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H.R. 2262, HARDROCK MINING 

AND RECLAMATION ACT OF 2007 

LEGISLATIVE HEARING 

BEFORE THE

SUBCOMMITTEE ON ENERGY AND 

MINERAL RESOURCES 

OF THE

COMMITTEE ON NATURAL RESOURCES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

Tuesday, October 2, 2007 

Serial No. 110-46 

Printed for the use of the Committee on Natural Resources 

( 

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html 

or 

Committee address: http://resourcescommittee.house.gov 

(II) 

COMMITTEE ON NATURAL RESOURCES 

NICK J. RAHALL, II, West Virginia, Chairman 

DON YOUNG, Alaska, Ranking Republican Member 

Dale E. Kildee, Michigan 

Eni F.H. Faleomavaega, American Samoa 

Neil Abercrombie, Hawaii 

Solomon P. Ortiz, Texas 

Frank Pallone, Jr., New Jersey 

Donna M. Christensen, Virgin Islands 

Grace F. Napolitano, California 

Rush D. Holt, New Jersey 

Rau ́l M. Grijalva, Arizona 

Madeleine Z. Bordallo, Guam 

Jim Costa, California 

Dan Boren, Oklahoma 

John P. Sarbanes, Maryland 

George Miller, California 

Edward J. Markey, Massachusetts 

Peter A. DeFazio, Oregon 

Maurice D. Hinchey, New York 

Patrick J. Kennedy, Rhode Island 

Ron Kind, Wisconsin 

Lois Capps, California 

Jay Inslee, Washington 

Mark Udall, Colorado 

Joe Baca, California 

Hilda L. Solis, California 

Stephanie Herseth Sandlin, South Dakota 

Heath Shuler, North Carolina 

Jim Saxton, New Jersey 

Elton Gallegly, California 

John J. Duncan, Jr., Tennessee 

Wayne T. Gilchrest, Maryland 

Chris Cannon, Utah 

Thomas G. Tancredo, Colorado 

Jeff Flake, Arizona 

Stevan Pearce, New Mexico 

Henry E. Brown, Jr., South Carolina 

Luis G. Fortun ̃ o, Puerto Rico 

Cathy McMorris Rodgers, Washington 

Bobby Jindal, Louisiana 

Louie Gohmert, Texas 

Tom Cole, Oklahoma 

Rob Bishop, Utah 

Bill Shuster, Pennsylvania 

Dean Heller, Nevada 

Bill Sali, Idaho 

Doug Lamborn, Colorado 

Mary Fallin, Oklahoma 

Vacancy 

James H. Zoia, Chief of Staff 

Jeffrey P. Petrich, Chief Counsel 

Lloyd Jones, Republican Staff Director 

Lisa Pittman, Republican Chief Counsel 

SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES 

JIM COSTA, California, Chairman 

STEVAN PEARCE, New Mexico, Ranking Republican Member 

Eni F.H. Faleomavaega, American Samoa 

Solomon P. Ortiz, Texas 

Rush D. Holt, New Jersey 

Dan Boren, Oklahoma 

Maurice D. Hinchey, New York 

Patrick J. Kennedy, Rhode Island 

Hilda L. Solis, California 

Nick J. Rahall, II, West Virginia, ex officio 

Bobby Jindal, Louisiana 

Louie Gohmert, Texas 

Bill Shuster, Pennsylvania 

Dean Heller, Nevada 

Bill Sali, Idaho 

Don Young, Alaska, ex officio 

(III) 

CONTENTS 

Page 

Hearing held on Tuesday, October 2, 2007 ............................................................ 1 

Statement of Members: 

Costa, Hon. Jim, a Representative in Congress from the State of 

California ....................................................................................................... 1 

Heller, Hon. Dean, a Representative in Congress from the State of 

Nevada ........................................................................................................... 10 

Pearce, Hon. Stevan, a Representative in Congress from the State of 

New Mexico ................................................................................................... 3 

Rahall, Hon. Nick J., II, a Representative in Congress from the State 

of West Virginia ............................................................................................ 5 

Young, Hon. Don, a Representative in Congress from the State of Alaska . 8 

Statement of Witnesses: 

Cress, James F., Attorney, Holme Roberts & Owen, LLP ............................ 24 

Prepared statement of ............................................................................... 25 

Ferguson, Tony L., Director of Minerals and Geology Management, 

National Forest System, Forest Service, U.S. Department of 

Agriculture ..................................................................................................... 47 

Prepared statement of ............................................................................... 49 

Response to questions submitted for the record ..................................... 53 

Hanlon, James A., Director, Office of Wastewater Management, U.S. 

Environmental Protection Agency ............................................................... 43 

Prepared statement of ............................................................................... 45 

Lazzari, Salvatore, Specialist in Natural Resource Economics and Policy, 

Resources, Science and Industry Division, Congressional Research 

Service ............................................................................................................ 13 

Prepared statement of ............................................................................... 15 

Lind, Hon. Greg, State Senator, State of Montana ....................................... 58 

Prepared statement of ............................................................................... 59 

Response to questions submitted for the record ..................................... 65 

Otto, James M., Independent Consultant on Mining Law, Policy and 

Economics ...................................................................................................... 19 

Prepared statement of ............................................................................... 21 

Skaer, Laura, Executive Director, Northwest Mining Association ............... 68 

Prepared statement of ............................................................................... 69 

Response to questions submitted for the record ..................................... 79 

Additional materials supplied: 

Gallagher, Thomas H., P.E., P.L.S., Chairman and Chief Executive 

Officer, Summit Engineering Corporation, Letter submitted for the 

record ............................................................................................................. 11 

San Xavier District of the Tohono O’Odham Nation, Statement submitted 

for the record ................................................................................................. 87 

(1) 

LEGISLATIVE HEARING ON H.R. 2262, TO 

MODIFY THE REQUIREMENTS APPLICABLE 

TO LOCATABLE MINERALS ON PUBLIC 

DOMAIN LANDS, CONSISTENT WITH THE 

PRINCIPLES OF SELF-INITIATION OF MINING CLAIMS, AND FOR OTHER PURPOSES. 

‘‘THE HARDROCK MINING AND RECLAMATION ACT OF 2007’’ 

Tuesday, October 2, 2007 

U.S. House of Representatives 

Subcommittee on Energy and Mineral Resources 

Committee on Natural Resources 

Washington, D.C. 

The Subcommittee met, pursuant to call, at 2:05 p.m. in Room 

1324, Longworth House Office Building. Hon. Jim Costa [Chairman 

of the Subcommittee] presiding. 

Present: Representatives Costa, Pearce, Rahall, Gohmert, Heller, 

Sali, Young, and Udall. 

STATEMENT OF THE HONORABLE JIM COSTA, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. COSTA. The Subcommittee on Energy and Minerals will now 

come to order. This is the third or fourth legislative hearing that 

we have held on the issue of the Hardrock Mining and Reclamation 

Act of 2007, reflecting Chairman Rahall’s legislation that he introduced, third or fourth, depending on whether or not you count the 

Tucson meeting earlier this year. Neither Congressman Pearce nor 

I were able to attend that meeting, but regardless, this is an area 

that the Subcommittee has focused on as it relates to the issue before us. 

I need to dispense with some preliminary items to begin with, 

and then we will get going with our first panel. 

This legislative hearing, of course, has come to order. The Subcommittee is meeting today to hear testimony on H.R. 2262, the 

Hardrock Mining and Reclamation Act of 2007. Under Rule 4[g] the 

Chairman and Ranking Minority Member may make opening statements. If any other member has other statements, they may be included in the record under unanimous consent, and we are very 

good about granting unanimous consent for those purposes. 

2 

Additionally, under Committee Rule 4[h] additional material for 

the record should be submitted by members or witnesses within 10 

days after the hearing. We urge witnesses to try to expedite that 

effort to help our staff, and so your cooperation, obviously, to any 

questions that we submit in writing is appreciated. 

Because this is one of a series of hearings that we have held and 

it is my understanding the Chairman anticipates a markup some 

time before the end of the year on his bill, we thought it was appropriate today to focus on the issue of royalties, and what I must say 

at the outset is that there has been an enormous amount of cooperation and collaboration between all of the interests involved on 

this issue, and I want to thank you for those efforts. 

For those members who are not able to join Congressman Heller 

and myself in Nevada, I want you to know that he is a very hospitable host, as is Senator Reid. It was a two-day field hearing that 

I found to be very informative, and in which we received a great 

deal of input in. 

I have come to the conclusion that there is, I think, a broad consensus that reform is necessary, and I think, as they say, the question is or the devil is in the details in terms of how we bring that 

reform about. Therefore, we are looking for the expertise of the witnesses to testify this afternoon in Panel No. I and Panel No. II as 

it relates to the issue of royalty. 

Obviously, it has been a source of contention as to what are the 

various forms of royalty that would be applicable, that would be appropriate, that would be reasonable, and that would be fair, and 

would be, in my view as just a farm boy from Fresno, workable. 

I mean, at the end of the day and we have, I think, a number of 

examples on the Federal level of, notwithstanding good ideas, being 

very complicated and very difficult to implement. So when I have 

a choice, I always like to err on the side of simplicity because I 

think that is easier for all to try to deal with. 

At the same time when we talk about administrative efforts as 

it relates to the Federal government and to make sure that we are 

good partners with the private sector, we also have to talk about 

the balancing act that, of course, is part of the charge of this Subcommittee, and I talk about it often. Certainly we want to ensure 

industry competitiveness. This is an international global market 

that we live in. Hardrock minerals compete in that international 

global market, and many of the experts and those that we saw in 

Nevada not only do business there, but they do business in many 

other parts of the world. 

So we are also interested today to learn about those experiences 

in other parts of the world in terms of experiences that may be applicable here in the United States. So obviously that is something 

that we will listen to carefully. 

In addition, one of the other major issues that is a concern of this 

Subcommittee as we do the balancing act between ensuring competitiveness but ensuring that these are public lands and that the 

U.S. taxpayers get a fair rate of return, and that fair rate of return 

is not just to benefit the American treasury, but sadly, we have a 

significant number, in my view, of abandoned mines throughout 

the country that go back to practices that no longer conform with 

today’s standards. 

3 

Nonetheless, those abandoned mines in many, many instances— 

I know in California, in my own state, health and safety hazards, 

and therefore the first priority in the call on this money, if we can 

work out these details, will be to address those funds to clean up 

those abandoned mines to ensure that we protect both health and 

safety as it relates to issues of water quality and other impacts 

that these abandoned mines and hazards may pose, and of course, 

we have a number of witnesses in the second panel that will give 

us a better snapshot, as I like to say, the size of that breadbox. 

Just as an example, Members of the Committee, in California 

there are 47,000 hardrock abandoned mines, and the majority of 

them are on public lands. More than 20,000 of them possess safety 

hazards, and the state is able to address about 65 of those sites per 

year, but there is, of course, no dedicated funding to protect public 

health and safety from those sites, let alone to address potential 

areas of pollution. Eleven percent of the abandoned mines in California, we believe, create environmental impacts, especially to our 

waters, which are precious. 

So those are the kind of the perspectives that we want to get 

today from our two panels: one on the area of how we come to some 

consensus on the issue of a payment, in lieu payment, royalty payment, whatever you choose to call it, and the experts in the first 

panel will focus on that, and the second panel will try to get an 

idea about where those monies would go once we hopefully get 

agreement at some point in time as this legislation moves forward 

on how we prioritize, how we collaborate with states who are already aggressively out there doing things, like in Nevada, like in 

California, and elsewhere, and how we combine resources. 

So with that understood, I would like to defer to my colleague, 

the gentleman from New Mexico, for an opening statement. 

STATEMENT OF THE HONORABLE STEVAN PEARCE, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW 

MEXICO 

Mr. PEARCE. Thank you, Mr. Chairman. Appreciate your plan 

through SIC. We don’t often get much appreciation up here, and I 

think people do work in all circumstances, so I appreciate you 

being here today. You did say three words that really caused an 

alarm in your first opening statement when you used the term 

‘‘simple farm boy from Fresno’’. That puts alarm into my thinking. 

The only thing you could have said that would have caused a greater fright would be ‘‘simple country lawyer’’. 

[Laughter.] 

You also used the term ‘‘simplicity’’ as it relates to the Federal 

government. I am sorry, but our mantra in the Federal government, if it ain’t broke, fix it until it is, and that doesn’t go along 

with simplicity. So other than those two things, I appreciated your 

opening statement. Like you said, it is either the third or fourth, 

depending on if you are using Olympic standards or just world 

standards for this hearing sequence that we are in, and it is an extraordinarily important thing that we are talking about. 

The Federal royalty program, the abandoned hardrock mine 

problem is one that needs solutions. I think that even with this 

hearing we are going to need follow-up hearings. One of the key 

4 

recommendations included in the World Bank’s report on mining 

royalties is for governments that impose a royalty or impose a 

change in the royalty structure, for them to consult with the industry in order to assess the impacts that such changes will have on 

the mineral sector. 

While industry is in the process of evaluating exactly what the 

impacts of the royalty recommendations, and Chairman Rahall’s 

bill will be on the industry, that assessment is not yet complete, 

and we should meet after they make the decision on that. There 

were three analyses that were issued—three separate economic 

analyses that were issued on the Rahall proposals back in 1993. 

Those all said that there was going to be a loss of employment in 

the mining sector, and also a loss of revenue to Federal and state 

treasuries. I have copies of these analyses with me here today, and 

I ask unanimous consent that they be entered into the record. 

Mr. COSTA. Without objection. 

[NOTE: The analyses submitted for the record have been retained in the Committee’s official files.] 

Mr. PEARCE. Thank you. The World Bank report also recommends that the country seeking to establish a royalty evaluate 

the impact that royalty will have on attracting investment, and if 

the royalty will make the Nation less competitive with other industries. The United States is already at a competitive disadvantage 

for investment in hardrock mineral exploration. As you well know, 

back in 1993, the U.S. had 21 percent of the world’s exploration 

budget and today that is down to eight percent in 2007. Again, we 

have the charts that will show the relative change in the U.S. 

share of the world mining market, and our dependence on foreign 

sources of minerals is increasing. Today, we are 100 percent import 

dependent on 17 critical non-fuel minerals, and more than 50 percent import dependent on another 28 non-fuel minerals. Again we 

have the chart that begins to show your increasing dependence on 

foreign countries. 

In 1986, we were 100 percent import dependent for five non-fuel 

minerals, and more than 50 percent dependent on 16 non-fuel minerals, again further encouragement to export the mining industry 

is the wrong direction and those USGS charts would show that we 

are moving in the wrong direction. 

Care should be taken in establishing an appropriate Federal royalty so that it does not adversely impact additional investments in 

the development of the nation’s mineral resources or affect state 

and local revenues already paid by the mining companies. 

I also believe that we could spend more time looking at the existing Federal and state abandoned hardrock mine land programs and 

identify a better and more streamlined approach to coordinate 

these programs. I believe that there is more going on in addressing 

this issue than we may be aware of. 

For example, last week the Forest Service and the BLM jointly 

issued a report on the 10-year anniversary of their hardrock abandoned mine land program. While committee staff was aware of 

these agency programs, and the Army Corps of Engineers restoration of abandoned mine sites program, they were unaware that this 

report was in the works until it was complete. 

5 

In addition to these important issues we will begin to discuss 

today, there are two National Research Council reports looking at 

aspects of our national mineral policy that are scheduled for release later this week regarding securing minerals for the 21st Century and military-critical minerals in the U.S. economy. We may 

need additional hearings, and I would recommend that we have 

one in Silver City, New Mexico. We have reserved a spot on the 

19th of October, if the Chairman would be susceptible to that. 

But as we move forward, I think that we will need additional 

mining hearings on this mining law reform to ensure that we are 

pursuing appropriate policy and not just punishing a modern industry for their ancestor’s actions of 100 years ago. 

I thank the witnesses on both panels for their testimony and I 

look forward to hearing from you, and would yield back. Thank 

you, Mr. Chairman. 

Mr. COSTA. I appreciate the gentleman from New Mexico’s comments. I do believe one of the areas that we are going to need to 

examine closer is the current efforts and the collaboration between 

states and the Federal government because I am aware of some, I 

think, positive efforts that are taking place and we certainly want 

to encourage those and build on those. So hopefully we will have 

an opportunity to do that. 

We are blessed with the presence of the Chairman of the committee who has a statement to make or he may be using that as 

a ruse to simply come and watch us. But in either case, he is quite 

welcome to—this is a gentleman who has been passionate about 

this issue for many years, and is working very hard on his bill, and 

we would recognize the gentleman from West Virginia, the Chairman of the Natural Resources Committee, for an opening statement. 

STATEMENT OF THE HONORABLE NICK J. RAHALL, II, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF WEST 

VIRGINIA 

Mr. RAHALL. I thank the distinguished Subcommittee Chairman, 

Mr. Costa, for those kind words. I might say we are cursed rather 

than blessed by my appearance here, but that would come more 

from the other side of the aisle than I believe those that are scheduled to testify because we have, as the Chairman has referred to, 

been talking with everybody on this issue, both Chairman Costa 

and myself, including meetings today, and these will continue as 

we try to reach common ground in what I view all sides, all sides 

are saying that certainly we need to eliminate the uncertainty that 

hangs over the industry’s head. We need to have a plan to move 

forward so that we can mine the minerals and metals that are so 

important for our economy here domestically. 

The gentleman from New Mexico, I believe, has referred to it, is 

it the National Science Foundation report, Steve, the latest report 

that you were referring to pointing to the strategic importance of 

minerals and metals to our economy? That is the same report, I believe, that Ranking Member Young called me on just a little while 

ago and wanted to have a separate hearing. 

But from what I can judge from this report there is nothing with 

which anybody could disagree, certainly not this gentleman from 

6 

West Virginia. Metals and minerals and hardrock mining are important to our economy. They are important to our defenses in this 

nation, and nobody, certainly not this gentleman from a mining 

area of this country, wants to eliminate any jobs or any industry 

that is critical for our energy independence and/or the defenses of 

our country. 

I want to make an opening statement because I not only want 

to address that issue, but also those who might wonder where this 

gentleman from the eastern part of the United States, although it 

is West Virginia, comes from on this issue, as well as the relationship of myself with my coal mining industry, and perhaps wonderment about how I would want to reform the hardrock mining industry when we have our own problems in the coal industry, which 

I certainly attest that we have. 

But during the years that I have labored to reform the Mining 

Law of 1872, those who defend its privileges, and it is indeed a 

privilege to be deemed the highest and best use of our public domain lands, have often alleged that reform legislation fails to take 

into account the contribution of hardrock mining to area economies. 

They claim that reform would have dire consequences on the industry, that we did not provide the industry with unfettered access to 

public lands and public minerals, that is, if we did not provide such 

access, that the industry could no longer survive, et cetera, et 

cetera. 

Let me just say that at the outset there is no member in the 

House of Representatives whose congressional district is more dependent upon mining for employment and its economic well-being 

than this gentleman from West Virginia. And when we are talking 

about the effects of mining, I would suggest that there is little difference between coal mining or gold mining. The effects, whether 

measured in terms of employment or in terms of the environment, 

are the same. 

With that noted, I would note I have engaged in this effort to reform the Mining Law of 1872 for many years now, a couple of decades, not just for the apparent reasons—value of minerals, mined 

for free, the threats to human safety and the health—but also because I am pro-mining, because I no longer believe that we can expect a viable hardrock mining industry to exist on public domain 

lands in the future if we do not make corrections to the law today, 

and again I say it is to eliminate the uncertainty that hangs over 

this industry’s future as well. 

I do so because there are provisions of the existing law which impede efficient and serious mineral exploration and development, 

and I do so because of the unsettled political climate governing this 

activity. Reform, if not coming in a comprehensive fashion, certainly will continue to come in a piecemeal fashion and will continue to hang that cloud of uncertainty over the industry. 

So I say to my colleagues from the Western states who resist reform I understand your concerns. I have and will continue to meet 

with you. I have been in your situation. Just in a meeting today 

in my office we recalled 1977, when this committee was then called 

the House Interior Committee under the chairmanship of the gentleman that oversees this room in spirit today, Mo Udall. 

7 

I was a young freshman, and in those days it was unheard of for 

a freshman to serve on a conference committee, but it was my first 

year, and I was confronted by legislation being advanced by our 

Chairman, and I will recall that the coal industry was dragged 

kicking and screaming into the debate that led to the enactment 

of the Surface Mining Control Reclamation Act of 1977. I voted for 

that legislation. It was not an easy thing to do, but I voted for the 

bill because in my region of the country we were grappling with a 

legacy of acidified streams, high walls, refuge piles, open mine 

shafts, and other hazards associated with coal mining practices, a 

legacy, I would submit, that we are faced with in our lands administered by the Forest Service and the BLM in the Western states 

due to hardrock mining practices. 

The fact of the matter is that the gloom and doom predictions 

made by my coal industry at that time against the Federal Strip 

Mining Act all those years did not come about. Predictions, I would 

note, that are almost to the word identical to those whose industry 

has leveled at times against this Mining Law of 1982 reform legislation. 

Yet today the coal fields of this nation are a much better place 

in which to live, and we are producing more coal than ever before. 

Certainly coal continues to have its controversies, whether they include mountain top removal coal mining, whether problems we are 

having with coal waste impalements, these are problems confronted 

on a daily basis, but at least—but at least there are laws on the 

books to deal with these situations, and we try to deal with these 

situations, whether it is mountain top removal or these impalements, we try to deal with them within the context of the current 

laws that exist, and the laws, for the most part, which the industry 

is legitimately following. 

At least when one mine’s coal in our Federal lands there is a royalty that is paid to the Federal government, and at least we are 

making provisions for the restoration of lands that are left abandoned by past coal mining practices. None of this exists with respect to hardrock mining under the Mining Law of 1872. 

So I believe, as I conclude, with enough courage and fortitude we 

can continue to address the problems facing mining, and dove tail 

our need for energy and minerals with the necessity of protecting 

our environment and providing jobs for our people. At stake here, 

over the Mining Law of 1872, is the health, welfare, and environmental integrity of our people and our Federal lands. At stake, indeed, is the public interest of all Americans, and at stake is the 

ability of the hardrock mining industry to continue to operate on 

public domain lands in the future, to produce jobs for our people, 

and to produce those minerals that are necessary to maintain our 

standard of living. 

I thank you, Mr. Chairman. 

Mr. COSTA. Thank you, Mr. Chairman, for your illustrative comments that give us a snapshot of the history in comparison and reflects your own experience as it relates to the U.S. coal industry 

and the challenges on legislative changes that you quite concisely 

repeated in your testimony. We appreciate that history, and we 

hope it will be applicable in terms of our best collaborative bipartisan efforts to work on this effort as well. 

8 

I would like to entertain the committee’s unanimous consent to 

allow Mr. Tom Udall to sit and participate in this afternoon’s hearing. Hearing no objection. Mr. Udall has had a long interest in this 

subject matter, and of course, his uncle was, as noted by Chairman 

Rahall, the Chairman of this committee and his father used to be 

the Secretary of the Interior, so the family obviously lays claim— 

no pun intended—to a serious focus on the subject matter. 

Speaking of serious focus on the subject matter, I don’t know, 

Mr. Pearce, if it is just you and I this afternoon or why we are 

blessed with such illustrious talent in the House here. It must be 

the subject matter. But we have another Chairman, the gentleman 

from Alaska, who we all enjoy serving with who has blessed us 

with his presence, and so we will allow an opportunity for an opening statement from the gentleman from Alaska, Mr. Young. 

STATEMENT OF THE HONORABLE DON YOUNG, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ALASKA 

Mr. YOUNG. Thank you, Mr. Chairman, and I do not have a written statement so my statement will be from my memory of history, 

and the gentleman is right, from West Virginia. He was dragging 

and crawling and opposing any mining law changes for the coal industry. I don’t quite remember all the history mentioned in the 

sense that since that time there has been numerous other laws 

that we have passed in this committee and this Congress that affect the hardrock mining. Later on I am hoping that the industry 

will explain all the permitting process that you have to go through. 

The Endangered Species Act, the water quality control, the air 

quality control, those did not exist then, so don’t suggest that they 

are the same thing when we passed the coal mining law at the 

same time. 

There are numerous new laws that we put on the books that the 

industry has to meet, and my interest in this is, very frankly, one 

that we have to recognize—now 20 of the minerals which our industry base consumes are imported 100 percent. We are a nation 

dependent upon hardrock minerals, not just gold, but hardrock 

minerals, more so than even for energy. Every automobile has an 

imported mineral is in it, a metal of some type. Every computer, 

everything we use is imported from overseas, from China. I will 

give you an example if you don’t have it. 

We have China, Morocco, Mexico and Chile, and we have arsenic, 

you may not use it, but we do. Asbestos, we don’t mine it but we 

do import it from Canada; bauxite and aluminum from Jamaica, 

Guinea, Australia and Brazil; molybdenum from Brazil, China, 

Mexico, South Africa and Mongolia, and on down the line. 

If you don’t have a copy of this, look at what we are dependent 

upon now today, far exceeds our energy, far exceeding our energy 

because we have not, in fact, encouraged the mining industry in 

this nation as we should have, and we are now dependent upon 

countries that are not friends of ours, and look at this bill the gentleman introduced and talking about reform and how we have to 

reform. Reforming for the benefit of the Nation is crucially important. Reforming to punish an industry that is crucial to our endeavors and our economy is wrong. 

9 

Look at Title III, and see how many new permits, how many 

other agencies, you will never get a permit ever to mine anymore 

minerals in this country, thus making us more dependent upon foreign countries not our friends, when we can’t produce, Mr. Chairman, what we should be producing in this country. We weaken this 

nation. We weaken this world’s climate. We weaken society as a 

whole. Resources are on this earth to be utilized for the good of 

man. 

By the way, one of these resources that we are talking—none of 

these hardrock minerals are used by anybody but man. Man’s use, 

and I believe we must need them. 

I want to check your button over there, Mr. Udall, and see where 

it was made and what it is made of. Probably imported, United 

States Congressman’s button. Many times I don’t wear mine because I don’t want to be a target, but just keep it in mind—— 

[Laughter.] 

Mr. YOUNG.—that is probably where it was made, and now we 

go to your automobiles because we will hear a lot from that side 

of the aisle, oh, we have to save the world, the earth is coming to 

an end, hot house is hitting us. We are going to have hybrid cars. 

The average car today has 40 pounds of copper in it. A hybrid has 

100 pounds of copper, and under this bill you will not have any 

new copper mines in the United States. Under this bill you will not 

have any tungsten, any moly, you are going to have no production 

of what we have to have even for our military strength in the 

United States because we will be all importing it, and that is why 

if we are to reform for the benefit of the nation, I will be on the 

gentleman’s side. But if we are going to reform, saying we are 

going to solve all these problems and punish an industry that has 

contributed to this country, and will continue to contribute to this 

country, it is dead wrong. 

Right now I will make you a deal. You knock out Title III, and 

I will take the rest of the bill. 

Mr. RAHALL. Gentleman yield? 

Mr. YOUNG. Yes. 

Mr. RAHALL. What if we keep Title III in there and place a bet 

on whether there will be another permit issued? 

Mr. YOUNG. Well, no, no, no. Knock it out and you have a deal. 

That is real reform. That will be real reform, and we will be able 

to provide for this nation the needed minerals we have to have to 

maintain our strength. If we go forth with this bill as it is written, 

you will not have a hardrock industry, and this nation will be at 

the mercy of those countries that don’t have a unique understanding of the environment or the labor force or any other thing. 

That is what will happen. 

Yield back the balance. 

Mr. COSTA. Thank you very much, and it is inspiring, I think, to 

have the Chairman and the former Chairman here and weigh in, 

and let me make it clear to all of the members of the Subcommittee 

and those who are not members of the Subcommittee that it is not 

the intention of this Chairman to punish anybody, but to try to 

bring about some common sense or form, and we will see where we 

can reach that balancing point. 

10 

Having said that, any other statements wish to be submitted for 

the record? Mr. Heller from Nevada. 

STATEMENT OF THE HONORABLE DEAN HELLER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEVADA 

Mr. HELLER. Thank you, Mr. Chairman. I just want to tell you 

I appreciate the opportunity for this third hearing, a third hearing 

that at least I have attended, maybe more. But I also want to take 

a moment to also thank you and Senator Reid for the time that you 

spent in Elko, the two days that you spent there. I have gotten a 

lot of feedback from some of my constituents and how much they 

appreciated having the opportunity to discuss some of these issues 

with you, and though I may not support the current form of this 

bill, I hope that your experience and some of the things that you 

were able to detail while you were there in Elko will help maybe 

more calmer minds or reasonable minds come together with some 

legislation that we can live with and the industry also. 

Having said that, because I want to get to the witnesses, I would 

like to submit my written comments to the record. 

Mr. COSTA. Very good. 

Mr. HELLER. And also, Mr. Chairman, I had a constituent that 

wrote a letter, Summit Engineering Corps, Thomas Gallagher. If 

there is no objections. 

Mr. COSTA. Without objection, we will submit that for the record 

as well. 

Mr. HELLER. Thank you very much. I yield. 

11 

[The letter from Thomas Gallagher submitted for the record by 

Mr. Heller follows:] 


38137.008.eps
12 


38137.009.eps
13 

Mr. COSTA. As well as your testimony, and we thank the gentleman, and as I said on the outset, you and Senator Reid and your 

constituents most importantly were most hospitable, and the two 

days the committee spent in Elko were informative and certainly 

were a pleasure. 

With that understanding, I think we will begin with the testimony. It almost sounds like we have already had testimony, but 

not true. We are here to listen to the witnesses. I would now like 

to recognize our first panel. Mr. Salvatore Lazzari of the Congressional Research Service, otherwise known as CRS; Mr. James Otto, 

a Consultant on issues relating to mining royalties for governments 

around the world; and Mr. James Cress, Attorney with Holme Roberts & Owens, LLP, are the three members on our first panel. 

I think some of you—maybe all of you—are savvy and experienced with testifying on the Hill. Those timing lights in front of 

you would indicate the five minutes that are available to you. We 

certainly will take your full statement that may be longer than 

your oral testimony. When the light turns yellow, you need to kind 

of conclude your remarks. That gives you a minute left, and the 

Chair views favorably those members of the panel that testify that 

stay within the five minutes. If you don’t, I will politely let you 

know, and then we will move to the questions. 

Having said that, our first witness is Mr. Salvatore Lazzari from 

Congressional Research Service. 

STATEMENT OF SALVATORE LAZZARI, SPECIALIST IN PUBLIC 

FINANCE, RESOURCES, SCIENCE AND INDUSTRY DIVISION, 

CONGRESSIONAL RESEARCH SERVICE 

Mr. LAZZARI. My name is Salvatore Lazzari. For 28 years, I have 

been an economist at the Congressional Research Service, specializing in energy and natural resource economics and policy, focusing 


38137.010.eps
14 

on energy tax policy. I am honored to be here today to discuss the 

economic aspects of H.R. 2262, The Hardrock Mining and Reclamation Act of 2007, specifically, the proposal to impose an 8 percent 

ad valorem royalty in production of locatable minerals on public domain lands. Please keep in mind that CRS takes no position on any 

legislative options. 

Part of the problem in deciding how to structure a royalty is confusion over just what a royalty is and what it is not. Economics is 

very clear on this. A royalty is a factor payment, part of the rent 

paid or the return to land as an input to production. It is analogous 

to the wage rate, which is a payment for the services of labor, or 

the interest rate, which is a payment for the services of capital. 

Mineral production requires the services of these productive factors, such as labor and capital, and generally must pay the going 

market rate in exchange for these services. 

The exception to this rule, of course, has been the case of 

locatable minerals on Federal lands in the United States on which 

royalties are not paid. 

In the case of mineral production, under conditions of perfect 

competition and no risk rents could be captured by the landowner 

as up-front payments or they could be paid in various forms, such 

as bonus bids, annual rentals, or a royalty, or even in various combinations of these, depending upon the type of mineral and the specific contractual agreement between a developer of the resources 

and the landowner. 

However, given the risks in mineral production, the royalty becomes a way of allowing for mineral rents to be paid, i.e., for the 

landowner to earn a return on the land in a way that simultaneously protects the mineral producer against excessive or overestimation of rents, and the landowner against underestimation of 

rents. 

Being a factor payment then, a royalty is not a tax, which is a 

compulsory levy on individuals and businesses to finance the general cost of government for the common welfare and not a return 

to a factor of production. This is an important point, one that might 

be used, for example, to argue against proposals to impose a royalty based on net profits, which would make the royalty more of 

an income tax rather than a factor payment. 

As a type of rent then, the type of royalty that most closely captures the rents for mineral lands whose future productivity and 

value cannot be precisely determined is the ad valorem royalty 

based on value. Under such a royalty, all of the rental payments 

are made in installments rather than partial up front, and the rent 

payments are based on the amount and value of the mineral produced. 

It would be inconsistent with the concept of rent as a factor payment for a royalty to be based on other than market value. Assessing the royalty based on the gross income definition of value under 

the percentage depletion laws of the Federal income tax, as is proposed under H.R. 2262, will not only be consistent with the economic concept of the royalty but would also facilitate industry compliance and government administration since the legal and regulatory apparatus for measuring the value would already be in 

place. 

15 

With regard to the specific royalty rate, economic theory is less 

clear beyond the implication that the royalty rate be determined in 

the competitive marketplace is generally the most economically efficient rate. In most types of private royalty arrangements, the 

most common type of royalty was the ad valorem royalty at rates 

ranging from 2 to 8 percent, with an average rate of five percent. 

On state lands, mineral royalties are also ad valorem with rates 

ranging from two to ten percent. For oil and gas on Federal lands, 

the royalty rate is either one-eighth or one-sixth the share of the 

price. For coal on Federal lands, the royalty rate is either 12 percent for surface mines or eight percent for underground mines. 

Even for hardrock minerals on acquired lands as opposed to public 

domain lands, which are governed by the 1872 mining law, the 

Congress has established an ad valorem royalty rate of five percent. 

The U.S. hardrock mineral industry is, in general, subject to the 

same income tax laws as apply to other businesses for profits. 

Hardrock mining companies are highly capital-intensive businesses 

and also benefit from accelerated depreciation allowance, and from 

several targeted subsidies. 

Expensing of exploration and development costs, a percentage of 

the depletion allowance based on fixed percentage of the growth income as determined in the tax law, which ranges from five to 22 

percent, and a deduction for mine closing and land reclamation 

costs in advance of the actual closing and reclamation, i.e., before 

the occurrence of the activity giving rise to the expenses. These 

special tax preferences have historically resulted in relatively low 

industry effective tax rates. 

Finally mining companies pay a variety of claims fees—location, 

Bureau of Land Management processing, and annual maintenance 

fees, which are assessed for specific administrative services provided by the BLM. In cases where the title to the lands are conveyed, there are also patent fees, improvement and purchase fees 

also apply. 

Thank you, Mr. Chairman. That concludes my testimony. I would 

be happy to answer any questions you or the Subcommittee members might have. 

[The prepared statement of Mr. Lazzari follows:] 

Statement of Salvatore Lazzari, Specialist in Natural Resource Economics 

and Policy, Resources, Science, and Industry Division, Congressional 

Research Service, Library of Congress 

Mr. Chairman, and Members of the Subcommittee: 

My name is Salvatore Lazzari. For 28 years I have been an economist at the Congressional Research Service, specializing in energy and natural resource economics 

and policy, focusing on energy tax policy. Before that I was a business economist 

for a major corporation in Michigan. I am honored to be here to discuss H.R. 2262, 

the Hardrock Mining and Reclamation Act of 2007, specifically the proposal to impose an 8% ad valorem royalty on production of locatable minerals on public domain 

lands, effective after the date the bill becomes law. As you requested, I will address 

the economic aspects of this issue, but keep in mind that CRS takes no position on 

any legislative options. My statement today addresses the following issues: 

• What is a royalty? 

• Assuming that a royalty is to be imposed, what is the best way to structure 

such a royalty? Should the royalty be an ad valorem type, a fixed unit based 

royalty, or based on net income or profit? If there is to be an ad valorem royalty, 

at what stage should value (or price) be measured, and what deductions, if any, 

should be allowed? 

16 

1 U.S. Library of Congress. Congressional Research Service. Royalty Relief for U.S. Deepwater 

Oil and Gas Leases. CRS Report RS22567, by Marc Humphries. August 1, 2007. 2There are examples of profit sharing, instead of revenue sharing, such as in the movie business. But these reflect the reality that the return to labor (wages) could be paid in different 

forms. 

• What should the royalty rate be? And how do we decide what a fair royalty rate 

is? 

• Finally, what taxes and fees does the hardrock mineral industry pay, and do 

they have any bearing or implications for royalty determination? 

WHAT IS A ROYALTY? 

Part of the problem in deciding how to structure a royalty is confusion over just 

what a royalty is and what it is not. Economics is very clear on this: A royalty is 

a factor payment, part of the rent paid, or the return, to land as both a marketable 

capital asset and input to production. It is a voluntary payment made by the renter 

of the land to the landowner (whether private or public) in exchange for the flow 

of services provided by that land over time. Thus, the royalty is analogous to the 

wage rate, which is a payment for the services of labor, or the interest rate, which 

is a payment for the services of capital. 

Mineral producers, as business organizations, require land, as well as labor, capital, energy, and other materials, in order to establish their enterprise and produce 

goods and services—minerals that provide utility to consumers. In the typical economic model, just as mineral producers must pay for the services of factors of labor, 

capital, and other inputs, they must pay landowners for the services of land that 

contains a mineral deposit. The exception to this rule, of course, has been the case 

of locatable minerals on public (or federal) lands in the United States, on which royalties are not paid. 

In the case of mineral lands, rents could be paid in various forms such as a bonus 

bid, annual rentals, or a royalty, or in various combinations of these depending on 

the type of mineral, and whether there is a lease or not, and the contractual agreement between a developer of the resources and landowner. For example, under the 

Outer Continental Shelf Lands Act of 1953, as amended, the federal government 

leases the lands for oil and gas development in return for a bonus bid, annual rents, 

and royalties. Lease sales are conducted through a competitive bidding process, and 

leases are awarded to the highest bidder, who makes an up-front cash payment 

called a bonus bid in order to secure the lease. Annual rents range from $5-$9.50 

per acre, with lease sizes ranging form 2,500 to nearly 6,000 acres, and royalty rates 

are either 12.5% or 16.67%. 1

These mineral rents are an attempt to capture the returns to the land above and 

beyond the returns paid to labor (wages), capital (interest), entrepreneurship (profits), and other factors, and above any taxes that have to be paid to government. 

With perfect knowledge and no risks, for example, the rents resulting from mineral 

lands could be captured by the landowner as up-front payments—as the price of the 

mineral rights, for example. However, mineral production, like all business, is risky; 

it is difficult to know in advance of production precisely the quantity and quality 

of the mineral, or the market price that it will sell for in the future. There are long 

lead times between exploration, discovery, and actual production, and it is difficult 

to project what mineral prices will be upon production and sale. These and other 

uncertainties make it risky for both the producer and landowner to predict up front 

what rents would be earned by mineral lands, and therefore what the mineral producer should pay the landowner. In general, the precise division between a royalty 

or bonus bids and annual rentals depends primarily upon how production risk is 

shared between landowner and mineral producer. The royalty becomes a way of allowing for mineral land rents to be paid, for the landowner to earn a return on the 

land, in a way that simultaneously minimizes the risk of either overpayment or 

under payment. As a land rental, then, an ad valorem royalty protects the mineral 

producer against excessive royalty payments (overestimation of rents) and the government against underestimation of economic rents. 

Being a factor payment, then, a royalty is not a tax, which is a compulsory levy 

on individuals and businesses to finance the cost of government for the common welfare and not a return to a factor of production in exchange for specific services provided. This is an important point, one that might be used, for example, to argue 

against proposals to impose a royalty based on net profits, which would make the 

royalty more of an income tax rather than a factor payment. 2

17 

3 U.S. Department of the Interior. Economic Implications of A Royalty System for Hardrock 

Minerals. August 16, 1993. 

WHAT WOULD BE THE STRUCTURE OF AN ECONOMICALLY EFFICIENT 

(AND FAIR) ROYALTY ON HARD ROCK MINERALS FROM PUBLIC 

DOMAIN LANDS? 

As a type of rent, then, the type of royalty that most closely is intended to capture 

the rents from mineral lands whose future productivity cannot be precisely determined due to risk—variability in price, unknown quality and quality of mineral, 

etc.—is the ad valorem royalty. Under such a royalty, all of the rental payments 

are made in installments over the life of the mine, rather than partially up front, 

and the rent amounts are based on the amount of the mineral produced, and the 

market value or price of the mineral at the mine. Lands producing minerals of higher quality and value, gold for instance, pay a higher royalty amount; those producing lower quality or value minerals, lead for example, pay a lower amount. The 

economic concept of a royalty as a factor payment implies that the payment should 

be based on the market value of the producer’s output, whether it be hard rock minerals, coal, or oil and gas. It would be inconsistent with the concept of sharing and 

with the concept of a factor payment in a competitive market for a royalty to be 

based on other than market value minus the costs of obtaining it. For example, if 

instead of payments in kind (deer or crops or precious metals) the landowner were 

to be paid in money, one would expect him to receive the monetary equivalent of 

the value of the output. Rational landowners would not settle for less than what 

the deer, crop, or metal is worth because they could always have the deer, crop, or 

metals taken to market and sold for at least market value. If they wanted less rent, 

then presumably that would have been negotiated as a smaller share (instead of 1 

deer out of 5, it would perhaps be 1 out of 6). Likewise it would not be rational 

for the renter to pay to the landowner a royalty based on more than market value. 

In addition, assessing the royalty on value as determined under present federal 

income tax laws means that the industry compliance and government administration apparatus would already be in place. Under H.R. 2262, the proposed 8% ad 

valorem royalty would be applied to a base called the ‘‘net smelter return,’’ which 

is defined as the gross income from the property for purposes of determining percentage depletion allowance under IRC§ 613(c), one of the tax preferences or subsidies available to the mining industry under the federal income tax laws. Under 

IRC§ 613, mining companies are allowed percentage depletion, at varying rates, 

based on the gross income from the property. Under IRC§ 613(c), gross income for 

depletion purposes is generally defined as ‘‘the actual price for which the ore or mineral is sold where the taxpayer sells the ore or mineral as it emerges from the mine 

before application of any processes other than a mining process or any transportation, or after application of only mining processes, including mining transportation.’’ Thus, gross income allows deductions for any costs of non-mining processes 

but does not allow for deductions for the costs of mining processes, the idea being 

to arrive at a price or value of the mineral as close to the mine mouth as possible. 

However, in the event that the firm applies non-mining processes before the mineral 

is sold, so that the price is not available, then IRS regulations § 1.613-4 stipulate 

the use of the representative market or field price (RMFP, basically the first sales 

price less all non-mining costs) as an approximation to the actual price. Finally, if 

an RMFP is not determinable, regulations stipulate one of various other methods 

to estimate the mine mouth price. 

Thus, conceptually, not only is the tax concept of gross income consistent with the 

concept of mine value or price for purposes of the ad valorem royalty, it facilitates 

royalty compliance and administration. 

WHAT WOULD BE THE APPROPRIATE ROYALTY RATE? 

With regard to the specific royalty rate, economic theory is less clear beyond the 

implication that the royalty rate determined in the competitive marketplace is generally the most economically efficient rate—the rate that is most likely to maximize 

social welfare. In the case of privately owned mineral lands, markets already exist 

that determine the royalty type and rate for a wide variety of minerals. In most 

types of private royalty arrangements in the early 1990s (the latest data readily 

available), the most common type of royalty was the ad valorem royalty at rates 

ranging from 2-8%, with an average rate of 5%. 3 In the case of publicly owned 

lands, laws determine the return on the resources, although competitive market 

rates may be a determining factor in establishing such rates. Most states with minVerDate Aug 31 2005 14:50 Oct 10, 2008 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6621 L:\DOCS\38137.TXT Hresour1 PsN: KATHY
18 

4 U.S. General Accounting Office. Mineral Royalties: Royalty in the Western States and in 

Major Mineral Producing Countries. GAO/RCED-93-109. March 1993. 5 U.S. Department of the Interior. Minerals Management Service. Mineral Revenues 2000: Report on Receipts from Federal and American Indian Leases. p.134. 6Otto, Andres, Cawood, Doggett, Guj, Stermole, Stermole, and Tilton. Mining Royalties: A 

Global Study of Their Impact on Investors, Government, and Civil Society. The World Bank. 

2006. 7 Arguments have been made for royalty forgiveness and tax subsidies based on national security. These non-economic considerations are not addressed in this statement. 

eral resources imposed ad valorem royalties at rates ranging from 2-10%. 4 For 

leasable energy minerals on federal lands, the statutory royalty rates range from 

5%-16.67%. For oil and gas, the royalty rate is either a 1/8 (12.5%) or 1/6 (16.67%) 

share of the price of the mineral, depending upon whether the oil or gas is shallow 

(1/6 share because costs are lower) or deep (a 1/8 share because costs are higher). 

On some leases, the rate could be higher than 1/6. Also, the royalty could be paid 

‘‘in-kind’’ (either a 1/8 or 1/6 share of the output rather than of the price). For coal, 

the royalty rate is either 12% (surface mines) or 8% (underground mines). Note that 

the 8% ad valorem rate proposed in H.R. 2262 is the same as the royalty rate on 

underground coal mines. Even for hardrock minerals on acquired lands (as opposed 

to public domain lands, which are governed by the 1872 Mining Law), the Congress 

has established an ad valorem royalty rate of 5%. 5 Finally, in international lease 

transactions, mineral royalties are predominantly of the ad valorem type with rates 

ranging typically from 2-12%, depending on the country, and the mineral type. 6

THE FEDERAL TAX TREATMENT OF THE HARD ROCK MINING 

INDUSTRY 

The U.S. hard rock minerals industry is, in general, subject to the same income 

tax laws which apply to all other for-profit businesses. In addition, there are three 

special tax preferences available to the hardrock mining industry generally, as well 

as to coal mining. First, mining firms are permitted to expense (to deduct in the 

year paid or incurred) rather than capitalize (i.e., recover such costs through depletion or depreciation) certain exploration and development (E&D) costs; second, mining firms are also permitted to claim an allowance for depletion based on a fixed 

percentage of the ‘‘gross income’’—i.e., sales revenue—from the sale of the mineral 

rather than on the basis of the actual investment in the mine. For hard rock minerals, these percentages range from 5% (for clay, sand, gravel, stone, etc.) to 22% 

(for sulfur, uranium, asbestos, lead, etc.). Metal mines generally qualify for a 14% 

depletion, except for gold, silver, copper, and iron ore, which qualify for a 15% depletion allowance. Under this method, total deductions typically exceed the capital invested. In addition to these two tax subsidies (which are also available for oil and 

gas production), mining qualifies for a third subsidy. Under IRC § 468, mining companies are allowed to deduct the costs of mine closing and land reclamation in advance of the actual closing and reclamation, i.e., before the occurrence of the activity 

giving rise to the expenses. This provision is contrary to the general tax rule under 

both the cash method of accounting and the accrual method of accounting, which 

state that expenses to be incurred in the future cannot be deducted currently. 

These special tax preferences or subsidies, combined with accelerated depreciation 

(a significant tax benefit for highly capital intensive business such as hard rock 

mining) have historically resulted in relatively low effective average and marginal 

tax rates. Thus, firms that mine hard rock minerals on public domain lands pay no 

royalty, and benefit from fairly significant tax subsidies. In addition to reducing federal tax revenues, from an economic point of view, these subsidies have further distorted the economy’s allocation of resources. H.R. 2262 does not address the tax 

subsidies, and the question of whether to impose a royalty is independent of whether to continue to provide or whether to reduce or eliminate these tax subsidies. It 

is fair to say there is no economic justification, absent a market failure, and based 

on efficiency considerations, for not assessing competitive market royalty rate on 

locatable minerals on public lands. 7 While the royalty question and tax subsidies 

are separate policy issues, if a royalty is imposed, then the percentage depletion deduction would be reduced. This is because, under IRC§ 613, royalties and rents are 

deductible against percentage depletion. To illustrate, at a 22% percentage depletion 

deduction, and an 8% royalty, the effective percentage depletion deduction would be 

20.24%; at a 15% percentage depletion deduction, and an 8% royalty, the effective 

percentage depletion deduction would be 13.8%. Also, it should be noted that royalties are a tax deductible expense, a cost of doing business, against income, which 

reduces the effective burden of the royalty. 

19 

FEES PAID BY THE HARD ROCK MINING INDUSTRY 

Finally, mining companies pay a variety of claims fees (location fees, Bureau of 

Land Management processing fees, annual maintenance fees). These are charges for 

specific type of administrative services provided by the BLM. In cases where the 

title to the lands are conveyed, patent fees (improvement fees and purchase fees) 

also apply. 

Mr. COSTA. We appreciate that. I am sure there will be questions, and you are almost within the time limit. 

The Chair would now recognize the next witness, Mr. James 

Otto, who will testify for five minutes. 

STATEMENT OF JAMES OTTO, INDEPENDENT CONSULTANT 

Mr. OTTO. Thank you very much for the opportunity to present 

my views here today. I am appearing here as a private citizen, and 

expressing my own views, and not those of any company—— 

Mr. COSTA. You might speak a little closer to the microphone, 

please. 

Mr. OTTO. I have been active in this area for about 25 years, 

working with many countries around the world on mining tax return and mining law reform. I have been the lead consultant in tax 

reform efforts in many of the major mining countries of the world, 

including places like Australia, Indonesia, Mongolia, Papua New 

Guinea, Philippines, Canada. 

You mentioned a report by the World Bank earlier. I was the 

lead author of the book ‘‘Mining Royalties.’’ What I am going to try 

to do in five minutes is talk a little bit about international practice 

and how that might apply here in the United States. One of the 

things I can say is determination of a royalty and royalty method 

is not rocket science. There are a lot of good examples out there. 

If you get it right, it can be a win/win for both industry and government, but if you get it wrong, it can cost the treasury and it can 

pretty much close down an industry. 

One of the key questions is should the U.S.A. have a royalty on 

minerals, and as we look around the world today, almost every 

country that produces minerals does have a royalty with one or two 

exceptions, and those countries are now considering imposing a 

royalty. So in terms of international competitiveness, the mere existence or lack of a royalty isn’t going to have that much impact. 

It is the royalty of the type that the industry can sustain or not. 

What is the rationale behind a royalty? Well, we had one explanation. Another way of thinking about it is an ownership transfer 

tax. It is the amount that is paid irregardless of profitability to the 

owner of the mineral as it is transferred from the public to the private sector. 

Another way of looking at it is that it is a usage fee, a licensing 

fee, a fee that is paid for the right to mine, and this is often used 

in countries where the ownership of the mineral may not reside 

with the state as we might have in perfected claims here in the 

U.S. 

But the general rationale or the main rationale most countries 

have royalties is to provide income to the treasury, and this could 

be to the general budget or earmarked, as it is in this bill for certain purposes. 

20 

Should royalties be different for different types of minerals? Well, 

as we look around the world today, many countries do come up 

with separate types of royalties for different types of minerals and 

the royalty is designed mineral by mineral. However, in many 

other countries this turns out to be a bit complex on the administration side, and for a variety of other reasons it can be very difficult to implement, for example, where you have a concentrate 

that may contain four or five or more minerals, how to value the 

royalty if you have different rates for each of the minerals contained in that concentrate. 

The clear trend today is for a more uniform approach where you 

might have three or four different categories of minerals, each with 

a different royalty rate being applied to it in a different calculation 

basis. 

My advice to most governments today is to aim for a more or less 

uniform system of royalties applying to all minerals with the except of construction minerals and perhaps coal, which may be more 

amenable to a unit-based royalty rather than a value-based royalty. 

How should royalty be calculated? While there are a number of 

different approaches that are used, all can be used successfully. 

The simplest is a simple amount, a fee per unit volume or unit 

weight, as in construction minerals and coal in many countries. Another approach is a percent of value, an ad valorem. This is the 

most common type of royalty and the one that is advocated in the 

current bill. A third type is one that is based on some measure of 

profitability, and those are the most difficult to apply in practice, 

and aside from a few countries like Canada, one state in Australia, 

Nevada, most countries shy away from this as being not beneficial 

to the government. 

The type of royalty proposed in the bill is called a net smelter 

royalty. I don’t believe there is anyone in industry or in government that assesses a net smelter royalty who would call what is 

in the current bill a net smelter royalty. So you ought to think perhaps about that, redefining that. 

Finally, I would like to say that the current mining law is badly 

out of date. It suffers from a host of problems, and one of the problems is it doesn’t lay the groundwork for a social license to operate, 

and by this I mean acceptance by our society that the mining industry plays a positive role in our well-being. The public perceives 

the industry as highly polluting, causing a proliferation of abandoned eye sores, putting workers at risk, and contributing little to 

national or the local economy. 

Today, most communities view a proposed mine not as an engine 

for economic growth, but an industry that must be kept out of their 

back yard. The imposition of a royalty, especially when revenues 

are earmarked for reclamation and local investment, may help to 

regain the industry’s social license to operate. 

Thank you. 

[The prepared statement of Mr. Otto follows:] 

21 

Statement of James M. Otto, Independent Consultant on 

Mining Law, Policy and Economics 

Thank you for the opportunity to present my views concerning the issue of royalty 

considerations to be taken into account with regard to H.R. 2262, the Hardrock 

Mining and Reclamation Act of 2007. 

I appear here today as a private citizen, expressing my own views, and not representing any group. I have worked on mining policy, law and fiscal issues for twenty five years. I have assisted many governments in the development of their mining 

policies, laws, agreements and fiscal systems including many of the world’s most important mining nations. Examples of my recent mining taxation related work includes: lead consultant to the Treasury on the bill to introduce royalties in South 

Africa, mining sector fiscal analysis for the Peruvian government prior to the introduction of royalty, analysis of the mining fiscal systems including royalty in Australia, Bolivia, Egypt, Indonesia, Mongolia, Mozambique, Papua New Guinea, Philippines, Saudi Arabia, Yemen, Zambia, and others. In some cases my mining taxation work is funded directly by the concerned government, other times by multilateral agencies like the World Bank, IFC or United Nations, and occasionally by 

the private sector. My books on the subject of mining laws and mine taxation are 

considered by some as standard references. My most recent co-authored book is titled Mining Royalties and it has been distributed by the World Bank to most mining 

and finance ministries and departments worldwide. 

In my work for governments who are undertaking mineral sector fiscal reform, 

I advise that when designing a tax system, policy-makers should be aware of the 

integrated impact that all taxes, royalties and fees can have on mine economics and 

potential levels of future investment. When determining which types and levels of 

taxes to apply to the mining sector, policymakers should consider not only ways to 

achieve individual tax objectives (such as reclamation and community benefits in 

H.R. 2262), but also take into account the cumulative impact of all taxes. Such 

awareness should recognize the importance of each tax type in achieving specific objectives. The overall tax system should be equitable to both the nation and the investor and be globally competitive. 

Should the U.S.A. impose a royalty on locatable minerals? 

Most nations impose some form of royalty on minerals when the nation is the 

owner of the mineral. There are very few exceptions and over the past few years 

some countries that previously had no royalty now either have one or are planning 

to introduce one. Almost all new or recently amended mining laws include a royalty 

provision. The rationale for a royalty varies from country to country. In some, it is 

perceived as a form of ownership transfer tax, where the nation is provided a fiscal 

payment as the mineral moves from national ownership into private ownership. In 

other nations, it is justified as a form of usage fee—the royalty is considered as the 

regulatory fee paid in exchange for the ‘‘right to mine’’ in much the same way as 

a driver pays an annual registration fee to register and use a car on public roads. 

In this later case, questions about minerals ownership are mute which may be an 

important factor in the U.S.A. where for perfected claims minerals may no longer 

belong to the government. Regardless of the rationale, the primary reason behind 

imposing a royalty in most nations is to increase the amount of money flowing to 

the government, either to the general budget or for earmarked purposes. Most nations impose royalty and it is time for the U.S.A. to do so also. 

Should royalties differ for different minerals? 

There are many different types of minerals and their extraction costs, prices received and profit margins may differ substantially. For example, the average gold 

mine probably has a higher profit potential over the long run than an average copper mine. Should not the royalty for gold thus be higher than for copper? Many nations do discriminate between mineral types. In some nations like India and Indonesia, long lists of minerals appear in their laws along with separate rates or 

amounts for each mineral type. Other nations classify minerals into groups and 

apply a different royalty to each mineral group. Still others apply a uniform system 

regardless of the mineral type. In my visits with tax authorities in many nations, 

those responsible for tax collection almost invariably prefer a uniform system, with 

the one exception being construction minerals. There are a variety of reasons for 

this, and I will illustrate two reasons. Many mines produce one or more multi-metal 

concentrates. For example, a zinc concentrate may contain recoverable amounts of 

zinc, lead, silver, and gold. If different royalties apply to each mineral, how can the 

amount of royalty be calculated? A second reason to avoid royalty discrimination between mineral types is that it invariably leads to sustained efforts by producers of 

one mineral type to lobby for a reduction in their rate to the lowest rate on any 

22 

other mineral so that there is a ‘‘level playing field.’’ My advice to most governments 

is to have a uniform royalty approach to all minerals, with the exception of construction type minerals and perhaps coal. 

How should the royalty be calculated? 

In its simplest forms, the royalty tax liability is calculated based either on a set 

amount per unit volume ($/cubic foot) or per unit weight ($/ton), or is based on a 

percentage of the value of the mineral commodity being extracted or sold (% x 

value). In the first instance, unit based royalties, the determination of the royalty 

liability is straight forward being solely dependent on the physical quantity or volume of the material produced but in the second case, value-based royalties, the assessment is more difficult because a value must be assigned to the commodity being 

sold. A third and more complex method relies on some measure of net profit where 

a measure of sales revenue is reduced by the deduction of certain allowable production and other costs to determine a net profit subject to a royalty rate (% x net profit). The advantage to government of unit and value based royalties is that they are 

fairly straight forward to calculate and pose fewer opportunities for tax minimization strategies. Their weakness is that low profit mines will have the same royalty 

basis as high profit mines, and this may impact them with regard to decisions about 

mine life, ore cut-off grade, and whether to continue operations when prices are low. 

Most Canadian provinces levy a form of net profits royalty, as do a few other jurisdictions including Nevada. In my experience, when a country is considering royalty 

reform, companies will argue strongly for a net profits type of royalty. However, 

most governments apply royalties based on units and/or on value. Unit based royalties are in common use mainly for construction minerals and sometimes coal but 

are less often applied to most other minerals. 

Determining the value of the commodity for a value based royalty is not always 

straight forward. Different commodities each pose their own special problems and 

a nation may use several different valuation methods. Not only will different commodities often be valued by different methods but even a single commodity may 

pose assessment challenges depending on the state to which it has been processed. 

For example, take the following situation. A copper deposit is located which contains 

some ore suitable for recovery by smelting and some which is recoverable by leaching. The mine management determines that three products will be produced for 

sale: raw ore, a copper concentrate, and from an electro-winning plant, copper 

metal. The three copper products will obviously command very different sales values 

in the market. How should the three sales products be valued for royalty purposes? 

I usually advise nations that when devising a value based royalty to use a sales invoice (gross proceeds) based system for most minerals or a net smelter return system. The later reflects the value of the mineral after deducting certain allowed costs 

(such as the transport costs of the mineral to a third party facility that processes 

the mineral to a higher valued state and the charges associated with that processing). 

If a value based royalty (such as net smelter return) is used, what royalty 

rate should apply? 

This is a difficult question. For marginally economic mines, any royalty may result in them becoming sub-economic leading to closure. For highly profitable mines, 

a low rate may see the government needlessly forgoing revenue. The key is to 

achieve a royalty that most mines can bear and still make reasonable profits. The 

experience of many nations has been that for most minerals a royalty rate of between 2 and 5% of mineral value (gross proceeds or net smelter return) works well. 

Rates higher than this may over the long run result in lower income tax and royalty 

yields because fewer new mines will meet minimum rate of return decision criteria 

and some will not be built (the income tax base will be smaller). Additionally, capital may flow to lower taxing jurisdictions. The draft bill imposes an NSR of 8%, 

one of the highest value based royalty rates that I have encountered in my work. 

Is this rate too high? I am unable to offer a firm opinion on that without further 

study, and the main reason is another feature of the U.S. tax system—the depletion 

allowance. Very few nations have a depletion allowance for mineral production. 

Such an allowance is viewed by most nations as a form of negative/reverse royalty 

and most nations have rejected this concept. In most nations, the concept of a royalty is that payments should be made to government as non-renewable minerals are 

mined. Conversely, a depletion allowance allows an income tax deduction as nonrenewable minerals are mined. Thus, over the life of a mine the impact of a high 

royalty is offset to some extent by lowering income tax through a depletion allowance (assuming that most mines pay income tax). Even given the depletion allowance there is a strong argument in favor of a royalty rate less than 8%. While taxVerDate Aug 31 2005 14:50 Oct 10, 2008 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6621 L:\DOCS\38137.TXT Hresour1 PsN: KATHY
23 

payers with multiple operations may be able to take advantage of depletion allowances in most years because they are taxed on income from all operations, the taxpayer with a single mine will not enjoy the benefits of depletion during the early 

years of the project when it already has substantial other deductions or when its 

taxable income falls to zero because of low commodity prices. An 8% gross value 

type royalty will have a major impact on independent mines. If the U.S.A. did not 

offer a depletion allowance, I would certainly counsel that a net smelter royalty 

should be set in the 3 to 5 percent range. 

Will a royalty put U.S.A. producers at a disadvantage to producers in other 

nations? 

Any increased cost, such as a royalty, puts a U.S.A. producer in a worse off position to compete. Increased costs may discourage investment into the sector both by 

U.S. and foreign firms. However, almost all nations have royalty. In my advice to 

governments, I urge policy makers to take into account the complete tax system 

when considering a change in any part of it. It is the impact of the tax system as 

a whole that will determine whether most mines are able to operate profitably, and 

with sufficient profits to reinvest in new exploration to replace reserves. In extensive studies by myself and by the International Monetary Fund it has been determined that many mineral producing nations impose a fiscal system on mines that 

results in a total effective tax rate (ETR) in the range of 40 to 50%. ETR is simply 

the amount of all taxes and fees paid to government divided by before tax profit, 

calculated over the life of the mine. In my mining fiscal studies for other nations, 

I typically use a cashflow spreadsheet for one or more model mine and build in all 

the various taxes and fees and incentives. The model then calculates the ETR and 

the investor’s rate of return. Such models are very useful to assist lawmakers in 

understanding the impact on a typical mine of various royalty rates in times of high 

and low commodity prices. They also allow a better understanding of the ways that 

the tax system works in a holistic way. For example, to what extent does the depletion allowance offset the impacts of a high royalty? To what extent does the ability 

to deduct a royalty from income subject to income tax affect profits? I don’t know 

if such modeling has been done to assist in setting the proposed 8% rate. If this 

rate is contentious, I suggest that such modeling may be a useful tool for lawmakers 

to have so as to understand whether the rate is reasonable. Taken alone without 

reference to the rest of the tax system, it will be one the world’s highest NSR royalties. 

Transfer pricing 

Transfer pricing is a major and growing concern with regard to royalty, more so 

than with income tax. The term transfer pricing refers to a practice where the mine 

product is sold to an affiliated company at a price less than the product would have 

been sold to an unaffiliated party. It in effect transfers profit from one tax entity 

to another. If a royalty is based on some measure of sales value (such as an NSR) 

this is a concern. The industry is consolidating, and sales between affiliated companies is common. In mining laws and agreements that I have recently drafted I strive 

to reduce the potential for transfer pricing with regard to royalty. For example, I 

may require special reporting of any sale to an affiliate, with affiliate being defined 

much more aggressively than in the draft bill (for example a 10% ownership interest 

test, rather than a just a control test). The bill lacks provisions requiring ‘‘arms 

length sales’’ practices. Perhaps it is intended that such provisions will be provided 

in rules, or perhaps this is addressed through provisions in other laws. If not, consideration might be given to adding additional provisions to the royalty section to 

reduce transfer pricing. 

Royalty relief 

Minerals prices are notoriously cyclical, more so than the prices for many other 

goods. The result is that high cost producers may and often do become unprofitable 

during periods of low prices. Royalty is a cost and if based on value, that cost will 

be incurred regardless of profitability. More marginal mines will close, perhaps permanently, in low price times because of royalty. This is the nature of the market 

system—low cost producers survive, high cost producers do not. Some nations provide a statutory means whereby royalty may be waived for a time to allow a mine 

to stay open during a price downturn. The impact from closing a large mine can 

be hard on local communities, and can in the long run lessen overall fiscal revenues. 

The key issues in such a statutory provision are: who has the authority to grant 

a waiver or deferment, what criteria must be met to qualify, and how long should 

the waver/deferment be for. In my opinion, such relief should not be offered. When 

prices turn down, many mines will apply for relief creating an administrative burden and when prices turn back up, pressure will be brought to continue the waiver. 

24 

Such royalty relief is becoming less available in other nations and most countries 

don’t allow it. 

Concluding remarks 

The current mining law is badly out of date. It suffers from a host of problems 

and among these is that it does not lay the groundwork for ‘‘a social licence to operate.’’ By this I mean the acceptance by our society that the mining industry plays 

a positive role in our well-being. The public perceives the industry as highly polluting, causing a proliferation of abandoned eye-sores, putting workers at high risk, 

and contributing little to the national or local economy. Today, many communities 

view a proposed mine not as an engine for economic growth, but an industry that 

must be kept out of their back yard. The imposition of a royalty, especially one 

where revenues are earmarked for reclamation and local investment, may help to 

regain the industry’s social licence to operate. Since 1990, over 100 nations have replaced or made major amendments to their mining laws. It is time for the U.S.A. 

to do the same. 

Mr. COSTA. Thank you very much, Mr. Otto, and we will look forward to asking questions that reflect your testimony, and our last 

witness on this panel but certainly not the least is Mr. Cress who 

has a great deal of expertise that he brings to the subject matter, 

and we look forward to your testimony. Please begin. 

STATEMENT OF JAMES F. CRESS, ATTORNEY, 

HOLME ROBERTS & OWENS LLP 

Mr. CRESS. Thank you, Mr. Chairman and Members of the Subcommittee. I appreciate the opportunity to appear before you to discuss the important issue of mining royalties. 

My background is as a lawyer in private practice. I am a mining 

lawyer. In my practice, I have negotiated royalties for all kinds of 

minerals on behalf of mineral companies, and landowners, and I 

have also got some experience negotiating with foreign governments. So that is where I am coming from on this issue. I would 

ask that you include my written testimony in the record, but I will 

just summarize some of the high points. 

Mr. COSTA. Without objection, it will obviously be submitted. 

Mr. CRESS. Thank you, Mr. Chairman. 

One thing that we often hear is a comparison between hardrock 

minerals and the royalty on coal and oil and gas. I will just take 

coal as an example. There are significant differences between 

hardrock minerals and coal that explain why royalties in a different amount can be imposed on them. 

Coal is a generally uniform substance that is essentially crushed 

and sized and sent to market. Metals are highly complex, how they 

were found in the ground generally in lava flows frozen in rock, if 

you wish, require extremely difficult methods of processing to extract the metal from the ore, and the difference in the concentration of those metals in the rock makes all kinds of operational difficulties and challenges that a royalty needs to address. 

The other thing that is completely different is the commodity 

markets in which they operate. The western coal mines on which 

a 12 percent royalty was imposed for surface mining had the ability 

to contract for long-term contracts, 20 years in some cases or greater. That provided the certainty necessary to build those mines, and 

in addition to that the leases that were in effect at the time did 

not have the 12 percent royalty and it was phased in over a period 

of up to 20 years. 

25 

At the same time the economics of transportation improved and 

the demand for the low sulfur western coal increased, so you might 

say they dodged a bullet in that sense, and those rich deposits of 

coal can bear that kind of gross royalty. 

Hardrock minerals need to be treated with a little more precision, I would say. A gross royalty is really not a fair measure of 

the value of the minerals in the Federal lands. Gross royalties can 

have extreme impacts on the development of a mine and the operation of a mine, and in fact, it can be inconsistent with the principle of sustainable development because once a mine is open and 

operating, if the price of the commodity dips below what is necessary to keep that mine operating, the mine may close and the 

rest of that mineral deposit may be lost. So you need a little more 

nuance in your royalty. 

The H.R. 2262 royalty is really a gross royalty. The definition 

that was incorporated by reference from the tax code is a gross income from mining definition, and it is not truly a net smelter royalty as that term is used in leases and other industry agreements 

that I have negotiated. 

If mining companies do use net smelter return royalties in private negotiations, but you shouldn’t leap to the conclusion that that 

is an appropriate burden for all Federal lands, and the reason for 

that is the way the industry is structured and also the way that, 

you know, the task before you, which is to impose one levy on all 

Federal lands. You need to be able to encourage exploration for 

hardrock minerals. They are extremely hard to find, even more 

hard to find in a mature company like the United States, which 

has been explored. So you need to allow sufficient—put a burden 

on that is appropriate and that allows for explorationists to go out 

and find those minerals. They need to be paid too, and they are 

often paid in the form of an overriding royalty based on production. 

So if the government takes too large a share, there will not be 

any share left, if you will, for the persons who find the minerals 

that are produced. 

I am only aware of a single royalty that is as high as the royalty 

proposed in the bill, just one in my 20 years of practice. An eight 

percent gross royalty would really be ruinous, and you should consider a net approach which takes into account the differences between minerals and can be used to impose not too high a burden 

on any given mineral. 

I would be happy to answer any questions that you have. Thank 

you. 

[The prepared statement of Mr. Cress follows:] 

Statement of James F. Cress, Holme Roberts & Owen 

Mr. Chairman and members of the Subcommittee, 

My name is Jim Cress, and I am testifying today as a mining lawyer in private 

practice on the subject of mining royalties. I am a partner at Holme Roberts & 

Owen, a 109-year old law firm that represented miners in Colorado in the late 

1800’s and today represents mining companies around the globe. I have specialized 

for nearly 20 years in U.S. and international mining law, as well as oil and gas and 

coal law. I have represented mining companies and landowners in negotiating royalties for gold, silver, copper, coal, uranium, oil and gas and other minerals, and have 

advised clients on royalty compliance for private, federal and state royalties and 

severance taxes. In my international practice, I have negotiated royalty and tax 

sharing agreements with governments from Asia to the Americas. I have taught in 

26 

the Graduate Studies program in Natural Resources and Environmental law at the 

University of Denver Sturm College of Law, am a contributing author to the Rocky 

Mountain Mineral Law Foundation’s American Law of Mining treatise, and am the 

former Chair of the Mineral Law Section of the Colorado Bar Association. Thank 

you for the opportunity to appear and speak on the important issue of hardrock 

mining royalties. 

The H.R. 2262 Royalty is a gross royalty, not a ‘‘net smelter return,’’ and 

is not an appropriate measure of fair value for mining on federal lands. 

This hearing focuses on the royalty provisions of H.R. 2262. Section 102(a)(1) of 

H.R. 2262 provides for a royalty of 8 percent of the ‘‘net smelter return’’ from production from federal mining claims. The term ‘‘net smelter return’’ is defined in Section 102(i) as ‘‘gross income’’ as defined in Section 613(c)(1) of the Internal Revenue 

Code of 1986. This provision is used to define the depletion allowance under the tax 

code, and was not intended to capture a fair return for minerals mined from federal 

lands. 

Let’s call a spade a spade: the H.R. 2262 royalty is a gross royalty, not a net royalty. The use of the term ‘‘net smelter return’’ in the bill is actually misleading, because this royalty is not a ‘‘net smelter return’’ royalty as customarily used in the 

mining industry. 

A customary ‘‘net smelter return’’ royalty in the mining industry permits the deduction of the costs of smelting (and sometimes costs of leaching and other nonsmelting processing methods), refining, transportation from the mine to smelter, 

transportation from refinery to market, as well as deduction of taxes paid to the 

government and royalties paid to landowners. The deduction of post-mining costs 

such as smelting and refining is, in fact, the hallmark of this type of royalty (thus 

the name ‘‘net smelter return’’). 

The term ‘‘gross income from mining’’ under Section 613(c)(1) of the Internal Revenue Code is designed to capture the gross value of the mineral after the mining 

processes end and non-mining processing begin, contrary to the industry definition 

of ‘‘net smelter return.’’ The intent of this provision of the tax code is to prevent 

mining companies from claiming a depletion allowance on the value added by the 

non-mining operations such as smelting and refining operations. Thus, the customary deductions for smelting, refining and other costs under an industry ‘‘net 

smelter return’’ royalty are actually prohibited under Section 613(c)(1). The result 

is essentially a gross royalty. A gross royalty is a blunt axe approach to royalty 

valuation that ignores the comparative value of the federal land base and the value 

added by subsequent beneficiation and processing of mineral products, and makes 

little sense in the context of hardrock mineral economics. 

A gross royalty is not a fair measure of the value of hardrock minerals in 

federal lands 

Any royalty payment to the United States for hardrock minerals should be based 

on the value of the United States’ ownership interest in the land. That interest is 

limited to the minerals in the ground, and it cannot justifiably be extended to require a royalty to be paid on values added to the minerals after mining, by the mining company processing, refining and selling the mineral products. The United 

States makes available land, and any minerals in the land for development, but the 

United States contributes nothing to the costs and effort of producing and processing the minerals. 

Gross royalties are inconsistent with the principle of sustainable development. A 

gross royalty reduces the volume of an ore deposit that can be recovered. Each deposit of metallic minerals will have varying grades of mineral, generally requiring 

extensive concentration and refining to be marketable. The portion of the deposit 

with grades too low to be recovered economically is either removed as waste or left 

undisturbed in the ground. Adding costs such as royalties raises the ‘‘cutoff point’’ 

between recoverable ore and waste, shortening the life of a mine by causing what 

otherwise would be valuable minerals below the cutoff point to be lost. These lost 

reserves generally can never be recovered, because once the mine is reclaimed, it 

is uneconomic to recover them. 

If mining costs can’t be deducted, a mining company would have to pay the royalty regardless of how high those costs may be for difficult mining situations or for 

low grade ores. This would require a mining company to continue paying a royalty 

even when it is operating at a loss, and that royalty could even cause the loss. No 

mine can be operated long at a loss. The result would be that some mines would 

shut down prematurely, creating loss of jobs, federal state and local taxes not paid, 

and suppliers of goods and services suffer. The result is lost economic vitality affectVerDate Aug 31 2005 14:50 Oct 10, 2008 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6621 L:\DOCS\38137.TXT Hresour1 PsN: KATHY
27 

ing both those directly involved in the mining activity and the governmental entities, including the United States, that are sustained by those activities. 

Hardrock minerals are different, and should be treated differently than 

coal and oil and gas 

Why should hardrock minerals not be subject to the 8 percent or greater royalty 

imposed on oil & gas and coal? The dramatically different characteristics of the minerals themselves and the ways in which they are explored for and developed justifies 

different treatment. 

Oil and gas are fluid and usually collect in sedimentary basins. Exploration for 

oil and gas usually consists of seismic studies to detect the type of structures where 

oil and gas are found. These studies are conducted at relatively low cost and usually 

without the need to acquire more than an easement over the property to be explored. When a promising prospect is identified leases are acquired, a well is drilled 

and core samples, drill stem tests and logs are taken to determine whether the well 

is successful. The costs of drilling can sometimes be quite high, but a single well 

can also drain a large area because of the fluid characteristics of oil and gas. Development of a field is usually accomplished through the initial exploratory well and 

one or more development wells that are drilled in locations reasonably expected, as 

a result of the information gathered from seismic studies and the initial wells, to 

draw from the same reservoir. Once a prospect has proved successful, identification 

of the size and shape of the reservoir can be conducted with relatively low risk and 

expense. 

After extraction, oil must be processed and refined before it is ultimately consumed as vehicle fuel or other product. The royalty on oil produced under federal 

leases is not based upon the value of these refined products, however; it is measured 

by the value of the crude oil at the lease or wellhead, prior to such processing and 

refining. Unlike many other minerals, there is a market for oil in its crude, 

unrefined state and therefore a ready value for royalty purposes before the value 

added by refining and processing. Most oil is sold at the wellhead into this crude 

oil market and that wellhead sales price establishes the value of the oil for federal 

royalty purposes. Thus, it is somewhat misleading to call the federal royalty on oil 

a ‘‘gross’’ royalty. Because the royalty is typically based on the value of the crude 

oil prior to processing and refining, the royalty is, in essence, ‘‘net’’ of those costs. 

Similarly, federal royalty on gas is also based upon the value of the gas at the 

lease. After gas is extracted, often the only thing required for consumption by the 

ultimate end-user is transportation (the cost of which, if paid by the producer, is 

deducted before royalties are calculated). Sometimes further processing is required 

to remove sulfur and separate gasoline, butane and other constituents from the gas. 

The royalty, however, remains payable on the value of the gas at the lease or wellhead and the processing costs incurred by the producer downstream of the lease are 

deducted under the federal rules before calculating royalty, to arrive at essentially 

a ‘‘net’’ value at the lease. 

Coal is a solid mineral of generally uniform quality and composition. In the West, 

where most federal deposits exist, coal beds often consist of vast deposits of great 

thickness, in Wyoming averaging 80 feet and up to 200 feet. Little exploration for 

coal is required, and it is relatively easy to determine the quality of the coal and 

the thickness of a seam prior to mining. The western coal miner thus knows much 

about the characteristics of the mineral he has to sell prior to actual mining. At the 

same time, coal mining is an extremely labor and capital-intensive enterprise. Because of the need to construct facilities, obtain equipment, employ workers, and 

comply with substantial permitting requirements, it can take years to design, permit and construct a mine. For these reasons, coal from federal lands in the West 

has often been sold under fixed, long-term contracts entered into prior to construction of a mine. Based on the certainty of a market provided by these contracts, the 

coal miner can lease sufficient reserves to mine over the life of these long-term contracts and make the considerable capital investments required to construct the 

mine. Additionally, many long term coal contracts and state utility laws allow for 

the pass through of the royalty burden to the consumer, while no such pass-through 

is available for many hardrock minerals, which are sold and priced in global markets. 

While the 12.5% royalty imposed on coal in 1976 was a considerable increase over 

the coal royalties typical at the time, the royalty did not take effect for many federal 

coal leases until they were readjusted, which occurred over a period of 20 years. In 

the meantime, the demand for low-sulfur western coal boomed due to the increasingly stringent requirements of the Clean Air Act, and transportation costs out of 

the Powder River Basin decreased, which permitted the large surface coal mines developed in Wyoming during this period to bear the increased royalty burden, which 

28 

in any event was generally passed on to utilities (and consumers) under long term 

coal contracts. The higher-cost coal production in Colorado and North Dakota did 

not fare as well as Wyoming. Colorado’s production initially plummeted, and North 

Dakota’s fared little better, and only because North Dakota mines are associated 

with mine mouth power plants and because the state made efforts to prop up the 

industry by lowering taxes and discouraging import of coal from Wyoming. The 

higher BTU or heating value and low sulfur content of Colorado coal has allowed 

the market to rebound since that time, and to bear the 8% royalty applicable to 

Colorado’s underground coal deposits (although some Colorado mines have operated 

under royalty reductions during economic downturns). 

In addition, the federal coal royalty regulations permit the deduction of the most 

material costs, including coal washing where required, and transportation. Thus, 

the federal coal royalty is not a gross royalty in the strictest sense. 

Oil and gas and coal are not the only leasable minerals on federal lands. Sodium, 

potash, and phosphate are also leasable minerals. These minerals are commonly occurring, low margin industrial and fertilizer minerals the economics of which cannot 

support a 12.5% or even an 8% royalty. The statutorily established base rate for 

phosphate is 5% and for sodium and potassium is 2%. That is because the nature 

of these commodities and the economics around their extracting and marketing differ from oil and gas and coal. In practice, these mines have operated under government-sanctioned reduced royalties during periods when economic conditions and foreign competition threatened to close the mines. 

These examples demonstrate clearly why prevailing royalties differ from mineral 

to mineral. Specific analyses can be made for many other types of minerals. It is 

clear, however, that application of a gross royalty at a rate of 8% to hardrock minerals simply because that is what is done with coal and oil and gas would be dangerously naive. 

Hardrock minerals are, by comparison, scarce and hard to find. Unlike oil and gas 

and coal, the size and geometry of a hard rock ore deposit, the quality of the ore, 

the mineral composition, the value of the mineral products, the metallurgical processes required, the mining methods, the commodity prices and the capital costs all 

vary for each operation. Commercial ore bodies may be found under as little as a 

few acres of land. Exploration is conducted through exploratory drilling which gives 

initial clues regarding the deposit, followed by many expensive development drill 

holes to define a deposit for development. Once a prospect is identified, development 

commences at considerable cost, with the capital and labor intensiveness of large 

coal mines, but without the geologic or metallurgical certainty of coal mines nor the 

economic certainty and incentive of long-term coal sales contracts, which are not 

customary for most hard rock minerals. The prices of hard rock minerals have historically been subject to great fluctuation. Because hardrock deposits were often concentrated by ancient subsurface magma flows which have been altered by subsequent faulting, the concentration of metals varies considerably over relatively small 

distances, unlike the relatively constant quality of western coal deposits. As a result, portions of a hardrock deposit may be economic while other portions may contain near- or sub-economic ore that is extremely sensitive to the addition of royalty 

and other burdens. The combination of price volatility and the variations in the concentration and the chemical and geological characteristics of the minerals within an 

ore body can turn a profitable mine into valueless rock with a sudden downturn in 

the market. 

Hard rock minerals, therefore, require considerably different approaches to exploration and extraction than do oil and gas and coal. Oil and gas and coal are relatively plentiful, and occur over relatively large areas where found. Hardrock minerals are scarce and occur in small concentrations, and must be discovered by expending considerable money pursuing elusive prospecting clues. The period between 

exploration and extraction for hard minerals is much more lengthy than with oil 

and gas or coal, and since hard minerals prices are not stable, the risk of the project 

becoming uneconomic before production begins is substantial. These factors are 

some of the reasons that hard rock mining transactions and agreements are considerably different from each other and from those dealing with oil and gas and coal. 

These factors also weigh in favor of a royalty reduction provision in the bill, so that 

site-specific determinations can be made to reduce costs and achieve the maximum 

economic recovery from federal mineral deposits. 

While individual royalties for specific commodities would theoretically be the best 

approach, such a system might be too difficult to administer. The most reasonable 

approach given the large number of commodities to be covered would be a uniform 

net royalty that permits deduction of mining and processing costs. The Nevada net 

proceeds tax provides a model that has been tested in practice, and you should consider a similar approach for federal lands. 

29 

If mining companies use net smelter returns in private negotiations, why 

shouldn’t the government follow that approach if it imposes a royalty? 

A negotiated royalty between private parties is not analogous to the federal government’s imposition of a royalty on millions of acres of unexplored federal lands. 

Private royalties are negotiated on a case by case basis for each property. Usually, 

the royalty negotiated depends on what information is known about the property at 

the time of the negotiation. The less that is known, the lower the royalty. 

An 8% gross royalty for lands not proven to contain a mineral deposit is virtually 

unheard of. I am aware of only one royalty of this magnitude in 20 years of practice. 

In that case, there was a known ore body containing millions of ounces of gold on 

the property when the royalty was negotiated and the owner conveyed the mineral 

rights to the surrounding area (measuring roughly 25 miles by 15 miles), free from 

any royalty. Clearly, this is not the typical case on unexplored federal land. 

Any particular private royalty is not the proper benchmark for setting the federal 

royalty for tens of millions of acres of federal lands. The purpose of the federal royalty is to encourage exploration and discovery on lands which are not yet proven 

to contain mineral deposits. 

In privately-negotiated royalties, there are almost as many royalty rates and calculations as there are minerals. Each is dependent upon the nature of the product 

that is produced and sold, customs and practices in the industry, the strength of 

the market for the particular mineral, the mining cost/processing cost ratio, and 

many other factors. Use of a net royalty for the federal royalty avoids the need for 

extensive, mineral-specific legislation. All mines measure net revenues, or profits, 

and bear determinable operating costs. Therefore, a reasonable percentage net proceeds royalty can be applied and achieve a reasonable return for the use of federal 

lands, without disproportionate impacts on any particular mineral industry. 

In my experience, other countries are paying considerable attention to the appropriate royalty and tax burden to encourage mineral exploration and development. 

The United States has relatively low grade deposits of many hardrock minerals, relatively high labor costs, and stringent environmental and operating requirements. 

These must also be balanced in determining whether a royalty is necessary on federal lands. The United States should not impose a royalty without careful consideration of the economic and competitive impacts. 

British Columbia’s failed experiment with a ‘‘net smelter returns’’ royalty 

is instructive. 

In 1974, British Columbia enacted the Mineral Royalties Act, which imposed royalties on mines located on Crown Lands and the Mineral Land Tax Act and subjected owners of private mineral rights to royalties equivalent to those applied to 

Crown Lands. The government imposed a net smelter royalty of at 2.5% in 1974, 

and 5% thereafter. 

The results were devastating for British Columbia mineral development. During 

the period the royalty was in effect, no new mines were developed, several marginal 

mines ceased operations, and non-fuel mineral output fell, despite increased prices. 

As a result, revenue collected from royalties on metal mines declined from $28.4 

million in 1974 to $15 million in 1975. During the two year period the royalties were 

in effect, nearly 6,000 mining-related jobs were lost. In 1972, $38 million Canadian 

was spent on exploration expenditures. In 1975, exploration expenditures fell to 

$15.3 million Canadian (a 60% decline) while exploration expenditures in the Pacific 

Northwest—outside British Columbia—increased. New mine exploration and development spending (excluding coal) decreased from an annual average of $131 million 

in the years 1970-1973 to an estimated $20 million in 1975 (an 85% decline). In 

1972, 78,901 new claims were staked. In 1975 the number of new claims staked fell 

to 11,791 (an 85% decline). 

The royalty was repealed in 1976. After the royalty was repealed, BC Mine Minister Tom Waterland said that ‘‘[t]he Government’s decision to introduce royalties 

in 1974 was the result of inadequate understanding of the realities of mineral resource development and the economic characteristic of that development..’’ 

I thank the Subcommittee for the opportunity to address this important public 

lands issue, and I am happy to answer any questions you may have. 

Mr. COSTA. Thank you, Mr. Cress, for your testimony. 

In your testimony you indicated that you opposed a gross royalty 

and you take issue as to whether or not the bill as it currently is 

drafted really creates for a net smelter royalty. I would like you to 

30 

be a little more explicit on why you don’t believe it holds that definition as a net smelter. 

Mr. CRESS. The definition that is incorporated by reference into 

the bill is Section 613[c][1] of the tax code, which is a definition of 

gross income from mining. There are a number of deductions that 

you would see in a net smelter return royalty that are not present 

in that section. They may appear in other sections of the tax code 

or in the regulations, but in fact really as a matter of drafting the 

only section referred to is 613[c][1], which is a two-line section. 

Mr. COSTA. This area as it relates to the tax code I am learning 

about, and as well there is a depletion allowance, is there not, 

under the current tax code? 

Mr. CRESS. There is a depletion allowance, yes. 

Mr. COSTA. And doesn’t that sort of work like, in effect, a negative royalty that provides breaks that are not there that other 

countries don’t offer? 

Mr. CRESS. I am not sure whether we are the only country that 

has a depletion allowance. It was designed for specific purposes in 

the tax code, and I guess that is what—— 

Mr. COSTA. Let me ask your opinion. If the industry, and I know 

you don’t pretend to speak for the industry, but you have a sense 

of their focus, had a choice between paying a five percent net—a 

true net smelter royalty or giving up the depletion allowance, 

which do you think they would choose? 

Mr. CRESS. I couldn’t say. I haven’t polled them. 

Mr. COSTA. You don’t have a sense of that then? 

Mr. CRESS. I am actually not a tax expert. 

Mr. COSTA. OK. 

Mr. CRESS. My practice is royalties. 

Mr. COSTA. All right. I want the record to stipulate you are not 

a tax expert. 

The discussion in the World Bank and—well, I think I don’t want 

to go into that with Mr. Cress. 

Mr. Otto, you talked about different royalties and what works 

best for government and taxpayers without putting industry out of 

business. In your testimony you talked about gross income versus 

net smelter royalties as being relatively straightforward to calculate, but you note that the gross income type of royalties pose 

fewer opportunities for tax minimization strategies. I don’t know 

whether or not you are a tax expert or not as the previous witness 

indicated he was not, but which are typically seen as net profit royalties, and to respond to the point that was made earlier, do you 

think the definition of this bill really provides for a net smelter royalty? 

Mr. OTTO. Absolutely not. A net smelter royalty as the term is 

used around the world by industry and most governments reflects 

where the mineral is taken for further processing, smelting, refining, and in that process certain costs are involved, and in a net 

smelter royalty the cost of the smelting and refining are deducted 

from the value of the mineral. Oftentimes insurance and freight to 

that smelter and refinery are also deducted. 

In the definition that is in the current bill and its relationship 

to the Income Tax Act, it is just a straight gross proceeds. There 

is no deductions for that smelting and refining. 

31 

Mr. COSTA. And so you heard my opening comments about I generally think simple is better both from the standpoint of the government to provide the auditing necessary to get a fair amount. 

What side do you fall on in terms of what would be preferential, 

in your opinion? 

Mr. OTTO. I think a royalty that is based on a carefully defined 

definition of gross sales value is preferable over most other systems. 

Mr. COSTA. All right. We will go back to another round. I will 

defer to the gentleman from New Mexico for five minutes of questioning. 

Mr. PEARCE. Thank you, Mr. Chairman. I was checking each 

other over. We had those high-Ranking Members come in, I felt 

like Darth Vader and Obi-Wan Kenobi were shooting lasers back 

and forth, and I don’t think one of us got holes through us, so that 

worked out pretty well. 

Mr. COSTA. We are fine. 

Mr. PEARCE. Back into the regular committee hearing now, so 

that is good. 

One of the comments that the Chairman of the full committee 

made is that the gloom and doom forecast for the coal mining industry, when they did the reforms, did not come about, and yet 

when I look on page 12 of the hearing from July 25, Wednesday, 

July 25 of this year, Mr. Duncan says that in 1978, there were 157 

small coal mines in the east coal mining companies and east Tennessee, and now there is zero. One hundred and fifty-seven to zero 

seems like a significant decrease, and the coal mining production 

in east Tennessee or the whole State of Tennessee is 25 percent of 

what it was, and have been for many years. 

So at least in the case of the one circumstance that is reflected 

in the hearing testimony, Mr. Duncan claims that significant gloom 

and doom did actually occur, based on what something caused a 

difference in the industry. Again, I think that is what we are here 

to discern, and I think both sides should figure out how we can do 

reform without creating a competitive disadvantage for the country. 

So, Mr. Cress, if we look at what actions government agencies 

can cause, not necessarily just in this country, but economically, if 

the British Columbia’s mining industry tell us a little bit about the 

super royalties they imposed in the 1970s. Again, I think your testimony says the eight percent royalty is kind of unprecedented. So 

ours might be equivalent to the super royalty of British Columbia, 

and maybe even exceed that. Let us learn from somebody else’s experience. If you can share with us what happened there. 

Mr. CRESS. Thank you, Congressman. I would be happy to do so. 

British Columbia imposed a net smelter return royalty of 2.5 percent, increasing to five percent after a year or so in the early seventies, and that system was only in effect for a few years because the 

result in fact was fairly devastating. Revenue collected from royalties on metal mines declined from 28.4 million in 1974 to 15 million 

in 1975. Exploration expenditures also decreased from 38 million in 

1972 to 15.3 million in 1975, and exploration is necessary to find 

those new mines, and new mine and exploration development also 

32 

decreased from an annual average of 131 million in the years 1970 

to 1973, to 20 million in 1975. 

This ill-advised experiment was repealed in 1976, and I think it 

is instructive that even with a relatively modest burden of a royalty, nowhere near the eight percent number, even if it was a net 

smelter number that is being discussed here, there were significant 

impacts on mineral exploration and production. 

Mr. PEARCE. So with considerably less effect than the eight percent that is being recommended under the Rahall bill, would you 

say a 50 percent decline is accurate? In other words, we are just 

thinking the kind of bigger numbers up here. Is that a 50 percent 

decline that you—— 

Mr. CRESS. It was a significant decline, yes. 

Mr. PEARCE. OK. 

Mr. CRESS. And 85 percent decline actually in mine development 

expenditures. 

Mr. PEARCE. Mr. Lazzari, you mention on page 3 of your testimony that—you are describing under R.C. 613[c]—— 

Mr. LAZZARI. Yes. 

Mr. PEARCE.—that you describe the depletion allowance as a subsidy available to the mining industry. 

Mr. LAZZARI. Yes. 

Mr. PEARCE. Would you describe for me the difference. In other 

words, I was in business, and we had equipment. We had large 

trucks, large pumps, and the IRS allowed us to depreciate it. In 

other words, the IRS recognized that if you buy an asset, it begins 

to be worth less value over a period of time, and just part of accounting convention in order to reflect reality that the investment 

is worth less 10 years from now than it was today. So if they allowed the depreciation in the mines for every rock like this you 

take out, the mine is worth someone less. In other words, it depletes. 

And so can you tell me exactly how that is perceived as a subsidy? I think that is the word you used in your testimony. 

Mr. LAZZARI. Yes. Yes, that is a good question. I would be happy 

to. 

Well, just like equipment, depletion is very similar to depreciation for equipment. But in the case of equipment, the depreciation 

is based on the cost, the actual investment of the equipment. In the 

case of percentage depletion allowance, the deduction is not based 

on the actual investment in the asset as it is for equipment, but 

in fact is a percentage of gross income, which is essentially sales 

revenue from the mine at the mine mouth before any manufacturing or non-mining processes can take place. 

So you get to deduct the same percentage every year regardless 

of your investment, which means that total deductions over time 

can exceed your actual investment in the mine as compared to the 

case you mentioned, which is the depreciation for equipment, and 

the subsidy value is in the excess which the Joint Tax Committee 

computes and calculates every year the excess of percentage depletion allowance over cost depletion, which would be based on your 

actual investment and computed annually based on the output 

from the mine. 

33 

Mr. PEARCE. Thank you, Mr. Chairman. I see my time as lapsed. 

I have other questions if you—— 

Mr. COSTA. That is OK. We will come for a second round. 

The gentleman from New Mexico, Mr. Udall, recognized for five 

minutes. 

Mr. UDALL. Thank you, Mr. Chairman. 

One of you, I think it was Mr. Otto, said that a royalty is basically a usage fee that is paid by industry, and as we know with 

regard to this industry, the hardrock mining industry, it doesn’t 

pay anything, and so we are trying to get to something. I understand the Chairman and the Ranking Member in this Subcommittee are trying to get to a usage fee that is simple and that 

is a significant usage fee because the incomes being dedicated or 

the revenue that comes in from the fee is dedicated to a substantial 

problem of these abandoned mines. 

So isn’t the principle to try to, whatever you call it, make it very 

simple in terms of what you are trying to achieve rather than go 

through long lists of deductions and end up, and in no way am I 

picking on Nevada, my good friend, Mr. Heller, over here. But Nevada has what is called a net profit royalty, and in 2006, for Nevada gold and silver mines, they paid a net proceeds tax of just $61 

million on a production worth $5.1 billion. 

So would you all comment on that on how you get, maybe start, 

Mr. Lazzari, with you. How do you get to something that is simple, 

that achieves the objective of a reasonable usage fee, and yet at the 

same time try to make sure that it is not so complicated and burdensome to industry? Thank you. 

Mr. LAZZARI. Yes, that is a very good question also, and economics can’t really tell us what the level of the royalty or the rate of 

the royalty should be, and it is very important to take all the considerations into account because we don’t want to have an adverse 

effect domestically or internationally. So it can’t really tell us what 

the rate should be beyond basically using the market as a guideline. 

As far as simplicity and the other aspects, it is just basically the 

fact that economic theory suggests that the royalty should be based 

on value is an important consideration in terms of promoting efficiency and resource use, which basically means balancing industry 

concerns with the way resources are allocated efficiently throughout the rest of the economy, not just in the industry. 

Now, simplicity in administrative issues are also important and 

it seems like this bill, without recommending it, is consistent with 

that principle in that an administrative apparatus for compliance 

and administering the royalty would already be in effect if it is 

based on gross income as defined in the current tax law, because 

in fact the tax law defines gross income as value as close as possible to the mine mouth before non-mining processes are taken into 

account. So it seems like administratively you already have a system in place. 

The IRS has administered the system, the courts have made rulings, and in fact there is also a Supreme Court ruling to that effect. 

Mr. UDALL. So you end up having a number of rules that have 

already been tested and they are settled, and you are not going to 

have a lot of disputes is what you are saying. 

34 

Mr. LAZZARI. Well, you are not going to eliminate disputes. You 

are always going to have disputes, but a lot of it has already been 

settled 

Mr. UDALL. A lot of it has already been settled and you have a 

certainty level. 

Mr. LAZZARI. You have guidelines for each specific mineral on 

how to define gross income from mining 

Mr. UDALL. Yes. 

Mr. LAZZARI. I.e., value, they have that 

Mr. UDALL. Yes. And Mr. Otto, you were nodding. 

Mr. OTTO. I concur with you. Go with any type of tax system that 

allows adjustment to the tax basis to account for costs. The number 

of interpretations about what qualifies or doesn’t qualify as a deductible cost is going to be higher than if it is just based on some 

measure of income without cost adjustment 

Mr. UDALL. Thank you. 

Mr. COSTA. All right, thank you, the gentleman from New Mexico. 

In order of those who first came to the Subcommittee this afternoon, Mr. Heller, the gentleman from Nevada. 

Mr. HELLER. Thank you, and I appreciate the panel being here 

today. I just had a couple of questions. 

First of all, Mr. Cress, you said there was one royalty above what 

is being submitted in this particular bill. What royalty was that? 

Mr. CRESS. That is the gold quarry royalty of Newmont Mining. 

That royalty was negotiated as part of a package deal, if you will, 

where the company acquired several million ounces of gold that 

were actually known on the property, and lands of, I think, a 25- 

by-15-mile ranch with mineral rights that would not bear a royalty, 

and that is kind of an example of how you are mixing apples and 

oranges, I think, when you focus on any one given example. 

If you knew there were 2 million ounces of gold under a property, 

you would obviously pay more. 

Mr. HELLER. Right. 

Mr. CRESS. So that is that example. 

Mr. HELLER. Mr. Udall pointed out the fact that Nevada gets 

about $60 million a year in net proceed at five percent, and you 

have spoken a lot but you haven’t talked about the impact that a 

gross royalty would have potentially on states. Can you tell us 

what impact, revenue impact this particular bill would have for 

state revenues, on state revenues as it is written? 

Mr. CRESS. I am sorry. Are you addressing that question to me? 

Mr. HELLER. Yes, I am. 

Mr. CRESS. Oh, thank you. I think states collect their own piece 

of the pie, if you will, and any system, any royalty system is going 

to have to take that into account, so you could end up with decreasing the severance tax base for the State of Nevada, for example, 

if that is going to be deducted, if the payments are going to be deductible from—the Federal royalty payments are going to be deductible from the severance tax, so you are really just transferring 

money from one account into another. 

Again, the overall burden, if it is too high, is going to have the 

effect of shutting down the mines. It will be uneconomic. So you are 

35 

making a policy choice to use some of the money to fund the abandoned mine problem, but at the expense of the people of Nevada. 

Mr. HELLER. Thank you. Mr. Otto, you are the accountant here. 

I guess that has been decided or determined anyway. 

Effective tax rates, you talk about that in your written testimony. Have you done an analysis on what the effective tax rate 

may be currently here in the United States on mines? 

Mr. OTTO. During the 1990s, a lot of countries began reforming 

their mining laws and tax laws, and I was with the United Nations 

at that point, and we started getting a lot of requests for information on this, and I went into academia shortly thereafter and 

launched an effort to produce a global comparison of mining tax 

systems around the world, and we included in those studies that 

were published in 1997 and in 2000, taking a look at a gold mine 

in Nevada and a copper mine in Arizona, and using those model 

mines we applied the tax system for not only those two states but 

countries all around the world. 

The findings in 2000, and things have changed since 2000, were 

that the effective tax rate, the combined impact of all the various 

taxes to be applied to the industry were around 50 percent in both 

of those states, putting them in the range of being competitive but 

kind of in the middle, not too high, not too low, pretty much in a 

competitive position to attract domestic and foreign investment. 

That study hasn’t been updated since 2000, though, and we have 

seen some governments lowering their tax systems quite considerably in terms of income tax, withholding taxes. We have also seen 

some increases in other countries with regard to in a position of 

higher royalty rates. 

Mr. HELLER. What do you think an eight percent gross royalty 

would have, in effect, on a tax rate? 

Mr. OTTO. If you were to take a look at just the royalty alone 

without consideration of any other taxes, it would certainly be the 

highest ad valorem type royalty in the world in terms of all minerals as a whole. We can see some exceptions. In Poland, you have 

10 percent on gold, and on diamonds you have higher rates in some 

countries. There are a few exceptions, but once you get above about 

five percent most countries have had the experience, they see a 

very great decline in levels of exploration taking place. So you may 

see a short-term increase in tax revenue, but over the longer term 

the tax base become smaller because you have fewer mines that 

can meet their minimum rate of return for investment decisionmaking. 

Mr. HELLER. Thank you. Mr. Chairman, I yield back. 

Mr. COSTA. Thank the gentleman from Nevada. 

Mr. Chairman, want to yield the balance of your time? I have 

some questions I want to ask. 

Mr. RAHALL. I have no questions. 

Mr. COSTA. All right. Thank you very much. 

Mr. Lazzari, you may be aware that last week the Inspector General of the Department of the Interior found that the royalty collection program administered by the Minerals Management Service is 

fairly flawed which, I guess, for some of us doesn’t come necessarily 

as news; that it is mismanaged and that as a result the public is 

losing millions of dollars in royalties and gas revenues. 

36 

I guess my question is as we try to structure something responsive, something simple, something that doesn’t repeat the mistakes 

that some of us believe exists within the Minerals Management 

Service, how do we avoid the major administrative factors into the 

decisions of establishing a royalty in this effort here, a better system, learning from mistakes that have previously been made? 

What would you advise the committee? 

Mr. LAZZARI. I am not familiar with the details of the Inspector 

General’s report and really it is beyond my area of expertise as an 

economist, except to say that we have heard about the administrative problems, you know, tracking, reporting and collection problems, and they have been going on for a long time. 

To some extent, these types of problems are inevitable. They are 

going to occur regardless of the type of royalty you have, and the 

idea is to try to minimize those kinds of collection system problems 

and administrative problems as much as possible, but I would just 

have to say again based on economic theory there is no real—that 

problem, so far as I know, has no direct bearing on the theoretical 

advantages of the ad valorem royalty, and the practical or administrative advantages of the ad valorem royalty based on the gross income as defined in the tax law. 

Mr. COSTA. Mr. Otto, you have testified at length about what 

might work better or what is fair, and it seems to me that, based 

on the capacity of the administrative agency, on the surface it appears that it would suggest that a value-based may be better. What 

is your sense? 

Mr. OTTO. I generally advise for most countries, and I think for 

the U.S. also that a sales price-based royalty is the easiest to administer that also takes into account the fact that minerals prices 

are cyclical. So as the value of minerals goes up or down, the 

amount of royalty that is paid is going to go up and down because 

the sales value will change, so it is two percent of sales value. 

Unit-based royalties don’t have this attribute, and royalty systems 

that have deductibility for some types of costs have many administrative problems. 

Mr. COSTA. Well, then to be a little more specific, you have advocated that simpler is better, which is kind of my opening statement 

as well, and if I were to advise the Chairman, who is here, to stick 

with a net smelter type but watch for the definition that was pointed out by one of the witnesses that maybe this doesn’t completely 

fall under the definition of a net smelter based upon the draft, that 

maybe we lower the rate below eight percent. 

Mr. Otto, from your book in 2006, that you said most jurisdictions with profit-base systems will assess at a rate of in excess of 

five percent. Given the special depletion allowance that the U.S. 

Tax Code offers, might a profit-based royalty say of 10 percent be 

reasonable in order to bring a fair rate of return? 

I mean, at some point we are going to be negotiating these numbers, and I guess I am trying to get a sense from you based upon 

your 2006 book in terms of what is going on around the world what 

would be fair and competitive. 

Mr. OTTO. In providing tax reform advice to other governments, 

they almost all take the same approach. They take a look at the 

system as a complete whole, and so what is the offsetting advanVerDate Aug 31 2005 14:50 Oct 10, 2008 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6602 L:\DOCS\38137.TXT Hresour1 PsN: KATHY
37 

tages from the depletion allowances as compared to the penalties 

imposed through a royalty, and they would take a look at how 

those two would offset each other, and I just haven’t done that for 

the United States, and I am not aware of any other government 

outside of Egypt and the Philippines that allows depletions, so I 

just don’t have enough experience. 

Mr. COSTA. I understood there were just a few. If I submit that 

in the form of a written question, I would like you to give it a little 

more thought, and to respond, please. Will you do that? 

Mr. OTTO. It would take quite a bit of analysis so I can’t commit 

to that. 

Mr. COSTA. You will try? You will try? 

Mr. PEARCE. Mr. Chairman, he wants you to pay for the time. 

Mr. COSTA. I guess. I get that sense. 

[Laughter.] 

Mr. COSTA. No pro bono work here. Not Italian, huh? 

All right. My time has expired clearly, and are we with the gentleman from Idaho? 

Mr. SALI. Thank you, Mr. Chairman. 

Mr. Lazzari, have you ever been involved in any mining yourself? 

Mr. LAZZARI. No. 

Mr. SALI. You just have experience as an economist? 

Mr. LAZZARI. I am an economist, yes. 

Mr. SALI. OK. 

Mr. LAZZARI. I was a business economist in Michigan before my 

experience here at CRS, a corporate economist, but no, I have 

never had any direct experience in mining. 

Mr. SALI. Mr. Otto, you indicated a few minutes ago that the effective tax rate when you take into account all the taxes, and I 

think you had two subjects you were looking at, Arizona and Nevada, if I understand correctly, of about 50 percent. If we impose 

the royalty as it is structured in the bill we are talking about 

today, would that effectively take that tax rate to 58 percent? It 

would just add another eight percent on top of that? 

Mr. OTTO. No. It gets a little more complicated because royalties 

are deductible for the purposes of computing income tax, for example, so it would be probably less than 58 percent, but it could also 

influence other factors in the calculation of the total tax basis. So 

it would be less than 58 most probably. 

Mr. SALI. It would take more of that work that you weren’t willing to do for the Chairman of this Subcommittee, is that right? 

[Laughter.] 

Mr. SALI. OK. Well, I guess I am trying to figure out. 

Mr. OTTO. Any mineral economist can work these numbers out. 

It is not a complex assignment. 

Mr. SALI. Well, I am trying to figure out with the description we 

had of what happened in Canada when the royalties were imposed, 

and trying to balance what might be a fair amount, what might be 

a simple amount, but making sure that we aren’t going to end up 

killing the goose that is laying the golden egg, if you were going 

to advise, and recognize this might require some of that work you 

are not willing to do, but if you were going to advise the members 

of the committee how should we approach this to make sure that 

our mining industry does stay healthy and viable, and we don’t reVerDate Aug 31 2005 14:50 Oct 10, 2008 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6602 L:\DOCS\38137.TXT Hresour1 PsN: KATHY
38 

duce exploration dollars, where should we end up with a royalty 

rate? What would be fair and healthy for the economy and healthy 

for the mining industry? 

Mr. OTTO. I think if we take a look at the industry simply a little 

bit round-about, and I apologize for that. If we take a look at the 

mining industry, it is under a lot of pressure right now about getting access so that it can mine, the social license to operate that 

I was talking about. It is perceived that it is not contributing to 

our society, and one of the principal criticisms of the industry is we 

don’t get anything out of this. Where is the royalty? Everybody else 

gets royalty. We don’t get royalty. And I think a lot of people in 

the industry wouldn’t mind seeing a reasonable royalty, particularly if it is earmarked for the types of purposes as in the current 

bill here, for community impact, mitigation, for reclamation purposes, but you don’t want to have a situation where when the company sits down and it calculates the economics on its mine it finds 

that it is not meeting its minimum rate of return, its hurtle rate, 

it is not meeting that return that it needs in order to move ahead 

with investment. 

So for a typical mine in the United States, how much can you 

add on and it will still be economic for that mine to go ahead? 

Now, for most countries that have a typical tax system, they 

have from experience found that it is probably on the order to two, 

three, four, five percent for most minerals on a sales-based royalty. 

Every tax system is a little different and so that is why in answering that question I can’t say two percent for the U.S. or three percent for the U.S. No matter what royalty is, it will make some 

mines become sub-economic. 

Mr. SALI. You would agree with me that what is proposed in this 

bill is not going to get the job done in a way that will keep the mining industry healthy, is that correct? 

Mr. OTTO. I think an eight percent is excessive. Whether it 

should be four percent or six percent, I—— 

Mr. SALI. This would take some more of that work that you—— 

Mr. OTTO. It would take more work. I can give you another example. Jim Cress gave you the example of British Columbia. Papua 

New Guinea, a major mineral-producing country, produces copper 

and gold. They had a royalty of two percent. They raised their royalty, they put an additional royalty in place of around three percent, took it up to five percent, and exploration collapsed. They repealed it. Exploration started coming back up. So there is a point 

where when companies do their assessments of the tax systems, 

they say even if we find something, we can’t make profits to develop it. Where that point is for the U.S., I can’t say. 

Mr. SALI. Thank you. 

Mr. COSTA. The gentleman’s time has expired. 

Mr. Otto, I am not so sure we are just getting you future billable 

hours in your consulting career or not, but I am going to try again 

here. 

[Laughter.] 

Mr. COSTA. You have indicated, and you have heard Mr. Cress’s 

concerns about the definition of net smelter, and I raised that a 

moment ago, in the legislation before us. Let us say we want to 

clarify that and make it easy so that we have the appropriate for 

39 

hardrock minerals that include a limited number of logical deductions for transportation and for refining. 

Is there, from your experience and world knowledge, a definition 

of a net smelter return on hardrock minerals elsewhere? Number 

one. 

Number two, and this one I dare say I will ask, would you work 

with the committee to propose a clearer definition? 

Mr. OTTO. If you are interested in good definitions, there are 

quite a few out there that could be applied to the U.S. example. I 

have the legislation from the—— 

Mr. COSTA. Buy the book. 

Mr. OTTO.—countries in here. Eighteen dollars. 

[Laughter.] 

Mr. COSTA. I got that. 

Mr. OTTO. There is a CD in the back, and if you take a look at 

say the definitions for determining value in Papua New Guinea, 

they have a sales value definition and they have a net smelter return definition. A lot of minerals aren’t smelted and aren’t refined. 

Mr. COSTA. Correct. 

Mr. OTTO. So to use that smelter for all minerals is a bit awkward. But in answer to your question, if the committee would like 

information on other types of definitions or other approaches to 

definitions than we see in the Income Tax Act, yes, I could provide 

information. 

Mr. COSTA. All right. I am going to defer the balance of my time 

to the gentleman from Texas, who has been very patient. 

Mr. GOHMERT. Well, thank you. It might be a shock too that I 

have been patient, but I appreciate your kindness. Thank you very 

much, Mr. Chairman. 

I just have a couple of observations and questions, but when I 

hear the term ‘‘economist’’, I can’t help but think of that great 

quote from John Kenneth Galbraith about there are only two kinds 

of economists. There are those who don’t know, and there are those 

that don’t know they don’t know. But anyway whether he was right 

or wrong or whether we can tax that opinion is a different question. But I am still trying to gather facts and come to some conclusion. 

One thing that would help me though is to know, and I throw 

this out for all three, is there any nation in the world where it is 

more difficult or time consuming to get an application processed 

and approved than the United States and any nation where it is 

any more difficult to meet environmental requirements? So I throw 

that out for observations from all three of you, actually. 

Mr. CRESS. I will field that question. I think the United States, 

the permitting times for new mines in the United States are probably among the highest in the world because we have our environmental laws that we have here. One effect of that royalty-wise is 

that during a period of seven to 10 years when you are trying to 

get an operation permitted, the mineral commodity cycle, the price 

of that mineral is going to vary considerably so an investment decision that made sense five years ago may not make sense, and that 

is one of the competitive disadvantages that we have here even 

though environmental protection is obviously important and critical, but those times are a problem. 

40 

Mr. GOHMERT. I would be curious to hear from either one of you. 

Mr. Lazzari, you have made obviously a great deal of study of the 

matter, and I do appreciate what CRS does to educate us around 

here. 

Mr. LAZZARI. Thank you. I don’t have a comment on that. That 

is kind of beyond my area of expertise. I don’t really know. 

Mr. GOHMERT. OK. Mr. Otto? 

Mr. OTTO. Oftentimes the perception is that our permitting processes here take a lot longer than elsewhere. If we take a look at 

most of Europe though, I think we would find that the system here 

works in the end, where in many European countries’ companies 

won’t even attempt to begin that process. 

There is a study that has been done to take a look at how long 

it takes to get through the permitting process, to get through all 

the approvals. It was done by a very competent Australian, Richard 

Shodie, and in his studies he shows that the time that it takes to 

get a mine permitted in the United States is actually less than in 

many other places. 

Now, when I say permitting, it is not just environmental permitting in other countries. It can be the negotiation of an agreement 

to take a deposit into production. So he takes a look at how long 

it takes from the time that the company has made a decision that 

it wants to proceed with the mine until the mine starts producing, 

and that time period, he has gone in, he has looked at hundreds 

of mines and taken the data from it, and his conclusion is that the 

U.S. is not out of line with what is generally encountered in most 

countries around the world. 

I can provide a copy of that study to the committee if it desires. 

Mr. GOHMERT. That would be helpful. 

Mr. Chairman, I was wondering if I might ask indulgence just 

to ask one quick question further of all three witnesses because I 

really am trying to get educated on this? 

Mr. RAHALL. [Presiding.] Yes. 

Mr. GOHMERT. You all actually obviously have various areas of 

expertise and experience. I am just curious. What would each of 

you say is the best way for the U.S. Government to raise revenue 

from mining? Just a very short answer. What is the best way you 

have seen, all things considered, for each of you? 

Mr. LAZZARI. Well, if I can go first. I can’t really say as an economist what the best way is. That is a policy question. The way I see 

it though in terms of economic theory it is not really a question of 

revenue per se. It is more a question of the allocation of resources. 

Just like I said earlier, you have wages that are paid for labor services. 

Mr. GOHMERT. I understand all the considerations. 

Mr. LAZZARI. It is not a revenue consideration per se. 

Mr. GOHMERT. OK. Then whatever you say, want to call it, to get 

money from the process of mining to pay for what the Federal government does to allow the mining. Just whatever process you want 

to call it, getting income from that. 

Mr. LAZZARI. Well, as I said earlier, economic theory suggests 

that the most economically efficient approach is a royalty based on 

value, the ad valorem royalty. 

Mr. GOHMERT. OK. 

41 

Mr. LAZZARI. OK. 

Mr. GOHMERT. Thank you. If I can get a quick answer from everybody else. 

Mr. CRESS. I guess I would come out in favor of a net royalty 

that allows for deduction of mining and processing costs because 

when you are applying it to that many minerals and with a huge 

land base, that is going to, I think, result in continued development 

and not be too burdensome or too high. 

I differ, I guess, with Professor Otto in one respect, which is, I 

think metals are just more complicated than coal, so a gross system, while simpler and hard to administer in some countries that 

lack the capacity, I think could be administered here. 

Mr. GOHMERT. But bottom line net royalty? 

Mr. CRESS. Bottom line would be net royalty. 

Mr. GOHMERT. Mr. Chairman, you have been very gracious with 

his allowance of time, but if you could give me a quick answer. 

Mr. OTTO. I would focus not so much on trying to impose a new 

tax or fiddle with the existing rates on existing taxes, but rather 

to provide incentives to the industry to encourage more exploration. 

Small incentives don’t cost very much at the exploration stage. 

Mr. GOHMERT. So we pay others to do the mining? I mean, that 

is what incentives sounds like. I am talking about how do we raise 

it. 

Mr. OTTO. To give you an example, some countries allow a double 

deduction for exploration expenses so that if you invest a dollar in 

exploration, you get two dollars in the future deducted. 

Mr. GOHMERT. Right. Deducting from what though? That presupposes there is some kind of tax or revenue source, right? So 

what would that tax revenue source be? 

Mr. OTTO. Either a deduction from current revenue, because a lot 

of companies have multiple mines, or a deduction against future 

revenues that could be carried forward. 

Mr. GOHMERT. Well, you are talking about deductions. I am talking about what are you deducting it from. Is that a tax, a royalty, 

ad valorem? 

Mr. OTTO. From the income tax. 

Mr. GOHMERT. OK, thank you. Thank you, Mr. Chairman. 

Mr. COSTA. Yes. I would just suggest to the gentleman from 

Texas that it is my sense that the gentleman from West Virginia 

doesn’t want this bill to go to Ways and Means. So as we focus on 

how we reach this middle ground, and of course I don’t presuppose 

to speak for the gentleman from West Virginia, but my guess is he 

doesn’t want to go to Ways and Means. 

We will recognize the gentleman from New Mexico for this last 

bit of questioning, and then we will switch to the next panel, but 

we do appreciate all of your testimony. 

Mr. PEARCE. Thank you, Mr. Chairman. I would just guess that 

everybody thinks it is a little bit complex to do the net smelter 

computation, that we could just subcontract that out to the State 

of Nevada and they could do it if they aren’t already doing it for 

their own program right now. 

Also, Mr. Chairman, it is unfortunate that you came here. I was 

going to suggest that while the Chairman of the full committee is 

here that maybe if the Chairman would consider buying all those 

42 

books for everybody on the committee, 50 books, then we might get 

better and deeper answers. We would be paying more for that time 

from Mr. Otto there, so I would recommend that. 

I would say, Mr. Chairman, you put together a great panel. I 

think if we locked these three guys in a room with committee members, I think that we could drive toward a solution that would be 

productive, that would be fair for the industry, and fair for the Nation without being punitive, and I do believe that. 

I am just going to ask one question. Mr. Lazzari, we have heard 

kind of concern from both members that the eight percent might 

be excessive, that it might be the highest in the country. Do you 

have an opinion about the eight percent? 

Mr. LAZZARI. I do not have an opinion about the eight percent, 

no. 

Mr. PEARCE. Do you want to say? You just don’t want to go on 

record at all because now we got—— 

Mr. LAZZARI. No, because I cannot say. That is not something 

that comes out of economic theory. That is more of an empirical 

and policy question, so I cannot. No. That is right. 

Mr. PEARCE. OK. Is there ever a possibility in economic theory 

that a royalty rate would get so high as to cause undue distress 

and exiting out of, is that theoretically possible that would get high 

enough? 

Mr. LAZZARI. Absolutely. Yes. 

Mr. PEARCE. OK. 

Mr. LAZZARI. That is correct. 

Mr. PEARCE. But you don’t have an opinion that we are approaching that at the eight percent level? 

Mr. LAZZARI. No. 

Mr. PEARCE. OK. I appreciate that, Mr. Chairman. I will yield 

back the rest, and we will submit the other questions in writing. 

Appreciate it, and again, I really compliment you. This panel has 

been very good at reaching, I think, the balance that we are looking for. Thanks. 

Mr. COSTA. Thank you very much the gentleman from New Mexico, and we do appreciate the witnesses’ testimony, and obviously 

this will be revisited, and I guess I will have to go out and buy the 

book myself. 

Our next panel, please. As I mentioned, members of the committee, as our next panel of witnesses are getting comfortable, this 

is going to be the other focus of the bill before us—that is, it gets 

to the balancing act. As Congressman Rahall’s bill is before us, 

once there is an agreement between the various parties and the 

Senate and the House on what is a fair rate of return, that purpose, of course, is in fact because these are on public lands. But the 

other part of the purpose is because we have a significant problem 

with abandoned mines throughout the country, and as some of us 

know, from our own experiences either within our areas or within 

our states, states are attempting to focus on it. They are not ignoring it. There is an issue as it relates to health and safety, as it relates to water quality, and therefore I think it would benefit all of 

us to hear the testimony of this second panel as they attempt to 

describe the size of the problem of abandoned mines throughout 

the country. My terminology is how big is this breadbox that we 

43 

are describing, and therefore is there a way that you prioritize. Is 

the Federal government through the Bureau of Land Management 

doing all that it should be doing? And just as importantly, are they 

collaborating with states? Because states are a lot closer to this 

issue, and local governments are too, they oftentimes are the first 

to have to deal with it. 

With that said, we will begin with our next round of witnesses. 

The first witness before us is Mr. Jim Hanlon. He is the Director 

of the Office of Wastewater Management from the United States 

Environmental Protection Agency. 

Mr. Hanlon, you know the rules, the five-minute rule, and all 

that good stuff. 

Mr. HANLON. Yes, thank you. 

Mr. COSTA. So take it away. You don’t need any instructions, sir. 

Mr. HANLON. Not today. 

Mr. COSTA. OK, very good. 

STATEMENT OF JIM HANLON, DIRECTOR OF THE OFFICE OF 

WASTEWATER MANAGEMENT, U.S. ENVIRONMENTAL PROTECTION AGENCY 

Mr. HANLON. Good afternoon, Mr. Chairman and Members of the 

Subcommittee. I am Jim Hanlon, Director of the Office of Wastewater Management in the Office of Water at EPA. Thank you for 

the opportunity to discuss an important issue facing the United 

States—impaired watersheds and legacy impacts from abandoned 

mines. 

Inactive or abandoned mine sites can pose serious public safety 

and environmental hazards. The good news is that there are significant resources available through voluntary efforts to remediate 

these sites and improve environmental health and safety. 

Unfortunately, as a result of unavoidable legal obstacles, we have 

been unable to take full advantage of the opportunities to promote 

cooperative conservation through partnerships that will restore and 

enhance abandoned mine sites throughout the United States. 

According to estimates, there are over half a million abandoned 

mines nationwide, most of which are former hardrock mines located in the western states, which are among the largest sources 

of pollution, degrading water quality in the United States. Acid 

mine drainage from those abandoned mines have polluted thousands of miles of streams and rivers as well as groundwater, posing 

serious risks to human health, wildlife, and the environment. 

This problem can affect local economies by threatening drinking 

water and the agricultural water supplies, increasing water treatment costs, and limiting fishing and recreational opportunities. 

Mine drainage and runoff problems can be extremely complex 

and solutions are often highly specific. In many cases, the parties 

responsible for the pollution and cleanup of these mines no longer 

exist. However, over the years an increasing number of Good Samaritans, who are not responsible for the pollution, have stepped 

forward on a voluntary basis to clean up these mines. Through 

their efforts, we can restore watersheds and improve water quality. 

The threat of liability, whether under the Clean Water Act or the 

Comprehensive Environmental Response Compensation and Liability Act, CERCLA, can be a real impediment to voluntary remediVerDate Aug 31 2005 14:50 Oct 10, 2008 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6602 L:\DOCS\38137.TXT Hresour1 PsN: KATHY
44 

ation. A private party cleaning up a release of a hazardous substance might become liable as either an operator of the site or as 

an arranger for the disposal of hazardous substances. 

Under the Clean Water Act, a party may be obligated to obtain 

a discharge permit which requires compliance with water quality 

standards in streams that may already be in violation for those pollutants. The potential assignment of liability occurs even though 

the party performing the cleanup did not create the conditions 

causing or contributing to the degradation. Removing this liability 

threat under both CERCLA and the Clean Water Act will encourage more Good Samaritans to restore watersheds impacted by acid 

mine drainage. 

Let me emphasize, however, that encouraging Good Samaritan 

cleanups is not about lowering environmental standards or letting 

polluters off the hook. Good Samaritans should be held to a realistic standard that results in environmental improvements, and 

those responsible for the pollution, if still in existence, will remain 

accountable, consistent with the agency’s ‘‘polluter pays’’ policy. 

In June of this year, EPA Administrator Steve Johnson released 

administrative tools that provide strong protections for Good Samaritans under CERCLA. Our administrative tools do much under 

CERCLA to remove road blocks, but we can only go so far administratively. In addition to the administrative tools, the administration in EPA proposed the Good Samaritan Cleanup Watershed Act 

in the last Congress that comprehensively reduced the Good Samaritan liability issues. That legislation, as you probably know, 

would modify both CERCLA and the Clean Water Act. 

With the release of our administrative tools, however, and our 

desire to accelerate the pace of environmental improvement, EPA 

continues to work with a broad range of stakeholders, including the 

Western Governors Association and others, to develop a bipartisan 

legislative proposal for the Clean Water Act, which remains the 

main obstacle to Good Samaritan cleanups. 

We applaud the bipartisan legislative efforts in both Houses of 

Congress to correct the issue, and we look forward to working with 

the appropriate congressional committees on this legislation. In the 

interim, EPA will continue to facilitate cleanup of abandoned mines 

through use of its administrative tools and authorities. 

In conclusion, we hope the Good Samaritan initiative will be a 

good springboard for future successes such as those achieved 

through the Brownfields Program, which legislation passed in 

2002. But unlike the situation in Brownfields, Good Samaritans of 

abandoned mines are not looking to purchase the property or receive monetary award for their efforts. They simply want to engage 

in voluntary stewardship activities that benefit the environment. 

The bottom line is that this type of innovative partnership agreement, coupled with targeted watershed grants and other assistance, can help dramatically in revitalizing thousands of water bodies harmed by acid mine runoff. 

A comprehensive solution to the problem associated with abandoned mine remediation is long overdue. EPA is actively working 

with Congress and our partners at the state and local levels to create a long-term solution to encourage and expedite Good Samaritan 

cleanups. EPA will continue to provide leadership through the 

45 

Good Samaritan initiative and to work with our Federal land management agencies, states, and the Congress to pass legislation for 

the Clean Water Act that promotes and encourages environmental 

restoration and restoration of abandoned mines across the country. 

That concludes my oral statement, and look forward to any questions. 

[The prepared statement of Mr. Hanlon follows:] 

Statement of James A. Hanlon, Director of the Office of Wastewater 

Management, U.S. Environmental Protection Agency 

Good Morning Mr. Chairman and Members of the Subcommittee, I am James A. 

Hanlon, Director of the Office of Wastewater Management at the United States Environmental Protection Agency (EPA). Thank you for the opportunity to discuss an 

important issue facing the United States—impaired watersheds and legacy impacts 

from abandoned mines. 

The Abandoned Mine Problem 

Inactive or abandoned mine sites can pose serious public safety and environmental hazards. The good news is that there are significant resources available 

through voluntary efforts to remediate these sites and improve environmental 

health and safety. Unfortunately, as a result of avoidable legal obstacles, we have 

been unable to take full advantage of opportunities to promote cooperative conservation through partnerships that will restore and enhance abandoned mine sites 

throughout the United States. 

According to estimates, there are over half a million abandoned mines nationwide, 

most of which are former hardrock mines located in the western states, which are 

among the largest sources of pollution degrading water quality in the United States. 

Acid mine drainage from these abandoned mines has polluted thousands of miles 

of streams and rivers, as well as ground water, posing serious risks to human 

health, wildlife, and the environment. This problem can affect local economies by 

threatening drinking and agricultural water supplies, increasing water treatment 

costs, and limiting fishing and recreational opportunities. 

The Center of the American West at the University of Colorado, Boulder developed and published a report entitled, ‘‘Cleaning Up Abandoned Hardrock Mines in 

the West—Prospecting for a Better Future,’’ for which EPA provided financial assistance. However, the report does not represent formal EPA policy. The report details the history of the nation’s mining industry, the environmental legacy that remains, and describes challenges and management options—at the Federal, State 

and local level—in reducing the effects of inactive and abandoned mines. 

Mine drainage and runoff problems can be extremely complex and solutions are 

often highly site specific. In many cases, the parties responsible for the pollution 

and clean up of these mines no longer exist. However, over the years, an increasing 

number of Good Samaritans, who are not responsible for the pollution, have stepped 

forward on a voluntary basis to clean up these mines. Through their efforts, we can 

help restore watersheds and improve water quality. 

Liability 

The threat of liability, whether under the Clean Water Act or the Comprehensive 

Environmental Response, Compensation and Liability Act (CERCLA), can be a real 

impediment to voluntary remediation. A private party cleaning up a release of hazardous substances might become liable as either an operator of the site, or as an 

arranger for disposal of the hazardous substances. Under the Clean Water Act, a 

party may be obligated to obtain a discharge permit which requires compliance with 

water quality standards in streams that are already in violation of these standards. 

The potential assignment of liability occurs even though the party performing the 

cleanup did not create the conditions causing or contributing to the degradation. Removing this liability threat will encourage more Good Samaritans to restore watersheds impacted by acid mine drainage. 

The Clean Water Act requires permit holders to comply with their permits so discharges do not violate water quality standards. While this concept has been extremely effective for protecting and restoring our Nation’s waters, it inhibits the 

type of work Good Samaritans would undertake. Partial cleanups by Good Samaritans will result in meaningful environmental improvements and will accelerate 

achieving water quality standards. Yet, in many cases, the impacted water bodies 

may never fully meet water quality standards, regardless of how much cleanup or 

remediation is done. 

46 

By holding Good Samaritans accountable to the same cleanup standards as polluters or requiring strict compliance with the highest water quality standards, we 

have created a strong disincentive to voluntary cleanups. Unfortunately, this has resulted in the perfect being the enemy of the good. Another concern for potential 

Good Samaritans is their potential liability for any remaining discharges at the 

abandoned mine site. The ability for a Good Samaritan to go onto a site, do a clean 

up to improve the quality of a discharge, and then leave the site after completing 

what they said they were going to do without long term liability, is not possible 

under current law. A statutory change for the Clean Water Act is necessary to provide these protections and to be realistic and fair to a volunteer agreeing to improve 

water quality. By removing this threat of liability, we will encourage more voluntary 

and collaborative efforts to restore watersheds impacted by acid mine drainage. 

Let me emphasize, however, encouraging Good Samaritan cleanups is not about 

lowering environmental standards or letting polluters off the hook. Good Samaritans 

should be held to a realistic standard that results in environmental improvements 

and to be held accountable while they have a permit. And those responsible for the 

pollution, if still in existence, will remain accountable, consistent with the Agency’s 

‘‘polluter pays’’ policy. 

Good Samaritan Tools 

In June of this year, EPA Administrator Steve Johnson released administrative 

tools that provide strong protections for Good Samaritans under CERCLA. The 

Agency developed a model Good Samaritan Agreement and comfort/ status letter 

that can be used to provide greater legal certainty to a volunteer while also providing adequate assurances to the Agency that a cleanup will be performed properly. 

We are also working closely with our Federal land management agencies and State 

partners to encourage, where appropriate, greater use of voluntary cleanup programs for abandoned mine remediation. In addition, we are developing guidance 

that will help Good Samaritans understand our approach to these cleanups. Our administrative tools do much under CERCLA to remove roadblocks, but we can only 

go so far administratively. 

Legislative Efforts 

In addition to the administrative tools, the Administration and EPA proposed The 

Good Samaritan Clean Watershed act in the last Congress to comprehensively reduce the Good Samaritan liability issues. That legislation, as you probably know, 

would modify both CERCLA and the Clean Water Act. With the release of our administrative tools, and our desire to accelerate the pace of environmental improvement, EPA continues to work with a broad range of stakeholders including the 

Western Governors’ Association, and others, to develop a bipartisan legislative proposal for the Clean Water Act which remains the main obstacle to Good Samaritan 

cleanups. In fact, there are many cleanups in the State of Colorado that remain on 

hold and unfinished, not because of CERCLA liability concerns, but because of 

Clean Water Act liability concerns. 

We applaud the bipartisan legislative efforts in both houses of Congress to correct 

the issue, and we look forward to working with the appropriate Congressional committees on legislation. In the interim, and until such time as Good Samaritan legislation is enacted, EPA will continue to encourage and facilitate clean up of abandon 

mines through use of its administrative tools and authorities. 

Good Samaritan Activities 

The first project under the Agency’s Good Samaritan Initiative is the abandoned 

mine in Utah’s American Fork Canyon. We are working with Trout Unlimited (TU) 

and a private landowner who had not caused the pollution at the site. This project 

will help restore a watershed that has been impacted for well over a century, restoring the water quality and the habitat of a rare cutthroat trout species. Restoration 

of the American Fork is part of an ambitious multi-year effort by Trout Unlimited 

to draw attention to the problem of abandoned mines in the western United States 

while also identifying solutions. EPA has learned from the experience of the Trout 

Unlimited project and is putting those lessons to good use. This restoration effort 

exemplifies how cooperative conservation, emphasizing collaboration over confrontation, can accelerate environmental protection. 

Mine scarred lands are a particular concern of the EPA Brownfields Program and 

they were explicitly highlighted in the Brownfields Law passed in 2002. The 

Brownfields Program has coordinated a multi-agency collaborative initiative to help 

communities clean up and reuse mine-scarred lands. The federal partners are implementing six community pilots in Virginia, Pennsylvania, West Virginia, Colorado 

and Nevada. The pilot communities received targeted federal technical and financial 

47 

support; initially to help develop action plans and then to create local assistance 

packages leading to revitalization. 

Conclusion 

We hope the Good Samaritan initiative will be a springboard for future successes, 

such as those achieved through the Brownfields program. But unlike the situation 

with Brownfields, Good Samaritans at abandoned mine sites are not looking to purchase the property or receive monetary awards for their efforts—they simply want 

to engage in voluntary stewardship activities that benefit the environment. 

The bottom line is that this type of innovative partnership agreement—coupled 

with targeted watershed grants and other assistance—can help dramatically in revitalizing thousands of water bodies harmed by acid mine runoff. 

A comprehensive solution to the problem associated with abandoned mine remediation is long overdue. EPA is actively working with Congress and our partners at 

the State and local levels to create a long-term solution to encourage and expedite 

Good Samaritan cleanups. EPA will continue to provide leadership through the 

Good Samaritan Initiative and to work with our Federal land management agencies, 

States and Congress to pass legislation for the Clean Water Act that promotes and 

encourages environmental restoration of abandon mine sites across the country. 

Mr. COSTA. Thank you very much, and we look forward to getting 

back to you, and we appreciate the collaboration there as well. 

Our next witness is Tony Ferguson, who is the Director of 

Minerals and Geology Management for the United States Department of Forest Service. Mr. Ferguson. 

STATEMENT OF TONY L. FERGUSON, DIRECTOR OF MINERALS 

AND GEOLOGY MANAGEMENT, U.S. FOREST SERVICE 

Mr. FERGUSON. Thank you. Good afternoon, Mr. Chairman and 

Members of the Subcommittee. Thanks for the opportunity to testify on the hardrock abandoned mine land reclamation program. I 

am pleased to be here with you today. 

This year, the Forest Service and the Bureau of Land Management are celebrating 10 years of hardrock abandoned mine land 

program success. With your permission, Mr. Chairman, I would 

like to submit for the record a copy of the joint Forest Service and 

BLM publication describing the successes we have had reclaiming 

the abandoned mine lands over the last decade. 

Mr. COSTA. Without objection, it is submitted for the record, and 

I believe we each have a copy. 

[NOTE: ‘‘Abandoned Mine Lands: A Decade of Progress Reclaiming Hardrock Mines’’ prepared by the Bureau of Land Management 

and U.S. Forest Service has been retained in the Committee’s 

official files.] 

Mr. FERGUSON. The Forest Service and the BLM—— 

Mr. COSTA. We didn’t have to pay for this one. 

Mr. FERGUSON. Well, it depends on your perspective. 

[Laughter.] 

Mr. COSTA. I am sorry. I didn’t mean to interrupt your testimony. Please, I will give you back your time. 

Mr. FERGUSON. The Forest Service and the BLM, using data 

compiled by the Bureau of Mines in 1995, estimates that approximately 38,500 abandoned mine sites are on National Forest System 

lands, and 65,000 abandoned mines site are on BLM lands. An estimated 20 to 30 percent of the abandoned mine lands on the Forest 

Service and BLM lands have dangerous human safety hazards and 

as many as 10 percent may be releasing toxic heavy metals, acidity, and radioactivity into rivers, lakes and streams. 

48 

In 1994, an interagency task force was formed to develop a watershed approach for the cleanup of hardrock mines on public 

lands. The goals of the watershed approach are to foster coordination and collaboration across Federal and state agencies, facilitate 

solutions to address mixed ownership issues on sites, address important problem sites first and reduce cost through fund leveraging 

and avoiding duplication of efforts. 

The momentum of the interagency task force led to the Forest 

Service and the BLM launching formal AML programs in 1997. 

Two top priority watersheds were selected as pilot projects for remediation—the Animas River watershed in Colorado and the Boulder River watershed in Montana. A third top priority pilot, Cottonwood Wash in Utah, was selected in 1998. I would like to highlight 

the Animas River watershed as an example of the success of the 

pilot projects. 

The Animas River watershed reaches across 186 square miles of 

Colorado’s San Juan Mountains. Over the years, the impacts of 

contaminants including aluminum, cadmium, copper, iron, lead, 

and zinc emanating from historic mines and natural sources became environmentally and economically visible with acidity levels 

in the water rising to levels that impair many fisheries and leave 

some streams devoid of fish. 

Communities within the watershed have a long history of mining 

that dates back to the late 1800s. These communities are in the 

process of transitioning from a mining economy to one based on 

tourism and recreation, and reclamation of these historic sites is an 

important part of that effort. The Animas River stakeholders group 

was formed to assist the communities in their efforts to address the 

environmental impacts of mining within the Animas watershed. 

Approximately 15 mining remediation projects had been successfully completed within the Animas River watershed. The community is now reaping the benefits of these cleanup efforts, including 

overall increased water quality and two successfully reproducing 

species of trout in the watershed. This, in turn, is beginning to entice more visitors to seek recreation opportunities in the area. 

Building on their existing AML inventories, the BLM and Forest 

Service can develop better program planning and prioritization of 

sites for reclamation. 

Again with your permission, Mr. Chairman, I would like to submit a copy of BLM’s strategic plan for the abandoned mine land 

program for the record. 

Mr. COSTA. Without objection. 

[NOTE: The strategic plan submitted for the record has been 

retained in the Committee’s official files.] 

Mr. FERGUSON. In an effort to coordinate AML activities, the 

BLM has embarked on an effort to develop a National Mine Land 

Inventory that will show AML and all mine sites locations on Federal lands. Additionally, the Forest Service is in the process of putting its regional AML data into a national database, making it 

available for land use planning and other resource management activities. 

Past partnerships show that collaboration and coordination 

result in more efficient use of limited funding. Future AML site 

successes depend on initiating and building long-term relationships 

49 

with local individuals and organizations that are in tune with the 

local wildlife, traditional culture and character of the community. 

With many years of experience cleaning up mining sites, the 

Forest Service and BLM know that the greatest savings in cleanup 

costs comes from technological improvements. To bring these technological advancements to bear on public lands, both agencies must 

partner with others in training and technical assistance. The next 

10 years will certainly bring new and cost-effective tools to AML 

reclamation. 

With the current estimates of AML sites on the public lands, reclamation will not be completed in the near term. Preventing future 

AML sites is also a crucial goal of any land management agencies’ 

AML program. Sustainable mining practices, environmentally protective mining closure planning, optimal permitting requirements 

and financial assurances are all tools that land management agencies are using to encourage mining companies to operate under a 

sustainable business model that follows a mine’s life from start up 

to clean closure. 

Thank you for this opportunity, and I will be happy to answer 

any questions. 

[The prepared statement of Mr. Ferguson follows:] 

Statement of Tony L. Ferguson, Director of Minerals & Geology 

Management, National Forest System, U.S. Forest Service, U.S. 

Department of Agriculture 

Mr. Chairman and members of the Subcommittee, thank you for the opportunity 

to testify on the hardrock Abandoned Mine Land (AML) reclamation program. I am 

pleased to be here with you today. 

This year, the Forest Service and the Bureau of Land Management (BLM) are 

celebrating 10 years of hardrock abandoned mine lands program success. The BLM 

and Forest Service hardrock AML programs operate to improve the quality of public 

lands through similar missions: 

• To mitigate hazards present at abandoned mines; 

• To restore watersheds for natural resources; and 

• To protect public health and safety, recreation, fish and wildlife. 

Over the last decade, both agencies’ hardrock AML programs have grown and matured through the dedicated effort of many people. 

Scope of AML Issues on Federal Land 

The Forest Service and the BLM, using data compiled by the Bureau of Mines 

in 1995, estimated that approximately 38,500 abandoned mine sites are on National 

Forest System (NFS) land and 65,000 abandoned mines sites are on BLM. A mine 

site consists of one or more mine features, such as human-made objects or disturbances associated with mining activities. These mine features include shafts or adits 

(vertical or horizontal opening), tailings, waste rock, machinery and facilities. 

An estimated 20 to 30 percent of the abandoned mine sites on Forest Service and 

BLM lands have dangerous human safety hazards and as many as 10 percent may 

be releasing toxic heavy metals, acidity and radioactivity into rivers, lakes and 

streams. The Forest Service has estimated that approximately 2,500 mines would 

require cleanup of hazardous substances and more than 22,500 would require mitigation of non-hazardous pollution and safety hazards. Since the late 1990’s, the 

Forest Service has inventoried 20,000 sites, mitigated more than 2,000 safety hazards and cleaned up hazardous substances at more than 400 sites, with hazardous 

substance cleanup at another 150 sites in progress. 

The BLM AML reclamation program supports core BLM programs by addressing 

degraded water quality, hazardous materials, and other environmental impacts on 

or affecting lands administered by the BLM, and mitigating physical safety hazards 

of abandoned mine sites on public lands. Between 2000 and 2007, the BLM has 

inventoried 5,500 sites and remediated physical safety hazards at more than 3,000 

sites. The BLM also restored water quality at over 280 sites through FY 2003 and 

on more than 3,000 acres between 2004 and 2007. 

50 

The BLM and Forest Service efforts to clean up abandoned mine lands have many 

worthwhile outcomes. Visitors to public lands are better protected from health and 

safety hazards, and neighboring communities enjoy cleaner water. Onsite soil and 

water quality is often returned to pre-mining conditions resulting in restored habitat for plants and wildlife. Significant cultural and historic resources are preserved. 

Inventory of Abandoned Mine Sites 

At the time the BLM and Forest Service began to address AML reclamation, the 

sheer number of abandoned mining sites across the United States was daunting, 

with estimates ranging from tens of thousands to hundreds of thousands. In the 

early 1990s, the BLM and Forest Service began to inventory abandoned mine sites, 

focusing on hardrock and non-coal abandoned mines. This inventory built on data 

previously compiled by other governmental agencies, including the U.S. Bureau of 

Mines and the U.S. Geological Survey (USGS). 

Inventory work performed by the Forest Service, the BLM and State agencies has 

varied among agencies and over time. The Forest Service is in the process of putting 

the regional inventory data into a national database. The BLM is developing a national mine lands inventory that will show AML and mine site locations on all Federal lands. States with access to Surface Mining Control and Reclamation Act 

(SMCRA) funds and those with pilot watershed reclamation projects have more comprehensive inventories. Some discrepancies between various inventories are a result 

of the protocols used to develop them. Inventories are dynamic and continue to be 

refined, supplemented and amended. 

Prioritization of Sites 

Each year Forest Service national priority project lists for the out year budget are 

developed from projects submitted by the National Forest Regions. Projects are 

prioritized for funding by a team using the Choosing By Advantages (CBA) method, 

which ranks projects by various criteria including benefits to human health and 

safety, environmental protections, public/private partnerships and public interest. 

Funding is allocated directly to the projects in order of their priority. 

In March 2006, the BLM released its Cooperative Conservation Based Strategic 

Plan for its AML program. The plan sets out both a national strategy and statespecific multi-year work plan. More specifically, the plan identifies priority watersheds and high-use areas where AML funds will be directed through FY 2013 given 

current funding levels. State-specific plans were developed in consultation with the 

BLM’s Federal and State partners. 

Cleanup of Abandoned Mine Sites 

In 1994, an interagency task force was formed consisting of Federal land management agencies, including the BLM, Forest Service, National Park Service and Department of the Interior (DOI) science bureaus, including USGS and the former Bureau of Mines. This task force worked closely with the Environmental Protection 

Agency (EPA) to develop a ‘‘watershed approach’’ for the cleanup of hardrock mines 

on public lands. The goals of the watershed approach are to foster coordination and 

collaboration across Federal and State agencies, facilitate solutions to address mixed 

ownership issues on sites, address important problem sites first and reduce costs 

through fund leveraging and avoiding duplication of efforts. 

The Forest Service and the BLM launched formal AML programs in 1997. Two 

top priority watersheds were selected as pilot projects for remediation: the Animas 

River watershed in Colorado and the Boulder River watershed in Montana. A third 

top priority pilot, Cottonwood Wash in Utah, was selected in 1998. I’d like to highlight the Animas River watershed as an example of the success of the pilot projects. 

Animas River Watershed, Colorado 

The Animas River Watershed reaches across 186 square miles of Colorado’s San 

Juan Mountains. Communities within the watershed have a long history of mining 

that dates back to the late 1800s. Over the years, the impacts of contaminants including aluminum, cadmium, copper, iron, lead, and zinc emanating from historic 

mines and natural sources became environmentally and economically visible with 

acidity levels in the water rising to levels that impair many fisheries and leave some 

streams devoid of fish. 

The communities are in the process of transitioning from a mining economy to one 

based on tourism and recreation, and reclamation of these historic sites is an important part of that effort. Approximately 50 mining remediation projects have been 

successfully completed within the Animas River watershed, eight are underway and 

plans are ongoing for 40 additional projects. Of the completed projects, remediation 

activities for 19 priority sites have been completed with the mining companies addressing approximately one-half, Federal land management agencies addressing apVerDate Aug 31 2005 14:50 Oct 10, 2008 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6621 L:\DOCS\38137.TXT Hresour1 PsN: KATHY
51 

proximately one-quarter, and the Animas River Stakeholders Group addressing approximately one-quarter of the activities. 

The community is now reaping the benefits of these cleanup efforts, including 

overall increased water quality and two successfully reproducing species of trout in 

the watershed. This, in turn, is beginning to entice more visitors to seek recreation 

opportunities in the area. As the community continues to work together to address 

the remaining sites, a collaborative initiative among six federal agencies is helping 

to revitalize a two-mile stretch of the Animas River corridor through Silverton, recognizing the community’s value on tourism as it promotes aesthetic and quality-oflife improvements to the area. 

The positive outcomes of early AML partnerships and commitment to reclamation 

efforts in the pilot watersheds resulted in Federal funds that were specifically directed at AML programs. Since then the BLM and Forest Service have continued 

to fund the cleanup of abandoned hardrock mines using a variety of approaches designed to meet multiple objectives, including addressing physical safety hazards as 

well as hazardous substances and non-hazardous sources of pollution and contamination. The following are examples of successful AML reclamation projects on National Forest System lands. 

Stibnite Mine (near Yellowpine, Idaho), Payette NF, Valley County, Idaho 

The Stibnite Mine site is mixed ownership of Forest Service and private. The 

Forest Service, EPA and the State of Idaho worked closely and cooperatively on reclaiming and remediating the mine site through a Memorandum of Understanding. 

Remediation began in the late 1990’s and included stabilization of a large mill 

tailings pile in and around Meadow Creek, stabilization of the Meadow Creek diversion, design of a new channel through the tailings area and placing Meadow Creek 

into the new channel, and shaping and revegetating the spent ore pile. Much of this 

work was completed by Mobil Oil Corp. The Forest Service completed the clean up 

of tons of trash and abandoned equipment as well as covering and capping ponds 

from a cyanide leach pilot test plant. The State of Idaho removed milling facilities 

and chemicals located on the private lands. 

Garnet Dike Mine, Sierra NF, Fresno County, California 

The Garnet Dike Mine is located in the Kings River Special Management Area 

of the Sierra National Forest. This is an area of the wild and scenic portion of the 

Kings River. This cleanup project included removal of explosives, installation of two 

bat-friendly gates, foam closures of a shaft and adit, and two wire-rope warning 

fences with signs on a 40 ft. diameter daylighted slope. This was the first phase of 

an on-going project that will include removal of structures, debris and abandoned 

equipment in future years. The cleanup completed has provided for improved public 

safety and protection of critical bat habitat. 

El Portal Barite Mine, Sierra NF, Mariposa County, California 

The El Portal Mine site is located on the Sierra NF near Yosemite National Park. 

During the mid 1990s the Forest Service completed a CERCLA removal action at 

this mine site to address heavy metal contamination. In 2005, additional work was 

completed to improve public safety, protect bat habitat and allow continued bat occupancy of mining features. The project included installing bat-friendly angle iron 

gates at two adits and foam closures at another adit and tunnel portal. Yosemite 

National Park personnel played an integral role in assisting the Forest with this 

project. One of their administrative sites was made available for a staging area; 

they assisted with traffic control, made a forklift and operator available and provided other logistical support. 

Champion Mine, Umpqua NF, near Cottage Grove, Oregon 

The Champion Mine cleanup project in Lane County, Oregon was completed by 

the Forest Service in 2006. Project work included the removal of waste rock, diesel 

and heavy oil contamination, treatment of acid mine drainage and encapsulation of 

hazardous mill tailings. These actions will reduce or eliminate contaminants in 

Champion Creek which is a tributary to Row River and Dorena Reservoir, a source 

of drinking water for the City of Cottage Grove, Oregon. 

Red River Area, Questa, New Mexico 

The Red River area has had a history of mining but has now successfully 

transitioned to a tourism economy based on skiing and other recreational activities. 

The Forest Service helped promote this new economic base by ensuring the safety 

of Federal Lands. We worked closely with the State, EPA, U.S. Fish and Wildlife 

Service, Trout Unlimited and the ski resort owners to improve the safety of the area 

by consolidating contamination from abandoned mine sites into a single, capped reVerDate Aug 31 2005 14:50 Oct 10, 2008 Jkt 000000 PO 00000 Frm 00055 Fmt 6633 Sfmt 6621 L:\DOCS\38137.TXT Hresour1 PsN: KATHY
52 

pository. One of these sites was situated upstream of the City of Red River’s water 

system. Other activities included closing exposed adits, minimizing erosion and stabilizing slopes. 

Current Sources of Funding 

The Forest Service addresses AML reclamation primarily through two programs. 

The Environmental Compliance and Protection (ECAP) program provides for 

cleanup of hazardous materials and restoration of natural resources damaged by 

hazardous materials at abandoned mines on NFS lands. ECAP cleanups are typically done to comply with CERCLA (Comprehensive Environmental Response, Compensation and Liability Act), RCRA (Resource Conservation and Recovery Act) and 

CWA (Clean Water Act) requirements. 

The Abandoned Mine Lands (AML) program provides for non-CERCLA related 

cleanup (uncontaminated sediment, erosion), and mitigation of safety hazards at 

abandoned and/or inactive mines on NFS lands. The AML program is also responsible for the basic inventory of abandoned mines on NFS Lands. 

In addition, the Forest Service also receives funds from the USDA hazardous material management account (HMMA). The USDA has also received approximately 

$300 million in funding or work from potentially responsible parties (PRPs) since 

1995. The majority of these funds were recovered from PRPs on NFS Lands. 

Current funding for the AML program for the BLM comes from several sources, 

including the Soil, Water and Air program and the Department of the Interior’s 

Central Hazardous Materials Fund. The BLM receives approximately $12-14 million 

for the AML program each year. Finally, receipts from land sales around the Las 

Vegas area under the Southern Nevada Public Lands Management Act have provided additional funds for local AML projects. 

Additional funds and/or support come from partnering with State and Federal 

agencies on mine cleanups and safety mitigation. In some cases, particularly for 

states that receive SMCRA (Surface Mining Coal and Reclamation Act) reclamation 

funds, cleanup of abandoned mine safety hazards is usually a joint effort. 

More recently, partnerships have been developed with groups such as Trout Unlimited, Bat Conservation International and Tiffany and Company to successfully 

complete cleanup efforts. By forming partnerships during the reclamation process, 

project stakeholders collectively maximize and pool resources that would not have 

been readily available if only one entity was involved. 

Looking to the Future 

Building on their existing AML inventories, the BLM and Forest Service can develop better program planning and prioritization of sites for reclamation. Additional 

data collection is necessary to ensure that all sites that pose significant health and 

safety threats are prioritized appropriately. In an effort to coordinate AML activities, the BLM has embarked on an effort to develop a National Mine Lands Inventory that will show AML and all mine site locations on Federal land. Additionally, 

the Forest Service is in the process of putting its regional AML data into a national 

database, making it available for land use planning and other resource management 

activities. 

Past partnerships show that collaboration and coordination result in more efficient use of limited funding. Looking to private sector, academia and nonprofit alliances will tap new capabilities in technology transfer, funding sources and knowledge management. Future AML site successes depend on initiating and building 

long-term relationships with local individuals and organizations that are in tune 

with the local wildlife, traditional culture and character of the community. 

With many years of experience cleaning up mining sites, the Forest Service and 

BLM know that the greatest savings in cleanup costs come from technology improvements. To bring these technology advancements to bear on public lands, both 

agencies must partner with others in training and technical assistance. The next 10 

years will certainly bring new and cost-effective tools to AML reclamation. 

With the current estimates of AML sites on public lands in the hundreds of thousands, reclamation will not be completed in the near term. Preventing future AML 

sites is also a crucial goal of any land management agency’s AML program. Sustainable mining practices, environmentally protective mine closure planning, optimal 

permitting requirements and financial assurances are all tools that land management agencies are using to encourage mining companies to operate under a sustainable business model that follows a mine’s life from startup to clean closure. 

Mr. Chairman, thank you for the opportunity to talk about the hardrock Abandoned Mine Lands program. I would be happy to answer any questions. 

53 

[The response to questions submitted for the record by the U.S. 

Forest Service follows:] 

October 17, 2007 

The Honorable Jim Costa, Chairman 

Subcommittee on Energy and Natural Resources 

Committee on Natural Resources 

United States House of Representatives 

1626 Longworth House Office Building 

Washington, DC 20515-5255 

Dear Chairman Costa: 

Enclosed please find responses to the questions for the record submitted by the 

Subcommittee on Energy and Natural Resources of the House Committee on Natural Resources from the October 2, 2007, hearing on H.R. 2262, ‘‘The Hardrock 

Mining and Reclamation Act of 2007.’’ 

1. You testified that the Bureau of Land Management is developing a ‘‘National Mine Lands Inventory,’’ and the Forest Service is in the process 

of putting regional inventory data into a national database. 

1a. Are the two agencies using similar site prioritization systems? 

Descriptions of CERCLA and non-CERCLA cleanup projects, including the costs 

and benefits of each, are submitted by the Forest Service Regional Offices two years 

prior to the desired implementation date. Because the number of projects always exceeds the available funding, they are prioritized for funding by a team of Washington Office and Regional Office representatives using the Choosing by Advantages 

(CBA) methodology. In the CBA process all proposed projects are evaluated and assigned scores based on potential benefits to: 

• Human health and safety; 

• Environmental factors such as water quality; 

• Economic and social factors including partnerships, public interest and overall 

cost. 

The projects are then ranked on the basis of their scores and funded as money 

becomes available through the budget process. 

Safety Mitigation Projects are prioritized at the regional level and submitted to 

the National Office for funding. Criteria used for prioritizing safety mitigation 

projects are based on the severity of the hazard and accessibility to the public including: 

• Sites where a death, injury or close call has occurred; 

• Sites where complaints or concerns have been expressed by the public or others; 

• Sites nearby developed recreation sites or other concentrations of people; 

• Sites accessed by, or near forest roads or trails; 

• Other sites based on the severity of the hazard and accessibility to the public. 

Unlike cleanup projects, each region can only receive up to a certain percentage 

of the national budget. This percentage is mutually agreed upon by the Regions, and 

is based on the number of abandoned mines in the region and the degree of public 

exposure risk. 

The BLM has similar criteria for its AML water quality projects and physical 

safety hazard sites. The criteria are in the BLM’s strategic plan submitted to the 

committee for the record. The BLM field organization applies the criteria to 

prioritize their sites within project descriptions entered into the Bureau’s Budget 

Planning System for each fiscal year. Then, AML program leads from the BLM 

State Offices and Headquarters collaborate on funding allocations. Like the Forest 

Service, funding requests exceed available dollars. In order to complete ongoing 

projects only about 10-20 percent of a given year’s available allocation are available 

for new projects. 

1b. A Decade of Progress estimates that there are approximately 47,000 

sites identified on BLM and FS Lands, but, we have also heard estimates closer to 100,000. Please explain the basis of each estimate; what 

percent of each inventory is based on field surveys as opposed to old 

mineral records? 

The 47,000 figure reflects the number of records currently contained in the BLM 

(12,000) database and a Forest Service estimate of total sites (35,000) made based 

on mineral records collected by the former USDI Bureau of Mines (BOM) and recorded in the Mining Availability System/Mineral Indicator Location System (MAS/ 

MILS) database. Records in MAS/MILS in the mid 1990’s for both BLM and FS adVerDate Aug 31 2005 14:50 Oct 10, 2008 Jkt 000000 PO 00000 Frm 00057 Fmt 6633 Sfmt 6621 L:\DOCS\38137.TXT Hresour1 PsN: KATHY
54 

ministered lands showed approximately 100,000 abandoned mines (65,000 and 

39,000 for BLM and FS respectively). BLM and FS field surveys have only been 

done on a small percentage of the estimated sites 

MAS/MILS data were based on information in published reports and maps, and 

to some extent from private and public sources and included data on abandoned coal 

mines. Data in MAS/MILS were not field verified, but there was some attempt by 

the BOM over the years from the 1960’s to the 1990’s to clean up obvious location 

errors. Management of the MAS/MILS database was taken over by the U.S. Geological Survey when the BOM was disbanded in the mid 1990’s. 

MAS/MILS data remain the most comprehensive basis for estimates of total AML 

sites on federal lands. BLM and FS field surveys have only been done on a small 

percentage of the estimated sites. BLM and FS inventory efforts during the 1990s 

and continuing to the present are focused on identifying those AML sites which pose 

the greatest threat to human health and the environment and scheduling them for 

cleanup, rather than simply adding to the known inventory. 

1c. When was the last time the Forest Service did inventory work? 

Inventory for the purpose of refining the estimate of total AML sites was de-emphasized by the FS in the 1997-1998 period when the focus shifted to identifying 

sites which pose the greatest threat to human health and the environment and 

scheduling them for cleanup. Some basic inventory continues where there are 

known gaps in data, and in response to discovery of sites by the public and work 

crews involved in cleanup of priority sites. 

1d. The northwest mining association testified that we probably do not 

need to develop another AML inventory-that we know enough already. 

Does the forest service agree? Are there some areas, or States, where 

you think there are significant gaps in our understanding of the abandoned mine land problem? 

The FS agrees with this assessment to an extent. Our main focus is currently on 

assessing the relative risk to human health and the environment posed by known 

sites, and prioritizing them to receive available funding. This does not mean that 

all inventory effort should be discontinued. Some basic inventory must continue 

where there are known gaps in data, and in response to discovery of additional sites 

by the FS personnel and the public, and in populated paces and high use areas. 

1e. Please detail how the Forest Service coordinates with States on inventory compilation and management, and on reclamation prioritization 

and projects. 

The FS Regions coordinated with most States during the inventory phase of the 

AML Program by using data from State AML inventories, or by the use of MAS/ 

MILS data which was often the basis of State AML inventories. The FS is currently 

developing a national AML database which will be used among other things, to 

track any continuing discovery of AML sites and cleanup status of known sites. 

Once this national database is complete the FS will be able to share data regarding 

the presence, priority and cleanup status of AML sites with States, other federal 

agencies and the public. In addition, we understand that the Department of the Interior (DOI)’s Office of Inspector General has identified the need for the BLM to undertake some additional inventory work in populated and high-use areas. We suggest contacting the BLM for additional information. 

Coordination with States on reclamation priority and projects varies depending on 

the State involved and the type of cleanup project. 

The FS works closely on AML safety hazard mitigation with States such as Colorado, Utah and Montana which have abandoned mine reclamation programs funded 

under Title IV of the Surface Mining Control and Reclamation Act (SMCRA). These 

funds allow States to work on hardrock mines once they have certified that priority 

coal reclamation has been completed. In Colorado for example the FS provides funds 

to the State for safety project planning and execution on FS Lands. Coordination 

with States like Idaho and California that do not have access to SMCRA reclamation funds occurs to a lesser extent through sharing of information and project planning. 

Coordination with States on environmental cleanup projects is encouraged 

through the use of project selection criteria which rewards State/federal partnerships and evidence of State priorities such as work within a State priority watershed or water quality limited stream or waterbody. 

Formal partnerships or agreements exist where cleanup involves mixed ownership 

sites that include private or State lands. 

The BLM AML Program coordinates with State governments and other entities 

via the AML Program Lead in each of the eleven AML States. In addition to the 

55 

on-the-ground risk criteria, the BLM recognizes partnership arrangements as high 

priority opportunities. 

1f. How do your inventories and site prioritization process incorporate 

growing residential and recreational growth in and near areas with 

abandoned mines? 

For environmental cleanups, the FS project selection process includes a measure 

of how much public exposure to contaminants exist at a given site. Sites with such 

exposure are assigned a higher priority. This exposure may result from growing residential, or from public use of campsites, roads or trails. 

For safety cleanups, the FS allocates a greater percentage of the national budget 

to Regions with abandoned mines that are near population centers. For example Regions 2 and 5 receive the highest percentage of the national budget due to the number of abandoned mines near population centers in Colorado and California respectively. 

The BLM AML Program’s inventory methodology incorporates growing residential 

and recreational access areas with a focus on populated places and high use areas. 

2. Please help the Subcommittee better understand the potential costs of 

hardrock abandoned mine reclamation on public lands. 

2a. What are the cost estimates for reclaiming hardrock abandoned mines 

on Forest Service land? On BLM land? Do those estimates include 

superfund sites? Please break down the estimates by State, if possible. 

Do those figures include restoration, or just remediation? 

The FS allocates funding by Region, and does not have a break down of cost estimates by State. Funding by Region for the last 5 years is presented below. In 1994, the FS estimated that will cost approximately $2.1 billion and $2.3 billion dollars respectively to cleanup hazardous substances and mitigated safety hazards at abandoned mines on FS Lands. Using a simple inflation multiplier based 

on the consumer price index the 1994 estimate would be approximately $5.55 billion 

dollars in 2007 dollars. It should be stressed that these are very rough approximations at best since the actual number of abandoned mines and the extent of cleanup 

that will be required is unknown. To date, the Forest Service has spent $180 to $200 million dollars of USDA and 

FS funds on abandoned mine environmental cleanup and safety mitigation from 

1998 to 2008. This is a net figure and does not include overhead and indirect costs. 

Exact figures are not available since historic records do not separate environmental 

cleanups at FS facilities from abandoned mines. Finally records show that nearly $300 million dollars of work or funding has been 

provided by potentially responsible parties (PRP) at abandoned mine sites. 

For the most part FS cleanup and safety mitigation work would be described as 

remediation rather than restoration. The primary focus is on eliminating or minimizing the environmental or safety threats present rather than fully restoring land 

and water to pre-mining conditions. 

Based on the BLM’s AML Program’s Strategic Plan, the BLM projects needs of 

approximately $130,000,000 for AML projects scheduled through FY 2012, which 

does not represents all of the 

AML work that needs to be done on BLM lands in the years beyond 2012. The 

work currently identified includes a wide variety of cleanup solutions, for example: 

mitigation with signs and fences, complete closure or removal of physical safety hazards, bat gating, restoration of streambeds, and removal of hazardous materials to 

repositories. Most of these projects are medium size sites and do not include several 

special situations, such as the Kelly Mine/Rand Mining District in California. This 

is a large, potentially high-cost CERCLA site 

The following are cost estimates spelled out, State by State, in the BLM’s AML 

Strategic Plan: 


38137.011.eps
56 

2b. How does total annual funding for reclamation compare to the total 

need? 

Relying solely on a FS budget of $15 million dollars annually in direct project work, it would take 370 years to complete the estimated $5.55 (2007 dollars) billion 

dollars of cleanup and safety mitigation work. If we assume that USDA and PRP 

funding remains constant at rate of roughly $35 million dollars (based on 10 years 

of record), then it would take approximately 105 years to complete the safety and 

mitigation work. It should be stressed that these are very rough approximations at 

best since the actual number of abandoned mines and the extent of cleanup that 

will be required is unknown. 

2c. At your current rate of funding, when might you have secured your priority sites and/or watersheds? 

The FS does not have the environmental and physical safety data available on 

all AML site to support identification of a complete priority list of environmental 

cleanup or safety mitigation projects. Although we believe that the time frame to 

address priority sites would be less than that estimated for the total need (see 

above), we do not have sufficient information to make a defensible estimate for completing priority work. 

2d. A decade of progress mentions the successful reclamation project in 

the Questa area, around the Red River, with potential benefits for the 

city of Red River’s water system. Has the Forest Service done any costbenefit analysis of that reclamation project, or assessed what potential 

costs were avoided through reclamation? 

The Placer-Pioneer Watershed (Red River) project was completed in FY 2007. 

Here is summary of the benefits we expect to see over the next few years: 

The Placer Creek Watershed and Pioneer Creek Watershed are located directly 

southwest of and adjacent to the town of Red River and drain into the Red River. 

The town of Red River’s water system and Red River Ski Resort are located in the 

Pioneer Creek watershed. 

The town of Red River and Red River Ski Area are visited by thousands of visitors 

and tourists year round, including fishermen, hunters, horseback riders, campers, 

hikers, skiers, bikers, and folks attending seasonal events such as running marathons, rafting competitions, & school events. As part of this project the Forest Service removed 8,050 cubic yards of tailings and waste rock containing elevated levels 

of lead and arsenic from the banks of Placer Creek, restoring over 2 miles of perennial stream improving the water quality, and increasing water quantity to the Ski 

Area and the town of Red River. The Forest Service also removed 5,900 cubic yards 

of mine tailings and waste rock containing elevated levels of lead and arsenic from 

the banks of Pioneer Creek, restoring over 4 miles of perennial stream, improving 

water quality and increasing water quantity to the Ski Area and the town of Red 

River 

The project benefits realized were: 

• Removal of waste rock and tailings eliminated direct long-term exposure of 

human, animals and plants to high levels of arsenic and lead at and downstream of the site in the town of Red River and the Ski Area. The resulting 

benefits include reduced water treatment costs in Red River and the Ski Area 

and the increased human health and safety of residents and visitors. These direct benefits to human and ecosystem health, and secondary benefits due to the 

continued economic benefits of recreation and tourism are significant, but have 

not been quantified in monetary terms. 

• Closure of 8 hazardous mine openings (adits and shafts) eliminated the risk of 

human injury or death over the long-term, as well as the negative affects to 

recreation and tourism that would result if such injury or death occurred. This 

is a long-term benefit to visitors to the National Forest as well as visitors to 

the nearby town of Red River and Ski Area, but the benefit has not been quantified in monetary terms. 

The cost of the Placer and Pioneer remediation was $1.1 million. We will monitor 

the effectiveness of the remediation for the next 3 to 5 years. 

The next and final phase of the Red River remediation is to remediate the mine 

waste located within Bitter Creek Watershed, which contains over 44,000 cubic 

yards of tailings and waste (elevated levels of arsenic and lead). The Bitter Creek 

Watershed is situated adjacent and directly northeast of the town of Red River. The 

total cost of this remediation is $2.8 million and with $1.3 million currently available the Forest Service is planning to initiate the project in May 2008. Funding to 

complete the project will compete for funding through the national project selection 

process. 

57 

1 Approximately 70-80 percent of FS ECAP/AML Allocation is for AML Environmental Cleanup and Safety Hazard Mitigation. The remaining 20 to 30 percent is spent on FS facilities. 

Please provide a list of program offices in the forest service and the BLM which 

are involved in abandoned mine cleanup. Please estimate resources (staff and funding) in each of those offices for each of the past five years. 

Attached is a list of National and Regional Office contacts for the Environmental 

Compliance and Abandoned Mine Land Program in the Forest Service. There are 

additional personnel involved less than full time in these programs at the local (national forest) level. The only estimate we can provide is an estimate of FS (excludes 

USDA and PRP) funding received by each of the nine Regions based 2003 through 

2007 budgets. 

FS Environmental Compliance and Protection/Abandoned Mine Land (ECAP/ 

AML) Allocation by Region, 2003-2007 1

R1—Montana, North Dakota, parts of Idaho, South Dakota 

R2—Colorado, South Dakota, Nebraska, Kansas, Wyoming 

R3—New Mexico, Arizona 

R4—Utah, Nevada, part of Idaho, Wyoming and California 

R5—California 

R6—Oregon, Washington 

R8—Southern States 

R9—Northeastern States 

R10—Alaska 

The following shows the BLM offices that have been involved in AML related 

cleanup work for the past five years and the amount of funding distributed: 

Thank you for your interest in the management of the National Forests. 

Sincerely, 

/s/ Douglas W. Crandall 

Director, Legislative Affairs 

cc: Dave Whittekiend 


38137.012.eps 38137.013.eps
58 

Mr. COSTA. We appreciate that very much, and your focus, and 

I am sure we will have a number of questions as it relates to your 

efforts. 

Our next witness is Senator Greg Lind, State Senator from Montana, and many of us found our origin from state legislatures from 

around the country. Almost half the Members of Congress are from 

state legislatures, and as one who is very fond of their experience 

in those years there, I am very pleased that you are here testifying 

on your experience in Montana. Senator Greg Lind. 

STATEMENT OF THE HONORABLE GREG LIND, 

STATE SENATOR, MONTANA 

Mr. LIND. Thank you, Mr. Chairman, Distinguished Members of 

the Subcommittee. I appreciate this opportunity to testify on this 

important matter. 

For the record, I am a physician practicing in Missoula, Montana. I have served in the legislature since 2004, and in 2007, I 

chaired the Senate Natural Resource and Energy Committee. 

With my testimony, I would like to touch on some of the problems with our mining legacy in Montana, and appeal to you for a 

promise for a different future. 

Across the state many operations permitted on Federal lands 

under the 1872 mining law have caused pollution to important 

water resources, resulting in contaminated drinking water, harm to 

fish and wildlife, impacts to residential and agricultural lands, and 

significant cost to our taxpayers. Several mines will present health 

and environmental problems forever. 

First and foremost, abandoned mines are not just the mines that 

were operated with pick and shovel in the last century, but in Montana, we now have a legacy of modern mine problems that are the 

responsibility of state, tribal and the Federal government. 

I would like to touch on three examples from recent history in 

Montana. The common theme here will be water. 

Zortman Landusky: Zortman Landusky gold mine is located on 

Bureau of Land Management land in the Little Rocky Mountains 

of north central Montana adjacent to the Fort Belknap Reservation. 

It operated between 1979 and 1998. Numerous cyanide releases occurred during operations which have affected the community drinking water supply. Water quality problems escalated in 1991, when 

acid mine drainage had permeated ground and surface water. 

In 1998, the company filed for bankruptcy, leaving insufficient 

funds to cover the reclamation costs for long-term water pollution. 

State and Federal scientists have determined that acid and metal 

polluted runoff from the mine will continue in perpetuity. 

The tribes worked with the legislature to secure passage of a bill 

in 2005. We appropriated roughly $19 million of state money to pay 

for perpetual water treatment at this site. 

Shifting to Beal Mountain, Beal Mountain Mine is an open-pit 

cyanide leach gold mine located in Beaverhead Deerlodge National 

Forest and operated by Pegasus Gold from 1989 until bankruptcy 

in 1998. After cessation of mining, water quality issues continued 

in contamination of steams with cyanide, selenium and copper have 

continued. 

59 

The Forest Service and state government have already spent $5 

million in public funds to install and operate water treatment systems, but that is just the beginning. Forest Service estimates that 

an additional $13 million is needed for additional reclamation and 

long-term water treatment. 

Those are some examples from the recent past. In addition to 

these, we have a legacy of historical mine problems. There is an inventory of mines in Montana that I thought it was a large number 

until I heard of California’s experience, but we have at least 6,000 

inventoried abandoned mines in the State of Montana, 350 are top 

priority sites for restoration because of ongoing safety risks to public health and the amount of pollution generated at these sites. According to Montana DEQ, over 3,700 miles of rivers and streams 

in Montana are polluted by metals, primarily from abandoned 

mines. 

To date, the state has spent over $26 million for historic abandoned mine cleanup and it estimates that the unfunded costs for 

remediation at the top 350 sites of these historic sites are in excess 

of $91 million. That is a very conservative estimate. Our state 

agency estimates it will cost our taxpayers hundreds of millions of 

dollars to cleanup all the historic sites in the State of Montana. 

As you know, resources are limited and needs are great. The 

State of Montana is currently spending about $3.5 million a year 

at some of the state’s abandoned sites and we are working through 

those problems that do exist. 

I am going to shift briefly to a Superfund site. Montana’s capital 

city, Helena, obtained 70 percent of its drinking water from 10-Mile 

Creek Basin, in which are sited 150 abandoned mine sites. The estimates to cleanup 70 of those sites that are the highest priority 

is calculated in excess of $22 million. The state’s share would be 

10 percent of that, and those problems are ongoing. 

Montana faces funding challenges for reclamation and long-term 

water treatment resulting from modern and historic abandoned 

mine operations. We anticipate the costs to be well over $180 million just for the sites I have mentioned in my written testimony. 

I have abbreviated it here. This is a conservative estimate and includes resources that have already been allocated and projections 

for future needs. 

I would encourage the committee to please close the door on 

projects that require water treatment in perpetuity. Perpetuity is 

very expensive. We have found that out all too well in Montana, 

and provide the regulators the tools to say no to projects that aren’t 

appropriate, such as the one adjacent to—the Crown Butte site adjacent to Yellowstone National Park that we paid $65 million to 

buy back. 

I thank you for your time and I look forward to your questions, 

and appreciate your work. 

[The prepared statement of Mr. Lind follows:] 

Statement of The Honorable Greg Lind, Montana State Senator 

I thank the chair and subcommittee members for inviting me to come and testify 

on this important matter. 

Mr. Chairman and distinguished members of the subcommittee: My name is Greg 

Lind. I am a practicing physician in Missoula, MT and member of the Montana LegVerDate Aug 31 2005 14:50 Oct 10, 2008 Jkt 000000 PO 00000 Frm 00063 Fmt 6633 Sfmt 6621 L:\DOCS\38137.TXT Hresour1 PsN: KATHY
60 

islature. I was elected in 2004 and served as chair of the Senate Natural Resource 

and Energy Committee in 2007. 

The Need for Reform 

The need for reform of the 1872 Mining Law is clear in Montana. Across the state, 

mining operations permitted on federal land under the 1872 Mining Law have 

caused substantial pollution to important Montana water resources, resulting in 

contaminated drinking water supplies, harm to fish and wildlife, impacts to residential and agricultural lands, and significant costs to taxpayers. Several mines have 

resulted in such severe water quality problems that they will generate contaminated 

runoff forever. It is time to reform the Mining Law of 1872. 

One of the key issues in the debate about reforming the law is the need to clean 

up abandoned mines and create a source of revenue to ensure that the public safety 

risks and environmental damage from these mines is corrected. I commend the 

Chairman for holding the hearing today to address these issues. 

In our state of Montana, we have made a significant investment in understanding 

the problems from abandoned hardrock mines around the state and created an aggressive program to clean up these mines. I want to make a few remarks about the 

scope of the abandoned mine problem that we have identified in Montana, because 

I expect these same problems are repeated in states across the West. 

First and foremost, abandoned mines are not just the mines that were operated 

by pick and shovel in the last century. In Montana, we now have a legacy of modern 

mine disasters that are now the responsibility of the state, tribal and federal government. Here are just a few examples of the mines that have been operated in 

Montana in the past 20 years. 

Impacts of Modern Mines 

Zortman Landusky Mine 

The Zortman Landusky gold mine is located on Bureau of Land Management 

(BLM) land in the Little Rocky Mountains of north central Montana. The mine adjoins the Fort Belknap Reservation to the north, home to the Gros Ventre and Assiniboine Tribes. It operated from 1979-1998. Mining operations resulted in widespread pollution to surface and groundwater in the Little Rockies. Numerous cyanide releases occurred during operations, including a release of 50,000 gallons into 

Alder Gulch, which affected a community drinking water supply. 1 Water quality 

problems escalated when acid mine drainage developed at the mine. By 1991, acid 

runoff from the mine had permeated surface and groundwater. 2 In 1993, the EPA 

and the Tribes filed suit against the company, charging that its discharges ‘‘present 

human health risks’’ and that ‘‘the acidity of the discharges would kill fish and 

aquatic life.’’ 3

In 1998, the company filed for bankruptcy, leaving insufficient funds to cover reclamation costs and long-term water pollution. State and federal scientists have determined that acid and metals-polluted runoff from the mine will continue in perpetuity. As a result, costly water treatment systems must be maintained to prevent 

further contamination of downstream water resources. 4

The BLM’s June 2004 Action Memorandum describes the threats to the public 

health and welfare and the environment that could result if operation of the water 

capture and treatment systems are not continued at the mines. If the systems fail 

or ceases operation, the BLM states that ‘‘the release of hazardous substances would 

increase greatly without the benefit of treatment, creating significant environmental 

damage. This includes the release of solutions containing metals such as arsenic, 

cadmium, copper, selenium, and zinc; plus cyanide complexes, nitrates, and solutions having low pH (acidic) levels’’. 5 The document warns that drinking water supplies or sensitive ecosystems could be contaminated and that human and animal 

populations could be exposed to the toxic effects of these substances. Over a billion 

gallons of contaminated run-off has been intercepted from the mine since 1999. 6

Faced with the on-going threat to tribal water resources, the Fort Belknap Tribes 

have spent endless hours and scarce tribal resources to advance funding legislation. 

The Tribes worked with state legislator Rep. Jonathon Windy Boy on the passage 

of a bill in the 2005 Montana legislature that appropriated approximately $19 million in state funds to pay for long-term water treatment at the mine. 7

While progress has been made, issues at the mine are far from over. A federal 

Court Judge Donald Molloy recently wrote, ‘‘It is undisputed that the Zortman 

Landusky mines have devastated portions of the Little Rockies, and will have effects 

on the surrounding area, including the Fort Belknap Reservation for generations. 

That devastation, and the resulting impact on tribal culture, cannot be overstated.’’ 

61 

Beal Mountain Mine: 

The Beal Mountain Mine is an open-pit cyanide leach gold mine located on the 

Beaverhead Deerlodge National Forest of western Montana. The mine was operated 

by Pegasus Gold Corp. from 1989 until its bankruptcy in 1998. Even after mining 

operations ceased, it continued to pollute neighboring streams with cyanide, selenium and copper. 8 In 2003, scientists determined that native westslope cutthroat 

trout in the mountain streams downstream of the mine were contaminated with 

harmful amounts of selenium caused by mining activities. 9

Warren McCullough, of the Montana Department of Environmental Quality, told 

the Montana Standard in July 2003 that the aftermath of the closed Beal Mountain 

Mine is ‘‘not going to be something that we’re ever going to be able to walk away 

from.’’ In 2003 the Forest Service pulled the mine into a federal ‘‘time critical’’ cleanup program because conditions at the mine present a ‘‘substantial endangerment to 

human health and the environment.’’ 

The Forest Service and State government have already spent $5 million in public 

funds to install and operate a water treatment system, but that is just the beginning. 10 The Forest Service estimates that an additional $13 million is needed for 

additional reclamation and long-term water treatment. 11

Basin Creek Mine: 

The Basin Creek Mine, which is located in the Beaverhead Deerlodge National 

Forest near Helena, Montana, operated from 1989 to 1991. After the Pegasus bankruptcy in 1998, responsibility for the mine fell to the State of Montana and the U.S. 

Forest Service. After spending the $6.5 million reclamation bond, reclamation work 

was still needed and water pollution problems persisted. The Forest Service has 

spent $2 million, and the State of Montana has spent over $5 million in public 

funds, with another $1 million to be spent in 2007. 12

Kendall Mine: 

The Kendall Mine is an open pit gold mine, originally permitted on BLM land in 

north-central Montana—a key agricultural region. Although the mine operated for 

just seven years (1989-1995) it caused substantial impacts to water resources. The 

mine experienced several cyanide releases during its years of operation. 13 Mining 

operations also polluted waters with contaminants such as thallium, arsenic and nitrates. 14

In October 2001, six families who live downstream of the mine filed suit against 

the company for alleged damages to water supplies and private property. According 

to the complaint, mine activities have deprived livestock of water, crops of irrigation 

and harmed the value of downstream ranches and other property. 15

Although the mine was originally permitted on lands managed by the BLM, the 

BLM subsequently entered into a land swap with the company, leaving the State 

to deal with the on-going reclamation and water management issues at the mine. 

To date, approximately $500,000 in public funds have been spent on an EIS to develop a new reclamation plan for the site because water treatment issues were not 

anticipated in the original mine permit. 16

Impacts of Historic Abandoned Mines 

In addition to these modern mine disasters, the State of Montana has also inherited a vast legacy of historic abandoned mines. The state conducted a comprehensive 

inventory of the abandoned hardrock mines on federal, tribal, state and private 

lands to determine where the problem sites were and to develop a comprehensive 

plan to address the pollution and health risks from these mines. There are 6,000 

inventoried abandoned mines scattered around Montana in our old mining districts, 

including 350 or more sites that are top priority for restoration because of the ongoing safety risks or the amount of pollution generated by the mine. 

These 6,000 old mines pose many hazards, ranging from physical and health hazards from open mine shafts or exposure to toxic materials to environmental hazards 

such as water contamination from mine tailings or waste rock. According to the 

Montana Department of Environmental Quality, over 3,700 miles of rivers and 

streams in Montana are polluted by metals, primarily from abandoned mines. 17

To date, the State has spent $26,748,276 for historic abandoned mine cleanup, 

and it estimates the unfunded cost of remediation for the 350 top priority mines at 

$91,815,000. 18 Our state agency estimates that it will cost hundreds of millions of 

dollars to clean up all the problem mine sites identified around Montana. 

The state of Montana has been able to find a small amount of federal, state and 

local funds to address the water quality and safety issues at some of the state’s 

abandoned hardrock mine sites, approximately $3.5 million a year. This funding is 

provided largely by federal grants derived from a tax on coal under the Surface MinVerDate Aug 31 2005 14:50 Oct 10, 2008 Jkt 000000 PO 00000 Frm 00065 Fmt 6633 Sfmt 6621 L:\DOCS\38137.TXT Hresour1 PsN: KATHY
62 

ing Control and Reclamation Act of 1977 (SMCRA). It is not enough to address the 

serious problems posed by abandoned mines in Montana, and the tremendous backlog of sites in need of timely remediation. Montana’s abandoned mine lands program 

is an effective program with demonstrated on-the-ground successes. Yet, the limited 

funding available to the State, allows the program to remediate only a few sites 

each year. The following examples highlight the problems and the need for funding: 

Silver Creek, Marysville 

Abandoned mines in the Marysville area north of Montana’s capitol city have 

caused extensive mercury contamination in the area, precluding land development 

and presenting public health risks. Mine pollution has also contributed towards the 

degradation of area streams, particularly from mercury. The State has issued a fish 

consumption advisory warning the public of the health hazards associated with eating fish from Silver Creek. Mine cleanup costs are projected at $4 million. 19

McLaren Tailings, Cooke City 

The New World Mining District has been extensively damaged by historic mining. 

One of the sites, the McLaren Mill, regularly experienced overflows from the tailings 

impoundment downstream into Yellowstone National Park. 20 By the late 1960s, 

Soda Butte Creek was considered the most polluted stream entering Yellowstone 

National Park, adversely affecting the fish producing capacity of Soda Butte Creek 

within the Park. Some initial remediation work was done in 1969, but current studies show that the McLaren Tailings Site remains a significant source of acid drainage and heavy metal pollution to Soda Butte Creek. 21 The Montana AML program 

projects the cost of mine cleanup at $4 million. 22

Superfund Program 

A number of Montana’s more egregious mine sites have been designated Superfund Sites on the National Priority List. Funding for cleanup of these sites has seriously declined in recent years. The tax that supports the federal Superfund Trust 

Fund hasn’t been collected for 10 years, and very little money remains in the fund. 

The following example demonstrates the real need for reclamation funding. 

Ten Mile Creek 

Montana’s state capitol, the City of Helena, obtains 70% of its municipal drinking 

water from the Ten Mile Creek watershed, which also contains an estimated 150 

abandoned hardrock mines. During heavy rains or spring runoff, the mines and 

their associated waste piles and tailings contribute to the contamination of surface 

water, groundwater, and stream sediments throughout the drainage basin of upper 

Ten Mile Creek and its tributaries. 23

The EPA has determined that these mines pose a current and potential threat to 

human health and the environment. In 1999, the drainage was added to the EPA’s 

National Priorities List for Superfund cleanup. Cost for cleaning up 70 of the 150 

sites is calculated at $22,427,000 24, of which the State of Montana must contribute 

10%. The availability of funds has been piece-meal at best. Much more remains to 

be done. 

Economic Benefits of Cleanup 

The benefits accrued from abandoned mine cleanup go far beyond the benefits to 

public health, safety and the environment. Removing the messes of a hundred years 

of mining takes millions of dollars. Those millions create hundreds of jobs. Across 

Montana, consultants, engineers and construction crews are rebuilding streams, removing contaminated soils and planting new vegetation. These projects represent a 

net injection of new funds into Montana’s economy. Abandoned mine cleanup provides substantial economic benefits, and many of the jobs are created in rural areas. 

According to the federal Office of Surface Mining (OSM), the economic impact from 

abandoned mine remediation projects completed in Montana in 2004 totaled $5.9 

million. 25 The projected economic benefit of the McLaren Tailings cleanup project 

is $8 million in generated income and 280 jobs. 26 The projected economic benefit of 

the Silver Creek is $7.4 million and 260 jobs. 

Places at Risk: Yellowstone National Park 

Montana also offers a compelling example for the need for the discretionary provisions in H.R. 2262. Crown Butte Mines, a subsidiary of a Canadian mining company proposed a massive gold, copper and silver mining enterprise on National 

Forest Service and lands patented under the 1872 Mining Law in Montana, adjacent 

to Yellowstone National Park. The proposed mine straddled three watersheds. One 

watershed drains into an adjacent wilderness area, another drains into the only 

Wild and Scenic River in Wyoming, and the third drains into Yellowstone National 

63 

Park. The project was highly controversial given the potential damage that could 

occur to the water, recreational assets and wildlife habitats in and around the Park. 

Despite the clear risks to one of the nation’s most treasured sites, federal land managers maintained that under the 1872 Mining Law they had no choice but to permit 

the mine. It took intervention by President Clinton in 1996 to stop the mine—at 

a cost of over $65 million to the U.S. taxpayer. 

We are proud of our abandoned mine program in Montana. We have been able 

to complete the inventory of abandoned mines. We know where the highest priorities are for restoration of lands and rivers. Montana’s abandoned mine program is 

a model for other states. 

It is now up to Congress to create a comprehensive program for abandoned mine 

restoration in the West. In order for this program to be successful, it needs to be 

funded. And it should be funded by the mining industry that caused the damage 

in the first place, otherwise the burden falls to the taxpayer to carry hundreds of 

millions of dollars of clean up costs. 

Recommendations for Committee Action: 

Generate Funding for Clean-up of Existing Mine Sites 

As in many arid western states, water is critical for Montana’s economic success. 

Access to clean water is one of the economic drivers in the western part of our state 

and the scarcity of useable water has contributed to population outmigration and 

economic declines in the drier regions. But, as you can tell from the examples in 

this testimony, many Montana citizens are paying a high price to protect and reclaim sources of water. Ranching families strive to protect their livelihood; native 

communities struggle to preserve their remaining water supplies; sportsmen work 

to restore damaged fisheries; and cities pay to remediate their drinking water aquifer. 

Montana faces funding challenges for reclamation and long term water treatment 

resulting from modern and historic abandoned mining operations. We anticipate 

costs of well over $180 million for just the sites I’ve mentioned in my testimony. 

This conservative estimate includes resources that have already been allocated and 

projections for future needs. For too long, mining interests have been able to extract 

U.S. minerals from public lands for free. A royalty levied against the hardrock mining industry, as provided for in H.R. 2262, is an equitable and appropriate way to 

generate revenue to fund the clean up our treasured rivers and streams and reclaim 

lands for the protection of public health and the benefit of Montana’s wildlife. Congress should look for as many opportunities as possible, like a new royalty on 

hardrock mining, to create a revenue stream for restoration of these old mines. This 

program will create jobs in Montana in land and watershed restoration and provide 

a lasting benefit for Montana communities. 

Protect State Resources and Prevent Future Problems: 

At the same time that funding is urgently needed to address the existing mine 

reclamation and water treatment issues, it is equally important that measures be 

taken now to prevent future problems. Under the 1872 Mining Law, federal land 

managers are forced to prioritize mining over all other land uses. While this may 

have seemed reasonable a century ago, it doesn’t provide for sound public land stewardship today. Land managers must have the discretion to balance mining with 

other land uses, and the ability to protect important public resources such as Yellowstone National Park. H.R. 2262 will provide much needed balance to the management of our public lands by requiring the Interior Secretary to assure that mining is conducted in a manner that recognizes the value of such lands for other uses 

such as wildlife habitat, recreation, agriculture and water supplies. 

H.R. 2262 will also return balance to the management of our public lands by establishing operation standards and reclamation criteria for hardrock mining. It’s 

clear that the existing patchwork of federal laws does not provide sufficient protection to our nation’s waterways and puts downstream families, fisheries, wildlife and 

water supplies at risk. A recent scientific study that analyzed water quality impacts 

from twenty-five representative hardrock mines around the west found that 76% of 

those exceeded water quality standards due to mining activity. 27 A solid framework 

of federal laws—specific to the impacts of modern hardrock mining—will better protect our natural resources and reduce the number of future liabilities. 

It is crucial that Congress address the enduring legacy of hard rock mining’s impacts on our nation’s fish and wildlife and other natural resources now. The dramatic increase in commodity prices is currently driving a new ‘‘gold rush’’ across the 

west, including Montana. The number of mining claims staked on public lands in 

Montana has increased dramatically, jumping from 617 new claims filed in 2002 to 

3,012 new claims filed in 2006 (September). 28

64 

Although mining activity on public lands has polluted Montana waters, harmed 

wildlife and left taxpayers with significant cleanup costs, government oversight remains stuck in the 19th Century. Unless something is done now to address the substantive inadequacies of the 1872 Mining Law, these may be the abandoned mine 

land problems of the future. 

ENDNOTES 

1 Kuipers, P.E., Jim. ‘‘Nothing New Here: A Technical Evaluation of Initiative I-147. 

September 2004. 2 U.S. BLM, Action Memorandum for Zortman and Landusky Mines Time Critical 

Removal. June 2004 3 Final Supplemental EIS for the Zortman and Landusky mines, Phillips County, 

Montana, MDEQ and BLM, December 2001. 4 U.S. BLM, Action Memorandum for Zortman and Landusky Mines Time Critical 

Removal. June 2004 5 Ibid. 

6 Ibid. 

7 Mitchell, Larry, ‘‘Metal Mine Bonding in Montana’’ A report of the Montana Environmental Quality Council, May 2004. And, House Bill 379: http:// 

data.opi.state.mt.us/bills/2005/billhtml/HB0379.htm 8 Action Memorandum for Beal Mountain Mine Time Critical Removal. BeaverheadDeerlodge National Forest, Silver Bow County, Montana, July 2003. 9 Aquatic Hazard Assessment for Selenium in the German Gulch subwatershed, 

Based on 2001 and 2002 Data. Prepared January 2003 by Tim LaMarr, Reviewed by Dennis Lemly. 10Mitchell, Larry, ‘‘Metal Mine Bonding in Montana’’ A report of the Montana Environmental Quality Council, May 2004. 11 Backus, Perry. ‘‘Mine Still Causing Trouble’’ Missoulian, January 2, 2006. 12Mitchell, Larry. ‘‘Metal Mine Bonding in Montana’’ A report of the Montana Environmental Quality Council, May 2004. And, Vic Anderson, Montana Dept. of 

Env. Quality, personal communication Aug. 25, 2006. 13Kuipers, P.E., Kuipers and Associates, ‘‘Nothing New Here: A Technical Evaluation of Initiative 147. September 2004. 14Montana DEQ, Notice of Violation and Administrative Order, Docket No. WQ-98- 

06 15 Complaint filed in the Montana 10th Judicial District Court; Alan and Stephanie 

Shammel et. al. v. Canyon Resources Corporation. Sept. 2001. 16Mitchell, Larry. ‘‘Metal Mine Bonding in Montana’’ A report of the Montana Environmental Quality Council, May 2004. 17Sonja Lee, ‘‘State Hits Cleanup Pay Dirt’’, Great Falls Tribune, December 11, 

2005. 18 Vic Anderson, MT DEQ Abandoned Mine Lands Program, Pers. Comm. Sept. 27, 

2002. 19Office of Surface Mining Reclamation and Enforcement, Annual Evaluation Summary Report for the Mine Waste Cleanup Bureau’s Abandoned Mine Land Program for the State of Montana, 2004. 20Draft Final EECA for the McLaren Tailings Site, Prepared for Montana DEQ, 

May 2002. 21 Ibid. 22 Vic Anderson, Montana Abandoned Mine Land Program, Pers. Comm. Sept. 27, 

2007. 23 U.S. EPA, October 2001 Proposed Plan Upper Tenmile Creek Mining Area Site. 24 Ibid. 25Office of Surface Mining Reclamation and Enforcement, Annual Evaluation Summary Report for the Mine Waste Cleanup Bureau’s Abandoned Mine Land Program for the State of Montana, 2004. 26 Ibid. 27Kuipers P.E., Jim and Ann Maest, ‘‘Comparison of Predicted and Actual Water 

Quality at HArdrock Mines: the Reliability of Predictions in Environmental Impact Statements’’ 2006. 28 U.S. Bureau of Land Management, Claims Data 

65 

[The response to questions submitted for the record by Senator 

Lind follows:] 

October 11, 2007 

Rep. Jim Costa, Chairman 

Subcommittee on Energy and Mineral Resources 

U.S. House of Representatives 

Washington DC 20515 

Dear Chairman Costa; 

Thank you for the opportunity to share additional information about the abandoned mine lands program in Montana, and the benefits of mine remediation to 

public health, safety, environment and the economy. Here are my responses to your 

questions: 

1. Please tell us about Montana’s Abandoned Mine Lands program. Would 

you describe it as efficient? Why or why not? How ready is that program 

to participate in reclamation endeavors should funding for hardrock 

mine reclamation increase? 

Montana’s Abandoned Mine Lands (AML) program was established in 1980. It is 

approved and funded by the U.S. Office of Surface Mining Reclamation and Enforcement (OSMRE). In 1990 Montana certified it had completed reclamation of all high 

priority abandoned coal sites, which allowed the state to focus on abandoned 

hardrock mining reclamation. The program has done an extensive inventory and 

prioritized a list of abandoned/inactive hardrock mines. While there are thousands 

of AML sites in Montana, approximately 350 were identified by state and federal 

agencies as high priority. The state program has, since 1995, successfully reclaimed 

31 of these high priority sites: removing waste rock and tailings from streams for 

placement in properly sited engineered repositories with geo-synthetic liners and 

caps, redirecting acid mine drainage away from wastes to reduce water contamination, and removing safety hazards such as dilapidated structures and open shafts 

that pose safety problems. 1

The program is very efficient, utilizing a small professional staff of 5 FTE to manage a large number of private-sector engineers, scientists, and construction contractors. The program on average spends $25/cubic yard of wastes to (1) fully investigate 

the site, (2) prepare the necessary compliance documents to receive clearance from 

OSM, other agencies and the public, (3) prepare design and bid documents, and (4) 

construct the selected cleanup plan. 2 This is 20% of what federal agencies have experienced doing similar work. 3

The AML program currently utilizes approximately 10% of its available funds to 

administer the program; 90% goes to investigations, designs, and construction to reclaim sites. This reliance on private sector contractors, utilizing well-defined agency 

processes, gives the program the ability/flexibility to responsibly respond to and 

spend a significant increase in funding. 4

The proficiency of the program is exemplified by a recent project completed in 

2005—the Montana Silver Smelter Project, located inside Giant Springs State Park 

at Great Falls, Montana. 5 This site contained an area of 40 acres with high levels 

of lead, arsenic, cadmium and iron. The highest levels occurred where the slag was 

dumped near and into the Missouri River. Several fish hatchery employees and 

their families reside on the site near the river and their yards were found to be extremely toxic. The soil had to be completely excavated down to the base of the foundations of the residences and each yard sealed and completely reconstructed with 

clean fill. The site is also heavily utilized by the general public because of the large, 

adjacent State Park and fish hatchery. A national Lewis & Clark celebration drew 

over 150 thousand people to the area during the summer of 2005. The 2.1 million 

dollar clean-up project was finished in 2005—just one year from the initial investigation. 6

2. Your testimony mentioned that reclamation can bring economic benefits. Tell us more about what you have experienced in Montana in terms 

of direct and indirect benefits of reclamation, whether in terms of the 

value of water that no longer needs treatment, recreation, jobs, and so 

on. 

Montana’s AML program currently utilizes 17 contractors with various skills to 

sample sites, perform feasibility studies, prepare cultural resource reports, conduct 

threatened and endangered species assessments, prepare engineering designs, develop bid documents, and oversee construction operations. While some of these are 

national firms nearly all of the personnel are in Montana. 7 Thus, they pay Montana 

66 

taxes, buy food, clothes, cars, and gas for those cars, and contribute to the local 

economy. Largely, the samples they take are sent to laboratories in Montana for 

analysis. The reports are prepared locally and sent to local office supply firms for 

reproduction. In general the 90% spent on contractor services for direct cleanup of 

the AML sites is spent in Montana. 

The Office of Surface Mining and Reclamation has calculated the economic benefits of various construction ready projects in its annual evaluation reports of Montana’s AML program. According to its 2005 report, if $22.49 million in funding were 

available to complete the 20 construction-ready projects identified that year, it 

would generate $53.38 million in economic benefits and support 1,831 jobs. 8

The indirect economic benefits come from public use of the restored resource for 

a variety of purposes. Recreationally, people can use the clean water for fishing, 

swimming, rafting and in some cases even drinking. Restored areas can also be utilized for livestock grazing, camping and other activities that were previously restricted because of risk from either air contaminants, direct contact with materials 

or adversely impacted ground and surface water. Recreational dollars go into the 

local economy. 

For example, in the Boulder River watershed in Montana, more than 80 years of 

mining has left a legacy of degraded water quality, contaminated water supplies in 

local communities, and the drastic reduction or complete elimination of fish populations as far as 55 miles downstream. 9 Spurred by a transitioning economy, surrounding communities faced the challenge of reversing this damage to improve 

water quality and restore impacted fish populations. A combined effort between the 

Montana AML program and federal agencies has resulted in significant improvements. Fish species like the native Westslope Cutthroat Trout have begun to return 

and increase in number. The agencies expect that eventually local species and recreational fishing may once again thrive and the watershed could become a premier 

fishery. 

3. You testified that the unfunded costs of remediation for the top 350 

abandoned mine sites in Montana is $91 million and the total for the 

sites you mentioned specifically in your testimony could be $180 million, 

including long-term water treatment. Meanwhile the state of Montana is 

receiving roughly $3.5 million a year in funding for reclamation. 

I’d like to take a minute to make a correction to my earlier testimony, which understated remediation costs at AML sites in Montana. The $91 Million figure mentioned in my testimony is only the cost for approximately 150 high priority sites, 

not the full 350 priority sites. 10

These estimates are about 7 years old; costs will be higher today and the problems 

that have gotten worse over time will also be more costly to fix. Furthermore, cost 

estimates were not made on many of the sites owned at least in part by federal 

agencies and were not made for sites on private land where enforcement action may 

be taken. The Montana AML program also decided that there was no advantage to 

spending program dollars on developing more cost estimates when the program dollars are better spent performing actual on the ground cleanup. 11

It is also important to note that water treatment costs are not part of the estimate. 12 That cost is undetermined at this time but current estimates are that water 

treatment can easily cost 10 times more than cleanup of the solid wastes (waste 

rock, tailings, overburden) found at abandoned sites. 13

I also mention the Zortman Landusky Mine in my previous testimony. Zortman 

Landusky is a modern abandoned mine located on BLM and patented land in Montana. I’d like to include some supplemental information to clarify costs associated 

with cleanup at this mine. The following paragraph provides a breakdown of incurred and projected costs for the State of Montana and the BLM according to current calculations by the Montana Department of Environmental Quality. 14 The estimated total funding for the Zortman/Landusky project is as follows: 

• Funds provided by Zortman Mining Inc or their Sureties: $52 Million 

• Funds provided by the State of Montana (through 2008): $6.5 Million 

• Funds to be provided by the State of Montana (through 2017): $10 Million 

• Funds provided by the U.S. BLM (through 2008): $8 Million 

• Funds to be provided by the U.S. BLM (through 2017): $6 Million (projected) 

• Anticipated Total: $82.5 Million 

Another project it’s important to mention in terms of mine remediation is the 

cleanup activity associated with the Clark Fork Superfund complex in Montana. The 

Berkeley Pit, a huge, former open-pit copper mine, is one of the largest bodies of 

contaminated water in the United States. It is the most visible of four sites in a 

wider Superfund cleanup of century-old mining sites along the Clark Fork River 

that is expected to cost Arco more than $1 billion by the time it is completed. 15 The 

67 

company indicates that it has spent about $700 million in the past 10 years as part 

of the overall cleanup of toxic mining sites around Montana’s Butte-Silver Bow 

County. 16 The site represents a significant liability to the State of Montana if the 

company should fail or file for bankruptcy. 

4. How many sites are you addressing each year with that funding? 

The Montana AML program currently receives approximately $3.5M/year. At this 

level of funding 2-4 sites can be cleaned up each year. However there are sites on 

the list that will cost between $3M and $7M. These will have to be performed in 

phases. 

The 2006 amendments to the Surface Mine Control and Reclamation Act have yet 

to be fully implemented. Depending on the resolution of how much money OSM will 

release to Montana each year there is a possibility of increased funding for the short 

term (10 years or so) from annual grants and return of the state share of the AML 

trust fund. 

5. Can you provide a cost estimate for reclamation of abandoned mines in 

Montana on public lands? 

Forest Service Lands: According to the Forest Service, there are an estimated 

3,500 abandoned mines identified within National Forest boundaries in Montana. 17

It’s important to note that this number does not include abandoned placer mining 

operations. 18 The Forest Service has indicated that it is requesting assistance from 

the Montana Bureau of Mines to identify the number of placer operations on Forest 

Service lands throughout the State. 19

The Forest Service does not have projections for cleanup costs for the abandoned 

mine sites on Forest Service lands in Montana. 20 Furthermore, field visits have occurred to only a small percent of the sites. The only figures available are rough approximations of nation-wide costs, identified as $5.55 billion. 21

BLM Lands: According to the BLM, the Western BLM Montana Zone currently 

has 5-7 unreclaimed abandoned mines in priority watersheds and 59 unreclaimed 

sites that pose physical safety hazards. 22 For Fiscal Years 2007—2013, the BLM 

has identified seven priority watershed cleanup projects, with projected costs of approximately $5.8 million, and twenty-one priority physical safety hazard sites, with 

projected costs of approximately $500,000. They have not projected cleanup costs for 

the remaining unremediated abandoned mine land sites. 

Sincerely, 

Greg Lind 

Montana State Senator, District 50 

ENDNOTES 

1 Sandi Olsen, Montana DEQ, ‘‘H.R. 2262 Supplemental Information: Questions to 

Mr. Greg Lind, Montana State Senator’’ October 2007. 2 Ibid. 

3 Ibid. 

4 Ibid. 

5 Office of Surface Mining and Reclamation and Enforcement, Annual Evaluation 

Summary Report for the Abandoned Mine Lands Program Montana, 2005. 6 Ibid. 

7 Ibid. 

8 Office of Surface Mining and Reclamation and Enforcement, Annual Evaluation 

Summary Report for the Abandoned Mine Lands Program Montana, 2005. 9 U.S. BLM, ‘‘Abandoned Mine Lands: A Decade of Progress Reclaiming Abandoned 

Hardrock Mines. Sept. 2007. 10Office of Surface Mining Abandoned Mine Lands Information System (AMLIS) 11Sandi Olsen, Montana Department of Environmental Quality, H.R. 2262 Supplemental Information: Questions to Mr. Greg Lind, Montana State Senator, October 2007. 12 Ibid. 13 Ibid. 14Sandi Olsen, Montana Department of Environmental Quality, Supplemental Information provided to Montana Senator Greg Lind, October 2007. 15Spokesman Review, ‘‘Firms Pony Up for Mine Cleanup’’ March 27, 2002. 16 Ibid. 17Data from USDA Center for Environmental Excellence database, 8-15-07 18 Nancy Rusho, AML Program Leader, Region 1, U.S. Forest Service, personal 

comm. October 10, 2007. 

68 

19 Ibid. 20Tom Buchta, AML Program Leader, U.S. Forest Service, Washington DC; response to questionnaire, provided October 11, 2007. 21 Ibid. 22 U.S. BLM, ‘‘Abandoned Mine Land Workplan: Period FY 07-2013’’ 

Mr. COSTA. Thank you very much, Senator. 

Our last witness but certainly not the least is the Executive Director for the Northwest Mining Association, Ms. Laura Skaer. 

Good to see you again. 

STATEMENT OF LAURA SKAER, EXECUTIVE DIRECTOR, 

NORTHWEST MINING ASSOCIATION 

Ms. SKAER. Thank you, Mr. Chairman and Members of the Committee. 

Nearly everyone, especially the mining industry, agrees that 

eliminating AML sites is an important public policy objective, but 

in order to accomplish this goal in the most expedient, effective and 

efficient manner we must first ensure we understand the nature 

and extent of the AML problem so we match the right solution to 

the problem. I am going to highlight the four most important 

points of my written testimony, which are: most of the abandoned 

mine sites are landscape disturbance or safety hazards, approximately 90 percent are in that category; that they are historic; that 

they are state and Federal programs that are effective in making 

progress in reclaiming abandoned mine sites; and that we have an 

absolute need for Good Samaritan legislation if we are truly going 

to address this problem in the right way. 

Now, AMLs are historic. The ones that are in need of remediation occurred all the way back to 1820. Some of them were operated by the Federal government during World War I and World 

War II, and they were all abandoned, most of them were abandoned before the advent of modern mining regulations. Table 1 in 

my testimony compares the advent of mining regulation with the 

history of mining. 

But today we have comprehensive regulatory programs that include bonding requirements and financial assurance requirements 

that work together to ensure that the AML problem is a finite one 

and will not grow in the future. 

Now, I said the vast majority of the sites do not pose significant 

environmental problems. The three types—landscape disturbance, 

safety hazards and environmental problem. The safety hazards we 

need to address first. Those are the ones that are fairly straightforward in addressing and actually they can be addressed for a lot 

less money. 

We have had three recent surveys and they all agree that safety 

and landscape disturbances are between 80 and 90 percent of all 

of the AMLs. One was the Western Governors Association report 

in 1998. A more recent one was the Center for the American West, 

a study in 2005, that found that only a small fraction of an estimated half a million AMLs were significant problems for water resources, and the just released BLM-USFS study that Mr. Ferguson 

testified about. 

Now, Mr. Chairman, you asked how big is the breadbox. Well, 

the estimates are all over the board, and it is primarily because we 

69 

don’t have a universal definition of what constitutes an AML site, 

and because each hardrock AML site is unique. We have had estimates from a half a million to the Forest Service and BLM’s recent 

estimate of 47,000 on 450 million acres of Federal land. 

I don’t think it is important to know exactly how many. I think 

what is important is that we get started and we continue to put 

the money on the ground to abate the AML issues that are out 

there. Great progress has been made with the BLM and the Forest 

Service in every western state. I detail Nevada as an example in 

my written testimony. 

Nevada has made great strides. In fact, they have secured over 

9,000 dangerous abandoned mine openings since the inception of 

the program in 1987. 

We need Good Samaritan legislation. Although some progress 

has been made, the number one impediment to voluntary cleanup 

of abandoned hardrock mine sites is the U.S. is the potential liability imposed by CERCLA, the Clean Water Act and other environmental laws, and virtually everyone agrees that we need Good Samaritan legislation and in fact the National Academy of Science recently recommended to Congress that Congress enact such legislation. 

Last year we supported S. 1848 by Senator Salazar and Allard 

from Colorado. We believe that is an effective model for Good Samaritan legislation. 

We also support the creation of the abandoned mine fund that 

is in H.R. 2262. We believe the money should be distributed back 

to the existing state programs. We do not believe we need a new 

program or that the money should be distributed to OSM for their 

use. That is inefficient. Let us get the money to the states who 

know where the problems are and can best prioritize how that 

money should be spent. 

Finally, we want to see the AML’s remediated and reclaimed as 

much as anyone. After all, they are our dirty pictures, but we need 

your help. We have the desire, the experience, the technology, the 

expertise and the capital to remediate and reclaim AMLs, and we 

ask that you help us with creating a Federal fund that will be used 

from the royalties and to enact Good Samaritan legislation. 

Thank you. 

[The prepared statement of Ms. Skaer follows:] 

Statement of Laura Skaer, Executive Director, 

Northwest Mining Association, Spokane, Washington 

INTRODUCTION AND EXECUTIVE SUMMARY 

My name is Laura Skaer. I am the Executive Director of the Northwest Mining 

Association, a 113 year old non-profit mining industry trade association. Our offices 

are located in Spokane, Washington. NWMA has more than 1,650 members residing 

in 35 states and 6 Canadian provinces. Our members are actively involved in exploration, mining and reclamation operations on BLM and USFS administered land in 

every western state, in addition to private land. Our membership represents every 

facet of the mining industry, including geology, exploration, mining, reclamation, engineering, equipment manufacturing, technical services, and sales of equipment and 

supplies. Our broad-based membership includes many small miners and exploration 

geologists, as well as junior and large mining companies. More than 90% of our 

members are small businesses or work for small businesses. Our members have extensive first-hand experience with reclaiming active and inactive mine sites and remediating a variety of safety issues and environmental conditions at these sites. 

70 

Our members also have extensive knowledge of the scope of, and potential dangers posed by, hardrock abandoned mine lands (AMLs), as well as experience and 

expertise in dealing with those dangers. As I discuss below, AMLs in need of significant remediation are limited in number and not expected to increase. They comprise 

mines that were developed and abandoned before the advent of modern environmental laws in the 1970s and 1980s, and regulations that were updated as recently 

as 2001, including current comprehensive regulatory programs at both the federal 

and state levels that require mining companies to provide financial assurance to ensure that, at the end of exploration and/or mining operations, sufficient funds will 

be available to reclaim the sites if the operator becomes bankrupt or otherwise is 

unable to reclaim the sites. 

Moreover, the Western Governors’ Association (WGA), the Bureau of Land Management (BLM), the U.S. forest Service (USFS) and the non-partisan Center of the 

American West are all agreed that the vast majority of AMLs pose no dangers or, 

at most, safety rather than significant environmental hazards. 

That being said, the mining industry supports the creation of a new federal AML 

fund, to be financed from royalties owing under any mining law legislation enacted 

by the Congress, to augment the monies available to State AML funds to address 

safety and, where needed, environmental hazards at AML sites. The industry also 

continues to strongly support the enactment of comprehensive Good Samaritan legislation that would allow mining companies with no previous involvement at an 

AML site to voluntary remediate and reclaim that site, in whole or in part, without 

the threat of potentially enormous liability under CERCLA, the Clean Water Act, 

and other federal and state environmental laws. 

The mining industry has long been front and center in trying to deal responsibly 

with AMLs. Some of these efforts are documented in a study researched and authored by two of our members, Debra W. Struhsacker and Jeff W. Todd, and published in 1998 by the National Mining Association entitled ‘‘Reclaiming Inactive and 

Abandoned Mine Lands—What Really is Happening.’’ (A copy of this study is being 

included in the record and is hereinafter cited as the ‘‘NMA Study’’). This study presents compelling evidence that given the right opportunity, the mining industry can 

play a significant role in eliminating the safety hazards and improving the environment at abandoned and inactive mines. 

ABANDONED MINE LANDS ARE HISTORIC 

It is important to understand that when we talk about hardrock abandoned mine 

lands we are talking about a problem that was created in the past due to mining 

practices used at sites that were mined prior to the enactment of modern environmental laws and regulations. Table 1 lists the dates of development of many of the 

major mining districts in the country compared to the dates of enactment of many 

of the federal and state environmental laws and regulations that govern hardrock 

mining activities. As is clearly seen from this table, mining in the U.S. dates back 

to the 1820s, with significant historic mine development throughout the remainder 

of the 19th century and into the early part of the 20th century. Many of the AML 

sites that need attention were created in this timeframe. 

It also is important to note during World Wars I and II, the federal government 

took over operations at many mines to produce the metals and minerals necessary 

for the war efforts. The focus was on maximizing production and winning the war— 

not on using mining methods that were designed to protect the environment. The 

metals mined from these sites greatly benefited U.S. society by contributing to the 

country’s victories in both wars. What we are left with today, however, are the environmental impacts created by these unregulated mining activities. Some of these 

war-efforts mines are now abandoned. Because the American public benefited in the 

past from mining of these sites, we now have a public responsibility to develop policies and funding mechanisms to reclaim these sites. 

Modern mining started in the mid-1960s at about the same time that the country 

was developing an environmental awareness and when Congress was starting to 

enact environmental laws. Thus, as is readily apparent from Table 1, the U.S. environmental statutory and regulatory framework is a recent development compared to 

the history of mining in the U.S. Moreover, it is important to recognize that many 

of the laws and regulations governing hardrock mining are quite new—some are 

less than 20 years old. For example, Nevada’s state reclamation law went into effect 

in 1990, only 17 years ago. BLM’s regulations for hardrock mining, the 43 C.F.R. 

Subpart 3809 program, went into effect in 1981 and were substantially updated just 

six years ago in 2001. 

The body of federal and state environmental laws and regulations shown in Table 

1 has had a significant and positive impact on the way mining is now conducted 

in the U.S., resulting in a substantial reduction in environmental impacts and draVerDate Aug 31 2005 14:50 Oct 10, 2008 Jkt 000000 PO 00000 Frm 00074 Fmt 6633 Sfmt 6621 L:\DOCS\38137.TXT Hresour1 PsN: KATHY
71 

matic improvements in reclamation. As a result of these laws and regulations, the 

domestic hardrock mining industry of today is highly regulated and environmentally 

and socially responsible. Also, because these regulations require exploration and 

mining companies to provide financial assurance to guarantee reclamation at the 

end of the project, mines today will not become future AML sites. In the event a 

company goes bankrupt or defaults on its reclamation obligations, state and federal 

regulatory agencies will have bond monies that will be available to reclaim the site. 

Thus, the AML problem is a finite and historical problem and not one that will grow 

in the future. 

As shown in Table 1, the U.S. Forest Service adopted the 36 C.F.R. Part 228A 

surface management regulations governing hardrock mining operations on National 

Forest Lands in 1974. Six years later, in 1980, BLM enacted the 43 C.F.R. Subpart 

3809 surface management regulations, which were substantially expanded and updated in 2000 and 2001. Both BLM’s 3809 regulations and the U.S. Forest Service’s 

228A regulations require that all exploration and mining activities above casual use 

provide federal land managers with adequate financial assurance to ensure reclamation after completing the exploration or mining project. Because the underlying purpose of the financial assurance requirement is to ensure reclamation of the site in 

the event an operator goes bankrupt or fails to reclaim a site for some other reason, 

the amount of required financial assurance is based on what it would cost BLM or 

the U.S. Forest Service to reclaim the site using third-party contractors to do the 

work. 

In addition to mandating reclamation and establishing financial assurance requirements, these comprehensive federal regulations also require compliance with 

all applicable state and federal environmental laws and regulations to protect the 

environment and to meet all applicable air quality, water quality and other environmental standards. 

Additionally, all western public land states have enacted comprehensive regulatory programs that govern hardrock mining operations in their respective state. 

Like the federal financial assurance requirements, these state regulatory programs 

require the posting of adequate financial assurance or reclamation bonds in an 

amount equal to the cost that would be incurred by the government if it had to contract with a third party to remediate and reclaim the site. In many states, federal 

and state regulators with jurisdiction over mining work together to jointly manage 

the reclamation bonding programs. For example, in Nevada, the BLM, the U.S. 

Forest Service and the Nevada Division of Environmental Protection/Bureau of Mining Regulation and Reclamation have entered into a Memorandum of Understanding (MOU) that establishes procedures for coordinating the federal and state 

regulatory programs for mining. This MOU specifies that the federal and state 

agencies will work together to review reclamation cost estimates and to agree upon 

the required bond amount. 

72 


38137.001.eps
73 

In 1999, the National Academy of Sciences National Research Council, in response 

to a request from Congress to assess the adequacy of the regulatory framework for 

hardrock mining on federal lands, found that—[t]he overall structure of the federal 

and state laws and regulations that provide mining-related environmental protecVerDate Aug 31 2005 14:50 Oct 10, 2008 Jkt 000000 PO 00000 Frm 00077 Fmt 6633 Sfmt 6621 L:\DOCS\38137.TXT Hresour1 PsN: KATHY

38137.002.eps 38137.003.eps
74 

tion is complicated, but generally effective.’’ Thus, these state and federal comprehensive regulatory programs together with financial assurance requirements 

work together to ensure that modern mining is environmentally responsible and 

that today’s mines will be reclaimed. 

THE VAST MAJORITY OF AML SITED DO NOT POSE SIGNIFICANT ENVIRONMENTAL PROBLEMS 

It is important to understand that the vast majority of all hardrock AML sites 

are not problematic. The 1998 WGA report mentioned above estimated that more 

than 80% of AML sites create neither environmental nor immediate safety hazards. 

Where problems do exist, safety hazards are the primary problem although some 

AML sites have both environmental and safety issues. 

The Center of the American West released a study in 2005 entitled ‘‘Cleanup of 

Abandoned Hardrock Mines in the West.’’ The Center, which is affiliated with the 

University of Colorado, states at page 31 of its report that ‘‘only a small fraction 

of the 500,000 abandoned mines [identified by the Mineral Policy Center] are causing significant problems for water quality.’’ 

The 2007 USFS/BLM report cited above estimates that as many as 10% of the 

AML sites on USFS- or BLM-managed land may include environmental hazards and 

that the balance, or approximately 90%, are landscape disturbances or safety hazards. The finding that landscape disturbance and safety hazards comprise the bulk 

of the AML problem is consistent with other reports. 

Although much of the public debate about the AML problems typically focuses on 

environmental issues, it is really safety hazards that deserve our immediate attention. Nearly every year, the country experiences one or more tragic accident or fatality at an AML site where somebody has fallen into or become trapped in an 

unreclaimed historic mine opening. AML safety hazards pose a far greater risk to 

the public than AML environmental problems. Therefore, we should focus first-priority AML funds on eliminating safety hazards at abandoned mine sites located 

near population centers and frequently used recreation areas. 

The 1998 NMA Study includes a comprehensive discussion of the types of safety 

hazards and environmental problems that exist at AML sites. Table 2 summarizes 

this discussion and lists the safety hazards and environmental problems that may 

occur at AML sites and the techniques used to address these hazards and problems. 

As stated above, landscape disturbances and safety hazards are the dominant problem at most AML sites. However, some sites may have a combination of landscape 

disturbance, safety hazards, and environmental problems. 

Although many of the above listed measures are expensive—especially those used 

to remediate environmental problems—they are technically straightforward, well 


38137.004.eps
75 

understood, and are generally quite effective in improving environmental conditions 

at AML sites. The NMA Study identified a number of AML sites with safety hazards 

and/or environmental problems that were substantially reduced through the use of 

one or more of the measures listed in Table 2. It is important to understand, however, that each AML site is different. The measures shown in Table 2 to address 

landscape disturbance, safety hazards, and environmental problems at an AML site 

must be custom-tailored to fit the site-specific conditions of a particular site. A cookie-cutter, one-size-fits all approach will not achieve optimal results and may even 

fail to address the problem. 

AML policy discussions have had a tendency to focus on the worst and most complex AML sites. This mischaracterization of the global AML problem has probably 

contributed to the lack of progress in developing federal policies and programs to 

solve the AML problem. The legislative dialogue about enacting Good Samaritan 

legislation has perhaps been made more difficult by focusing on sites with very serious or complex environmental and liability issues such as sites with acid drainage 

from underground mine openings which typically require extensive and costly remediation efforts. Although this type of site is serious and deserving of our immediate 

attention, it is not representative of the safety and environmental concerns at most 

AML sites. NWMA urges the Congress to take a closer look at the universe of AML 

sites in developing a Hardrock AML program and in addressing Good Samaritan 

legislation. Focusing solely on the most challenging AML sites is likely to produce 

programs with unwarranted complexity and costs. 

HOW MANY AML SITES ARE THERE? 

Historic abandoned hardrock mines have long been an issue of concern to industry, government and the public. Nearly everyone—especially the mining industry— 

agrees that eliminating AML sites is an important public policy objective. Past estimates of the scope of the historic AML problem range considerably, with various 

state and federal agencies and NGOs, estimating the number of unreclaimed 

hardrock mining sites. Part of the reason for the apparent disparity in these estimates is that these inventories have defined the term ‘‘site’’ in an inconsistent manner. Some AML inventory efforts have considered a ‘‘site’’ to be any single opening, 

mining or exploration disturbance or mining related feature. Other state AML programs and the mining industry define ‘‘site’’ to include multiple features that can 

be addressed with coordinated and consolidated reclamation and remediation measures. Continued debate over a universal definition of AML ‘‘site’’ and development 

of a comprehensive hardrock AML inventory diverts attention and resources from 

the real issues that need to be addressed. Moreover, the progress being made in reclaiming AML sites demonstrates that it is not necessary to count every site prior 

to designing effective programs to address the problem. 

In 1998, the Western Governors’ Association compiled an inventory of hardrock 

AML sites. This effort confirmed the results of earlier efforts—because each 

hardrock AML site varies in geology, geography, climate, terrain, hydrology, and 

types of AML features, and because there are different definitions of what constitutes an AML site, it is very difficult, if not impossible to produce a complete inventory of hardrock AML sites. 

The most recent estimate of the number of AML sites is the just released U.S. 

Forest Service/ BLM report entitled Abandoned Mine Lands: A Decade of Progress 

Reclaiming Hardrock Mines. This report estimates that there are approximately 

47,000 abandoned mine sites on more than 450 million acres of federal land managed by those two agencies. 

While the desire to have a complete inventory of hardrock AML sites in the western U.S. was perhaps an appropriate focus ten or fifteen years ago, we believe that 

enough is now known about the scope of the problem. This knowledge coupled with 

the fact that on-the-ground progress is being made towards solving the problem suggests to us that inventory efforts have reached a point of diminishing returns—it 

is time to stop counting sites and to focus all of our energy upon reclaiming them. 

Further efforts to develop a comprehensive inventory will not add much value or 

contribute anything new to solving the AML problem. The focus should thus be onthe-ground remediation and reclamation of known hardrock AML sites. We therefore urge this Subcommittee to eliminate or modify the provision in H.R. 2262 Section 403(c) that requires the Secretary to develop another AML inventory. 

CURRENT HARDROCK AML PROGRAMS 

Every western public land state, the BLM, the Forest Service, and the Army 

Corps of Engineers have abandoned mine land programs that address abating safety 

hazards, remediating environmental problems, and reclaiming disturbed landscapes 

76 

associated with abandoned hardrock mining sites. The 1998 NMA Study cited above 

found that 

...state AML programs and industry-sponsored efforts have abated, reclaimed and remediated a number of high priority AML sites throughout 

the west. Private funding, equipment and labor for mining companies have 

been responsible for reclaiming and remediating many AML sites. Mining 

companies have spent tens of millions of dollars of voluntary on-the-ground 

cleanups and abatements of AML sites. (NMA Study at ES-2) 

The Nevada Division of Minerals Abandoned Mine Lands program is representative of an effective state AML program. Nevada’s AML program receives funding 

from a $1.50 fee on county mining claim filings and a one-time fee of $20 per acre 

of new permitted mining disturbance. The program is supplemented by small grants 

from BLM’s abandoned mines program. In 2006, Nevada’s AML program secured 

540 hazards with approximately $350,000 in funding. The bulk of the work includes 

fencing or closing mine openings on federal public land. Since the inception of the 

program in 1987, the Nevada Division of Minerals has secured over 9,000 dangerous 

abandoned mine openings. 

The Nevada Division of Minerals also serves as lead coordinator of the Nevada 

Abandoned Mine Land Environmental Task Force. The task force was formed in 

1999 and is comprised of 13 state and federal agencies. The task force has overseen 

reclamation activities at 21 abandoned mines sites. The Army Corps of Engineers 

Restoration of Abandoned Mine Sites (RAMS) program has provided $4 million since 

2000 to support development of closure plans and small, innovative, on-the-ground 

demonstration projects related to AML remediation and reclamation. 

In addition to these efforts, a partnership, known as the Nevada Mine Backfill 

Program, between the BLM, the Division, the Nevada Mining Association and member companies, and others has resulted in the backfilling of 265 hazardous mine 

openings in Clark, Esmeralda, Nye and Washoe counties since 1999. This program 

received the Northwest Mining Association’s Environmental Excellence Award in 

2000 for protecting public health, safety and the environment through government/ 

industry cooperation. 

As demonstrated by the Nevada AML programs, much progress has been made 

by existing state AML programs, the BLM, USFS, RAMS and the industry. Mr. 

Tony Ferguson, Director of Minerals and Geology Management, USFS will be testifying to the excellent progress the BLM and USFS have made over the past decade 

in remediating and reclaiming abandoned mine sites. 

INDUSTRY SUPPORTS CREATING A FEDERAL HARDROCK AML FUND 

The mining industry supports creating a federal hardrock AML fund using revenue generated from a net royalty on new claims to support, augment and expand 

the existing AML programs that have proven to work. The fund also should allow 

for donations by persons, corporations, associations and foundations, and other monies that are appropriated by the Congress of the United States. These funds should 

be distributed to the states with hardrock AMLs to be administered by the respective state AML program. States that generate royalty revenues should be the first 

in line to receive federal AML funds. 

While federal oversight might be appropriate, we do not support the establishment of a new, separate federal hardrock AML program or delegating the responsibility for hardrock AML remediation and reclamation to the Office of Surface Mining. This would be an inefficient use of the monies collected and would prevent the 

maximum amount of money going into on-the-ground remediation and reclamation. 

Hardrock AML sites are unique in their geology, geography, terrain and climate and 

a uniform, one-size-fits-all program will not work. The state AML programs are in 

the best position to prioritize where federal AML funds should be spent within the 

state and to carry out hardrock AML hazard abatement, remediation and reclamation, in cooperation with the industry and other groups, including NGOs. The NMA 

Study describes a streamlined interagency regulatory approach that was in place at 

the time in South Dakota that proved to be particularly effective in facilitating AML 

cleanup activities by minimizing protracted regulatory reviews and permit requirements and emphasizing on-the-ground measures. 

THE NEED FOR GOOD SAMARITAN LEGISLATION 

Although, as discussed above, some progress has been made by industry and existing State and federal AML programs in reducing safety hazards and remediating 

and reclaiming hardrock AMLs, the number one impediment to voluntarily cleanup 

of hardrock abandoned mine lands is the potential liability imposed by existing federal and state environmental laws, in particular the Clean Water Act (CWA), the 

Comprehensive Environmental Response, Compensation and Liability Act 

77 

(CERCLA) (commonly known as Superfund), the Resource Conservation & Recovery 

Act (RCRA), and the Toxic Substances Act. Under these laws, a mining company, 

state or federal agency, NGOs, individuals or other entities that begin to voluntarily 

remediate an abandoned mine site could potentially incur ‘‘cradle-to-grave’’ liability 

under the CWA, CERCLA, and other environmental laws, even though they did not 

cause or contribute to the environmental condition at the abandoned mine land site. 

Furthermore, they could be required under the CWA to prevent discharges to surface waters from the AML in perpetuity, unless those discharges meet strict effluent 

limitations and do not result in exceedences of stringent water quality standards, 

something that may not be possible; and in any event, may be so expensive that 

no company, individual, or other entity would undertake a voluntary cleanup. 

Virtually everyone who has looked at the AML issue in the west has recognized 

and documented the legal impediments to voluntary cleanup of AMLs and have 

urged that those impediments be eliminated. These groups include the Western 

Governors’ Association, the National Academy of Sciences, and the Center for the 

American West. 

The time has come for Congress to adopt the recommendation from the National 

Academy of Sciences National Research Council’s 1999 report to Congress and enact 

effective Good Samaritan legislation that will create a framework, with incentives 

and liability protection for numerous entities, including mining companies, local, 

state and federal agencies, NGOs, and tribes to voluntarily remediate of environmental problems caused by others at abandoned hardrock mine sites in the U.S. 

Several Good Samaritan bills have been introduced in the past, but only S. 1848, 

introduced last year by Senators Salazar and Allard, passed out of committee. We 

strongly supported, and continue to support the Salazar/Allard approach to Good Samaritan legislation. 

No one knows more about reclaiming and remediating mine sites than the mining 

industry. The mining industry has the desire, the resources, expertise, experience, 

and technology to effectively and efficiently assess the environmental and safety 

issues present at an AML and to properly remediate, reclaim and secure those sites. 

This often can be done in conjunction with reclamation activities at nearby active 

mines which the company operates, resulting in an efficient use of resources to improve the environment and enhance public safety. 

In some cases, processing tailings, waste rock piles and other historic mining materials at AML sites may be the most efficient and least costly means of cleaning 

up a site. The waste from any reprocessing or remining activities would then be disposed of in a modern engineered facility that complies with current environmental 

standards and practices. Remining/reprocessing is thus an environmental remedy in 

the form of resource recovery and source reduction, both of which are EPA-favored 

responses for environmental cleanups and waste management. The net result would 

be an efficient use of resources to increase the ultimate recovery of metals the U.S. 

needs for strategic and economic purposes while improving the environment. 

Given the desirability of achieving the resource recovery and source reduction that 

can result from reprocessing and remining, Good Samaritan legislation should allow 

the reprocessing, remining, and reuse of ores, minerals, waste rock piles and other 

materials existing at an AML, even if this results in the mining company or other 

Good Samaritan recovering metals from such materials and making some cost recovery and perhaps a little profit on its Good Samaritan operations. Given the volatility 

and cyclical nature of metal prices, it is just as likely that the costs of any Good 

Samaritan project would exceed the revenue generated by removal and reprocessing. 

In any event, these activities should be allowed as part of a Good Samaritan project 

only if the overall result would be an improvement in environmental conditions at 

the site. 

The Mining and Minerals Policy Act of 1970 (30 U.S.C. § 21(a)), specifically establishes the Congressional intent ‘‘to foster and encourage private enterprise in the 

development of economically sound and stable domestic mining, minerals, metal, 

and mineral reclamation industries.’’ Including remining and reprocessing authority 

in Good Samaritan legislation is consistent with and promotes this Congressional 

intent. 

SUPERFUND IS NOT THE ANSWER 

Some Members of Congress and NGOs argue that instead of enacting Good Samaritan legislation, Congress should fund the Superfund program and EPA, under 

the Superfund program, should address all hardrock abandoned mine lands. In our 

opinion, this is an inappropriate, inefficient, and costly approach to remediating and 

reclaiming historic abandoned mine lands. Moreover, the Superfund program is 

clearly not designed to address the most pressing and prevalent AML problem— 

abatement of safety hazards. 

78 

Superfund does not have a very good track record at mine sites. Superfund was 

not designed to address natural processes that result in contaminated watersheds 

at AMLs. The historic mining communities of Aspen and Leadville in Colorado, 

Butte, Montana, Triumph, Idaho and the Bunker Hill site in northern Idaho’s Silver 

Valley all have experienced first hand the failures of Superfund and the costly results of misguided policies and millions of dollars wasted on legal delays and repetitive studies. Of the billions of dollars spent of Superfund efforts, only 12% of those 

moneys have actually gone into cleaning up the environment while the balance went 

to legal and consulting fees. 

In each of the Superfund sites noted above, cleanup has cost three to five times 

more than reasonable estimates of what it should have cost. Bunker Hill is a prime 

example of the waste that occurs when an EPA-led Superfund effort is undertaken 

at mine sites. This can be demonstrated by comparing Bunker Hill with another example from the Silver Valley in northern Idaho. 

There are many historic mining sites on Nine Mile and Canyon Creeks just outside the Bunker Hill Superfund site. Two mining companies working together with 

the State of Idaho were able to cleanup and remove historic mine wastes, tailings 

and waste rock piles from Nine Mile and Canyon Creeks, and restore fish habitat 

on the two creeks. This work was accomplished at cleanup costs that were onefourth to one-fifth of the cleanup costs on a per-cubic-yard of material removed basis 

compared to EPA’s Superfund costs. 

I have visited these sites on three occasions and can personally testify to the outstanding remediation and reclamation on Canyon and Nine Mile Creeks, and the 

substantial improvement in water quality as a result of these efforts. And, the work 

has been completed, unlike the work at Superfund sites which seems to never end. 

Finally, at the risk of stating the obvious, the Superfund legal procedures to identify Potentially Responsible Parties (PRPs), to assign joint and several liability, and 

to recover costs are premised on the concept that the site in question has owners 

who can be identified and compelled to pay for the cleanup. None of these provisions 

are appropriate for AML sites, which by definition, no longer have an identifiable 

owner. Thus, the Superfund Program is not an ideal or even applicable template for 

most AML sites. 

There may be some sites for which Superfund is the appropriate remedy, but let’s 

not limit the tools we have in the toolbox. Thoughtful and effective Good Samaritan 

legislation that encourages and incentivizes Good Samaritans is an important tool 

to add to the Abandoned Mine Land remediation and reclamation toolbox. 

CONCLUSION 

Industry wants to see abandoned mines cleaned up. After all, they are our dirty 

pictures, and an albatross hanging around our neck. Mining opponents use pictures 

of historic, unreclaimed abandoned mines to foment public opposition to new mine 

proposals. But it is time for this recrimination and finger pointing to stop and to 

start working together to solve this problem. 

Industry wants to see AMLs remediated and reclaimed as much as anyone, but 

we need your help. The mining industry has the desire, the experience, the technology, the expertise and the capital to remediate and reclaim AMLs. In fact, the 

mining industry has more experience and expertise than all other potential Good 

Samaritans put together. A federal hardrock AML fund using revenue generated 

from royalties on new claims combined with effective Good Samaritan legislation to 

encourage private-sector reclamation efforts offers the best opportunity to expedite 

safety hazard abatement, remediation and reclamation of hardrock AML sites, and 

create a win-win-win-win for the environment, for the Good Samaritan, for the community, and for society. 

We applaud the Chairman for holding this hearing and look forward to working 

with him to produce constructive amendments to the Mining Law that will provide 

the certainty, financial and regulatory framework necessary to maintain a prosperous domestic mining industry that will be able to generate revenues from a royalty on new claims to provide an additional funding source to augment existing 

state, federal and industry AML remediation and reclamation efforts. Good Samaritan legislation is essential if we truly want to address the historic AML problem. 

I thank you for this opportunity to testify on this important issue and will be 

happy to answer any questions. 

79 

[The response to questions submitted for the record by Ms. Skaer 

follows:] 

October 10, 2007 

The Honorable Jim Costa 

Chairman, Subcommittee on Energy and Mineral Resources 

U.S. House of Representatives 

Committee on Natural Resources 

Washington, DC 20515 

Dear Mr. Costa: 

Thank you for your October 4, 2007 letter and the additional questions for the 

record with respect to the legislative hearing on October 2, 2007. Our answers to 

your three questions are set forth below. 

1. H.R. 2262 Proposes that reclamation funding go first to sites where 

there are public health and safety issues. Do you support that provision 

in Title IV? 

Answer: 

We believe AML sites that present public health and safety issues should be the 

first priority for funds distributed to the states, BLM, USFS, and ACOE RAMS 

AML programs. As set forth in our written testimony, we believe the funds should 

be distributed directly to existing state/federal AML programs. There is no need to 

create a new federal AML program that would be administered by the Secretary. 

While we believe abating public health and safety issues associated with hardrock 

AMLs should be the first priority for AML funds, we do not support Section 402 

as drafted. We especially are concerned with the language in § 402(b)(1) that makes 

addressing surface water and ground water contamination the highest priority and 

equates this contamination with ‘‘extreme danger.’’ There is no ‘‘extreme danger’’ to 

the public resulting from contamination of surface water and ground water by abandoned mines. In marked contrast, there is extreme danger posed by unsecured mine 

openings. The USFS/BLM study states that there is an average of 25 deaths per 

year due to people falling into abandoned mines (see page 21). There are not 25 

deaths per year from exposure to high levels of heavy metals in water downstream 

from AMLs. We do need to address surface water and ground water contamination 

from AMLs, but it should not be our highest priority for the expenditure of moneys 

from the AML Fund. Addressing physical hazards and unsecured mine openings 

should be our first priority in order to protect public health and safety. 

2. Would you recommend that we use the National Mine Lands inventory 

that Mr. Ferguson from the Forest Service mentioned in his testimony 

as the starting point for use of any new reclamation funding? 

Answer: 

NWMA believes the National Mine Lands inventory Mr. Ferguson mentioned and 

is referenced in the joint BLM/USFS report entitled ‘‘Abandoned Mine Lands: A 

Decade of Problems Reclaiming Hardrock Mines’’ is a good starting point and should 

be combined with the abandoned mine lands inventories the various western states 

have conducted. We believe it would be prudent to use both the National Mine 

Lands inventory Mr. Ferguson mentioned together with the state inventories, and 

that state AML programs are in the best position to prioritize the use of any new 

AML funding. 

3. Does NMA now support the prohibition against self-guarantees for 

bonds that was incorporated in 

3809 rule changes? Do you think Nevada should take action to conform with the 

prohibition for all mined lands? 

Answer: 

We do not believe it is necessary for Nevada to conform to the 3809 approach to 

corporate guarantees. The Nevada Division of Environmental Protection (NDEP) 

carefully considered the viability of the corporate guarantee as an assurance mechanism in the 2001-2002 timeframe, contemporaneous with and after the BLM revised 

its 3809 regulations. Nevada chose to retain its corporate guarantee program, with 

certain significant enhancements. The following enhancements have been made to 

the Nevada program: 

• The regulations now make clear, and the policy of the NDEP is that even if a 

company satisfies the minimum financial criteria to qualify for a corporate 

80 

guarantee, it does not mean that it is entitled to post a corporate guarantee for 

a full 75% of the surety amount. Rather, NDEP retains the discretion to accept 

a lower percentage of corporate guarantee. It would do so, for example, where 

a corporate guarantor barely satisfies the financial criteria or where its financial results show a negative trend. 

• The regulations provide for an annual review of the certified financial statements of a corporate guarantor by an independent third-party accounting firm. 

This allows NDEP to detect changes in the financial condition of a corporate 

guarantor and if necessary, take appropriate action, such as increasing the percentage of the financial assurance that must be satisfied by a surety bond or 

letter of credit. The corporate guarantor is required to pay a fee to NDEP to 

cover the cost of the third-party review. 

• The regulations also established a process fluid stabilization trust fund. NDEP 

recognized the need to be able to access immediate funds to ensure containment 

of process fluids in the event of an operator’s financial failure. The funds have 

been paid and are in NDEP’s possession. If NDEP ever has to access the funds, 

it then repays the trust fund from the proceeds of the operator’s financial assurance. 

• NDEP, in coordination with the BLM State Office in Nevada, has also established the standard unit cost estimator model for reclamation cost calculation. 

This cost estimator is updated annually to reflect current labor (Davis/Bacon 

wages), materials and fuel costs. This tool assures that true third party costs 

are used in the calculation. The tool also ensures that all of the cost line items 

are transparent and verifiable. By regulation, operators must update the cost 

estimate for each project every three years. 

We believe the approach taken by NDEP is appropriate and has proved to be capable of protecting Nevada’s interest in a sound yet flexible financial assurance system. 

Thank you for the opportunity to provide additional information. Do not hesitate 

to contact us if you have further questions or if we can be of assistance on these 

issues. 

Sincerely, 

/s/ Laura Skaer 

Executive Director 

Mr. COSTA. Thank you very much, Ms. Skaer, for giving us a better description as to the size of the breadbox, as I like to describe 

it. 

For members of this panel and for members of the committee, we 

have been noticed that there are going to be votes at 4:30, two 

votes today, and it is the Chair’s intent when the first roll call 

comes in that we will complete our round of questioning, and whoever is questioning at that time, we will allow you to complete your 

questioning, and we will close it at that point, and then we will 

submit any written questions for members of the panel, but I think 

everybody is going to get at least their five minutes, and we will 

see how much longer it goes from there. 

So don’t start yet on me, Holly. OK? You can start now. 

I am going to have the National Conference of State Legislatures 

put together something on what different states are doing. When 

we were in Nevada with Mr. Heller, it was clear to me, and actually I think you were there, Ms. Skaer, as well, that Nevada is 

doing a lot since the inception of the reform of their own mining 

law in the 1980s, and I think we need to develop some sort of a 

matrix as to what states are doing so that, in essence, we try not 

to reinvent the wheel. So I will suggest to staff both on the majority and minority side to try to work with NCSL to try to get a handle and see how that fits with the Good Samaritan legislation. 

81 

Senator Lind, I was interested in your comments because all of 

us, especially if you are from the West, understand how precious 

our water resources are. 

Has Montana attempted to put—I mean, you talked about the 

price tag on the three mines you cited, but the full potential of the 

impact or the cost of cleanup on water quality and abandoned 

mines in Montana? 

Mr. LIND. Mr. Chairman, Members of the Committee, the numbers I have come from our Abandoned Mine Lands Program and 

they are not comprehensive. 

Mr. COSTA. Is your state doing that? 

Mr. LIND. I have looked for that information recently and I will 

be happy to get back to the committee. I don’t have that before me. 

The total package, it was not available in the last couple of days. 

Mr. COSTA. OK. Mr. Ferguson, there was a description by Ms. 

Skaer that talks about the size of the abandoned mine problem, 

and Mr. Hanlon and Mr. Ferguson, I would like to get both from 

you if you, first of all, agree with the numbers that you used, 

roughly, that the overwhelming majority are safety issues, or hazard issues as opposed to water quality issues. Do your numbers, 

your research, concur with her testimony? 

Mr. FERGUSON. Mr. Chairman, I can—— 

Mr. COSTA. I mean, when you look at the size of this document 

here as I was perusing it. 

Mr. FERGUSON. I would like to agree with the complexity of the 

numbers. I think Laura mentioned that there is a whole variety of 

numbers, and I think that has to deal with sort of a lack of consistency among the various reporting agencies back from the Bureau 

of Mines and the way the states characterize, so there is a large 

number. 

Mr. COSTA. How would you describe today the collaboration between your Forest Service and the states in assessing this problem? 

Mr. FERGUSON. Well, we work very closely with the states. We 

are trying to do more and more. One of the efforts that we are underway right now with the BLM is we are transferring all of our 

geospatial data on Forest Service lands to the BLM who will be entering that into a geo-communicator which will be available for the 

general public to see where these locations are. 

We approach all of our reclamation efforts, and especially the 

ones that involve water on a watershed basis, so we look at that 

mixed ownership. We work with the state and we want to be sure 

that we are looking at sort of the headwaters when we start because if you start working and doing reclamation at a lower level 

in the watershed, you may not be making any kind of accomplishments, and with the mixed ownership patterns, we do work with 

the states. 

Mr. COSTA. All right. My time is quickly eroding. Mr. Hanlon, 

part of my difficulty is the wide variety of the cost of cleaning up. 

Even though regardless of the percentage, and it seems like we can 

agree on the percentage, I have heard a price tag $30 billion out 

there, and I have heard it as high as double that. How do we get 

a better handle on this? Again, I am trying to get a understanding 

of how long it is going to take to clean these up, and how many 

resources it is going to require. 

82 

Mr. HANLON. I am not sure I have a sort of capsulated answer 

for you this afternoon, Mr. Chairman. I think the complexity of the 

challenge that states across the country and EPA regions are dealing with is both within the Superfund program and outside of it. 

Mr. COSTA. Well, can you suggest how we might work on that, 

give that some thought, and I will submit it to you in written 

question? 

Ms. Skaer, before my time is gone, you talked about not 

abandoning—no pun intended—the Good Samaritan process. Any 

words of advice on that? 

Ms. SKAER. Well, I think if you look at S. 1848 from last year 

that passed out of the Senate Environment and Public Works Committee, I think that provides an excellent framework for Good Samaritan legislation that will be effective in getting work done on 

the ground. It needs to work on the ground, and I think that provides the model for the committee to look at. 

Mr. COSTA. OK. My time has expired. The gentleman from New 

Mexico, Mr. Pearce. 

Mr. PEARCE. Thank you, Mr. Chairman. 

Mr. Hanlon, the staff shows me pictures like this when I say, you 

know, what are we really doing on cleanup today, and they will 

show things like this. Is this reflective of cleanups that are really 

happening? 

In other words, you describe and Mr. Ferguson describes a 

project beyond the Animas, but can we say that the industry or 

that the problem is moving this direction rather than having more 

sites that are untouched? Which direction are we going? 

Mr. HANLON. I am not personally familiar with the pace of the 

individual sites. I think there is real progress being made in some 

locations, both under the Superfund program and outside of that 

with some Good Samaritan examples, but again they are just examples. I am not in a position to give you a comprehensive answer 

to that. 

Mr. PEARCE. And again, if I heard you correctly, that Good Samaritan would probably facilitate the cleanup of sites rather than 

make it harder, is that correct? 

Mr. HANLON. Yes, sir. 

Mr. PEARCE. OK. Ms. Skaer, you heard Mr. Lind in the first sentence of his testimony say that the need for reform of the 1872 

mining law is clear, and then goes on to present the problems that 

they are encountering. As I understand it, the permitting actually 

isn’t covered under that law of 1872, that it actually occurs under 

the BLM 3809 regulations and the Forest Service 288 regulations. 

Can you address what has been done by the different regulatory 

agencies and Forest Service, the BLM with regard to those 

permittings and in the minds that previously could have gotten access to mine without sufficient bonding? Can you talk about that 

for me from an industry perspective just a little bit, and the safeguards that are in place now that might not have been in place 

when Mr. Lind’s problems began to occur? 

Ms. SKAER. I think there is a detailed description of this in my 

written testimony. As I said, prior to the 1970s, actually prior to 

NEPA there were no environmental laws, and mines—you know, 

there weren’t even permits required for most industries, not just 

83 

mining, and with the advent of NEPA and the Clean Water Act, 

Clean Air Act, and then the Federal Land Policy Management Act, 

in 1974, the Forest Service enacted their 288 regulations. BLM’s 

were first in 1980. They were significantly updated in 2001, and 

what we have seen, as industry has learned more and as the regulatory agencies and land management agencies have learned more, 

they have modified and adopted their regulations with the increased knowledge. 

So what you have today is a very comprehensive set of regulations that ensure that water quality is protected. Both the Forest 

Service and the BLM, in order to receive your permit, you have to 

demonstrate that your project will comply with applicable state and 

Federal environmental laws. It is incorporated into the regulations 

and unless you can comply with the different environmental laws 

you will not get your permit. 

Industry supports those regulations, and actually, in 2000-2001, 

a lot of changes were made in terms of how bonds are calculated 

so that now financial assurance is calculated so that the cost you 

have to bond for is not the costs that it would be for the mining 

company to reclaim, but what would it cost the BLM or the Forest 

Service or the state if they had to hire a third party contractor, 

paying Davis-Bacon wages, et cetera, and so the bond amounts are 

set now so to make sure that they cover all of the contingencies 

that could occur in the event of a default or a bankruptcy. 

Mr. PEARCE. Mr. Ferguson, do you find varieties in what Ms. 

Skaer is saying, that the agency is much more protected so the burden doesn’t fall on the agency from the problems after these new 

regulations? 

Mr. FERGUSON. I agree with her description. That is the process, 

yes. 

Mr. PEARCE. So the problems that Mr. Lind is experiencing there 

are fixes already in the system that seem to be working much better than the permitting before? 

Mr. FERGUSON. I can’t specifically address those cases he cited, 

but in the current permitting process, we do have those processes 

in place that Ms. Skaer described. 

Mr. PEARCE. As we look at the document here, I will tell you that 

there is probably no one in the Congress more critical of the Forest 

Service, and if you would take back that myself, if you would take 

back that your testimony today feels sound, and we see things that 

are actually happening that should be happening, and they may 

not care but I suspect they will be interested that I am passing 

along positive comments about the Forest Service. So just let me 

give you my compliments for—we are trying to sort through a very 

difficult problem, and the same goes to Mr. Hanlon, for you all, 

that these are extraordinary complex things, and there are people 

who want to drive it to the extreme, that if you don’t get it to perfection, then we are going to be held accountable, and we are seeing there that incremental improvements can be made. The whole 

situation gets somewhat better. 

Mr. Chairman, if we get the second chance, I have one more 

question, but other than that I am pretty well finished. Thanks. 

Mr. COSTA. Well, just a quick question. I know some of you may 

not have the familiarity or the experience on the issue that Ms. 

84 

Skaer relates as related to the bond, but I did have a question before your comment, and maybe you can respond to it. 

Because of the present day requirements for bonds on permitting 

on mines, is it accurate for me to think of it in these terms as a 

layperson for new mines developed for the bonded requirement, 

there is a coverage to clean up the facility afterwards? If the company goes bankrupt, that bond is there to provide the cleanup, is 

that correct? 

Ms. SKAER. That is correct, to ensure that the taxpayer doesn’t 

bear the burden. 

Mr. COSTA. OK. So in my attempt to visualize this into two categories, the problem of which this bill attempts to address one 

issue, and that is a royalty payment that would be first prioritized 

for cleanup, would be the category of abandoned mines that previously did not have a bond requirement. Would that be correct? 

Ms. SKAER. Right, because the mines were—the properties were 

mined and abandoned before there were bonding requirements in 

the regulations. 

Mr. COSTA. So when we are trying to get the size of the breadbox 

in terms of the descriptive on how much cleanup is out there that 

is required, we have to put those into two categories, in essence, 

based upon those that were prior to bonding requirements and 

those that now have bonding requirements. Does it suffice to say 

now that all mines in the United States are required to have bonding requirements before they are allowed all of their permits to go 

ahead? 

Ms. SKAER. Absolutely. 

Mr. COSTA. OK, and it is based upon the criteria that you described a moment ago? 

Ms. SKAER. Yes. Correct. 

Mr. COSTA. Thank you for that. I am going to defer the balance 

of my time to the gentleman from Idaho, Mr. Sali. You will get 

your total five minutes. It is just I am not using all of my five minutes. 

Mr. SALI. Mr. Chairman, I will be very brief. 

Ms. Skaer, I was looking at the end of your written testimony, 

your discussion about Superfund not being the answer, and in 

there you refer to some who are interested in funding Superfund 

again as opposed to working on Good Samaritan legislation. I don’t 

suppose you would want to speak for them, but I would like a better understanding of who is it that would be opposing the Good Samaritan legislation and what are the reasons, if you know? 

Ms. SKAER. Well, I recall last year when S. 1848 was marked up 

in the Senate Environment and Public Works Committee that Senator Boxer from California opposed the Good Samaritan bill, and 

actually stated in the record that she believed that rather than 

enact Good Samaritan legislation that Congress should reauthorize 

Superfund and ensure that there was sufficient monies in there, 

and that that was the appropriate remedy for these abandoned 

mines. 

We completely disagree with that, and I think if you look at all 

of the data that shows that between 80 and 90 percent of these are 

either safety hazards or landscape disturbances, Superfund is a totally inappropriate tool to address those sites. 

85 

Mr. SALI. As you go through your discussion in your written testimony, you make the point that, first of all, the Superfund tends 

to be much, much, much more expensive than the efforts, for example, of the state working in the Silver Valley in Idaho on a couple 

of abandoned mine issues there. But I am struck by your statement 

as well that the difference for abandoned mine lands is that they 

have been abandoned. 

Ms. SKAER. They have been abandoned. There is no owner. 

Mr. SALI. There is no one to identify as a potentially responsible 

party. How would we continue to address that using Superfund for 

a bunch of these abandoned mine lands where, for example, you 

have pointed out they are just safety issues? 

Ms. SKAER. In my view, it would not work. It would totally be 

a waste of money and kind of a circular process to try to find a potential responsible party for a site that, by definition, has no 

owner. It is abandoned. It is orphaned. So it seems to me that a 

better approach is the approach that was laid out in the Good Samaritan legislation of Senator Salazar last year, and also utilizing 

the existing state abandoned mine land programs and the BLM 

and the Forest Service and the Army Corps of Engineers program 

to go out and address these sites. It can be done more efficiently. 

As I stated in my testimony, I am familiar with the Silver Valley 

of northern Idaho. I have testified on these issues. I have visited 

the site, and the State of Idaho working in cooperation with two 

mining companies completely cleaned up, remediated and reclaimed tailings that were in two creeks, 9-Mile and Canyon Creek, 

and they did it for about one-fifth of the cost that the Superfund 

site around Bunker Hill, and so if we want to get these sites 

cleaned up and into the ground and not into the pockets of lawyers 

and consultants. 

Mr. SALI. Mr. Chairman, I was going to yield the balance of my 

time to the gentleman from New Mexico, but I see my time is just 

about up, and I yield back. 

Mr. COSTA. That is OK. The gentleman from New Mexico and I 

have an understanding. He has always got as much time as he 

needs. 

Mr. PEARCE. We are not called to vote until 4:45, Mr. Chairman. 

I really appreciate that. 

Mr. COSTA. Let me amend my statement. 

[Laughter.] 

Mr. PEARCE. OK. First of all, I want to compliment the Chairman 

and the staff. Both panels today have been very effective. Mr. Lind 

adequately talks about the burden on the states for problems. I 

think both agencies are very well represented, and began to talk 

about curing problems, not how can we drive the discussion to the 

extremes, but how do we begin to cure that, and Ms. Skaer’s comments about the dirty pictures of the industry. You know, recognition is the first, I think, step toward a solution, and when I hear 

that, I believe that we are all on the road to where we need to be 

on, rather than just using each other for political points or whatever. So I really appreciate both panels, Mr. Chairman. 

My only question, Ms. Skaer, is going to be to you. I mean, you 

have heard the testimony about the Good Samaritan legislation, 

and again considering the testimony of Mr. Lind, which is very 

86 

compelling with the problems that we have, if the Good Samaritan 

legislation were in place, do you think the Pegasus bankruptcy 

would have occurred or do you think there would have been the 

ability to solve the problem in the format of the Good Samaritan 

legislation that you have referred to? 

Ms. SKAER. Yes, certainly the framework would have been there. 

I do know that of another situation in which several mining companies offered to provide the equipment, provide water treatment, 

provide consulting services to address potential pollution problems, 

but they needed that Good Samaritan protection in order to do it 

because they didn’t want to acquire cradle-to-grave responsibility 

for the site, and that protection was denied, and the site ended up 

becoming a Superfund site. 

So I think that while I don’t have this great crystal ball, I can 

tell you that I believe if Good Samaritan protection was in place 

the ethic that the industry has today to be an environmentally and 

socially responsible industry, you know, it doesn’t do a responsible 

mining company any good to have another site that goes bad, because that site then is going to become the dirty picture that is 

used every time you go to permit a new mine. 

So I think it is in the industry’s—I think the industry would look 

at it as it is in their best interest to come together in a cooperative 

way and address those sites so they don’t become problems. 

Mr. PEARCE. Mr. Chairman, again I find that statement just as 

compelling that there were mines willing to take on the responsibility, and lend their money and expertise to solve a problem, and 

yet they would have become then owners of the full problem, so 

that is an effective picture as well as your missions up front. 

Again, Mr. Chairman, great panel. Appreciate both of these, and 

I yield back. 

Mr. COSTA. Thank you very much the gentleman from New Mexico. I concur with you. We had some excellent testimony this afternoon, both panels. This is, as we say, a work in progress, and so 

we shall be continued. I think we got some greater clarity on the 

different options as it relates to royalties, and how we try to strive 

toward doing something that is fair and equitable, and I want to 

thank the minority staff and the majority staff for their hard work 

in putting this hearing together today. 

I really am going to urge that we try to get a better handle on 

what states are doing and develop that matrix so that the Subcommittee has that information, because there is good work taking 

place in places like New Mexico and Montana, and I know California and Nevada as I witnessed with Congressman Heller, and 

so we certainly want to collaborate in a meaningful way and not 

reinvent the wheel. So we need to get that information at hand as 

well, and we will continue to work at this. 

Thank you very much. The Subcommittee is now adjourned. 

[Whereupon, at 4:27 p.m., the Subcommittee was adjourned.] 

[Additional material submitted for the record follows:] 

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[A statement submitted for the record by the San Xavier District 

of the Tohono O’Odham Nation follows:] 


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38137.006.eps
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38137.007.eps