help us understand better—about 32 percent or 2-

1⁄2 million ounces of gold is produced from public lands——

Mr. MYERS. Do I have——

Mr. GIBBONS. [continuing] Each year, so if I may, going back to

page 5 of your testimony, the 8 percent net smelter return on that

ranges from 20 percent at $250 per ounce gold, to $28—excuse me

that would be $20 per ounce for $250 gold; $28 per ounce for $350

per ounce gold. This equates, in my calculations, to a total royalty

to the Federal Government of about $50.2 million at $250 per

ounce and/or 70.4 million at the $350.00 level. I’m just curious: At

what point did you assume the price of gold to get to $143 million?
60

Mr. MYERS. Well, the $143 million was not my calculation. It was

a quote from another report, which I see I did not footnote, but it

was from the draft report that came from—that is referenced in

number 16.

Mr. GIBBONS. So would you submit a corrected version of your

testimony based on those questions, so we don’t have to put this

misrepresentation into the record for us, Doctor?

Mr. MYERS. I’d disagree that there is a misrepresentation in the

calculations that I provided you on page 5, but I can change $143

back to $143 million, if you’d like. Is that what you are asking me

to change?

Mr. GIBBONS. Precisely, because you’ve submitted this document

and your testimony as being the truth, and I want to be sure we

have the facts, the truthful facts as they come out, and I don’t want

to associate you with a misstatement that might somehow become

problematic or difficult later on, Doctor. So let’s go back to your

table on page 5.

Mr. MYERS. Okay.

Mr. GIBBONS. I don’t see any provision in this table for capital

costs in your table, and in 1997, according to my information, the

average gold mining costs in the United States were $287 per

ounce or about $75 higher than operation costs?

Mr. MYERS. I do have a line there for depreciation which is depreciation on capital. That number comes as sort of a guesstimate

of the knowledge very similar to the table that was in the Congressional Research Service report where they——

Mr. GIBBONS. Your depreciation in that, though, is $10 per

ounce.

Mr. MYERS. Depreciation is—okay. It was not based on a per

ounce amount. It was based on, say, $100 million capital investment depreciated over a 10-year period, or something like that.

I’m not an expert on depreciation. The number that was used

there came from the Congressional Research Service report that I

used.

Mr. GIBBONS. So what—Where do you get the other $65 that you

assess in there?

Mr. MYERS. I’m sorry. Which other $65 are you referring to? We

go from—we go from a gross revenue through smelting costs and

transportation. The smelting costs are very minimal according to

John Dobra, so I’m quoting from him in that particular number.

Then it comes down to net smelter returns; then I applied an 8 percent royalty to that to come up with the gross mining income. Then

operation costs were based on $212 per ounce. I came up with net

operating income. I subtracted a guessed-at amount for depreciation, just, as I say, for example, and we go down to a pre-depletion

income; and I used the same depletion amount as used by the CRS

report, and came up with pre-tax profit of a certain amount; and

I applied taxes to it and came up with a net profit.

Mr. GIBBONS. Okay. Well, according to my mathematics—While

I don’t have a Ph.D in economics, accounting, or mathematics, and

I know you can help me out, but when I look at this I see $287

is your total cost less operating costs of $212; $75 is assessed as

other costs; and only $10 for depreciation in there. I just need you
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to tell me how you account for the additional cost of $65 per ounce

in your testimony.

Mr. MYERS. I’m not sure where the $287 you just mentioned

comes from. I’m sorry I don’t see it in my table.

Mr. GIBBONS. Looking back through there, according to your reference here, Dobra, J.L. 1999, giving you $212 per ounce; there is

also a reference in there for $287 per ounce for gold.

Mr. MYERS. For the operating cost?

Mr. GIBBONS. No, no, that’s the total cost.

Mr. MYERS. In Dobra’s——

Mr. GIBBONS. Dobra’s, the document you referenced here as——

Mr. MYERS. Right.

I’ve referenced the chart in Dobra’s 1998 report, and he also predicts that in 1998 the price will be $190 per ounce.

Mr. GIBBONS. I just would ask you, for the record, if you would

mind submitting a recalculated table and figures for us so that we

have the correct information to go forward with, because it’s a bit

uncertain here, Doctor. That’s all I’m trying to do is not put you

on the spot, I’d just like to clarify some questions that I have.

Mr. MYERS. Well, I need to know which number you’d like me to

change in the calculation, because every number in this table is

correct.

Mr. GIBBONS. Well, yeah, well, just for the record, reconcile the

total cost.

Mr. MYERS. It appears from the difference in the figures, because

if you look on figure—if you look on figure 5, he talks about 1997

average total cash cost of $199. On figure 4 he talks about an average total cash cost of $212 per ounce.

I see an awful lot of different numbers that Dr. Dobra is using

here. I believe the one in figure 6 that you’re referring to, the 287,

includes some capital costs that would not be a part of the net

smelter returns calculation that I’m using, nor what the CRS report that I was using referred to.

So I’m using the number—the 212 is as close to the number for

the example that I was trying to use.

Mr. GIBBONS. Doctor, I’m not an economist, nor am I an accountant, and I know the original question started off with the provisions you may have submitted for capital costs in your testimony,

and capital costs seem to be, overall, a part of operating costs of

the mine.

Mr. MYERS. The only thing I submitted on capital costs is the depreciation value which is a really guessed-at number, because there

is no average capital cost that I was able to obtain.

Mr. GIBBONS. Well, Mr. Drozdoff—Is that how I pronounce your

name? Am I doing it correctly?

Mr. DROZDOFF. Yes, that’s correct. Thank you.

Mr. GIBBONS. The witnesses on your panel have alluded to 13

mine bankruptcies in Nevada that have caused reclamation problems. Are these mines major? And could you comment on the bankruptcy issue and try to quantify for the Committee, what, if any

associated reclamation or other environmental problems exist due

to that bankruptcy?
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Mr. DROZDOFF. Yes, I would be glad to. For the record, the NDEP

does not use the term ‘‘major’’ to classify a mine. So any answer

I give you is sort of just a feel.

I would probably agree with Dr. Miller in terms of the major

mines that he mentioned, I’d say Florida Canyon, which was previously owned by Pegasus and is now owned by Apollo Gold, that

would clearly constitute a major mine.

I think any of the other ones after that can run in scale from

small to moderate size. Now, in terms of the tangible issues associated with bankruptcy, I would like to take a couple moments to get

into that.

Currently, as we sit here today, there are two facilities that were

in bankruptcy that are being actively reclaimed with either our

oversight or in the case of one facility, simply a government contract.

Mr. GIBBONS. Which two are those?

Mr. DROZDOFF. That would be the Goldfield Mine south of

Tonopah and the Mt. Hamilton Mine west of Ely. In the case of the

Goldfield Mine, we began working with the bonding company and

began reclamation work last year. I am happy to report that we’re

already working through some bond release for work completed at

that facility.

In the case of Mt. Hamilton, we worked with the United States

Forest Service, and in that case the bonding company surrendered

it’s bond, and we negotiated a contract with a third-party contractor in April, and work is proceeding.

So to characterize—the seminal issue with bankruptcies, is, as

you know, they take a while. And that’s unfortunate, but I can assure you that we’re involved in that process, and if we need to do

something over and above what we have in place, we’re ready to

do that.

And I will make one last point: When this bankruptcy issue became an issue, we worked closely with the industry and were able

to develop what we call an emergency management fund. Again, a

State fund put in place; the Governor’s office, Governor Guinn’s office, reviewed the budget; the Nevada Legislature approved our

budgets, so there is some willingness to work there.

And what we have in place now is a moderate fund of approximately $300,000 per year that enables the State, if it needs to—

if in fact some of these problems in terms of vacating a site occur,

we would have the ability or have the ability now to have a contractor in place to simply go out and handle it while we transition

to dealing with the bonding companies.

So, I don’t know that you can estimate or take that bankruptcies

automatically are a cost to the taxpayer. Frankly, in this State that

simply hasn’t materialized, and I can only assure you that we won’t

let it materialize.

Mr. GIBBONS. Thank you.

Dr. Miller, you’re a renowned scientist, and a lot of us respect

your opinions and the studies that you have done. When you talk

about these ground waters in mines, do we have good data for premining ground water studies that show the composition and the

quality of the water before mining was there?
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Mr. MILLER. Yes, I would indicate that there is at least one mine

that I know of that went into bankruptcy where the bond was put

back and it’s cost much more. That’s the Fury Mine in a national

forest just south of Berlington. It was a $160,000 bond and it’s cost

in excess of $500,000, that the Forest Service has put in. That’s one

example. And that was an older mine from the early 1980’s, that

had no State involvement except from the regulatory perspective.

There are several examples and I would be happy to provide

those at the request of the Committee. There is an example where

the ground water has been, I think, substantially impacted just because of reinfiltration of dewatering water, and that’s a site north

of Winnemucca where the total dissolved solids has gone from on

the order of 100 milligrams per liter to over 1,000 milligrams per

liter because of water that was a pretty good quality water, then

it was infiltrated in ponds, it’s settled and gone back to the ground

water system and dragged a lot of salts with it.

That’s no longer being done. There is another example where we

have data where the water has ponded and then daylighted out

some distance away, in new springs where this occurred where the

electrical conductivity has gone upwards of 8,000 micros per centimeter, which is a fairly saline water, so that’s two examples of

where water has reinfiltrated and daylights some other place or

goes down in the ground water system.

There is an example with very good data from the Independence

Mining Company’s Jerrit Canyon Mine, a very large tailings impoundment, 2- or 300—300 acres I believe is the size, where there

is a very good marker in chloride, where there is water that is flowing down there in an ephemeral stream coming from where the

chloride concentration is above that tailings impoundment, or nearly 14 milligrams per liter, and at least two majors that have made

with over 700 milligrams per liter, which chloride is not a problem,

but it indicates there is water that is migrating from that tailings

impoundment underground and daylighting into an ephemeral

stream that does drain into the water. There is another example

where the sulfates concentration of three existing mines are less

than 30 milligrams per liter, that in one drainage below waste

rock, go over 1,400 milligrams per liter.

Clearly, indications I think that all is not perfect. I mean, I think

the Division and I—I don’t want to get into an argument with the

Division. I think the Division does a good job, and the BLM and

Forest Service does a good job, but there are problems that occur.

Nobody lets problems happen when you know a problem is going

to happen. If you know the problem is going to happen—the Division of Environmental Protection and the agencies are very good

about just not permitting it, if they know it’s going to happen, but

it gets in the gray area where we think it won’t or it might, or

there is a remote chance that it will, and that is where the issue

comes up when you expect it won’t happen. And I was one who

never expected the Big Springs—I thought that was a model mine,

and it was a model mine, great reclamation, a good example. Bad

things happen even when you have a well-thought-out plan. Those

are the problems. And who’s going to pay for those?

That’s the biggest issue, all those inadvertent problems that are

created. Nobody thought, I think that the Ketch-up Flat or Para-
64

dise Peak mine site would be as much of a problem as it is today,

but who’s going to pay for that? And that’s the real question, I

think, on fees, and that’s where I think there needs to be some

funding established to address these inadvertent problems when

mining companies go under and when problems arise in the years

ahead.

Mr. GIBBONS. Mr. Drozdoff, of course, you have just heard Dr.

Miller. I don’t want to pit Dr. Miller against you——

Mr. MILLER. I don’t either.

Mr. GIBBONS. [continuing] but could you give me your interpretation and your impression of what the testimony was you just

heard?

Mr. DROZDOFF. Yes, I can, and I appreciate your sensitivity to

that, because it’s not my desire either.

I guess there is a number of ways I can go. Philosophically, I

don’t know that you can call something of an issue a problem. And

I guess, you know, if the standard of environmental protection statutes, be they Federal or State, is that you’re never going to have

issues to deal with, I think that’s an impossible standard.

I mean the fact is clean water—every Federal environmental

standard that is out there, there are certainly issues and sites that

come along with them. And that’s part of what we do. I think, I

think for there to be an effective environmental protection statute

or regulation is when you’re confronted with these issues what do

you do, are you equipped to deal with them? I think that’s the seminal point.

You know, I don’t want to get into—I would be glad to though,

if you would like summaries of any of these issues discussed today,

I will be glad to update you on what the State of Nevada Division

of Environmental Protection has done in regards to these issues.

Mr. GIBBONS. For the record, would you submit them? We don’t

need to go into them in detail at this point, but we would like to

have this information for the Committee at a time so that we can

look at it.

[The information follows:]
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Mr. GIBBONS. Let me ask one final question, Mr. Drozdoff, and

I certainly appreciate the patience all three of you have given to

us today.

Earlier—and you heard me ask the Governor’s office this question—the Department of Interior has maintained that their draft

3809 regulations were developed in cooperation with the states, as

the State agency with primary responsibility for regulating surface

mining, has the Department of Interior solicited a lot of input,

some input from your agency in writing their draft 3809 regulations on surface mining?

Mr. DROZDOFF. I would say that we have not been given—our

wishes have simply not been heard in this process. It’s true that

the BLM met formally three times with the states via the western

governors, but the fact is that, as the Governor’s representative

stated, we believe that our input has largely been ignored.

I can refer you to a letter that the western Governors wrote back

early in the process, March of 1997, where we asked for five basic

points: to focus on outcomes; to examine the existing Federal regulatory tools; to recognize differences in climate and geology; to

avoid extreme and outdated examples; and focus on intra-agency

cooperation.

I will tell you, that in the draft that is out today, none of these

five principles that we have asked for were dealt with. So I’d characterize the meetings as yes, they were perfunctory, we had them,

but I candidly do not believe that our interests or inputs or comments have been heard.

Mr. GIBBONS. Do you have that letter in front of you?

Mr. DROZDOFF. Yes.

Mr. GIBBONS. Would you submit a copy of that for the record?

Mr. DROZDOFF. Sure.

Mr. GIBBONS. Also, if there is a summary of any attempted meetings would you also submit that for the record?

Mr. DROZDOFF. I will.

Mr. GIBBONS. That goes for any of the witnesses here. They are

certainly free at any time to make supplemental inputs to this

process.

Gentlemen, I appreciate your involvement.

Mr. MYERS. Would you mind if I add something. You questioned

a number that I provided, and I can tell you exactly where the

$143 million came from before. It’s based upon numbers that I

didn’t do the calculation of, but what it was is, if you figure about

a $300 price for gold, an 8 percent smelter royalty, just 8 percent

on $300, that’s about what a little over 7 million ounces production,

which is the 1995 value, you come up close to $143 million. That’s

about where that number comes from, so I’d like to—I’d like to—

I mean you have managed to question numbers rather than the

ideas that I presented here, and that, you know, I am sorry but

that was——

Mr. GIBBONS. Well, I want you to understand that 32 percent, as

you heard testified by the State Division of Mineral Resources, is

the amount of gold that is produced off of public lands, so in that

case, you’re only going to have 32 percent of your $143 million; and

that’s where I was trying to get at your testimony, that we are, as

a State, or whatever, missing $143 million. It isn’t questioning your
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integrity. It’s questioning the documentation and the information

that you have presented.

Gentlemen, thank you very much. We appreciate it greatly.

I’d like to call our fourth panel: Mr. Stan Dempsey, the Chairman of Royal Gold, Incorporated, Denver, Colorado; Ann Carpenter, Vice President, Exploration and Business Development, Nevada Colca Gold, Inc., Reno; Hugh Ingle, President, Nevada Miners

and Prospectors Association, Yerington, Nevada; and Mr. Frank

Lewis, F.W. Lewis, Incorporated, Reno, Nevada.

Before we hear your testimony, we have a process of swearing

you in. Would you all raise your right hands?

[Witnesses sworn.]

Mr. GIBBONS. You may be seated.

Mr. Dempsey, the floor is yours.

STATEMENT OF STAN DEMPSEY, CHAIRMAN, ROYAL GOLD,

INCORPORATED, DENVER, COLORADO

Mr. DEMPSEY. Thank you, Mr. Chairman. I am Stanley Dempsey,

Chairman of Royal Gold, Inc. Royal is a gold royalty company. It’s

a public company and its shares are listed on the NASDAQ national market system and the Toronto stock exchange.

Our market capitalization is around $75 million. We have 3,000

shareholders in this country and some institutional shareholders in

places like France and Switzerland. We spend about $31⁄2 million

per year on exploration. About half of that is in the U.S. and about

a half of it is overseas, mostly in Europe.

We’re also investing additional funds in projects operated by

other mining firms. Our typical project involves the search for a deposit large enough to interest a major mining company. We then

typically farm out the project, keeping a royalty.

As a royalty company, we think we do have a pretty good understanding of the economics of mineral royalties, and one thing that

we’re very careful about is to never burden a mine with so much

royalty burden that we injure the ability of the mine to produce.

It would be a hollow triumph to own a royalty on a mine that

is not operating. We have no debt, and we will be profitable next

year, but we must live off what we have and what we will have

coming in in the coming year. I say that because the capital markets for exploration dollars are as flat as I’ve ever seen them in my

career.

Just to give you an anecdote: We recently listed on the stock exchange in Toronto, and our listing ceremony is Monday. I’ll go back

to Toronto tomorrow to participate in that. The investment bank

that is our sponsor on the Toronto exchange, three weeks ago said,

‘‘We don’t think we really need a party as a part of the listing ceremony because nobody is interested in gold stocks.’’

Two weeks ago they called back and said, ‘‘Gosh, the markets are

heating up; things are looking better. Maybe we ought to have a

party.’’ Thursday we got another call. Subsequent to the sell-off of

gold by the British, no party.

So in the industry, we used to look at windows opening for financing, and of course Canada is one of the principal places that

people in the smaller companies go to get capital, both Canada and
71

Europe. We used to have windows that would go for 6 or 8 weeks,

and people had prospectuses all canned up and ready to go.

Today the windows are maybe a week long or less, so it’s absolutely true that the exploration industry’s source of capital has

dried up. How long that will be, we don’t know, but it’s a difficulty

for the industry and a difficulty for the folks that make their living

in exploration in Nevada.

To get right to the point, since most of my testimony has been

given already by my predecessors and certainly the State folks who

have done a good job, too, and I endorse the many things that my

mining colleagues have said in their testimony.

With regards to the claim fees, the Federal claim fees, our company supports claim fees. We think it was a useful change in the

mining law because it cleared up the pedis possessio problem the

explorers had. It’s gotten rid of a lot of fraud.

In saying that, those claim fees do need to be reasonable because

they are a major issue in deciding how long to keep a set of mining

claims. Obviously there was a big drop in claims in 1993 or 1994.

In looking at the data that the BLM has collected in the last few

years, it looked like the claim maintenance fees had sort of come

into equilibrium, some claims being added, some going out.

I think that we may see another serious drop in the number of

claims because explorers like our company are looking at the situation and we’re changing our targets a little bit to emphasize grade;

and looking for large, low grade heap leaches at the moment is not

particularly attractive.

We’re shifting our strategy to much higher grade material. Those

are extensive programs that require lots of claims to be effective,

and we’re actively cutting back.

I attached to your copy of my written submission, some charts

of some of our projects around the State. They include some

projects we have dropped, like Ferber. That’s a project that started

for gold. We think there is probably a copper project there that

may be economic. We’ve dropped it. We just can’t stand the land

holding costs. We’re just not getting money into the ground.

You can see in those charts how the claim fees do affect it. You

can also see my chart for Milos in Greece where I have the whole

Island of Milos tied up under a mining license from the State of

Greece and the Nation of Greece.

You can see the relative claim fee costs there. So it’s my testimony Congressman, that claim fees are extremely important. They

are probably a little high. It might even be a time for the government to think about at least a temporary lowering of those fees to

recognize the situation that we’re in. Thank you.

Mr. GIBBONS. Thank you, very much, Mr. Dempsey.

[The prepared statement of Mr. Dempsey follows:]
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Mr. GIBBONS. Ms. Carpenter, it’s your turn.

STATEMENT OF ANN CARPENTER, VICE PRESIDENT, EXPLORATION AND BUSINESS DEVELOPMENT, NEVADA COLCA

GOLD, INC., RENO, NEVADA

Ms. CARPENTER. My name is Ann Carpenter I am founder and

director of Nevada Colca Gold, Inc., a small Nevada corporation

which focuses on doing exploration and mining hopefully in the

U.S. and in Mexico. The group is made up of four individuals with

international and domestic experience in exploration and in mining.

In addition, I’m here representing the Women’s Mining Coalition.

I’m the president of the Women’s Mining Coalition and this coalition is a grass roots organization supporting environmentally responsible mining.

As I said, NCGI is currently focused here in the U.S. As well as

Mexico, but we’ve found that we need to start shifting our attention

only to Mexico. We’re diminishing our attention here in the United

States because of the prohibitive state of business here in the U.S.,

if you will.

Existing and proposed Federal and State fees, cumulatively these

equate to a significant financial burden in both today’s low metal

prices as well as in times of strong metal prices.

As well, current political and regulatory environments in the

U.S. create a negative environment within which to develop a mining exploration related business.

Our corporation is just starting up. As we all know, in business

everything is timing, and maybe the timing just isn’t correct now,

but we’re finding it very, very difficult to do any business here in

the U.S. especially with the proposed fees, and with the proposed

changes to regulations.

Doing business in Mexico especially, it’s quite a bit more friendly,

as was previously intimated by the panel that first spoke. I believe

it was Al Coyner, who indicated that—well, no, actually it was Mr.

Parratt whose testimony illustrated that the cost per acre of doing

business here in the U.S. was significantly higher than anywhere

overseas; and certainly we see that in Mexico and other Latin

American countries. I’ve done quite a bit of exploration in Latin

American based countries as well as in Africa, and we have seen

quite a bit of difference in those cost per acre bases.

I have to indicate, too, that in Mexico, I would not consider Mexico virgin ground. Mexico has at least a 500-, 450-year mining and/

or exploration history. The reason that we want to do business

there is that two of my partners or associates have experience

doing operations in Mexico, for some of which they have received

accolades and environmental awards.

Business in Mexico is very similar to—especially regulations, reclamation regulations—are very similar to the U.S. Mexico has

adopted lot of the EPA standards, and implemented them. And the

responsible mining companies doing business in Mexico have implemented them as per choice.

Some of the negative regulatory political changes at hand are

also reasons for pushing exploration of mining focuses for our company off shore. The Leshy mill site opinion; clean air and clean
82

water proposals; TRI; certainly the 3809 proposed revisions; diesel

particulate rule making; MSHA; land disposal issues and others,

that’s just a partial list.

As was previously talked about—again, I think this was Al

Coyner that said this—we need a partnership in assessing proposed Federal fees, just like we have the partnership that has been

developed here in the State between the NDEP and the Federal

agencies.

In my previous capacity with another company I was the exploration manager and I was in charge of trying to put—permitting

a large 1.5 million ounce deposit very close to Reno, and I had to

work closely with both the State of Nevada Department of Environmental Protection as well as the BLM in trying to push this

through, and I can tell you that those two agencies, they had

adopted a memorandum of our understanding, and they implemented it very easily, and they worked well together, and they

have evolved into what I can see is a decent working relationship

between the two agencies They complement each other; they add

a check and balance.

This was not an easy project. It had pit lake issues, it was close

to a rural town. It had a lot of the significant issues that you see

with some of the larger sized mines, and they were dealt with, the

mitigation measures that were recommended were agreed to, and

both agencies came together and worked well on it.

NCGI did try to fund three properties here in this State, and we

were not able to get funding, and as Mr. Dempsey has indicated,

you generally go to Canada, Europe, Japan, anywhere, for the

funding, and it’s become very, very difficult to get funding in today’s market because of the low gold prices.

Our company has tried to focus on production-oriented projects

as a start up and not just exploration based, and it’s still very difficult to find the funding. And with that I will close.

Mr. GIBBONS. Thank you very much, Ms. Carpenter. I appreciate

that.

[The prepared statement of Ms. Carpenter follows:]

STATEMENT OF ANN S. CARPENTER, VICE PRESIDENT, EXPLORATION AND BUSINESS

DEVELOPMENT, NEVADA COLCA GOLD, INC., RENO, NEVADA

Some of the negative regulatory and political concerns include the actions listed

below:

•The Leshy millsite opinion (politically driven ‘‘takings’’) affecting: Battle

Mountains’s Crown Jewel project, Noranda’s Montnare project in Montana; and

Kinross’ Delamar mine in Idaho.

• Clean Air and Clean Water proposed rules;

•TRI;

• 3809 proposed revisions;

• Diesel Particulate rulemaking;

• MSHA;

•Land disposal issues

• Others . . .

All of the above (as well as other proposed rulemakings not listed) complicate the

ability to do business here in the U.S. All are costing the industry on both an individual and on a cumulative level. The expense and time it takes to review the individual and cumulative effects of all of these actions is adding up, creating an economically negative business environment here in the U.S. With all of the proposed

rulemakings and changes to existing legislation and regulations, there have been

few to no resulting benefits illustrated. These actions are tantamount to a politically

motivated anti-Mining (anti-resource) environment.
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NCGI has tried to fund three properties here in the state of Nevada, without success. Funding has been virtually impossible to secure to support exploration and development activities. Some funding institutions and individuals perceive doing business in the U.S. as a negative, due to existing and proposed Federal and state fees,

as well as to all of the current political and regulatory activities. NCGI has therefore focussed most of its activities in Mexico, where funding has been easier to secure to advance projects.

Thank you for allowing me to testify.

Mr. GIBBONS. Mr. Ingle, the floor is yours.

STATEMENT OF HUGH INGLE, PRESIDENT, NEVADA MINERS

AND PROSPECTORS ASSOCIATION, YERINGTON, NEVADA

Mr. INGLE. Mr. Chairman, I’m President of the Nevada Miners

and Prospectors Association, and that’s NMPA, and we agree that

mining is in a graveyard spiral; that the Federal Government is at

the controls; the government has ceased to scan the instrument

panel and is focused on only one instrument, gold.

Because there are still profitable gold mines, it seems like the

Federal Government has decided to load them up with laws, rules,

regulations, fees, fines and so forth in an effort to find the breaking

point without considering that these same costs will be applied to

the mining of the less noble metals and minerals which helped us

win World War II and the Korean War.

These rules, regulations, and so forth may preclude the mining

of these other mineral assets quickly enough in emergencies similar to the Korean War. During World War II, mining was considered so critical to the war effort that miners were exempt from the

draft.

Nevada has significant deposits of tungsten, mercury, manganese, copper, iron, molybdenum, lead, antimony, beryllium and

vanadium, with some ores containing combinations of these minerals. At various times Nevada has led the Nation in the production of many of these minerals.

Many ore deposits are small by today’s standards, less than 100

tons per day production, and require the expertise of the small operators to be successful, an expertise that is rapidly disappearing

from the western U.S.

In contrast to the attitude of the Federal Government, the State

of Nevada seeks to encourage exploration for and the opening of

new mines. Nevada encourages the small operators as well as the

large. Small operators are aided by the various Nevada agencies.

These agencies actually serve in large part as a staff for the small

operators if called upon.

They also enforce regulations. The State of Nevada recognizes

the vast difference between small and large operations, and in the

past has tried to provide for the survival of the small operator.

The effect of Federal mining fees and proposed Federal royalties

on State and local revenues in the mining industry in general is

to discourage exploration for new domestic mines, change some of

our reserves to waste, and shorten mine life.

There are many rules and regulations which are enforced by the

State of Nevada but mandated by the Federal Government. There

are at least 33 possible State and Federal permits that may be required, not all of which are required for each and every mining and

milling operation.
84

In addition, some local regulations may need to be met. Suffice

it to say that every rule or regulation passed that adds to the cost

of mining or processing turns some ore into waste. An example of

this would be the proposed Federal royalties which would add costs

to and probably come out of revenues now reserved for States and

local government entities.

The Nevada Miners and Prospectors Association believes that

this revenue would only be a pittance to the Federal Government,

but could be the life blood of rural Nevada.

The NMPA believes that the most damaging rule for the small

operator and prospector was the imposition of the $100 per claim

annual fee in 1993. Active mining claims held in Nevada dropped

from 334,558 to 143,805. That differs a little bit with other figures

that you got, but not much.

Most of the claims were dropped by small operators and prospectors. Many of those claims held strategic metals and minerals

that are temporarily not in demand. Now, instead of developing

new mines and prospects as the original rules intended, those who

can afford to pay the fee pay the fee, and no prospect or mine is

developed.

An additional fallout from moving people off claims either by occupancy rules or by fees is the cost for abandoned mine lands

which the surviving claim owners now pay.

One of our greatest concerns is the timely availability of a reliable domestic supply of minerals and metals in times of national

emergency. Many ships that were sunk and crews lost transporting

ores and minerals in early World War II should be ample warning

for the future.

Perhaps the Federal Government is living proof of Thomas

Sowell’s observation, ‘‘What we learn from history is that we never

learn anything from history.’’

Thank you.

[The prepared statement of Mr. Ingle follows:]

STATEMENT OF HUGH C. INGLE, JR., PRESIDENT, NEVADA MINERS AND PROSPECTORS

ASSOCIATION

The Nevada Miners and Prospectors Association (NMPA) believes that Nevada

mining is in a graveyard spiral and that the Federal Government is at the controls.

The government has ceased to scan the instrument panel and has focused on only

one instrument—gold. Because there are still some profitable gold mines, it seems

that the Federal Government has decided to load them up with all the laws, rules,

regulations, fees, fines, etc. in an effort to find the breaking point without considering that these same costs will be applied to the mining of the less noble metals

and minerals which helped us win WWII and the Korean War. These rules, regulations, etc. may preclude the mining of these other mineral assets quickly enough

in emergencies similar to the Korean War.

From Nevada Bureau of Mines and Geology Special Publication 15, I quote: ‘‘Responding to the extraordinary demand for base metals, expansion of open pit mining

during 1951 resulted in a sizable increase in Nevada copper production. However,

the output of lead and zinc, reflecting the dearth of ore that could be developed rapidly and economically fell considerably below 1950.’’ Nevada has significant deposits

of tungsten, mercury, manganese, copper, iron, molybdenum, lead, zinc, silver, placer gold, antimony, beryllium, and vanadium, with some ores containing combinations of these minerals. During 1955 there were 222 individual tungsten operations

in Nevada. At various times, Nevada has led the nation in production of many of

these minerals. Many ore deposits are small by today’s standards (less than 100

tons/day production) and require the expertise of the small operators to be successful, an expertise that is rapidly disappearing from the western U.S.
85

In contrast to the attitude of the Federal Government, the State of Nevada seeks

to encourage the exploration for and the opening of new mines. Nevada encourages

the small operators as well as the large. Small operators are aided by the Nevada

Division of Minerals, the Nevada Division of Environmental Protection, the Nevada

Mine Inspector, and the Nevada Division of Wildlife. These agencies actually serve

in large part as a ‘‘Staff’’ for the small operators if called upon. They also enforce

the regulations. Unfortunately there is no allowance made for the vast differences

in operations between the small operators and the large ones under the latest BLM

3809 proposal. The Notice level in the old 3809 Regulations provided for this difference; the State of Nevada recognizes this difference and in the past has tried to

provide for the survival of the small operator. Another quote from Special Publication 15 is significant at this point, ‘‘Many factors including low gold prices, an increase of state and Federal regulations affecting mining, and increased uncertainty concerning long term access to Federal lands for mineral development contributed to the decline in gold exploration from 1989 to 1992.’’

The ‘‘Effect of Federal Mining Fees and Proposed Federal Royalties on State and

Local Revenues and the Mining Industry’’ in general is to discourage exploration for

new domestic mines, encourage exploration for foreign mines, change some ‘‘ore reserves’’ to ‘‘waste,’’ shorten mine life, strip some rural communities and counties of

their tax base, economy, and much of their employment, and destroy the livelihood

of small mine operators, small businesses that provide mine services, local independent geologists and prospectors, and destroy a ‘‘way of life’’ for those hardy souls

who value their independence more than life. There are many rules and regulations

which are enforced by the State of Nevada but mandated by the Federal Government, so that the ‘‘State and Federal Permits Required in Nevada before Mining or

Milling Can Begin’’ is a hybrid and the blame hard to place correctly. There are at

least thirty-three possible State and Federal permits that may be required, not all

of which are required for each and every mining and milling operation. In addition

some local regulations may need to be met. Suffice it to say that every rule or regulation passed that adds to the costs of mining or processing turns some ‘‘ore’’ into

‘‘waste’’ and denies the people of the United States the value and use of an asset.

I don’t mean to imply that we don’t need regulations, not at all, but only that we

be judicious, and make sure that what we lose is worth the price we pay. An example of this would be the proposed Federal Royalties which would add to costs and

probably come out of revenues now reserved for the states and local government entities. The Nevada Miners and Prospectors Association believes that this revenue

would only be a pittance to the Federal Government but could be the lifeblood of

rural Nevada. By the nonimplementation of Alternative 3 in the newly proposed

BLM 3809 regulations, enough money may be saved to avoid the need for a Federal

royalty.

The NMPA believes that the most damaging rule for the small operator and prospector was the imposition of the $100 per claim annual fee in 1993. Active mining

claims held in Nevada dropped from 334,558 to 143,805. Most of the claims were

dropped by small operators and prospectors. Many of those claims held strategic

metals or minerals that were temporarily not in demand. There still remain 138,000

active mining claims in Nevada, with a total of 7,333 claimants. Over 65 percent

of all claimants hold less than ten claims and an additional 14 percent hold eleven

to twenty claims. This group is the nucleus of the small operators. Now, instead of

developing new mines and prospects as the original rules intended, those who can

afford it pay the fee and no prospect or mine is developed. An additional fallout from

moving people off the claims, either by occupancy rules or by fees, is the cost for

abandoned Mine Lands, for which the surviving claim holders now pay fees.

One of our greatest concerns is the timely availability of a reliable domestic supply of minerals and metals in a time of national emergency. The many ships that

were sunk and crews lost transporting ores and minerals early in WWII should be

ample warning for the future. Perhaps the Federal Government is living proof of

Thomas Sowell’s observation—‘‘What we learn from history is that we never learn

anything from history.’’

Mr. GIBBONS. Thank you, Mr. Ingle, and may I say there has

been a great deal of change in the philosophy of this country since

World War II. When I graduated with my first degree in mining

geology in 1967, my first job wasn’t in the industry. It was in the

military. The day I walked home with my diploma, handed it to my

mother she handed me my draft notice. So we have changed philosophies in this country about the importance of mining.
86

Mr. INGLE. I didn’t get a chance to graduate before they got me.

Mr. GIBBONS. Mr. Lewis, please.

STATEMENT OF F. W. LEWIS, F.W. LEWIS, INCORPORATED,

RENO, NEVADA

Mr. LEWIS. Congressman Gibbons, thank you very much for listening to me. I’m trying to give some specific examples of what’s

happened to me since I started mining in 1953 in Ely, Nevada.

My company owns the Lewis Mine in Humboldt County Nevada.

It’s leased to a small Canadian company that has an adjacent

mine. They have been working there for the last 15 years, and at

the peak of their operation, which was a couple of years ago, they

had 212 employees.

They shut down mining last year and they have 50 men working

on the shut down. It’s very interesting to note that this year, they

have purchased some mining properties and joint ventured with

some companies working in South America.

We’re sending the jobs down there from here as we close down

our mines due to I think very onerous and unnecessary regulations

and fees. I had a lot of mining claims that I spent my life developing in different areas of Nevada.

I made quite a little bit of money mining, and I’ve spent it all

mining, too, and that has been a problem with my wife at times,

but she’s still with me, so she put up with me for a long time.

I dropped 75 percent of the mining claims in whole districts that

I had a lot of interest in, and I spent a lot of money on over the

years trying to find ore, but if you give the money to the Federal

Government, you can’t put it in the ground, so those areas are

abandoned of interest unless somebody else has them.

I had a small operating mine in Churchill County. I bought that

property first in 1962. I am happy to see one of your aides, John

Rishel, sitting at your right hand, who worked on that property. I

met him, he was sitting there in 1975, I had it leased to a small

Canadian company, and they were trying to drill for some ore. I

drilled later and found additional ore.

I drilled a 1,000-foot decline there and put in many drill holes

trying to set up a small mine. I had two working miners and a supervisor working for me in my little two-bit company. I also had,

at that time, after these previous rules and regulations were put

into effect, I had to have one man working on the permitting and

the evaluation and all the things that the environmental people

have put into the law.

Well, one man doesn’t sound like much, does it? It was 25 percent of my payroll. That’s a pretty big thing, and that’s the reason

that there are very few, if any, small miners working here in Nevada today.

Hugh Ingle is still struggling; I gave up. I shut down the operation and spent $1 million of my own savings when I did so. Because of the increased fees, the $15,000 I was paying on the

unpatented claims surrounding my mining claims, and the onerous

regulations, I couldn’t make any money. I couldn’t stand it, so there

is a mine that won’t be mined unless something happens.

It’s interesting about the talk about the price of gold. The first

mine I worked in was in Ely, Nevada. I worked with my father-
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in-law. It was a hand pick and shovel job. Gold was $35 an ounce,

silver was 90 cents. So I haven’t seen it all, but I have seen a lot.

I have seen it go up and I have seen it go down.

And you have fluctuations in the mining industry, and that’s the

problem with the Federal laws, there is no flexibility. It used to be

you could work on a project, spend your money, and in hard times,

sometimes you wouldn’t have any money to spend other than just

assessment work, but you could hang on. There is a longevity to

it, and in some places I’ve worked over 40 years trying to develop

a mine. Some of them have been leased out at times during good

times, and then you get them back.

Another comment that you have talked about extensively that’s

not in my notes, it’s about these various kinds of royalties. The

mine finder, which is sometimes people like me, the land owner,

which is people sometimes like me, when we lease a mine, the operator gets to deduct some of his expenses.

It might be of interest to you to know that on every nickel I get

by way of a royalty on the mine, I pay a gross tax and there is no

compensation or deduction for any of the exploration costs or expenses that I had and the ongoing monitoring fees, and so, when

the Federal Government puts an 8 percent net smelter, that means

there will be 13 percent coming from the fellow that had to go find

it, if he gets anything, because he probably won’t get anything because the Federal Government will be getting the royalty he might

have gotten, and that’s a very great discouragement to exploration

people.

I will give you another specific example. My son went to the

Mackay School of Mines; he got a degree in metallurgical engineering, and he opened up an assay lab in Reno, and I helped finance

him. And he had a very nice business going, had 22 employees and

made a profit every year for a long time.

He now has 12 employees and the reason is because the companies are going elsewhere where they are more friendly received.

And he’s going to have to go there, too, if the mining exploration

stops in Nevada.

I see I have a yellow light, so thank you very much.

[The prepared statement of Mr. Lewis follows:]

STATEMENT OF F. W. LEWIS, F. W. LEWIS, INC., RENO, NEVADA

Mr. Chairman Congressman Gibbons and Members of the Subcommittee:

I am writing my comments about the annual claim fees, proposed royalties to be

collected from BLM and Forest Service lands, other laws and regulations, and the

3809 revisions which are being placed on mining in the United States.

My company owns the Lewis Mine in Humboldt County Nevada. It is leased to

a small Canadian company that has produced on it periodically for the last fifteen

years. The payments from that operation have been of major impact to keep my own

company going. They had two hundred eleven employees at one time. They ceased

production last year and there are about fifty employees left slowly shutting down

the operation. It might be of interest to this Committee while they are shutting

down here they have acquired several South American projects which they are opening up. The jobs here are being transferred there to more friendly countries that

want to expand the development of their natural resources.

I had a small operating mine in Mineral County, Nevada. I had two miners working, and a working supervisor. I had to hire one other professional to manage the

environmental regulations. He produced absolutely nothing, and therefor the operation lost money. I had to shut the mine down, tear out all of the equipment, drop

a hundred and fifty unpatented claims and give up. I had spent over a million dollars on the operation of my own savings. I had been working on this property since
88

1962 forced out of business by the added costs of the Federal Government rules regulations and fees.

My son Mark went to School at the Mackay School of Mines earning a degree in

Metallurgical Engineering. Fifteen years ago he opened an assay laboratory, and I

financed him. Last year the operation was down fifty percent in gross sales with

the exodus of mining to foreign soils. No one in the Federal Government seems to

care what is happening in the Industry and no one is trying to do anything about

it, except perhaps some few in the Congress. On the other hand the Bureaucrats

have done everything in their power to make matters worse. Trying to figure out

why or who is trying to kill the Mining Industry would be a good exercise of this

Committee. What’s the sense of it? My son’s employees have dropped from twentytwo to twelve. If exploration ceases he will have to close, perhaps moving to South

America if he wants to continue his profession.

Forty-five years ago I moved to Ely Nevada. I worked for a contractor who worked

for the Consolidated Copper Mines Company, which was later bought out by

Kennecott.

I met my wife’s father and we went into the mining business in Ely shipping gold

and silver flux ore to Kennecott. This was pick and shovel, hand tramming, and a

5-ton old 1939 truck to haul our ore off the hill. I did not even have a thermos bottle. My wife, Sharon used to walk the mile up the side of the mountain at noon in

the winter time to bring us a quart mason jar full of hot coffee. One time I figured

it out and we were making a little over five dollars an hour, after paying our expenses.

Those were of course the ‘‘good old days.’’ Those were the days when the American

government believed in private property, instead of so much in Federal property.

The government’s job was to protect our shores and our property for the people.

Now they perceive their job is to protect the land from the people.

I remember then how helpful the Federal Government used to try to be to encourage mining and private investment. They had Federal 0.M.E. loans, which they offered prospectors and small miners to encourage them to drill and explore. Although

I never obtained any such loan I know several people who did, and mines were developed because of it.

The United States Bureau of Mines itself would go prospecting in promising mining districts even drilling on lands that were owned by private individuals. Such

holes were drilled on some patented claims, which my company owns in Silverton,

Colorado.

Some of this encouragement of the mineral production was because a certain Senator or Congressman from Oklahoma mapped where all the ships were sunk during

the Second World War trying to bring essential raw minerals to our war industries.

If my memory serves me I think his name might have been something like Ed Edmonds (?). There were thousands of ships sunk, and thousands of Americans killed

because many of our mines had shut down due to the depression.

Batan fell because our soldiers were out of materials to fight with, not because

a superior force beat our men. The Federal Government itself was negligent in failing to supply sufficient ammunition and other supplies so our men could continue

fighting. I was told that much of the ammunition they did have was surplus left

over from World War One. The Federal Government knew War was likely, but they

did little to see that our overseas bases were properly supplied with what they needed to fight with.

A person even now can purchase a private parcel of land in Nevada for as little

as $50 per acre, some for a $100 and some for $200. Some prime property, of course,

is worth more.

The hundred dollar annual fee, and threat of the existing Federal regulations for

rehabilitation of lands used in mining now require one to spend tens of thousands

of dollars, hundreds of thousands of dollars, occasionally even a million dollars per

acre rehabilitating land. Rehabilitation means covering over a valuable future mining site when the country may some day need the low-grade minerals left in the

ground. The best value to our nation for these lands should be left exposed so we

can enjoy those beautiful veins, dips, angles, spurs, beddings, rocks and minerals.

Then present day prospectors can see, explore, and enjoy them, and future generations can start there when they need more of the minerals.

What an economic wasteful attitude the Federal Government has adopted. They

have decided what is the best way for them, not us to enjoy the Federal lands.

Somehow or other the Federal Government with the environmental community

has decided that the only thing that has beauty is the top of the last sagebrush leaf

which has fallen off the bush.

What about the Grand Canyon? It is but a big beautiful hole in the ground. If

it were man made the Federal Government and environmentalist would want to
89

cover it up spending billions on the non-productivity activity, which removes capital

from our society that could produce factories, jobs, and wealth for our nation.

The Federal Government used to think private property was one of the sources

of wealth and happiness of our nation’s citizens. At some point in time many in the

Federal bureaucracy and environmental organizations have become convinced that

the Federal Government should own and control property.

The big change started I noticed around 1955.

I was drafted into the army in 1955. I remember sitting on the edge of my cot

in Fort Ord California basic training camp sending twenty five of the ninety dollars

per month I was earning to Jon Collins, my then attorney, trying to fight the Forest

Service who was condemning the surface rights to my mining claims. They had

passed the Surface Management Act.

Ever since then it has been a fight for survival against the Federal Government

and their overstaffed non-producing employees.

These hundred dollar annual fees, regulations, new 3809 regulations are just another impediment to explore and mine for those of us who make our living, and who

enjoy the mining industry.

The rules extend permitting time, require the BLM to expand its presence by hiring many new non-productive people, cost a lot of money-wasted, for no economic

benefit to our society. All together the anti mining acts will also cost the State of

Nevada good paying jobs and loose the State and counties tax money, and net proceeds of mine taxes they now receive from mines.

I have slowly been going out of the Mining Business. With the hundred dollar

claim fees I dropped over three-quarters of my unpatented claims. Every new law

and every new fee will force more of us to stop trying to find minerals. But, then

isn’t that the purpose?

I have stopped staking claims.

I have stopped my drilling programs because I now have to give the Federal Government annual fees using the money I would normally spend on exploration to pay

them rather than to try to find something. Then too the new permitting requirements already on the books are so time consuming and so discouraging, that it no

longer seems a wise investment.

The unfriendly Government has convinced me that I should not spend my savings

on mining any more as I have done for the last forty-five years.

It is not just the laws they have already passed but they have demonstrated that

they are going to continue passing new regulations, charge more for everything, hire

more government employees, and have ever-stricter regulations. Some mines have

spent as many as fifteen years in the permitting process trying to open up.

In my view it is now impossible for a small individual to mine anything. A few

may still be trying, but not many. An unfriendly Government has killed us dead.

It is still possible for an individual to prospect, and try to find a financed company

to deal his properties to. More fees and more regulations, and especially if Royalties

are assessed by the Federal Government will kill that window, because the Federal

Government will get the share the person doing the hard work and making the investment might have gotten.

Every year we are threatened with more and ever more regulations not passed

by Congress but by the Interior Department and Bureau of Land Management. The

newest set of regulations are known as the 3809 Revisions. They will delay all forms

of exploration, and mining, and make costs greater. They are unneeded, and by me

unwanted and do not help me or any of my friends, but instead harm us.

If the new 3809 Regulations, Alternative Three, being proposed by the BLM are

passed rest assured more companies will go into bankruptcy, and nowhere in their

assessment have they accounted for that.

Many mines in Nevada are now loosing money. The Robinson mine in Ely will

have to shut down and Ely will once again be shrinking in population. Several

Mines are now in bankruptcy partially due to Federal Government Regulations and

of course because of low metal prices. Sometimes I wonder if anyone left alive in

Washington DC has a lick of economic common sense. Does no one care? We offer

money to Honduras because of a devastating storm. We send food to North Korea

because their people are hungry. NOT ONE RED CENT NOR HELP OF ANY KIND

IS BEING OFFERED TO THE PEOPLE IN ELY TO KEEP THEIR ONE MAIN INDUSTRY GOING FOR THE SAKE OF EVERY ONE THERE.

Chairman Gibbons, Members of the Subcommittee I thank you very much for allowing me this opportunity to express myself

Mr. GIBBONS. It’s proof that the system works. Thank all of you

for your insightful and very helpful testimony.
90

Let me jump back to Mr. Ingle. You indicated that on average,

it takes 33 permits to open a mine.

Mr. INGLE. Yes.

Mr. GIBBONS. Do you have any rough estimate as to how long

that process is from the time you begin working on the permitting

process until the end of the permitting process enabling you to

stick the first shovel in the ground to recover your investment?

Mr. INGLE. It’s pretty hard to say because you have a public comment period on these permits, and sometimes there is no opposition

and sometimes there is a lot of opposition. So it can go from—I

would think that the minimum for a small operation would be one

year, but some things take 4 or 5 years.

So I can’t give you a good figure. I think some of the bigger companies have experienced long, drawn out affairs, and so they would

be better able to tell you what we do, or have done is, go to the

Division of Environmental Protection; the Division of Minerals, and

the Division of Wildlife.

The State agencies and we have tried to work with them, and

that has been a kind of a fast track with us. We are pretty small,

and we try to make as little noise as possible, as little dust as possible, and so we’re able to avoid a lot of problems that the big companies have.

Mr. GIBBONS. Mr. Dempsey, you talked about shifting your focus

on some of your ongoing mines away from average ore grade to

shifting it to high grade, in other words, to make the payment on

that capital expense. Will you ever be able to go back and recover

the low grade that’s left in there without the presence of some of

those high grade pockets? Is there some economic consideration to

doing that when you do it?

Mr. DEMPSEY. I’m really talking about our exploration targets,

and the type of deposits we’re looking at. I’m not talking about existing mines. With the price decrease, when you run numbers for

a model or hypothetical mine based on the type of deposits you

might find, when you project that you couldn’t make money if you

found it, it’s not a very good investment.

We look for the same types of things that the majors do, and

they are changing their focus, too. And all of us are looking for

higher grade material, hopefully at the surface, not necessarily at

the surface, but with this type of price environment, a lot of the

things have been the stock and trade of Nevada, the smaller deposits are not going to be—people aren’t going to look for them.

Mr. GIBBONS. Mr. Dempsey, let me ask a question I think a lot

of the people in this audience are curious about. We hear a lot of

times about companies going overseas, going to Mexico.

Do you use the same method of operation, environmental concerns and considerations in those countries that you use in this

country?

Mr. DEMPSEY. Absolutely. Everybody in this industry has gotten

the word, that health, safety and environment are major issues,

and all of us are adhering to the highest possible standards.

Community acceptance is our biggest issue. We’re having a hard

time getting permitted anywhere in the world, and the idea of a

pollution haven is nuts. We can’t finance a mine overseas if we

don’t adhere to the highest standards. The EBRD, the World Bank,
91

IMF group, all require that we submit impact statements there,

too. So that’s one hoary canard that ought to be put aside.

Mr. GIBBONS. Ms. Carpenter, I was interested to hear you testify

as the President of the Nevada Women in Mining Coalition. Could

you tell us a little about what the purpose of that coalition is and

maybe help us understand a little more about what it does.

Ms. CARPENTER. Well, the Women’s Mining Coalition was developed back in 1994 when a couple of key women that are still involved in the organization thought that they should take a great

idea to the CEOs, that it would be a great idea to go back to Washington and educate the Congressmen, Senators and Representatives, on what the mining industry is and put a different face on

it in the sense of women as opposed to men or just the CEOs going

back east and delivering a status quo, if you will.

What it did is it humanized it—not to say that CEOs are inhuman, but it provided a different face for people to be able to relate

to the industry, and it showed that women in the industry span

many jobs, from mining engineers to environmental engineers to

geologists to mine geologists, to explorationists, to environmental

coordinators, governmental affairs, the whole gamut that the men

have jobs in, but it just provided a different relationship for Congress to relate to.

Part of the objective of our coalition is to educate congressional

folks on what the industry is, the fact that we are an environmentally conscious industry. We’re evolving with the needs, as we

discover more and more issues that come up.

We try to be as interactive as possible and meet the objectives

that are raised.

Mr. GIBBONS. Do you have any specific examples of women or

people in your coalition that, over the last year, have lost a job?

Ms. CARPENTER. Oh, yes.

Mr. GIBBONS. Put a face on that for us, would you, and what that

means to them, what it means to Nevada.

Ms. CARPENTER. It’s not just Nevada. There is a woman that I

was doing some work with up in Montana. There was a small mine

there we were trying to advance forward and couldn’t get funding

on it because, gosh, it’s Montana, and they just outlawed cyanide,

and shut the door on a lot of different issues, and it’s been completely politicized up there.

And here is a woman in Montana who used to drive a hog pack,

and she’s a single mom raising three kids—and there are two

issues here I might try to a address—but she’s trying to raise a

family, and she’s in a pretty low rent area, beautiful, beautiful

place to live and the cost of living is not all that high, but she can’t

raise a family.

She’s lost her job and she’s had to go turn to waitressing to try

to support a family, and she can’t do it.

This addresses the recreational question I think you had earlier,

where we can replace mining or other technology, say, with the recreational industry, and she was one testament that that just

doesn’t work. She said, ‘‘I don’t know about you, but I don’t want

to make beds for living and I don’t want to make minimum wage.

I can’t raise a family on it.’’
92

So she took a job down at Magnum BHP’s operation. It could

have been San Miguel or one of the operations down in Arizona,

but she had to leave her home State in order to do that, and that’s

just one example. There are many.

Mr. GIBBONS. You have been involved in the permitting process

of mines before. Maybe the question I should ask Mr. Ingle is, is

there an average time frame in there? But more importantly, is

there a cost associated with this permitting?

Ms. CARPENTER. Yes, time is money. The longer it takes, the

more money it costs. The bigger the project, the more money it

costs because there are a lot more environmental issues that need

to be addressed and greater concerns that need to be addressed,

and that costs money.

And the money that it takes for baseline studies to—in my case

we had a pretty advanced pit lake study that had to be done which

included pit computer modeling and water quality and quantity

issues, and that actually took the longest time. We realized the

greatest delay with that. But there were some big issues that were

raised and needed to be addressed, and mitigation standards that

needed to be drafted up, and then implemented within the EIS

process.

It can be anywhere from a year and a half, now—it used to be

a year. If you had a decent sized project and not too many issues,

if you’d done a baseline study and you realized you don’t have pit

lake issues and you don’t have any threatened and endangered species issues, then maybe you could get it done in a year.

I think it would take that time now. It’s at least a year and a

half, and I’d agree with Mr. Ingle here that it would probably be

upwards of 5 years for some of the larger operations, and I was

surprised to hear him say that it’s at least a year for him on a

small mine aspect, but even the EAs that people are having to do

now, Environmental Assessments, versus an Environmental Impact

Statement, they are so broad and complete evaluations that they

cost almost—they’re pretty comparable in time and cost from an industry standpoint, the bearer of the cost, it takes about the same

time and money, and are you better off doing the EIS in that case.

Mr. GIBBONS. Thank you.

Mr. Lewis, what, in your professional opinion, can a miner do to

reduce the cost of producing a metal?

Mr. LEWIS. What many companies are trying to do now is to

leave the country.

Mr. GIBBONS. That’s a bit draconian.

Mr. LEWIS. But what many people would like to see happen in

Washington, as I might be so bold as to suggest——

Mr. GIBBONS. Could you pull the mike closer so everyone can

hear? Thank you.

Mr. LEWIS. What we would like to see is Congress take back the

prerogative of passing the laws. We would like to see the people

that we talk with and that we can deal with and can associate with

be responsible for the laws that are passed.

To have a Federal bureaucracy that we have never even seen any

of the people that are proposing these laws, that we have no impact

on whatsoever when we go to their meetings and we talk, talk to

Mr. Tom Leshendock, and try to make a point with him, and he’s
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a wonderful fellow, and a good man to talk to, but he doesn’t pass

any rules.

He has—I wish he did have a lot of influence, but I don’t think

they listen to him either. I mean they’re passing laws that have

nothing to do with the reality of here, and that’s really hurt us,

hurt us bad, killed us dead in many instances.

Mr. GIBBONS. Do you have any specifics, other than the fact that

you go to a heap leaching? What I’m trying to get at is maybe some

specifics other than perhaps reducing the cost of the delays as Ms.

Carpenter has talked about in terms of the permitting process.

Is there anything you can do to reduce the costs? I mean you

have wages, you have materials that you purchased, you have capital costs, what can you do today? Let’s say tomorrow it’s going to

be less.

Mr. LEWIS. I think the Crown Jewel mine has been 15 years in

the permitting process. You could pass a law that the BLM and the

Forest Service couldn’t take longer than a year. That would be a

reasonable thing that would reduce our costs some.

They are now getting ready to require very onerous and difficult

bonding for smaller companies on less than a 5-acre parcel. We

used to have a 5-acre rule that you could go in and get a fairly

quick permit to go in there and drill your holes, but if you have

to go through an extensive and expensive time-consuming evaluation, environmental evaluation, that would be a way to, by keeping

those laws out, that would be a way to reduce your costs.

I’ve pretty well given up. I hate to admit this, but I’ve pretty well

given in up trying to drill or explore on unpatented claims.

I happen to be fortunate in having some patented mines that I

bought forty years ago, so I am still able to operate under the State

regulations, and if you stay under 5 acres disturbance, why, you

can get an exploration program through. But they are making it so

difficult that’s not worth the risk of the investment here.

And another thing that is very, very troublesome is that they

don’t just pass a set of laws and then that’s it. We have the 1872

Mining Law up until 1955. That’s when they really started changing it. They changed it then and I can remember sitting on my

bunk at Fort Ord, California. I had been drafted into the Army. I

was getting $90 a month and I was sending $25 a month of that

to my attorney in Ely trying to protect my mining claims from the

Forest Service. And that was a difficult thing to do. I was very fortunate that I wrote a letter to our then Congressman, and he

helped me. And he had to look at the mineralization and they let

me alone then for a while until they started passing some more

laws.

And even with the laws that have just recently been passed, we

have a whole new group of laws coming in, not from Congress, but

from the Federal agencies.

That’s a very discouraging thing, because no matter what law

they pass today, you know they’re going to want a whole bunch

more tomorrow.

Mr. INGLE. Might I add something to that?

Mr. GIBBONS. Yes, Mr. Ingle.
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Mr. INGLE. On these other minerals, what does Congress propose

to do, or do they propose to do anything to open those minerals up

economically, because they are a security need for this country?

We pass these things off as insignificant, but those minerals, for

instance, there were 222 tungsten mines operating in 1950 or 1952,

and there is no way of shouldering the cost with these other minerals. We have gold and it’s kind of on a pedestal by itself. But

these other minerals, we may find out are essential some day, and

we wouldn’t have made any preparations, any more than we did

before World War II or before the Korean War or any other war.

We never get ready.

And I would like to know if there is any way to do that, to make

some kind of a law that will require the government to take notice

of these things, and during the war, we had DMEA and we had all

sorts of subsidies to produce these minerals. Then we have the

strategic stockpile, and we sold that off even when the market was

down for mercury and silver and maybe some other minerals, and

we closed other domestic mines. And I don’t see any logic to it, and

maybe I’m stupid or something, but I just can’t see it.

Mr. GIBBONS. Let me say that I appreciate your insight to all

this, and it is an issue that I haven’t an answer for you at this

time, but it’s an issue that I will take back with me. I will do some

research on it, and I will get back to you personally as to your

question on this issue, because I think it’s very important that we

look down the road in a projection of what we’re going to need and

how much will we need it, and where is it and how long will it take

us to get there.

Because we don’t have a strategy to get there, we will do what

you started your comments off with: We will fail to learn from history what history has taught us.

Mr. Lewis?

Mr. LEWIS. Along that line, I’d like to make the note that Bataan

fell because the soldiers were out of the materials to fight with, not

because of superior forces forcing our men out of their bunkers.

The Federal Government itself was negligent in failing to supply

ammunition and other supplies so our men could continue fighting.

Had they had sufficient supplies, they would probably still be fighting today.

I was told that much of the ammunition on the Bataan Peninsula

was surplus ammunition that was left over from World War I. And

our government knew war was coming, but they didn’t do anything

about it.

Mr. GIBBONS. We have the very same issue facing this country

today with regard to our military: The overextension of our military with operations that have seriously depleted the munitions

stores, the munitions reserves, depleted our ability to repair engines because we can’t get the parts and we can’t get the materials

to repair these needed items, and yet we keep sending our young

men and women over there to do a job, and we’re asking them to

do a mission that they can’t physically do because we haven’t given

them the resources to do the mission with.

And so the questions you have raised and the issues you have

raised are the exact reason why this hearing is necessary and why

it is so very important to hear the testimony and to take this infor-
95

mation back and give it to the Department of Interior when it

comes to their decision about this 3809 proposed regulatory change.

Mr. INGLE. I was one, among one of the first Navy air squadrons

called back to duty for the Korean War, and in the first month, we

had one old airplane and no tools to keep it flying. It took us 6

months to get one air group supplied, and when we went to Korea,

paint was peeling off the ship, we couldn’t get many of the aircraft

off the deck.

The pilots went into the ocean right in front of the carrier.

Bombs went off under our own aircraft, and then they didn’t go off

when we wanted them to go on the enemy. I had 13—or 11 guns,

.50-caliber guns between two airplanes, and only one of them fired.

And I had another time when I had six .50-calibers and this antiaircraft battery wasn’t firing, but when I fired, they started firing,

and I had one gun. And these things are rockets, we couldn’t tell

where they were going. It was pretty rough. And I don’t want to

see that again—I don’t want my—my son’s too old now, maybe my

grandson will have to go, but I think he deserves better than that.

Mr. GIBBONS. Well, ladies and gentlemen, this is exactly the purpose of this hearing, and this is why it’s so critically important to

understand the significance of mining not just to Nevada, but to

this Nation, to the national security.

I did want to give some time for those people that haven’t been

on one of these panels to get a chance to have the microphone and

talk about their issues, but I do want to, again, thank each of you

for your contribution here today.

Thank you for your time and your patience, and any point that

you wish to submit additional information, please feel free to submit it to the Committee. We will be happy to assimilate it into the

hearing today.

[The information follows:]

Mr. GIBBONS. With that I want to thank all of you for your patience today. Thank you. Ladies and gentlemen, before we call on

those individuals who want to come down and have an opportunity

to speak, I would ask that you come to the desk over here to see

Daniel, Daniel Grimmer with our office, if you’d raise your hand.

We need to have your name and address for the record so that

we can respond. If you will just give it to him, and then one at a

time or two at a time, remember, we need to keep this within a

reasonable length of time or we will be here all night. Everything

that needs to be said will have been said by everybody by the time

we’re finished here, so I appreciate that.

And also Madam Reporter, for the record, Senator Reid and Senator Bryan have submitted statements, and we’ll incorporate their

statements at the beginning of the record for purposes of our hearing today.

What we will do to in order to maximize the time here, we’ll have

to set some ground rules, because we only have the room until 5

p.m.

What I’d like to do is, if you can, use the mike here. We’ll put

one person there and one or two here, and after each person has

testified—and please try to limit it to one or two minutes. I know

that sounds like a short time, but again, it ought to give you an

idea to be very succinct and try to wrap things up and put your
96

statement into the record, so just pick a microphone, and when you

start, give your name and address for the record, and we’ll go from

there.

Gentlemen, you’re the first up, so please.

Mr. FRENCH. My name is Gregory French, Reno.

I want to talk about the effect of Federal fees and State taxes

on the mining industry as well is the rural economies.

Many here have already talked on the effects of the fees on the

mining industry. I am going talk a little bit on the effect it has on

small towns. We need to know the importance of—I’m sorry—we all

know the importance of the net proceeds tax on rural counties and

school districts. Senator Rhoads gave a good example of that.

In times of a mineral price depression, the bottom has dropped

out for the mining companies right now, and the taxes they

produce.

While the added fees that are going in, that are proposed, the

added regulations are just the piece de resistance for Interior Secretary Babbitt. His war cry has been modified after the

countercultural philosopher Cheech Marin: We don’t need no stinking mines.

Rural school districts are seeing the pinch now. Many require

State funds, instead of—require more State funds and less if the

trend continues, less State money for new initiatives, and more

money will be taken from the general fund and given to the school

districts. In many cases, reduced money will require school districts

to cut teachers and become non-compliant with State standards.

In addition, additional royalties and fees will make mining unprofitable and therefore reduce taxes and tax structures for the

counties and small communities. The intense lobbying against the

rural counties for higher Federal taxes, fees, duplicate regulations

by the environmental groups like the no mineral policy center are

all targeted toward rural counties in effect.

These environmental corporations do not care about the people

in rural Nevada. As Dr. Myers said, we’re just a small sliver. They

are pushing their agendas to stop mining, lock up Federal ground

from the public, and raise more money for their funds instead of

caring for the rural counties. Thank you very much.

Mr. GIBBONS. Thank you. Very timely. Thank you very much.

Gentlemen, you may choose which one goes first.

Please identify yourself. The floor is yours.

Mr. MCLANE. My name is David McLane, and I am what the

State of Nevada terms a displaced miner. I’m here today to put a

face on what happens when an industry reacts to external pressures to lower their cost of doing business.

Twenty years ago, I graduated with a bachelor’s degree in geology. Twice in the last 18 months, I have been laid off from companies that have been forced to cut their costs in the face of an ever

lowering price in the commodity they produce.

I was unemployed for five months after the first layoff. For the

last nine years I have lived in Winnemucca. Prior to 1998,

Winnemucca’s growth rate was approximately 15 percent and we

were truly a boom town. In 1996 we made it on the list as the

ninth best small town to live in in America.
97

Today Winnemucca is a much different place to live. In a community whose population totals approximately 12,000, there are over

160 homes on the market. Many of them have been for sale for over

a year. Our unemployment rate since December of 1997 has almost

doubled, and our community today is desperately trying to reinvent

itself in regards to economic diversification.

I myself have been forced to leave behind a career that I truly

love, and at age 43 I’m trying to embark on a totally new one. Yesterday, the stock market dropped over 200 points in reaction to the

CPI going up the highest it’s been in the last 9 years. The price

of gold dropped almost $2. Clearly the risk of inflation and increased interest rates is not affecting our commodity.

I ask you to please consider the effect that additional fees and

royalties will have on the thousands of people who live in northern

Nevada whose lives are so closely linked to the health of the gold

mining industry.

Thank you Congressman Gibbons, for holding this hearing and

giving me the opportunity to talk.

Mr. GIBBONS. Thank you very much.

Mr. WILSEY. Good afternoon, Congressman Gibbons. My name is

Cy Wilsey. I am the U.S. Land Manager for Homestake Mining

Company. I am also the Public Lands Committee Chairman for the

Nevada Mining Association.

I’d like to make just a couple of quick points. As you heard earlier, there are plus or minus 150,000 active mining claims in Nevada today. As Mr. Parratt spoke, that takes approximately $15

million per year out of the exploration budget for the companies

that are active here.

To put that in a little clearer perspective, that would be probably

about 300 geologists per year for the sixth month field season. It

could be equated to 1,500 to 2,000 drill holes, and for the benefit

of Dr. Miller and Dr. Myers, that doesn’t include reclamation.

To the 8 percent gross royalty that Dr. Myers spoke about, that

would be probably, if not certainly, one of the highest mineral production royalties of any country in the world that has an appreciable mineral production record. With that, existing mines today

probably would continue to produce. It most certainly would force

them to raise their cut-off grade.

That would be mean that they would leave lower grade materials

in the pit walls or they could not recover some materials, and without the higher grade materials, they probably could not, probably,

go back and get that.

Most certainly 8 percent royalty is going to kill exploration. You

know, we are the research and development arm for the mining industry, and that’s going to be gone when the existing mines are

mined out, as they will be. Every one is a finite resource.

Those jobs and this country’s expertise will be going somewhere

else in the world.

Thank you.

Mr. GIBBONS. Thank you, Cy.

Yes, sir.

Mr. PIQUET. Thank you, Congressman. For the record, my name

is Tibeau Piquet. For the record, I’m the past Humboldt County

Commissioner and the present State chairman for the People for
98

the USA, and a point of clarification: We used to be People of the

West, but with government regulatory oversight encroaching on our

private lives and private property, we have people in Rhode Island

and now Maine. So we really are People for the U.S.

This is not about ranching or mining alone. It’s about access. In

a State like Nevada where more than 83 percent of the land is

owned by the government, access is critical.

Recreation has long been a great alternative to economic activities such as mining and logging, but now you the recreators, and

the American public are in the same boat because environmentalists are rapidly getting disillusioned with recreating. It attracts

crowds; it requires infrastructure ski lifts, accessible campgrounds.

Encouraged beautiful landscapes rather than authenticity or biodiversity are the ecological goals. It brings sprawl. Throughout the

years, green groups and Federal agencies held tourism out as a replacement for western communities where mining, logging and

other natural resource industries have been eliminated.

Now that those industries are disappearing, they have changed

their minds about tourism. Chief Don Beck of the U.S. Forest Service gave a speech recently stating there was 70 percent less timber

harvested now and that the recreation industry could be next. The

side boards are set up.

So, we can’t cut on it, can’t dig on it, can’t graze on it; and now

we can’t even play on it. The new U.S. Forest Service road policy

will close thousands of miles of road and turn approximately 31

million acres into de facto wilderness.

Our public lands policy needs common sense and balance. Access

is for everyone, not the few, and it’s being lost incrementally so no

one is taking notice. Access is the foundation of mineral exploration

and quality of lives in rural Nevada. It’s part of our freedom.

I appreciate the chance to talk. Thank you.

Mr. GIBBONS. Thank you very much.

Yes, ma’am.

Ms. STRUHSACKER. Mr. Chairman, thank you for this opportunity

to chat with you this afternoon. My name is Debra Struhsacker. I

am an independent environmental consultant here in Reno, and

also a member of the Women’s Mining Coalition. I would like to

share with you some information today on the abandoned mines

issue with the thought that it might be useful to you.

About a year go the National Mining Association retained me to

do a study on successfully reclaiming abandoned hard rock mines.

The findings of the study suggests that there can be enormous synergism between a vibrant and active mining operation and reclamation of nearby abandoned mines.

I’d like to suggest that that study—one of the implications from

that study is that fees are not the only way to a achieve reclamation of abandoned mines. That if we could improve the atmosphere

for mining in this country and remove some of the institutional

barriers that the Clean Water Act, CIRCA, and other liability considerations and some of these other existing laws create, that there

could be ways to incentivize the industry to actually achieve an

even greater level of synergism.
99

So that although it may be necessary to create an abandoned

mine fee or royalty, that there could be other ways of using a very

active mining operation to reclaim adjacent lands.

We found from this study that the types of improvement that

mining companies have realized include water quality improvement, cultural resource preservation, wetlands enhancement, and if

you think it would be useful to you, I’ll make sure you get a copy

of the study.

Mr. GIBBONS. Would you, please.

Ms. STRUHSACKER. Yes, sir. Thank you very much.

Mr. SNOW. I am Charles D. Snow. I’m a consulting geologist, a

graduate from the University of Utah, 1952, and registered professional geologist in Wyoming. And I certainly appreciate the chance,

Representative Gibbons, to testify here today.

After I was retired, I did quite a bit of poking around, did a little

consulting, and a lot of prospecting. To cover a decent-sized prospect for, say, a gold anomaly takes about 100 claims. I was expending about $10,000 a year taking ground samples, soil samples, or

trace minerals to identify a possible drilling target.

My samples were encouraging and it was going forward quite well, but then $10,000 a year doesn’t sound like very much, but

that’s all my budget could afford. The government then put on this

$100 per claim, or $5 an acre for those claims that I had. Well, I

could cut back to 10 claims, but that certainly didn’t cover the prospective area that I was looking at. So I dropped out, and in doing

so, there are now about a month or month and a half of time taking samples, living in motels, paying for also the assay work, only

a few hundred samples, but the assayers don’t get to assay them

now. These are now gone.

Regulatory agencies have increased the time that it takes to get

permitted on mines, and this cost and the time value as money is

one thing that really needs to be addressed. Thank you.

Mr. GIBBONS. Thank you, Mr. Snow.

Yes, sir.

Mr. PRENN. My name is Neil Prenn. I’m president of Mine Development Associates, a small consulting company that employs 12

people here in Reno.

I believe that we all want to be fat and happy and not have to

worry about disturbing the earth or causing any kind of disturbance in our own back yard. We would like to have our cake and

eat it. The mining industry is, by its nature, a dirty industry. It

disturbs the earth. It produces everything we need.

I believe that this country is doing everything it can to not have

this industry. I believe that the purpose of the BLM was to promote multiple use of our public lands. I don’t see that multiple use

is being thought about anymore. I just wanted to clear up one

thing in that the Fury was mentioned here, that it was a bankrupt

company.

We worked on the reclamation there. We got partial release of

the bond for physical things like dozing, but we couldn’t agree with

the BLM, or excuse me, the Forest Service to get partial release of

the bond while the heap was being cleansed.

So as a contractor, we could not take the risk of getting no

money for doing the work, and that’s what the Forest Service
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would have enforced on us. And we believe that we had test work

to show that we could have cleansed the heap with the bond money

that was there.

Mr. GIBBONS. That was a very important point you made, so in

essence, what you’re saying is the Forest Service stopped you from

reclaiming the mine.

Mr. PRENN. They stopped us from reclaiming because they made

us, a contractor, take the risk.

Mr. GIBBONS. Okay, thank you very much.

Yes, ma’am.

Ms. MASON. Congressman Gibbons, my name is Susie Mason,

and I am the vice president and manager of land and administration for Pittston Nevada Gold Company. It’s a joint venture between an Australian company and a U.S.-based coal company.

We’re doing only exploration work and acquisitions work in the

United States so we have no operating mines. The capital to support my company is coming from Australia.

I can say without any reservation at all that the imposition of

additional fees and royalties, and making the environment less

friendly in this country is a disincentive to exploration in the

United States. And I can say that without any hesitation whatsoever. I am a member of the Women’s Mining Coalition as well, and

one of the things that we tried to tell the Congressmen and the

Senators when we went back to Washington was that mining has

changed. We use the best of technology now. We have the highest

standards in the world, and the world has turned to us and adopted our standards, and we have done everything that we could to

take this industry from a pick and shovel—although that’s a great

origin and a great history, to a very environmentally responsible

industry, and I don’t know how much more that we can take in

terms of pressures on this industry and continue to function.

It seems as though every concession that we make, every improvement that we make; every efficiency that we put in to place

gets undermined by yet another level of bureaucracy, another layer

of regulations, another pile of things to go through, another hearing to come and testify to, which I’m grateful for, but that takes

time away, in a small group.

My company only employees about five people, and that takes

time away from the job we’re trying to do, which is to find more

mineralization. We are responding to laws that are being proposed,

we’re responding to regulations that are being proposed. Everywhere we turn there is another emergency that takes us away from

the real job that we have, which is to try to find mineralization and

to keep this country going.

If it’s not grown, it’s mined, and that’s true; and I really believe

that the war that is going on is not just Kosovo, it’s been going on

for quite some time and it involves the natural resources sector of

this United States economy.

Mr. GIBBONS. Thank you very much.

Yes, sir.

Mr. SHAW. Thank you, Congressman Gibbons, for this opportunity to speak to you.
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My name is Chris Shaw. I’m a geologist working in the mining

industry in Winnemucca, Nevada. I’m also State chairman of the

wilderness committee for the People for the USA.

My job has been directly affected by the high price of governmental regulation in addition to the low gold price. I formerly

worked at a low grade open pit gold and silver mine as an exploration geologist. As a result of the low gold price, now I’m working

as a production geologist at a high grade underground gold and silver mine.

The additional cost of production such as implementation of the

revised 43 CFR 3809 BLM Surface Management Regulations will

cause more layoffs in heavily mining-dependent rural northern Nevada. Our community is already burdened with many people out of

work from the downturn in the gold mining industry. Any further

increase in cost to our industry in northern Nevada and small

towns in Nevada heavily dependent on gold mining places undue

and unfair burdens on our citizens and employers, causing more

layoffs than would otherwise occur.

The current 43 CFR 3809 regulations are sufficient to both protect the environment and still provide the highest paying wages in

rural and small town Nevada.

Thank you.

Mr. GIBBONS. Thank you, Chris.

Yes, sir.

Mr. HINKEL. My name is Randy Hinkel, Congressman Gibbons.

I’m a consulting geologist from Carson City and also an environmental manager.

Several people have alluded to the liability issues and things like

that, with cleaning up old mines. I think that—and I am going to

be very short—I think that if the government would give the people

a tax credit to go after these things, they could produce both minerals from them and clean up some environmental eyesores that

people won’t touch right now because they are totally afraid of the

liability issues involved with them.

And I think you could apply that to chemical Superfund sites and

all kinds of things in the current environmental scheme of things.

I think it’s more command-driven instead of offering people incentives to take care of these problems.

Thank you.

Mr. GIBBONS. Randy, that was an excellent statement for it’s

brevity and what you went after, because it’s an interesting proposal and one which is very interesting to hear.

Yes, sir.

Mr. KENNEDY. Thank you, Mr. Chairman.

I’m Larry Kennedy. I’m exploration manager with Battle Mountain Gold based here out of Reno, and I just want to address my

comments mainly toward the royalties and some proposals that

have been discussed, mainly to point out that hard rock mining of

gold, copper, and other minerals is much different and can support

a much smaller royalty provisions than we see with, for example,

oil, gas, coal, and industrial minerals.

I’m concerned when we hear some of the proposals that may be

proposed, that they may be based on different models, for example,

other than net proceeds.
102

And just to bring up another point along this line, the mining

business, especially in a rural environment, part of the capital

costs set up infrastructure that is very important for the economic

development in these areas. Comments, for example, of subsidies

from the mining industry I find especially ludicrous with respect to

these industries.

In our industry, we don’t have the option of moving a mine. A

mine is where you find it. It’s dictated by the geology, and this is

where we need to put the process and the facilities.

If I could make one other comment: One of the reasons that we

see this flux of exploration money and development money going

overseas is the uncertainty in permitting, and the uncertainty in

being able to develop deposits; and certainly to that end I want to

applaud your efforts, Congressman Gibbons, and those of some of

our other legislators in helping us in overcoming some of those uncertainties.

Thanks.

Mr. GIBBONS. Thank you very much, Larry.

Well, did we save the best for last?

Mr. COLLORD. Maybe, maybe not. My name is Jim Collord, and

I’ve sat through this hearing and haven’t heard much about an

issue that is of extreme importance. I’m the environmental superintendent of Cortez Gold Mine. I’ve been a third-generation miner,

and there is an issue that is on the radar screen about that far

away and that is the Crown Jewel issue. And it relates to the mill

site issue that was alluded to earlier. It’s such a severe issue for

the mining industry that basically you could shut this industry

down in this State on public lands. Even some of the mines that

have a lot of operations on private land also have waste rock

dumps on unpatented lode claims. It could shut them down.

This issue is so severe, so critical, and it’s in Congress’s hands

right now. And my recommendation to you, Congressman, is to go

back and monitor closely and take care of this industry. Do not let

this issue kill it.

Mr. GIBBONS. Jim, let me say that Slade Gorton is trying to put

language into the supplemental appropriation bill that will deal

with this very issue that you’re talking about because many of us

see it as a very critical issue.

I mean it is a bomb with a short fuse, and so we need to work

quickly on that, and we’re hoping that we’ll be able to keep it in

the supplemental appropriation as well.

Mr. COLLORD. Okay. My only comment on that is just make sure

the language covers the entire mining industry, that it’s not

project-specific. It is critical to Barrick, it’s critical to Cortez, it’s

critical to every mine.

Mr. GIBBONS. Jim, if you have suggested language——

Mr. COLLORD. I’ve not seen the language that is in there, but I

understand it is specific to Crown Jewel, which is great, they deserve that decision to carry forward, but be aware of the impact

that it could have on the rest of us.

Mr. GIBBONS. Would you send our office a letter expressing your

concerns so we can forward that on?

Mr. COLLORD. Hopefully the Kosovo spending bill will be done

and the language is proper.
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Have you seen the language?

Mr. GIBBONS. Not yet. I’ve heard about it, but I haven’t seen——

Mr. COLLORD. Nobody seems to know what it says.

Mr. GIBBONS. Well, they’re still in their conference committee.

I’ve watched it until I turned blue.

Mr. COLLORD. But understand, this is not the way to regulate an

industry, and it has to be monitored.

Thanks.

Mr. GIBBONS. Absolutely, thank you very much.

Ladies and gentlemen, the record for this hearing tonight will be

open for a period of 2 weeks within which anyone can submit a

comment. You want to send them to Cherie Sexton, U.S. House of

Representatives, Room 1626, that’s the Longworth House Office

Building, Washington, DC 20515, and we’ll give you that address

if you didn’t have a chance to write it down. Not many of you are

stenographers. I spoke a little fast. But we have that address up

here, and we will be happy to provide it for you at the end of this

hearing.

Let me wrap this up and bring it to an end because we’re 15

minutes beyond our IOU for the county here in this building.

I want to assure you that everyone’s presence here today is significant. Today is a Saturday, and you came out of your houses.

You could have gone fishing, you could have gone to do a number

of other things with a whole lot more fun than sitting through a

3-hour hearing on this issue, but it’s so significant that you took

the time to come here, and I want to applaud each and every one

of you for your dedication and your contributions here today.

And because of today’s hearing and the importance of the testimony and the facts that were brought before this Committee, I am

going to go back to Washington and ask the House Resource Committee and the chairman of the Committee, Representative Young

from Alaska, to hold similar hearings across America in this country on these issues to educate not just Congress, but to educate the

American people as well, because of the 435 Members of Congress,

directly or indirectly 395 of them have some relationship to the

mining industry.

It is pathetic to go to Congress and not have them better educated in the importance of this industry to their own home districts. So if we had 395 supporters out of 435, believe you me, we

could make some strong headway in doing what’s right for the industry, doing what’s right for Nevada, doing what’s right for America.

With that, ladies and gentlemen, if there is no other testimony,

I will close the hearing, and again, thank you very much.

[Whereupon, at 5:20 p.m., the Subcommittee was adjourned.]

[Additional material submitted for the record follows.]
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BACKGROUND MEMORANDUM

John Rishel, Legislative Staff

Date: May 13, 1999

Subject: Subcommittee Oversight Hearing on ‘‘Effect of Federal Mining Fees and

Proposed Federal Royalties and Fees on State and Local Revenues and the Mining

Industry’’

The Subcommittee on Energy and Mineral Resources is scheduled to meet on Saturday, May 15, 1999 at 2 P.M. in the Washoe County Commission Chambers at

1001 East 9th Street, Building A, Reno, Nevada to hold a hearing on ‘‘Effect of Existing Federal Mining Fees and Proposed Federal Royalties and Fees on State and

Local Revenues and the Mining Industry.’’

BACKGROUND

The Subcommittee on Energy and Mineral Resources is holding this oversight

hearing to gather factual information on the effect of existing Federal fees, such as

the $100 per claim holding fee and proposed Federal fees, such as royalties, on the

mining industry, state and local economic activity and revenues. The Committee

also wishes to gather information on the probable effect of various existing and proposed Federal fees on trends in our nation’s domestic mineral exploration, production and reserves.

Mining is a basic economic activity which supplies strategic metals and minerals

that are essential for agriculture, construction and manufacturing. A recent study

by the National Research Council concluded that one of the primary advantages

that the United States possesses over its strongest industrial competitors, Japan

and western Europe, is its domestic resource base. The domestic mining industry

provides about 50 percent of the metal used by U.S. manufacturing companies.

The United States is among the world’s largest producers of many important metals and minerals, particularly copper, gold, lead, molybdenum, silver and zinc and

still has substantial domestic reserves of these metals. Twelve western states containing more than 92 percent of U.S. public land account for nearly 75 percent of

U.S. domestic metal production. Thus, much of the United States future mineral

supplies will likely be found on public lands in the West.

The Committee selected Reno for this hearing because Nevada is an important

public lands mining state, with 87 percent of Nevada’s lands owned by the Federal

Government and mining accounting for approximately 9 percent of the Gross State

Product. Precious metals mining constitutes the majority of economic activity in the

north central and northeastern parts of Nevada. Consequently, any detrimental effects of Federal mining policy are definitely going to impact this important mining

state.

A major public lands mining issue is what constitutes a fair share of revenue for

the Federal Government from a mineral deposit on public land. Presently, the Federal Government does not levy a royalty or other fee on minerals extracted from

public land. Many critics of the general mining law say that it is only fair that the

Federal Government charge a royalty or other fee on minerals mined on public

lands. Some have even advocated that a fee be levied on minerals taken from former

public lands which have been privatized over the years through the mining law.

Suggested mining royalties or fees range from 3 percent of net proceeds to 12.5 percent of gross proceeds.

A Federal royalty on hardrock mineral deposits is more complex than it seems at

first glance. About 80 locatable (i.e, claimed under the mining law) mineral commodities and a wide diversity of mineral deposit types occur on public lands. Unless care

is exercised in determining a royalty, mining of some commodities and many lowerquality mineral deposits will be uneconomic. For example, a high gross royalty penalizes producers in high cost regions. Also, costs of production are not equal for

all commodities. For example, smelting, refining and ore transportation costs at

some gold mines consume less than ten percent of the metal’s selling price, whereas

for zinc mines these costs account for about 65 percent of the metal’s selling price.

A high gross royalty based solely on the economics of mining the nation’s richest

gold deposits makes zinc mining uneconomic.

The Federal Government profits from the existence of a mineral deposit somewhere beneath public lands only when that deposit is found and developed. For a

royalty to generate the maximum return on the ‘‘public’s assets,’’ it must not reduce

exploration or mining activity.

A royalty must be based on the ability of most mines to pay—not the ability of

one or two of our country’s most profitable mines to pay. Unlike private landowners,

the Federal Government receives income in the form of taxes from mining on public

lands. If a Federal royalty is imposed which causes many mines to close and others
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never to be developed, the government will lose hundreds of millions in personal

and corporate income tax revenues—a loss greatly exceeding any revenue gains

from the royalty.

State and local tax revenues can also be severely impacted by a Federal mining

royalty. Federal royalties are deductible from the base on which many State and

local taxes are levied, and State and local governments also share in tax losses

caused by reduced mining activity. A state like Nevada could lose millions in tax

revenues due to the negative impact of a high Federal royalty.

The experience of the British Columbia provincial government with mining royalties provides an excellent practical example of the severe impact of a high, government-levied gross royalty. British Columbia imposed a 5 percent gross mining royalty in the early 1970’s. Grassroots exploration ceased, mines closed and new mines

were not developed. More than 5,000 jobs were lost. This ill-conceived gross royalty

was quickly repealed once its devastating effect became obvious.

Evidence is mounting that the Federal $100 per claim maintenance fee is a prime

culprit in a protracted downward trend in U.S. mineral exploration. The $100 maintenance fee was first authorized via a ‘‘rider’’ on the FY 93 Interior appropriations

bill. The fee was then slightly modified and extended through FY 98 in the 1993

Omnibus Reconciliation Act. This fee was again extended through FY 2001 in another appropriations rider on the FY 99 Interior appropriations bill.

The current $100 fee is not competitive with similar fees on Federal acquired

lands, state-owned lands or private land. At current rates the fees discourage mineral exploration on public lands, particularly during the early stages. The early

stages of exploration require large land positions (typically around 30,000 acres or

1,500 claims) to reduce risk to acceptable levels. Historically, initial exploration is

often conducted by those least able to bear the cost of this fee, small companies,

often called junior exploration companies, who raise high risk money from investors

hoping for the big strike. Obviously, long term imposition of a high fee discourages

initial mineral exploration and significantly escalates the cost of early stage highrisk exploration which has serious ramifications on this country’s ability to replace

critical domestic reserves of metals as current reserves are mined out.

A company can avoid the maintenance fee by simply shifting exploration, primarily at the grassroots or early stage, from high cost U.S. public lands to countries

like Canada, Mexico or Chile which seek to attract exploration rather than levy high

tolls on this activity. Continuation of these trends in mineral exploration raises serious concerns that as known domestic reserves are exhausted, significant declines in

U.S. mineral production will occur.

Thirteen witnesses are scheduled to testify, including three elected officials or

their representatives, three state officials, the President of the Nevada Mining Association, two representatives from environmental groups and four representatives

from the mining industry. For further information, please contact Bill Condit at

x59297 or John Rishel at x60242.

STATEMENT OF GREG D. LOPTIEN, SPARKS, NEVADA

Dear Representative Gibbons:

I am writing this letter in the hope that my views, concerning issues discussed

or touched upon at the Oversight Hearing in Reno come to your attention. I am uncertain whether or not you can accept letters concerning these issues as part of the

hearing process; regardless I will attempt to briefly state my views.

Before I begin allow me to express my appreciation for your efforts to fully understand the issues that face the mining industry in this country, for the opportunity

to allow members of the mining community to express their views and for your past

and continuing support of our and the nations industry. Too often the views of the

industry are not relayed to the public or are misrepresented.

The current depressed world market for metals and industrial minerals has been

devastating to this nation’s mining industry. Over the last seven years the mining

industry has been fighting an uphill battle against the Democratic-controlled administration, in particular Secretary Babbitt. Anti-mining environmental extremist,

both within and outside of the government, are engaged in an all out assault on

the mining industry not to make it a better, cleaner, more environmentally friendly

industry but to kill it. The mining industry has, albeit sometimes reluctantly,

worked diligently to become a more environmentally sensitive and responsible industry. So much so that most of the time the environmentalists can only point at

problems that exist as a result of mining practices that occurred 30, 40 or 100 years

ago.
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About four years ago I attended a lecture at UNR given by an author who had

written a book on the changing attitudes in the west. The positive and negative aspects of mining were touched upon and following the lecture I happened to find myself standing near the wife of a locally prominent environmentalist. She was discussing the horrors of mining with another lady. The other lady stated that she

thought that the mining industry was making strides to ‘‘clean up their act.’’ The

wife stated ‘‘Deary, you don’t understand. We just don’t like them.’’ In a nutshell,

this summarizes what the environmentalists are after. They do not care how much

the industry does to ‘‘clean up their act’’ they don’t want mining! This is obvious

when one considers the contorted logic that was used by the Interior’s Solicitor

Leshy and the efforts enacted to stop the New World project in Montana from ‘‘destroying Yellowstone.’’

With regards to your concerns about existing Federal fees and proposed fees (royalties) on the mining industry in the U.S. I would like to provide the following comments. The current BLM management fees are essentially a rental and have placed

a burden on the mining industry that in recent years has become almost a hardship.

The mining industry gets nothing for this management fee and the monies collected,

while it is my understanding, have not gone to rehabilitation of abandoned mine

lands. One positive aspect of the ‘‘rental fee’’ has been that many bogus and fraudulently held claims disappeared from the books opening up more land for legitimate

exploration. Mining companies would prefer to put this ‘‘rental’’ money into the

property (and this generally means into the pockets of local/rural contractors who

perform tasks such as drilling, road building etc.) and thus progress their evaluation

of the lands mineral potential. I believe a more equitable and workable solution to

the management fee situation would be to allow the companies/individuals to select

either ‘‘rental’’ payment in whole or part for the land claimed. Should the claim

holder choose to invest the money into the ‘‘ground’’ then they must demonstrate,

through documentation, a dollar value of work performed on all or a portion of the

claims.

The issue of proposed royalties from revenues from mineral ventures is one of extreme sensitivity in the mining community. And well it should be as it stinks of Medieval times and the royalty claimed by the Kings from work done by peasants. The

Federal Government gets its share of the profits from taxes levied against the mining companies and since the government did not participate in any of the risk taking to find, develop, mine and refine the minerals it should not get any royalty. One

of the biggest proponents of a mining royalty in the Senate was Senator Bumpers

who, if my memory is correct, pushed legislation that allows the Oil industry (a big

industry in his state) to pass on the cost of their royalty fees to the consumer. Rather a two-faced stance if you ask me. I find it interesting that in the past decade

the explosion of mining ventures worldwide was largely due to the removal of onerous royalties required by many nations and the adoption of a United States-style

mining laws. Royalties, such as those proposed (8-12 percent gross revenue to 2-8

percent net revenue) would have a devastating effect on the U.S. mining industry

and only the most profitable deposits could hope to survive. The loss of tax revenue

to the Federal Goverment from mines put out of business by a royalty would, in

my opinion, far exceed the revenues taken in by the royalty. Again, it is my belief

that proponents of a royalty do not wish to generate additional income for the Federal coffers as much as they desire to adversely impact the mining industry.

Of particular concern to me regarding any changes to the mining laws and regulations is the impacts that these changes will have on rural communities. While I live

in Sparks I do spend the vast majority of my working days in the small rural communities of Nevada. I see how important mining jobs are to rural Nevadans and

I see the benefits that these folks get from the mines in more ways than a pay check

or revenue for the county. Spouses of mine employees are doctors, nurses, teachers,

coaches, child care providers, tutors, school board members, scoutmasters, firemen,

ambulance drivers, EMT’s, county commissioners, sheriffs, etc. These people provide

vital infrastructure support in these communities that are taken for granted in the

larger cities. Mines not only supply jobs to the people in these small towns but they

also routinely provide scholarships to students to further their education, provide

necessary and expensive engineering and environmental assistance for such things

as waste water treatment. Some time the mines are the only nearby source for

emergency healthcare (EMT’s) or ambulances. Mining companies also routinely participate and fund development or rehabilitation of riparian areas working in cooperation with organizations such as Ducks Unlimited and the Rocky Mountain Elk

Foundation. Barrick Gold (in Elko) and Magma, now BHP, (in Ely) fronted substantial cash to ensure the construction of High Schools in both of those towns. None

of these services, activities or gifts have ever been provided by an environmental
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group and if mines are run out of business the burden of providing these services

win fall on the taxpayers of the state.

Comments concerning the development of recreational and or tourist attractions/

destinations in rural areas that might offset the loss of mine jobs was of interest

to me. I grew up in Colorado and as you are aware that state spends a great deal

of time and money to promote tourism. Tourists flock to Colorado to see the beautiful scenery and to ski at the large resorts. The locals who do not own shops or

restaurants in these resort areas work for minimum wage as clerks, cooks, waitresses, maids, busboys etc. and can not afford to live in the resort communities. For

example, people who work at Vail, Colorado can not afford to live there and must

commute from the towns of Eagle, Wolcott, Avon and Gilman. The small community

of Dillon, where I used to live is largely a community of apartments that house the

people who work at Breckenridge, Keystone, Arapahoe Basin and Copper Mountain

ski resorts. Tourism may be more environmentally friendly but it does not provide

for much unless you own a business marketed to the tourist. Tourism is a fickle sort

of industry and not every rural area fits the criteria to make it a thriving resort

or destination. Tourism is no more reliable than mining for longevity and does not

pay anything near mining wages.

Several other issues, not touched upon at the Hearing, that I believe negatively

impact on the mining industry or could be implemented to both bolster the industry

and reduce environmental impacts are:

• Equalize the cost of production from foreign-owned overseas mining companies

with those of the U.S. that have to bear the cost of regulatory and environmental laws. While many U.S. firms implement U.S. level environmental standards at their overseas operations many other foreign companies do not. Just as

the U.S. does not import agricultural products that do not meet U.S. standards

then also the U.S. should not allow the importation of metals from mines that

do not follow U.S. environmental standards.

• Current U.S. laws allow small, but vocal activist-groups to stall large multimillion/billion dollar projects for years with trivial lawsuits. This practice is

even used against the Federal Government, as evidenced by a Reno GazetteJournal article on June 9, 1999. In this article a small activist group, the Southwest Center for Biological Diversity, had filed a lawsuit against the U.S. Fish

and Wildlife Service to force the listing of the Rio Grande Cutthroat as an endangered species. The article states that this group ‘‘has filed about 100 lawsuits’’ in the last four years. A similar situation occurred with the Crown Jewel

mine in Washington and is on-going with the Carlotta Copper project in Arizona

(a new mine proposed between two exiting mines). Changes that would allow

companies to obtain lost revenue, from the activists and their organizations, for

delayed projects would alleviate unfounded nuisance lawsuits from groups and

individuals who know that such delaying tactics are on their side.

•Perhaps a trade of dollars spent by mining companies to clean up historic environmental mine problems for management fees and or taxes could be considered. There would have to be the acknowledgment that once the company

touched the contaminated site that they would not be permanently liable for it

provided they actually improved the site.

• Under the Canadian mining law companies that acquire claims on Federal

ground must turn over all data (maps, geophysical surveys, geochemical surveys

and drill hole logs/assays etc.) to a central agency (Bureau of Mines ?) once the

claims are abandoned. This does not occur in the U.S. but if companies where

required to release this sort of data to the U.S. Bureau of Mines/BLM/USGS

then less disturbances to the Federal lands may occur. For example, currently,

once a company has walked away from a property for whatever reason (change

of emphasis by the company, results not encouraging, results do not indicate a

large enough deposit for a particular company, etc.) then the data acquired from

those efforts is archived and lost to the rest of the mining community. Should

that data become available to the public then subsequent companies that claim

the property do not have to conduct additional drilling, trenching, road building

or other surface disturbing actions but can build on past efforts. Also properties

that appear very promising on the surface but reveal less promise underground

will be easily identified and passed over by simply reviewing the agency-held

data. A small fee to access the data or small tax to provide for, maintain and

store the data would not be a burden to companies since they would realize significant benefit from such information.
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I hope that this letter will be of interest and possible use to you on the subcommittee. I apologize for the length as I did intend to be as brief as possible. Once

again, I am very thankful for all of the interest in the industry that you have expressed and the support you have provided for all the years that you have been my

representative.
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STATEMENT OF WOMEN’S MINING COALITION, RENO, NEVADA

RE: Comments on the Draft Environmental Impact Statement—43 C.F.R.

3809 Surface Management Regulations for Locatable Mineral Operations

INTRODUCTION

The Women’s Mining Coalition (WMC) is a grassroots organization of women involved with the hard rock mining industry. Our membership is comprised of women

working in many facets of the mining industry including geology and exploration,

engineering, business and management, mining and heavy equipment operation,

equipment manufacturing, and sales of goods and services to the mining industry.

We have members located from coast to coast in many different states.

The WMC is keenly interested in the Department of Interior, Bureau of Land

Management’s (BLM’s) current efforts to revise the 43 C.F.R. Subpart 3809 regulations (‘‘the 3809 regulations’’) because many of our members work at mines located

on BLM-administered lands, and a number of our members work for companies that

provide equipment, goods and services to mines on BLM lands. Based on first-hand

experience, many WMC members can attest to the success which the 3809 regulations have had in promoting environmentally responsible mining and effective reclamation of mines on BLM-administered lands.

In a letter dated June 18, 1997 to Mr. Paul McNutt, 3809 EIS Team Leader, (copy

attached and incorporated by reference as though fully set forth herein) the WMC

provided comments to the BLM regarding the agency’s proposal to revise the 3809

regulations. Specifically, we responded to the issues raised in the March 1997 materials from the BLM’s 3809 Task Force that outlined issues to be considered during

the proposed scoping and revision of the 3809 regulations, and to comments made

by Secretary Babbitt in his January 6, 1997 memorandum to the Assistant Secretary, Land & Minerals and the Acting Director, BLM. As discussed throughout

this letter, the WMC finds that the BLM’s Draft Environmental Impact Statement

(Draft EIS) and the accompanying proposed rule have failed to acknowledge or consider a number of the issues, concerns, and questions raised in our June 18, 1997

letter to Mr. McNutt.

In developing our comments on the Draft EIS, we have relied on our members’

experience in working on mining and mineral exploration projects on BLM-administered lands, and have given special consideration to the following:

•The strength, comprehensive nature, and proven track record of the 3809 regulations;

•The level of environmental protection and the reclamation achieved under the

current regulatory framework applicable to mining, including the 3809 regulations;

•The lack of any compelling justification or need identified by the BLM that

would warrant modification of the 3809 regulations;

•The failure of the Draft EIS to give any consideration to a number of issues,

concerns and alternatives that the WMC raised during BLM scoping meetings

and in our June 1997 written comments, and the alternatives and issues we feel

need to be evaluated in the Draft EIS but, regrettably, are not; and

• Our concerns that the BLM’s effort to revise the 3809 regulations not be misused as a political process.

The comments in this letter focus principally on the Draft EIS. The WMC is submitting a separate letter outlining our comments on the proposed regulation at 43

CFR §3809 Rules; 64 Fed. Reg. 6422 (February 9, 1999). In addition to the specific

issues and comments raised in this letter, the WMC fully supports and adopts the

comments filed by the National Mining Association, the Northwest Mining Association, and the Nevada Mining Association as though fully set forth herein.

COMMENTS ON THE SCOPE OF THE DRAFT EIS DEVELOPED IN CONJUNCTION WITH THE REVISED 3809 REGULATIONS

The Draft EIS Fails to Consider Issues and Alternatives Raised by the WMC

During Scoping

The WMC submitted detailed written comments to the BLM in a June 18, 1997

letter addressed to Mr. Paul McNutt, 3809 EIS Team Leader. The WMC finds that

the BLM’s Draft EIS and the accompanying proposed rule have failed to acknowledge or consider a number of the issues, concerns, and questions raised in our June

1997 letter to Mr. McNutt. This is just one of many reasons why the WMC deems

the Draft EIS to be substantively flawed and procedurally inadequate.

The National Environmental Policy Act (NEPA) and the Council on Environmental Quality (CEQ) regulations for implementing NEPA (40 C.F.R. §1500) and for

preparing documents, such as this Draft EIS, requires the BLM to acknowledge,
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track, and respond to issues raised during project scoping. In preparing this Draft

EIS, it appears that the BLM has ignored its own internal guidance considering

comments received during public scoping. For example, page V-2 of the BLM’s

NEPA Handbook (H-1790-1) includes the following statements regarding scoping:

•Scoping the EIS (40 CFR 1501.7, 1506.6 and 1508.25). The purpose of

scoping, generally, is to focus the analysis on significant issues and reasonable

alternatives in order to eliminate extraneous discussion and limit the length of

the EIS. Among other things, scoping helps: involve the public and affected

agencies early in the process; identify significant issues to be analyzed as well

as alternatives and potential impacts to be addressed; and allocate assignments

for preparing the document among lead and cooperating agencies . . .:

Page V-3 directs the BLM to consider public input in identifying the proposed action:

•S‘‘l. d. Define Proposed Action. Defining the proposed action plan is key to

subsequent analysis. It is an ongoing process which usually begins prior to the

issuance of the NOI. In the case of a BLM-initiated proposal, the proposed action

will usually evolve and change based on the results of public input during

scoping and subsequent analysis. (Emphasis added). Thus, for internal proposals, the identification and definition of the proposed action is generally more

tentative in the early stages. . .’’

The Draft EIS sections entitled ‘‘Alternatives Considered by Eliminated’’ (page 9),

and ‘‘Issues and Concerns Not Addressed’’ (page 22) make absolutely no mention of

the following issues and suggested alternatives presented in our June 18, 1997 letter to Mr. McNutt and repeated verbatim below:

• ‘‘The DEIS Must Include a Detailed Discussion of the No Action Alternative—

The DEIS must include a substantive and thorough analysis of the No Action

Alternative to evaluate the level of environmental and reclamation regulatory

requirements that would be applicable to future mining projects on BLM lands

with no changes to the 3809 regulations. The No Action Alternative must consider existing state and Federal regulatory programs and the BLM’s existing

authority and recent use of this authority to modify the 3809 Regulations

through policy guidelines and rulemaking on selected topics (e.g., the development of BLM policy guidance on acid rock drainage and cyanide, and new occupancy and bonding rules).’’

Comments on the Draft EIS: The Draft EIS is woefully inadequate in

this respect because it does not accurately describe or consider existing state environmental and reclamation laws and regulations affecting

mining. The Draft EIS fails to acknowledge and analyze the comprehensive nature of these existing state regulatory programs, the significant

level of oversight and control authorized by these regulations, the large

number of environmentally responsible mines that have been developed under these regulations, and current satisfactory coordination of

the state regulatory programs with the BLM’s 3809 regulations.

• ‘‘The DEIS Must Analyze the Wide Range of Sites and Mines Regulated Under

the 3809 Program. There is an enormous diversity of climate, terrain, geology,

mineral deposit types, and mining methods represented by mine sites on BLM

lands. Both the Affected Environment and Environmental Consequences chapters of the DEIS must give full and equal weight to the many different types

of environmental settings and mines, and provide a separate analysis of the impacts that would occur at these different settings and mines if the various alternatives considered in the DEIS were implemented.’’

GT3 Comments on the Draft EIS: The Draft EIS describes the affected environment and environmental consequences in terms of various environmental resources (e.g., wildlife, vegetation, wetlands, etc.) on BLM-managed lands

throughout the western U.S. However, it focuses mainly on the gold industry

(principally in Nevada) and largely ignores important base metal and industrial

mineral production on BLM-managed lands elsewhere in the west. The Draft

EIS and economic analyses on which it is based fail to adequately consider impacts to different sectors of the mining industry and have thus severely underestimated the consequences associated with Alternatives 3 and 4.

• ‘‘The DEIS Must Include a Detailed Analysis of State and Other Federal Environmental Laws and Regulations Affecting, Mining—The Affected Environment

chapter of the DEIS should also include a detailed discussion of the many state

environmental and reclamation regulatory programs and Federal laws and regulations affecting mining. The Environmental Consequences chapter should assess how these programs would be affected due to implementation of the DEIS

alternatives. In particular, this analysis should quantify impacts to state mine
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land reclamation programs and Federal environmental regulatory programs for

which the states have primacy. Because many of these state regulatory programs were developed after enactment of FLPMA and development of the 3809

regulations, the DEIS should acknowledge the evolution of these programs and

the coordination that has developed between the BLM and state mine land reclamation and environmental regulatory agencies.’’

Comments on the Draft EIS: As noted above, the Draft EIS does not adequately consider existing state environmental and reclamation regulations.

• ‘‘The DEIS Must Include a Detailed Analysis of Socioeconomic Impact—Any

changes to the 3809 regulations that could result in significant delays in approving future mineral exploration and mining PLANS could cause adverse economic and social impacts to mining communities, state economies, and other

stakeholder groups including geologists, consultants, drilling contractors, analytical laboratories, and restaurant owners and motel/hotel operators in mining

and exploration areas who derive a substantial portion of their income working

for or providing goods and services to the hard rock mining industry. The Affected Environment chapter of the DEIS must acknowledge and quantify the

positive social and economic impacts associated with mining. The Environmental Consequences chapter must disclose any positive or adverse social and

economic impacts that would result from implementation of the DEIS alternatives. This analysis must be site specific; a generic or national evaluation will

not adequately assess the impacts to local communities and regional economies.’’

‘‘Additionally, the DEIS must evaluate the economic impacts that proposed

changes in the 3809 regulations would have on mining equipment manufacturers and companies that provide goods and services to the mining industry.

Many of these companies are located in parts of the country not typically considered mining states such as Wisconsin (P & H Mining Equipment and

Nordberg), Illinois (Caterpillar), New Jersey and Texas (Ingersoll Rand), etc.

The continued existence of thousands of jobs in these states relies on a strong

mining industry in the western U.S. The DEIS must thoroughly evaluate the

economic consequences to these workers and to their state economies caused by

changes to the 3809 regulations.’’

•2 Comments on the Draft EIS: As described in more detail below, the national

and generic evaluation presented in the Draft EIS (especially Appendix E) and

the accompanying ‘‘Initial Small Business and Regulatory Flexibility Act Analysis’’ significantly underestimate the adverse economic impacts to specific communities and regions.

• ‘‘The DEIS Must Consider Specific Impacts to Notice-Level Operators—The Secretary’s directive to repeal, narrow, or otherwise modify the 5 acre NOI process

will have a direct and focused impact upon individuals, small operators, and

companies who perform most of their mineral exploration and/or mine development work under an NOI. The DEIS should include a separate socioeconomic

analysis of the impacts of the proposed changes upon this groups of stakeholders. Because most mineral discoveries start as NOI-level exploration

projects, the DEIS must also evaluate the impact that elimination of the NOI

process or delays in the NOI approval process would have on the rate of discovery, and the impact to local, regional and national economies as a result of

diminished levels of exploration, discovery, and mine development.’’

Comments on the Draft EIS: As described in more detail below, the economic

analyses presented in the Draft EIS (especially Appendix E) and the accompanying ‘‘Initial Small Business and Regulatory Flexibility Act Analysis’’ are

grossly dismissive of the economic hardships that many Notice-level operators

(i.e., individuals and small businesses engaged in exploration and providing

goods and services to the mineral exploration and mining industries) will experience if the BLM’s proposed action (Alternative 3: Preferred Alternative) is implemented. Additionally, the Draft EIS fails to disclose the adverse impacts to

the rate of discovery and the concomitant increased reliance on foreign minerals

that would be associated with Alternative 3.

•‘‘The DEIS Must Consider Cumulative Impacts—The DEIS must evaluate the

cumulative impacts of any proposed changes to the 3809 regulations with respect to other connected actions including but not limited to the EPA’s proposed

National Hard Rock Mining Framework, the BLM’s recent use and occupancy

regulations, the BLM’s new bonding regulations, other EPA initiatives such as

the recent addition of the hard rock mining sector to the Toxic Release Inventory (TRI) reporting requirements and potential changes to the RCRA Bevill exclusion for certain mining wastes, and changes to the Mining Law of 1872 being

contemplated by Congress. This analysis should evaluate the cumulative im-
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pacts of changes in the 3809 regulations in conjunction with potential changes

in royalties, fees, taxes, reporting requirements, and a plausible range of future

regulatory developments.’’ (Note: the new bonding regulations referenced above

were remanded in May 1998).

Comments on the Draft EIS: The Draft EIS fails to consider cumulative impacts associated with other Federal rulemaking affecting mining. In addition to

the issues listed in our June 1997 letter, the following new Federal actions are

examples of the regulatory proposals that should be included in a cumulative

impacts analysis: Clean Water Act proposals regarding Total Maximum Daily

Load (TMDL), the Advanced Notice of Proposed Rule Making to change water

quality standards, and the Department’s recent (and inappropriate) decision regarding the use of mill sites in connection with mining claims.

• ‘‘The DEIS Must Consider Impacts to Minerals Availability— Changes to the

3809 regulations that result in significant delays in the PLAN and NOI approval processes may have an adverse impact on the supply of domestic hard

rock minerals. The DEIS should evaluate the impact that revisions to the 3809

regulation would have upon minerals availability, and the potential for increased reliance on foreign mineral supplies. This analysis should consider the

balance of foreign trade payments as a result of decreases in domestic mineral

production. Similarly, the DEIS should consider how the 3809 regulations could

be modified to encourage and facilitate mining on BLM lands and the resulting

positive economic effects of increased mineral exports and decreased mineral

imports.’’

Comments on the Draft EIS: The Draft EIS fails to consider any of these

issues. In addition to being unresponsive to the WMC, the BLM’s omission of

these issues is in direct conflict with Sec. 102(a) (12) of the Federal Land Policy

and Management Act of 1976 (FLPMA) in which Congress declares that it is

the policy of the United States that:

the public lands be managed in a manner which is recognizes the Nation’s need

for domestic sources of minerals, food, timber, and fiber from the public lands

including the implementation of the Mining and Minerals Policy Act of 1970 (84

Stat. 1876, 30 U.S.C. 21a) as it pertains to the public lands’’

The Draft EIS should disclose how the BLM’s Preferred Alternative

and Proposed Regulations comply with U.S. laws that recognize the

need for mining, including Sec. 102(a)(12) of FLPMA and the Mining

and Minerals Policy Act of 1970 as enacted by Congress. The rulemaking process does not grant the BLM the authority to ignore, repeal,

or amend these Congressional mandates.

• The DEIS Should Consider Alternatives to Facilitate Mining and to

Create Reclamation and Environmental Incentives—Although the Secretary’s January 6, 1997 memorandum does not contemplate changes to the

3809 regulations to facilitate mineral exploration and mine development or to

create incentives for reclamation and remediation of abandoned mines, a number of beneficial social and economic impacts on the local, regional, and national

levels could accrue from selected changes. The WMC believes that regulatory

changes to streamline the review process and stimulate clean-up of abandoned

mines would significantly

enhance mineral exploration levels without compromising the high

level of environmental protection and reclamation success realized

under the present regulatory system. The WMC strongly urges the BLM

to expand the scope of the DEIS to evaluate revisions to the 3809 regulations to encourage and facilitate environmentally responsible mining

and reclamation of abandoned mines.’’

Comments on the Draft EIS: Alternatives to facilitate environmentally responsible mineral exploration and mining would be consistent with Sec.

102(a)(12) of FLPMA and the Mining and Minerals Policy Act of 1970 as enacted by Congress. These laws require the BLM to manage the public lands in

a manner that encourages responsible development of the nation’s mineral resources. Neither the Draft EIS nor the proposed regulations fulfill this responsibility. Additionally, the WMC’s June 1997 comments regarding reclamation of

abandoned mines remain unanswered.

As demonstrated in the discussion above, the BLM has not fulfilled its obligations

under NEPA and the CEQ regulations to respond to our comments and suggested

alternatives. At the very least, the Draft EIS should explain why many of the

WMC’s issues and suggested alternatives were eliminated from further consideration. The Draft EIS violates NEPA through its failure to assess the many reasonable alternatives that the WMC and other mining interests proposed during the

1997 scoping effort. The omission of any mention of these alternatives in the Draft
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EIS is such a serious and fundamental flaw that a new Draft EIS and further public

comment is needed to comply with NEPA.

COMMENTS ON THE CONTENT OF THE DRAFT EIS DEVELOPED IN

CONJUNCTION WITH THE REVISED 3809 REGULATIONS

The Proposed Regulations Described in Alternative 3 are a Solution in

Search of a Problem

As stated in the WMC’s June 18, 1997 letter to Mr. McNutt, the BLM must develop a Statement of Purpose and Need. The WMC recognizes that the Draft EIS

includes a statement of ‘‘Purpose of and Need for Action.’’ However, the data presented in the Draft EIS do not support this statement—especially with respect to

problems described for Notices of Intent (NOIs).

The BLM must justify the proposed revisions to the 3809 regulations. The Draft

EIS and other BLM materials furnished to date provide no compelling reasons to

change the regulations. In fact, an April 1992 BLM study of the 3809 regulations

showed no need for any changes to the environmental or reclamation provisions of

these regulations. The BLM policies and guidelines developed since 1992 including

the cyanide, acid rock drainage, and surface occupancy guidelines are substantive

contributions to the 3809 program, suggesting the conclusions reached in April 1992

remain valid. In fact, as discussed below, the data presented in the Draft EIS do

not support the conclusion that the regulations need substantial revision.

The WMC questions the appropriateness of the BLM’s proposal to revise these

long-standing regulations that have been working well in light of the following: the

large number of environmentally responsible mines developed under the 3809 regulations, the industry’s good track record in complying with these regulations, the requirement at 43 C.F.R. §3809.0-5(k) that mining operations comply with all applicable state and Federal environmental and reclamation laws, and the complete absence of any actual evidence that the existing regulations are inadequate.

The Draft EIS Mischaracterizes ′′Problems′′ Associated with Notices of Intent. Throughout the rulemaking process, the BLM has asserted that one of the

principal reasons the 3809 regulations need to be rewritten is due to environmental

problems associated with NOIs. However, the data in the Draft EIS do not support

this contention. To the contrary, the data presented suggest that problems associated with NOls are limited in scope and nature.

In describing the environmental consequences of the No Action Alternative (i.e.,

no changes to the NOI process), the Draft EIS states the following:

‘‘Notice provisions could be difficult to enforce because no reclamation bond is

required for Notice-level activity. The lack of a bond and enforcement process

could result in areas not being reclaimed when operators leave, although this

is not a common practice. BLM issued about 500 notices of noncompliance (out

of about 29,400 Notices filed for failure to reclaim, representing 2 percent of all

Notices submitted. (Draft EIS, page 89, emphasis added).

Although the WMC would like to see the mining industry strive for a 100 percent

compliance record, a 98 percent compliance track record (i.e., a two percent noncompliance history) hardly constitutes a serious problem. In fact, this high level of

compliance impresses us as a significant achievement. The BLM should evaluate

other alternatives like better implementation (see the discussion below recommending an NOI Alternative), to evaluate ways to correct the 2 percent noncompliance problem. There is no justification for the BLM’s Proposed Action (Alternative

3) for a wholesale rewrite of the regulations.

Congress Has Already Solved the N0I ‘‘Problem’’

To the extent to which a problem existed with the NOI process, it appears that

Congress solved this problem in August 1993 with the vote to eliminate assessment

work. In August 1993, Congress changed the requirement for mining claimants to

perform $100 of annual assessment work on each unpatented claim, and substituted

the current requirement to pay an annual claim maintenance fee. Although many

claim owners performed sound geologic work (i.e., drilling, sampling, geophysical

surveys, etc.) to satisfy the assessment work requirement, some claim holders did

not. Some claimants would fulfill the assessment work requirement mainly through

trenching and other surface disturbing activities. Mining claimants’ need to perform

physical, on-the-ground work to meet the assessment work requirement (and to create visible proof that the work had been done) was thus the driving force behind

much of the NOI-level surface disturbance created prior to 1993.

Data compiled by the BLM in Nevada proves that the number of problematic

NOIs has dramatically declined following the elimination of the assessment work requirement in 1993. In August 1997, the Nevada State Office of the BLM provided

information to Nevada Assemblywoman Marcia de Braga (chair of the Assembly
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Committee on Natural Resources, Agriculture and Mining) with a table entitled

‘‘BLM-Nevada State Record of Environmental Problems Associated with NoticeLevel Mining or Exploration.’’ This table lists 156 problematic NOI sites in Nevada.

A review of this table reveals that only 10 of the 156 problem NOls were filed in

1993 or later. Five of the problem NOIs were filed after 1993. The remaining five

problematic NOIs were filed in 1993. An examination of the 1993 NOls would reveal

whether the surface disturbance occurred prior to August, 1993 when the assessment work requirement was eliminated.

At the very least, the Draft EIS should be revised to evaluate the extent to which

there are problems with NOIs filed since 1993.

Inaccurate and Inflammatory Statements in the Draft EIS Should be Eliminated

The WMC is very concerned about the following inaccurate and inflammatory

statement on page 89 of the Draft EIS:

‘‘Under the existing regulations, if the area occupied by an operation increases

by no more than 5 acres a year, the operation could remain a Notice-level mine

and bypass the Plan of Operations process. Some operations could become fully

operational mines exceeding 200 acres, be regulated only by a Notice, and still

not have to undergo environmental review.’’

Many of our members have worked with BLM offices throughout the western

U.S., and have extensive experience with both the NOI and the Plan of Operations

processes. None of us have encountered this scenario with any NOI, or in any BLM

office. Our collective experience is that the BLM fully enforces the 5-acre limit on

NOIs in compliance with the current regulations which state the following at

§3809.1-4: ‘‘An approved Plan of Operations is required prior to commencing:

(a) operations which exceed the disturbance level (5 acres) described in

§3809.1-3 of this title.’’

The scenario on page 89 cited above strays so far from our collective experience

that we are forced to conclude that it has been created from whole cloth. This apparent excursion from reality significantly diminishes the credibility of the entire Draft

EIS and calls into question the BLM’s intentions and ability to perform an objective

environmental analysis based on fact and sound science

There is simply no evidence to suggest that mines exceeding 200 acres have been

or can be permitted with an NOI in the unlikely event that this scenario accurately

describes a project somewhere on BLM-administered land, it would clearly be an example of improper implementation of the existing regulations. If such a project exists, it is inappropriate to recommend comprehensive changes to the 3809 regulations when proper administration of the existing regulatory program would solve the

problem. It is equally improper to justify the need for new regulations based on one,

extreme example.

The Draft EIS Should Evaluate a Specific Alternative Devoted to Changes

to the Notice of Intent Process

The Draft EIS describes a concern that NOI-level activities are occurring in environmentally sensitive areas without adequate BLM involvement. However, it is the

collective experience of our members that the BLM commonly places restrictions

and requirements on NOI-level activities to protect cultural resources, riparian

areas, wetlands, wildlife, and other environmental resources. Based on this experience, the BLM has demonstrated that the agency already has appropriate regulatory tools and policies for controlling impacts associated with NOI-level operations.

If problems are occurring, they are most likely due to poor administration and implementation of the existing regulations—not due to inadequate regulations. These

administrative problems and implementation inconsistencies probably result from

budget and staffing constraints.

With this in mind, the WMC requests that the BLM evaluate a fifth alternative—

‘‘The NOI Alternative.’’ This alternative should focus on the NOI process and how

to use the existing regulations to address any remaining problems (i.e., non-assessment work issues) associated with failure to reclaim NOI sites, or NOI activities in

sensitive areas. The NOI Alternative should determine how increased staffing and

budget levels could achieve more consistent and improved oversight of NOI activities. We also recommend that this alternative consider adding a bonding requirement for NOI-level operations.

The WMC finds no justification whatsoever for the BLM’s current proposal for a

complete revision of the 3809 regulations. We feel that proper analysis of an NOI

Alternative would show that any real problems with the existing regulations could

be solved with focused, surgical changes to the rule, and more consistent and complete implementation of the existing 3809 regulations.
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Comments on the BLM’s Small Business and Regulatory Flexibility Act

Analysis with Respect to Exploration and Nevada

The BLM’s Economic Analysis is Seriously Flawed

Many WMC members work as independent consultants, contract exploration geologists, or are employed by small businesses. The Draft EIS is grossly dismissive

of the adverse economic impact that the proposed regulations (i.e., Alternative 3)

would have on for small businesses. The WMC finds the BLM’s economic analysis

as presented in the ‘‘Initial Small Business and Regulatory Flexibility Act Analysis’’

and the Draft EIS wholly inadequate. The shortcomings in the BLM’s economic

analysis as presented in the Draft EIS would be laughable if it were not for the importance of this issue and the severe economic and lifestyle consequences that many

of our members would experience if Alternative 3—The Proposed Action is enacted.

Additionally, many of our members live and work in Nevada. The Draft EIS and

the Regulatory Flexibility Act (RFA) analysis conclude that the adverse economic

impact on Nevada would be insignificant. This conclusion is wrong. The flaws and

inadequacies contained in the BLM’s economic analysis are described below.

1992 Data Are Not Representative of Today’s Industry.

The BLM’s Regulatory Flexibility Act (RFA) analysis is based on 1992 data. The

industry has significantly changed and contracted since 1992 due an increasingly

hostile regulatory and political climate for mining in the U.S., corporate downsizing

and mergers, and reduced metals prices. The dramatic decline in the number of

NOls and Plans of Operation since 1992 shown in Figure I (RFA, page 92) should

be sufficient indication that it is inappropriate to use 1992 information to model the

impact of the proposed regulations on today’s industry.

The RFA Mischaracterizes; Impacts on Exploration

The BLM’s analysis fails to consider mineral exploration and mining as distinctly

different industry sectors, and focuses most of the evaluation on its impact on mining companies (e.g., companies with operating mining properties). Moreover, the

RFA analysis completely ignores the impact upon independent exploration geologists

who earn their living working as consultants and contractors to mining companies.

Some of these individuals also own mining claims and pursue exploration activities

on their own behalf with the hope of leasing their claims to mining companies.

These individuals comprise a significant portion of the exploration industry sector.

As one measure of the importance of this group to the exploration industry, roughly

one-third of the 925 members listed in the Geological Society of Nevada’s recently

published 1998-1999 membership directory are described as individual geologists,

geologic consultants, and independent consultants.

Although the RFA analysis acknowledges that exploration is typically performed

by small companies, the underlying assumption is that most exploration is conducted by companies rather than individuals:

‘‘Exploration activities are often considered higher risk activities and may be

conducted by relatively less well capitalized firms. However, a substantial portion of exploration activities are conducted by major mining companies which

would not be expected to be impacted by changes to the bonding requirements.

Available data does not allow the BLM to readily distinguish between the employment and financial characteristics of existing Notices.’’ RFA, page 93).

It should be noted that while larger companies may perform a significant portion

of the Notice and Plan level exploration work, many retain contract geologists to

conduct this work.

The RFA Analysis Fails to Recognize Impacts to Individual Geologists as an

Industry Group

The RFA analysis concludes that the proposed regulations would have an insignificant impact upon the mining industry, but fails to consider the impacts on the

exploration sector as a whole and on the independent exploration geologist segment

of the exploration sector. The impact of the proposed regulations is described as

ranging from $17,300 to $127,000 on an annual basis, or $72,140-$533,857 over the

period of analysis on each affected entity (RFA, page 95). According to the RFA,

analysis this impact equates roughly to 1 percent of the 1997 total U.S. value of

locatable mineral production of $17.7 billion, and about 5 percent of the $1.62 billion

estimated value of locatable minerals production in the western U.S.

This analysis is wholly inappropriate for the exploration sector of the industry

which should be evaluated as a Research and Development arm of the industry—

not a revenue producer. Moreover, this characterization ignores the impact to the

group of independent geologists that form a significant element of the exploration

sector. WMC members do not look forward to a reduction in annual income of
164

$17,300 to $127,000, and find the BLM’s characterization of this impact as ‘‘insignificant’’ to be insensitive and offensive. It is highly likely that our male colleagues

who are individual geologists and consultants have a similar perspective. In fact,

it is hard to imagine that anyone (except perhaps Bill Gates and others in his income group) would consider such a reduction in income to be without significance.

The RFA Analysis Ignores the Real Costs Associated with the Plan of Operations—EA Process

The RFA analysis further characterizes the impact on exploration activities as an

annual cost increase ranging from 0–38 percent, depending upon whether a validity

exam and a Plan of Operations are required. For most exploration projects, the RFA

analysis (page 101) assumes that in most cases, only a Plan of Operations will be

required and that the costs associated with a Plan of Operations are on the order

of $25,000. Presumably, this cost increase includes preparation of a third-party Environmental Assessment (EA), although the RFA analysis is vague on this point.

The RFA analysis does not provide any data to substantiate this cost estimate.

Based on our members’s experience, average costs for a Plan of Operations and

third-party EA for an exploration project are substantially more than $25,000.

Moreover, the RFA analysis completely ignores the time value of money issue,

seasonal constraints associated with exploration, and the substantial delays typical

for the Plan of Operation/EA process. (The WMC incorporates by reference herein,

information that the industry has recently provided comments to the Office of Management and Budget that substantiates that securing approval of a Plan of Operations is significantly higher than $25,000. See, for example, the March 25, 1999

letter from R. Timothy McCrum to Mr. David Rostker, Policy Analyst with the Office of Information and Regulatory Affairs, OMB).

Even if the average cost increase of $25,000 in the RFA analysis were a valid estimate, it is inappropriate to characterize this increase as inconsequential. Once again

the RFA analysis has assumed that exploration is being performed by larger mining

companies that are capable of absorbing this cost increase. The analysis completely

fails to consider the significance of this impact on the individual geologist sector,

both in the context of time and money.

The draft regulations would give the BLM considerable discretionary authority to

require a Plan of Operations for exploration proposals that would disturb fewer than

five acres (i.e., work that can currently be undertaken by filing a Notice of Intent).

However, the RFA analysis inappropriately downplays the circumstances in which

a Plan of Operations rather than a Notice of Intent would be required:

‘‘. . . For the most part, exploration activities would not require an extensive or

detailed Plan of Operations due to the nature of the activities. The infrequent

need for validity exams and the limited need to prepare detailed Plans of Operation suggests that the cost increases associated with the proposed regulation

are likely to be quite low, perhaps 5 percent, or less.’’ (RFA, page 102).

It is unclear what the BLM means by ‘‘an extensive or detailed Plan of Operations’’ because the data requirements for a Plan of Operations are established in

the 3809 regulations. Perhaps the reference to ‘‘extensive or detailed’’ pertains to the

scope of the EA that is required to evaluate and approve a Plan of Operations. In

any event, the RFA analysis completely misses the point. The increased costs, both

in time and money, are associated with the NEPA process and the associated Federal consultation requirements (e.g., for cultural resources, Native American issues,

threatened and endangered species, etc.)—not with preparation of the Plan of Operations. The RFA’s characterization of the increased exploration costs associated with

the proposed regulations is inaccurate and disingenuous at best.

The RFA Ignores Impacts to Nevada

Another significant flaw in the RFA analysis is its failure to analyze impacts on

a regional basis. The RFA evaluates impacts nationwide rather than looking at specific geographic regions that are likely to bear the brunt of the adverse impacts associated with the proposed regulations. This allows the impacts to be homogenized

and smoothed out across the country, thereby masking the significantly adverse consequences that the proposed regulations will have on areas in which exploration and

mining are a major portion of a region’s economy. This is a significant shortcoming

in the RFA in light of the fact that the Draft EIS includes a number of statements

that disclose that Nevada will be more adversely affected by the proposed regulations than other states. For example, in discussing the decrease in the value of mine

production from public lands that would result due to the draft regulations (the Proposed Action and Preferred Alternative—Alternative 3), the Draft EIS states:

‘‘Most states would see decreased levels of mining on public lands, ranging from

$55,000 in Oregon to $93 million in Nevada. Nevada’s share of the loss would
165

be more than half of the loss for the study area as a whole.’’ (Draft EIS, page

214).

Substantial Revisions are Needed for the Economic Analysis and the Draft

EIS

The RFA analysis and the Draft EIS improperly characterize the exploration component of the mining industry and fail to analyze and disclose impacts to individuals

and small businesses involved with exploration. As the Research and Development

(R&D) arm of the mining industry, exploration is critically important to the longterm future of mining in the U.S. A regulatory climate that restricts exploration will

ultimately cause a significant down-turn in future mining activities. Thus, the adverse economic impacts associated with the proposed alternative are substantially

underestimated.

The RFA analysis and Draft EIS should be revised to correct the significantly

flawed analysis of the impact of the proposed regulation on the exploration sector.

The revised documents should analyze the severe impacts that the proposed regulations would have on individual geologists and consultants, and disclose the longterm adverse effect that reduced exploration would have on mining.

CONCLUSION

In our June 1997 letter to Mr. McNutt, the WMC expressed concerns that the Secretary was using the 3809 rulemaking process to advance a political agenda. We

have ongoing concerns that this is the case—especially in light of recent Department

actions such as the Solicitor’s opinion regarding millsite and lode claim ratio requirements. We believe the 3809 rulemaking process should be an opportunity for

collaboration and constructive dialogue based on facts, science, and an honest assessment of the level of environmental protection and reclamation successes

achieved under the status quo.

Political rhetoric will only detract from the outcome of this process. The Secretary’s ongoing politicization of mining issues is unfortunate and inappropriate,

and we hope in the future the Secretary and others can put aside politics to decide

this important issue. One immediate action that the Secretary should take to reduce

the political invective would be to extend the comment period on the Draft EIS until

after the Natural Research Council/National Academy of Sciences (NRC/NAS) Committee on Hardrock Mining on Federal Lands has completed their Congressionally

mandated study. The Secretary’s current schedule ignores Congress’ desire that the

results of the NRC/NAS study be incorporated into the final rule, and wastes the

$800,000 of taxpayers’ money earmarked for the study.

Due to the unreasonably rushed public comment period, the WMC has not had

sufficient time to complete our review of the significant volume of materials furnished with this rulemaking. Therefore, the absence of specific comments in this letter should not be construed as agreement with any of the issues or concepts presented in the Draft EIS, the Initial Regulatory Flexibility Act, the proposed rule or

any other BLM materials associated with this rulemaking.

Sincerely,

Ann Carpenter

President

Barbara Sullivan

Secretary

Dominique Cone

Vice President

Debra Struhsacker

Author of Letter

Laurabelle Minser

Treasurer

Attachment: WMC June 18, 1997 letter to Mr. Paul McNutt, 3809 EIS Team Leader
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Mr. Paul McNutt, 3809 EIS Team Leader

Bureau of Land Management, Nevada State Office

850 Harvard Way

Reno, NV 89502-2055

Dear Mr. McNutt:

INTRODUCTION

The Womens Mining Coalition (WMC) is a grassroots organization of women involved with the hard rock mining industry. Our membership is comprised of women

working in many facets of the mining industry including geology and exploration,

engineering, business and management, mining and heavy equipment operation,

equipment manufacturing, and sales of goods and services to the mining industry.

We have over 437 members located from coast to coast in 36 different states.

The WMC is keenly interested in the Department of Interior, Bureau of Land

Management’s (BLM’s) current efforts to revise the 43 C.F.R. Subpart 3809 regulations (‘‘the 3809 regulations’’) because many of our members work at mines located

on BLM-administered lands, and a number of our members work for companies that

provide equipment, goods and services to mines on BLM lands. Based on first-hand

experience, many WMC members can attest to the success which the 3809 regulations have had in promoting environmentally responsible mining and effective reclamation of mines on BLM-administered lands.

The WMC welcomes this opportunity to provide comments to the BLM regarding

the agency’s proposal to revise the 3809 regulations. We are responding to the

issues raised in the March 1997 materials from the BLM’s 3809 Task Force that

outline issues to be considered during the proposed scoping and revision of the 3809

regulations, and to comments made by Secretary Babbitt in his January 6, 1997

memorandum to the Assistant Secretary, Land & Minerals and the Acting Director,

BLM.

In developing our comments, we have relied on our members’ experience in working on mining and mineral exploration projects on BLM lands, and have given special consideration to the following:

•The strength, comprehensive nature, and proven track record of the 3809 regulations;

•The level of environmental protection and the reclamation achieved under the

current regulatory framework applicable to mining, including the 3809 regulations;

•The lack of any compelling justification or need identified by the BLM that

would warrant modification of the 3809 regulations;

•The shortcomings of the BLM’s scoping efforts and the inappropriateness of

the BLM’s plans for concurrent development of both the Draft Environmental

Impact Statement (DEIS) and the revised 3809 regulations;

•The alternatives and issues we feel need to be evaluated in the DEIS; and

• Our concerns that the effort to revise the 3809 regulations not be misused as

a political process.

COMMENTS ON THE ISSUES RAISED BY SECRETARY BABBITT AND

THE 3809 TASK FORCE SCOPING MATERIALS

Definition of Unnecessary or Undue Degradation

Many WMC members have direct experience in working under the 3809 regulations and implementing measures at the mine sites at which they work to prevent

unnecessary or undue degradation. It is our collective experience that the unnecessary or undue degradation clause of the 3809 regulations has proven to be a comprehensive mechanism that effectively mandates environmental protection. Given

the level of environmental protection required by this clause, the impressive track

record of the industry’s compliance with this standard, and the numerous examples

of environmentally responsible mining and outstanding reclamation at mines developed since 1981 under the jurisdiction of the 3809 regulations, we find no justification whatsoever to modify the definition of unnecessary and undue degradation.

Our members find that the unnecessary and undue degradation definition specified in 43 C.F.R. §3809.0-5(k) requires stringent, comprehensive, and appropriate

levels of environmental protection for the following reasons:

•The definition states ‘‘Failure to comply with applicable environmental protection statutes and regulations thereunder will constitute unnecessary or undue

degradation.’’ This requirement to comply with other state and Federal environmental regulations is an effective built-in mechanism for continually updating

the 3809 regulations by incorporating all other relevant environmental laws and

regulations simultaneously with their enactment.
167

•The requirement to comply with ‘‘applicable environmental protection statutes

and regulations’’ automatically encompasses all environmental performance

standards, including technology-based standards from other environmental and

reclamation laws, as well as financial assurance requirements mandated in

state and Federal laws and regulations.

•The current definition appropriately implies a site-specific environmental performance standard. Retention of this site-specific concept is critically important

to ensure that environmental and reclamation measures employed at mines on

BLM-administered land are responsive to site environmental conditions. The

enormous diversity of climate, terrain, geology, and the biologic and social environments at mines on BLM-administered lands throughout the country demands a site-specific performance standard that gives the BLM the necessary

regulatory flexibility and discretion to make custom-tailored decisions appropriate for the site under consideration.

•The current definition is a rigorous standard that demands comprehensive environmental protection and reclamation at mines on BLM-administered land.

The BLM’s ability to make site-specific decisions about mines in no way lessens

the mining industry’s burden of compliance compared to other industries. Like

all industries, the mining industry must comply with all applicable state and

Federal environmental protection laws and regulations because all mines operate under the umbrella of these provisions in addition to the 3809 regulations.

• Secretary Babbitt’s January 6, 1997 memorandum on the 3809 regulations advocates modifying the 3809 regulations to include a new standard mandating

the use of ‘‘best available technology and practices.’’ Any modification of the

3809 regulations to include a best available technology and practices standard

would be inappropriate because it would not improve environmental performance, add any extra measure of environmental protection, or achieve better reclamation at mines on BLM-administered land. To the contrary, the one-size-fits

all approach implicit in the best available technology standard would result in

inferior reclamation because there is no best universal approach to reclamation.

Superior reclamation can only be achieved if the BLM and mine operators retain the ability to custom-tailor reclamation measures to fit site-specific environmental conditions. The wide range of environmental conditions on BLM-administered lands throughout the country demand the flexibility currently provided by the unnecessary and undue degradation definition.

The 5-Acre Threshold for Notice Level Activities

The BLM must retain a process that allows for rapid review and authorization

of mineral exploration activities in order to remain in compliance with the provisions of §2 of the Mining and Mineral Policy Act of 1970, § 102(a)(7),(8), and (12)

of the Federal Land Policy and Management Act of 1976 (FLPMA), and the 3809

regulations that direct the Department of Interior to encourage the development of

Federal mineral resources and reclamation of disturbed lands. For example, 43

U.S.C. §3809.0-1(a) states that one of the objectives of the 3809 regulations is to:

‘‘Provide for mineral entry, exploration, location, operations, and purchase pursuant to the mining laws in a manner that will not unduly hinder such activities but will assure that these activities are conducted in a manner that will

prevent unnecessary and undue degradation and provide protection of non-mineral resources of the Federal lands;’’

Many WMC members are exploration geologists actively engaged in mineral exploration efforts on BLM-administered land and thus have direct and extensive experience working under the Notice of Intent (NOI) 5-acre process. Based on this experience, we are unaware of environmental problems associated with exploration activities performed under NOIs.

The unnecessary and undue degradation performance standard mandated in the

3809 regulations applies to mineral exploration activities pursued under either an

NOI or a Plan of Operations (PLAN). Thus compliance with all applicable environmental laws and regulations, and appropriate reclamation are requirements for both

NOI and PLAN sites. Those WMC members who are exploration geologists, environmental coordinators, and reclamation specialists have been personally responsible

for implementing reclamation measures and ensuring compliance with the unnecessary and undue degradation performance standard at numerous NOI sites throughout the country, and can attest to the environmental protection measures, standard

of care, and reclamation efforts typically performed at NOI sites.

The BLM’s scoping materials do not reveal any identified problems with the 5-

acre NOI threshold. Absent any clearly stated problem with the 5-acre NOI threshold, and in light of the stringent environmental protection and reclamation requirements applicable to NOI sites, the WMC sees no justification whatsoever for chang-
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ing the 5-acre NOI process for mineral exploration sites. Should the BLM have concerns regarding the limited number of mining operations that may be authorized

under an NOI, the WMC recommends the BLM make specific comments regarding

any issues or concerns affecting these operations, and confine the analysis of

changes to the 5-acre NOI process to these types of sites.

It is critically important that the BLM retain a process to expedite the review and

authorization of exploration-level activities. Weather constraints at exploration sites

in a number of settings throughout the country severely limit the practical exploration season. Moreover, a number of stakeholders including but not limited to geologists, consultants, drilling contractors, analytical laboratories, and restaurant

owners and motel/hotel operators in exploration areas earn a significant portion of

their livelihood during this exploration season. Any changes to the review and authorization process for small and initial (i.e., under 5 acres) exploration efforts that

result in significant delays in the approval process will adversely affect these stakeholders. With this in mind, a thorough analysis of the socioeconomic ramifications

to these stakeholders of any proposed changes to the NOI review process must be

included in the DEIS prepared to evaluate revisions to the 3809 regulations.

In evaluating any potential changes to the 5-acre NOI threshold, the BLM must

consider its newly established (February, 1997) bonding requirements for NOI sites.

It should be noted that the WMC strongly supports reclamation and appropriate financial assurance requirements at all mine and mineral exploration sites, regardless of their size. However, we strenuously object to the process—or in this case the

lack of process, used by the Secretary to promulgate these new bonding requirements.

Time Frames for BLM Action on Plans of Operations

The WMC encourages the BLM to establish and comply with mandatory time

frames for reviewing and approving PLANS. The mining industry is currently experiencing problematic delays in the BLM’s PLAN approval process. For the most

part, the delays are related to the time it takes the BLM to prepare an Environmental Assessment (EA) or an Environmental Impact Statement (EIS) as required

by the National Environmental Policy Act (NEPA). At least some delays appear to

be due to insufficient BLM staffing levels. Establishing clear regulatory deadlines

should help define BLM staffing requirements.

The DEIS should evaluate the potential for further delays in the BLM’s PLAN

approval process if substantial changes are made to the 3809 regulations. This evaluation should assess the expanded BLM staffing levels that would be required to

(1) avoid additional delays, and (2) to decrease the time required for BLM PLAN

approval.

Coordination with the States

Coordination with state regulatory agencies is one of the stated objectives of the

3809 regulations and directives in the Secretary’s January 6, 1997 memorandum.

Specifically, 43 C.F.R. §3809.0-1(c) states the following:

‘‘Coordinate, to the greatest extent possible, with appropriate state agencies,

procedures for prevention of unnecessary or undue degradation with respect to mineral operations.’’

To satisfy this objective, and to minimize duplication among regulators as directed

by the Secretary, the BLM must continue to work closely with state agencies because all of the western mining states have comprehensive environmental and reclamation regulations applicable to hard rock mining.

The WMC strongly encourages the BLM to continue to coordinate and cooperate

with western state regulatory agencies, many of whom have significant and valuable

experience in regulating the environmental aspects of hard rock mining. Many

WMC members, having worked in a number of western states, have first-hand experience with the states’ expertise and the current level of coordination between the

BLM and the states. It is the WMC’s opinion that the states and the BLM are working well together and that the mining operations under this joint state-Federal regulatory jurisdiction are complying with applicable environmental requirements and

implementing successful reclamation measures. The WMC sees no reason to change

these cooperative efforts.

Performance Standards

Because the unnecessary and undue degradation standard in the 3809 regulations

mandates compliance with all applicable state and Federal environmental laws and

regulations, hard rock mining operations on BLM land must already comply with

a number of environmental performance standards. Mining operations developed

under these regulations expend considerable resources complying with these re-
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quirements. The 3809 regulations also establish another performance standard—the

mandate to ‘‘Provide for reclamation of disturbed areas’’ [see 43 C.F.R. §3809.0-2(b)],

but wisely and appropriately do not include prescriptive, one-size-fits-all reclamation

performance standards.

Given the diversity of climate, terrain, geology, mineral deposit types and mining

methods regulated under the jurisdiction of the 3809 regulations, uniform Federal

reclamation performance standards would be completely inappropriate and would

significantly diminish the quality of reclamation currently being achieved at hard

rock mines on BLM lands. In 1979, the National Academy of Sciences performed an

independent review of the hard rock mining industry and evaluated whether uniform, Federal environmental or reclamation standards would be appropriate. This

study, known as the COSMAR Report, concluded that hard rock mining standards

must be tailored to site-specific conditions in order to be responsive to the diversity

of the environmental settings in which hard rock mining occurs in the U.S.

COMMENTS ON THE SCOPE OF THE ENVIRONMENTAL IMPACT STATEMENT DEVELOPED IN CONJUNCTION WITH THE REVISED 3809 REGULATIONS

Irregularities in the Public Scoping Process

In conjunction with revising the 3809 regulations, the BLM will be developing a

programmatic EIS to evaluate the impacts associated with the proposed regulatory

changes. The WMC feels it is imperative for the BLM to conduct a comprehensive

and detailed analysis of the impacts of any proposed revision, and consider stakeholder issues, concerns, and comments. With this in mind, we support preparation

of a programmatic EIS. However, the WMC has significant concerns regarding the

BLM’s public scoping efforts and plans for developing the EIS, and question whether

these efforts and plans satisfy the spirit and obligations of NEPA.

A number of WMC members have considerable experience working with the BLM

during preparation of NEPA documents for proposed mining projects on BLM land.

This experience runs the gamut from project proponent to third-party consultant selected to prepare the NEPA document. The BLM’s public scoping process and plans

for developing the programmatic EIS do not conform with the public scoping process

typically used by the BLM for mining projects, and in our opinion, may not fully

comply with NEPA requirements for the following reasons:

•The BLM Must State a Proposed Action Prior to Public Scoping—The BLM’s

scoping documents do not include a definitive and specific Proposed Action

statement. The absence of a specific Proposed Action statement makes it impossible for the public to provide substantive comments regarding the BLM’s proposal. Thus, the scoping performed to date is generic in nature and does not

satisfy NEPA requirements to allow the public to comment on the agency’s proposal because none has been set forth.

The BLM Must Develop a Statement of Purpose and Need—In addition to lacking a Proposed Action, the BLM’s scoping notice also does not provide a statement

of Purpose and Need. The absence of a statement of Purpose and Need is another

shortcoming with respect to NEPA and the Council on Environmental Quality

(CEQ) regulations for implementing NEPA (40 C.F.R. §1502.13) which state that

every EIS must ‘‘briefly specify the underlying purpose and need to which the agency is responding in proposing the alternatives including the proposed action.’’

The BLM must justify their proposal to revise the 3809 regulations. To date,

the BLM has offered no compelling reason to change the regulations. In fact, the

April 1992 BLM study of the 3809 regulations showed no need for any changes to

the environmental or reclamation provisions of these regulations. Thus it appears

there are no tangible or substantive reasons to modify the regulations. If the BLM

is relying on any new information which might justify changing the 3809 regulations, this new information should be made available to the public.

The WMC questions the appropriateness of the BLM’s proposal to revise these

long-standing regulations that have been working well in light of the following: the

large number of environmentally responsible mines developed under the 3809 regulations, the industry’s good track record in complying with these regulations, the requirement at 43 C.F.R. §3809.0-5(k) that mining operations comply with all applicable state and Federal environmental and reclamation laws, and the complete absence of any stated need to modify the 3809 regulations.

•The BLM Should Provide Additional Scoping—To comply with NEPA, the

BLM should hold additional scoping sessions following development of a draft

proposal to revise the 3809 regulations to allow the public to comment on the

specifics of the proposed changes to the regulations. As stated above, the

scoping effort performed to date is generic in nature and insufficient to allow

public input on the proposed regulatory changes.
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•The BLM Should Prepare the DEIS After Public Scoping on the Draft Revisions to the 3809 Regulations

As stated in the March 12, 1997 memorandum from Sylvia Baca, Acting BLM Director, to Bob Armstrong, Assistant Secretary, Lands and Minerals Management,

the BLM plans to develop the Draft EIS (DEIS) concurrently with developing the

proposed revisions to the 3809 regulations. The WMC feels this is a completely inappropriate aberration of the NEPA process. NEPA provides the public both a right

and an orderly process for commenting upon major Federal actions. The simultaneous preparation of the DEIS and the revised regulations puts the cart before the

horse, denies the public the right to comment on a specific proposed action, and is

a significant departure from the typical public NEPA review process.

The DEIS should evaluate the impacts of the proposed revisions to the 3809

regulations and should consider and respond to public issues, comments, and concerns about the proposed revisions. Therefore, the DEIS should not be prepared

until after the public has had an opportunity to review and comment upon the

BLM’s draft proposal for revising the 3809 regulations.

Alternatives and Issues to be Evaluated in the DEIS

The WMC supports preparation of a DEIS that comprehensively evaluates the

range of alternatives to revising the 3809 regulations, and thoroughly analyzes the

impacts associated with each alternative. With this in mind, we offer the following

comments and suggestions:

The DEIS Must Include a Detailed Discussion of the No Action Alternative—The DEIS must include a substantive and thorough analysis of the No Action Alternative to evaluate the level of environmental and reclamation regulatory

requirements that would be applicable to future mining projects on BLM lands with

no changes to the 3809 regulations. The No Action Alternative must consider existing state and Federal regulatory programs and the BLM’s existing authority and recent use of this authority to modify the 3809 Regulations through policy guidelines

and rulemaking on selected topics (e.g., the development of BLM policy guidance on

acid rock drainage and cyanide, and new occupancy and bonding rules).

•The DEIS Must Analyze the Wide Range of Sites and Mines Regulated Under

the 3809 Program There is an enormous diversity of climate, terrain, geology,

mineral deposit types, and mining methods represented by mine sites on BLM

lands. Both the Affected Environment and Environmental Consequences chapters of the DEIS must give full and equal weight to the many different types

of environmental settings and mines, and provide a separate analysis of the impacts that would occur at these different settings and mines if the various alternatives considered in the DEIS were implemented.

•The DEIS Must Include a Detailed Analysis of State and Other Federal Environmental Laws and Regulations Affecting Mining—The Affected Environment

chapter of the DEIS should also include a detailed discussion of the many state

environmental and reclamation regulatory programs and Federal laws and regulations affecting mining. The Environmental Consequences chapter should assess how these programs would be affected due to implementation of the DEIS

alternatives. In particular, this analysis should quantify impacts to state mine

land reclamation programs and Federal environmental regulatory programs for

which the states have primacy. Because many of these state regulatory programs were developed after enactment of FLPMA and development of the 3809

regulations, the DEIS should acknowledge the evolution of these programs and

the coordination that has developed between the BLM and state mine land reclamation and environmental regulatory agencies.

Based on information provided to date, the BLM has not identified any gaps between the 3809 regulations and state mine land reclamation and environmental programs. The DEIS should assess whether any such gaps exist. If gaps are identified,

proposed changes to the 3809 regulations should evaluate ways to fill the gaps. If

this analysis reveals no gaps between state programs and the 3809 regulations, few

if any revisions to the 3809 program are warranted—otherwise, the Secretary’s directive to minimize duplicative regulations will not be satisfied.

•The DEIS Must Include a Detailed Analysis of Socioeconomic Impacts—Any

changes to the 3809 regulations that could result in significant delays in approving future mineral exploration and mining PLANS could cause adverse economic and social impacts to mining communities, state economies, and other

stakeholder groups including geologists, consultants, drilling contractors, analytical laboratories, and restaurant owners and motel/hotel operators in mining

and exploration areas who derive a substantial portion of their income working

for or providing goods and services to the hard rock mining industry. The Affected Environment chapter of the DEIS must acknowledge and quantify the
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positive social and economic impacts associated with mining. The Environmental Consequences chapter must disclose any positive or adverse social and

economic impacts that would result from implementation of the DEIS alternatives. This analysis must be site specific; a generic or national evaluation will

not adequately assess the impacts to local communities and regional economies.

Additionally, the DEIS must evaluate the economic impacts that proposed

changes in the 3809 regulations would have on mining equipment manufacturers

and companies that provide goods and services to the mining industry. Many of

these companies are located in parts of the country not typically considered mining

states such as Wisconsin (P & H Mining Equipment and Nordberg), Illinois (Caterpillar), New Jersey and Texas (Ingersoll Rand), etc. The continued existence of thousands of jobs in these states relies on a strong mining industry in the western U.S.

The DEIS must thoroughly evaluate the economic consequences to these workers

and to their state economies caused by changes to the 3809 regulations.

•The DEIS Must Consider Specific Impacts to Notice-Level Qperators—The Secretary’s directive to repeal, narrow, or otherwise modify the 5 acre NOI process

will have a direct and focused impact upon individuals, small operators, and

companies who perform most of their mineral exploration and/or mine development work under an NOI. The DEIS should include a separate socioeconomic

analysis of the impacts of the proposed changes upon this groups of stakeholders. Because most mineral discoveries start as NOI-level exploration

projects, the DEIS must also evaluate the impact that elimination of the NOI

process or delays in the NOI approval process would have on the rate of discovery, and the impact to local, regional and national economies as a result of

diminished levels of exploration, discovery, and mine development.

•The DEIS Must Consider Cumulative Impacts—The DEIS must evaluate the

cumulative impacts of any proposed changes to the 3809 regulations with respect to other connected actions including but not limited to the EPA’s proposed

National Hard Rock Mining Framework, the BLM’s recent use and occupancy

regulations, the BLM’s new bonding regulations, other EPA initiatives such as

the recent addition of the hard rock mining sector to the Toxic Release Inventory (TRI) reporting requirements and potential changes to the RCRA Bevill exclusion for certain mining wastes, and changes to the Mining Law of 1872 being

contemplated by Congress. This analysis should evaluate the cumulative impacts of changes in the 3809 regulations in conjunction with potential changes

in royalties, fees, taxes, reporting requirements, and a plausible range of future

regulatory developments.

•The DEIS Must Consider Impacts to Minerals Availability—Changes to the

3809 regulations that result in significant delays in the PLAN and NOI approval processes may have an adverse impact on the supply of domestic hard

rock minerals. The DEIS should evaluate the impact that revisions to the 3809

regulation would have upon minerals availability, and the potential for increased reliance on foreign mineral supplies. This analysis should consider the

balance of foreign trade payments as a result of decreases in domestic mineral

production. Similarly, the DEIS should consider how the 3809 regulations could

be modified to encourage and facilitate mining on BLM lands and the resulting

positive economic effects of increased mineral exports and decreased mineral

imports.

•The DEIS Must Consider Impacts to Existing Operations—The DEIS must

evaluate how existing operations would be affected by proposed changes to the

3809 regulations. The WMC encourages the BLM to develop a grandfathering

alternative applicable to all existing operations. In the unfortunate event that

the revised 3809 regulations mandate prescriptive performance standards, some

element of grandfathering is necessary for both existing sites and sites at which

a PLAN modification is filed in the future because it may be impossible or impractical to retrofit existing operations to comply with new standards.

•The DEIS Should Consider Alternatives to Facilitate Mining and to Create

Reclamation and Environmental Incentives—Although the Secretary’s January

6, 1997 memorandum does not contemplate changes to the 3809 regulations to

facilitate mineral exploration and mine development or to create incentives for

reclamation and remediation of abandoned mines, a number of beneficial social

and economic impacts on the local, regional, and nation levels could accrue from

selected changes. The WMC believes that regulatory changes to streamline the

review process and stimulate clean-up of abandoned mines would significantly

enhance mineral exploration levels without compromising the high level of environmental protection and reclamation success realized under the present regulatory system. The WMC strongly urges the BLM to expand the scope of the
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DEIS to evaluate revisions to the 3809 regulations to encourage and facilitate

environmentally responsible mining and reclamation of abandoned mines.

CONCLUSION

The WMC appreciates this opportunity to provide comments to the BLM, and we

look forward to what we hope will be a cooperative EIS process that includes additional opportunities to comment on proposed changes to the 3809 regulations. We

are also hopeful that this process not become a political forum. We believe this

should be an opportunity for collaboration and constructive dialogue based on facts,

science, and an honest assessment of the level of environmental protection and reclamation successes achieved under the status quo. Political rhetoric can only detract

from the outcome of this process. With this in mind, we are concerned that the Secretary’s statement in his January 6, 1997 memorandum regarding Congress’ failure

to enact legislation reflects a political agenda. This politicization is unfortunate and

inappropriate, and we hope in the future the Secretary and others can put aside

politics to decide this important issue.

Sincerely,

Ruth Carraher

President

Susie Patton

Treasurer

Teresa Conner

Secretary

Debra Struhsacker

Author of Letter